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Legal info


German law




Debt recovery in Germany

A debt collection agent is subject to certain special duties arising out of the relationship between his principal and himself. First, though he is entitled to receive a commission for his services, he must not make a profit from the position he occupies. If he does this without authority the creditor may recover the profit from him, by an action for money had and received or, alternatively, if his behaviour causes a loss to is principal, an action for fraud. And if a German law firm accepts a secret bribe in connection with its work similar foreign claims may be made against the person who makes the bribe as well: this may happen, for example, if the debtor, in return for a bribe, makes arrangements with another person to enable the latter to sell property to the principal at an inflated price.
Second, once a man has undertaken to act as agent, he must continue to act as such; he is not allowed to alter his position and step into the shoes of the other contracting party.
Third, since an agent enjoys a confidential position, he may not delegate his duties to another person without his principal's consent.
An agent acting for a German debt collection agency may either contract with the third party as agent for a named principal, or simply as agent without naming his principal, or, by an anomalous rule of German law, he may, at any rate in making commercial contracts, act for an undisclosed principal, while purporting to contract on his own behalf; and, unless the contract is by its terms expressly or impliedly confined to the parties to it, the undisclosed principal may both sue and be sued upon it. Where the contract is made on behalf of an English speaking lawyer, or by a lawyer acting as agent, it does not matter if he really has no authority to act at the time that he makes the contract; as long as the principal ratifies (adopts) the contract subsequently. Where, however, the contract is made on behalf of an undisclosed foreign client the agent must have authority to act at the time when the contract is made.

The debtor's rights

Naturally, where the existence of the principal is undisclosed, the debtor has special rights. Though an agent normally incurs no liability under the contract he makes, a German agent for litigation is in a less happy position, for the other party may not only sue the principal when he discovers his identity but also the agent himself. Election to sue the one, however, extinguishes the claim against the other. What amounts to election is a question of fact; it may be made at any time up to judgment. But most lawyers in Germany sometimes purport to act as debt collection agents for others without authority. If they do this, they may either do so by mistake, thinking they have, or will obtain, authority, or dishonestly, pretending to be agents, but knowing that they are not. Where this happens an innocent creditor may suffer by entering into a contract with the supposed agent, and such a person clearly requires legal protection for creditors in Germany. If the agent knew he had no authority, and that he could get none, he may, if loss has been incurred, be sued for fraud; but if he acted honestly he cannot be. Accordingly it became necessary to evolve the doctrine of warranty of authority (effectively a species of collateral warranty) by which everyone who purports to act as an agent may be held liable to the other contracting party upon an implied warranty of authority however innocent he may be, if it turns out that he has no authority from his client.
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