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CISG CASE PRESENTATION

Austria 31 May 2002 Appellate Court Graz (Timber case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020531a3.html]

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

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Case identification

DATE OF DECISION: 20020531 (31 May 2002)

JURISDICTION: Austria

TRIBUNAL: Oberlandesgericht [Appellate Court] Graz

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 3 R 68/02y

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

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Roumania (defendant an Austrian middleman)

BUYER'S COUNTRY: Switzerland (plaintiff)

GOODS INVOLVED: Timber


Case abstract

AUSTRIA: Oberlandesgericht Graz 31 May 2002

Case law on UNCITRAL texts (CLOUT) abstract no. 539

Reproduced with permission from UNCITRAL

Abstract prepared by Martin Adensamer, National Correspondent

A Swiss buyer ordered 500 cubic metres of Romanian wood through an Austrian middleman, who accepted full liability for the delivery of the wood on behalf of the seller, a Romanian company. It was agreed that 70 per cent of the price should be paid upon inspection and approval of goods and the rest upon delivery. The seller provided security for the part of the price to be prepaid. The Swiss buyer, after inspection and approval of the wood, placed an order for only 200 cubic metres and paid the advance payment by ordering a bank transfer for 70 per cent of the corresponding reduced price. The Romanian seller refused to deliver the reduced quantity of wood, insisting on the original conditions on the contract, and sold all the wood to another client at a reduced price. When asked to return the advance payment to the Swiss buyer, the seller kept it to offset the damages arising from the sale at a reduced price. The buyer sued the Austrian middleman to recover the advance payment.

The Court of Appeal held that the buyer had originally agreed to pay advance payment for the full quantity of the wood originally agreed upon, i.e. 500 cubic metres, and that, therefore, the reduction in the advance payment sum constituted a breach of contract. The seller had therefore the right to declare the contract avoided under article 64 CISG and to claim damages in the amount corresponding to the difference between the contract price and the price of the substitute transaction under article 75 CISG. The buyer's right to recover the sum prepaid had to be set off against the damages suffered by the seller, so that there was no liability of the latter. The claim was dismissed.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 64 ; 75 [Also cited: Articles 54 ; 61 ; 74 ]

Classification of issues using UNCITRAL classification code numbers:

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller

Descriptors: Avoidance ; Fundamental breach ; Cover transactions

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (German): Click here for German text of case

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Appellate Court (Oberlandesgericht) Graz

31 May 2002 [3 R 68/02y]

Translation [*] by Institut für ausländisches und internationales
Privat- und Wirtschaftsrecht der Universität Heidelberg
Daniel Nagel [**]

JUDGMENT

   (1)   The Plaintiff [Buyer]'s claim is dismissed.
 
   (2)   The [Buyer] has to reimburse the costs of the proceedings in the amount of EUR 1,740.00 (including EUR 290.00 turnover taxes) within 14 days.
 
   (3)   Further appeal (Revision) is not allowed according to 502(1) ZPO [*]

FACTS

The [Buyer], a public limited company which exports and imports timber, is seated in Switzerland. It bought from a Romanian company [Seller] 500 cubic meters of trimmed timber "carpenter" quality at a price of Austrian schillings [ATS] 2,330.00 per cubic meter in July 1999. The goods were supposed to be delivered to an Italian customer. On 25 August 1999, the [Buyer] sent a letter to the [Seller] requesting the handing over of the first partial delivery of 200 cubic meters at a price of ATS 2,330.00 per cubic meter and hence at a total price of ATS 466,000.00.

[Buyer] stated that it would pay 70% (i.e., ATS 326,200.00) in advance -- once the Defendant [Guarantor of the Seller] had checked the quality of the goods and the willingness of the [Seller] to deliver the requested amount -- and the remainder after the issuing of the final invoice to its Italian customer.

The [Guarantor of the Seller] sent a letter to the [Buyer] on the very same day which contained the following stipulations:

"I assume personal liability in respect to the advance payment on the delivery according to the contract of the aforementioned company - the Romanian company"

The [Buyer] transferred ATS 326,200.00 to the bank account of the [Seller]. The latter refused to deliver alleging that the [Buyer] had fundamentally breached the contract.

