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CISG CASE PRESENTATION

Germany 27 February 2002 District Court München (Globes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020227g1.html]

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

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Case identification

DATE OF DECISION: 20020227 (27 February 2002)

JURISDICTION: Germany

TRIBUNAL: LG München [LG = Landgericht = District Court]

JUDGE(S): Puszkajler (Presiding Judge)

CASE NUMBER/DOCKET NUMBER: 5 HKO 3936/00

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

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Globes


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: 25 ; 35 ; 38 ; 39 ; 49 ; 50 ; 78 [Also cited: Articles 3 ; 53 ; 62]

Classification of issues using UNCITRAL classification code numbers:

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

35B2 [Conformity of goods to contract: requirements implied by law (fitness for particular purpose made known to seller];

38A [Buyer's obligation to examine goods: time for examining goods];

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

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

50A [Buyer's right to reduce price for non-conforming goods];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness ; Avoidance ; Fundamental breach ; Reduction of price, remedy of ; Interest

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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/654.htm>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 34, 54; Article 78 and rate of interest: Mazzotta, Endless disagreement among commentators, much less among courts (2004) [citing this case and 275 other court and arbitral rulings]; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 35 paras. 14, 21, 24 Art. 38 para. 14 Art. 39 para. 10 Art. 46 para. 26 Art. 49 para. 7 Art. 50 para. 8; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at pp. 266, 273

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Case text (English translation)

Queen Mary Case Translation Programme

District Court (Landgericht) München

27 February 2002 [5HK O 3936/00]

Translation [*] by Stefan Kuhm [**]

Translation edited by Camilla Baasch Andersen [***]

JUDGMENT

In consideration of the legal dispute arisen out of a claim for payment between the [seller], Plaintiff and Counter-Defendant as to No. 1, vs. [buyer 1], Defendant, and [buyer 2], Co-Defendant and Counter-Plaintiff as to No. 1, the 5th panel for commercial matters of the District Court (Landgericht) München I, Presiding Judge Puszkajler, rules:

     1. [Buyer 1] and [buyer 2] are jointly directed to pay the [seller]:

(i) EUR 75,723.94;

(ii) additionally EUR 1,069.96 as accrued interest; and

(iii) further interest of 5% on EUR 75,723.95 since 7 December 1999.

     2. The claim and counterclaim are dismissed in all other respects.

     3. The costs of the legal proceedings shall be borne 11/20 by the [seller], as to 3/20 by [buyer 1] and [buyer 2] jointly, and a further 6/20 by [buyer 2] severally.

     4. Claims under this judgment are preliminarily enforceable against the deposit of an amount equalling the amount to be enforced.

FACTS OF THE CASE

[Short summary of the seller's claim and buyer's counterclaim]

The parties involved in these proceedings are in dispute about the execution and performance of an international sales contract. The [seller] asks for payment of the purchase price; [buyer 2] requests restitution of the sales contract, after it had declared the avoidance of the contract in question: [buyer 2] asks for return of its pre-payment under the sales contract against return of the goods delivered and received.

[Identification of the parties]

The [seller], a limited liability company under Italian law, carries on business as reputable and respectable interior decorator. [Buyer 1] is an international car rental agency; [buyer 2] is one of its subsidiaries.

[Summary of the undisputed facts]

During late summer in 1998, the [seller] was developing a metallic, sphere cantilever for a video screen in accordance with Ms.____'s request (Ms. ____ is [buyer 1]'s representative with general authority [Prokurist] and [buyer 2]'s managing director). The cantilever [hereinafter referred to as a "Globe"], when assembled into a smaller or respectively larger frame, was supposed to rotate around its own centre like a ventilator. The [seller] produced a prototype of such a Globe, presented it at [buyer 1 and 2]'s office in Munich on 30 October 1998 and left it behind. [Buyer 1] and [buyer 2] were therefore in the position to try and test this prototype of the Globes. Concurrently, the [seller] made [buyer 2] an offer to produce, deliver and sell these Globes. The offer encompassed the prospective purchase price to be staggered so that it should reflect the actual amount of Globes being delivered. On 15 December 1998, [buyer 1] ordered at first 20 large Globes for Italian Lira [Lire] 4,500,000.-- as well as 15 small Globes for Lire 3,800,000. [Buyer 2] extended that offer to 60 Globes of each size on 18 March 1999. The [seller] delivered the overall amount of 119 Globes, namely:

