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CISG CASE PRESENTATION

Austria 28 September 2000 Appellate Court Graz (Computer telephone board case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000928a3.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 20000928 (28 September 2000)

JURISDICTION: Austria

TRIBUNAL: OLG Graz [OLG = Oberlandesgericht = Provincial Court of Appeal]

JUDGE(S): Dr. Schemitsch (Vorsitz), Dr. Galli, Dr. Rothenpieler

CASE NUMBER/DOCKET NUMBER: 4 R 55/00s

CASE NAME: Austrian case citations do not generally identify parties to proceedings

CASE HISTORY: 1st instance LG Leoben (4 Cg 202/96d-28) 25 January 2000 [reversed]

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Computer telephone board


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 47 ; 49 [Also cited: Articles 6 ; 26 ; 81 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]

47A [Buyer's right to fix additional period for performance];

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]

Descriptors: Fundamental breach ; Nachfrist ; Avoidance

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/798.pdf>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Court of Appeal (Oberlandesgericht) of Graz

28 September 2000 [4 R 55/00s]

Translation [*] by Veit Konrad [**]

Edited by Jan Henning Berg [***]

JUDGMENT

Defendant [Buyer]'s appeal (Berufung) against the ruling of the Court of First Instance, the District Court (Landesgericht) of Loeben (ruling of 25 January 2000; Docket no. 4 Cg 202/96d-28) is justified.

The Court of First Instance's dismissal of an aspect of the Plaintiff [Seller]'s complaint on the grounds of lack of national jurisdiction is not affected by the appeal and hence is upheld. The other parts of the judgment are to be changed as follows:

   -    [Seller]'s claim for DM (Deutsche Mark) 126,148.95, respectively, for the equivalent amount in Austrian schillings (ATS) (calculated upon the National Bank of Austria's exchange rate of the day of payment), is dismissed. [Seller] is liable to pay to [Buyer] within fourteen days ATS 255,831.83 (including ATS 42,638.64 in turnover tax) as costs of the proceedings in the First Instance.
 
   -    [Seller] must also compensate [Buyer] for ATS 63,507.79 (including ATS 19,880.00 cash payments and ATS 7,271.30 turnover tax) as costs of the appellate proceedings.
 
   -    Further ordinary appeal (ordentliche Revision) under 502(2) of the Austrian Code of Civil Procedure (Zivilprozessordung; ZPO) is not permissible.

FACTUAL BACKGROUND

[Seller] develops hard- and software for telecommunications. Its products are marketed by so-called "Distributors". On 21 December 1994, [Seller] and [Buyer] -- the latter referred to as "Distributor" -- entered into the following marketing agreement.

1. Content of the Contract

a) C. [Seller] has developed and produces the computer-telephone "Phoneboard". This product consists of an IBM-AT compatible keyboard, an integrated analogue telephone including a speaker, and software running under MS DOS and WINDOWS.

The Austrian version ("version A") of the Phoneboard is licensed to be connected to the national public telecommunication network under Austrian regulations.

b) By this agreement, the Distributor [Buyer] provides for the distribution of the Phoneboard and Phoneboard-accessories within the Austrian market.

2. Legal Status of the Distributor

d) The Distributor [Buyer] has the exclusive right to distribute the Phoneboard within the Republic of Austria -- subject to clause 7 c) of this agreement: i.e. C [Seller] is not entitled to retail the product in Austria, either itself or through intermediaries. C [Seller] will take action to prevent third parties retailing the product on the Austrian market. C [Seller] will further ensure that Phoneboards of the German version ("version D") cannot easily be converted to the Austrian "version A".

