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II BGB it is stated that, in case of doubt, the debtor shall remit money at his own risk and expense to the residence or place of business of the creditor. At first sight, this provision gives the impression that money debts must, as a rule, be regarded as Bringschulden. This would be in keeping with the rule prevailing in English law (see Goode, Commercial Law (3rd edn, 2004), p 393). However, this provision concludes with a last paragraph which destroys this illusion: ‘The provisions relating to the place of performance (Leistungsort) remain unaffected’ (§ 270 IV BGB). Therefore, in German law money debts are Schickschulden of a special kind. The debtor takes the risk that the money will get into the hands of the creditor. If it is lost due in the post or through a failure of the bank engaged in the process of transmission, the debtor must make another effort to fulfil his payment obligation. However, a mere delay in the transmission of the money could not be blamed on the debtor, provided always that the cheque was posted in time, or the transfer order was made in due course (RGZ 78, 137, 140; RGZ 99, 257–8).

The practical upshot of the German rules contained in § 270 IV BGB is this: an unpaid creditor must bring his action against the defaulting debtor at the debtor’s place of residence or, as the case may be, at the debtor’s place of business (§§ 12, 13, 29 of the Code of Civil Procedure, ZPO). However, in cases containing foreign elements the reasoning is more complicated. Thus, Article 5(1)(b) of the Council Regulation 44/2001/EC on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (replacing the 1968 Brussels Convention on Jurisdiction and Recognition of Judgments, and applying directly in the national legal systems of all Member States to determine such jurisdictional questions) states that, in the case of the sale of goods, the place of performance of the obligation in question is the place in a Member State where, under the contract, the goods were delivered or should have been delivered. In the case of the provision of services the place of performance is the place in a Member State where, under the contract, the services were provided or should have been provided. This also applies to the obligation to pay the price of the goods or for the service; ie a single forum is established for all the (main) obligations arising under a contract. (The previous practice of the ECJ relating to the Brussels Convention, namely that the court seised of the case would have to determine the place of performance according to the lex causae (case 12/76, Industrie Tessili Italiania Como v Dunlop AG [1976] ECR 1473) no longer applies.)

4. PERFORMANCE THROUGH THIRD PARTIES

Von Caemmerer, ‘Verschulden von Erfüllungsgehilfen’ in Festschrift Hauß (1978) 33; von Caemmerer, ‘Bereicherungsansprüche und Drittbeziehungen’ JZ 1962, 385; Canaris, ‘Der Bereicherungsansgleich im Dreipersonenverhältnis’ Festschrift für Karl Larenz (1973) 799; W Lorenz, ‘Gläubiger, Schuldner, Dritte und Bereicherungsausgleich’ AcP 168 (1968) 286; W Lorenz, ‘Work on Goods and Building Contracts’ in International Encyclopedia of Comparative Law, VIII (1980) chapter 8, 30 et seq (concerning sub-contracting in the building industry); S Lorenz, ‘Bereicherungsrechtliche Drittbeziehungen’ JuS 2003, 729, 839; Metzler, ‘Zur Substitution, insbesondere zu ihre Abgrenzung von der Erfüllungsgehilfenschaft’ AcP

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159 (1961) 143; E Schmidt, ‘Zur Dogmatik des § 278 BGB’ AcP 170 (1970) 502; Thomä, ‘Tilgung fremder Schuld durch irrtümliche Eigenleistung?’ JZ 1962, 623.

(a) Preliminary Observations

The basic rule is that a third partly may also make performance if the debtor does not have to perform in person. The approval of the debtor is not necessary, but the creditor can refuse the performance if the debtor objects (§ 267 BGB). Before going on to explain the operation of this rule, it is necessary to say a word about its exceptions and to draw attention to certain fact-situations and legal institutions which must be distinguished from § 267 BGB.

Whether or not the debtor has to perform ‘in person’ depends on the nature of his obligation or on the intention of the parties. Several provisions in the special part of the law of obligations contain examples of such contracts which, as a rule, are concluded intuitu personae. Thus, in contracts for service, the employee must in case of doubt perform his service in person; and the claim for service is in case of doubt not transferable (§ 613 BGB). (The position in English law on contracts of service is very similar: see eg, John McCann & Co v Pow [1974] 1 WLR 1643 at 1647 (an estate agent instructed to find a buyer for a house) and generally, Treitel, The Law of Contract, pp 756–7.)