(i) 19 large Globes on 27 March 1999;
(ii) 39 small Globes on 21 April 1999;
(iii) 40 large Globes on 7 October 1999; and
(iv) 21 small Globes on 23 November 1999.

The overall purchase price amounted to Lire 607,260,000.-- of which [buyers 1 and 2] have already paid Lire 278,460,000. The remainder of the unpaid purchase price was reminded on several occasions by the [seller] with its notes and several faxes. The latest reminder dates back to its letter in November 1999.

[Buyer 1 and buyer 2's allegations of non-compliance of the goods]

[Buyer 1] complained about technical problems after the first deliveries of the Globes on 18 May 1999, 2 June 1999, 16 September 1999, 30 June 1999, 13 July 1999 and 23 July 1999 by fax. [Buyer 1] asserted that the Globes did not entirely sway from one side to the other side, or in fact did not move at all after the lapse of just a few days. In [buyer 1]'s letter of 18 May 1999, it additionally alleged that the Globes were flawed due to construction failures. In particular, [buyer 1] proclaimed, that defects of the Globes, delivered to its branches in ____, had been notified in Stuttgart, Nice, Paris, Frankfurt as well as in Düsseldorf. The parties tried to settle their dispute extra judicially on various occasions. After the collapse of these endeavors to settle out of court, in its note of 4 January 2000 [buyer 1 and buyer 2]'s attorney declared the avoidance of the sales contract with regard to all delivered Globes. Additionally, he went on to require additionally the [seller] (i) to fetch the Globes and (ii) to reimburse all pre-payments already made.

[Seller's counter-arguments as to the lack of compliance of the goods]

The [seller] alleged that the Globes were not defective. The examination of one rejected Globe in ____ led to the result that it operated absolutely fine without any reported malfunction. Consequently, [buyer 1 and buyer 2] had stated a lack of conformity of the goods truly without substance. All of the delivered Globes were properly constructed and did not lack of compliance due to any technical failures. Furthermore, [buyer 1 and buyer 2] were able to test and examine the prototype of the Globes in a manner that should suffice to detect any lack of compliance. Nevertheless, they did not express to the [seller] any intention to have the Globes altered or amended.

[Seller's pleading as to its claim]

[Seller] declared the matter against [buyer 1] as being settled and commenced legal action against [buyer 2] after [buyer 1] objected to its status as proper defendant to the [seller]'s original claim. Thereafter, [buyer 1] has not further objected to its role as proper defendant to the [seller]'s original claim. In the light of this then new constellation, the [seller] asks the Court to require [buyer 1] and [buyer 2] to pay the [seller]: (i) DM 323,088 plus accrued interest of 5% since 7 December 1999; and (ii) an amount of DM 7,532.08 accrued interest from 22 April 1999 to 6 December 1999.

[Buyer 1 and buyer 2's pleading and response to the seller's claim]

They ask the Court to dismiss the [seller]'s claim.

[Buyer 1] and [buyer 2] contend the Globes were defectively constructed, that the Globes were particularly inappropriate for a continuous use and operation within a presumed minimum operational life of two years. They additionally proclaim the flawed process of developing the Globes, and that they notified the [seller] of the lack of conformity and the defects several times in their letters and via telephone. One of [buyer 1 and buyer 2]'s employees declared the avoidance of the sales contract via telephone in August 1999. This notification took place well before the delivery of the last two batches of the Globes. They assert that the delivered Globes bear only a face value of a maximum of DM 150,000.

