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CISG CASE PRESENTATION

Switzerland 27 January 2004 District Court Schaffhausen (Model locomotives case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040127s1.html]

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

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Case identification

DATE OF DECISION: 20040127 (27 January 2004)

JURISDICTION: Switzerland

TRIBUNAL: Kantonsgericht [District Court] Schaffhausen

JUDGE(S): Dr. A. Dolge (Vorsitzende); P.Sieber, M. Kübler (Kantonsrichter); P. Möller (Gerichtsschreiber)

CASE NUMBER/DOCKET NUMBER: 11/1999/99

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (defendant)

BUYER'S COUNTRY: Switzerland (plaintiff)

GOODS INVOLVED: Model locomotives


UNCITRAL case abstract

SWITZERLAND: Cantonal Court of Schaffhausen (Model locomotives case) 27 January 2004 [11/1999/99]

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/88],
CLOUT abstract no. 892

Reproduced with permission of UNCITRAL

Abstract prepared by Thomas M. Mayer

The judgement in question contained a detailed preamble on the extent of the obligation to examine goods and give notice to the seller of any non-conformity, in accordance with articles 38 and 39 CISG. The case, which was brought before the competent court in conformity with article 17 of the Lugano Convention, concerned the sale, by the defendant domiciled in Germany, of scale model locomotives to a buyer whose place of business was in the canton of Schaffhausen. At the time of delivery of a sample model and, subsequently, of a prototype prior to mass production, the buyer had reported significant defects and, in the opinion of the court, was not only justified in undertaking an in-depth examination of the goods upon delivery but also had an obligation to do so (to report defects). Taking into account the considerable time necessary for such an examination (from 75 to 150 hours), the court considered that notification of the defects within three weeks of receipt of the goods had taken place in a timely manner.

The court held that the goods disputed by the plaintiff did not in fact conform with the contract, within the meaning of article 35 CISG. The defects were sufficiently significant to represent a fundamental breach of contract within the meaning of article 25 CISG. Under the terms of article 49(1)(a) CISG the plaintiff was in principle permitted to declare the contract avoided. However, the plaintiff first had to await the expiration of the period of time fixed by it for the defects to be remedied (articles 49(2)(b)(ii) and 47(2) CISG). The conditions laid down in article 46(3) CISG had been fulfilled in the present case.

The plaintiff had fixed several additional periods of time. The last communication had been accompanied by the threat of cancellation of the contract in the event of non-performance, which the court deemed admissible.

The defendant was ordered to reimburse the sale price against restitution of the delivered goods by the buyer. Pursuant to article 84(1) CISG, the defendant also had to pay interest on arrears. The amount of interest was to be fixed in accordance with the applicable law as determined by Swiss private international law, in the present case German law.

In compensation for the loss sustained by the plaintiff by reason of the shipment and customs clearance of the goods, its advertising costs and certain expenses incurred by it even prior to conclusion of the contract, the court also granted the plaintiff damages pursuant to articles 81 and 74 CISG. In that respect, it explained that compensation could be requested for the entire loss sustained, hence for the loss arising from cancellation of the contract itself as well as for the loss resulting from subsequent re-performance. That also covered expenses needlessly incurred through cancellation of the contract.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 25 ; 35 ; 38 ; 39 ; 46 ; 47 ; 49 ; 74 ; 81 ; 84 [Also cited: Articles 3 ; 7 ; 8 ; 26 ; 27 ; 40 ; 60 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): statute of limitations];

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

35A ; 35B [Conformity of goods to contract: quality, quantity and description required by contract; Requirements implied by law];

38A [Buyer's obligation to examine goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time specifying nature of non-conformity];

46C [Buyer's right to compel performance: right to require repair of non-conforming goods];

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

49A [Buyer's right to avoid contract];

74A [General rule for measuring damages: loss suffered as consequence of breach];

81A [Effect of avoidance on obligations of both parties];

84A [Seller bound to refund price must pay interest]

Descriptors: Fundamental breach ; Avoidance ; Conformity of Goods ; Examination of goods ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity ; Cure ; Nachfrist ; Damages ; Restitution ; Interest ; Scope of Convention ; Statute of limitations

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

German: [1/2005] Swiss Review of International and European Law (SRIEL) 122 et seq.

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/960.pdf>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Canton Court (Kantonsgericht) Schaffhausen

27 January 2004 [No. 11/1999/99]

Translation [*] by Kirstin Stadtländer [**]

PARTICIPATING: Dr. iur. A. Dolge, Presiding Judge; P. Sieber, Judge of the Canton;Lic.iur. M. Kübler, Judge of the Canton Court; Lic.iur. P. Möller, Court Clerk.

IN THE CASE OF: M (...) AG, 8200 Schaffhausen, Plaintiff and cross-defendant, represented by legal counsel lic.iur. Patrick Allemann, P.O.Box 1332, Kirchstr. 24a, 8580 Amriswil v. G (...) K (...), D-68519 Viernheim, Defendant and cross-plaintiff, represented by legal counsel lic.iur. Paul Brantschen, P.O.Box 929, Fronwagplatz 20, 8201 Schaffhausen.

FACTS

A. Plaintiff [Buyer] who operates in the distribution and selling of appurtenances for model railways and model cars to the model railway trade, intended to enter into the branch of models of railway wagons, respectively, handwork locomotive models in order to expand its product offerings. In spring 1996, it retained Dr. O (...) for the pre-evaluation of a model that should be produced. After his presentation, [Buyer] decided to obtain a model of the rail car To2 of the former Südharz Railway in the model measurements 2 M (LGB; measure 1:22,5, which leads to a size of 75 cm and a weight of 10 kg with this model) produced and sold under its own name. In order to obtain offers, [Buyer] retained Dr. O (...) again who was entrusted with the whole matter including delivery and examination. In the course of the invitation to tender of 28 March 1997, Defendant [Seller] presented a first offer by writing of 26 May 1997 and another offer that was specifically aligned to the desired rail car and the small series to be produced on 11 August 1997 at the price of Deutsche Mark [DM] 2,600.00 per piece plus costs. Subsequently, [Buyer] decided to accept [Seller]'s offer and sent to it a contract of delivery and acceptance. The agreement was signed by both parties on 25 September 1997.

By this suit, [Buyer] seeks the reversal of the contract of delivery and acceptance due to a fundamental breach of contract and demands the refund of the paid price (DM 140,800.00 including interest) against the restitution of the 50 model railcars and reimbursement of useless expenses; alternatively [Buyer] seeks the reduction of the price for at least DM 150,000.00. [Seller] asserts that it fulfilled its contractual obligations and that therefore the suit should be rejected. By cross-claim, [Seller] seeks payment by [Buyer] of the outstanding price in the amount of DM 10,000.00 plus interest.

B. The present suit became pending by submission of the order of the office of conciliation of 19 April 1999.

C. By order of 27 April 1999, [Buyer] was required to make an advance payment of the court costs which it paid within the time limit.

D. On 22 September 1999, [Buyer] submitted its claim and seeks:

      1. [Seller] is to be ordered to acknowledge and pay to [Buyer] DM 140,800.00 plus interest at 6 % since 13 January 1999 reciprocal and simultaneously against restitution of the 50 pieces of handwork models of the railcar To2 of the Südharz Railway in the size of 2 M (LGB-size).

Alternatively, the price of DM 150,800.00 including tax is to be reduced at least by DM 150,000.00.

      2. [Seller] is to be ordered to pay interest to [Buyer] at a rate of 6 % on the paid price of DM 140,800.00, thereby on the amount of DM 39,000.00 since 4 October 1997, on DM 52,000.00 since 31. January 1998, on DM 102,000.00 since 4 August 1998 and on DM 140,800.00 since 8 August 1998.

      3. [Seller] is to be ordered to acknowledge and pay to [Buyer] DM 29,281.30 plus interest at 6 % since 1 February 1999.

      4. The right to further claim is reserved.

      5. [Seller] is to be ordered to pay costs and compensation.

E. On 7 January 2000, [Seller] submitted its defense seeking the rejection of the claim with [Buyer] bearing costs and compensation. At the same time it puts forward the following motions by way of cross-claim:

      1. [Buyer] is to be ordered to pay [Seller] DM 10,000.00 plus interest at a rate of 6 % since 9 August 1998.

      2. [Buyer] is to be ordered to pay costs and compensation.

F. By order of 18 January 2000, the Canton Court Schaffhausen ordered double exchange of pleadings.

G. In its replication and defense to the cross-claim, [Buyer] retained its initial motions, concerning the cross-claim it demanded rejection. Furthermore, it requested that [Seller] be ordered to pay a reasonable advance payment for the costs of the proceedings due to discretion of the court in application of Arts. 119 et seq. Code of Civil Procedure; all costs and compensation payable by [Seller].

H. By order of 18 April 2000, [Seller] was required to pay an advance payment of the court costs which it did within the time limit.

I. On 25 August 2000, [Seller] submitted its rejoinder and replication of the cross-claim in which it retained its initial motions.

