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CISG CASE PRESENTATION

Germany 20 July 2004 Appellate Court Karlsruhe (Shoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040720g1.html]

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

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Case identification

DATE OF DECISION: 20040720 (20 July 2004)

JURISDICTION: Germany

TRIBUNAL: OLG Karlsruhe [OLG = Oberlandesgericht = Provincial Appellate Court]

JUDGE(S): Dr. Müller-Christmann (Vors. Richter am Oberlandesgericht), Prof. Dr. Seidel (Richter am Oberlandesgericht), Schmitt (Richter am Landgericht)

CASE NUMBER/DOCKET NUMBER: 17 U 136/03

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

CASE HISTORY: 1st instance Amtsgericht Weinheim 16 May 2003 [reversed]

SELLER'S COUNTRY: France (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Shoes


Case abstract

GERMANY: Oberlandesgericht Karlsruhe, 17 U 136/03, 20 July 2004

Case abstract prepared by dr. Andrea Vincze [*]

Plaintiff [Seller] is a French manufacturer of shoes. Defendant [Buyer] is the owner of a shoe shop in Germany. Based on Art. 53(1) CISG, [Seller] asked the Court to direct [Buyer to pay the price of the shoes delivered (4,512.93 Euros).

1. The Court found that CISG applicable. At the time the contract was concluded, the parties had their places of business in different Contracting States (Germany and France) and the parties did not exclude the CISG (Art. 1(1)(a) CISG). The involvement of Fashion Agency EM GmbH and Commercial Agent M does not affect the applicability requirements of the CISG. The Court substantiated that, pursuant to Arts. 53 and 1(1) CISG, the dispute involves a contract of sale.

2. The Court found that the Seller unsuccessfully objected to [Buyer]'s right to suspend performance pursuant Art. 71(1) CISG, based an on alleged breach of contract (non-performance) on the part of the Seller.

Commercial Agent M had informed the Buyer that due to a production overload at the Seller's factory, fulfilment of the Buyer's order was delayed and the goods could be delivered no earlier than October 1997. The Buyer, though its legal representative, instructed Fashion Agency EM GmbH to apply the right of suspension with regard to the possibly due claims by Seller, thereby the requirement of giving notice about the intended suspension set by Art. 71(3) was met. The Court ruled that the Buyer was entitled to suspend performance after 13 June 1997 because the Buyer had fixed a deadline for performance until 5 June 1997 and then an additional period until 12 June 1997 seeking to have Seller commit to performance prior to the 25th calendar week of 1997. In general, after an additional period of reasonable length has passed, performance can be rejected. Upon non-performance of the contact, the aggrieved party is entitled to claim damages.

The Buyer further advised that it had informed Commercial Agent M that it needed the goods prior to 30 September 1997 for the purposes of one of its orders which had a performance deadline, that this order could only be fulfilled if the Seller delivered the goods to the Buyer in time. Therefore, the Buyer's right of suspension as a means of encouraging performance of the contract did not take effect until 30 September 1997.

3. The Court found that interest on the indebtedness shall be governed by Art. 78 CISG. The Buyer's right of suspension until 12 June 1997 upon Art. 71(1) CISG is not contradictory to the latter provision because the Seller requires the Buyer to pay interest only from 24 May 1998 on. The rate of interest shall be governed by French law.

4. Upon the evidence provided by the Buyer, preconditions for claiming damages are substantiated. As the parties set a deadline for delivering shoes prior to the 25th calendar week of 1997, the Seller was obliged to perform prior to that date. Pursuant to the General Conditions of Sale, inclusion of which is disputed by the parties, the Seller is bound by the order only if it does not expressly object to it within fourteen days of receipt.

Inclusion of the General Conditions of Sale into the sale of goods contract is governed by Arts. 14, 18 and 8 CISG. Inclusion into the contract is substantiated, among other ways, by the fact that the General Conditions are printed on the back of the order form in German. The Buyer presented that, upon the Seller's authorization and on behalf of the latter, Commercial Agent M obliged itself to perform the contract by the 25th calendar week meaning that the contract would be performed by 21 June 1997. The Court ruled that, under such circumstances, the Seller is not entitled to refer to the General Conditions of Sale.

Both parties provided evidence concerning the Commercial Agent's statement that the Seller would be unable to perform the contract. With regard to the Buyer's counterclaim, the Seller unsuccessfully sought to refute [Buyer]'s right of suspension pursuant to Art. 71 CISG. This Article cannot be resorted to if timely performance of the disputed obligation was unlawfully denied by Commercial Agent M's letter of 19 May 1997, when the Buyer was not yet late with making payment.

The Court found that the Seller cannot refer to Art. 72 CISG either. The Buyer referred to the right of suspension in the letter of 29 May 1997 which was still before the alleged start of delay on 1 June 1997. Commercial Agent M's letter of 19 May 1997 and the letter of Fashion Agency EM GmbH dated 10 June 1997 concerning impossibility to perform in time because of production overload refer rather to the fact that the Buyer's arguments were right. Therefore, the Buyer is entitled to claim damages pursuant to Arts. 74 and 49(1)(b) CISG because Buyer set an additional period to perform pursuant to Art. 47(1) CISG and Seller gave notice that delivery would not be possible prior to the 25th calendar week.

The Court further held that the Seller committed a fundamental breach of the contract pursuant to Art. 49(1) and 25 CISG since Commercial Agent M had clearly expressed that Seller needed the goods to fulfil another contract with a fixed delivery date. Under those circumstances the Seller could not sustain the position that, pursuant to its General Conditions of Sale, damages claims concerning late delivery were excluded because of the fact that there was a fixed delivery date frustration of which resulted in non-performance of the Buyer's contract with its customer.

Otherwise, set-off defenses deriving from a contract other than the disputed contract of sale are not governed by the CISG but by French law as determined by the conflict of laws rules of Germany.