- [Buyer 2's pleading as to its counterclaim]

[Buyer 2] asks the Court to require the [seller] to pay [buyer 2] the amount of EUR 143,787.85 plus accrued interest of 8% above the Base Interest Rate [*] since 25 January 2002 against the concurrent return of the delivered Globes.

[Seller's pleading and response to buyer 2's counterclaim]

The [seller] asks the Court to dismiss [buyer 2]'s counterclaim.

The [seller] argues that [buyer 2] is not able to ask for avoidance of the sales contract since there was no fundamental breach of contract. Moreover, [buyer 2] was not in the position to have the Globes returned and removed by the [seller] under any circumstances.

[References made and evidence taken by the Court]

With regard to the particularities of the parties' submissions, the Court refers to all of the -- quite substantial -- documents submitted to the Court. The Court took evidence by asking for Prof. Dr. Ing. ___'s expert opinion who carried out a long-term test operation of the Globes under a Court mandate. The Court considers particularly its minutes of 29 January 2001, 25 February 2001 as well as its expert statements of 6 October 2001 and 28 October 2001. The Court heard the expert during the hearing on 31 January 2002. The Court refers to the minutes of this hearing.

REASONING OF THE COURT

The [seller]'s claim is admissible but only partially founded -- in an amount of EUR 75,273.74. [Buyer 2]'s counterclaim is admissible in fact but entirely unfounded.

[Reasoning as to the seller's claim for payment]

The [seller]'s claim ensues from Arts. 53, 62 CISG.

[Application of the CISG]

The CISG applies to this transaction because it is a contract for the sale of movable goods between parties who have their seats and permanent establishments in different Contracting States (Art. 1 CISG). The CISG has been applicable between Germany and Italy since 1 January 1991 (BGBl. [*] II 1990, p. 1477). The application of the CISG cannot be denied, even if the sales contract is deemed a "contract for work and materials" (Werklieferungsvertrag) under German legal terminology. Neither [buyer 1] nor [buyer 2] provided the necessary material to have the Globes produced by the [seller] (Art. 3 CISG).

[Parties to the sales contract]

The Court assumes -- based on the statements of [buyer 1 and buyer 2]'s attorney at the Court hearing of 31 January 2002 -- that the sales contract was entered into and concluded by the [seller] on the one side and by both [buyer 1] and [buyer 2] on the other side.

Between 27 March and 23 November 1999, the [seller] delivered all together 60 small Globes and 59 large Globes at a previously agreed purchase price of Lire 607,260,000. Therefore, the parties agreed to an overall purchase price of EUR 313,623.62 calculated on the official exchange rate of 1,936.27 Lire per 1 EUR. [Buyer 1] and [buyer 2] paid undisputedly an amount of Lire 278,460,000, i.e., EUR 143,812.59, towards the owed purchase price. The [seller], however, does not have a claim for payment of all of the remaining purchase price amounting to EUR 169,811.03, since [buyer1 and [buyer 2] are entitled to have it reduced in an amount of EUR 94,087.07 pursuant to Art. 50 CISG.

The [seller]'s claim for payment shall be considered thoroughly in turn:

- [Lack of conformity of the Globes]

The delivered Globes did not comply with the provisos in the sales contract because the motor used was not appropriate and suitable for a long-term use and operation of the Globes. The [seller] had positive knowledge that [buyer 1] ordered the Globes with its intention to have them displayed as respectable exhibits in the showrooms of its branches situated in several different countries (Art. 35(2)(b) CISG). For this reason, it was made crystal clear and recognizable to the [seller], that [buyer 1] might not use these expensive and sophisticated exhibits just for a relatively short advertising campaign -- a few months -- but sought to acquire them as a permanent part of furniture for its offices. It was implied to the sales contract that the parties agreed to a long-term -- several years -- operational life of the Globes, although the parties had not particularly agreed to a specific provision dealing with their intended lifetime. In the light of the high transportation costs to each of [buyer 1]'s branches -- the large Globes weighed almost 290 Kg including their wrapping -- the Court assumes an impliedly agreed operational lifetime of the Globes of three years on average.