J. By submission of 17 October 2000, the rejoinder of the cross-claim by [Buyer] followed.

K. By order of 15 February 2001, the Canton Court issued the request of evidence.

L. By submission of 5 March 2001, [Seller] demanded to reject the rejoinder of the cross-claim by [Buyer].

M. On 9 March 2001 [Buyer], submitted its evidence.

N. By order of 27 March 2001, the request of [Seller] to reject [Buyer]'s rejoinder of the cross-claim was rejected and a new time limit for the submission of evidence was issued for [Seller].

O. On 7 June 2001, [Seller]'s submission of evidence was received.

P. By submission of 13 August 2001, [Seller] raised objections against [Buyer]'s evidence.

Q. On 25 September 2001, the order of evidence was issued by the Canton Court. The cost that were burdened on the parties by this order were paid by both parties within the time limit.

R. On 15 January 2002, the hearing of evidence took place.

S. By writing of the court of 23 April 2002, the parties were requested to give their statement on the expert already named by [Buyer] or propose another expert.

T. After the parties could neither agree on the expert named by [Buyer] nor on another expert proposed to them, by order of 26 November 2002 Günter W. was appointed as an expert. Furthermore, [Buyer] was ordered to pay an advance payment for the costs that would probably arise for the expertise, which it paid within the time limit. By writing of the Canton Court of 16 December 2002 Günter W. was appointed for the expertise.

U. On 15 April 2003, the additions to the expertise that were requested by [Buyer] on 6 January 2003 and rejected by [Seller] in its statement of 11 February 2003 were refused.

V. On 14 May 2003, the expertise was received by the Canton Court and was sent to the parties the same day for their statement of objections.

W. By submission of 11 June 2003, [Buyer] demanded numerous additions and explanations of the expertise. In its objections of 27 June 2003, [Seller] demanded the rejection of the expertise and the release of Günter W. as the expert, and further requested the court to order [Buyer] to pay a fine and the costs of the expertise as well as the costs of the proceedings and compensation for the proceedings for [Seller] for this part of the proceedings. Alternatively, it demanded the renewal of the time limit for the submission of additional motions.

X. After the expert was required by writing of 4 July 2003 to inform the court about all contacts with [Buyer] in context with the expertise and after Günter W. had given a statement by writing of 7 July 2003, by order of 2 September 2003 the Canton Court rejected [Seller]'s demands as well as [Buyer]'s requests of addition and explanation of the expertise.

Y. By writing of the Court Clerk of 2 December 2003, the parties were requested to give a final statement by 19 December 2003, while [Seller] was granted the extension of the time limit until 19 January 2004 as asked for.

Z. By submissions of 18 December 2003 [Buyer] and 19 January 2004 [Seller] handed in their statements. The parties' elaborations will be referred to in the considerations as far as necessary.

CONSIDERATIONS

      1. a) The facts and circumstances to be examined in this case are of an international relation: [Buyer] has its seat in Schaffhausen (Switzerland) and [Seller] has its residence in Viernheim (Germany). In clause 3.5 of the contract of delivery and acceptance of 25 September 1997, the parties agreed on the seat of [Buyer] as the forum and as the place of performance. Due to the fact that Switzerland and Germany were Contracting States to the Lugano Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters of 16 September 1988 (SR 0275.11: Lugano Convention; enforcement in Switzerland on 1 January 1992 and in Germany on 1 March 1995) at the time of the conclusion of the contract and are still Contracting States at the present time, the question of the admissibility of a choice of forum in Civil and Commercial Matters is to be determined according to Art. 17 of the Lugano Convention. As both parties have their seat or residence in a Contracting State and as the choice of forum was made in writing, the requirements of Art. 17 of the Lugano Convention are fulfilled, so that the choice of forum clause is valid and the Canton Court of Schaffhausen has jurisdiction.

           b) A choice of law was not agreed between the parties. Switzerland and Germany are Contracting States of the Convention on the International Sale of Goods from 11 April 1980 (Vienna Convention, hereinafter called CISG; enforced in Switzerland on 1 April 1991 and in Germany on 1 January 1991). According to Art. 1 CISG, contracts concerning the delivery of goods to be produced - so-called contracts for work done and materials supplied - are set equal to contracts of sale of goods (Art. 3(1) CISG: Heinrich Honsell, Commentary of the CISG, Berlin, Heidelberg, New York 1996, No. 3 Art. 3 and Heinrich Honsell/Nedim Peter Vogt/Anton K. Schnyder, Commentary of the Swiss Civil law, International Private law, Basel 1996, No. 5 Art. 118 IPRG). Consequently, in the present case the CISG also applies to questions concerning the conclusion of the contract, as well as the rights and obligations of the parties (see Art. 4 CISG). On this, the parties agree. (see KS, p. 22; RP. P. 22; KA, p. 14).

      2. a) There is dispute, however, as to what was agreed concerning the equipment and the degree of specification of the 50 model railcars that were ordered by [Buyer] from [Seller]. Concerning this, [Buyer] puts forward that on the basis of the offer of [Seller] of 11 August 1997 that was specifically made for the desired railcars, during the meeting between Dr. R (...) and [Seller] on 23 August 1997 in Egloffstein, several specifications of the models that were to be produced were discussed. On that occasion plans, photos and drawings of the so-called original model "Grenzel" (model for home construction) were handed to [Seller]. All this became part of the contract (KS, p. 7 et seq.; RP, p. 6 et seq.). [Seller] contests this and asserts that it was only agreed that "in addition (...) to the equipment of the model the points of the invitation to tender and the offer of 11 August 1997" were to prevail (see KB 3: contract of delivery and acceptance of 25 September 1997).

           b) In the contract of delivery and acceptance of 25 September 1997, with the description of the goods to be delivered with the title of the model, the hint to the invitation to tender and the offer of [Seller] of 11 August 1997 and the further description of the characteristics (concerning varnishing, lights of the vehicle, exchange of lights due to change of the direction of travel, cutting site for digital traction operations) the following formulation can be found: "Alternatively, the photos of a LGB-model that were handed out shall be decisive for example for the interior furnishing of the doors, etc." (see KB 3).

On the occasion of the hearing of evidence on 15 January 2002, Witness R (...), who was retained by [Buyer] for the evaluation of the model, declared that he took detailed photos of the model "Grenzel" for that purpose. He further elaborates: "Mr. K ([Seller]) could also keep the model "Grenzel". But as he intended to take it with him to Korea, Mr. Grenzel did not allow this." (record BV, p. 31). Further information about the content of the contract is contained in the accompanying letter of [Buyer] of 28 August 1997 by which [Seller] was apparently sent the contract of delivery and acceptance for signing (KB 9). In it, there is a notice that the text of the contract was based on the invitation to tender by [Buyer], on the offers by [Seller] of 26 May and 11 August 1997 (KB 6 and 7) as well as on the aspects discussed between [Seller] and Dr. R (...). In case of any differences, [Seller] was asked to contact Dr. R (...), which apparently did not happen.

Although [Seller] added corrections in handwriting to the contract of delivery and acceptance, these only concerned the conditions of payment and delivery, so that the subject of the contract remained unchanged. (see contract of delivery and acceptance, KB 3). Therefore, [Seller]'s opinion that the parties did not agree that the specifications contained in the invitation to tender and talked about in the meeting should be part of the contract cannot be followed (KS, p. 12, DP, p. 7).

[Seller] states that the notes of the meeting between Dr. R (...) and [Seller] on 23 August 1997 (KB 8) handed in by [Buyer] are incorrect (KS, p. 16). However, for the court there is no reason to doubt the correctness of the notes, so these are to be taken into consideration when determining the characteristics of the models in dispute. The expression "fully detailed" used by [Seller] in its offer of 11 August 1997 (KB 7) has no independent significance, but it only constitutes a description used in the trade of railway models to describe the grade of detail, which then needs a specification in the individual case which was also made in the present case (see expertise of 9 May 2003, No. 2.1, p. 1).

           c) Consequently, in the present case the following content of the contract is to be acknowledged:

Subject of the contract:

   -    50 handwork models of the railcar To2 of the Südharz Railway, LGB-size, made in Korea, plus a model as discount.

Characteristics:

   -    Fully capable of drive operation (not a showcase model)
   -    Interior decoration including a blank engine and dynamo
   -    Interior and exterior lights changing at the change of direction, in the front and at the back two lights each, with the one at the back (as seen in the direction of the drive) had to be red
   -    Sliding door and door, movable
   -    Imitation of the control console
   -    Clutch compatible with LGB
   -    Two engines
   -    All axel driven
   -    Engine: minimum speed without twitch approx. 5 km/h; larger adjustment range in lower speeds; maximum speed 60 km/h (on example max. 40 km/h)
   -    Gentle and smooth drive
   -    Example varnished as model (dark red/beige) and labelled
   -    Cooler on the roof (as on plan) is left out, exhaust remains
   -    Smallest radius LGB can be operated
   -    Preparation of models with a digital cutting site
   -    Windows cannot be opened (as a divergence to the Grenzel model), pasted into between two sides (as on the Grenzel model)
   -    In the alternative decisive: delivered photos of the Grenzel model (KB 11).

