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Beuthien, ‘Gibt es eine organschaftliche Stellvertretung?’ NJW 1999, 1142; Beuthien, ‘Zur Theorie der Stellvertretung im Bürgerlichen Recht’ in Festschrift für Medicus (1999) 1; Drexl, ‘Wissenszurechnung im Konzern’ ZHR 161 (1997) 491; Einsele, ‘Inhalt, Schranken und Bedeutung des Offenkundigkeitsprinzips’ JZ 1990, 1005; Fikentscher, ‘Scheinvollmacht und Vertreterbegriff’ AcP 154 (1955) 1; Hager, ‘Die Prinzipien der mittelbaren Stellvertretung’ AcP 180 (1980), 239; Joussen, ‘Die Generalvollmacht im Handelsund Gesellschaftsrecht’ WM 1994, 273; McMeel, ‘Philosophical Foundations of the Law of Agency’ (2000) 116 LQR. 387; Markesinis and Munday, An Outline of the Law of Agency (4th edn, 1998); Müller-Freienfels,

Stellvertretungsregelungen, in Einheit und Vielfalt, Rechtsvergleichende Studien zur Stellvertretung (1982); Müller-Freienfels, Die Vertretung beim Rechtsgeschäft (1955); Pawlowski, ‘Die gewillkürte Stellvertretung’ JZ 1996, 125; Prölss, ‘Vertretung ohne Vertretungsmacht’ JuS 1985, 577; Prölss, ‘Haftung bei der Vertretung ohne Vertretungsmacht’ JuS 1986, 169; Reynolds, Bowstead and Reynolds on Agency (17th edn, 2001); Treitel, The Law of Contract (11th edn, 2003), chapter 17.

(a) General Observations

In common law books, this topic would receive a short treatment in general books on contract law and the greater attention it deserves in specialized monographs. The same is true of German law (Müller-Freienfels, Die Vertretung beim Rechtsgeschäft (1955) is, despite its age, still regarded as an important work), so what follows here, of necessity, does little credit to the attention the subject has received from German lawyers. Yet even this warning is not sufficient to alert the common law reader to the dangers and difficulties which lurk in the summary treatment that follows—hence the need for these introductory comments.

First, we must consider the translation of the German term Stellvertretung as ‘agency’. To the common lawyer, this immediately conjures up a triangular relationship in which all three sides of the triangle (principal/third party, agent/third party and principal/agent) are interrelated in a close manner. Leaving ratification aside, the relationship between principal and agent is constituted by agreement between principal and agent creating internal rights and duties between agent and principal and giving the agent external authority to affect the principal’s legal relations with third parties (see Bowstead and Reynolds on Agency, 17th edn, Article 3, para 2-001). In German law, on the other hand, since Laband’s famous theory was first presented in the 1860s (Die Stellvertretung bei dem Abschluß von Rechtsgeschäften nach dem Allgemeinen Deutschen Handelsgesetzbuch, ZHR 10 (1866), 183) a strict separation has been made between the agent’s authority (Vollmacht) to bind his principal and the underlying relationship that links the principal and the agent. The latter may be based on mandate (Auftrag) (regulated by §§ 662 et seq BGB) or negotiorum gestio (regulated by §§ 677 et seq BGB) or even some rule of family law (eg, a parent representing his child, § 1626 BGB). Yet the differences seem to be largely conceptual. For English law also differentiates between internal rights between principal and agent (for instance an