FOOTNOTES

[*] Dr. Andrea Vincze is a Fellow of the Institute of International Commercial Law of the Pace University School of Law. She received her law degree from the University of Miskolc, Hungary, in 2002. Currently, she is a Ph.D. candidate at that university, working on her research project on international commercial arbitration and ICSID arbitration. She has also dealt with cross-border and Internet-related copyright issues.

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Case abstract

GERMANY: Oberlandesgericht Karlsruhe 20 July 2004

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/80], CLOUT abstract no. 821

Reproduced with permission of UNCITRAL

Abstract prepared by Klaus Bitterich

A French shoe manufacturer, the seller, sued a German shoe vendor, the buyer, for payment of the delivery of shoes pursuant to an invoice of April 1997. The defendant pleaded that the claim was statute-barred and raised a counter-claim for damages, which would set-off the seller's claim. The defendant alleged that the claimant had not performed in accordance with another agreement made with a trade representative of the claimant. In a letter dating May 1997, the defendant had given notice to the claimant of its intent to suspend its obligation to pay the price of the April invoice if the claimant failed to perform according to the second delivery agreement. The defendant had also declared its refusal to take delivery if the claimant did not commit to perform by a given date in June 1997.

The court of first instance dismissed the claim on procedural grounds of German law. The appellate court reversed the judgment due to procedural errors and allowed the claim in a provisional judgment.

The appellate court found that the CISG was applicable pursuant to article 1 (1) (a), irrespective of the fact that the (second) contract had been concluded through a German trade representative of the claimant, as the parties had their places of business in different contracting states. The court held that the claimant was entitled to the purchase price pursuant to article 53 (1) CISG, since the goods had been delivered according to the contract concluded by the parties. The court further stated that the defendant was not entitled to suspend performance of its obligation to pay the price under article 71 (1) CISG. That provision would require, first, that the defendant had ground for the counter-claim and, second, that the claims at issue resulted from mutual obligations. However, no decision as to the fulfilment of those requirements was needed, because the right of the defendant to suspend performance was already expired. According to the court, the purpose of such a right was to put pressure on the other party to fulfil its obligations. That purpose could no longer be accomplished, as the time-period fixed by the defendant in the letter of May 1997 had elapsed and consequently the defendant's refusal to take delivery became effective.

The court held that the limitation of actions, a topic which was not governed by the CISG, was subject to French law, as the applicable law pursuant to the conflict of law rules of Germany, and had not expired.

With regard to the counter-claim, the appellate court held that the CISG did not address the question whether a claim raised for the breach of a contract other than the contract at issue could be used for set-off. Under the applicable French law, the defendant was entitled to exercise the right of set-off. As the factual circumstances presented by the defendant supported its claim for damages under articles 74, 49 (1) (a) and 49 (1) (b) CISG, the appellate court remanded the case to the court of first instance to take evidence of the foundation of the counter-claim and the amount of the damages.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 1 ; 4 ; 47(1) ; 71(1) ; 78 [Also cited: Articles 8 ; 14 ; 18 ; 53 ; 72 ; 74 ]

Classification of issues using UNCITRAL classification code numbers:

1A1 [What constitutes a place of business: "distributors and sales representations do not regularly constitute a place of business of the company"];

4B [Scope of Convention (issues excluded): set-off unrelated to contract of sale governed by CISG];

47A [Notice fixing additional final period for performance: buyer's right to fix additional period for performance];

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

71A [Suspension of performance: apparent that a party will not perform substantial part of obligations];

78B [Rate of interest]

Descriptors: Scope of Convention ; Business, place of ; Set-off ; Nachfrist ; Avoidance ; Suspension of performance ; Interest

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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): cisg-online.ch website <http://www.cisg-online.ch/cisg//urteile/858.pdf>; Internationales Handelsrecht (6/2004) 246-251

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court (Oberlandesgericht) Karlsruhe

20 July 2004 [17 U 136 / 03]

Translation [*] by Stefan Dietrich [**]

Edited by Todd Fox [***]

The Higher Regional Court of Karlsruhe, as Appellate Court, adjudged through Chief Judge Dr. Müller-Christmann and Prof. Dr. Seidel (Judge Higher Regional Court) and Schmitt (Judge Court of First Instance) in the legal matter of A. [Seller] of France, represented by G. Lawyers, versus Dr. M. [Buyer] of Germany, represented by A. Lawyers, in a lawsuit involving 4,512.93 Euros on [Seller]'s appeal against the decision of the Local Court of Weinheim of 16 May 2003, 2 C 122 / 99, after an oral appellate hearing of 29 June 2004:

I.     On [Seller]'s appeal, the decision of the Local Court of Weinheim [Court of First Instance] of 16 May 2003 -- docket number: 2 C 122/99 -- is reversed with regard to costs and for the rest is amended as follows:
 
      1.   Under reserve of the decision on [Buyer]'s claimed set-off, [Buyer] is liable for damages for failing to deliver shoes pursuant to an order of 5 May 1997. [Buyer] is directed to pay 4,512.93 to Company C.S.A., F-29288 P. L. D., together with interest on this sum as follows: 3.36% from 24 May until 31 December 1998, 3.47% from 1 January until 31 December 1999, 2.74 % from 1 January until 31 December 2000, 4.26% from 1 January 2001 until 31 December 2002, 3.29% from 1 January until 31 December 2003, and 2.27% from 1 January 2004 until the lapse of two months, calculated from the date of the issue of the appellate decision. After the lapse of two months from the issuance of the decision, the interest rate shall be 7.27%.
 
      2. For the rest, the action is dismissed.
 
II.   Because of the hearing and decision on [Buyer]'s set-off claim, the lawsuit is remanded to the Court of First Instance for further resolution and decision, including on the costs of the appeal, under abrogation of the procedure underlying the Court of First Instance's decision.
 
III.    The further appeal is dismissed. IV. The decision is provisionally enforceable. V. Revision is not allowed. VI. The amount in dispute in the appellate proceedings is fixed at 4,512.93 pursuant to 25(2) GKG [GKG = German Court Fees Code].