The basis for this list can be found in the invitation to tender by [Buyer] from 28 March 1997 (KB 5), in the offers by [Seller] of 26 May 1997 and 11 August 1997 (KB 6 and 7), in the notes of the meeting of 23 August 1997 between Dr. R (...) and [Seller] (KB 8), in [Buyer]'s writing of 28 August 1997, as well as in the contract of delivery and acceptance of 25 September 1997 (KB 3). In addition, [Seller] was handed several drawings and plans as well as mass figures for the Grenzel model by [Buyer] (KB 8; KB 10 and 12).

           d) According to the contract, [Seller] was obligated to deliver a sample model to [Buyer] by 30 January 1998 (early enough before the fair in Nuremberg) (see KB 3). According to its own statement, [Seller] delivered a completely varnished sample model. It asserts that the sample model that was to be delivered for the fair did not have to be fully working (KA, p. 17 et seq.). [Buyer] contests that, stating that the sample model had been deficient, especially the following characteristics and pieces had been missing: interior decoration, motor and gear, exterior and interior lights, digital cutting site, constant light, changing lights due to change of direction including a red tail light, ability to run on the smallest LGB-radius of 60 cm (KS, p. 11).

Consequently, [Seller] was only paid half of the contractually agreed 20 % of the value of the order at the time of the delivery of the sample model, which is DM 13,000.00 (see contract of delivery and acceptance, KB 3, record of the acceptance of 31 January 1998, KB 4). It can be concluded from an exchange of letters between Dr. R (...) and [Seller] which is in the files that [Seller] took onto itself the obligation to deliver a working model until April 1998 and further stated its willingness to consider cooler, seating and effective door knobs as "part of the contract of September 1997" without further costs for [Buyer] (writing of Dr. R (...) of 2 March 1998, KB 15, and writing of [Seller] of 9 March 1998, KB 16). Actually, [Seller] delivered the agreed model on 9 May 1998 to Dr. R (...) in Egloffstein. By writing of 15 May 1998, [Buyer] notified that the model could not be accepted due to serious deficiencies. It referred to a report or record of acceptance by Dr. R (...) (KB 13; KS, p. 12 et seq.) and expressed doubts concerning the agreed date of delivery and the agreed quality of the models. [Seller], on the contrary, disputes any deficiencies and imputes bias concerning the record of acceptance (KA, p. 18).

      3. a) Subsequently, 50 model railway railcars (plus a free copy) were delivered to Germany on time and were then transported by a transport agency to the warehouse of the company Rowo-Pack in Fürth on 4 August 1998 according to the contractual agreement (KS, p. 13). There, Mrs. W (...) of [Buyer] and [Seller] met for examination. On that occasion, ten models were segregated by [Seller] for improvement (impressed discs, defects of the varnish; see KS, p. 14 and KA, p. 20) and five models were chosen (it is disputed whether by Mrs. W (...) or by [Seller]) and were brought to Dr. R (...) for examination. According to [Buyer], the examination of the models of which the results were put down in records had to be disrupted after three hours as [Seller] had children of a business partner in his car and still faced a long trip in the car (KS, p. 15). On the contrary, [Seller] asserts that it was Dr. R (...) who disrupted the examination and who booted out [Seller] and Mrs W (...). The mentioned children had only been noticed by Dr. R (...) when he drove off after the examination (KA, p. 23). In accordance with [Seller]'s request and with regard to clause 2.3 of the contract of delivery and acceptance of 25 September 1997, he was offered a further partial payment of DM 50,000.00 on 4 August 1998, after the remedying of the defects and the acceptance of the outstanding payment of DM 10,000.00 should be made (see KS, p. 15 and KB 19).

According to the record of the examination in which it was distinguished between defects resulting from the transport (defects of the varnish and defect windows) and those resulting from production (defects of the varnish and other inferior complaints), the parties agreed on a remedying of the defects within fourteen days (record of 4 August 1998, signed by Dr. R (...) and [Seller]; KB 18). On 8 August 1998, thus within four days, [Seller] returned the models to [Buyer] in Nuremberg. [Seller] is of the opinion that the issue was all right then. Also Dr. R (...) who was not present at the hand delivery assumed the same. Also [Buyer] must have assumed that no further defects were there, as [Seller] received a further partial payment of DM 38,000.00 and DM 9,909.30 for additional costs by Mrs W (...) on 8 August 1998. Concerning the outstanding amount of DM 10,000.00 it was assured that this would be paid soon by transfer (KA, p. 23 et seq., KB 21 et seq.).

[Buyer] is of a different opinion: by writing of 26 August 1998, it had notified 15 defects "after the record of Dr. R (...) and further examinations of the delivered models and the presentation in front of customers interested in brass-handwork-models". To summarize, it was notified that the delivered models did not fulfil the contractual requirements and two options were presented to [Seller]: cure or avoidance of the contract including compensation of [Buyer]'s costs that arose up to then. Finally, [Seller] was requested to contact Dr. R (...) as soon as possible (see writing of [Buyer] to [Seller] of 26 August 1998, KB 23). [Seller] asserts that it only received this writing by [Buyer], which is dated 26 August 1998 on 15 September 1998. Thereby, the notice of defects was only made five weeks after [Buyer] found and must have found the defects, so that the right of avooidance was waived (KA, p. 26 ).

Furthermore, the defects are contested as to their ground and extension (KA, p. 26). According to [Buyer], [Seller] had received the notice of defects of 26 August at the latest on 2 September 1998, as the "apparently authorized son" of the [Seller] declared on 2 September 1998 that his father would only be back on 8 September 1998. Via telephone, Dr. R (...) was notified by Stefan K (...) that the defects were to be remedied of course and was asked to send a photo of the wipers that were missing on the delivered models. After another request by [Seller], this photo was sent with letter of 10 September 1998 (WKDP, p. 7; KB 46 et seq.).

However, it is undisputed that [Seller] declared by writing of 17 September 1998 that it was of the opinion that it had more that fulfilled the contract of delivery and acceptance in all respects, as for example, coolers and flexible door knobs were fitted without further costs (KB 24). Subsequently, by writing of 23 September 1998, [Buyer] set [Seller] a time limit until 6 October 1998 for a statement which work was to be done without any costs, [Buyer] would otherwise retain another company for the improvements and demand payment as well as compensation from [Seller] (KB 26). In its writing of 30 September 1998, [Seller] only stated generally, that it was willing to negotiate alleged defects within the frame of the contract of delivery and acceptance, but that it not going to undertake changes in the construction (KB 27). Later, in its writing to Dr. R (...) of 16 October 1998, [Seller] showed its willingness to address some of the defects alleged by [Buyer] even beyond the contract of delivery and acceptance without any further costs (KB 28). In particular, this was about the accomplishment of the varnishing, changes in the manuals and the removal of fingerprints (in addition to these, there were typical remedying works that did not go beyond the contractual agreement). For the other deficiencies, [Seller] requested an adjustment of the contractual agreement. For the "smooth course of the improvement of these deficiencies" the following requirements were made:

   -    Numbering by Dr. R (...) and costs to be paid by [Buyer];
   -    Producing of an examination record of the alleged deficiencies for each of the models, signed by the responsible person of [Buyer] for the later last acceptance;
   -    Acceptance and taking over of the models in Nuremberg;
   -    Regulation of the deficient aspects within fourteen days after the comparison with the respective record; Payment of the outstanding amount of DM 10,000.00 in cash (KB 28).

In a further exchange of letters between [Seller] and Dr. R (...), [Seller] made a statement concerning the further deficiencies from 26 August 1998 (writing of 6 November 1998; KB 30) and referred to its writing of 17 October 1998 (correctly 16 October).

Dr. R (...) subsequently closely examined all of the models (several of the models were opened and taken apart, as well as examined for the quality of the interior work and a driving test was undertaken: KS, p. 18). According to the elaborations of [Buyer], it resulted that all of the 51 models had 15 deficiencies against the contractual agreements and, concerning 43 models, further different defects were found (KS, p. 19; the alleged defects can be found in detail in DP, p. 8 et seq.). By accompanying letter of 8 December 1998, Dr. R (...) sent [Seller] a copy of the records of the examination and noted that a remedying without a new motor and gears construction would cost DM 1,700.00 per piece (KB 31). Instructed by [Buyer], Dr. R (...) offered [Seller] a time limit until 19 December 1998 for a statement. By writing of its legal counsel of 29 December 1998, [Buyer] set [Seller] a last time limit for improvement until 12 January 1999, otherwise it would declare the avoidance of the contract due to breach of contract (KS, p. 19, KB 33). In its response of 9 January 1999, [Seller] took the position that it had delivered in accordance with the contract and that it had fulfilled services that go beyond the contractual obligations (wood imitation, passenger cabin, cooler on the roof). [Seller] was expressly rejected [Buyer]'s allegation that the delivered goods were deficient and that the deficiencies were maliciously concealed by [Seller]. On 5 February 1999, [Buyer] submitted the announcement of the claim at the office of conciliation, Schaffhausen.

           b) The legal analysis of this factual situation is to be made according to the provisions of the CISG (see E. 1 b) which are to be interpreted autonomously (which means in the context of the Convention itself) (Art. 7(2) CISG).