The [Seller] did not reimburse the money stating that it would be entitled to further damages due to the breach of contract.

INITIAL POSITION OF THE PARTIES

The [Buyer] sued the [Guarantor of the Seller] for payment of ATS 326,200.00 (= EUR 23,705.87) plus interest. The [Buyer] stated that it had only been willing to effect the advance payment after the [Guarantor of the Seller] had promised to assume personal liability for the restitution of the money in case the [Seller] failed to deliver the goods. Hence, the [Guarantor of the Seller] would now be liable according to this warranty.

The [Guarantor of the Seller] contests these allegations and requested the dismissal of the claim. The [Guarantor of the Seller] based his statement of defense on the fact that its promise would only represent a deficiency guarantee. The [Buyer] had breached its contractual obligations in relation to the [Seller]. According to the contract, the [Buyer] would have been obliged to make an advance payment of 70% of the total price (i.e., ATS 800,000) after a specific event had taken place - namely the stacking of the trimmed timber (Spandelung).

The [Seller] had fulfilled its contractual obligations and had asked for contractual compliance.

As the [Buyer] had only paid a part of the agreed amount the [Seller] had retained this partial payment after [Seller] had avoided the contract in order to compensate the losses it had incurred due to the frustration of the contract

JUDGMENT OF THE COURT OF FIRST INSTANCE

The Court of First Instance dismissed the [Buyer]'s claim.

It generally adhered to the statements of the [Guarantor of the Seller]. The Court of First Instance established that the [Guarantor of the Seller] had checked on the quality of the goods and stated that the [Seller] would be willing to deliver goods with "at least the correct quality". The [Guarantor of the Seller] had communicated this to the contact person of the [Buyer] in Austria. The [Buyer] or its contact person in Austria, respectively, had attempted to unilaterally alter the stipulations of the contract and to only order five truck loads of timber and to pay 70% of the total price of this delivery, namely, ATS 326,200.00. The [Seller] had not agreed to this and asked for contractual compliance.

As the [Buyer] had nevertheless not fulfilled its contractual obligations, the [Seller] would have sold the goods to a third party. It had only received a reduced amount of money for this cover sale.

The Court further stated that the [Seller] had retained the money in order to compensate for the loss incurred in the course of the cover sale.

It also held in this respect that, according to the parties' intentions, the warranty would only become effective in case the [Seller] deliberately denied the fulfillment its contractual obligations.

For the remainder reference is made to pages 3 to 8 of the judgment of the Court of First Instance (= r.p. 199 et seq.).

The Court of First Instance legally assumed that the declaration of the [Guarantor of the Seller] would only constitute a simple promise of use. The [Guarantor of the Seller] could not be held liable as the [Buyer] had been responsible for the frustration of the transaction.

POSITION OF THE PARTIES IN THE APPELLATE PROCEEDINGS

The [Buyer] appealed against this judgment. It alleges that the Court of First Instance had based its judgment on erroneous consideration of evidence as well as on erroneous legal assumptions. It hence requests to alter the judgment and to fully allow its claim or to revoke the judgment and to refer it back to the Court of First Instance in order to continue the proceedings respectively.

The [Guarantor of the Seller] contests these allegations and requests the dismissal of the appeal.

REASONING

The [Buyer]'s appeal is not justified.

The findings of the Court of First Instance are correct, the allegations of the [Buyer] in the appellate proceedings are not justified ( 500 a ZPO [*]).

According to the Contract of July 1999 (exhibit 1) 70% of the total price should have been paid as an advance payment at the time the stacking of the trimmed timber (Spandelung) had been finished. The remainder should have been paid after the handing over of the goods to an Italian customer. This clear wording of the contract must be the basis for the legal consideration in the appellate proceedings as well.

As has been correctly established, the [Buyer] intended to alter these stipulations without any prior discussion with its contractual partner. The appeal has not been directed against this factual basis. The respective assumptions have been based on profound and ample evidence. In particular, the documents which have been examined during the proceedings in the first instance, namely the letters and faxes according to appendix 3, 8, 10 to 15, 19 and 22 serve as proof. It can already be seen from these documents that the [Seller] - increasingly annoyed - asked for contractual compliance in respect to payment. Even witnesses H and W more or less admitted that they had deviated from the contract without any assent of the [Seller]. They only alleged that they had been entitled to do so.