I. FACTS

[Seller] seeks payment from [Buyer] of the purchase price for a delivery of shoes.

[Seller] is a French shoe manufacturer based in F. Until 30 September 1997, [Buyer] ran a shoe shop in H. According to an invoice of 4 April 1997 (K1, I 9-13), the payment of the purchase price of 4,512.93 for a delivery of goods by [Seller] to [Buyer] is still outstanding. With this lawsuit, [Seller] seeks payment of this sum to itself, or alternatively to Company C.S.A. [Buyer] asserted a statute of limitations defense (pleading of 12 March 2002, I 339). [Buyer] also set-off a claim alleging damages for loss of profit based on a subsequent order that was not carried out by [Seller], although [Seller]'s sales representative M. guaranteed delivery by 25 June 1997.

After several witnesses were heard with respect to [Buyer]'s allegations before the Court of First Instance, [Buyer] indicated for the first time during the hearing of 16 May 2000 (I 208 f.) that, as shown in the invoice of 4 April 1997, the purchase price was to be paid to C.S.A. Whereupon, [Seller] presented a confirmation by Company C.S.A., issued on 24 May 2000 (I 211), according to which [Seller] would be authorized to sue [Buyer] in [Seller's] own name and to collect the purchase price. [Buyer], however, questioned whether the authorization really originated from C.S.A. and whether it was signed by an authorized person. [Seller] then declared that it would not present any further proof relating to C.S.A. or to [Seller]'s right to sue because [Seller] revoked the order of payment to C.S.A. Thereupon, [Buyer] submitted a copy of the reverse of the invoice, pursuant to which a factoring-contract exists between [Seller] and C.S.A. From this, it follows that the purchase price claim was assigned. [Seller] took this as an occasion to present another confirmation of 2 December 2000 (I 248), which was signed by witness B. as Director of the collections department and which again allegedly contained an authorization for [Seller] to assert the claim on [Seller]'s own behalf. By pleading of 9 January 2001 (I 258), [Seller] acknowledged that C.S.A. had actually bought the purchase price claim within the scope of a factoring contract. [Buyer] then disputed that witness B. signed the mentioned confirmation, that he is the director of the collections department and that he is authorized to represent Company C.S.A. This prompted [Seller] to present another confirmation, dated 29 March 2001, by the general manager of Company C.S.A., Mr. L., indicating that witness B. was entitled to authorize [Seller]'s assertion of the purchase price claim. Whereupon, [Buyer] disputed Mr. L.'s authorization to represent Company C.S.A. on his own.

After the Court of First Instance ruled on the hearing of witness B., [Seller] filed a writ on 22 February 2002 demanding recusal of the responsible judge for delay of proceedings due to concern of bias. At the same time, it was pointed out in this writ that the law firm of [Seller]'s legal counsel was not engaged by [Seller], but rather by Company C.S.A. By reason of a general agreement between [Seller], the factoring-company and a credit insurance company, such purchase price claims would always be made on the supplier's behalf (I 331). By writ of 11 March 2002 (I 334), [Seller] elaborated that C.S.A. engaged [Seller]'s legal counsel with [Seller]'s consent. Whereupon [Buyer] challenged the proper representation authorization of [Seller]'s counsel by writ of 12 March 2002 (I 339). After the demand for recusal was denied, [Seller] was given the opportunity to answer [Buyer]'s writ. [Seller] responded by writ of 3 May 2002 (I 349), requesting that this demand be refused and that an opinion be given on the "absurd pleadings" of the opposition, but not prior to the hearing of the French witness. After witness B. was questioned by French authorities, both parties agreed upon a decision in written proceedings.

The Court of First Instance dismissed [Seller]'s claim in its decision of 6 May 2003 (I 427) and imposed the costs of the litigation on [Seller]'s counsel. The court stated that according to [Seller]'s counsel's own submission, there was a lack of a satisfactory authorization by [Seller]. The allegation that [Seller's counsel] was authorized to process this case by Company C.S.A. or by the credit insurance company was not sufficient. A deadline for furnishing the authorization pursuant to 89 ZPO [*] was not necessary because [Seller]'s counsel had already expressly refused a defense in regard to [Buyer]'s objection or, as the case may be, failed to present a satisfactory response in due time. [Seller]'s counsel could have easily presented a satisfactory representation authorization up until the end of the oral hearing. The costs of the litigation are to be imposed on [Seller]'s counsel because in the event of unauthorized representation, the distribution of costs follows the causality principle.

Having presented a confirmation of authorization, [Seller] continues its demand for relief with this appeal. [Seller] alleges that the Court of First Instance infringed upon the duty to inform according to 139 ZPO. It was not apparent to [Seller] that the court would take the denial of a proper authorization in any way seriously and would regard it as relevant to proof. At the time of the denial of the authorization, the question whether the judge of this court was biased and whether the ruled hearing of witnesses is to be carried out abroad was in the foreground. Upon receipt of the result of the foreign evidence gathering, [Buyer] has not repeated the objection, but rather the parties have confined themselves to positions regarding the result of the taking of evidence in F. as well as the issue of representative standing to sue.

[Seller] argues that the case must be decided according to the CISG and, only to the extent that the CISG does not contain applicable principles, according to French civil and commercial law. [Seller] argues that [Buyer]'s set-off claim is subject to French law. After [Seller] initially argued that a contested counterclaim, as here, may only be introduced into the proceedings via a cross-action under French law, [Seller] presented an expert report by Prof. Dr. H. dated 30 December 2003 taken from a lawsuit before the OLG Hamm, Az.: 2 U 195/02, which arrives at a different conclusion. [Seller] further asserts that the amount of the interest claim is determined by French law. For the reasons given therefor, reference is made to the attachment to the writ of 9 February 2004 (II, 167-171). Finally, [Seller] requests that the judgment of the Court of First Instance be reversed and that the [Buyer] be ordered to pay 4,512.93 together with interest to [Seller] or alternatively to C.S.A., F-29288 P. L. D., as follows: 3.36% from 24 May until 31 December 1998, 3.47% from 1 January until 31 December 1999, 2.74% from 1 January until 31 December 2000, 4.26% from 1 January 2001 until 31 December 2002, 3.29% from 1 January until 31 December 2003 and 2.27% from 1 January 2004 until the lapse of two months, calculated from the issuance of the appellate decision. After the lapse of two months from the issue of the decision the interest rate should amount to 7.27%.

