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A. Basic principles
The German Civil Code (BGB) also includes in its codification the mechanism of one person (the agent) legally representing another (the principal). The general part of the BGB, in dealing with the fundamentals of declarations of will and legal transactions, regulates how the agent exercises their authority with legal effect for and against the principal, and also what the effects of supposed agency without real authority are.
The necessary authority is granted either by law or by a declaration of the principal. Statutory authority also includes the authority granted to the representative organs of corporate bodies or societies, such as partners in partnerships or directors of LLCs.
Ss. 166 ff. BGB deal with authorisation by the agent themselves. The authorisation may be granted in isolation, or in the context of an entire contractual relationship with the agent. Neverheless, the authorisation and the underlying contractual relationship (Grundverhältnis) are considered completely separate legal transactions. Their validity is therefore also to be evaluated separately (Trennungs- und Abstraktionsprinzip or abstraction principle). However, the authority does, in principle, expire as per s. 168 not just if it itself is revoked but also if the Grundverhältnis expires. This is subject to various exceptions based on the idea of estoppel.
B. Elements of agency
Acc. to s. 164(1) s, 1 BGB, a transaction is validly entered into by the principal via the agent if (1) the necessary declaration of will is emitted by the agent (2) in the name of the principal and (3) within the scope of their aurhority.
Firstly, a declaration must have been made by the agent themselves, not formulated by the principal and merely transmitted by a messenger or envoy.
Secondly, the agent must transparently act in the name of the principal. However, as provided for in s. 164(1) s. 2, “[i]t is irrelevant whether the declaration is made explicitly in the name of the principal, or whether it may be gathered from the circumstances that it is intended to be [so.]” The latter applies especially if a contract is concluded e.g. within the premises of a company. The agent also acts “in the name of“ the principal without disclosing their specific identity if the third party simply does not care about learning it.
Similarly, a real exception to the principle of patency is recognised in cases where the third party objectively has no legitimate interest in the identity of the principal, e.g. everyday cash transactions.
If someone is acting under a false name, it depends on the circumstances of the individual case whether they are acting for themselves or for the true bearer of the name. If the identity of the contracting partner is of relevance to the third party, ss. 164 ff. (and especially ss. 177 ff.) thus apply analogously.
Lastly, the agent must have moved within the confines of authority granted to them by the law or by the principal. These inherent limits must first and foremost be drawn from interpreting the statute or the authorisation.
Even so, s. 181 (Insichgeschäft) stipulates that the agent may not conclude an agreement on behalf of the principal with himself personally (self-contracing/Selbstkontrahieren) or representing a third party (plural agency/Mehrfachvertretung), unless doing so in order to fulfil an existing obligation.
Even beyond s. 181, the agreement concluded by the agent is rendered null and void as immoral (s. 138) if the agent colluded with the third party. The same result ultimately occurs if, although the agent did not overstep their external authority, the third party knew that they were still violating limitations set internally by the principal.