The [Buyer] does accept these facts and does not contest this unilateral deviation.

The [Buyer] solely alleges that it had not acted "unilaterally" in respect to the [Guarantor of the Seller].

It refers to the declaration of the [Guarantor of the Seller] as well as to the order of five truck loads of timber (according to appendices 6 and A, respectively).

Both documents have been signed on 25 August 1999. Hence, the [Buyer] alleges that the [Guarantor of the Seller] had known that [Buyer] intended to only order five truck loads of timber and to only pay 70% of the respective price. Thus, the declaration of the [Guarantor of the Seller] had been made in respect to this order (pp. 7-8 of the appeal).

Despite this temporal connection the reasoning of the Court of First Instance cannot be doubted.

It is true that the [Buyer] correctly cites the declaration of the [Guarantor of the Seller]. The latter readily admitted that he might have known that at first only five truck loads were intended to be ordered at the time he signed the declaration (court report p. 13 ON 12 = r.p. 181). However, the [Guarantor of the Seller] emphasized on several occasions, that the [Buyer] had been bound to effect the advance payment in full irrespective of the quantity ordered (p. 9, 13/14, and 16 of the court report, ON 12 = r.p. 173, 182/183 and 187).

The statements of witness H, on the other hand, contained several inconsistencies. Witness H tried to demonstrate that the unilateral deviance had been a result of difficulties of the [Seller] to deliver on time. However, it turned out that the [Buyer] had intended to alter the contract on 25 August 1999. At that time, the [Guarantor of the Seller] had not even checked on the quality of the goods in Romania. Hence, the connection as alleged by the witness never existed. The witness was not able during his hearing to explain this contradiction (cf. court report p. 13 and 19, ON 8 = r.p. 59 and 65).

The statements of witness W are not useful in this respect, as she based a major part of her statements on reports of witness H, who himself could not remember the exact facts.

The documents which have been named as proof by the [Buyer] (appendix A - order of the timber, appendix 8 - letter of 6 September 1999) do not support its appellate allegations. The letter of appendix E concerns a letter of the attorney of the [Buyer] of October 2000.

It is true that the letter of 8 September 1999 (appendix 16) of the [Guarantor of the Seller] announces a future receipt of the payment of ATS 326,200.00 to the [Seller]. Nevertheless, the [Guarantor of the Seller] stated during the oral hearing that the ATS 326,200.00 had "never been mentioned" (court report p. 16, ON 12 = r.p. 187). If one takes into account that the [Guarantor of the Seller] rightfully hoped for at least "a single truck load", it is not surprising that the [Guarantor of the Seller] intended to inform the [Seller] about the transfer of the partial payment.

The [Buyer] rightfully alleges that the [Guarantor of the Seller] has never annulled or modified his declaration (appendix 6). However, the [Buyer] fails to mention that the declaration (appendix 6) of the [Guarantor of the Seller] has continuously been supposed to refer to the whole amount (court report p. 16, ON 12 = r.p. 187).

The allegations of the [Buyer] in the appellate proceedings do correctly cite the results of the tests which the [Guarantor of the Seller] carried out in Romania, according to appendices 25 and 26 ("takeover protocols"). However, it fails to consider the respective statements of the [Guarantor of the Seller] (court report p. 14, ON 12 = r.p. 183) and witness B. (court report p. 24, ON 9 = r.p. 119). Therefore, the allegations of the [Buyer] cannot cast doubt on the assumptions of the Court of First Instance. This is due to the fact that a reproof of evidence is not legitimate if it only states those facts which support the appellate position but fails to demonstrate why these facts should be more important than contrary facts (constant jurisprudence, cf. OLG Graz 5 R 242/96i).

Hence, the fact -- as established by the Court of First Instance -- that the [Seller] has been willing to deliver "the correct quantity and quality" cannot be doubted. (p. 5 of the judgment = r.p. 203).

Due to these facts, this Appellate Court accepts the consideration of evidence of the Court of First Instance as correct, as it cannot be questioned on the basis of the allegations of the [Buyer]. Hence these facts - including both the facts which have been contested by the appeal and the facts which have been accepted by both parties - will be used as a basis for the legal considerations of this Court ( 498 (1) ZPO [*]).