It is different in the neighbouring field of contracts for work and labour where no analogous provision exists in the Code. Therefore, it is permissible to conclude that this restriction does not apply there. This means that a contractor may employ servants in order to execute the work, but it is necessary to distinguish such employment of servants from the further question whether and to what extent the contractor may be allowed to delegate performance to a sub-contractor. However, even in contracts for work and labour, there are of course situations in which personal performance is required stricto sensu although the parties did not make an express stipulation to this effect. Thus, a contract with an artist to paint a portrait or to model a bust will normally be concluded intuitu personae. (Compare the perhaps extreme English case of Robson v Drummond (1831) 2 B & Ad 303; 109 ER 1156, where the defendant’s promise to paint and keep in repair a carriage for a five-year period was held not to be one the performance of which could be delegated to his partner.)

Other similar cases where the BGB has laid down rules of construction to the effect that a personal obligation exists can be found in the contract of mandate (§ 664 BGB), the contract of deposit (§ 691 BGB), and the obligations of the managing partner in a partnership which are determined by reference to the provisions applicable to mandate, unless a contrary intention appears from the contract of partnership (§§ 713, 664 BGB).

(b) Vicarious Performance: Sub-contracting and Substitution

So far as sub-contracting is concerned, English law essentially adopts principles similar to those found in the BGB. The leading case of British Waggon Co v Lea & Co ((1880) 5 QBD 149) may serve as an example for this proposition.

In that case the plaintiff, a wagon company, had let to the defendant a number of railway wagons for a term of years at an annual rent, the agreement providing that the plaintiffs should during the term keep the wagons in repair. When the plaintiff

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company was wound up, the liquidators entered into a contract with another company who took over the repairing stations of the plaintiffs and henceforth executed all necessary repairs to the wagons. The plaintiffs’ action for the full rent succeeded, for repair of the wagons by the company with whom the sub-contract had been made was a sufficient performance by the plaintiffs of their agreement to repair. The judgment turns on a careful construction of the contract. If it can be inferred that the contractor was selected with reference to his individual skill, competence or other personal qualifications, sub-contracting is not permissible. But in the present case Cockburn CJ reached a different result, because it appeared extremely unlikely that in stipulating for the repair of these wagons the defendants attached any importance to the identity of the party who would do the repairs (ie, whether the repairs were done by the company, or by anyone with whom the company might enter into a subsidiary contract to do the work).

In this context, it is necessary to add a warning against terminological confusion which may be caused by an indiscriminate use of the word ‘assignment’. Vicarious performance is clearly distinguishable from assignment. Therefore, it must be emphasised that the delegation of the obligation to perform by way of sub-contracting does not relieve the original contractor of his own obligation to achieve the promised result. There is no ‘assignment of contract,’ but the contractor has merely chosen vicarious performance by a sub-contractor. It follows that no direct contractual relationship between the employer and the sub-contractor comes into existence. Express or implied authority to employ a sub-contractor and the assignment of the contractual obligation, like the assumption of debt (Schuldübernahme, §§ 414–419 BGB) are therefore distinguishable. Such an assignment of liabilities would require the employer’s special consent, which is not normally implied in the permission to employ a sub-contractor. (On the general position in English law, which is very similar, see Treitel, The Law of Contract, p 758.)

One final warning must be added with respect to the special rules prevailing in civil law systems which are unhampered by the common law doctrine of consideration and which, therefore, recognise a gratuitous contract by which one party undertakes to do something on behalf of the other without receiving a quid pro quo, ie mandate (Auftrag, §§ 662–76 BGB). The mandatary may then either expressly or impliedly be permitted to substitute another person for himself (§ 664 BGB). There are two possibilities of bringing about such ‘substitution’. Either the mandatary acts in the name of the mandator when transferring the execution of the mandate to a third party (ie, the substitute), or he does so in his own name. In the first case a direct contractual relationship between the mandator and the substitute comes about. This means that the substitute may become liable vis-à-vis the mandator for breach of contract. In the latter case the situation is somewhat complicated. In the absence of a contract between the mandator and the substitute, the mandatary would be entitled to claim damages on behalf of the mandator under the principles governing Drittschadensliquidation (discussed in chapter 4, section 4, p 216). As for the liability of the mandatary, the BGB states that he is responsible only for fault imputable to him in making such transfer (§ 664 I 2 BGB: liability for culpa in eligendo). This clearly shows the difference between sub-contracting and substitution.