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agent’s fiduciary duties (on which see, Reynolds, Bowstead and Reynolds on Agency, chapter 6; Millett, ‘Equity’s Place in the Law of Commerce’ (1998) 114 LQR 214 and Brown, Commercial Law (2001), chapter 8)) and the agent’s external authority to create privity of contract between principal and third party. Furthermore, the authority of the agent may not stem from the contract between principal and agent but from a unilateral act of granting authority which may be wholly independent of any contract between agent and principal (see Reynolds, chapter 6, para 1-005). It should also be noted, looking now at the civil law side, that the separation of the external aspect of agency in German law does not entail a general principle that agency is unlimited. This can be the case, as with the famous Prokura—a general authority in the commercial context which is highly formalised—but it is not the paradigm case. As a general rule, as in English law, it is the voluntary act of the principal that defines the scope of the authority. The practical significance of this so-called abstraction doctrine (Abstraktheit der Vollmacht) is thus restricted and may be limited to the conclusion that the nullity of the underlying transaction (between principal and agent) will not affect the agent’s authority to bind the principal. To take an example: A instructs B, a minor, to purchase a motorcycle on A’s behalf. B’s authority to bind A is, in this case, valid (§ 165 BGB) even though the underlying mandate is void because of B’s minority (see §§ 107, 108 BGB). See, however, § 168 BGB (discussed below), which stipulates that the end of the underlying contract also terminates the agent’s authority. The emphasis of German law on the agent’s power to bind the principal would thus make it better to talk of representation (even though, subject to the caveat just expressed, it remains linguistically more attractive to continue to use the terms ‘principal’ and ‘agent’, instead of ‘representee’ and ‘representor’ respectively). As we shall see, the same terminological differences arise with other words encountered in this area of the law such as Anscheinsvollmacht which is probably best rendered into English as ‘pretended’ authority (see the comments on this subject, below). Terms of art must thus be used with great caution in this area of the law.

Secondly, the German Civil Code only regulates ‘direct representation’ (unmittelbare Stellvertretung) ie, the situation where the agent acts on behalf of his principal. The agent is required to declare that he is acting for a principal (Offenkundigkeitsprinzip), § 164 I 2 BGB (see for an illustration, BGHZ 36, 30, case no 33). German law does not recognise indirect representation (mittelbare, or verdeckte Stellvertretung) ie, the case where the agent contracts personally or, as it is usually put by German lawyers, acts in his own name, as an incident of agency. This is what the common law would in many cases regard as an undisclosed agency, which in common with most civil law systems, German law does not recognise. The result—that in these cases there is only a commercial/contractual legal relationship between third party and agent—raises two difficult questions. (For an illustration of the consequences of this approach, see also the brief exposition of the law of the commission agent, below (section 6(f)) p 117.)

First, how can an agent who has sold goods for an ‘undisclosed’ principal transfer the property of the goods (which do not belong to him) to the purchaser and, conversely, how can the agent, who bought goods for an ‘undisclosed’ principal, ensure that the property of the bought goods vests in his principal when the seller intended it to vest in the agent? The second, related problem, is how one can minimise the intervention of the agent’s creditors in this case at the expense of one of the parties

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(principal or third party). German law has had to resort to some complicated ways of reducing these inconveniences, for instance by allowing an advance assignment of the agent’s contractual rights to the principal or the anticipated transfer of the title to the principal which occurs at the very moment that the title is vested in the agent. In such cases, however, German law must also ensure (and indeed does so) that the debtor/third party does not end up with a creditor (principal) he does not wish. In the end, therefore, a special rule (§ 399 BGB) had to be provided preventing the assignment in almost precisely those kinds of cases where the common law allows the third party to oppose the appearance on the scene of the undisclosed principal (see eg, Reynolds, Bowstead and Reynolds on Agency, chapter 8 and Brown, Commercial Law