3. Contractual duties of the Distributor / Purchase Price of Distribution rights

b) The Distributor[Buyer] is obliged to maintain a sufficiently large stock of the Phoneboards and of accessories to ensure that these products are available to meet the customers' demand at any time.

c) By this agreement the Distributor [Buyer] orders a first supply of 40 Units (i.e., 1,000 Phoneboards).

e) In exchange for the above mentioned exclusive right to distribution, the Distributor [Buyer] owes payment of DM 500,000.00, of which the first installment of DM 250,000.00 is due at the time this contract is concluded. The remaining DM 250,000.00 become due when the Phoneboard will be licensed by the Austrian Post, as the relevant telecommunication authority. This second amount shall cover the first order of 40 units (i.e., 1,000 Phoneboards) as mentioned under 3.c) of this agreement. [Seller] further grants the Distributor [Buyer] a discount of DM 50.00 on the retail price for each item. It will be set off against the Distributor [Buyer]'s payment of DM 500,000.00 until this sum is equalized; at the latest until the contract terminates on 31 December 1998.

f) The Distributor [Buyer] binds itself to order the following minimum quantities of Phoneboards:

1995:   200 Units     =     5,000 Phoneboards
1996: 400 Units = 10,000 Phoneboards
1997: 400 Units = 10,000 Phoneboards

4. Contractual Duties of C [Seller]

a) [Seller] agrees to begin immediately with the development of an Austrian version of the Phoneboard and promises to apply for a license for such a product at the Austrian telecommunication authorities at the earliest possible date.

[Seller] bears all costs for the development and the licensing of the product.

In case [Seller] fails to get a license from the Austrian telecommunication authorities for its product, [Seller] will reimburse the Distributor [Buyer] for the paid amount of DM 250,000.00 within 30 days after the definite decision of the relevant agency has been made, and pay 7 % interest since the day the money has been paid to [Seller].

b) [Seller] ensures the Distributor [Buyer]'s supply of Phoneboards in appropriate quantities and within reasonable time.

[...]

7. Duration of the Contract

a) This agreement becomes binding by the parties' signature on this document. It cannot be terminated until 31 December 1998.

b) After this date, each party to the contract may terminate the contract within three months to the end of the third month.

c) Irrespective of 7.a), [Seller] may terminate the contract within three months, to the end of the third month, if the Distributor [Buyer] fails to distribute the minimum quantities as stipulated in 3.f) of this agreement, for reasons that fall within Distributor [Buyer]'s own responsibility.

d) Irrespective of the provisions above, each party to the contract is further entitled to terminate the agreement, if for substantive grounds a continuation of the contract would be unreasonable. This is the case in particular when,

   -    A party defaults payment after it has been reminded and an additional deadline that has been set has unsuccessfully expired;
   -    A party becomes unable to pay, respectively, has entered into insolvency or other settlement proceedings;
   -    A party fails to deliver after it has been reminded and an additional deadline that has been set has unsuccessfully expired.

10. Concluding remarks

a) Supplementary agreements to this contract are valid only when made in writing.

b) This contract shall be governed by German law. The venue of jurisdiction for all disputes arising from matters of this contract shall be Munich. [...]"

When this agreement was signed in December 1994, [Seller] estimated the development of a German version of the Phoneboard to be completed within the forthcoming four to five months, so that the product could be presented at the computer fair "CEBIT" in March 1995. The Austrian version was meant to be ready for delivery after an additional four months. The licensing for the Austrian version should be completed by August 1995.

In its claim of 25 November 1996, [Seller] demanded payment of an amount equivalent to DM 126,148.95 in Austrian schillings (ATS) (based on the exchange rate of the Austrian National Bank on the day of payment).

POSITION OF THE PARTIES

[Seller]'s position

[Seller] submitted the following:

In September 1996, the parties had agreed to supplementary clauses to their Distribution Agreement by which [Seller] gave up its right to payment of the installment of DM 250,000.00. It had also been stipulated that [Buyer] would pay for each delivery in advance and that delivery should become due two months after payment for the delivery had been executed. As security for [Buyer]'s advance payment, [Seller] agreed to provide [Buyer] with an equivalent number of German Phoneboards ("version D") as deposit, which were meant to be given back after the Austrian Phoneboards ("version A") that were actually ordered had been delivered. On 29 September 1996, pursuant to this agreement, 500 German Phoneboards were given to [Buyer] as a deposit in exchange for [Buyer]'s check of DM 125,695.00. On 4 October 1996, however, this check was returned as "not validated". Hence, [Buyer] failed to comply with its contractual duty to pay in advance for deliveries. Moreover, [Buyer]'s subsequent cancellation of the contract, as declared by letter of 15 October 1996, was devoid of substantive grounds and therefore ineffective.