In the present case, [Buyer] asserts that it was entitled to avoid the contract for breach of contract by [Seller]. According to the CISG, the buyer loses the right to rely on a lack of conformity of the goods if it does not fulfil its duties of examination and notification - except if the seller knew or must have known of the defect which is asserted by the buyer ("of which it could not have been unaware", Arts. 38 and 39, as well as 40 CISG).

Consequently, the stated prerequisites are to be considered in the following way:

   -    First, did [Buyer] fulfil its duties of examination and notification? If not, the question whether [Seller] fulfilled its contractual obligation can be left open, as [Buyer] has waived its rights out of the deficient performance, except if [Buyer] is able to prove that [Seller] knew of the non-conformity with the contract or could not have been unaware of it.
 
   -    If it turns out that [Buyer] did examine and notify about defects within the time limit, the second question follows whether a breach of duty in the sense of the CISG is given (Art. 35 CISG).
 
   -    As the goods in dispute were undisputedly delivered on time, the buyer is entitled to demand the avoidance of the contract if there is a fundamental breach of contract and if it declares the avoidance within a reasonable period of time (Art. 49(2)(b) CISG) - which is the third question.

           c) First of all the content and the extent of the duty of examination and notification of the buyer must be determined: According to the provisions of the CISG, the buyer must examine or have the goods examined within a period as short as adequate under the circumstances and if defects are found it must notify them to the seller within a reasonable period of time exactly stating the kind of deficiency (Art. 38(1) and Art. 39(1) CISG).

Scholars and the courts require a reasonable examination in accordance with the customs of the trade which takes into account the character of the goods and is adequate to reveal possible deficiencies, for example, in case of textiles, ironing and washing tests (in order to examine the quality of the colors or the shrinking); in case of shoes and clothes, a wearing of the goods. In case of mass production items, only random sampling is required and where there are characteristics that are difficult to examine (especially where technical functions have to be determined), the buyer may be obliged to retain an expert. However, the buyer is only obliged to examine within the scope of that which is reasonable and usual. If there are doubts and if earlier deliveries had been deficient, the courts require a higher attention and a more detailed examination (see H. Honsell, see above, N 14- 18 Art. 38 CISG). As far as the period of time for the examination is concerned, roughly a week is adequate -- to be counted from the time the buyer has access to the goods at the place of delivery. In individual cases, the period of time for the examination must be determined with regard to the kind of the goods and the defects, as well as the necessities of the examination, especially the time required for it (see Honsell, see above, N 21-24 Art. 38 CISG). In case of visible defects, the period of time for notification begins directly after the lapse of time for the examination, irrelevant of the question whether the buyer did actually undertake an examination or not. The reasonableness of the period of time of notification (art. 39 CISG) is determined according to the circumstances of the case. Roughly a week is taken as a reasonable period of time. For examination and notification a period of time of fourteen days is an orientation (see Honsell, see above, N 15-23 Art. 39 CISG).

In this context, it must be added that in various aspects the CISG is set forth or interpreted more in favor of the buyer than the law of sale of goods according to the Swiss Law of Obligations. With regard to this, the doctrine is of the opinion that concerning the period of time for examination, the standard must not be too strict (see: H. Honsell, N 20 Art. 38 CISG with further references to case law and doctrine). According to Art. 39 CISG, the notice of deficiencies must be made within a reasonable period of time. Thus, the period of time for notification of deficiencies under the CISG is more liberal (see: H. Honsell, see above, N 23 Art. 39 CISG with further references to case law and doctrine) compared to the strict standard in this respect under the Swiss Law of Obligations (Art. 201(1) OR: immediately). Similar to the doctrine concerning the Swiss law of obligations, according to Honsell the dispatch of the notice on the last day of the period for notification is sufficient under the CISG, as otherwise the period for notification would be shortened (H. Honsell, see above, N 23 Art. 39 CISG; concerning the Swiss doctrine see the overview by Hannes Zender in SJZ 96 (2000), No. 23, p. 545 et seq.).

The time in which the goods are at the buyer's disposal is decisive for the beginning of the period for examination. Concerning this, the facts of the present case are as follows:

   -    All of the models were unwrapped on 4 August 1998 by Mrs W. and [Seller] in the supply depot of the company R-P in Fürth. On that occasion, [Seller] segregated ten models with defects of transport, and five further models of which it remained unclear after the taking of evidence who chose them (Prot. BV, p. 8 and 13 et seq.), were brought from Fürth to Egloffstein to Dr. R. on the same day.
 
   -    After three hours of examination it was stated in the protocol which was also signed by [Seller], that the remedying of the defects had to be done within fourteen days and [Seller] was paid DM 50,000.00 according to the contractual agreement (contract of delivery and acceptance from 25 September 1997, p. 2; KB 3). On the receipt written by [Seller], the notice read "The rest of the invoicing will be done after the remedying and acceptance" (KB 19). Already on 8 August 1998 [Seller] returned the models to Mrs. W of [Buyer], after 51 models have been brought to the workshop of Dr. R in Nuremberg which were provided to [Seller] for remedying (KS, p. 13). Only now all the models were at [Buyer]'s disposal.
 
   -    At this moment the period of time for examination started to run - also the parties thought so (see: the expression "acceptance" used in the receipt in KB 19, which in the context with Clause 3.2 of the contract of delivery and acceptance from 25 September 1997 must clearly be understood as delivery). Also according to the German version of the CISG, acceptance does not mean anything different than taking over of the delivered goods and not approval (Art. 60(b) CISG; Austria and Switzerland used the word receipt, see Swiss version of Art. 60 CISG). Consequently, [Seller] may not have thought that the issue was "all right", meaning that the goods were approved. This conclusion must also not be drawn from the fact that Dr. R. was obviously not present at the delivery on 8 August 1998.

Therefore, it must be examined whether the notice of deficiencies by [Buyer] on 26 August 1998 was made on time. [Seller] contests this and asserts that it only received this writing on 15 September 1998. According to the annex of the files, [Seller] was definitely not available between 1 September 1998 and 8 September 1998. During that time S.K. phoned Dr. R. in representation of his father and left a message on his recorder (see KB 46; writing by S.K. to Dr. R). According to [Buyer] S.K. gave notice that the deficiencies would self-evidently be remedied, and he asked to send the photo concerning the windshields that had to be affixed (WKDP, p. 7 et seq.). Consequently, [Buyer] is of the opinion that [Seller] or respectively his son had knowledge of the notification of deficiencies at the latest on 2 September 1998. According to the doctrine concerning the CISG as mentioned above, the dispatch of the notice of deficiencies on the last day of the period of notification is sufficient (p. 14). Concerning this [Seller] states the assumption that [Buyer] backdated its notice which [Seller] only received on 15 September 1998 due to "obvious reasons" (KA, p. 25). In this context, it must be mentioned that certain indications speak for the assumption that the notice by [Buyer] was sent clearly before 15 September 1998. At the beginning of September, there was obviously a reason for the son of [Seller] who does not work in the company of his father (see Prot. BV, p. 40) to contact Dr. R. while his father was absent, and to let this phone call be followed by a written message (KB 46). Dr. R. confirmed in his witness statement, that there had been a telephone conversation between the son of [Seller] and himself during the relevant period of time. [Seller]'s son declared in that conversation that the deficiencies would self-evidently be remedied. They also talked about the missing windshields (Prot. BV, p. 40; see KB 47). Even taking into consideration that the witness Dr. R. was the one who proposed the model to be produced to [Buyer], conducted the invitation to tender and the negotiations of the contract with [Seller] and examined the hand sample model of the pilot production of the delivered models, there are no indications that could be taken from the facts according to the documents to support [Seller]'s allegation of a backdating. Finally, there is also [Seller]'s writing of 17 September 1998 which expressly refers to [Buyer]'s writing of 26 August 1998, and there is no hint there that the writing had only been received on 15 September 1998, which could have been expected after such a long time of transmission (KB 24). Therefore, it must be assumed that the notice of [Buyer] had been sent to [Seller] between 26 August and the beginning of September 1998. After the models had been at [Buyer]'s disposal since the delivery on 8 August 1998 (a Saturday by the way), the period for examination under the CISG would have lasted until 24 August 1998 (first working day: Monday, 10 August).

