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CISG CASE PRESENTATION

Germany 31 October 2001 Supreme Court (Machinery case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/011031g1.html]

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

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Case identification

DATE OF DECISION: 20011031 (31 October 2001)

JURISDICTION: Germany

TRIBUNAL: Bundesgerichtshof [Federal Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: VIII ZR 60/01

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

CASE HISTORY: 1st instance LG Düsseldorf 22 February 2000; 2nd instance OLG Düsseldorf 15 February 2001 (partly reversed)

SELLER'S COUNTRY: Germany (defendant)

BUYER'S COUNTRY: Spain (plaintiff)

GOODS INVOLVED: Machinery


Case abstract

GERMANY: Bundesgerichtshof 31 October 2001

Case law on UNCITRAL texts (CLOUT) abstract no. 445

Reproduced with permission of UNCITRAL

Abstract prepared by Rudolf Hennecke, National Correspondent

This decision by the Federal Supreme Court of Germany deals primarily with the incorporation by reference of standard terms into sales contracts under articles 8 and 14 CISG.

The defendant (seller), a German company, sold to the plaintiff (buyer), a Spanish corporation, a used gear-cutting machine for the price of DM 370,000. The written confirmation of the order by the seller contained a reference to its standard conditions of sale, which were not attached to the confirmation. These standard conditions of sale contained an exemption clause, which excluded any liability for defects of used equipment.

After delivery, the machine could only be rendered operational with the assistance of outside experts. In its claim against the seller, the buyer sought reimbursement for the costs involved.

In an appeal on questions of law, the main question before the Federal Supreme Court concerned the requirements for the incorporation by reference of standard conditions into international sales agreements. The court first observed that the CISG did not provide any specific rules on the incorporation of standard terms by reference. Thus, the general rules on contract formation, articles 14 and 18 CISG, were applicable. Whether the standard terms had become part of the offer had to be determined in accordance with article 8. The court stated that the recipient of an offer must be given a reasonable chance of considering the standard conditions, if these conditions are to become part of the offer. This requires that the recipient is made aware of the offeror’s intention to include the standard terms. Moreover, it also requires that the offeree is sent the standard conditions or otherwise given the opportunity to read them.

The court noted that, due to the differences between the many legal systems and traditions worldwide, standard terms used in one particular country often differ considerably from those used in another. Therefore, knowledge of such terms is vital to the offeree. For a party wishing to rely on these terms it does not constitute any difficulty to attach them to the offer. If the recipient, on the other hand, had to inquire about the standard terms, this would often lead to delay in the formation of the contract, which would be unnecessary and unwelcome to both parties. The court thus concluded that it would contravene good faith in international trade, as embodied in article 7(1) CISG, as well as the parties’ duty to cooperate, to request the offeree to inquire about standard conditions and to hold the offeree liable in case such an inquiry was not made. Therefore, standard conditions could only become part of the offer if they were attached to it or otherwise placed at the disposal of the offeree.

The court observed that this general result was also necessary with regard to the protection of consumers, which was not an issue in this case. Concerning the applicability of the CISG, the court noted that article 1(3) CISG does not distinguish between merchants and other parties, and that only if the seller is aware at the time of contract formation that the buyer is a consumer is the application of the Convention excluded under article 2(a) CISG, consequently, if the seller is not aware of dealing with a consumer, the CISG applies. In such cases, the necessary consumer protection laws also require that the standard conditions are sent with the offer.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 1(3) ; 2(a) ; 4 ; 7(1) ; 8(2), (3) ; 14 ; 18 [Also cited: Articles 35 ; 45 ; 74 ]

Classification of issues using UNCITRAL classification code numbers:

1C1 [Irrelevance of civil or commercial character of parties or contract];

2A1 [Purchases for personal, family or household use (art. 2(a)); exception: seller's lack of knowledge of buyer's purpose - possible conflict with law on consumer protection];

4B [Issues excluded from Convention: validity under domestic law];

7A11 ; 7A3 [International character of Convention: autonomous interpretation v. reliance on domestic law; Observance of good faith: as principle for interpreting Convention];

7C223 [Recourse to general principles on which Convention is based: communication and cooperation (parties' general duty to cooperate)];

8B1 ; 8C [Interpretation based on objective standards (art. 8(2)): understanding of reasonable person of same kind as other party; Interpretation in light of surrounding circumstances (art. 8(3))] ;

14A1 [Basic criterion (intention to be bound in case of acceptance): definiteness of key conditions (inclusion of standard business terms: requirement to include full text of standard terms in offer, mere reference insufficient)];

18D [Other issues concerning acceptance: acceptance of standard terms referred to in offer]

Descriptors: Scope of Convention ; Consumer sales ; Validity ; Internationality ; Good faith ; General principles ; Cooperation ; Intent ; Acceptance of offer ; Standard terms and conditions

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Editorial remarks

Excerpt from Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at 346-349

"When a party seeks to incorporate standard terms into an offer or [page 346] acceptance, courts consider whether such terms have been fairly communicated to the other party. While the CISG does not specifically address the incorporation of standard terms, national courts generally agree that its provisions on contract formation and interpretation determine whether standard terms have been validly incorporated into the contract. An alternative view is that Article 4 makes it clear that the validity of standard terms is beyond the scope of the Convention, so that validity issues are determined by domestic law.[259] Civil law legal systems have emphasized that a party must be reasonably aware of the terms the other seeks to incorporate but how much information about standard terms must be communicated is less clear from the decisions.