The normal consequence of sub-contracting is that the main contractor remains fully liable for the workmanlike performance of his contractual obligation and he

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cannot exculpate himself from this liability by pleading lack of fault in selecting a particular sub-contractor, a plea usually open to the mandatary if substitution was allowed (RGZ 161, 68 dealing with the different effects of substitution and subcontracting with respect to liability). By contrast, § 278 BGB states that a contractual ‘debtor’ is responsible for the fault of persons whom he employs in fulfilling his obligation, ‘to the same extent as for his own fault.’ It thus imposes on the debtor ‘strict’ vicarious liability for faults of the persons he uses in the course of fulfilling his contractual obligations. The possibility of exoneration, which can be found in § 831 BGB or if substitution is allowed, is absent in this case. Moreover, the terms used in § 278 BGB, namely ‘contractual assistant’ (Erfüllungsgehilfe), suggest that the debtor’s liability may cover the faults of persons whom he uses in the performance of these obligations, but who may not, strictly speaking, be his ‘servants’ (in the sense of § 831 BGB, Verrichtungsgehilfe). Sub-contractors employed for the purpose of fulfilling the obligation that the main contractor owes towards his employer typically are ‘contractual assistants’ in the sense presupposed by § 278 BGB. (See for a commentary on § 278 BGB also, The German Law of Torts, pp 703–5.)

An illustration is provided by RGZ 87, 64, case no 110. In this case, passengers in a taxi were injured in a collision between the taxi and a tram. The contract of carriage was concluded not with the taxi driver but his employer (incidentally, the contract was construed as a contract in favour also of the wife and the daughter of the contracting party, § 328 BGB). The employer was held responsible for the fault of the driver according to § 278 BGB. Note that the actual claim was brought by the tram company, which had indemnified the passengers against their loss, by way of subrogation. In this case, the ‘sub-contractor’ was employed to carry out the very task which constituted performance of the main contract. The principle of vicarious liability applies with full force to this situation. For the sake of completeness it should be noted, however, that where the ‘sub-’contract was concluded merely in preparation of the performance the principle does not generally apply. Thus, for instance, the producer is not regarded as the ‘contractual assistant’ of the seller of the product (eg, BGHZ 48, 118, 120).

(c) Sub-contracting in the Building Industry

In the building industry, the steady growth of specialisation has led to the widespread use of sub-contracts involving not merely the supply of materials, but the doing of substantial work. Although the Roman locatio conductio operis did not merely cover work on goods, but comprised also the erection of buildings, the codifications in the civil law countries, while following the Roman law model, largely ignore the special conditions under which construction work on land is carried out in modern times. Therefore, only a very few specific rules dealing with this subject matter are to be found in the BGB.

The gap thus left by the legislator has been filled by the parties. Since most of the provisions on contracts for work and labour are not mandatory, professional groups and other associations in the building industry were free to introduce what has aptly been called the ‘self-made law of industry’ (selbstgeschaffenes Recht der Wirtschaft). Certainly this is not ‘law’ in terms of a theory of sources of the law, but the term describes a sociological fact of considerable importance. Of course this does not mean

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that there is unlimited freedom of contracting in this area of the law, for the courts have become increasingly aware of the necessity to control general conditions of contract emanating from powerful groups of society. (See, more generally, the discussion in chapter 3, p 163.)

This applies with particular force to the law of liability for defective construction work. In this context it should, however, not be overlooked that the state and other financially potent corporate bodies are also in a position to make use of contractual freedom. Since their power as employers may easily supersede the power of competing contractors, there is also the phenomenon of the employer who ‘dictates’ general conditions for construction and building contracts. In Germany, the General Conditions for Construction Works (Verdingungsordnung für Bauleistungen = VOB) is a typical example of a private codification which is not infrequently used where the state or a municipal corporation is the employer. It was drawn up by the Deutscher Normenausschuß (Standards Association of German Industry) and has constantly been adapted to modern needs and the relevant case law during the past seventy years of its existence. Compared with the standard conditions issued by various organisations in other branches of industry, which tend to make an excessive use of freedom of contracting to their own advantage, the draftsmen of the German VOB have tried to strike a balance between the diverging interests of contractors and employers. The guiding motives were promotion of competition and prevention of acts in restraint of trade.

The first question to be answered in the context of sub-contracting in the building industry concerns the extent to which it is regarded as permissible. If specialisation in the building industry were the only legitimate reason for concluding sub-contracts, it would follow that a contractor might employ a sub-contractor only for such parts of the work for which he himself was not sufficiently qualified. Indeed, this is also the principle on which the German VOB is based: the contractor has to perform the works in his own enterprise. This means that he must not sublet the contract works as a whole. Moreover, even parts of the works may only be sublet on two alternative conditions.

First, the contractor needs the written authorisation of the employer (§ 4 No 8 para1 sentence 2 VOB/B). The main reason underlying this provision is that the employer must be protected against the risk that the contractor selects an incompetent or inefficient sub-contractor.