[Buyer] requests: (1) dismissal of [Seller]'s appeal; and (2) in the alternative, by way of a cross-action, to require [Seller] to pay to [Buyer] 5,745.77 together with interest of 8% above the base rate. [Seller], in turn, seeks dismissal of [Buyer]'s cross-action.

[Buyer] defends the judgment of the Court of First Instance. Additionally, [Buyer] questions whether [Seller]'s counsel had the requisite authority to represent [Seller] in the first instance according to the authorization presented. [Buyer] alleges that the authorization presented is vague. It simply states that the lawyers were already authorized in 1998 in consultation with C.S.A. Furthermore, there was no authorization pursuant to 89(2) ZPO, as such an authorization could only be effected until the conclusion of the hearing on the basis of which the decision that dismissed the action due to of a lack of authorization of counsel was handed down. [Buyer] argues that since [Seller] deliberately failed to address the authorization objection in the first instance, [Seller]'s submission in the appeal is too late. [Buyer] argues that not only was [Seller] procedurally negligent in terms of 531(2) No. 3 ZPO, but deliberately failed to respond to the authorization objection.

It is also [Buyer]'s position that [Seller]'s contested submission in regard to French law should be rejected pursuant to 531(2) ZPO. [Buyer] claims that the procedural legitimacy of the set-off must be ascertained under German procedural law. It would be an incorrect exercise of discretionary power if the Appellate Court would not make use of its right to remand according to the parties' motion.

By a writ, which was received by the Court on 2 March 2004, [Buyer] applies for restitutio in integrum because of a failure to file a timely cross-appeal, on the grounds that the application of French law would be introduced into the lawsuit for the first time after the expiration of the time to file for a cross-appeal.

With regard to the further details, reference is directed to the actual conclusions of the contested decision, as well as to the pleadings together with the attachments, which were interchanged during the appellate proceeding.

The expert report presented by [Seller] by expert Prof. Dr. G. H. on 30 October 2003 in the proceeding before the OLG Hamm, Az.: 2 U 195/02 -- which commented, inter alia, on the question of the legitimacy of a set-off under French law -- was a subject of the hearing and was obtained as evidence by the Appellate Court.

II. REASONS

[Seller]'s appeal is successful. The decision of the Court of First Instance rests on a fundamental breach of procedural rules. The action with the subsidiary motion -- payment to C.S.A. -- is permissible and justified, under caveat of the decision on the set-off claim. Pursuant to Art. 53 CISG, [Seller] has a claim against [Buyer] for payment of the purchase price to C.S.A. in the amount of 4,512.93. The Appellate Court remits a conditional decision with regard to the set-off according to 302 ZPO and remands the case for subsequent proceedings to the Court of First Instance pursuant to 538 No. 5 ZPO.

     A) [Seller]'s appeal is allowed

          1. International jurisdiction for the action, which must be officially examined (BGH, WM 2004, 376, 377, 378; Zöller/Gummer/Heßler, ZPO [*], 24. edit., 513 Rz. 8), for the Court of First Instance of Weinheim, and since appealed by [Seller], for the Appellate Court of Karlsruhe (which is competent for the appeal pursuant to 72, 119(1) No. 1 b GVG [*]) exists. The European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters [EuGVÜ] [*] governs. It suppresses within its scope of application (Art. 1) the provisions of national law; thus also the provisions of the ZPO. France and Germany are Contracting States to the Convention. The EuGVVO [*] cannot yet be applied in the present case for the determination of international jurisdiction because it entered in force at a later date, on 1 March 2002 (compare Art. 66(1) EuGVVO). With regard to this action, the international jurisdiction follows from Art. 2 in conjunction with Art. 53(1) EuGVÜ (OLG Koblenz, decision of 17 September 1993 - Az.: 2 U 1230/93 - RIW 1993, 934-938 (rationale); decision available at <http://www.cisg-online.ch>.

          2. [Seller]'s counsel verified his authorization to sue, 80(1) ZPO. The issue of the authority to sue and its extent are assessed under the rules of the lex fori and thus under German Law (BGH, NJW 1990, 3088). By writs of 25 July 2003 and 3 December 2003 [Seller] presented authorities to act signed by the company president (II 37/109), the effectiveness of which is not in doubt.

[...]

[Seller]'s new submission with regard to the power of attorney is allowed pursuant to 531(2) No. 2 ZPO, because it was not claimed in the First Instance because of a procedural error.

     B) [Seller]'s appeal is justified

          1. [Seller] rightly claims that the decision of the Court of First Instance is based on a violation of law, 513, 546 ZPO. The first instance proceedings suffer from a substantial procedural error because the court infringed the principle of the right to be heard, Art. 103 GG [*]. Before issuing a decision the court should have given notice pursuant to 139 ZPO that it intended to base its decision on the lack of [Seller]'s authority to sue. Though [Seller] disclosed by writ of 3 May 2002 that before witness B.'s questioning it would not plead further with regard to [Buyer]'s writ of 2 March 2002 (in which [Buyer] raised the objection of authority to sue), without notice to the contrary [Seller] was entitled to rely on the court not basing its decision on the lack of authority to sue. The judgment was a surprise decision to the detriment of [Seller]. Contrary to the ZPO, the Court of First Instance neither conducted the proceeding according to 89 ZPO, nor did it set a time period for the submission of authorization without taking further evidence of [Seller]. Rather, it arranged for the questioning of witness B. in France based on the afore-issued evidence order (I 324) and thus conveyed the impression that it would not attribute any legal significance to the authorization challenge.