"In general, a party that wishes to incorporate standard terms must show good faith efforts to communicate those terms to the other party. Failure to provide standard terms in the other party's language, failure to note that standard terms are listed on the back of a form, and failure to provide the text of standard terms have lead courts to exclude such terms from the contract. In ISEA Industrie S.p.A. v. Compagnie d'Assurances,[260] a French court held that where the buyer's standard terms were printed on the back of a form and the seller had signed only the front page, the standard terms were not part of the contract. The court held that the terms of the contract had already been determined and the seller's attempt to impose additional terms was ineffective. A German court, however, held that where standard terms were printed on the back of the order form in both parties' languages and the front side of the order form specifically referred to the standard terms, the terms were validly incorporated into the contract.[261] Likewise, where an offer made reference in bold letters to particular industry standards and the seller made repeated reference to such standard throughout negotiations, the buyer was aware or should have been aware that the general conditions were part of the agreement, according to Articles 8(1) and (3).[262] [page 347]

"The Federal Supreme Court of Germany addressed the issue of the type of information needed to prove intent to standard or general terms [in this case].[263] Using Articles 14 and 18, supplemented by Article 8's rules on interpretation, the court held that the seller's "Sales and Delivery Terms," which included a notice of warranty exclusion, were not part of the parties' contract. Although the contract referred to such terms, a copy of the seller's Sales and Delivery Terms was never transmitted to the buyer. The court held that "the user of general terms and conditions is required to transmit the text to the other party or make it available in another way."[264] According to the court, the burden to provide the terms was on the party wishing to insert such clauses.[265] The court emphasized the fact that parties to an international contract should not be expected to know the particular terms and conditions that might be familiar to parties that share the same national legal system and business customs.[266] Requiring one party to make general terms and conditions available to the other party, would, according to the court, promote the CISG's goals of good faith and uniformity. [267] Similarly, an Austrian court held that a seller's attempt to incorporate standard terms requiring a contract to be in writing was not valid.[268] Although the seller had proposed such terms as part of a master contract prior to a subsequent sales contract, the master contract was never concluded, so that reference to terms in that agreement could not be binding on the buyer in the subsequent contract.[269] The court recognized that contractual negotiations, prior practices and trade usages may provide evidence that the offeree was aware of the inclusion of standard terms. This transaction was the parties' first together, however, and the court found that [page 348] the offeree had no reason to be aware that the general terms were to be included in this deal.[270]" [page 349]

259. See Dr. Martin Schmidt-Kessel, On the Treatment of General Terms and Conditions of Business under the UN Convention on Contracts for the International Sale of Goods (CISG), [text presented below] (criticizing interpretation of German Federal Supreme Court of 31 October 2001, VII ZR 60/01 in which the Supreme Court held that "the user of general terms and conditions is required to transmit the text to the other party or make it available in another way").

260. Cour d'appel [Appeal Court][C.A.] Paris 95-018179, Dec. 13, 1995 (Fr.), available at <http://cisgw3.law.pace.edu/cases/951213f1.html> [English translation by Charles Sant 'Elia]. In the same case, the court held that standard terms in a confirmation letter from the seller were not valid when the letter was sent after the contract had been performed.

261. Amtsgericht [Petty District Court][AG] Nordhorn 3 C 75/94, Jun.14, 1994 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/940614g1.html> [English translation by Ruth M. Janal].

262. [...] Tribunal [District Court] de Commerce Nivelles, [Kh] R.G. 1707/93, Sept. 19, 1995 [(Belg.)], available at <http://cisgw3.law.pace.edu/cases/950919b1.html> [English translation by Julien Soupizet, translation edited by Thalia Kruger].

263. BGH VII ZR 60/01, Oct. 31, 2001 [(F.R.G.)] [text presented below].

264. Id.

265. Id.

266. Id.

267. Id. Although the court relied on the CISG, it also noted that the Uniform Sales Law requires users of general terms and conditions to transmit the text or make it available in another way. The Supreme Court of Germany's decision to require the terms to be transmitted has been criticized as "contrary to commercial practice." Whether or not the terms should be incorporated in the contract should turn on whether a reasonable party was aware or could not have been unaware of the intent to include such terms. One author maintains that a general duty to transmit standard terms goes too far and is not supported by the Convention. This author fears that the development of a general duty to transmit may prevent even better known standard terms from being included, absent transmission. See Schmidt-Kessel, supra note 259 ("The development of a general duty to transmit without recognizable exceptions would have the effect that other, better known standard clauses -- such as Incoterms 2000, the several ECE-Terms, or branch-specific terms such as GAFTA 100 or the rules of the Sugar Association of London -- could not become the basis of contracts without being transmitted.").

268. OGH, SZ 10 Ob 518/95, Feb. 6, 1996, supra note 134.

269. Id.

270. Id. Another Belgian case stated that standard terms regarding contractual damages mentioned in a seller's invoice were not part of the contract because there was no evidence that the buyer had knowledge of the standard terms and so could not accept them. The written contract did not include or even mention the standard terms. See Rechtbank van Koophandel Veurne [District Court] [Kh] A/00/00665, Apr. 25, 2001 (Belg.), available at <http://cisgw3.law.pace.edu/cases/010425b1.html> [English translation by Vincent Naveaux, translation edited by Sieg Eiselen].