Secondly, sub-contracting is permissible without the consent of the employer if it concerns such special works which are outside the field of works normally executed by such a contractor (§ 4 No 8 para 1 sentence 3 VOB/B). There is however an agreement that this exception must be narrowly construed, because a contractor should in principle undertake only such works for which his enterprise is suited both as regards quality and quantity (see Staudinger-Peters, § 633 Rn. 151). Since the employment of such a sub-contractor amounts to vicarious performance of the contractor’s obligation vis-à-vis the employer, the contractor remains fully liable for the workmanlike performance of the work carried out by his sub-contractor (§ 278 BGB). This problem has already been dealt with in the more general context of sub-contracting (above (b)) and the situation is the same in the area of building contracts.

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(d) Payment of Another’s Debt

The basic rule laid down in § 267 BGB has already been introduced (above (a)). This rule has no parallel in English law because in German law a debt can be discharged by the payment of a third party even though the debtor had not authorised such payment. (For English law see eg, Birks and Beatson, ‘Unrequested Payment of Another’s Debt’ (1976) 92 LQR 188; Friedmann, ‘Payment of Another’s Debt’ (1983) 99 LQR 534; Goode, Commercial Law (2nd edn, 1995), pp 564–5; Goode, ‘The Bank’s Right to Recover Money Paid on a Stopped Cheque’ (1981) 97 LQR 254; Beatson, ‘Unrequested Payment of Another’s Debt’ chapter 7 in The Use and Abuse of Unjust Enrichment (1991) and Treitel, The Law of Contract, pp 755–6. These last two references suggest that it is an open question whether payment without the debtor’s knowledge or consent can discharge the debt.) Moreover, the creditor’s consent is not required. This means that he—the creditor—would be in default if he did not accept this payment. (Mora creditoris = Gläubigerverzug, § 293 BGB. For the consequences of this, see chapter 9, p 411.) The creditor can refuse the performance only if the debtor objects (§ 267 II BGB)—a case which is not likely to occur.

Where the third party has a special interest in paying another’s debt however not even the joint objection of the creditor and the debtor can prevent the third party from intervening (§ 268 BGB). Suppose the creditor levies compulsory execution on an object belonging to the debtor, but as a result of the execution a third party incurs the danger of losing a right in the object. This entitles the third party to satisfy the creditor. The same right is granted to the possessor of a thing if he incurs danger of losing possession through the execution. Satisfaction entails assignment by operation of law of the creditor’s claim to the payer, who thus becomes entitled also to securities and priorities of the original debt (cessio legis, §§ 268 III, 412, 401 BGB).

Before discussing the practical operation of the basic rule (§ 267 BGB) with its possible restitutionary consequences, it is necessary to draw attention to a number of neighbouring legal institutions which cannot be ignored in the present context even though they are distinguishable from § 267 BGB both as regards their dogmatic structure and their scope of application.

First, there is the so-called Erfüllungsübernahme (§ 329 BGB). If, in a contract between P and D, one party (P) binds himself to satisfy the creditor (C) of the other party (D) without assuming the debt (cf §§ 414 et seq BGB), it is not to be presumed, in case of doubt, that the creditor (C) shall acquire a direct right to demand satisfaction from him (P). This provision is one of the rules of construction laid down in the context of contracts for the benefit of third parties (§§ 328 et seq BGB, discussed in chapter 4, section 2, p 186). The legislator points out that such a promise by P vis-à- vis D does not, without more, amount to a genuine contract for the benefit of a third party (echter Vertrag zugunsten Dritter). The affinity with the situation underlying § 267 BGB is obvious: payment by P discharges D’s debt; but there remains the difference that this payment was not requested by C from P.

This may be relevant when it comes to a problem of restitution which arises if it turns out that C had no valid claim against D. Can P claim the money back from C because the payment failed to achieve its purpose, viz the discharge of a debt owed by D? If this were denied the alternative would be that C is unjustly enriched at the expense of D who, in turn, would be obliged to compensate P. The present authors

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favour the first solution in German law (while noting that it would also seem to be achievable in England on the ground of mistake under the law of restitution). Nonetheless, it must be admitted that in the German legal literature there is some controversy about the correct solution. The Bundesgerichtshof seems to prefer the second solution, but so far there is only an obiter dictum to this effect (BGHZ 72, 246, 249. For details see Staudinger-Werner Lorenz, § 812 Rn. 45 with further references).

