- BGHZ 69, 53 VIII. Civil Senate (VIII ZR 186/75)
- 25 May 1977
- Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz
- Translated by:
- Mrs Irene Snook
- Professor B.S. Markesinis
In 1961, B., a civil engineering company experienced increasing financial difficulties. In order to save the firm from bankruptcy and to restore it to financial soundness, the defendant became involved in it financially and managerially. By transforming the one-man company B. into a GmbH & Co. KG (limited liability company)( hereafter called: the KG), he acquired 51% of the shares in the limited company in June 1962 and 51% in the unlimited partnership forming part of the company.
From August 1962 the defendant tried to sell his shares in the KG. He offered these to the claimant and presented him, during sales discussion, with the KG's "consolidated accounts for 31 August 1962" which showed a profit of DM 10, 444. As a result, the claimant , by contracts of 21 February 1963, acquired from the defendant various shares totalling DM 1,090,500.
By this action, the claimant demands from the defendant damages amounting to a partial instalment of DM 1,750,000. As a reason for the claim the claimant stated that the defendant, by forging the true financial situation as of 31 August 1962, had in bad faith pretended that the KG had already made a profit, though a small one, and was thus out of the red, although in reality the company at that time was suffering considerable and continuously growing losses with the result that the claimant could only save the company by "financial injections" amounting to nearly DM 8 million and by taking over or paying sureties of more than DM 3 million. As late as directly before conclusion of the contract, the defendant, according to his own admission, had on request guaranteed that the company's financial status as shown per 31 August 1962 was unchanged. With full knowledge of the company's actual financial and profit situation, the claimant would not have agreed to participate in the company.
The defendant denies having deceived the claimant. The KG's financial improvement, apparent since August 1962, could soon have resulted in the company's profitability if the claimant had made sensible and sufficient capital investments. In addition, the claimant, who through the KG had later on gained orders in excess of DM 200 million, had from the start only intended to gain a foothold in the Southern German market through its shares in the KG.
The Landgericht has rejected the claim, the appeal court has ordered the defendant to pay DM 705, 018. 32. The further appeal of both parties results in a partial quashing of the appeal court's judgment and a referral back to that court for further investigations.
1. The appeal court held that there is insufficient evidence for the claimant having intentionally been deceived by the defendant, but it acknowledged in principle the claim for damages for reasons of culpa in contrahendo. The KG's consolidated financial statement as of 31 August 1962, on which the claimant first and foremost based his decision to acquire the shares, had been drawn up incorrectly and in contravention of the rules on proper balance sheet procedures by employees of the defendant for whose conduct the latter is liable. The main errors concerned the assessment of stocks, semi-finished articles and write-offs. As convincingly stated by the expert Dr. K., it would have been correct to show a loss of DM 473,714. 10 instead of a profit of DM 10, 444 which indicated a more positive trend. Moreover, the defendant, when questioned directly before conclusion of the contract, asserted to the person conducting the discussions on behalf of the claimant that the KG's financial situation had not appreciably changed since 31 August 1962, although the balance sheet prepared by him for 31 December 1962 already showed a loss of DM 960, 077. 05, which had even been calculated by an expert as amounting to DM 1,522, 204. 53. The defendant could not have failed to notice these negative developments, since he had made numerous attempts to contain the KG's losses.
2. These findings of the appeal court withstand the defendant's arguments raised in his further appeal, at least as there result is concerned … (further deliberations).
1. In respect of the amount of damages due, the appeal court has only decided in favour of the claimant up to a total of DM 705, 018.32 plus interest. The claimant failed sufficiently to substantiate that he suffered damages from taking over or paying for sureties. Insofar as he alleges that, between 1 March and 30 June 1963, i.e. before realising the defendant's illegal actions and in order to avoid a financial collapse of the KG, he "financially injected" the company with funds totalling DM 7, 945, 000 , the claimant , while sticking to the contract, must allow that his possible claim for compensation is reduced by way of offsetting losses and advantages, by those amounts of profit which he later on derived from the KG. According to the defendant's unopposed submissions, it must be presumed that the alleged "financial injections" were counterbalanced by an at least equally high profit which needs to be taken into account. On the other hand, the claimant can demand compensation for the "funds needed for topping up the balance sheet" (Bilanzauffüllungsbetrag), i.e. the amount of DM 1, 532, 648.53 required to be spent in order to raise the balance from a loss of DM 1, 522, 204. 53 which in fact existed when the contract was concluded, to a profit margin of DM 10, 444, which could be expected according to the declarations made by the defendant. The claimant can thus demand from the defendant, from whom he has only acquired 46% of the KG's share, payment of DM 705, 018. 32 which , under the rules of fairness, cannot be offset by the profit made through the KG at a later date.