The case law concerning the CISG requires a raised attention and a closer examination by the buyer if a former delivery had already been deficient or if there were other indications (H. Honsell, see above, N 18 Art. 38 CISG). [Buyer] stated that it was not satisfied with the sample model that was delivered on 30 January 1998 and [Seller] was only paid half of the agreed price (KB 14). Also, the model delivered on 9 May 1998 was still deficient according to [Buyer]'s opinion. The fact that neither [Buyer], nor Dr. R. had been satisfied with the quality can be deduced from the protocol of receipt of 9 May 1998 and from the writing of [Buyer] of 15 May 1998 (KB 13 and 17; however, subsequently contested by [Seller], KA, p. 18). Insofar the statement of [Seller] at his personal interrogation by the court is not correct ("in the following, we finished the sample and he was satisfied", Prot. BV, p. 7). With regard to that, [Buyer] had to examine the delivered models attentively and closely. Furthermore, due to their characteristics (handmade models), these were complex goods in their function and appearance, which could not be quickly examined for faulty products. In this context, it must be referred to the elaboration of the expert W., No. 2.2 and 3 of the expert opinion of 9 May 2003: According to this, the time needed for an examination depends on whether the deliverer gave rise to mistrust his work; if there only defects with regard to the contractual agreement, the buyer of models in a small series must not be satisfied with a random examination. In the present case according to his opinion, the examination of 51 models requires 75 to 150 hours (see expert opinion from 9 May 2003, p. 1). The motion of [Seller] to dismiss the expert W. for prejudice and to order the removal of the expert opinion from the files was refused by the court by order of 2 September 2003. Therefore, the assertion of [Seller] in this respect must not be argued any more. The conclusions of the expert W. are plausible and seem to be correct. Taking this into account, the average period of time of fourteen days for the examination and notification seems too short and must be reasonably prolonged with regard to the circumstances. According to the above-mentioned considerations, the notice of deficiencies was at the latest sent to [Seller] within three weeks. As far as the period of time is concerned, [Buyer] did fulfil its duties and also the content of its writing from 26 August 1998 fulfils the requirements of Art. 39 CISG (specific statement of the kind of the deficiency).

           d) Concerning the question whether the performance met the contractual requirements, the following is true: Different than under the Swiss law of obligations, the liability for defects under the CISG is not set forth as a special warranty but forms part of the general liability for the non-performance of a contractual duty. The conformity of the delivered goods must be determined according to the contractual agreement: the seller is obliged to deliver goods which in the amount, the quality and the kind, as well as concerning the packaging to fulfil the requirements of the contract (Art. 35(1) CISG). Goods that do not fulfil the agreed criteria are deficient even if they are in themselves usable (see H. Honsell, see above N 11 Art. 35 CISG with reference to case law). If there is no contractual agreement, the CISG sets forth an objective minimum standard for certain cases, such as the suitability for the normal usage, the suitability for a certain use, the conformity with a sample in case of a sale on approval or sample and a usual or adequate package for the requirements of the package of the goods (Art. 35(2) CISG; so called objective conformity).

In the present case, [Buyer] asserts that all of the 51 models were deficient in 15 aspects in violation of the contractual duties and that concerning 43 models further different deficiencies have been found (KS, p. 19). A slang description of the models would be that they are "bungled from A to Z" (RP, p. 13). [Seller] contests the alleged deficiencies as to their existence and their extent, [Seller] especially contests the allegation that the deficiencies already existed at the time of delivery (KA, p. 28 et seq.). On the contrary, [Seller] alleges that the delivered quality meets the contractual agreement, it is pointed out that [Buyer] already paid the main part of the price (RP, p. 9).

For the determination of the conformity of the models, the court is presented the following evidence:

   -    Invitation to tender by [Buyer] of 28 March 1997 (KB 5);
   -    Offers by [Seller] of 26 May 1997 and 11 August 1997 (KB 6 and 7);
   -    Notes concerning the meeting on 23 August 1997 (KB 8);
   -    Writing by [Buyer] of 28 August 1997 (KB 9);
   -    Contract of delivery and acceptance of 25 September 1997 (KB 3);
   -    Writing of [Seller] of 9 March 1998 (KB 16), as well as drawings, plans and measurements data concerning the Grenzel model, which were given to [Seller] by [Buyer] (KB 10 to 12).
   -    Also the witness statements of Dr. R. and Egon Z. which had been requested by [Buyer] in this context must be taken into consideration, as well as the judicial view on one of the models and the expert opinion of Günter W. which was ordered by the court following a request by [Buyer].

On the occasion of his witness interrogation, Dr. R. stated that he examined all of the models on their exterior until 24 August 1998. During the examination, he also let the models go forward and backward. Concerning three or four of them, the light did not turn on and they did not start moving correctly. He opened five models without further dismantling them and thereby saw that as a flow for the wires a quadrangular, unclean opening was adjusted for the wires which could easily lead to a short-circuit (Prot. BV, p. 41). At this time, he had been of the opinion that the deficiencies could be remedied. Until then, he did not undertake real running-tests. In order to avoid that, [Seller] could later reproach that he had not correctly dismantled the models, he asked [Seller] by telephone and by writing to take part in the examination. However, [Seller] did not come to the examinations (Prot. BV, p. 42). After the completion of the examination, the protocols of examination of all 51 models were sent to [Seller] on 8 December 1998 (BK 32). Concerning the question whether in his opinion a remedying of the deficiencies seemed possible and adequate under the circumstances at that time, Dr. R. answered that he had consulted two companies who told him that a remedying would be expensive, so that he considered a remedying to be impossible (Prot. BV, p. 39). A remedying by the producer generally remains possible, but difficult, though. But he is not able to determine this in the present case as he had not been to Korea and did not know the producing facilities (Prot. BV, p. 39). In the opinion of the witness Dr. R., the models would have had to be remedied: the quadrangular openings for the wires would have to be cleaned in order to prevent short-circuits; the electricity would have to be checked; concerning the construction it must be taken into account that the centre of the bogies always must be at the same point, as well as the footboard (which otherwise beat against the bogies); most of all the bottom sheets would have to be removed, the gaps would have to be spread out and regularly be reamed, finally, it must be pointed to the fitting pieces which were at all models about three to six millimetres too short and were produced of another material (Prot. BV, p. 43).

Egon Z., pensioner, formerly trader, had helped Dr. R. with the examination of the models by unwrapping the models, numbering them and putting down the hand protocol, which Dr. R. later had written by an office employee by computer. He was paid for his working hours (Prot. BV, p. 23, 25, 49). Asked for extraordinary deficiencies that turned out during his work, Witness Z. stated that he was a layman in that area. There had definitely been deficiencies, but whether these had been fundamental, he could not say. He had determined that the windows had been defective, the doors had not worked properly, that nearly all of the models went off the rails during the running test and that they staggered, that the light hardly turned on in the beginning and that during longer examination there had been quite a lot of short-circuits. There had also been shrieking sounds, which partly became stronger (Prot. BV, p. 24). When writing the protocol, Dr. R. had dictated more or less what had to be put down (Prot. BV, p. 27). Asked by the presiding judge, Witness Z. confirmed that the protocol of the examination that is in the file (KB 32, p. 3-6) had been written by him and corresponds with the protocol that had been made later (Prot. BV, p. 23).

Besides the content of the witness statements, the court has to take into consideration the credibility of the witnesses. The deficiencies which were described by Witness Dr. R. in the taking of evidence did not in any respect exceed the deficiencies that were asserted in the correspondence between [Buyer] or Dr. R. and [Seller] (see notice of deficiencies of [Buyer] of 26 August 1998, KB 23; writing by Dr. R. of 22 September 1998, KB 25; writing by Dr. R. of 26 October 1998, KB 29; writing by Dr. R. containing the protocol of examination of 8 December 1998, KB 31 and 32). Also the statement of Witness Z, who cautiously states that he is a layman, corresponds with the documents that were handed in. He and Dr. R. answered spontaneously and without contradictions. Dr. R. stated without being asked that he had prepared himself for his witness statement and that he had made a list of the examination data and the duration of the examination which he handed to the files (KB 48). The witness then conceded that he met Mrs. W. during the lunch break, but stated that they did not talk about the questions, as he suffered a asthmatic attack (Prot. BV, p. 45). However, Mrs. W. was neither named as a witness for the deficiencies of the models by [Buyer], nor was she asked by the court during the taking of evidence. She herself stated that she had no knowledge of the technology, but was only in charge of selling (Prot. BV, p. 15). Insofar there was no risk of collusion. As far as the behavior of the witnesses is concerned, there is no hint for any doubt concerning the credibility of the witnesses. As to their "closeness" to [Buyer] with regard to financial and personal aspects, the neutrality of the witnesses can be concluded from the judicial view and the expert opinion of the expert W.

At the judicial viewing that took place before the taking of evidence, the court was shown one of the 51 delivered models of the railcar To2 of the Südharz Railway (handwork-bass-models) for inspection (without segmentation) by counsel of [Buyer] (Nr. 15, see Prot. BV, p. 28) which was said to be representative of the alleged deficiencies. However, counsel of [Seller] alleged that it is a bad model as far as the detail work is concerned, it was a faulty product (Prot. BV, p. 1 and 4). On the basis of the aspects put down in the examination protocol from 8 December 1998, especially due to the limitation to exterior examination, it must be assumed that it was an average model (protocol of examination; KB 32, p. 4, Model No. 16). The court took note of the deficiencies alleged by the legal counsel of [Buyer], such as crevices in the interior, abecedarian seating, dog of the tyre at the rotation of the bogies, numerous boreholes and augerholes in the base without function, square and not beveled openings for the wires (see also photos that were made in the taking of evidence). These were not contested by [Seller]. However, [Seller] mainly refers to the fact that the delivered models were handwork and that deviations were possible. Furthermore, [Buyer] had previously been given a model concerning which it did not allege deficiencies (Prot. BV, p. 1 et seq.). Concerning this last aspect, it must be contested that as well from the protocol of Dr. R (KB 13) as well as from the following writing of 15 May 1998, the deficiency of the delivered model in the opinion of [Buyer] was expressed (KB 17). Also [Seller] never alleged that a sale by sample was agreed (Art. 35(2)(c) CISG). There would be a sale by sample if the parties had concluded the contract with reference to a sample (H. Honsell, see above, N 24 to Art. 35 CISG). Clause 2.3 of the contract of delivery and acceptance providing that 20 % of the payment should be due on the delivery of a sample model constitutes a so-called sample for orientation with regard to the stipulation of the contract and the way the contract was to be executed (see Claire Huguenin, Obligationenrecht, Besonderer Teil, Zurich 2002 N 210).