Secondly, a debt may be assumed by a third party (P) by agreement with the creditor (C) in such manner that the third party takes the place of D, the former debtor (Schuldübernahme, §§ 414 et seq BGB). If the assumption of the debt is agreed on between P and D, the validity of the transfer depends on the ratification of C (§ 415 I 1 BGB; see also, in English law, Walter v James (1871) LR 6 Ex 124, at 127). This legal institution has its main function in the context of mortgage debts. Thus, if the purchaser of a piece of land, by agreement with the vendor, assumes a debt which is secured by a mortgage on the land, the creditor may ratify the assumption of the debt provided the vendor informs him. However, if six months have elapsed since receipt of the communication, ratification is deemed to have been given, unless the creditor has refused it to the vendor within such period (§ 416 BGB). This is one of the rare cases where silence amounts to approval.

Assumption of another’s debt is, of course, distinguishable from § 267 BGB because P now pays a debt which, strictly speaking, has become a debt of his own. Nevertheless, when it comes to the defences of P and their restitutionary consequences there is a large area of agreement between the two cases. Therefore, the person assuming the debt (P) may raise against the creditor (C) all defences arising from the legal relationship between C and the former debtor (D). On the other hand, it is clear that P may not raise any defences against C originating in the legal relationship between himself and D on which the assumption of debt is founded (§ 417 BGB). It follows that C would be unjustly enriched at the expense of P if it turned out that C had no valid claim against D. But it does not concern C if the internal legal relationship between P and D was ineffective because this is causa remota in regard to C who has rightfully received what was owed to him. Therefore, it is a matter which must be resolved by P and D.

Thirdly, where a person (P) has guaranteed the debt owed by another (D) by a contract of guarantee made with D’s creditor (C), we are again confronted with a triangular relationship the ultimate purpose of which is, broadly speaking, the payment of another’s debt. This may even be an unrequested payment because the contract of guarantee (Bürgschaftsvertrag §§ 765 et seq BGB) is concluded between the guarantor (Bürge) and the creditor, no consent of the debtor being required, although in actual practice it is mostly the debtor who has to find a guarantor. As for the legal consequences regarding the extent of guarantor liability and the defences of the guarantor, the following points deserve special mention because they have some bearing on the law of restitution. The principal obligation of D vis-à-vis C determines the obligation of the guarantor (P) at any time. This applies also in particular where the principal obligation is altered by the fault or default of D (§ 767 I 1 and 2 BGB). Moreover, the guarantor may raise all defences available to the debtor (§ 768 I 1 BGB). The guarantor may also as a rule refuse to satisfy the creditor so long as the creditor has not attempted compulsory execution against the debtor without success (the so-called Einrede der Vorausklage = claim for prior execution against the debtor, § 771 BGB).

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Suppose a guarantor has lost this defence, and therefore satisfies the creditor. The effect of this payment is not the extinction of the debt, but the claim of the creditor against the debtor is transferred to the guarantor by operation of law (cessio legis, § 774 I 1 BGB), operating in a similar fashion to the law of subrogation in England. (On which see Banque Financière de la Cité v Parc (Battersea) Ltd [1999] AC 221, and generally, Mitchell, The Law of Subrogation (1994).)

Problems of restitution may arise if it turns out that C had no valid claim against D. In this case, P has a direct restitutionary claim against C because the chief purpose of his payment, the causa solvendi, has not been attained. The same result must follow if the contract of guarantee between P and C was void. It does not then matter that C had a good claim against D. In view of what has already been said in connection with the Schuldübernahme, it goes without saying that P cannot set up any defences originating in his legal relationship with D. If this transaction were found to be ineffective, it may only have restitutionary consequences inter se.

The three legal institutions just described may still be regarded, in a broader sense, as belonging to the category of ‘payment of another’s debt.’ However, it will increase the clarity of our subsequent discussion to mention briefly two more fact-situations which must be distinguished because they have nothing in common with such payments.

There is thus, firstly, the case where several persons are liable for the same debt (socalled Gesamtschuld, §§ 421 et seq BGB). If several persons owe one performance in such manner that each is bound to effect the whole performance, but the creditor is entitled to demand the performance only once, the creditor has an option: he may demand the performance from any one of the debtors, in whole or in part. Until the whole performance has been effected, all the debtors remain bound (§ 421 BGB). Such liability in solidum is not confined to the law of torts (cf §§ 830, 840 BGB) but cuts across the entire field of private law. In all these cases, payment by one of the joint debtors means that he has paid a debt which has always been a debt of his own.