[Buyer]'s position

[Buyer], on the other hand, argued that:

In 1995, due to technical difficulties, [Seller] had been unable to produce and to deliver functioning Phoneboards in the contractually agreed quantity. Consequently, [Buyer] requested the delivery of 250 properly functioning Phoneboards by 15 March 1996. Otherwise, [Buyer] would claim back the advance payment of DM 150,000.00. [Seller] did not react to [Buyer]'s letter. At about this time, [Buyer] began to realize that the Phoneboard products [Seller] had developed were in fact technical failures. Between April and May 1996, [Buyer] became aware that [Seller] was experiencing financial difficulties. On 1 August 1996, [Seller] delivered 49 technically deficient Phoneboards. During the end of August and the beginning of September 1996, [Buyer] found out that [Seller] did not have the financial means to produce the contractually agreed quantities of Phoneboards. On 17 September 1996, [Seller] suggested changes to the Distribution Agreement. On 27 September 1996, [Buyer] signed a check for DM 125,695.00 and handed it to [Seller]. Immediately after that, however, it definitely became clear to [Buyer] that [Seller] was by no means capable of producing the quantities of functioning Phoneboards required to fulfill their agreement. In deceptively offering [Buyer] licenses for the distribution of a product which [Seller] in fact had never been able to manufacture, [Seller] frustrated the agreement with [Buyer], respectively, gave [Buyer] a substantive reason to cancel the Distribution Agreement, which [Buyer] did on 15 October 1996 with immediate effect.

[Seller]'s reply

[Seller] replied:

In fact, a fixed date for the delivery of the Phoneboards had never been stipulated. Under the Distribution Agreement, a duty to return the advance payment of DM 250,000.00 would have only occurred if the Austrian telecommunication authorities had definitely denied a license for the product which, however, had been given out on 22 January 1996. The 49 products that had been delivered on 1 August 1996 were not deficient. [Buyer] in fact managed to resell them. In any event, [Buyer] had failed to notify [Seller] of the claimed defects within reasonable time.

[Buyer]'s response

[Buyer] responded:

The true reason behind the supplementary agreement of 5 November 1996, by which the Distributor's obligation to pay a second installment of DM 250,000.00 had been abrogated by the agreement of advance payment for each individual delivery, was that, after the telecommunication license had been granted between August and September 1996, it transpired that [Seller] would be unable to produce and deliver the Phoneboards according to the original contract. The Distributor [Buyer]'s obligation to accept delivery, as stated in the Distribution Agreement, entailed a corresponding duty of the [Seller] to produce and deliver the contractually agreed minimum quantities of goods. The first delivery of Phoneboards took place in the beginning of August 1996. At that time, [Seller] had already been in default to fulfill its contractual duties. At that time, [Seller] had declared that it would only be able to deliver the Phoneboards if [Buyer] paid for the deliveries in advance. Apparently, [Seller] was in a position where no invoicing and no delivery receipt was acceptable to it. Based on negative experiences, [Buyer] concluded that it was not at all certain whether [Seller] was actually able to deliver, even if payment would have been made in advance. Therefore, [Buyer] requested 500 German Phoneboards as a deposit to secure the payment made by its check. [Buyer] had to conclude that the reason behind [Seller]'s request of advance payment were financial difficulties. It was agreed that the 500 "German version" Phoneboards [Buyer] had received as a deposit, could neither be resold nor repledged by [Buyer]. [Seller] failed to fulfil its contractual duty to deliver functioning Austrian Phoneboards. Therefore, [Seller] owed restitution of the paid amount of DM 250,000.00 under clause 3. e) of the Distribution Agreement. Concerning this amount, [Buyer] declares a set-off with [Seller]'s claim.

Moreover, the Phoneboards [Seller] had agreed to deliver as a security for [Buyer]'s advance payments, did not function and were unfit for usage, because both essential software and user manuals were missing. For that reason alone, they could not possibly be resold. The items also suffered from other defects, of all of which [Buyer] notified [Seller]. Under these conditions, [Buyer] did not even owe an advance payment. Immediately after the check had been handed over to [Seller], [Buyer] got more substantive reasons to believe that [Seller] was in financial difficulties and thus was unable to perform according to the Distribution Agreement. Given all this, [Buyer] was entitled to have the check "called back".

