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CISG CASE PRESENTATION

Germany 12 March 2001 Appellate Court Stuttgart (Apple juice concentrate case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010312g1.html]

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

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Case identification

DATE OF DECISION: 20010312 (12 March 2001)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 5 U 216/99

CASE NAME: German case citations do not identify parties to proceedings

CASE HISTORY: 1st instance LG Stuttgart (20 O 331/97) [affirmed]

SELLER'S COUNTRY: Austria (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Apple juice concentrate and strawberries


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 35 ; 38 ; 47 ; 49(1)(a) ; 82 [Also cited: Articles 45 ; 50 ; 83 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach];

35A [Conformity of goods: quality required by contract];

38A ; 38B [Time for examination of goods: buyer's obligation to examine goods; When contract involves carriage of goods, postponemen until after arrival at destination];

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

49A [Buyer's right to avoid contract: grounds for avoidance];

82A1 ; 82B [Buyer would have right to avoid contract except inability to return goods in same condition; However, even where inability, buyer may have right to avoid where exceptions apply: burden of proof on buyer to establish exceptions]

Descriptors: Fundamental breach ; Avoidance ; Nachfrist ; Conformity of goods ; Aliud vs. peius ; Restitution ; Restitution ; Burden of proof ; Examination of goods

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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

German: Juris Web - Einfach mehr Wissen

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/841.pdf>; OLGR Stuttgart (2002) 148-151

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 38 para. 10; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at pp. 301, 378

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Case text (English translation)

Queen Mary Case Translation Programme

Court of Appeals (Oberlandesgericht) Stuttgart

12 March 2001 [5 U 216/99]

Translation [*] by Ruth M. Janal [**]

Edited by Jan Henning Berg [***]

AWARD

   -    Defendant-Apellant [Buyer]'s appeal against the judgment of District Court (Landgericht) Stuttgart of 16 July 1999, case docket 29 O 331/97 is repealed.
 
   -    [Buyer] bears the costs of appellate proceedings.
 
   -    The judgment is preliminarily enforceable. [Buyer] may avert enforcement by Plaintiff-Appellee [Seller] by security deposit in the amount of Deutsche Mark [DM] 150,000 unless [Seller] effects a security deposit in the same amount before enforcement. The security may be effected through written, unlimited, unconditional and irrevocable self-debt bail at a bank which is approved in the European Union as customs and tax guarantor.

FACTUAL BACGROUND

[Seller], whose place of business is in W. [Austria], demands from [Buyer], whose place of business is in H. [Germany], payment of delivered goods. [Seller] asserts a claim for payment of the purchase price for apple juice concentrate delivered in January of 1997 in the overall amount of DM 174,053.10 and a claim for the remainder of the purchase price for strawberries delivered in April of 1997 in the amount of DM 33,261.19.

In January of 1997, [Buyer] ordered from [Seller] 100,000 kg Polish apple juice concentrate at a price of DM 1.69 per kilogram. [Seller] confirmed the order in writing on 16 January 1997. [Seller] purchased the juice concentrate from Company H., whose place of business is in L. [Poland] and who, in turn, had the juice produced by a business in K. [Poland]. It was here where the goods were loaded onto four tank wagons. In accordance with the parties' agreement, the first tanker supply was delivered to [Buyer]'s customer, S. Ltd. in P., on 24 January 1997; the further tankers arrived on 27 January 1997.

Upon the goods' arrival, [Buyer]'s customer had samples taken which were initially subjected to a rough or control analysis by Company F.-L. Ltd. At least at that point in time, Company F.-L. Ltd. was almost exclusively acting for [Buyer]'s customer. During this initial control analysis, which lasted approximately two to two and a half hours, only a few parameters were checked and no conspicuousness was detected. Afterwards, the goods were filled into stationary tanks and mixed with the products from other suppliers. Furthermore, [Buyer]'s customer started diluting the concentrate to drinking strength and filled the product into individual tetra packs.

It was then discovered through the detailed analysis made by Company F.-L. Ltd. on 28 January 1997, that glucose syrup had been added to the apple juice concentrate delivered by [Buyer]. The result of this analysis was confirmed by an inspection carried out by Company GfL Ltd. on behalf of [Buyer]'s customer on 6 February 1997. Reserve samples kept by [Buyer]'s customer were used for this inspection. After [Buyer]'s customer complained to [Buyer] of the added sugar with fax of 28 January 1997, [Buyer] itself gave notice complaining of the lack of conformity to [Seller] by letter of 29 January 1997. When the results of the analysis undertaken by Company GfL Ltd. arrived, [Buyer] again notified [Seller] of the non-conformity by letter of 6 February 1997. The letter ends with the closing remark: "We will now approach the unwinding of this complaint cautiously and step-by-step and will keep you updated in accordance with our own level of information."