(2001), pp 168–78). Thus, in both systems it is possible expressly to exclude the intervention of an undisclosed ‘principal’. Likewise, §§ 404, 406 and 407 BGB ensure that the assignee/principal, suing under the contract made between the agent/third party, may be faced with the defences that the third party may have against the agent. We have, in short, an institution (undisclosed agency) which on the surface is known to one legal system but not to another; but we also have an intricate set of mechanisms which make up for the lack of such an institution and which operate in a more indirect way. It is a well-known paradox that English lawyers regard the undisclosed principal doctrine as anomalously creating privity of contract without the consent of the third party, while comparative lawyers admire the pragmatic English solution on the ground that it achieves the results of complex continental reasoning with less effort. There is one aspect of the undisclosed principal doctrine, however, that cannot be accounted for in the civil law model: this is the right to sue the (initially) undisclosed principal. For further details, see: Müller-Freienfels, ‘Die “Anomalie” der verdeckten Stellvertretung (undisclosed agency) des englischen Rechts’ RabelsZ 17 (1952) 578; 18 (1953) 12 and (in English) ‘Comparative Aspects of Undisclosed Agency’ (1955) 18 MLR 33; ‘Law of Agency’ 6 AJCL 165 (1955). (Incidentally, in some limited circumstances an ‘undisclosed agency’ of sorts has been recognised by German courts. This happens in transactions involving what is commonly known as ‘business for whom it may concern’ (Geschäft für den, den es angeht). Every day, cash transactions take place in which the third party is not concerned with the identity of his co-contractor. But in these instances the difficulties associated with undisclosed agency rarely arise in practice; and, in any event, this exception is narrowly construed and thus does not represent a significant derogation from the principle that ‘undisclosed agency’ is unknown to the German civil law.)

This brief excursus into the realm of undisclosed agency provides an opportunity to make our third general observation about this subject. For here, as indeed elsewhere in German law, one is forced to leave the Civil Code and search for supplementary regulation of the topic under discussion in other enactments, mainly the Commercial Code, which contains some provisions on indirect agency for three categories of agents: commission agents, forwarding agents and agents who enter into insurance arrangements on behalf of third parties. More importantly, in its §§ 48 to 53 the Commercial Code deals with the agent’s authority (Prokura) to deal extensively in a commercial setting, with his principal’s business. Thus, the understanding of this subject involves an intricate inter-relationship of the provisions of different enactments, something which makes the exposition of the subject in a summary way even more prone to be misleading.

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(b) The Giving of Authority—Bevollmächtigung

The first thing to make clear is that in what follows we shall be discussing what is known as ‘contractual representation’. However, German law also recognises another kind of representation, which is called ‘legal representation’ because its source is the law, itself, rather than the will of the parties (gesetzliche Vertretungsmacht). Examples include the authority of parents to represent their children (§ 1629 BGB); the authority of ‘guardians’ to administer the affairs of their charges (§§ 1789, 1793 BGB); the authority of trustees in bankruptcy (Insolvenzverwalter) to represent the estate in bankruptcy and so on. These institutions can provoke some interesting comparative observations largely by raising the question ‘how are these matters handled by the Common law?’ (On this matter see, briefly, Zweigert and Kötz’s insights in An Introduction to Comparative Law, (English translation by Tony Weir, 3rd edn, 1998), especially pp 431 et seq.)

Authority (Vollmacht) is conferred on the agent by the principal by means of a unilateral juridical act known as the Bevollmächtigung. This declaration will determine the external relationships of the principal and the third party (Außenverhältnis), whereas the underlying contract between principal and agent will determine the ‘inner’ or ‘internal’ relationship between principal and agent (Innenverhältnis) which will deal with such matters as, for instance, whether the agent will be entitled to be paid for his services. (As a result of Directive 86/653/EEC [1986] OJ L382/17 (31 December 1986) on Self-Employed Commercial Agents, certain incidents of the relationship between a principal and a self-employed commercial agent are now provided for by legislation: for the UK implementation, see the Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053) (as amended by SI 1993 No 3173).) According to § 167 I BGB, such a grant of authority can take place by means of a declaration (express or implied) of the principal which is made to (a) the agent; (b) the third party; or (c) more generally, the public at large (öffentliche Bekanntmachung). Such authority can, so far as the civil law is concerned, be given informally, even when it concerns the accomplishment of a transaction that requires form (see § 167 II BGB). But exceptions to this rule may be specified by legislation. Thus, § 135 of the Aktiengesetz states that authority given to a bank to exercise a shareholder’s voting rights at the company’s general meetings must be complete and documented (although it need not include the shareholder’s signature). Likewise, the grant of authority to represent a client before a court must be made in writing (see § 80 of the

Zivilprozeßordnung).