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=736&step=Abstract>

German: [2001] Eildienst: Bundesgerichtliche Entscheidungen (EBE/BGH), BGH-Ls 672/01

CITATIONS TO TEXT OF DECISION

Original language (German): Click here for this text; see also cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/617.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=736&step=FullText>; [2001] BGHZ No. 149, 113; [2001] Neue Juristische Wochenschrift (NJW) 370-372; [2001] Zeitschrift für Wirtschaftsrecht (ZIP) 133-136; Internationales Handelsrecht (IHR) [2002] 14-16

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Martin Schmidt-Kessel, text presented below; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 7-2 n.20; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 1 para. 59 Art. 7 para. 30 Art. 8 paras. 38, 52, 53 Intro. 14-24 para. 9 Art. 14 para. 16 Art. 45 para. 36 Art. 74 para. 48; Peter Huber, in: Huber & Mullis, "The CISG: A new textbook for students and practitioners", Sellier European Law Publishers (2007) 30-33

French: Limbach, Receuil Dalloz - Cahier Droit des Affairs No. 34 (October 2003) 2362

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Case text (English translation)

German Federal Supreme Court (Bundesgerichtshof)

October 31, 2001 [VIII ZR 60/01]

Translation edited by William M. Barron and Birgit Kurtz, Alston & Bird LLP

Facts

Defendant No. 1 [seller] sold to the plaintiff [buyer], a company located in Spain, pursuant to an order confirmation of June 25, 1998, "based" on [seller's] Sales and Delivery Terms, a used computer-controlled CNC rolling-milling machine of the make L., model L 1202, year of manufacture 1981, "incl. the provision of an L. mechanic at your plant for the duration of one business day" for the price of DM [Deutsche Mark] 370,000; the Sales and Delivery Terms of the [seller], according to which used machines are sold and delivered "without any warranty against defects," were not attached to the order confirmation of June 25, 1998.

After the machine was transported to Spain by a moving company hired by the [buyer], the [buyer] had the machine installed and connected by a Spanish company. Mechanic A., who was dispatched by company L., was unable to put the machine into operation during his visits of July 15 - 18, 1998 and July 21 - 27, 1998. With the assistance of an electronics specialist from company L., only during a third visit of September 28 to October 1, 1998, were the problems resolved; since then, the machine has been working without problems.

The Plaintiff [buyer] demands from the Defendant No. 1 [seller], and from Defendant No. 2, the personally liable shareholder, the damages that arose in connection with this work. The Landgericht [Regional Court, Court of First Instance] granted the [buyer's] claim in the amount of DM 46,519.18 plus interest and dismissed [buyer's] claim with respect to an amount of DM 3,449.57. The Court viewed the order confirmation of June 25, 1998 as providing that the [seller], by promising to provide a mechanic for the duration of one business day, wanted to be responsible for the successful putting into operation of the machine, so that the [seller] was responsible for dispatching a sufficiently qualified technician and is liable for the costs of the technically under-qualified mechanic A. The Oberlandesgericht [Court of Appeals, Court of Second Instance] vacated the judgment of the Court of First Instance insofar as the Defendants were found liable to pay and remanded the matter to the Lower Court.

With their - permissible - appeal, the Defendants further pursue their motion to dismiss.

Reasons for the decision

I. The Court of Appeals explained that the proceeding in the Lower Court suffers from a material defect because the Court of First Instance did not completely understand and take into consideration the statements of the [seller] concerning the "provision of an L. mechanic," thus incorrectly interpreted the agreement of the parties and, on this basis, omitted the necessary further clarification. The duty to "provide an L. mechanic … for the duration of one business day" is already "per se," according to its wording, unambiguous and not to be interpreted the way the appealed decision did. The undisputed statements of the [seller] that the agreement was reached within the framework of the price negotiations after the [seller] was not prepared to agree to further price reductions and the [buyer] pointed to its costs for the installation and instruction, squarely contradicts the interpretation of the Court of First Instance. Against this background, the Court of Appeals held that the temporally clearly-defined promise to "provide an L. mechanic" must be deemed a financial accommodation alone.

The Court of Appeals held that the lawsuit is also not ripe for decision for any other reason. The [buyer] has properly pleaded a claim for damages under Arts. 45(1)(b), 35(1), 74 CISG against the [seller], for which Defendant No. 2 is liable under §§ 162(2), 128 HGB.[*] The [seller] has not effectively precluded its liability for any breach of contract. Because the [seller's] Sales and Delivery Terms were not made applicable to the contractual relationship pursuant to the CISG, the warranty exclusion in that body of law does not apply. The decision of the lawsuit, thus, depends on whether the rolling-milling machine was afflicted with a defect that was covered by a warranty at the time of the transfer to a freight carrier and what costs arose from its removal. The Court of First Instance must evaluate the evidence relating to this issue.