2. It appears that these findings are influenced by a legal error.
a) The appeal court correctly presumes that a person who has experienced losses from culpa in contrahendo can claim compensation for his damage caused by breach of trust, which itself is however not limited by his interests in the performance of the contract but can, in specific cases, then exceed those interests (RGZ 151, 357, 359; 159, 35, 55 et seq.; BGHZ 57, 191, 193). The party experiencing damage can thus demand to be put into the same position as he would be in had the illegal action not taken place (see in respect of this point Alff in BGB-RGK, 12. ed. para. 276, margin no. 111 with further references). In view of the multiple forms which culpa in contrahendo can take, exactly what kind of damage is capable of compensation depends, as Nirk correctly points out (Festschrift für Möhring zum 65. Geburtstag, p. 385 et seq, 398 et seq.), on the causal link between the damaging conduct and the specific damage which occurred in each particular case (see also ibid in: Festschrift für Möhring zum 75. Geburtstag, p. 71 et seq., 86 et seq.).
b) The current case belongs to the typical cases in which a contract would not have been entered into without the damaging conduct, i.e. the incorrect statement as to the losses at the time when the contract was signed. As part of this assessment of the facts, the appeal court comes to the legally correct conclusion that the claimant would not have decided to buy the shares from the defendant if he had known that, at the time of signing the contract, the balance sheets showed a loss of DM 1, 522, 204.53. The court bases its findings on the witnesses H. and Dr. Sch., according to whose statements the company would even have failed to prevent, in respect of the single project Th. losses exceeding DM 200, 000. Under these conditions and by mutual reversed transactions in respect of the contract, damages are in principle to be calculated according to the expenditures needlessly made by the damaged party while trusting in the correctness of the information given by the damaging party (see Erman/Battes, BGB , 6. ed., para. 276, n. 112).
c) But the case here under consideration is special insofar as the buyer wishes now to stick firmly to the contract which he would not have entered into if he had initially known the true circumstances. He does this either because he thinks such course of action to be sound economically or because at the time, when he became aware of the seller's untrue statements, he had already integrated the acquired enterprise so deeply into his own group of enterprises that reversing the transaction could only be achieved with very great difficulties. In such a case, the above-mentioned method of calculating the damage can not lead to a just determination of the damage to be compensated for if only because a retransfer of both parties' performances does not come into play. And as the appeal court rightly states, under these circumstances, the claimant would have to agree to an offsetting of his expenditures incurred in the form of the so-called "financial injections" against his unquestionably much higher profits gained from the KG. Under this method of calculation no damage would be compensated, although the claimant, looking at the deal objectively and with hindsight, has spent more capital for the acquisition of the KG's share than he would have had to find if he had known fully the true financial situation. Finally, the appeal court, based on the statements made by the witness Dr. Sch. correctly holds that the claimant had already planned to invest more capital into the KG in order to avert further losses, with the result that no safe delineation can be made between such investment and the "financial injections" which, according to the claimant's submission, had become necessary due to the KG's high losses unknown to him when he concluded the contract
d) If one aims at all sensibly to ascertain the damage incurred, where the buyer wishes to stick to the contract, he must be treated as if he had succeeded in full knowledge of the true facts in concluding the contract for a much more favourable price (see also RGZ 103, 47, 51; 132, 76, 79); there is then no need for any hypothetical proof, which can anyhow hardly be obtained, that the seller himself would have agreed to conclude a contract given these new conditions. Here, damage is the amount which the claimant overspent when buying the defendant's share in the KG, because his trust in the truth of the financial statements made had been abused.
e) In its deliberations in respect of the so-called "funds needed for topping up the balance" the appeal court proceeds from similar considerations, but it fails to see that the damage is not necessarily equivalent to the mere difference between the profit shown in the balance (DM 10, 444) and the actual losses as they should have been shown (DM 1, 522, 204.53). For a potential buyer's assessment of the value of company shares multi-layered considerations can be decisive, i.e. the net value of tangible assets, earning power, possibilities for a profitable employment of the company within the buyer's own group of enterprises, etc.; and these considerations are not always expressed in the profit and loss balance. On the basis that the claimant thought DM 1, 090,500 to be an adequate purchase price, given the company's submitted consolidated financial statements, the appeal court should thus have ascertained, by an assessment made under para. 287 ZPO, what purchase price for the shares to be acquired from the defendant would in fact have been reasonable in the light of the losses of DM 1, 522, 204. 53, shown in the balance sheets. The appeal court needs to rectify this omission, preferably by use of an expert. The difference between the amount thus established and the agreed purchase price is the actual damage for which there must be compensation. Profits later made from the KG cannot be offset against these damages by way of an equalisation of advantages, since in this respect the necessary "inner connection" is lacking (see in respect of this point Larenz, Schuldrecht, 11. ed., vol. I, p. 417 et seq.) between the gains which the claimant would have derived from the existing contract, but in any case through his own entrepreneurial skills, and the excessive purchase price obtained through false balance of account statements.
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