[Seller]'s response

[Seller] responded that the 500 Phoneboards "version D" had been delivered only in order to provide security for [Buyer]'s advance payments. The products were never meant to be resold or used. Concerning the Austrian type Phoneboards, [Seller] was always able and willing to fulfill its contractual obligations, if only [Buyer] in turn gave back the deposited German Phoneboards and paid in advance as contractually agreed.

RULING IN FIRST INSTANCE

The Court of First Instance found [Seller]'s claim justified up to an amount of DM 126,148.00. [Seller]'s complaint questioning the admissibility of [Buyer]'s counterclaim due to a presumed lack of national jurisdiction was dismissed. [Buyer]'s counterclaim was eventually found unjustified. Concerning the undisputed facts of the case as reported above (see pages 6-14 of the judgment), the Court of First Instance has stated the following:

[Seller] had never bindingly promised that Phoneboards of the Austrian "version A" had to be delivered to [Buyer] in August 1995. Consequently, the development and the production of Austrian Phoneboards had been delayed and the time frame could not have been met. Dates for deliveries were postponed several times. The licensing of the product by the Austrian telecommunication authorities was completed by January 1996, and not as had been planned by August 1995. In a letter dated 14 January 1996, [Buyer] set [Seller] a final deadline of 15 March 1996 for the delivery of at least 250 Phoneboards "version A", demanding restitution of its advance payment of DM 250,000.00 plus interest in the event this deadline was not met. In July 1996 49 Phoneboards "version A" were delivered. [Buyer] accepted this delivery and subsequently resold the products to customers. [Buyer] never undertook repairs or other improvements. On 17 September 1996, the parties supplemented their Distribution Agreement of 21 December 1994 as follows:

"1. [Seller] gives up its right stated under 3. e) for payment of another DM 250,000.00.

2. Each order will concern a volume of 20 units ( = 500 Phoneboards).

3. The Distributor [Buyer] will pay the full purchase price for each order in advance of delivery. Payment shall be due at the time the order is placed. Delivery is due two months after the order at the latest. As a security for [Buyer]'s advance payments, [Seller] transfers the ownership of an equivalent amount of German type Phoneboards "version D" to [Buyer] as the Distributor.

The deposit will be released at the time the actual delivery takes place.

4. ....

5. The first delivery of 500 Phoneboards shall take place on 21 October 1996."

Thereafter, [Buyer] ordered 500 Phoneboards and demanded an equivalent amount of German Phoneboards as security. It was agreed between the parties that those Phoneboards were to be transferred to [Buyer] in the state they had been delivered to [Seller] by its manufacturer, i.e., without software and user manuals, as they were not meant to be resold by [Buyer]. [Seller] would call for the German Phoneboards that had been delivered to [Buyer], after having received the suitable main boards for the Austrian version. Then, after [Buyer] had returned the German Phoneboards, [Seller] would exchange the main boards and thus adapt the Phoneboards to the Austrian communication system. Thereafter, the Phoneboards were to be sent back to [Buyer]. [Seller] had delivered 500 Phoneboards, version D, to [Buyer] as a deposit. On 29 September 1996, [Buyer] signed a check for DM 125,695.00 and handed it to [Seller]'s Executive Director. After the German Phoneboards had been delivered, [Buyer] examined some samples and noticed that in some of the items the socket for the mother boards was broken. The delivery did not include software or user manuals. [Buyer] never gave [Seller] a notice of complaint about the broken sockets, or the missing software and user manuals, but made out the check for the agreed amount. Before that happened, [Seller] indeed had been in financial difficulties. However, [Seller] had never been insolvent, and was capable of delivering the Phoneboards that were refurbished -- version D to version A -- compliant to their agreement. Due to [Buyer] subsequent cancellation, [Seller] had been unable to cash in the check. In a letter dated 15 October 1996, [Buyer] cancelled the Distribution Agreement, arguing that at the time of conclusion of the contract it was presumed that the Phoneboards for Austria could be distributed in the year 1995. As this did not happen, [Buyer] alleged that the underlying purpose of the agreement became obsolete. Therefore, [Buyer] demanded reimbursement of the paid amount of DM 250,000.00 plus interest on arrears.