- [Description of the defect of the Globes with regard to their motor]

The Court concludes from the examination and test carried out by the expert Prof. Dr. ___ that the [seller] assembled a cheap collector motor. This motor was not proper and suitable for a long-term use and operation. Further, it was impossible even to render any services with regard to the motor. [Buyer 1] intended to use the Globes oscillating. This intended use leads to a significant strain of the Globes during the shift of their rotation direction. Henceforth, the [seller] should have used electronically commutated direct or alternating current motors combined with squirrel-cage (hamster wheel) rotors [Kurzschlussläufer]. In addition, the motors should have been provided with wheels and tracks (Kugellagerung). The motors, assembled with the Globes and sent to the expert within their original wrapping did, however, operate without any failure and malfunction throughout 2,730 hours.

The Court assumes nonetheless a defect and lack of compliance of the Globes. During its hearing at the Court, the expert gave comprehensive evidence that all of the motors of the Globes had a maximum operational lifetime of 5,000 hours. This equals to a daily overall operating time of less than one year, since [buyer 1], as a car rental agent, keeps its salesroom open to the public for seven days per week. Even if one considers the fact, that (i) the maximum operational lifetime of the motors is merely based on the expert's guess; and (ii) thus this actual figure may vary from time to time, the motors assembled cannot suffice to the intended operational requirements and their lifetime under any circumstances. The unit encompassing the motor, gear and worm wheel is an extremely simple construction. The Court was able to learn of this fact during its formal inspection of the motors on 31 January 2002. One could also informally describe this sort of conduct as quasi-delictual. The motors seem in actual contrast to the remainder of the product, which is of a complex nature and bears a high value.

- [Notification of the defects within reasonable time]

[Buyer 1] and [buyer 2] are entitled to rely on the aforementioned lack of compliance and defect of the Globes because they notified the [seller] about this defect within a reasonable time pursuant to Art. 38 CISG.

[Translator's note: This reference to "Art. 38" is believed to be a typographical error, with a reference to "Art. 39" intended.]

[Buyer 1] and [buyer 2] gave their notice immediately at the time, when they indicated the lack of compliance described above. Merely the fact that [buyer 1] and [buyer 2] were the holders of a prototype of the Globes from the end of October up to their actual order in mid-December 1998 in Munich, does not lead to another conclusion. Neither of them was obliged or even in the position to detect this defect and lack of compliance. On the one side, the prototype was mainly produced for design purposes and, on the other side, the parties have never intended to carry out any kind of permanent testing operation of the Globes that could be deemed a "technical acceptance". The assembled motor was appropriate to operate without any major malfunctions and defects throughout occasional demonstrations within a six weeks period.

- [List of the several notifications of the lack of compliance]

In a fax of 18 May 1999 sent by one of [buyer 1]'s employees, [buyer 1] already gave notice of technical problems concerning the initially delivered Globes on 27 March 1999. Therein, this employee assumed some construction failures as cause of the already mentioned technical problems and malfunctions. [Buyer 1] was indicating and notifying ever new defects associated with the rotation and swaying of the motors in the subsequent months after its first notification. [Buyer 1] was not obliged to iterate over and over again -- like a praying monk -- its notification of the systemic failure of the Globes vis-à-vis the [seller] after additional deliveries in October and November 1999. In particular, [Buyer 1] had already announced that it would not pay the purchase price requested in its initial fax of 18 May 1999 as well as of 23 July 1999, provided that the [seller] did not draw any attention to the indicated problem and malfunction of the Globes. The [seller] has not thoroughly examined and analysed the Globes in respect of the technical problems as indicated. The Court concludes this lack of examination from all statements by the [seller]'s representative Mr. ____ at the Court's hearing on 31 January 2002.