II. These arguments do not withstand legal scrutiny in all respects.

       1. The appeal successfully argues that the conditions of a remand by the Court of Appeals to the Court of First Instance under § 539 ZPO [*] were not met.

a) According to the jurisprudence of the German Federal Supreme Court, a serious procedural error within the meaning of § 539 ZPO is only given when the proceeding in the Trial Court suffers from such a vital defect that it cannot be the proper foundation for a final judgment. The rule in § 539 ZPO, which presents an exception to the duty under § 537 ZPO of the Court of Appeals to fully analyze and decide the matter again, must be narrowly interpreted (Federal Supreme Court, Decision of December 1, 1993 - VIII ZR 243/92, NJW-RR 1994, 377 = BGHR ZPO § 539 procedural defect 12 under II 1; Federal Supreme Court, Decision of December 10, 1996 - VI ZR 314/95, NJW 1997, 1447 = BGHR ZPO §539 procedural defect 16 under II 2 a, each with further citations). Mistakes in the interpretation of a contract by the Trial Court are generally defects in the application of substantive law and, therefore, do not justify the remand of the matter under § 539 ZPO. The interpretation of a contract can, however, in special cases, be based on procedural errors, e.g., if the Court not only improperly evaluated the content of contractual provisions or not only did not grant them the necessary significance, but when obvious contractual provisions were not noted at all or were linguistically misunderstood (Federal Supreme Court, Decision of November 3, 1992 - VI ZR 362/91, NJW 1993, 538 = BGHR ZPO § 539 procedural defect 10 under II 2 a, with further citations; Federal Supreme Court, Decision of March 19, 1998 - VII ZR 116/97, NJW 1998, 2053 = BGHR ZPO § 539 procedural defect 17 under II 1, in BGHZ 138, 176 et seq., not printed).

b) When considering these principles, a serious procedural defect by the Court of First Instance cannot be found. The Court of First Instance interpreted the agreement, according to which the [seller] had to provide the [buyer] with an "L. mechanic" for one business day in Spain, to contain a duty of the [seller] to successfully put into operation the rolling-milling machine. The Court of Appeals, on the other hand, viewed the agreement as "per se" unambiguous and not subject to interpretation; the Court of Appeals held that, in any event, the interpretation by the Court of First Instance is "squarely" contradicted by the undisputed statements of the [seller], which have not been taken into consideration by the Court of First Instance, that the agreement was entered into within the framework of the price negotiations after the [seller] was not prepared to agree to further price reductions and the [buyer] pointed to its costs for the installation and instruction. The Court of Appeals, therefore, viewed the temporally-fixed promise to provide a mechanic merely as a financial accommodation, not as an obligation to provide a success-based secondary duty exceeding the duty to deliver the machine. The Court of Appeals, thus, believed that a violation by the Court of First Instance of generally accepted principles of interpretation is present because not all the facts that are material for the interpretation were taken into consideration. Such a violation does not, however, represent a procedural defect but a mistake in the interpretation of substantive law (Federal Supreme Court, Decision of November 3, 1992, supra; Federal Supreme Court, Decision of March 19, 1998, supra). Even if the Court of First Instance did not expressly address the [seller's] statements concerning the negotiations, it cannot be assumed from that Court's decision that it did not consider the statements and, thus, violated the [seller's] right to be heard. Rather, the Court of First Instance interpreted the statements of the [seller] as to their legal significance and scope different from the Court of Appeals (Federal Supreme Court, Decision of November 3, 1992, supra, under II 2 b).

       2. Because of the lack of a serious procedural error by the Court of First Instance, the appealed decision can therefore not stand.

III. The Panel is, however, not able to issue its own decision pursuant to § 565(3) (No.1) ZPO. It is true that such a decision is available to the Supreme Court in the case of a vacating decision by the Court of Appeals for reasons of judicial economy if the analysis to be performed under § 539 ZPO [*] shows that the substantive analysis of the relationship between the parties leads to a final and conclusive result (Decision of the Panel of January 31, 1996 - VIII ZR 324/94, WM 1996, 822 under III; Decision of the Panel of January 22, 1997 - VIII ZR 339/95, WM 1997, 1713 under II 4; Federal Supreme Court, Decision of April 3, 2000 - II ZR 194/98, NJW 2000, 2099 = BGHR ZPO § 539 remand 2 under B II 3 a). That would be the case if the [seller] had effectively precluded its liability for breach of contract within the meaning of Art. 45 CISG. As the Court of Appeals correctly found, however, a valid inclusion of the Sales and Delivery Terms of the [seller], which provide the exclusion of warranties for used machines in Item No. 6, into the agreement existing between the [buyer] and the [seller], is missing.

       1. According to the general view, the inclusion of general terms and conditions into a contract that is governed by the CISG is subject to the provisions regarding the conclusion of a contract (Arts. 14, 18 CISG); recourse to the national law that is applicable based on a conflict of laws analysis is generally not available (Staudinger/Magnus, 2000, Art. 14 CISG ¶ 40; Schlechtriem/Schlechtriem, CISG, 3d ed., Art. 14 ¶ 16; Soergel/Lüderitz/Fenge, 13th ed., Art. 14 CISG ¶ 10; Schmidt in Ulmer/Brandner/Hensen, AGBG, 9th ed., Appendix § 2 ¶ 12; Lindacher in Wolf/Horn/Lindacher, AGBG, 4th ed., Appendix § 2 ¶ 76; Piltz, International Sales Law, 1993, Art. 3 ¶ 75; Piltz, NJW 1996, 2768, 2770). The CISG does not, however, contain special rules regarding the inclusion of standard terms and conditions into a contract. This was not deemed necessary because the Convention already contains rules regarding the interpretation of contracts (Schlechtriem/Schlechtriem, supra, fn.100).