By letter of 26 February 1997, [Buyer] requested [Seller] to make a substitute delivery of the agreed amount of apple juice concentrate and fixed an additional period of time for the performance. [Buyer] announced that it would declare the contract avoided in case [Seller] failed to effect the substitute delivery within the stipulated period of time. At the same time, [Buyer] informed [Seller] that its customer had already produced 501,000 tetra packs at 0.75 liters each from the goods delivered by [Seller] and mixed them with other supplier's products. For the time being, the sale of these packages was frozen and the goods stored, which was why [Buyer]'s customer had announced a considerable damages claim against [Buyer]. However, [Buyer] had been able to reach an agreement with its customer that all -- including future -- reciprocal claims resulting from the non-conforming deliveries were considered settled and the deliveries were to be regarded as not having occurred. This agreement did not extend to the transport, customs and analysis costs borne by [Buyer], which -- in [Buyer]'s opinion -- had to be reimbursed by [Seller].

Since a substitute delivery had not been effected until that point in time, [Seller] declared the contract avoided by letter of 26 March 1997.

[Seller] requests full payment of its deliveries, both with respect to the apple juice concentrate and the strawberries. The District Court (Landgericht) partially granted the claim in the amount of DM 108.806,65 and dismissed the remainder of the claim.

[Buyer]'s appeal is without success.

EXCERPT FROM REASONS FOR THE DECISION

The appeal is not successful.

I.  The District Court correctly held that the legal relationship between the parties established in January 1997 is governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG).

II. The Court furthermore agrees with the District Court that [Seller] was unable to prove that the delivered apple juice concentrate conformed to the contract at the time of the passing of risk. [...]

III. In the opinion of the Court, [Buyer] was nevertheless not entitled to declare the contract avoided under Art. 49 CISG.

      1. Regarding goods that do not conform to the specifications of the contract, the CISG does not distinguish between the delivery of defective goods and the delivery of different kinds of goods. The delivery of an aliud does in any case not constitute a non-delivery in the meaning of Art. 49(1)(b) CISG (cf. BGHZ [*] 132, 290 (296 et. seq.) = MDR [*] 1996, 788; Staudinger/Magnus, 13th ed., 1999, Art. 49 n. 22 with further references). Therefore, avoidance of contract can only be based on Art. 49(1)(a) CISG in the present case.

In the Court's opinion, [Buyer] is not entitled to declare the contract avoided because there is no fundamental breach of contract in terms of Art. 49(1)(a) CISG. Following the definition in Art. 25 CISG, a breach of contract is fundamental if it results in such detriment to the other party as substantially to deprive it of what that party is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind could not have foreseen such a result.

The goods delivered by [Seller] had been mixed with glucose syrup and could therefore no longer be referred to as apple juice concentrate; drinks produced from it could not be traded as apple juice. Consequently, the goods did not conform to the contract.

If the breach of contract -- as in the present case -- consists of a lack of conformity of the goods, it will be decisive whether the Buyer was without unreasonable expenditure able to process the goods differently or sell them in the normal course of business, if only with a price discount, and if the Buyer could reasonably be expected to take such measures (BGH [*] op. cit., Staudinger/Magnus, op. cit., Art. 25 n. 12; Achilles, Kommentar zum UN-Kaufrechtsübereinkommen, Art. 25 n. 4).

It is true that [Buyer] submitted before the Court of First Instance that its customer, Company S., had been unable to use the delivered concentrate, so that the goods had to be destroyed. However, before the first hearing in the appellate proceedings, [Buyer]'s attorney in his brief of 6 April 2000 pleaded that the goods were in the end used -- in a permissible way -- for the production of apple fruit drinks after all [Translator's note: These drinks, in contrast to "apple juice" may contain sugar additives]. It is the Court's opinion that the fact that [Buyer]'s customer did in the end process and trade the goods speaks against assuming a fundamental breach of contract in the meaning of Art. 49(1)(a) CISG in the present case.

      2. Even if the delivery of the sugared goods was to be considered a fundamental breach of contract in the meaning of Art. 49(1)(a) CISG -- an opinion that could be based upon the fact that [Buyer] explicitly ordered apple juice concentrate, which was why [Seller] had to assume that the receipt of unsugared goods usable for the production of apple juice mattered to [Buyer] -- [Buyer] would still not have been entitled to declare the contract avoided.