In the presented part of the expert opinion, the expert had to elaborate on the discovered deficiencies and their importance, generally on the quality of the examined models and on the question whether a remedying of the examined wagons was necessary, possible and advisable. The models that were the basis for his expert opinion are Numbers 16 (named by the court), 35 and 40 (named by [Seller]). Concerning the individual deficiencies that were alleged by [Buyer], the expert stated the following in its expertise of 9 May 2003:

   -    The wipers are missing on all of the models. The gaps in the stringers (for the flexibility of the bogies) are of a different size, often not accurately extended and partly not varnished.
 
   -    The fill-up pieces that were put in for concealing are of the same measurements, but the gaps individual, so that the gaps up to 2 mm occur. During the bend drive (60 cm radius) there occurred grinding sounds. At that point, the expert adds that the rolling on such a small curve was desirable but could not be achieved without diverging from the original model (expert opinion, p. 2). At low speed, the vehicles show a good rolling; with accelerating speed, the sound gets unacceptable.
 
   -    In the straight direction as well as on the curve, the examined models have a rolling without jerking and staggering. Only in the clear points could staggering movements be noticed, but this could be noticed with the two-axed models as well because the tires fall one after the other in the gaps of the LGB-points.
 
   -    As in the examined model number 22 - other than in other models - one volt timing was built in each of the bogies, which means one on the left and one on the right, instead of two in one bogie, other models could have staggering movements (Number 22 could not be tested due to a defect of the engine).
 
   -    With the examined models there were no short circuits and wrong polarity of the engines (the assumed short-circuit of Number 22 turned out to be a blockage of the engine caused by a defective gearshaft, see appendix 4 and 5 of the expert opinion).
 
   -    Real short-circuits cannot be excluded, as there are many unnecessary winding drillings at the deconstructed wagon (due to changes of the construction), which are not deburred. The consequence of this is: burning grooves on the wires in the area of the works through the base plate and under the bogies (appendix 4 to the expert opinion).
 
   -    Too short or too narrow base plates could be found in all of the examined models. The interior light of the models was working with all of the models. However, the brightness was too low and it can only be seen in dark rooms (concerning the deficiencies alleged by [Buyer]: expert opinion, p. 2 et seq.).
 
   -    The elaborations of the expert are completed by appendix 1 concerning the visual examination, by appendix 2 concerning the measurements, by appendix 3 concerning the rolling, by appendix 4 concerning the examination of models number 16 (delivered deconstructed) and 22 (defective engine), in which the data concerning the individual rail cars are put down in detail.
 
   -    Concerning the quality of the examined models the expert W states that only the imitation and the varnishing of the wagon as well as the bogies were convincing. Necessary changes have been done inaccurately, nearly blowzy. The electronic equipment does not pay attention to an execution according to the measurements of the original, which means that unbelievable large conductor plates at inadequate places ruin the model. A deficient engine with unacceptable sounds must be added.

In total, the mentioned deficiencies make the examined models impossible to be sold in this condition. As a consequence, the expert draws the conclusion that only the wagon, the blank engine, maybe the simple interior decoration and the bogies can be used for the production of a model that can be sold. In contrast, numerous works are necessary in the carriage which would amount to a new work. Also the actuation must be worked on or be renewed. A fundamental improvement of the kind of the actuation can only be achieved by a new conception of the engine. To summarize: a quality that could be sold could only be achieved by a complex remedying or a partial new construction (see expert opinion, p. 3).

[Seller] had alleged that the expert W was bias in his statement concerning the expertise and had requested his dismissal as a court expert as well as the rejection of his expertise from the files. By order of 2 September 2003, the court intensively considered these allegations of [Seller], after it had questioned the expert W in writing concerning the contact that had taken place between him and the persons of the surroundings of [Buyer] before, during and after the examination and rejected the procedural requests of [Seller] (writing by the court of 4 July 2003; Order of the Canton Court of 2 September 2003). On this, it must not be further elaborated. As far as the expert opinion itself is concerned, it must be stated that it is complete in its issues, it is detailed, well structured, neatly looked over and displays a clear expert knowledge, so that the court can without hesitation rely on the expert opinion in disputed aspects.

Finally, it must be stated that the witness statements of Dr. R and Egon Z. as well as the impression the court got by the judicial view and the conclusions of the expert are congruent in most aspects and equivalent to the contents of the documents in the file: The models delivered to [Buyer] did not conform with the contract.

           e) However, according to the CISG a breach of contract only constitutes a right to avoid the contract if the non-fulfilment of the duty is fundamental (Art. 49(1)(a) CISG). A fundamental breach of contract is present if it leads to a consequence for the other party of such a nature that the other party is deprived of the main benefit of the contract which it could expect. An exception to this is given, if the party in breach (here the seller) did not foresee this consequence and a reasonable person in the same position and under the same circumstances would not have foreseen it, either (Art. 25 CISG).

The substantiality of the determined deficiencies can be best seen in appendixes 1 to 4 to the expert opinion. As far as the visual examination is concerned, it is stated:

   -    The interior, brass-colored window frames are not symmetric to the respective cut-out in the wagon;
   -    The door knobs to the driver's cab can be opened but this is so difficult that this function would not last very long - in addition the millings in the switching consoles of the driver's cab are barely canted and not varnished again;
   -    The sliding door in the sidewalls cant when opening them;
   -    Through the gaps of one to three millimetres that run along the basement of the luggage wagon wires are visible;
   -    Screw heads are visible instead of -- even if at this point unavoidable -- varnished in the color of the sides;
   -    The interior light is fixed at the roof in the way of a conductor board which does not at all fulfil the requirement of sticking to the model;
   -    The carriage is only negligently cleaned and varnished;
   -    The bad rotation-quality of the wheels has the effect of a file on the rails, due to that a great abrasion on wheels and rails must be taken into account;
   -    A great number of boreholes in the base of the wagon results from various changes during the production - at least they would have had to be covered, in the easiest way by blind screws;
   -    The fill-in pieces for the large breaks that were barely canted and varnished can only be fixed with considerable skill - a damage to the varnishing of the bogies can hardly be avoided - and in addition a gap of up to two millimetres remains and also the strength of the material and the level of shining of the varnishing they diverge.

Concerning the individual examined pieces further outstanding factors were noted:

   -    Clamped doors, rough casting, traces of corrosion, the hitting of a wheel to the sides in full driving (model no. 17);
   -    Brass-dust near the bogies, uneven, cloudy varnishing of the gas-container (model no. 22);
   -    A door cannot be opened, another one cannot be shut;
   -    Sliding doors which fall out when opening them,
   -    Pieces of brass on the bogies;
   -    Extreme traces of beveling on parts of the sides;
   -    Loosening of the soldering on the brake cylinder (model no. 35);
   -    Clamping door which can only be opened with difficulty;
   -    Sliding doors cant and fall out when opening them;
   -    Not varnished traces of beveling on the sides, corrosion on the engines, verdigris and flux-etchings (model no. 40).

As far as the driving test is concerned, it must be referred to the above mentioned elaborations of the expert opinion concerning no. 4 b (expert opinion p. 2 et seq. and appendix 3). In appendix 4 of the expert opinion, the examination of the models no. 16 and 22 can be found. These were special for the expert in so far as model no. 16 was delivered deconstructed and, concerning no. 22, the driving test could not be done due to a technical defect (see also appendix 5). As model no. 16 was the model that was presented in whole during the judicial view, it is unclear why and by whom it was deconstructed in the following. The expert emphasizes that it does not appear legitimate to him to do the same examination as on other models that were still in the original state on a model that was deconstructed by a third person. Model no. 16 therefore does not appear in the appendixes 1-3 (visual examination, examination on the consistence and driving test). However, it must be stated that the expert was entitled to open several models in order to answer the questions he was asked. Accordingly, the elaborations he made concerning the actuation and the construction of the carriage of model no. 16 can be taken into account for the judicial judgment. In appendix 4 it is stated that a great number of unnecessary tap holes show that there were changes of the construction of the group of carriage and that traces of rubbing were to be found on all of the wires in the area of the fitting through the basement and under the bogies when taking out the bogies. Concerning the actuation it is stated that the attempt of the wheel on the axel as well as the engine were overhung too much which did not support the life period of it. Furthermore, a complete diminishing of the actuation sound could only be achieved by another construction of the engine, an improvement or minimization would lead to the use of beveled geared wheels as well as the substitution of at least the first gear reduction by a timing belt (see expert opinion, appendix 4, p. 1). Concerning model no. 22 an arbor that was moved sideways which engaged with spokes barred the front axels so that the engine received too much electricity and the limitation of electricity of the mains adapter was activated (which could have lead to the destruction of the engine if there had not been a limitation of electricity; expert opinion, appendix 4, p. 2). In order to enable the court to get an impression of the defective bogies and the work, the expert described in appendix 5 how the engine can be opened by an enclosed screwdriver and attached the actuation of the bogies to the expert opinion (expert opinion, appendix 5).