       2. Thus, through an interpretation according to Art. 8 CISG, it must be determined whether the general terms and conditions are part of the offer, which can already follow from the negotiations between the parties, the existing practices between the parties, or international customs (Art. 8(3) CISG). As for the rest, it must be analyzed how a "reasonable person of the same kind as the other party" would have understood the offer (Art. 8(2) CISG).

It is unanimously required that the recipient of a contract offer that is supposed to be based on general terms and conditions have the possibility to become aware of them in a reasonable manner (Staudinger/Magnus, Art. 14 ¶ 41; Schlechtriem/Schlechtriem, supra; Soergel/Lüderitz/Fenge, supra; Reithmann/Martiny, International Sales Law, 5th ed., ¶ 651). An effective inclusion of general terms and conditions thus first requires that the intention of the offeror that he wants to include his terms and conditions into the contract be apparent to the recipient of the offer. In addition, as the Court of Appeals correctly assumed, the Uniform Sales Law requires the user of general terms and conditions to transmit the text or make it available in another way (see also Piltz, Sales Law, § 3 ¶ 77 et seq.; Piltz, NJW, supra; Teklote, The Uniform Sales Law and the German Law on General Terms and Conditions, 1994, p. 112 et seq.; Hennemann, General Terms and Conditions Control and the CISG from the German and French Viewpoints, Ph.D. Thesis 2001, p. 72 et seq.; similarly, Staudinger/Magnus, supra, with reference to the Supreme Court of Austria, RdW 1996, 203, 204, with an annotation by Karollus RdW 1996, 197 et seq.; different view, Holthausen, RIW 1989, 513, 517).

The opponent [other party] of the user of the clause can often not foresee to what clause text he agrees in a specific case because significant differences exist between the particular national clauses in view of the different national legal systems and customs; also, a control of the content of general terms and conditions under national law (Art. 4 (second sentence)(a) CISG) is not always guaranteed (Soergel/Lüderitz/Fenge, supra). It is true that, in many cases, there will be the possibility to make inquiries into the content of the general terms and conditions. This can, however, lead to delays in the conclusion of the contract, in which neither party can have an interest. For the user of the clauses, however, it is easily possible to attach to his offer the general terms and conditions, which generally favor him. It would, therefore, contradict the principle of good faith in international trade (Art. 7(1) CISG) as well as the general obligations of cooperation and information of the parties (Staudinger/Magnus, Art. 7 ¶ 47; Schlechtriem/Ferrari, Art. 7 ¶ 54) to impose on the other party an obligation to inquire concerning the clauses that have not been transmitted and to burden him with the risks and disadvantages of the unknown general terms and conditions of the other party (Teklote, supra, p. 114; Hennemann, supra, p. 74).

       3. Insofar as the general terms and conditions at issue become a part of the contract under German non-CISG law and/or in commercial relations between merchants where the customer does not know them but has the possibility of reasonable notice - e.g., by requesting them from the user (compare BGHZ 117, 190, 198; Panel Decision of June 30, 1976 - VIII ZR 267/75, NJW 1976, 1886 under II 1, each with further citations), this does not lead to a different result. In the national legal system, the clauses within one industry sector are often similar and usually known to the participating merchants. To the extent that this does not apply to a commercially-active contract party, it can be expected of him, in good faith, that he make the clauses available to the other party, if he wants to close the deal - as offered by the user based on the general terms and conditions. These requirements do not, however, apply to the same extent to international commercial relations, so that, under the principles of good faith of the other party, a duty to inquire cannot be expected of him.

       4. The Court of Appeals correctly notes that, pursuant to Art. 1(3) CISG, it is irrelevant to the application of the Convention whether the parties are "merchants or non-merchants," so that, in a different interpretation, non-merchants would also be subject to the heightened duty of inquiry. To the extent that the appeal argues that a "consumer purchase" under Art. 2(a) CISG is excluded from the application of the Convention, this argument cannot be followed. The purchase referred to in Art. 2(a) CISG requires that the seller know or should have known the purpose before or at the time of the conclusion of the contract, whereas, if the buyer is a consumer within the meaning of § 13 BGB [*], it does not require such knowledge of the seller. This can, therefore, lead to an overlap, where sales contracts are subject to binding national consumer protection laws and, at the same time, to the CISG (Staudinger/Magnus, Art. 2 ¶ 29; Schlechtriem/Ferrari, Art. 2 ¶ 24). In the interest of a practical application of the law as well as to avoid discrimination against non-commercial contract parties, it is, therefore, necessary to make the inclusion of general terms and conditions for contracts governed by the CISG subject to uniform principles.

       5. If, therefore, the effective inclusion of the Sales and Delivery Terms of the [seller] into its contract with the [buyer] is missing, the objections raised - in the alternative - by the [buyer] against the effectiveness of a complete exclusion of warranties in the sale of used machines, is irrelevant.