It needs to be pointed out that [Buyer] did not lose the right to declare the contract avoided under Art. 49(2)(b). [Buyer] declared avoidance of contract by letter of 26 March 1997. This was after the additional period of time for the delivery of goods that conformed to the contractual specifications -- which had been set on 19 March 1997 in accordance with Art. 47 CISG until 26 March 1997 -- had expired without [Seller] performing a substitute delivery. If one assumes a fundamental breach of contract, the requirements for the setting of an additional period of time for the delivery of substitute goods in the meaning of Art. 46(2) CISG are met: [Seller] was notified of the lack of conformity of the delivered concentrate with [Buyer]'s letter of 29 January 1997 and [Buyer] required [Seller] to make a substitute delivery with letter of 26 February 1997.

      3. However, [Buyer] in any case lost the right to declare the contract avoided under Art. 82(1) CISG.

            a) In accordance with Art. 82(1) CISG, the [Buyer] loses the right to declare the contract avoided if it is impossible for [Seller] to make restitution of the goods substantially in the condition in which it received them. In the present case, the delivered goods were mixed with the products of different suppliers by [Buyer]'s customer and contractual partner, Company S., so that a restitution of the goods in its original condition is no longer possible following [Buyer]'s own submissions.

            b) Art. 82(1) CISG does not apply if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the [Buyer] in the course of normal use before it discovered or ought to have discovered the lack of conformity (Art. 82(2)(c) CISG)). Once it has been established that the preconditions of Art. 82(1) CISG are met, the burden of proof for the exceptions provided by Art. 82(2) CISG is upon the party who, for the reasons stated in that paragraph, nevertheless holds on to its wish to declare the contract avoided (cf. Staudinger/Magnus, op. cit., Art. 82 n. 32; Achilles, op. cit., Art. 82 n. 10; Baumgärtel/Laumen/Hepting, Handbuch der Beweislast im Privatrecht, vol. 2, 2nd ed., Art. 82 n. 6). In the present case, the burden of proof is on [Buyer], who was unable to establish such proof.

                  aa) [Buyer] may not rely upon the argument that it sold the goods in the normal course of business before it discovered or ought to have discovered the lack of conformity. This is because the case concerns a so-called "Streckengeschäft"; that is, [Seller] was also aware of the fact that the goods were not to be delivered to [Buyer], but directly to [Buyer]'s customer, Company S. in P. The sale to Company C. can therefore not be considered a sale in the normal course of business in the meaning of Art. 82(2)(c) CISG. If one took the opposing view -- as [Buyer] does -- the duty to examine the goods

would not exist in case of a "Streckengeschäft". Such a result is certainly not intended by Art. 82(2)(c) CISG.

                  bb) [Buyer] is furthermore unable to prove that it consumed or transformed the goods in the course of normal use before it discovered or ought to have discovered the lack of conformity. As has already been explained, the case concerns a so-called "Streckengeschäft", with the result that [Buyer]'s customer, Company S., was under the duty to examine the goods. This is particularly true as the examination of the goods was deferred under Art. 38(2) CISG until the arrival of the goods at the place of business of [Buyer]'s customer (cf. Schlechtriem/Schwenzer, Kommentar zum einheitlichen UN-Kaufrecht, 3rd ed., Art. 38 n. 22; Achilles, op. cit., Art. 38 n. 13). The conduct, respectively misconduct, of [Buyer]'s customer therefore needs to be attributed to [Buyer].

                  cc) In the case at hand, [Buyer]'s customer mixed the concentrate delivered by [Seller] with the goods delivered by other suppliers even though [Buyer] ought to have discovered the lack of conformity of the goods beforehand. It is the Court's opinion that [Buyer]'s customer ought to have had the concentrate examined with regard to a possible sugar content. [Buyer]'s customer also ought to have waited for the corresponding analysis results before mixing the product with the apple juice concentrate delivered by other suppliers.

It is true that [Buyer]'s customer waited for the result of the so-called control analysis undertaken by Company F.-L. Ltd. before [Seller]'s goods were mixed with the goods delivered by other suppliers. In this first control analysis -- which takes roughly two to two and a half hours following [Buyer]'s submissions -- the goods were merely examined with respect to a few parameters. At the time, this constituted the standard procedure of [Buyer]'s customer, respectively, of Company F.-L. Ltd. It is undisputed that the goods were initially not examined for sugar additives. It was only established in the so-called fine analysis that glucose syrup had been added to the apple juice concentrate. The first results of this fine analysis -- also with respect to the loading of the first tank wagon that had already arrived on 24 January 1997 -- were available on the evening of 27 January 1997. At this point in time, the goods had already been mixed with the goods delivered by other suppliers.