The Court of First Instance found that the parties stipulated German law to govern their contract, as provided for in 35(1) of the Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG). As 326 of the German Civil Code (Bürgerliches Gesetzbuch; BGB) had been validly abrogated, the termination of the Distribution Agreement was regulated by the provisions of the contract. Consequent to [Buyer]'s letter of 24 January 1996, [Seller] defaulted on its agreed performance, i.e., the delivery of the specified Phoneboards after 15 March 1996. After that date [Buyer] was entitled to cancel the Distribution Agreement, but decided not to do so. By the acceptance of 49 Phoneboards in July 1996, [Buyer] implicitly signaled its intention to adhere to the contract. [Buyer] never gave notice about the defects of the Phoneboards that, pursuant the supplementary agreement, had been delivered to secure [Buyer]'s advance payments. Under 377(2) of the German Commercial Code (Handelsgesetzbuch; HGB), these items were thus considered as accepted by [Buyer]. Therefore, [Buyer] still owed payment of the delivered goods in the way it had been agreed in the supplemented contract. [Buyer]'s cancellation of 15 October 1996 was hence ineffective, because delivery was only due on 21 October 1996. [Buyer]'s argument that the implicit purpose of the contract, i.e., the distribution of the produced Phoneboards in Austria within the year of 1995, had been frustrated, was not accepted by the Court of First Instance: The Court held that, by agreement, in the supplementary clauses, the parties had deviated from this implicit purpose. Also, there had been no indication of the complete insolvency of [Seller], which might have entitled [Buyer] to terminate the contract with immediate effect.

[Buyer] now appeals citing procedural errors, misinterpretation of relevant facts of the case, errors concerning the taking and the evaluation of evidence, and a misinterpretation of the applicable law. Through its appeal, [Buyer] seeks to have the decision of the Court of First Instance changed and [Seller]'s claim dismissed. Alternatively, [Buyer] wants the judgment set aside and the case referred back to the First Instance.

[Seller] seeks the dismissal of [Buyer]'s appeal.

REASONING OF THE COURT

[Buyer]'s appeal is justified.

1. Procedural errors

Concerning the considerable difference between the actual value of the Phoneboards that were given as deposit, and the paid purchase price that is the subject of [Seller]'s claim, it must be noted that [Buyer] itself has never tried to sustain its presuppositions by taking the initiative to call for the evidence of an expert. Indeed, the question whether the Phoneboards that were delivered were intended and fit for resale, or were merely meant to serve as security, is irrelevant for the case. Hence, there is no need to summon expert evidence on this question. Under no circumstances does the court's failure to seek such evidence on its own initiative constitute a procedural error.

The witnesses offered by [Buyer] (see: subparagaph b) below) were not meant to testify on [Seller]'s financial situation at the relevant time. And, with respect to the questions of the deficiency of the delivered Phoneboards, the notification thereof, and the question whether the development of the software had been definitely stopped by August 1996, the testimony of these witnesses is unnecessary (see below).

2. Misinterpretation of facts and the taking and evaluation of evidence

     a) The nature of the agreement submitted in attachment ./D is not a question of fact, but rather one of the legal interpretation of the facts of the case, i.e., of the content of that contract.

     b) [Buyer]'s appeal on that point is not accepted because [Buyer]'s submissions do not address possible errors in the taking and evaluation of the evidence by the Court of First Instance (Kodek in Rechberger, ZPO, 471 note 8). Rather, [Buyer] draws its version of the facts merely from the wording of the agreement which, however, does not entail an exact date for delivery in August 1996.

As [Buyer] concedes, the claim that the development of software had been definitely given up by August 1996, constitutes an amendment to the facts of the case. Insofar, [Buyer]'s alleged misinterpretation of facts affects its appeal on legal matters, and will be dealt with there.

     c) [Buyer]'s version of the facts, does not conflict with but rather complements the Court of First Instance's findings as stated in page 11, first paragraph of the ruling. Undisputedly, on 17 September 1996, the parties agreed on supplementary clauses to their Distribution Agreement. The question whether these clauses, which had not been stipulated in writing, were validly incorporated into the contract, constitutes a question of law rather than of fact. Yet, the submission that it had orally been agreed, that the Phoneboards, version D, would be delivered without software and without user manuals, must be put into question.