As § 167 I BGB makes clear, the authority can be created by the principal making a declaration to the third party. This is similar to the English notion of apparent authority (see generally, Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd

[1964] 2 QB 480, at 503 (per Diplock LJ) and Brown, Commercial Law (2001), chapter 4) and is regulated by § 171 I BGB, sub-paragraph (2) of the same paragraph, declaring the obvious rule that in such cases the power of representation remains in force until the notice is revoked in the same manner as it was given. (Although see § 173 BGB, which excludes the effects of authority if the third party knew or could have known that the authority was revoked as between agent and principal.) English law reaches a similar result via applying doctrines of actual notice of lack of authority (see eg, Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335) and

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of the third party having been ‘put on enquiry’ by circumstances where the court would deem that the third party should have known (or at least been suspicious) that the agent was not in fact so authorised (see Lloyds Bank Ltd v Chartered Bank of India, Australia and China [1929] 1 KB 40). The key point is that the third party must reasonably have relied on the principal’s representation of authority (see the judgment of Diplock LJ in Freeman & Lockyer (above)). Clearly, whether the third party is put on enquiry will depend on a careful assessment of all the facts of the case (Feuer Leather Corpn v Frank Johnstone & Sons Ltd [1981] Com LR 251).)

As in English law, apparent authority thus differs from implied authority, the latter being largely discovered through interpreting the principal’s will as declared to the agent. In practice, however, the distinction is not as clear as it appears in theory; and it is made that much more difficult by the fact that German law recognises two other types of situation where the agent can actually bind his principal even though the latter has given neither him nor the third party any real indication of his willingness to grant such authority to the agent.

The first of these cases is called tolerated authority (Duldungsvollmacht) and it involves a ‘principal’ who knows that another person is pretending to act as his agent but takes no steps to correct this impression. The other kind of authority, known as ‘pretended’ authority (Anscheinsvollmacht) involves analogous facts, except that the so-called principal is negligently unaware of the acts of the so-called agent (see BGHZ 5, 111, case no 34). It is, however, not sufficient that the agent merely pretends to have authority. The principal must have negligently permitted the agent to appear to have authority. In both these instances, the case law attaches the usual incidents of representation; but the theoretical explanation for this result has divided academic writers who, on the whole, do not seem to favour it. Especially in the case of ‘pretended’ authority, it is difficult to see why the third party should be entitled to anything more than his reliance loss (see, for instance, Flume, Allgemeiner Teil, vol II, § 49. 4.; others, like Medicus, Allgemeiner Teil, Rn. 971, 972, prefer to limit the effect of these notions of ‘tolerated’ and ‘pretended’ authority to the commercial field).

(c) The Extent of the Authority

If the agent declares that he is acting for a principal (Offenkundigkeitsprinzip), and has acted within the scope of his authority, then he will create contractual privity between his principal and the third party.

But what if he did not declare that he was acting on behalf of another person or had no authority (or, which amounts to the same thing, exceeded his authority)? In the former case we are faced with an indirect agency (which we have already discussed briefly in the preceding paragraphs), while in the latter situations (and subject to the exceptional rules to be discussed below) the agent and not the principal will be liable towards the third party. (See below (section 6(d)(ii)) for a brief discussion of how English law deals with this issue.)

As in English law, so in German law, determining the exact scope of the agent’s authority is thus a matter of some considerable importance. This, of course, is ultimately a question of interpretation of the Bevollmächtigung and not of the underlying contract between principal and agent, though the latter may help to provide interpretative clues; and in cases of apparent authority, the creation of authority and

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its exact scope will become totally blurred. (Cf BGHZ 6, 330, case no 34.) But often the law, itself, will provide some help by defining the limits of authority. This is particularly true of commercial law where special rules are supplied for the so-called ‘limited commercial authority’ (Handlungsvollmacht), regulated by § 54 HGB; the authority of commercial representatives (Handelsvertreter), regulated by § 84 HGB; and the authority of sales assistants (Ladenvollmacht), regulated by § 56 HGB, and others.