In its judgment of the quality of the examined models, the expert W. comes to the conclusion that the deficient engine with the unacceptable sound in context with the other deficiencies makes the vehicles in this condition unsalable (expert opinion, p. 3). In so far the assertions of [Buyer] and the impression of the court by the taking of evidence and the judicial view (limited to the visual examination) are confirmed. Therefore, there are no doubts that [Buyer] is deprived of its main benefit concerning the delivered models which it could expect from the contract with [Seller]. Thus, a fundamental breach of contract must be assumed which gives [Buyer] the right to avoid the contract (Art. 25 in connection with Art. 49(1)(a) CISG).

With regard to the completeness, it must be hinted at the fact that the assertion of [Seller] which was for the first time made in the response, that the deficiencies alleged by [Buyer] were only caused after the delivery of the models (by inadequate stocking, inadequate transport and inadequate examination; KA, p. 28 and DP, p. 21), is completely unsubstantiated and can be excluded with regard to the kind of deficiencies that are alleged and that were determined.

           f) However, the buyer loses the right to declare the revocation of the contract if it does not declare it within a reasonable period of time after the period for remedying set by the buyer elapsed or after the seller declared that it will not fulfil its duties within this period of time (Art. 49(2)(b)(ii) CISG). Therefore, there are the following - difficult to understand and diffusely formulated - prerequisites for avoidance of a contract due to fundamental breach of contract:

   -    First of all a clear and undoubted declaration of avoidance of the contract must be given (see Art. 26 et seq. CISG).
 
   -    In addition, there is the principle that the buyer does not lose its right of revocation by giving the seller an additional possibility for remedying applies. Thus, its right of revocation is extended, if the buyer has a right of remedying under Art. 46 CISG and has set a period for remedying in accordance with Art. 47 CISG (see H. Honsell, see above, N 59 to Art. 49 CISG).

In the present case, [Buyer] several times requested remedying from [Seller]. It was entitled to remedying if the remedying was reasonable for [Seller] with regard to the circumstances and if [Buyer] requested the remedying either with the notification of deficiencies or within a reasonable period of time (Art. 46(3) CISG). In order to be able to refer to the right of avoidance of the contract, where a period was set for remedying, the period for remedying must have elapsed (Art. 47 CISG).

By notification of deficiencies from 26 August 1998 [Seller] was offered two options: remedying or avoidance of the contract including compensation of the costs that [Buyer] had incurred until then. [Buyer] demanded that [Seller] commence negotiations in this respect with Dr. R as soon as possible (KB 23). In its response of 17 September 1998, [Seller] asserts that it fulfilled the contract in all respects. Thus, [Seller] did not concede to negotiate with [Buyer]. By writing of 23 September 1998, [Buyer] set [Seller] a period for a declaration of which work would be done without payment, otherwise another company would be assigned for the remedying and payment for this as well as compensation would be requested from [Seller] (KB 26). [Seller] reacted to this and wrote on 30 September 1998 that it was willing to remedy deficiencies but not changes in the construction (KB 27). In addition, [Seller] had phoned Dr. R in this respect ([Seller]'s writing of 23 September, first paragraph; KB 27). Thus, [Seller] first delayed [Buyer]. At least it could assume that there were negotiations about this so that the setting of a period for remedying could wait at this point of time. By writing to Dr. R on 16 October 1998, [Seller] declared its willingness to remedy some of the deficiencies alleged by [Buyer] without requiring payment in addition to the contract of delivery and acceptance, stating that the other mentioned aspects would require an adjustment of the contract. But also in this regard, the willingness to negotiate was expressed (see KB 28). However, for a smooth course [Seller] required measures like the numbering of the models and the elaboration of examination protocols for each model. The remedying was offered by [Seller] within fourteen days after the receipt of the models and after the comparison with the protocols the models should be delivered to [Buyer] and [Seller] should receive the outstanding amount of DM 10,000.00 (KB 28). Consequently, Dr. R. closely examined all of the models (KS; p. 18). On 8 December 1998, Dr R. sent the protocols of examination to [Seller] and in the name of [Buyer], he set a period for statement until 19 December 1998 (KB 31). The examination took Dr. R. 143 hours according to his statement, 110 of these took place after 16 October 1998. For the seven weeks between the receipt of the writing by [Seller] and the sending of the examination protocols to [Seller], the effort was 15 to 20 hours per week. The time effort for the examination of models of the kind in question estimated by the expert is 1.5 to 3 hours per model. If deficiencies become visible, it must be calculated with a higher effort, in this case 150 hours (see expert opinion, p. 1). Due to this and due to the fact that [Buyer] and Dr. R could not spend the complete working time of the week on the examination of the models, a period of examination of seven weeks seems adequate. [Seller] who had requested an examination protocol for each of the models did not set [Buyer] any period of time for the examination (see writing by [Seller] of 16 October 1998, p. 2; KB 28). [Seller] did at least formally fulfil [Buyer]'s request for a statement until 19 December 1998 (see writing of legal counsel Dr. Duffner to [Seller] of 29 December 1998; KB 33, p. 1). Subsequently, [Buyer], through its legal counsel, set [Seller] a period for remedying until 12 January 1999 and declared the avoidance of the contract of delivery and acceptance from 25 September 1997 in case that until then the deficiencies were not remedied and no general statement by [Seller] concerning the remedying of the deficiencies according to the examination protocol was given (KB 33, p. 3).

It must be concluded from that that [Buyer] complied with the requirements for avoidance of the contract according to the CISG:

   -    The period of time for remedying until 12 January 1999 that [Buyer] set [Seller] was short, especially with regard to the holidays, but as an alternative [Buyer] offered [Seller] that it could give a general statement concerning the remedying within the same period of time if it was not possible to do the remedying within this period of time (see KB 33, p. 2).
 
   -    [Seller] itself had also assured that it was able to remedy deficiencies within a short time (protocol from 4 August 1998 - [Seller] did provide the models to [Buyer] again within four days - writing of [Seller] of 16 October 1998; KB 18 and 28; KA, p. 23).

That a remedying could generally not be expected of [Seller] (Art. 46(3) CISG) was never asserted by [Seller]. When Dr. R was questioned about this in the taking of evidence he answered: "I was not in Korea. I do not know the facilities there. The remedying was difficult, but the producer can do it." (Prot. BV, p. 40). Also the expert W comes to the same conclusion: a quality that could be sold could only have been achieved by a complex remedying which would be equivalent to a new construction concerning the carriage and a renovation of the engines. This would cost at least Euro 665.00 to 1,045.00 (expert opinion, p. 3; the cost of remedying asserted by [Buyer] of DM 1,700.00 would be within this frame, see KS, p. 19). A remedying thus seems possible and can economically be expected: according to the CISG, the seller is obliged to undertake serious efforts if these are necessary to achieve a condition that is required by the contract. The proportion in context with the price is irrelevant in that context. The limit to a remedying that cannot be expected is reached if the remedying causes costs that are out of proportion with regard to the disadvantage caused by the deficiency, so that according to reasonable considerations, a remedying cannot be requested (see Honsell, see above, N 97 to Art. 46(3) CISG with further hints to the doctrine).

To summarize, on 25 September 1997, [Buyer] legally and effectively declared to [Seller] the avoidance of the contract.

By order of 2 September 2003, a court decision concerning the additional and explanatory requests of [Buyer] concerning section 5 of the expert opinion (remedying) was adjourned. Considering the outcome of the proceedings, a decision on this is no longer necessary.

      4. a) The avoidance of the contract exempt both parties from their contractual obligations with the exception of claims for compensation. If one party completely or partly fulfils the contract, it can claim the return of its performance from the other party. If both parties are obliged to refund, the performances must be returned reciprocally and simultaneously (Art. 81(1) and (2) CISG).

Therefore, the claim of [Buyer] for refund of the paid price in the amount of DM 140,800.00 (DM 39,000 plus DM 13,000 plus DM 50,000 plus DM 38,800; see KB 14, 19 and 21) reciprocally and simultaneously with the return of models of the rail car To2 (all 51 models; see contract of delivery and acceptance, number 3.3, KB 3) of the former Südharz Railway must be granted.

           b) According to Art. 84(1) CISG, the seller who is obliged to refund the price must pay interest from the date of payment. The rate of interest is not set forth in the CISG. According to the dominant doctrine, it must be referred to domestic law of conflicts (see Honsell, see above, N 10 to Art. 84 CISG). For Switzerland as a Contracting State of the Hague Convention of the International Sale of Goods from 15 January 1955, Art. 3(1) of the Hague Convention must be applied due to which the sales contract for lack of a choice of law by the parties is subject to the law of the country of the domicile of the seller (SR 0.221.211.4; effective for Switzerland since 27 October 1972).