Admittedly, there are no statutory provisions that prescribe an examination of apple juice concentrate before it is processed. However, in the Court's opinion [Buyer]'s customer was held under Art. 38 CISG, 377 HGB [*] to undertake at least an examination of the goods delivered by [Seller] confined to the most important parameters. In doing so, [Buyer]'s customer was held to examine the sugar level of the goods, and to wait for the corresponding results before mixing the goods with other products and processing them. This follows from the fact that all parties involved -- including [Buyer] in its capacity as the trader -- have to ensure the correctness of the goods under the laws for food production and distribution. Since drinks produced from sugared concentrate may not be called "apple juice", but may solely be traded as "fruit juice drink" or "fruit juice nectar", it had to be and could reasonably have been expected that [Buyer]'s customer would examine the concentrate delivered by [Seller] for added sugar before it would begin with the processing or even with mixing the goods.

Due to the explanations of the expert witness Prof. Dr. M., who was commissioned by the Court, the Court is convinced that sugar additives in apple juice concentrate were not as unusual and exceptional in the relevant period of time, that is, in January 1997, that such an adulteration could not or could hardly have been expected. [...]

By not waiting for the results of the analysis regarding the sugar level and by mixing the goods delivered by [Seller] with the product of other suppliers, [Buyer]'s customer therefore acted at its own risk. This was particularly true in view of the fact that the goods could not be returned to [Seller] for this reason. As the conduct of [Buyer]'s customer is to be attributed to [Buyer], [Buyer] also needs to bear this risk with the consequence that [Buyer] is unable to prove that it consumed or transformed the goods in the course of normal use before it ought to have discovered the lack of conformity. If [Buyer]'s customer had waited for the results of the examination regarding the sugar level of the goods, the lack of conformity would have been discovered before the consumption, respectively, the transformation of the goods. As [Buyer] was consequently unable to prove that an exception in the meaning of Art. 82(2)(c) CISG applies, [Buyer] lost the right to declare the contract avoided following Art. 82(1) CISG.

                  dd) Furthermore, [Buyer]'s customer should have been warned by and prevented from mixing and processing the goods by the potassium measurement determined, which was close to the lowest permissible level. According to the explanations of the expert commissioned by the Court, such a low potassium measure is a sure indicator for a possible addition of sugar. [...]

IV. It is true that [Buyer] has explicitly declared an avoidance of contract, which -- as has been shown -- is not permissible in the present circumstances. However, in the Court's opinion such a declaration may also be interpreted as an auxiliary relief, meaning a request for damages under Art. 45 CISG and a reduction of price following Art. 50 CISG. This is particularly the case as [Buyer] declared a set-off with its purported claims against [Seller]'s claim for payment of the purchase price from the contract regarding the disputed delivery of apple juice concentrate and from a contract regarding strawberries.

Despite the fact that [Buyer] lost the right to declare the contract avoided under Art. 82 CISG, it retains all its other rights under the Convention (Art. 83 CISG).

      1. As the goods delivered by [Seller], while of lesser value than apple juice concentrate, were by no means worthless (but could be processed and sold as "apple fruit juice drink"), [Buyer] was entitled to reduce the price.

[Buyer] itself assumes a lower value of the delivered goods of 50%. Due to the expert's explanations in the hearing of 15 January 2001 and its short written statement of 10 January 2001 submitted previously, the Court is convinced that a price reduction of 50% is in fact a rather generous estimate, that is, that a price reduction of at the very most 50% is adequate.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee of Austria is referred to as [Seller]; the Defendant-Appellant of Germany is referred to as [Buyer]. Amounts in German currency (Deutsche Mark) are indicated as [DM].

Translator's note on other abbreviations: BGHZ = Entscheidungen des Bundesgerichtshofs in Zivilsachen [Official Reporter for decisions by the Federal Court of Justice]; HGB = Handelsgesetzbuch [German Commercial Code]; MDR = Monatszeitschrift des Deutschen Rechts [German Law Journal].

** Ruth M. Janal, LL.M (NSW), a Ph.D. candidate at Albert-Ludwig-Universität Freiberg, has been an active participant in the CISG online database of the University of Freiburg.

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

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