[Buyer]'s further submissions on facts of the case, again, affect the appeal against legal points and will be considered below.

     d) There is no doubt, that the delivered Phoneboards were meant as a deposit to secure [Buyer]'s advance payments. Based on the Court of First Instance's findings on the facts, it is also clear that [Buyer] sent its check after these items had been delivered. So far, the ruling of the First Instance does not suffer from appealable errors.

     e) The Court of First Instance had also correctly concluded that there had been no indication of the insolvency of [Seller] at the relevant time. The witnesses that were summoned only mentioned that [Seller] had been in financial difficulties and hence had often been in arrears to cover outstanding debts, which, however, were always paid eventually. [Seller] had never been insolvent.

With regard to the presumed errors in the taking of facts -- including those mentioned under subparagraph c) -- the Court of Appeals finds as follows:

   -    It was agreed that the Phoneboards, version D, delivered to secure [Buyer]'s payment in advance, were never meant to be sold by [Buyer] (see [Buyer]'s pleading page 235). On the other hand, it was not clear between the parties whether these Phoneboards should have been delivered without software and without user manuals ([Buyer]'s pleading page 229 et seq.). Indeed, the items were meant to be sent back to [Seller] after the Phoneboards version A, that had actually been ordered by [Buyer], were delivered to [Buyer] (Executive Director Anton Arnold pleading p. 65, attachment ./E). Neither the Phoneboards version D nor those of the Austrian version A, functioned properly, mainly due to bad software. In particular, the product did not, as promised by [Seller], integrate with every possible Windows application. Problems were occurring especially with the OS2 and the Windows NT operating system, the latter being highly popular among commercial users. The software did not work either with the DOS editor running under Windows. In addition, there were several other problems with the software. [Buyer] had addressed these problems even before the 49 Phoneboards (which also suffered from defective software) were delivered in June 1996. [Seller] promised to improve the software, but did not do so up to the present day. The development of the software had been definitely given up when it materialized that, for technical reasons, compatibility with the relevant operating systems, namely OS2 and Windows NT, could not be achieved. Also, [Seller] had lost its interest in the development of an analogue product like the Phoneboard (see [Buyer] p. 119, 233 of the case record; witness Norbert A., p. 203, witness Lothar L. page 195; witness Dagmar U. page 81, 89; attachments ./4 and ./8).
 
   -    The evaluation of the evidence taken leads the Court to the conclusions mentioned above. Clearly, there had been unsolvable problems with the Phoneboard's compatibility with the most current operating systems that massively affected the merchantability of the product. This eventually was conceded by [Seller]'s Executive Director, Anton A., who also admitted that the software development had been given up by the middle of 1996. Concerning the terms of the agreement on the deposited Phoneboards serving to secure [Buyer]'s advance payments, his testimony became contradictory (see case record p. 65 and 225) and thus cannot be followed by the Court. On the other hand, [Buyer]'s submissions made on this point match with clause 3 of attachment ./E, and further seem plausible considering that a security which cannot be utilized in cash would hardly be of any practical value. It cannot be assumed that reasonable contractors had agreed upon such terms.

According to 498 of the Austrian Code of Civil Procedure (Zivilprozesordnung; ZPO), the court emphasizes the relevance of the above-mentioned facts (and those facts that had remained unquestioned between the parties) to its legal decision of the case.

3. The applicable law and interpretation of this law

The CISG had been validly adopted by Germany on 1 January 1991, and by Austria on 1 January 1989. Under Art. 1(1) CISG, the Convention applies to contracts for the sale of goods between parties whose places of business are in different States when the States are Contracting States; or when the rules of private international law lead to the law of a Contracting State. It is an established opinion of scholars and within the judiciary that the CISG also applies to framework contracts regulating the sale of goods (1 Ob 289/98a). By German and by Austrian standards, a framework contract denotes agreements between parties, mainly qualifying as commercial actors (Kaufleute) such as manufacturers and wholesale traders, who intend to stipulate the general legal outline for a large number of planned transactions of a certain kind. Although it may often be the case, it does not necessarily require the parties to bind themselves legally to enter into the planned individual business transactions. Framework contracts often stipulate the conditions for the execution of individual transactions, such as the delivery and the acceptance of ordered goods (2 Ob 575/93 with further references).