However, it is a prerequisite for the procedural objection's success that the first instance proceeding suffer from a substantial error because the court infringed its duty to provide information and its duty to give notice pursuant to 139 ZPO, and that the appellant argue that he failed to perform a certain pleading due to misjudging the legal position (BGH, NJW-RR 1988, 477, 478; BGH-Report 2004, 333, 334). [Seller] meets these requirements. According to [Seller]'s submission in the writ of 10 September 2003 (II 55), it can be presumed that [Seller] would have presented a proof of authorization - as was done in the appeal - had notice been given by the Court of First Instance.

          2. The Appellate Court can decide on the matter of the claim, under reservation of [Buyer]'s set-off counterclaim ( 302(1) ZPO). A further hearing is necessary with respect to the counterclaim ( 538(2) ZPO). The Appellate Court makes use of its right, pursuant to 538(1) No. 1, 3, 5 ZPO, to remand the litigation to the Court of First Instance for further hearing and decision upon application of the parties under abrogation of the proceeding -- but pursuant to 538(1) No. 5 ZPO accordingly only with respect to the set-off claim. The Appellate Court is entitled to so proceed (OLG München, OLGZ 2000, 147, cf. the counter opinion; OLG Hamm, RuS 1987, 333, 334, 335; OLG Düsseldorf, MDR 1973, 856, 857; Zöller/Gummer/Heßler, ZPO, 538 Rn. 53). This is accepted for "documentary proceedings" [summary proceedings based solely on documentary evidence] and proceedings on a bill of exchange, if the action was dismissed in the First Instance; the Appellate Court in contrast takes the sentence under reserve for granted (Zöller/Gummer/Heßler, ZPO, 538 Rn. 53). Thus the circumstances and interests in the present case are comparable.

               a) The action with the subsidiary motion is allowed. [Seller] verified the power of attorney according to the above remarks. The representative action, with [Seller] asserting the purchase price claim that was transferred to C.S.A. on [Seller]'s own behalf, is with the subsidiary motion for payment to C.S.A, permissible. The admissibility of the claim is fundamentally a question of German law as the lex fori, even in cases with foreign contact such as here (BGH, NJW 1994, 2891; 2549; 1981, 2640). Accordingly, a representative action requires that the person who conducts the case be authorized to prosecute a claim of another on his own behalf, and that he has his own recognized interest in the conduct of the case (BGH, NJW 1994, 2549). Furthermore a representative action is basically only permissible when the authorization to sue is revealed at the trial court level (BGH, NJW 1994, 2549). These prerequisites are on hand. [Seller] sufficiently proved the authorization to sue from C.S.A. through the confirmation of general manager L. (see the confirmations by C.S.A. of 29 March 2001 (K 7, I 281) and 2 December 2000 (I 251) presented by writs of 5 April 2001 (I 273 ff.) and 4 December 2000 (I 249 f.)). [Buyer]'s allegation, that Mister L. as general manager ("Directeur General") was not authorized to represent the company alone and therefore did not effectively authorize [Seller] to assert the disputed claim on [Seller]'s own behalf, is without substance and therefore disregarded (see [Buyer]'s submission in the writ of 1 June 2001, I 291 f.). [Seller] substantiated in the writ of 20 August 2001 (I 302 et seq.) the individual authority to appoint a representative here according to the authoritative French law for the appraisal of the institutional authorization and presented abstracts from the commercial register.

[Seller], in the position of the assignor, has its own recognizable interest to assert the claim on its own behalf in the case of the present security assignment. [Seller] must presume that in the event the ceded rights would be unenforceable, [Seller]'s secondary liability would be revived (BGH, NJW 1989, 1932, 1933). [Seller] provided the authorization to conduct the case during the litigation.

However, the main application is impermissible. With an open assignment the trustor/assignor must demand payment not to himself but to the assignee. An open assignment at the outset is equivalent to one that is later revealed during the litigation (BGH, NJW 1999, 2110, 2111; 1989, 1932, 1933; Zöller/Vollkommer, ZPO, vor 50 Rn. 53).

               b) The permissible subsidiary motion is justified, under reservation of a decision on the set-off counterclaim. [Seller] has a claim for payment of 4,512.93 pursuant to Art. 53(1) CISG out of the sales contract formed between the parties.

                    aa) The CISG is applicable to [Seller]'s purchase price claim. The CISG has been in force in France since 1 January 1988 and in Germany since 1 January 1991 and it supercedes in its scope non-uniform national law (Piltz, NJW 2003, 2056, 2059). Indications of an exclusion of the CISG were neither brought forward by the parties nor otherwise apparent. The places of business of [Seller] and [Buyer] at the time of the conclusion of the contract were in different Contracting States, Art. 1(1)(a) CISG. [Seller]'s engagement of the fashion agency E. M. GmbH and of the sales representative M. does not alter this. Distributors and sales representatives do not regularly constitute a place of business of the company. This matter is undoubtedly that of a contract for the sale of goods in terms of Arts. 1(1) and 53 CISG.