- [Lack of operational safety as an additional defect of the Globes]

[Buyer 1] and [buyer 2] are further entitled to claim absence of operational safety of the Globes as stated by the expert in his minutes of 25 May 2001. They timely notified and reprimanded this additional lack of compliance and defect in their submission to the Court on 25 June 2001. It was only at that time, that they became aware of this defect (Art. 39 CISG). A buyer does not have the duty to examine goods as to their electrical operational safety. No one can be required to take into account essential defects as the absence of any grounding of (i) the protective conductor or (ii) the pull relief.

- [Extreme noise emission of the Globes is, however, deemed accepted by the buyers]

However, neither [buyer 1] nor [buyer 2] can contend a further defect of the Globes with regard to their extreme noise emission, although the hearing judge had the impression these emissions were very burdensome, irritating and disturbing. [Buyer 1] and [buyer 2] were in a position to test and examine a prototype of the Globes, before they actually ordered them. Notwithstanding the (assumed) knowledge of the extreme noise emission, [buyer 1] and [buyer 2] ordered the Globes. Thus, they are deemed to have accepted such an extreme noise emission as being in compliance with the provisions of their sales contract. Hence, they must have become aware of this emission, at any rate when they conducted even a relative short testing operation of the Globes (see intended statutory purpose of Art. 35(2)(c) CISG).

[No right to declare the avoidance of the sales contract]

[Buyer 1] and [buyer 2] were, however, not in the position to fully object to the [seller]'s claim for payment of the remaining purchase price by virtue of [buyer 2]'s declaration of avoidance of the sales contract. To the Court's conviction, there is not a fundamental breach of contract pursuant to Art. 49(1)(a) and Art. 25 CISG. It is hereby important that one of the underlying principles for the implementation of the CISG is that a declaration of avoidance of a sales contract should be the mere ultima ratio, i.e., last resort. Any declaration of avoidance leads to the restitution of the parties' performances under their sales contract. And such restitution may be always quite burdensome within the context of international trade. In the light of the aforementioned principle, the question has arisen, whether [buyer 1] and [buyer 2] received goods, which they could reasonably expect under their sales contract, pursuant to Art. 25 CISG, when they obtained Globes which are undervalued, defective and inappropriate for a multi-annual operation. The response to that question may be as follows: this kind of defect and lack of compliance is in principle remediable through the removal of the defective motors. Furthermore, the pivoting function of the Globes is compared to their mainly representative objectives as show object of a subordinate nature. Hence, [buyer 1] was able to show off advertisement video films even without such a pivoting function. That special rotation feature only amplifies any advertising and show effect of the Globes, but it is definitely not one of their key points and features. Even without such an additional pivoting feature of the Globes, they are indeed representative and functional parts of the showroom and its furniture; this the Court could learn during its inspection of the Globes on 31 January 2002. Therefore, [buyer 1] and [buyer 2] essentially obtained the goods they intended to receive: designed objects of high value matching with the image of their brand. If a buyer is able to use in any respect defective goods, one cannot assume a fundamental breach of contract (Staudinger-Magnus [*], Art. 49 CISG, Note 14).

[Reduction of the purchase price as remedy]

The Court is of the opinion, that a reduction of 30% in the purchase price seems reasonable and appropriate. Since the Globes cannot be deemed mass produced goods, the Court assumes that the purchase price agreed between the parties reflects the real value of conforming goods under their sales contract. Hence, one has to apply the formula enshrined in Art. 50 CISG, i.e., value of the delivered goods multiplied by the agreed purchase price shall be the reduced price. Thereby, one has to cancel the value of the goods being in compliance in this aforementioned formula, because their value is equal to the agreed purchase price. As a result, the agreed purchase price reduced by 30% is the reduced purchase price under Art. 50 CISG. Consequently, [buyer 1] and [buyer 2] owe Lire 425,082,000 instead of Lire 607,260,000, i.e., EUR 219,536.55. They have already paid Lire 278,460,000, i.e., EUR 143,812.59. As to the agreed purchase price, there is thus still outstanding a remainder of Lire 146,622,000 amounting to EUR 75,723.74.