IV. The appealed judgment is thus vacated, and the matter remanded to the Court of Appeals for further clarification concerning the defects in the delivered rolling-milling machine alleged by the [buyer] and, if appropriate, concerning the extent of the necessary expenses for removal.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Spain is referred to as [buyer], Defendant No. 1 of Germany is referred to as [seller], and Defendant No. 2, the personally liable shareholder of Defendant No. 1, remains referred to as Defendant No. 2. Also, monetary amounts in German currency (Deutsche Mark) are indicated by [DM].

Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; HGB = Handelgesetzbuch [German Commercial Code]; ZPO = Zivilprozessordnung [German Code of Civil Procedure].

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Case Commentary

On the Treatment of General Terms and Conditions of Business under the UN Convention on Contracts for the International Sale of Goods (CISG)

Commentary on decision of German Federal Supreme Court of 31 October 2001 [VII ZR 60/01] [1]

By Dr. Martin Schmidt-Kessel

Translation [*] by Todd J. Fox

Introduction
I.  The Decision of the Federal Supreme Court
II. Inclusion "Control" under the CISG
     1. The Inclusion of Standard Terms According to the Convention
     2. Awareness of Party Intent
     3. Duty to Transmit

a) Considerations of speed and cooperation
b) Consumer protection
c) Hidden content control [versteckte Inhaltskontrolle]
d) A deviating foreign decision
     4. Consequences
Comments on Content Control

INTRODUCTION

The use of general terms and conditions of business (standard terms) is part of the daily bread of international commerce. For some branches and types of business, standard terms have attained such an importance that a separate normative value is ascribed to them and the principles contained within them under the heading "lex mercatoria."[2] Such clauses are in any case generally suitable to establish usage of trade and guidelines of contract interpretation for the branch of business concerned.[3] However, beneath this threshold, under what conditions do the standard terms of the individual parties become part of the contracts they conclude? It was this question that the VIIIth Panel of the Federal Supreme Court had to ask itself with regard to contracts subject to the CISG in the decision commented upon.

The question concerning the inclusion of standard terms in a contract under the CISG becomes even more important due to the common practice of excluding the application of the Convention in standard terms.[4] Whether such standard terms effectively become part of the contract is predominantly decided by the CISG itself and not by autonomous national law.[5]

The reason for this lies in Art. 1(1)(b) CISG, which makes the Convention national substantive law for international sales contracts. Should the parties wish to exclude the Convention in their standard terms, then their rules on inclusion, as part of the national law of the relevant Contracting State designated through the rules of private international law, decide over the effectiveness of that exclusion.[6] The conflicts of law rule that the validity of a choice of law agreement depends on the intended legal system [7] is not applicable to this purely substantive exclusion of the CISG. This result could only be avoided by choosing the law of a Non-Contracting State, which is usually not an attractive option.

I. THE DECISION OF THE FEDERAL SUPREME COURT

The German defendant had sold the Spanish plaintiff a used machine. According to the seller's Sales and Delivery Terms, used machines are sold "without any warranty against defects." The seller's order confirmation was expressly "based" on its Sales and Delivery Terms, which, however, were not enclosed with the order confirmation. The buyer later requested damages suffered due to difficulties in getting the machine to operate. The case would have been dismissed before the Federal Supreme Court had the seller effectively disclaimed its warranty. However, the Supreme Court held that the Sales and Delivery Terms were not part of the contract and remanded the case to the appellate court. Under the CISG - according to the decisive sentence of the decision - "the user of general terms and conditions is required to transmit the text to the other party or make it available in another way."

II. INCLUSION "CONTROL" UNDER THE CISG

The decision causes considerable concern because it oversteps the requirements for the inclusion of standard terms in international contracts for the sale of goods. A general duty to transmit such terms cannot be inferred from the provisions of the CISG. Nor does it accord with the provisions on the substantive sphere of application. This decision therefore goes against the liberal commercial spirit of the Convention.

1. The Inclusion of Standard Terms According to the Convention

The Supreme Court's starting-point is correct:[8] If the CISG is applicable to an international sales contract, then whether standard terms become part of this contract depends on the rules of the Convention.[9] The Convention does not contain any particular rules for this problem and the question is therefore dealt with under the provisions on interpretation (Art. 8 CISG) and contract formation (Arts. 14-24 CISG). With the exception of § 305(2), (3) BGB [*] [special requirements for consumer contracts], this corresponds exactly with the situation in German law. Since, therefore, there is regarding the inclusion of standard terms neither an external gap nor a gap within the meaning of Art. 7(2) CISG, recourse to national law is excluded.

2. Awareness of Party Intent

The buyer had apparently not contested the reference to the Sales and Delivery Terms; decisive for their inclusion in the contract was therefore the interpretation of the seller's order confirmation. If standard terms should be considered part of a contract's formation, then the requirements of Art. 8 CISG must be fulfilled. This provision requires either knowledge or grossly negligent unawareness of the other party's intent (Art. 8(1) CISG), or the corresponding understanding that a reasonable person of the same kind would have had (Art. 8(2) CISG). The Supreme Court concisely but correctly combines these two alternatives into a requirement of awareness of party intent and rightly does not call this into question here.[10]

3. Duty to Transmit

Apart from the requirement of awareness of party intent to include standard terms, the Supreme Court now requires that the terms be transmitted, a position which differs from that supported in the German literature.[11] The Supreme Court also consciously deviates [12] from the prevailing jurisprudence on the inclusion of standard terms under internal German law; this jurisprudence merely demands the possibility for appropriate awareness and therefore allows the possibility to request such terms from the user to suffice.[13] If one takes this decision literally, it even goes beyond the requirements for consumer contracts, since § 305(2) & (3) BGB do not require the standard terms to be conveyed in every case.