                    bb) [Buyer] unsuccessfully seeks to invoke a right of retention pursuant to Art. 71(1) CISG alleging breach of contract due to [Seller]'s failure to deliver. It can remain unanswered whether [Buyer]'s counterclaim is based on a binding order by [Buyer] with a fixed delivery date until 21 June 1997 -- which is contested between the parties -- and whether this order stands in a relationship of mutuality in terms of 71(1) CISG with regard to the claim. However, the [Seller]'s sales representative undisputedly communicated to [Buyer] by letter dated 19 May 1997 (B2, I 79) that the order was tied up because of the manufacturer's workload and that delivery could be carried out in October 1997 upon punctual payment of account receivables from the summer season. Furthermore, by letter from its counsel dated 29 May 1997 (B3, I 81-85), [Buyer] notified fashion agency M., that [Buyer] was exerting a right of retention with respect to any claims of [Seller] which might become due. The duty to give notice pursuant to Art. 71(3) CISG, which is predominantly considered by the jurisprudence (LG Darmstadt, decision of 29 May 2001, Az.: 4 O 101/00, available under <http:www.cisg-online.ch>; Piltz, NJW 2003, 2056, 2061) as a condition in order to exert the right of retention, is accordingly fulfilled. A possible right of retention for [Buyer], however, lapsed from 13 June 1997 because in the letter [Buyer] unsuccessfully set both a time period until 5 June 1997 and an additional period of time ["Nachfrist"] until 12 June 1997 for [Seller] to declare whether the delivery would occur by the end of the 25th calendar week in 1997. After the expiration of the additional time period ["Nachfrist"], performance would be refused and damages for non-performance would be claimed. For the rest, [Buyer] stated that it informed sales representative M. that because of closure of the business on 30 September 1997, this was [Buyer]'s last order and it could only be carried out if [Seller] delivers in due time. Thus the right of retention, which was planned to pressure fulfillment of the contract, was invalid after the expiration of the set time period, at the latest until 30 September 1997.

                    cc) The claim for interest follows from Art. 78 CISG in conjunction with Art. 1153 Code Civil [*] in conjunction with L 313-2, L 313-3 of the Code Monétaire et Financier [French Monetary Code]. A possible right of retention until 12 June 1997 for [Buyer] pursuant to Art. 71(1) CISG is not precluded because [Seller] only seeks interest since 24 May 1998. With regard to the details of the reasons of the claimed interest, reference is made to the correct and uncontested reasoning in the attachment of [Seller]'s writ of 9 February 2004 (II 167-171). Since the extent of the claim for interest is left open in Art. 78 CISG, according to German conflicts of law principles French law is to be consulted, which also controls the required interest rate that accompanies the purchase price claim. It can remain unanswered whether [Seller]'s terms and conditions (K 3, I 106R), which provide for the application of French law, were effectively agreed upon between the parties pursuant to the provisions of the CISG (Piltz, NJW 2003, 2056, 2059). French law applies either according to Art. 27(1) EGBGB [*] because of inclusion of [Seller]'s terms and conditions, or according to Art. 28(1) in conjunction with Art. 28(2) EGBGB. Pursuant to Art 28(1) EGBGB, the contract is, in default of an agreement, subject to the law of the state to which it shows the closest connections. According to paragraph (2), it is presumed in favor of [Seller] that this is France, where [Seller]'s head office is located. The contract at hand is a sales contract, for which the seller performs the characteristic performance (OLG Düsseldorf, decision of 10 February 1994, Az. 6 U 32/93, available at <http://www.cisg-online.ch>). According to the highly predominant opinion, the legal interest rate fixed for money claims at the seat of the seller is to form the basis for a claim for interest under Art. 78 CISG (OLG Frankfurt a. M., decision of 13 June 1991, Az. 5 U 261/90, m. w. N., OLG Düsseldorf, decision of 24 April 1997, Az.: 6 U 87/96, each available at <http:www.cisg-online.ch>). Furthermore, no adequate indications were brought forward, nor are they otherwise apparent, that the parties subsequently implicitly presumed that German law would apply pursuant to Art. 27(2) EGBGB. An implicit choice of German law also does not arise from the parties' behavior during the litigation (Palandt/Heldrich, BGB [*], Art. 27 EGBGB, Rn. 7). In fact, in the request of 16 December 1998 (I 1-7), [Seller] alluded to the fact that the case concerns an international commercial sale and that the claim for interest is primarily subject to French civil law.

                    dd) [Seller]'s claim has not expired under Art. 189 CCom [*]. In the first instance, [Buyer] raised a statute of limitation defense. According to the applicable German procedural law, this must be considered in the appeal without repetition (Palandt/Heinrichs, BGB, 214 Rn. 3). The CISG does not regulate the limitations period for rights from a contract (Piltz, NJW 2003, 2056, 2059; Supreme Court of Vienna, decision of 24 October 1995 - 4 Ob 1652/95 - headnote ZfRV 1996, 76, cited according to www.juris.de). Indeed, this is the object of a separate UN Convention on Limitation [UN Convention on the Limitation Period in the International Sale of Goods]. However, ratification of this Convention by Germany did not take place and is also not foreseeable (Bamberger/Roth/Saenger, BGB, Bd 3, 1st ed., CISG Art. 4, Rn. 29). Accordingly, French law applies to the question of limitation, because pursuant to Art. 32(1)4 of the applicable German conflicts of law principles, the limitation of a contractual claim is to be assessed according to the proper law of the contract, particularly the relevant limitation period and its tolling or restart for example (Palandt/Heldrich, BGB, Art. 32 EGBGB Rn. 6). The claims here arising from commercial dealings between merchants expire after ten years pursuant to Art. 189 CCom (Ferid, The French Civil Law, 1. Bd, p. 373, 1 F 8; Sonnenberger/Autexier, Introduction to French Law, 3rd ed., p. 184). The complaint, which was served on [Buyer] on 24 February 1999, interrupted the limitations period for the purchase price claim arising from the shipment per the invoice of 4 April 1997, Art. 2242, 2244 CC (Ferid, l.c., p. 380/381, 1 F 75/76). The Appellate Court sees no need to require any further inquiry on this, for instance, to obtain a legal opinion ( 293 ZPO). It is the Court's duty to identify the contents of the foreign law that is determined by German conflicts of law rules. For the German judge, foreign legal norms are legal rules, not facts. Therefore, the German judge must also investigate foreign law ex officio (Zöller/Geimer, ZPO, 293 Rn. 14). It is in the best discretion of the Appellate Court in which way it wants to satisfy this obligation; the respective circumstances of the individual case define the boundaries of the investigations. The Appellate Court has no reservations in following the above-mentioned sources of French law. The explanations are clear and persuasive. Also France has not yet ratified the UN Convention on Limitation; insofar it does not supersede the internal French law. Incidentally, the limitation period of four years, which according to Art. 8 of the Convention applies to all claims out of international sales contracts, would also not yet have lapsed.