However, by far the most important of these special provisions are those found in §§ 48–53 HGB, which deal with full commercial authority (Prokura). Such authority can only be given by ‘full’ businessmen (Vollkaufmann) which essentially means that it is not available to small tradesmen. It can only be given by the businessman personally; and it must be in writing and duly entered in the Commercial Register (§ 53 I HGB). The purpose of this provision is to protect third parties who rely on such authority, so registration and publication do not affect the grant of the authority itself. Such authority is of the most comprehensive kind, allowing the third party to assume that the agent can enter into all transactions which the principal himself can undertake in connection with his business affairs. § 50 I HGB makes it clear that any ‘internal’ limitations of this authority will have no effect as against third parties. § 49 HGB contains the only restrictions that can be placed on such authority. Thus, the agent cannot undertake transactions that affect his principal’s private affairs; he cannot sell or otherwise wind up the principal’s business; and he may not mortgage or sell land that belongs to his principal, though he has unlimited borrowing powers and can bind his principal personally to repay such loans. Such full commercial authority survives the death of the principal (§ 52 III HGB) and is in practice more commonly terminated when revoked (§ 52 I HGB). Third parties are bound by such revocation once it has been duly published in the Commercial Register (§ 53 III HGB). Thus, third parties dealing in good faith with the agent subsequent to revocation of his authority but prior to its publication will be protected (§ 15 I HGB).

In the interest of commercial certainty, this unlimited authority extends to all matters of commercial nature relating to the particular business. It is, however, subject to the general principle of good faith, which in individual cases of evident misuse of the agent’s powers may not give rise to liability of the principal. Generally speaking, an agent has power to bind the principal within the scope of the authority even if his acts run contrary to some purely internal obligation owed to the principal. In BGHZ 50, 112, a case concerning a Prokura, however, the court stated that this broad principle is subject to qualifications of good faith. If it is evident to the third party that the agent is misusing his authority and acts against the obvious best interest of the principal, the agent will not according to the principle of good faith create an obligation that is binding on the principal. The principal is allowed to invoke the agent’s abuse of his rights as against the third party. See, for a more recent application of these principles: BGH NJW 1999, 2883, case no 35, spelling out the obligation of a bank in relation to its clients. (See further, the sections on good faith and abuse of rights in the next chapter, p 123.)

(d) Lack of Authority

Three topics must be discussed briefly under this heading, namely: (i) the possibility of ratification; (ii) the liability of the falsus procurator and (iii) some exceptional rules

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devised to protect third parties dealing with an agent who has acted without authority.

(i) Ratification

Lord Sterndale MR’s statement in Koenigsblatt v Sweet ([1923] 2 Ch 314, at 325) that ‘Ratification . . . is equivalent to an antecedent authority . . . and when there has been ratification the act that is done is put in the same position as if it had been antecedently authorized’ is echoed in § 177 I BGB; and § 184 BGB likewise contains a rule similar to that stated by Harman J in Boston Deep Sea Fishing and Ice Co Ltd v Farnham (Inspector of Taxes) ([1957] 1 WLR 1051), to the effect that ratification has a retroactive effect. Ratification requires no formality; and according to § 182 I BGB, it may be done by the principal expressing his willingness to ratify either to the agent or the third party—unless the third party asks the principal for ratification, in which case the relevant intention must be directed to him (§ 177 II BGB). § 178 BGB contains, however, an important proviso by enabling the third party (who did not know of the lack of authority) to withdraw from the transaction before the principal purports to ratify it. This proviso does not exist in English law, which takes the retroactive effect of the principal’s ratification so seriously that a prior attempt to withdraw is rendered invalid by the subsequent act of ratification (see the well known case of Bolton Partners v Lambert (1889) 41 Ch D 295). It should be noted that this approach has been subjected to criticism (see Fleming v Bank of New Zealand [1900] AC 577 (where the Privy Council reserved the right to reconsider Bolton) and Seavey, ‘The Rationale of Agency’ (1920) 29 Yale LJ 859, 886–92), although the English rule also has its supporters (eg, as it safeguards certainty in business transactions—see Brown, Commercial Law, pp 36–7 and Stoljar, The Law of Agency (1961), p 191). The American approach started from the opposite end of the spectrum, taking the view that the principal’s ratification only became effective if the third party had consented to it (Dodge v Hopkins 14 Wis 630 (1861)). Now, however, the Second Restatement on Agency (§ 88) permits the third party to withdraw prior to ratification, aligning the American approach more closely with that available in German law under § 178 BGB.