An opposing opinion has correspondingly allowed the possibility for appropriate awareness to suffice under the CISG as well.[14] It is certainly possible that Art. 8 CISG might occasionally require such a transmission - or, as likely envisaged by the Supreme Court in view of Internet business, an equivalent way of making such terms available - however, a general duty to transmit rightly finds no support in the Convention. The Supreme Court's three lines of argument can also not establish such a duty.

     a) Considerations of speed and cooperation

     In one argument, the Supreme Court refers to the interest of speed and the duty of cooperation of both parties. The Supreme Court asserts that if one party must first make inquiries about the content of the general terms and conditions, it could lead to delays in the conclusion of the contract. The user of the standard terms, however, can easily supply the terms along with his offer. Furthermore, burdening a party with the risks and disadvantages of non-transmitted clauses through a duty to inquire would contradict Art. 7(1) CISG and the parties' general obligation to cooperate.[15]

Both these arguments are ambivalent. The user of the standard terms willingly assents to a delay due to a duty to inquire when he does not supply his general terms and conditions with his offer. Moreover, the cooperation obligations do not just concern him, but the other party as well; as a general duty to check with the other party, such obligations are set under the objective standard of Art. 8 CISG.

     b) Consumer protection

     In another argument, the Supreme Court refers to the fact that the Convention also is applicable to non-merchants. The diverging delimitation of consumer contracts in Art. 2(a) CISG and § 13 BGB [definition of consumer] could lead to an overlap of legal provisions. "In the interest of a practical application of the law as well as to avoid discrimination against non-commercial parties, it is therefore necessary to make the inclusion of general terms and conditions for contracts governed by the CISG subject to uniform principles."

The Supreme Court is basing its argument here on a distinction unknown to the CISG, namely the difference between commercial and non-commercial parties. In fact, Art. 1(3) of the CISG explicitly rejects exactly this type of distinction. The only boundary that the Convention itself sets is the characteristics of a consumer sale in Art. 2(a) CISG. In introducing - not as a flexible indication, but rather as a normative element such as in § 13 BGB - the figure of the non-commercial contracting party into the interpretation of Art. 8, the decision violates the mandate to promote a uniform interpretation of the Convention. The CISG forbids the consideration of obligatory national consumer protection laws within the sphere of its application.[16]

     c) Hidden content control [versteckte Inhaltskontrolle]

     The actual key to the decision, however, likely lies in the Supreme Court's concern over the lack of assurance of controls on the content of standard terms. The Convention does not expressly regulate this (Art. 4(a) CISG) and leaves such control to the relevant national law. Of course, as the Supreme Court correctly noted,[17] such circumstances do not always ensure control of the content of the terms. The tightening here of the constraints for inclusion is meant to offer a certain substitute; the stated deliberations over consumer protection also attest to this.

However, such a hidden content control on the constraints for inclusion, regardless of the fact that it is known to several legal systems,[18] is not reconcilable with the CISG. This follows first of all from the conscious rejection of validity rules in Art. 4(a) CISG, which forbids imparting the idea of protection against "false" content into the provisions on interpretation and contract formation. Moreover, the catalogue in Art. 19(3) CISG makes clear that contract content is to be guided by agreement and not by conscientious legislative or judicial valuations.

     d) A deviating foreign decision

     Furthermore, the decision of the Federal Supreme Court is open to attack on the basis of Art. 7(1) CISG since the decision does not address the differing opinion of the Tibunal Commercial of Nivelles (Belgium).[19] The issue in that case was whether the mere reference to the standard terms of the Swiss Machine Industry Association by the Swiss seller in his acceptance sufficed for their inclusion in a Swiss-Belgian sales contract. The court, with reference to Art. 8(1), (3) CISG, supposed so and dismissed the action as inadmissible due to the jurisdiction clause contained in the standard terms. In failing to give attention to this decision, the Supreme Court ignores the mandate to promote a uniform interpretation of the Convention.

4. Consequences

Finally, the decision also does not convince because its consequences do not do justice to commercial practice. The development of a general duty to transmit without recognizable exceptions would have the effect that other, better known standard clauses - such as Incoterms 2000, the several ECE-Terms, or branch-specific terms such as GAFTA 100 or the rules of the Sugar Association of London - could not become the basis of contracts without being transmitted. For established market participants, a solution to this problem could easily be found through Art. 9(1) CISG; for new market participants, however, this presents an (surely unwanted) access barrier.

COMMENTS ON CONTENT CONTROL

The Supreme Court did thus not affect a content control; such a control would also probably not have seriously endangered the effectiveness of the clause. Domestic German law, which according to Art. 4(a) CISG and Art. 28(1), (2) EGBGB [*] [terms implied by law on choice of law] would have applied, would have had to answer the question here on the basis of § 9 AGBG [*] [former general clause on content control] (now § 307(1), (2) BGB). The provisions of the Convention, in particular Arts. 45(1)(b), 35(1) and 74 CISG, would have been the proper model to use as a standard for the content control. In accord with the prevailing national jurisprudence on warranty disclaimers in the sale of used goods,[20] which particularly takes into consideration the price reduction allowed in these cases, it would have been reasonable to consider the warranty disclaimer permissible.