The right of contribution, which arises if a joint debtor satisfies more than his proper share of the common debt, is not classified as a matter pertaining to the law of unjustified enrichment. The rule is that, as between themselves, joint debtors are liable in equal shares, unless it is otherwise provided. If one joint debtor satisfies the creditor and can demand that the other debtors make up the difference, the claim of the creditor against the other debtors is assigned to him by operation of law (§ 426 II BGB). (On the issue of contribution and joint liability in this context in English law, see Mitchell, ‘The Civil Liability (Contribution) Act 1978’ [1997] Restitution LR 27; Virgo, The Principles of the Law of Restitution (1999), pp 23–45 and Burrows, The Law of Restitution (2nd edn, 2002), pp 291–3.)

The second multi-party situation which must be distinguished from payment of another’s debt concerns payment orders (Zahlungsanweisungen).

Suppose one party (D) instructs another party (P), usually a bank, to transfer a certain sum of money from his account to a third person (C). In a case like this, two sets of legal relations must be distinguished: that between the party who gives the instruction (D) and the party who acts in accordance with this instruction (P), and that between D and the third party (C) who is to receive the benefit of the performance. The relation D/P is called the ‘cover relation’ (Deckungsbeziehung) and the relation of D/C is described as the ‘value relation’ (Valutaverhältnis). Although there is a direct

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transfer of the money from P to C, P merely performs an obligation under his contract with D, whereas D, through the medium of P (the so-called Leistungsmittler), makes performance to C. It is important to note that P, in transferring the amount to C’s bank account, has no intention of paying another’s debt or, expressing the same idea in technical language, the payment is not accompanied by a ‘discharge designation’ (Tilgungsbestimmung) specifying a certain debt originating in the ‘value relation’ D/C. This is only natural because a bank (P) neither knows nor is interested in knowing why D had given this instruction to transfer money from his account to C’s account. This three-party system of performance also determines who may claim restitution against whom if either the ‘cover relation’ or the ‘value relation’ turns out to have been void or otherwise legally ineffective. The answer must necessarily be that restitution can only be had within the respective ‘performance relation’ (Leistungsverhältnis), viz, the claims are to be by P against D, and by D against C. Although C received the payment from P so that, at first blush, one might think he is enriched at P’s expense (if, for example, P’s contract with D was void), there is, as a common lawyer would prefer to say, no privity between them. However, there is an important exception to this rule. It concerns cases where there had been no valid instruction by D with regard to the payment made by P. Thus, the German courts had to deal repeatedly with cases where a bank erroneously transmitted money to the wrong recipient (BGHZ 66, 372) or where such transfer was mistakenly carried out twice (BGH NJW 1987, 185). In the absence of an instruction by D, the bank (P) is not entitled to debit his account. Therefore, P is granted a direct action against the recipient of the payment (C). The same must apply to the case where D had revoked his instruction, but P inadvertently made payment to C (eg, payment by a bank of a stopped cheque).

Basically, this is the fact-situation underlying the English case of Barclays Bank Ltd v WJ Simms (Southern) Ltd [1980] QB 677, where the problem arose directly for the first time. The bank had made payment to the defendant company in liquidation, overlooking the fact that its customer, the drawer of the cheque, had countermanded payment. Robert Goff J (as he then was) held that the bank could recover the payment. The payment was made without the customer’s mandate who had not subsequently ratified the payment. Therefore, the bank could not debit its customer’s account, nor could this payment be effective to discharge the obligation (if any) of the customer on the cheque, because the bank had no authority to discharge such obligation. The relevant German decisions have taken the same approach to this type of cases. There is, however, an important difference when it comes to the question whether the payee’s (=C) reliance should be protected. If, at the time of the payment, C had no knowledge of the customer’s (=D) revocation of the mandate, the action of the bank (=P) must fail, always provided that the payment has effectively discharged the drawer’s (=D) liability on the cheque (see, eg, BGHZ 87, 246; BGHZ 87, 393 with special emphasis on the distribution of the burden of proof; BGHZ 89, 376). In this latter case, the bank may recover the amount paid from its customer (D) for whom the discharge, even though unrequested, means enrichment (so-called Rückgriffskondiktion). But this claim by the bank would have to be denied if such payment had deprived D of a defence to C’s claim (Staudinger- Werner Lorenz, § 812 Rn. 53 with further references).

The English case of Barclays Bank v Simms gets around such consequences. However, the question remains: what would have happened if the bank’s claim

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against the payee had failed because there had been evidence of an actual change of position? (On change of position in the common law, see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (NZCA); Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193 and Burrows, The Law of Restitution, pp 510–29.)