But in a case, such as here, of a foreign liability statute ("Schuldstatut"), the question of the interruption of the limitations period through the filing of an action domestically depends on the expected recognition of the domestic decision in the foreign country designated by the proper law of the contract (Palandt/Heinrichs, BGB, 214 Rn. 6). However, recognition is sufficiently guaranteed pursuant to Art. 33(1), 32 of the Council Regulation Nr. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (EuGVVO), which came into force on 1 March 2003. No exceptions to recognition pursuant to Art. 34 and 35 EuGVVO are apparent. According to Art. 66(2)a EuGVVO, the EuGVVO is already controlling for the question of applicability.

               c) With regard to [Buyer]'s set-off counterclaim, the action is not ripe for resolution. The Appellate Court of Karlsruhe is internationally competent for a decision on the set-off claim. The international jurisdiction of the German courts in this respect follows from Art. 18 EuGVÜ because [Seller] responded to the claim without any objection (BGH, NJW 1993, 1399). It is insofar insignificant that no instruction pursuant to 504 ZPO was given at the Court of First Instance because Art. 18 EuGVÜ applies, which supersedes 39 ZPO in its scope (see Zöller/Vollkommer, ZPO, 22nd ed., 39 Rn. 4 with regard to Art. 18 EuGVÜ).

[Buyer]'s submission with respect of the asserted claim is legally significant. According to [Buyer]'s proven submission, the requirements for a claim for indemnification pursuant to Arts. 74 et seq., 30, 33(a), 45(a), 47(1), 49(1)(b) CISG are met. The parties bindingly agreed to a delivery of shoes by the end of the 25th calendar week; consequently, [Seller] was obliged to deliver at the agreed point of time pursuant to Arts. 30, 33(a) CISG. But according to [Seller's] terms and conditions, whose incorporation in the contract is contested, [Seller] is only bound to fulfill the order if the order was not expressly refused within a period of fourteen days from receipt. The question of incorporation of the terms and conditions turns on Arts. 14, 18, 8 CISG (BGH, NJW 2002, 370, 371). According to these provisions, much speaks in favor of incorporation, because the terms and conditions were imprinted on the reverse of the order forms (also in the German language), each with a clear reference to them on the face of the forms. According to [Buyer]'s allegation however, sales representative M. (fully authorized by [Seller]) guaranteed on [Seller]'s behalf that the goods would be delivered by the 25th calendar week, and thus by 21 June 1997. Under these circumstances, [Seller] would be barred from asserting its terms and conditions. For the rest, it is contested whether the sales representative's notification of 19 May 1997 that [Seller] would not carry out the order was received by [Buyer] in time.

[Seller] is without success in its alleged defense of anticipatory breach pursuant to Art. 71 CISG with regard to [Buyer]'s counterclaim. In any case, [Seller] cannot invoke this provision if [Seller], through a writing of the sales representative M. dated 19 May 1997 (B2, I, 79), wrongfully refused to make a timely delivery when [Buyer] had not yet defaulted with the payment. [Seller] can also not invoke Art. 72 CISG. [Buyer] had by a writing dated 29 May 1997 (B3, I, 85), thus before a possible default commencing on 1 June 1997, explicitly invoked a right of retention. The writings of sales representative M. of 19 May 1997 (B2, I, 79) and of the agency M. of 10 June 1997 (B4, I 87/89), after [Seller] was unable to perform on the stated delivery date because of the workload of the factory, rather argue for the accuracy of [Buyer]'s allegations. According to [Buyer]'s submission, [Buyer] is entitled to claim damages pursuant to Arts. 74 et seq. and 49(1)(b) CISG since [Buyer] unsuccessfully set [Seller] a time in which to perform pursuant to Art. 47(1) CISG and [Seller] disclosed by the above-mentioned writings that it would be unable to deliver by the 25th calendar week. For the rest, according to [Buyer]'s submission [Seller] is in fundamental breach of contract pursuant to Arts. 49(1)(a) and 25 CISG because [Buyer] explicitly notified sales representative M. that this was [Buyer]'s last order and that [Buyer] required a fixed delivery date due to the closure of the business (see OLG Düsseldorf, decision of 24 April 1997 - 6 U 87/96, available at <http://www.cisg-online.ch>). Under these circumstances, [Seller] cannot assert that according to its terms and conditions claims for damages due to delivery delays are barred, since in light of the claimed fixed delivery date there was non-performance on the part of [Seller].

As the CISG does not deal with set-offs -- as here, claims from another than the actual sales contract in question-- their legitimacy and effect are not governed by the CISG but by the supplemental applicable national law. Pursuant to Art. 33(1) No. 4 EGBGB, the requisites and consequences of the set-off are taken from that legal system (determined from conflicts of laws principles) which governs the principal claim against which the set-off is asserted (OLG Hamm, NJW-RR 1996, 179, 180; OLG Düsseldorf, decision of 24 April 1997 - 6 U 87/96, OLG Hamm, decision of 5 November 1997 - 11 U 441/97; OLG Koblenz, decision of 17 September 1993 - 2 U 1230/91; each available at <http://www.cisg-online.ch>; Piltz, NJW 2003, 2056, 2059; Busse, MDR 2001, 729, 733; Palandt/Heldrich, BGB, Art. 32 EGBGB Rn. 6).