First of all, the questions in respect to the conflict of laws have to be considered. Both the Court of First Instance and the parties readily accepted that Austrian law would be applicable. This assumption is correct, even though it has not been further substantiated.

According to the findings, the [Buyer], who is domiciled in Switzerland concluded a contract with the [Seller], domiciled in Romania, for the delivery of trimmed timber "carpenter"quality. The CISG governs this contract, as both Switzerland (BGBl [*] No. 303/1990) and Romania (BGBl [*] No. 456/1991) are parties to this Convention.

The legal relationship between the [Buyer] and the [Guarantor of the Seller] which gave rise to the present dispute does not concern the aforementioned contract, but a respective warranty contract which has been additionally concluded. The applicable EVÜ [*] does not provide for an accessory connection (cf. Article 4 EVÜ [*]). It provides for a separate connection. If there is no choice of law, the principal contractual obligation is decisive. The latter is the obligation of the warrantor, irrespective of the type of warranty and of its potential accessoriness in respect to the main contract (Czernich/Heiss, EVÜ, Article 4, margin number 137 and 142; Schwiman, Internationales Privatrecht, third edition, 95).

The result would be the same if Swiss law were applied (cf. OGH, ÖBA 1996/523 = ecolex 1996, 13 = ZfRV 1996/4).

In the present case, the [Guarantor of the Seller] had to fulfill the principal contractual obligation. Hence, the Court of First Instance correctly held that Austrian law would be applicable.

Furthermore, the Court of First Instance correctly denied to consider the declaration of the [Guarantor of the Seller] (appendix 6) as a warranty contract in the present case. It is not necessary to clarify the difference between a warranty - as an additional and independent assumption of liability - and a simple promise to enhance the success of a specific transaction.

According to the wording of the agreement of 25 August 1999 (appendix 6), the [Guarantor of the Seller] declared to assume personal liability for the delivery as stipulated in the contract. The Court of First Instance interpreted this declaration as an assumption of personal liability as well. Even the [Guarantor of the Seller] does not attempt to argue that his declaration would merely constitute a promise of use.

Nevertheless, there is a differentiation necessary in respect to the issue whether the [Guarantor of the Seller] wanted to assume a separate personal liability or to provide an accessory security.

Therefore, the problem arises how a non-accessory (and thus real) warranty can be differentiated from an accessory security. This is of particular interest in respect to bailment or intermediate forms between the aforementioned, which, as well, have to be interpreted as accessory securities (Apathy, in: Schwimman, 2d ed., 880a ABGB margin number 7; Rummel, in: Rummel, 3rd ed.. 880a ABGB margin number 5).

The conclusion of a separate contractual relationship which is independent from any other contractual relationship is the core character of a warranty (cf. RIS-Justiz RS0017039). Thus, the warrantor can be held liable even if a third party is not obliged to perform any obligation. The warrantor could only rely on an abuse of law in this respect (OGH, ecolex 2001/334 [Helmich = ÖBA 2002/1008]). A warranty can be assumed if the interests of the parties obviously show that the position of the beneficiary should be strengthened irrespective of the contractual relationship with a third party: To put it simply, the warrantor promises that a certain event, namely the reception of the contractual performance of the third party, will take place (OGH ÖBA 2000/862 w.f.r. by Rummel).

Such an abstract non-accessory security cannot be assumed in the present case. Such an assumption would contradict the facts which have been clearly established by the Court of First Instance, namely, that the parties intended -- according to appendix 6 -- that the assumption of liability should only come into force in case "the [Seller] deliberately breached its contractual obligation to deliver" (p. 11 of the judgment = r.p. 215). Even though the Court of First Instance made this statement in the course of the consideration of evidence, it nevertheless represents a factual conclusion.

Hence, the assumption of personal liability represented an accessory security, which does not entitle the [Buyer] to claim payment without any regard to whether the third party - namely the [Seller] - was under a duty to perform. As soon as one assumes an accessory security, the statement of the [Guarantor of the Seller], that the [Seller] had been entitled to avoid the contract due to the breach of contract of the [Buyer], can be used as a statement of defense.