Having sorted out a number of three-party relations that have some affinity with payment of another’s debt, we may now concentrate on the basic rule as laid down in

§267 BGB. Two illustrations will serve to show how it operates in actual practice. Suppose C has agreed to sell D a certain movable, the purchase price to be paid by

instalments. In a case like this, possession is transferred to the buyer immediately though the seller is well advised to retain title until the moment when the last instalment is paid. The relevant provision of the Code is § 449 BGB. According to this paragraph, in case of doubt, it is to be presumed that the transfer of title takes place subject to the condition precedent of payment in full of the purchase price, and that the seller is entitled to rescind the contract if the buyer is in default with payment. In this context, it should be remembered that German private law neatly distinguishes between the obligation entitling each party to such a synallagmatic contract to claim performance from the other party (§§ 241, 433 BGB) and the transfer of ownership in a movable thing (§ 929 BGB). (See the discussion in chapter 1, p 27 ff.) These are separated legal transactions and, so far as the transfer of ownership is concerned, it is necessary that the owner of the thing deliver it to the acquirer and that both agree that ownership is transferred thereby. It is this agreement (Einigung), within the meaning of § 929 BGB, which is subject to the condition precedent (aufschiebende Bedingung) referred to in § 449 BGB, the key provision for Eigentumsvorbehalt (reservation of title).

Returning now to the illustration introduced above, it is of the utmost importance to realise that D, even though he has not yet paid all instalments of the purchase price, has already gained a legal position which may be described as ownership in statu nascendi, ie, a property right in the nature of an expectancy of ownership (Eigentumsanwartschaft). This expectancy (Anwartschaft) may already be used as a security, the value of which depends on the object to which it pertains and the amount of instalments paid by the buyer. Thus D, if in need of a loan, could transfer his Anwartschaft to the lender (P) as a security in return for credit.

Let us further assume that D is both unable to pay C the last instalments of the purchase price and to repay the loan granted by P. In a situation like this P could intervene in the legal relation of C/D and pay the last instalment(s). The effect of this payment, made in accordance with § 267 BGB, would be that P’s Anwartschaft immediately ripens into ownership (BGHZ 75, 221, 228, case no 111, referring to an earlier decision of the same court BGH NJW 1954, 1325, 1328). For this reason, P can demand from the possessor (D) the delivery of the thing (§ 985 = rei vindicatio).

The second illustration which can help to explain the function of § 267 BGB concerns third party insurance (Haftpflichtversicherung = liability insurance). Obviously, an insurer (P), who satisfies the claim of an aggrieved party (C), cannot be regarded as an ‘officious intermeddler,’ for he pays because his contract with the insured (D) obliges him to do so. Therefore it could perhaps be maintained that P’s payment is not unrequested, and as a consequence, § 267 BGB cannot apply to this fact-situation. Indeed, this is a matter of some controversy in German legal literature. The alterna-

PERFORMANCE THROUGH THIRD PARTIES 371

tive would be to regard D as a party who has ‘instructed’ (angewiesen) the insurer to pay a certain sum of money to C as compensation for the damage suffered. It must be emphasised that this controversy is by no means otiose. Its practical consequences can immediately be seen when it comes to the following problem of restitution.

Suppose that in our previous example C had no valid claim against D (the tort was committed by somebody else). Certainly C is obliged to return the money received because he is unjustly enriched. But to whom must he return this sum or, using the terminology of § 812 BGB, at whose expense is he unjustifiably enriched? If the insurer

(P) were regarded as a third party within the meaning of § 267 BGB, he could claim repayment from C. But if the other approach were deemed correct, only the insured

(D) could succeed with an action against C. However, this would not yet end the case, because now it is obvious that D has acquired something at the expense of his insurer

(P). Those who advocate this circuitous method of restitution argue that the insurer is not a payer who acts on his own initiative. But this is a specious argument which ignores the essential fact that an insurer does not act on an ‘instruction’ (Anweisung) of the insured, for he will of course examine the facts allegedly giving rise to his obligation. The decision to pay or not to pay is made on these findings. If payment is eventually made, its declared purpose is the satisfaction of an existing claim C/D. It is accompanied by a ‘discharge designation’ (Tilgungsbestimmung) to this effect or, as a Romanist would prefer to say, the payment is made solvendi causa in regard to this claim. This is distinguishable from the payment made by a third party (eg, a bank), who merely acts on the instruction of his customer (D), and need not care about the effect of this payment on D’s relation with the recipient (C). These reasons militate in favour of a solution treating the insurer as a third party payer (Drittzahler) within the meaning of § 267 BGB (BGHZ 113, 62, 68–70, case no 112; but see also the critical review of this decision by Canaris, NJW 1992, 868; for a full discussion of this controversy, see Staudinger-Werner Lorenz, § 812 Rn. 44. The decision was confirmed in BGH NJW 2000, 1718).

