The defendant, a doctor who had fled from the Soviet zone, wanted to set up a practice for himself in the Federal Republic at the start of 1956. He formed an association with the firm R KG which at that time sold medical apparatus and practice equipment. Mrs R was a personally liable member of this firm and her husband Peter was director and authorised signatory.

The firm R has since become insolvent and several proceedings for deceit were commenced against Peter R.

On the 7th January 1956 the defendant ordered medical apparatus and equipment from the firm R for 12,354 DM. In this connection he signed three loan application forms which Peter R had submitted to him. In each of these applications he declared that he had bought "medical equipment and commercial goods" for 12,354 DM from the firm R on the 28th November 1955 and to have made a payment which he stated, in the application which the claimant later received, to be 2354 DM, and 3345 DM in the two other applications. For the remainder of the purchase price, he applied in all three applications for a loan repayable by instalments as well as its transfer "in the amount of the remainder of the purchase sum to the vendor firm or to the address named by it". The application which reached the claimant also contains the sentence: "The objects purchased are at my practice premises".

The form for the loan applications has the name of the firm R at the top of the left hand side. The name of a determined finance institution does not appear in the loan applications. The loan conditions are printed on the back of the form. They state, amongst other things:

"As against the bank, the borrower can only raise objections (Einwendungen) on the basis of the loan contract. The raising of other objections eg on the basis of the purchase contract because of complaints about defects, non-delivery of the objects purchased etc. is expressly forbiden".

At the same time as the three loan applications, the defendant signed and handed over to Peter R. three confirmations of receipt of delivery in the same terms on three special pieces of paper which were separate from the loan applications. In these he confirmed that he had "taken possession" of certain medical instruments and equipment which were listed in detail in the confirmations of receipt with prices and with a total price of 12,354 DM.

The defendant also signed and delivered to Peter R three further documents in the same terms of "disclosure by the purchaser" which he likewise wrote on forms of the firm R presented to him by Peter R.

Finally he handed over to Peter R a number of bills of exchange, accepted by him, the defendant, for a total of approximately 36,000 DM.

The defendant's confirmations of receipt were untrue in their content. The firm R had not yet delivered anything to him on the 7th January 1956 in respect of his order which was placed for the first time on this day for the single sum of 12,354 DM.

Peter R submitted for the firm R one copy each of the loan contract, the confirmation of receipt of delivery and the disclosure by the defendant with a number of the defendant's bills of exchange to the claimant and to the two further banks financing payment by instalments. The claimant received in this connection 24 acceptances of the defendant's bills of exchange for a total of about 13,600 DM and the two other banks received acceptances by the defendant for 11,325 DM each.

The claimant worked at that time with the firm R on the basis of a framework contract of the 24th October / 7th November 1955 on instalment financing. Accordingly the claimant paid 7,000 DM by cheque to the firm R on the basis of the defendant's loan application delivered to it by that firm. It did not pay out the further 3,000 DM of the remainder of the purchase price of 10,000 DM, but it either credited it - and this is no longer disputed - to a blocked account which the firm R had with it or set it against its own claims which it had against the firm R.

The claimant sent to the defendant on the 20th January 1956 with reference to the loan contract a list of his acceptances of bills of exchange which the claimant had, with due dates.

In the ensuing period the firm R only supplied the defendant with goods for around 3,500 DM. The defendant thereupon honoured only the first of the bills of exchange in the claimant's hands. This was for 404.28 DM and was due on the 1st March 1956. He refused to make further payment to the claimant.

The claimant has made a claim against the defendant for payment of the bills of exchange or for repayment of the loan (the final sum being 11,998.46 DM together with interest) simultaneously with the handing over of the bills of exchange in its possession.

The defendant has applied for the rejection of the claim; and subsidiarily only to allow it simultaneously with release of his possible obligations to the two other banks financing payment by instalments mentioned above.

The defendant disputes having concluded a loan contract with the claimant. He has claimed that the firm R had promised him to deliver to him the instruments and practice equipment from its own means against instalments for 20,000 DM and besides this to grant him a cash credit of 80,000 DM.

The defendant has avoided the possible loan contract with the claimant on the ground of deceit by Peter R and on the ground of mistake. He considers that he can raise against the claimant the argument that the firm R had only supplied him with a small part of the goods and that he had withdrawn from the purchase contract with this firm. He has raised a set off in respect of claims against the claimant which the firm R had transferred to him and has claimed the right of retention which is apparent from his application.

The Landgericht has rejected the claim, but the Oberlandesgericht has allowed it almost to its full extent (11,767.67 DM together with interest). The defendant's appeal in law led to quashing and reference back.

Reasons:

I...

II. The defendant has avoided the purchase contract with the firm R and the loan contract with the claimant on the grounds of deceit by Peter R.

The Bundesgerichtshof has in its decision BGHZ 20, 36 (which likewise concerned a financed credit purchase) regarded an avoidance of this kind as effective in spite of lack of knowledge on the part of the lender about the deceit, because the seller was not to be regarded as a third party in the sense of § 123 (2) of the BGB in the circumstances in that case.