[Buyer] requests interest at a rate of 6 % on the price to be refunded running from the date of payment of the partial payments (KS, p. 2). It does not give reasons for the rate of interest. According to the applicable German law (the connecting factor is the residence of the seller) the rate of interest in the case of commercial contractual agreements is 5 % under section 352 of the German Commercial Code (commercial contractual agreements are contracts between two businessmen in the sense of section 1 of the German Commercial Code, both parties of this case fulfil the characteristics of such businessmen). Therefore, the rate of interest payable on the price is 5 % in this case, for each partial amount running from the dates listed in [Buyer]'s request which are coherent to the receipts (see KB 14, 19, 21).

[Buyer]'s request is not clearly formulated concerning the amounts on which interest must be paid due to the addition of the partial payments - correctly, number 2 must be: "to pay interest as follows: on the amount of DM 39,000.00 from 4 October 1997 to 30 January 1998, on the amount of DM 52,000.00 from 31 January 1998 to 3 August 1998, on the amount of DM 102,000.00 from 4 August 1998 to 7 August 1998, on the amount of DM 140,800.00 since 8 August 1998"... or easier on DM 39,000.00 since 4 October 1997, on DM 13,000.00 since 31 January 1998, on DM 50,000.00 since 4 August 1998, on DM 38,800.00 since 8 August 1998 (running in all cases until 4 February 1999).

           c) In addition, [Buyer] requests interest for delayed performance at a rate of 6 % on DM 140,800.00 since 13 January 1999 (KS, p. 2). Generally, [Buyer] would be entitled to interest for delayed performance on the sum of the price to be refunded. However, under the principle "Ne eat iudex ultra petita partium", the court may neither grant more nor different than the party requests nor less than the counter party has acknowledged (section 253 of the Code of Civil Procedure). As far as the rate of interest is concerned, this must be determined according to German law also for the interest for delayed performance. Interest for delayed performance is set forth in section 288 of the German Civil Code (section 352 German Commercial Code only stipulates the rate of legal interest with exception of the interest for delayed performance). According to that, the rate of interest for delayed performance is 5 % above the basic interest rate. The basic interest rate was 2.5 % during the period from January to April 1999 (see <www.basiszins-satz.de>) and thus the rate of interest for delayed performance under section 288 Civil Code was at the rate of 7.5 %. At the present time, the basic interest rate is 1.22 % so that the rate of interest for delayed payment is at 6.22 %. [Buyer] requested 6 % interest for delayed performance. It must also apply to this that [Buyer] cannot be granted more than it requested.

Also under German law, the debtor is generally only in delay after a reminder (section 286 Civil Code). Equivalent to a reminder is the commencement of a lawsuit (section 286 (1) Civil Code). The declaration of avoidance of the contract by [Buyer] is dated 12 January 1999 (KB 33). It is neither asserted nor proved that [Seller] was set a determined period for payment (section 286(2) 1 Civil Code) or that it was remanded to payment. Therefore, interest for delayed payment is only due since the commencement of this legal action (5 February 1999).

      5. a) Under the title "useless expenses," [Buyer] additionally requests the amount of DM 29,281.30 from [Seller]. This is calculated as follows: DM 9,909.30 for costs of transport and duties, in total DM 13,890.00 for the supplied documents, the tender to offer and the examination of the models by Dr. R, costs for publicity that became useless in the amount of DM 5,000.00 and DM 482.00 for the commission required by [Seller] (KS, p. 20). It is [Seller]'s position that [Buyer] is not entitled to compensation under any title of useless expenses.

In the case of the avoidance of a contract, a duty to pay damages is expressly reserved (Art. 81 CISG). Compensation can be requested for the total damage, which means the damage caused by the avoidance of the contract as well as the damage caused by the reversal of the transaction. This comprises also the expenses that became useless as a consequence of the avoidance of the contract. [Buyer] provided proof for the requested amounts of the invoices of Dr. R., honorariums from 14 February 1997, 15 August 1998 and 10 December 1998, as well as for the costs of transport and duties that were paid to [Seller] on 8 August 1998 (see KB 35-37 and 22). [Buyer] did not substantiate the amount of DM 5,000.00 for publicity costs that it asserts, so that this cannot be taken into account. There is also no proof for [Buyer]'s expenses for the suretyship that was requested by [Seller] (the commission). At least the facts can be taken from number 2.3 of the contract of delivery and acceptance of 25 September 1997. The expenses for this are not contested by [Seller]. It must therefore be taken into account. It must further be stated concerning the invoice of Dr. R of the amount of DM 3,450.00 from 14 February 1997 that his efforts for providing the documents for the original model Grenzel including costs for travel cannot be seen in a context with the contract that was later concluded with [Seller] so that these cannot be taken into account. Thus, the total amount of DM 20,831.30 (DM 9,909.30 plus DM 2,320.00 plus DM 8,120.00 plus 482.00) remains as useless expenses.

As far as the rate of interest for delayed payment and the date of the beginning of the interest is concerned, the same as mentioned above applies (E 4 c).

      6. The CISG does not contain a provision concerning the limitations of actions for claims of the buyer due to the delivery of non-conforming goods. There is only an exemption period within which the buyer must assert the non-conformity of the goods. According to Art. 39(2) CISG, the buyer loses the right to assert the non-conformity of the goods if it does not notify the seller about it within two years after the goods were delivered. Thus, it is not set forth within which period of time the buyer can commence court proceedings - here for the refund of the price after the valid avoidance of the contract - concerning a non-performance that was notified to the seller within the provided period of time. The law of conflicts applicable on the question of limitation of actions for Switzerland as a Contracting State leads to the law of the country in which the seller has its residence at the time it received the order (Art. 3 of the Hague Convention on the International Sale of Goods). In the present case, German law must be applied: according to this, the period of limitation of action for claims of the buyer due to non-conforming goods is two years since 1 January 2002 - before it was only six months (section 438(1) 3, (2) Civil Code in the old version and the version that is effective since 1 January 2002; see Thomas Koller, Recht 2003, p. 41). Also under German law, the objection of limitation of action must be asserted by the debtor and may not be considered ex officio by the court (section 214 (1) Civil Code: After the limitation period elapsed, the debtor is entitled to reject the performance). In the present case, [Seller] did not - not even in the alternative - assert the objection of limitation of actions. By the commencement of proceedings on 5 February 1999, [Buyer] kept the short period of limitation of half a year which was effective then (beginning of the period for examination and notification, E 3 a, p. 14, was 8 August 1998).

      7. Due to this result of the proceedings, the counterclaim of [Seller] for payment of the remaining price in the amount of DM 10,000.00 must be rejected.

      8. After DM was substituted by Euro, the claim of [Buyer] must be transferred. [Buyer] did not elaborate on that. According to the regulation (EG) No. 2866/98 of 31 December 1998 the currency calculation is 1.95583 DM are equivalent to 1 Euro. The obligation of payment of [Seller] must be transferred accordingly.

      9. Due to the result of the proceedings, the costs (costs of the proceedings and compensation for the proceedings for the counter party; see Art. 108 Code of Civil Procedure) have to be burdened on [Seller] (Art. 254 Code of Civil Procedure).

JUDGMENT

Unanimously held:

The [Buyer]'s claim is founded:

  1. [Seller] is ordered to pay [Buyer] Euro 71,989.90 as a refund of the price of the sales contract plus interest at a rate of 6 % since 5 February 1999 reciprocally and simultaneously against return of the 51 handwork models of the rail car To2 of the former Südharz Railway in the size 2 M (LGB-size).

  2. [Seller] is ordered to pay interest at a rate of 5 % on the paid price as follows: on Euro 19,940.40 since 4 October 1997, on Euro 6,656.80 since 31 January 1998, on Euro 25,564.60 since 4 August 1998 and on Euro 19,838.10 since 8 August 1998, all running until 4 February 1999.

  3. [Seller] is ordered to pay [Buyer] Euro 10,650.90 for useless expenses plus interest at a rate of 6 % since 5 February 1999.

  4. The costs of the proceedings - consisting of the costs of conciliation in the amount of Fr. 105,-, the official fee of Canton Court of Fr. 15,000.00 and expenses of Fr. 280,- and expert costs of Euro 3,320.10 - are burdened on [Seller].

  5. [Seller] is ordered to compensate [Buyer] in the amount of [Buyer]'s costs for legal representation in the amount of Fr. 42,170.05.

  6. Written notification of the judgment to the parties.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purpose of this translation, Plaintiff of Switzerland is referred to as [Buyer] and Defendant of Germany is referred to as [Seller]. Amounts in the currency of Germany (Deutche Mark) are indicated as [DM]; amounts in the currency of Switzerland (Swiss francs) are indicated as [Fr.]; amounts in European currency are indicated as [Euro].

** Kirsten Stadtländer is a trainee lawyer at the Higher Regional Court of Düsseldorf. She obtained her law degree at Humboldt University Berlin and was a member of the team of Humboldt University at the 9th Willem C. Vis International Commercial Arbitration Moot 2001/02 and a coach of the team at the 10th Willem C. Vis International Commercial Arbitration Moot 2002/03.

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Pace Law School Institute of International Commercial Law - Last updated December 10, 2009
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