(ii) The Liability of the Falsus Procurator

If no ratification takes place, § 179 BGB prescribes the legal consequences that will follow. Broadly speaking, these are three. First, if the third party knew or ought to have known of the lack of authority then he has no rights against the agent (§ 179 III BGB). Secondly, if the third party and the agent were ignorant of the lack of authority (or the exceeding of the true bounds of the authority) then the agent is responsible to the third party only for the damage that the third party has suffered by relying on the authority: ie, the third party is put in the position he would have occupied if the contract had never come into existence (the so-called negative interest, implying a reliance-based measure: § 179 II BGB). Finally, in the most serious of cases where the third party was ignorant of the lack of authority, but the agent acted in full knowledge of this fact, then the latter is liable to the former either to carry out the contract or to compensate him for the full expectation interest (§ 179 I BGB).

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In English law, the case of lack or excess of authority is dealt with by finding that the agent has breached his warranty that he had authority from the principal to contract with the third party: see Collen v Wright (1857) 7 El & Bl 301; 119 ER 1259, affd 8 El & Bl 647; 120 ER 241 (although if the agent has acted fraudulently, then the tort of deceit can clearly render him liable: Polhill v Walter (1832) 3 B & Ad 114; 110 ER 43). This liability is strict and is (thus) seen as contractual, amounting to a contract collateral to the ‘main’ contract and unilateral in nature (accepted by the third party’s entry into the contract with the principal). It is acknowledged however that in certain fact situations there will actually have been no breach of this warranty: thus, as in German law, where the third party is aware of the agent’s lack of authority, it cannot be said that the third party was misled by the breach into acting as he did and so the agent will not be liable (Lilly, Wilson & Co v Smales, Eeles & Co [1892] 1 QB 456). (See further, Brown, Commercial Law, pp 204–13 and Reynolds, ‘Personal Liability of an Agent’ (1969) 85 LQR 92.)

Interesting questions arise where the principal is insolvent, as the measure of damages is a contractual one: so, if the principal repudiates the contract arranged by the agent, the measure of damages is what the principal would have had to pay had he refused to perform a properly authorised contract. In such cases, one might argue that a claim based on negligent misstatement (and the Hedley Byrne line of authority, discussed briefly above (sections 5(d) and (e), p 103 ff) is the only chance that the third party has to recover his loss, although there appears to be no case law on this possibility at present.

(iii) Exceptional Rules

This heading covers a number of miscellaneous situations (in addition to the instances of commercial agency already discussed) where rules have been devised to protect the third party who acted in good faith when dealing with the agent. §§ 170, 171 II, 172 III BGB provide such limited exceptions to the general rule. Here, suffice it to mention the first: if the principal revokes his authority by so informing the agent, the latter’s authority comes to an end. But if the authority was granted in the first place by a declaration to the third party, then such a revocation (made only to the agent) will not affect the third party.