The appeal court is of the view that the case now to be decided was of a substantially different nature. It therefore considers the avoidance (without examining the other prerequisites for it) to be unfounded here simply because Peter R was a "third party".

The appeal in law challenges this view.

The objection is well founded.

1. The Bundesgerichtshof has stated as follows in its decision mentioned above. In a financed credit purchase, the purchase and the loan are economically so closely associated with each other that their legal independence would be meaningless for the purposes of § 123 of the BGB at any rate if (1) the lender had left it to the seller within the framework of a permanent business connection to fill up and submit the applications for credit and (2) the seller and the lender as a result of these arrangements did not appear to the purchaser with sufficient clarity as two separate business partners legally independent from each other. Any purchaser approached would as a rule see the seller at least as also an agent or representative of the lender and in any case a person trusted by him. The fact that in that case the seller used forms provided by the lender with the lender's heading on them argued in favour of this; and even more strongly the fact that the seller had to a quite substantial extent handled credit transactions with the lender within the framework of a permanent business relationship and had thereby simultaneously promoted the lender's business interests.

2. The present case certainly demonstrates a number of differences in comparison with the one then decided. The present defendant as a doctor has an advanced education and social position. Peter R placed before the defendant forms which did not include the claimant's description and which the firm R, according to the defendant's own assertion, had not received from the claimant but had had copied from one of the claimant's forms. The business connection between the claimant and the firm R had only existed in the present case for about two months.

3. These differences cannot however justify the view of the appeal court that Peter R, acting for the firm R, would have to be regarded here as a third party in the sense of § 123 of the BGB.

a) The crucial point is - and in this respect the state of affairs here is the same as in the case decided in BGHZ 20, 36 - that the claimant, by concluding the framework contract of the 24th October / 7th November 1955, has commenced a permanent business connection with the firm R. The purpose of this was to handle loan applications brought in by the firm R in the course of instalment financing. The claimant has thereby provided the firm R and therefore also its director Peter R with the opportunity to appear to purchasers who seek credit for an instalment purchase as persons trusted by "the financing bank".

This business connection arranged on a permanent basis (as here, and as for example with commercial agents entrusted with the negotiation of transactions (§ 84 (1) of the Commercial Code)) creates the essential difference from those cases in which a broker has been brought in. The broker is not as such in any permanent contractual relationship with his client; he may be a third party in the sense of § 123 of the BGB (reference omitted). On the other hand the Reichsgericht has not regarded a negotiating agent (Vermittlungsagent) (insurance representative) as a third party (references omitted).

b) The fact that in the present case the forms presented to the defendant by Peter R do not originate from the claimant and do not describe the claimant by name is not of decisive importance. The judgment in BGHZ 20, 36, 41 took into account not so much this circumstance as the fact of the permanent business connection between the financing bank and the seller.

If the opposite legal view were taken, the financing bank could elude an avoidance by the buyer simply by leaving the provision of the contractual form to the seller and not letting the description of its firm be included in the forms.

c) It is also not decisive that the defendant did not yet know the claimant by name when he signed the form, because according to the findings of the appeal court (which are not challenged by the appeal in law) he knew that the credit would not be or at least reckoned on it the possibility of it not being granted by the firm R itself, but by a bank having a business connection with the firm R. He thus placed confidence in the co-operation of this bank (in the present case, of the claimant) with the firm R and such co- operation in fact existed under the framework contract of the 24th October / 7th November 1955. This trust is to be protected, and therefore the seller is not to be regarded as a third party in the sense of § 123 of the BGB when such a permanent business connection exists between it and a financing bank, no matter whether the buyer already knows the name of the bank when he signed the loan application.

d) The extent to which the buyer deserves to be protected cannot depend decisively on the factual length and the scope of the business connection between the financing bank and the seller. It suffices that the business connection between the bank and the seller was not merely occasional but permanent, which applies here according to the framework contract.

e) The fact that the defendant, according to the findings of the appeal court, has himself in a certain respect acted with gross negligence and possibly even deceitfully (which must be investigated in another connection) is not inconsistent with an avoidance by the defendant under § 123 of the BGB (references omitted).

f) Finally the defendant's higher level of education and status in comparison with the case decided in BGHZ 20, 36 cannot justify a contrary decision. The fact that the defendant, in the light of the content of the forms, has recognised the division of the transaction into a purchase contract and a loan does not exclude him having, on the basis of the permanent business connection between the bank (the claimant) and the firm R, regarded this firm, and therefore its director Peter R, as a person trusted by the bank, which indeed he was in reality.

4. The appeal court ought not after all this to have rejected the avoidance of the loan contract on the basis that Peter R was a "third party". It ought therefore to have examined whether the prerequisites for avoidance of the loan contract by the defendant were present, and this has not so far been done.

Simply on this ground the disputed judgment must be quashed and the case must be referred back to the appeal court.

III...

IV...

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