FOOTNOTES

* Translator's notes on abbreviations: AGBG = Allgemeine Geschäftsbedingungensgesetz [former General Terms and Conditions of Business Act of Germany]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; EGBGB = Einführungsgesetz zum BGB [Introductory Act to the German Civil Code, containing the conflict of law rules]; HGB = Handelsgesetzbuch [German Commercial Code].

1. Translation of German text of commentary prepared for publication in Neue Juristische Wochenschrift (2002).

2. See Andreas Kappus, "Lex mercatoria" in Europa und Wiener UN-Kaufrechtskonvention 1980: "Conflict avoidance" in Theorie und Praxis schiedrichterlicher und ordentlicher Rechtsprechung in Konkurrenz zum Einheitskaufrecht der Vereinten Nationen (1990); Klaus Peter Berger, Formalisierte oder "schleichende" Kodifizierung des transnationalen Wirtschaftsrechts: zu den methodischen und praktischen Grundlagen der lex mercatoria (1996).

3. Wolfgang Witz et al., international einheitliches kaufrecht: Praktiker-Kommentar und Vertragsgestaltung zum CISG [Commentary on the CISG] vor Art. 14, Rn. 12 (2000); see also Art. 9 CISG, Art. 1.8 UNIDROIT Principles of International Commercial Contracts, § 346 HGB [*], Peter Schlechtriem et al., Kommentar zum Einheitlichen UN-Kaufrecht [Commentary on the CISG] Art. 9, Rn. 8 (3d ed. 2000).

4. This practice clearly seems questionable, especially since with the application of the CISG one of the few possibilities to excape the burdens of the new § 478 BGB [recourse for the seller of consumer goods against his supplier] exists, possibly even with regard to paragraph (4) of this provision. The failure to consider this option in legal consultation could be a liability risk.

5. See Witz et al., supra note 3, at vor Art. 14, Rn. 16.

6. This does not apply for States that have declared a reservation under Art. 95 CISG. Of the 61 Contracting States only China, Saint Vincent and the Grenadines, Singapore, Slovakia, the Czech Republic and the United States have declared such a reservation.

7. Münchener Kommentar zum Bürgerlichen Gesetzbuch [Commentary to BGB] § 12 AGBG, Rn. 27 (4th ed. 2001) [hereafter Münchener Commentary].

8. See sub III. 1. of the reasons for the decision.

9. This is the general view, see Schlechtriem et al., supra note 3, at Art. 14, Rn. 16 with further citations.

10. See sub III. 2. of the reasons for the decision.

11. Except for the views cited in the decision, for instance, Witz et al., supra note 3, at vor Art. 14, Rn. 12 ("regularly"). The notion goes back to Burghard Pilz.

12. See sub III. 3. of the reasons for the decision.

13. Entscheidungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 117, 190 (198) (F.R.G.); criticizing the decisions, see Münchener Commentary, supra note 7, at § 2 AGBG, Rn. 48 (limited to standard terms that are usual in the branch).

14. See Schlechtriem et al., supra note 3, at Art. 14, Rn. 16; Soergel et al., Band 13, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Art. 14, Rn. 10 (13th ed. 2000). See also Landgericht Oldenburg, 28 February 1996, 12 O 2943/94, CISG-Online 189 [<http://cisgw3.law.pace.edu/cases/960228g1.html>] (no inclusion); Amtsgericht Nordhorn, 14 June 1994, 3 C 75/94, CISG-Online 259 [<http://cisgw3.law.pace.edu/cases/940614g1.html>] (inclusion).

15. See sub III. 2. of the reasons for the decision.

16. To the extent that the Supreme Court probably contemplated a conflict between the CISG and the requirements of European Communty law, such a conflict is, in the end, to be decided under the relevant "conflict norms" of the Convention (Arts. 90, 94 CISG) and those of the EEC Treaty (particularly Art. 305 of said treaty).

17. See sub III. 2. of the reasons for the decision.

18. See Art. 1341(2) of the Italian Codice civile.

19. Tribunal Commercial de Nivelles, 19 September 1995, R.G. 1707/93, UNILEX D.1995, 24.2 [<http://cisgw3.law.pace.edu/cases/950919b1.html>]. But cf. Cour d'Appel de Paris, 13 December 1995, J.C.P. 1997, II, 22772 [<http://cisgw3.law.pace.edu/cases/951213f1.html>] (obiter dictum), which conforms in result with the opinion of the Supreme Court, and the decision of the Austrian Supreme Court, OHG, 6 February 1996, 10 Ob 518/95, CISG-Online 224 [<http://cisgw3.law.pace.edu/cases/960206a3.html>], in which a reference to the standard terms was lacking.

20. Entscheidungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 74, 389 (F.R.G.); Otto Palandt et al., Bürgerliches Gesetzbuch (Commentary on BGB) § 11 AGBG, Rn. 74 (61st ed. 2002).

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