(e) Termination of Authority

There are various ways this can happen, and these can be found either in provisions expressly dealing with agency or in the general law. An example of the former can be found in § 168 sent. 1 BGB, where the Code states that the agency is terminated when the legal relationship on which it is based comes to an end. Likewise, the death of the principal will bring the agency to an end except in those cases where the contrary has been provided. Likewise, the authority will, in principle, be terminated by revocation (§ 168 sent. 2 BGB, although where the authority also serves the interests of the agent it may be made irrevocable; on this point in English law, see Gaussen v Morton (1830) 10 B & C 731, especially. at 734; 109 ER 622 and generally, Reynolds, ‘When is an Agent’s Authority Irrevocable?’ chapter 10 in Cranston (ed), Making Commercial Law—Essays in Honour of Roy Goode (1997): the authority must granted explicitly to

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secure a particular interest of the agent, so that a more general interest (such as a salary or commission) in performing that authority will not suffice). Alternatively, authority may be terminated as a result of the operation of ordinary legal principles. Thus, this will be the case where the agent dies or is deprived of his legal capacity.

(f) The Commission Agent

Indirect representation, as to which see already the preliminary observations above, is to a great extent unnecessary in English law, since the latter recognises undisclosed agency (although see the discussion of the limits of that doctrine in Unberath, Transferred Loss (2003), p 178 et seq; see also Reynolds, ‘Practical Problems of the Undisclosed Principal Doctrine’ [1983] CLP 119), yet it is not expressly dealt with in the BGB (in particular, not as part of the agency provisions). The paradigm case of mittelbare Stellvertretung (‘indirect representation’) is the contract of commission (Kommissionsgeschäft). It should be noted that those rules apply in other contexts as well, for instance in the area of carriage of goods or construction. The common denominator of these situations is that a person—the intermediary—who contracts personally, acts in the interest and on the account of another.

The closest analogy to this role in English legal history appears to be that played by the old ‘factors’ who acted as mercantile agents for a principal, who contracted personally with third parties and deducted their commission from the sale price received before accounting for the remainder to the principal. Out of this role (and its difficulties, particularly in the event of the factor’s bankruptcy prior to accounting to his principal) developed the doctrine of the undisclosed principal: see Stoljar, The Law of Agency (1961), pp 204–11 for an account of this development). Today, however, as Goode describes (Commercial Law (3rd edn, 2004), p 164), ‘a purely internal mandate by which P instructs or authorizes A to enter into a commitment with a third party not only in A’s own name but without involving P even as undisclosed principal does not fall within the English notion of agency.’

A commission agent is someone who sells or buys goods the property of another (§ 383 I HGB). The commission agent (Kommissionär) acts in his own name but on the account of the ‘indirect’ principal (Kommittent). The contract between intermediary and ‘indirect’ principal is usually a contract for managing the affairs of another for consideration (§ 675 BGB, discussed in the next chapter). The agent is not answerable in respect of negligence on the part of the third party, but only in respect of his own negligence in selecting an unreliable third party or because he did not follow the instructions of the principal (§ 384 HGB). The agent is entitled to commission (Provision) and the principal has an obligation to indemnify the agent for all expenses connected with the transaction (§§ 670, 675 BGB, § 396 II HGB). For example, the principal has a duty to refund the price paid to the third party in respect of the goods bought on commission.

Since the doctrine of the undisclosed principal is not recognised in German law, the contract of sale creates rights and liabilities only between the commission agent and the third party, § 392 I HGB. However, the economic interests involved (loss suffered by principal) and the legal position of the parties (right to recover damages in the agent) do not match. The function of the doctrine of mittelbare Stellvertretung is to redress this imbalance so far as the law of obligations is concerned: the intermediary

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is allowed to recover damages in respect of the principal’s loss (on the basis of Drittschadensliquidation). The principal has a contractual right against the agent to require the agent to assign his damages claim to the principal (§ 384 II HGB). The third party will then, however, be able to raise all defences available in relation to the commission agent also against the indirect principal (§§ 404, 407 BGB). As far as property rights are concerned, it is impossible completely to avoid the agent’s transitory ownership of the goods. The agent becomes owner at least for a so-called ‘logical’ second (or scintilla temporis) before he can pass on the money or the goods to his principal. These, however, are all details which are best left to specialised works on agency, and the reader must therefore seek further enlightenment in such works (references to which have been provided at the start of this section).