According to the governing French law with regard to set-offs, the following is to be considered: Unlike in German law, pursuant to Art. 1290 CC in the case of a set-off legal compensation applies. As soon as claims capable of being set off exist on both sides, they extinguish by operation of law even without knowledge of the debtor. French law does not recognize a set-off from a one-sided statement. A requirement of this set-off is, inter alia, that the claims are liquid, Art. 1291(1) CC, i.e., the cause and amount of the counterclaim must be ascertained. The amount may not depend upon a judicial assessment of damages. If the liquidity is absent, there remains only the possibility to assert the non-liquid claim by way of a "counterclaim" ["Widerklage"]. Then, and only then, can the court clarify the counterclaim with regard to its cause and amount (OLG Koblenz, decision of 17 September 1993 - 2 U 1230/91; available at <http://www.cisg-online.ch>; see Ferid, The French Civil Law, 1st Bd 1971, p. 528, Rz. 2 D 48, p. 532 Rz. 2 D 64; Sonnenberger/Autexier, Introduction to French Law, 3rd ed., p. 129). Since the set-off claim asserted by [Buyer] lacks the liquidity in terms of Art. 1291(1) CC, [Buyer] can only assert this claim by way of a "counterclaim". Notwithstanding that, the set-off claimed by [Buyer] is, as shown in the detailed and comprehensible expert report by Prof. Dr. H. from 30 December 2003 in a proceeding before the OLG Hamm -- 2 U 195/02 -- presented by [Seller], also permissible under French law, even though it concerns a contested counterclaim. The Appellate Court has no reservations in making use of this expertise as evidence ( 293 ZPO) in order to ascertain French law. Although in the case of a contested counterclaim a judicial set-off requires a counterclaim ["Widerklage"], this is submitted as a regular means of defense and the formal requirements applicable to the filing of an action do not apply (Expert Report, p. 21). According to French law, it is in the sole discretion of the judge whether to adjudicate both claims uniformly or whether to reject the counterclaim and decide only the principal claim (Expert Report, p. 13). Within the scope of a judicial set-off, the courts regularly require the assertion of a sufficiently probable counterclaim (Expert Report p.12). [Buyer]'s counterclaim is according to the above remarks not manifestly unjustified. Likewise, a rejection of the counterclaim can also be considered, if the clarification of the counterclaim requires a long time and difficult appraisal or, as the case may be, if a danger of a delay of proceedings exists (Expert Report, p. 13). Such a danger is not apparent in the case at hand. For the rest, according to the expert report (p. 13), the counterclaim is always to be permitted in the case of connected claims. In light of the continuous business connection of the parties, much speaks in favor of affirming the connection pursuant to French law as well. It cannot be inferred from the abbreviated remarks by Ferid, The French Civil Law, 1st Bd, p. 528 and p. 532, as well as by Sonnenberger/Autexier, Introduction to French Law, 3rd ed., p. 129, according to whom the filing of a counterclaim is necessary, that [Buyer] can only claim the set-off by way of a counterclaim in conformity with the procedural provisions of the German Code of Civil Procedure. In this respect, one cannot simply refer to the prerequisites of the lex fori since the permissibility of the set-off claim depends upon French law. The decision of the OLG Koblenz of 17 September 1993 - 2 U 1230/91 (available under <http://www.cisg-online.ch>), which is based on the above-mentioned quotation of Ferid, does not consider this sufficiently. Thus, the set-off asserted by [Buyer] is not impermissible and in this respect the action is not ripe for resolution. Rather, another hearing of evidence is required and not only with regard to the amount of the asserted damages, since the Appellate Court cannot assess the testimonies of the witnesses who were already questioned in the first instance but whose testimonies were not assessed in the decision of the Court of First Instance.

In this case, the Appellate Court thinks it is appropriate for the above-mentioned reasons to remand the case to the Court of First Instance regarding [Buyer]'s set-off claim. Under these circumstances, there was no need for a decision on the cross appeal raised by [Buyer] by writ of 20 January 2004, received by Court on 22 January 2004 (II, 129-141), which [Buyer] used to bring in the counterclaim, or over [Buyer]'s pleading for reinstatement of 2 March 2004. The legal prerequisites the decisions sought by [Buyer] are not present.

III. It is for the Court of First Instance to decide on the costs, including those of the appellate proceedings. The decision on the interim enforceability follows from 708 No. 10, 713 ZPO. The prerequisites for a revision pursuant to 543(2) ZPO are not present because the case does raise any fundamental legal questions and for the rest, the case can be answered on the basis of the hitherto given case law of the Supreme Court and higher courts under appraisal of the circumstances of the individual case.

Higher Regional Court Karlsruhe, Dept. 17, on 20 July 2004. Dr. Müller-Christmann (Chief Judge Higher Regional Court), Prof. Dr. Seidel (Judge Higher Regional Court) and Schmitt (Judge Court of First Instance).


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of France is referred to as [Seller] and the Defendant of Germany is referred to as [Buyer].

** Stefan Dietrich, Dipl. iur University of Bochum, LL.M. University of London (2004/2005). His fields of law are International Commercial Law and Corporate Law. Since January 2006 articled clerk with the Higher Regional Court (OLG) Hamm.

Translator's note on abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code, or commentary to the Civil Code]; CC = Code Civil [French Civil Code]; CCOM = Code de Commerce [French Commercial Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuch [Introducgory Act to the German Civil Code, containing the German Code on Private International Law]; EuGVÜ = Übereinkommen über die gerichtliche Zuständigkeit und die Vollstreckung gerichtlicher Entscheidungen in Zivil- und Handelssachen [European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters]; EuGVVO = Verordnung (EG) Nr. 44/2001 des Rates vom 22. Dezember 2000 über die gerichtliche Zuständigkeit und die Anerkennung und Vollstreckung von Entscheidungen in Zivil- und Handelssachen [Council Regulation of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters];GG = Grundgesetz [German Federal Constitution]; GVG = Gerichtsverfassungsgesetz [German Judicature Act]; ZPO = Zivilprozessordnung [German Code of Civil Procedure].

*** Todd Fox received his J.D. from Rutgers University and his LL.M. summa cum laude from the University of Freiburg, Germany. A member of the Bar of the State of Pennsylvania, he is an Associate of the Institute of International Commercial Law.

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