According to Article 54 CISG, the buyer is obliged to pay the price. The non-performance of this obligation constitutes a fundamental breach of contract which leads to the consequences as set out in Article 61 et seq. CISG (Posch, in: Schwimann, 2d ed., Article 54 CISG, margin number 9). According to these consequences, the seller is inter alia entitled to declare the contract avoided (Article 64 CISG). The restriction in Article 64(2) CISG does only concern cases where the full price has been paid (Posch, in: Schwimann, 2d ed., Article 64 CISG, margin number 7). However, this has not happened in the present case. The party which breaches the contract can be held liable for damages. Article 75 CISG mainly refers to the difference between the contract price and the price in the substitute transaction. Thus the party who did not breach the contract is also entitled to recover damages in respect to financial losses - within the boundaries of reasonable anticipation - and hence to recover lost profit. (Posch, in: Schwimann, 2d ed., Article 74 CISG, margin number 10). The [Seller] undisputedly sold the goods to a third party and set off the advance payment of the [Buyer] against the "reduced purchase price" (p. 8 of the judgment = r.p. 209). The [Seller] used the advance payment to compensate "this loss" (p. 11 of the judgment = r.p. 215). Therefore, it is correct if the [Seller] sets off its claims for damages against the claim of the [Buyer] for restitution of the advance payment.

The Court of First Instance correctly assumed that only the [Buyer] can be held liable for the frustration of the contract. The set-off of the [Seller] renders the claim of the [Buyer] void. As the [Guarantor of the Seller] only had to offer an accessory security, the loss of the claim of the [Buyer] due to the set-off entails the loss of the right to invoke the accessory claim.

Therefore, the Court has only to consider the initial allegation (p. 5 of the appeal = r.p. 229), which has been further clarified on p. 8 of the appeal (r.p. 235) that the [Guarantor of the Seller] as the "warrantor" had agreed to the partial payment and thus to the breach of contract. As a consequence, one could argue that the declaration of the [Guarantor of the Seller] could be seen as an assumption of liability in respect to negative consequences in case the [Buyer] breached its own contractual obligation - e.g., that the parties hoped that the [Seller] would agree to this deviation and that the security should be used in case the [Seller] refused to do so.

However, the facts do not allow such an assumption. The Court of First Instance established that the Austrian representative of the [Buyer] had informed the [Guarantor of the Seller] (and his secretary) that the [Buyer] would be willing to fulfil the contract of July 1999 and to transfer the advance payment according to this contract (pp. 6 and 7 of the judgment = r.p. 205/207). In addition, the [Guarantor of the Seller] had stated that the [Seller] had been entitled to avoid the contract and that the [Buyer] had been obliged to pay the advance payment in full irrespective of the amount of truck loads of timber ordered (p. 7 of the judgment = r.p. 207).

Therefore, there is no reason to follow the aforementioned assumption.

The judgment of the Court of First Instance has to be upheld.

The [Buyer] has to bear the costs of the appellate proceedings as the appeal has not been successful ( 41, 50 ZPO [*]).

The legal requirements to allow further appeal (Revision) ( 502(1) ZPO [*]) are not fulfilled as the crucial questions of law have already been discussed by the Federal ;Supreme Court of Austria and as in addition the success of the claim solely depends on the interpretation of a contractual clause.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Switzerland is referred to as [Buyer] and the Defendant of Austria, guarantor of the seller (Romania), is referred to as [Guarantor of the Seller]. Amounts in the uniform European currency (Euro) are indicated as [EUR]. Amounts in the former Austrian currency (Austrian schillings) are indicated as [ATS].

Translator's note on other abbreviations: ABGB = Allgemeines Bürgerliches Gesetzbuch; BGBl = Bundesgesetzblatt [Austrian Federal Law Gazette]; EVÜ = Convention on the Law Applicable to Contractual Obligations (Rome 1980); IPRG = Bundesgesetz über das Internationale Privatrecht [Austrian Federal Code on the Conflict of Laws] [Austrian Civil Code]; ZPO = Zivilprozessordnung [Austrian Code on Civil Procedure].

** PhD candidate Daniel Nagel has studied law at the University of Heidelberg and at the University of Leeds.

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