[Seller] is seated in Germany, [Buyer]'s place of business is Austria. They stipulated German law to govern their contractual relations. As 35 and 11 of the Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG) qualify as rules of private international law under Art. 1(1)(b) CISG, the CISG applies without further explicit reference (Posch in Schwimann, AGBG, Art 1 UNK note 20; 2 Ob 328/97t; 1 Ob 292/99v). The mere reference to the national law of a Contracting State does not necessarily imply an exclusion of the Convention, as provided for under Art. 6 CISG (Posch, ibidem, Art. 6 note 6; 1 Ob 292/99v). In the case at issue, there is indeed no further indication that the parties had excluded the CISG.

Therefore, the CISG applies to the Distribution Agreement of 21 December 1994, including the supplementary clauses of 17 September 1996, which constitutes a framework contract governing general terms of planned sale-of-goods transactions between the parties. The Convention further applies to each individual transaction regulated by this framework agreement.

According to Art. 49(1) CISG, the buyer may declare a contract avoided if the failure of the seller to perform any of his obligations under the contract or the Convention amounts to a fundamental breach of contract (Art 49(1)(a) CISG); or if in case of non-delivery, the seller does not deliver the goods within the additional period of time fixed by the buyer in the accordance with Art. 47(1) CISG, or declares that he will not deliver within the period so fixed (Art. 49(1)(b) CISG). Due to clause 7 d) of the Distribution Agreement (and compliant to Art. 6 CISG), each party to the contract is entitled to terminate the agreement "with immediate effect" if, for substantive grounds, a continuation of the contract would be unreasonable. This is the case in particular, when a party does not pay after an additional deadline that was set has unsuccessfully expired.

Here [Seller] is not only in default of delivery. Abandoning the further development of the software, which, according to the agreement of 21 December 1994, had to be compatible with the Windows and MS/DOS operating systems, [Seller] frustrated the purpose of the agreement. Therefore, [Seller] is unable to comply with its obligation to deliver Phoneboards that meet the contractually agreed requirements. This constitutes a substantive ground to terminate the contract under clause 7 d) of the Distribution Agreement. It is unreasonable for [Buyer] to adhere to the contract under the given circumstances. Similar to cases mentioned in Art. 49(1)(a) CISG, [Seller]'s behavior amounted to a fundamental breach of contract and thus entitles [Buyer] to terminate the agreement without further notice. There are no specific requirements as regards explicit or other form (1 Ob 74/99k; 1 Ob 292/99v; SZ 69/26) or time (1 Ob 292/99v). Clearly, [Buyer] declared the contract avoided in its letter of 15 October 1996 and thereafter repeatedly during the trial. According to Art. 81 CISG, [Buyer] is released from its obligation to pay for the deliveries that had been made. Hence, the question whether the defective deposit would entitle [Buyer] to hold back payment, does not need to be addressed.

[Buyer]'s appeal is therefore justified. The ruling of the Court of First Instance is to be changed into a dismissal of [Seller]'s claim.

The decision on the costs of the proceedings in the First Instance relies upon 41 of the Austrian Code of Civil Procedure (Zivilprozessordnung; ZPO). The costs of the appeal are attributed pursuant 50 of the Austrian Code of Civil Procedure (Zivilprozessordnung; ZPO).

As the case does not address relevant questions of law qualifying under 502(1) of the Austrian Code of Civil Procedure (Zivilprozessordnung; ZPO), further appeal (ordentliche Revision) is not admissible.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee of Germany is referred to as [Seller]; the Austrian Defendant-Appellant is referred to as [Buyer].

** Veit Konrad has studied law at Humboldt University, Berlin since 1999. During 2001-2002 he spent a year at Queen Mary College, University of London, as an Erasmus student.

*** Jan Henning Berg is a law student at the University of Osnabrück, Germany, who participated in the 13th Willem C. Vis Moot with the Osnabrück team. He has coached the team of the University of Osnabrück for the 14th Willem C. Vis and the 4th Willem Vis (East) Moot.

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