[Dismissal of buyer's counterclaim]

The Court dismissed the counterclaim, because [buyer 2] did not have the right to declare the avoidance of the sales contract as already mentioned above.

[Claim for accrued arrears interest]

The purchase price has borne accrued interest since it became due and payable pursuant to Art. 78 CISG. In this case, the purchase price became due and payable 10 days after actual delivery of the Globes due to the agreed discount provision. The applicable interest rate is 5%, which is the statutory interest rate under Italian law as applicable in this respect. This interest rate is the equivalent to the default interest rate amongst merchants under Sec. 353 S. 1 BGB [*]. Since [buyer 1] and [buyer 2] owed merely a reduced purchase price, the accrued interest as principally claimed by the [seller] for the period up to 7 December 1999 had to be reduced to an amount of EUR 1,069.96: viz interest of 5 % on (i) the proportion of the unpaid purchase price for the first delivery in an amount of Lire 66,380,000 for a period of 220 days; and (ii) the unpaid remainder of the purchase price for the second delivery in an amount of Lire 26,000,000 for a period of 20 days.

The result is accrued arrears interest of EUR 1,033.17 and respectively EUR 36.79.

With regard to the period from 7 December 1999, the remaining purchase price of EUR 75,723.74 has borne accrued interest of 5% as claimed for.

[Ancillary decisions of the Court]

The Court's decision about the costs for these legal proceedings is based on Secs. 92, 100 ZPO [*]. The Court assumed an overall value of the dispute of EUR 481,874.57. The [seller] initially sued [buyer 1]. Thereafter, [seller] separately commenced legal actions against [buyer 2], whereby in each case the [seller] claimed for payment of EUR 165,192.27 plus accrued interest of EUR 2,851.09. In addition, the value of the [buyer]'s counterclaim, i.e., EUR 73,517.56, has to be added to the overall value of the dispute mentioned above. The [seller] succeeded in respect of the counterclaim as well as in respect of its claimed purchase price in an amount of EUR 75,723.94 plus accrued interest of EUR 1,069.96. This amount equals to a mere proportion of 9/20 on the overall value of the dispute. The Court had to account for the fact that both [buyer 1] and [buyer 2] lost only with regard to the reduced but still outstanding remainder of the purchase price plus accrued interest (Proportion 3/20). However, [buyer 2] was defeated in respect of its counterclaim (Proportion 6/20).

The decision about the preliminary enforcement ensues from Sec. 709 S. 1 ZPO [*].

Puszkajler

Presiding Judge of the District Court

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Italy is referred to as [seller]; the Defendant of Germany as [buyer 1] and the Co-Defendant of Germany as [buyer 2]. Amounts in the currency of the Eurocurrency Area (Euro) are indicated as [EUR]; amounts in the former currency of Italy (Italian Lira) are indicated as [Lire]; amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM].

Translator's note on other abbreviations: Base Interest Rate = Basiszinssatz [Base Interest Rate as set forth in Sec. 1 of the German Act on the Transmission of the Discount Rate (Federal Law Gazette I, p. 1242) as from time to time amended]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGBl. = Bundesgesetzblatt [German Federal Law Gazette]; Staudinger = Commentary on the German Civil Code including a specific volume as to the CISG; ZPO = Zivilprozessordnung [German Civil Procedure Act].

** Stefan Kuhm is a Member of the Bar Association, Frankfurt a.M., and a Ph.D. candidate at Eberhard-Karls-Universität, Tübingen.

*** Camilla Baasch Andersen is a Lecturer in International Commercial Law at the Centre for Commercial Law Studies, Queen Mary, University of London, and a Fellow of the Institute of International Commercial Law of the Pace University School of Law. She is currently finishing her PhD thesis on uniformity of the CISG at the University of Copenhagen.

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