This survey of the problems surrounding ‘payment of another’s debt’ would be incomplete if it did not mention the English case of Owen v Tate [1976] 1 QB 402 (CA), which calls for a short comparative observation.

It will be remembered that in that case the defendants had received a loan of £350 from a bank which was secured by a mortgage on the property of Miss Lightfoot, a former employee of the plaintiff. She wanted to be released from this mortgage and to recover her title deeds. The plaintiff, who was in no way concerned with the transaction, without consulting the defendants deposited an amount equivalent to the loan with the bank and signed a form of guarantee to pay money due from the defendants to the bank, limited to the amount he had deposited, in return for the release of Miss Lightfoot of her title deeds. The plaintiff’s motive was to help her. The defendants protested when they learnt of the plaintiff’s action. Nevertheless, although the plaintiff’s action was contrary to their wishes, they requested the bank, when pressed for payment of their debt, to have recourse to the money deposited with the bank by the plaintiff. The plaintiff subsequently sought an indemnity from the defendants for the debt paid. This action failed because the plaintiff was regarded as a mere volunteer. In the leading judgment delivered by Scarman, LJ, the principle on which this decision rests was stated as follows ([1976] 1 QB 402, 411–12):

372 THE PERFORMANCE OF A CONTRACT

If without an antecedent request a person assumes an obligation or makes a benefit for another, the law will, as a general rule, refuse him a right of indemnity. But if he can show that in the particular circumstances of the case there was some necessity for the obligation to be assumed, the law will grant him a right of reimbursement if in all the circumstances it is just and reasonable to do so. In the present case the evidence is that the plaintiff acted not only behind the backs of the defendants initially, but in the interest of another, and despite their protest. When the moment came for him to honour the obligation thus assumed, the defendants are not to be criticised, in my judgment, for having accepted the benefit of a transaction which they neither wanted not sought.

In view of what has already been said, it will be obvious that a German court, had it been called on to decide such a case, would decide it in favour of the plaintiff. Although in actual practice it will rarely happen that someone guarantees the debt of another without having been asked to do so, such request is no legal requirement. As has already been pointed out above, the contract of guarantee (Bürgschaftsvertrag) is concluded between the guarantor and the creditor, no consent of the principal debtor being required. It may perhaps be added that this is no peculiarity of German law, for the same follows from Article 2028 para1 of the French Code civil: ‘La caution qui a payé, a son recours contre le debiteur principal, soit que le cautionnement ait été donné au su ou à l’insu du débiteur.’ The guarantor who satisfies the creditor is subrogated to the creditor’s claim against the principal debtor whose defences remain unaffected (§ 774 I BGB). This applies not merely to his legal relationship with creditor, but holds good also for his relation with the guarantor which, in a case like Owen v Tate, would be governed by the rules pertaining to negotiorum gestio (§§ 677 et seq BGB; on which see generally, Dawson, ‘Negotiorum Gestio: the Altruistic Intermeddler’ (1960–1) 74 Harvard LR 817, 1073 and Stoljar, ‘Restitution—Unjust Enrichment and Negotiorum Gestio’ (1984) Int Enc Comp L vol 10, c 17.). Assuming that the plaintiff’s undertaking of the ‘management of the matter’ (Geschäftsführung) had not been ‘in accordance with the interest and actual or presumptive wishes of the principal’ (§§ 683 and 684 BGB), the question arises whether the subsequent request of the defendants must be regarded as ratification (Genehmigung). The effect of such ratification would be that the plaintiff, apart from possible benefits resulting from subrogation (cf §§ 774, 412, 401 BGB), could demand reimbursement of his outlays as if he had acted as a mandatary (§§ 684 sentence 2, 683, 670 BGB). If the defendant’s request did not amount to ratification, the BGB refers the plaintiff to the provisions relating to the return of unjustified enrichment (§ 684 sentence 1 BGB).

In the light of the above, the German approach to the problems suggested by Owen v Tate calls a careful examination of the question whether the defendants must really be regarded as having been unjustly enriched by the plaintiff’s unrequested payment of their debt. This would have to be denied where the period of prescription had already expired and probably also where the expiry of this period had been imminent. The same would apply if the creditor went bankrupt and the principal debtor had a good counterclaim against him which he could have used for a set-off. Generally speaking, a third party who makes an unrequested payment of another’s debt, thus depriving the debtor of his right to set off a counterclaim, will not be able to recover from the debtor. The simple explanation for this is that in a case like this, the debtor is not unjustifiably enriched.