Germany 15 September 2004 Appellate Court München (Furniture leather case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040915g2.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 7 U 2959/04
CASE HISTORY: 1st instance Landgericht München (I-13 HKO 7110/03) 30 March 2004
SELLER'S COUNTRY: Italy (plaintiff)
BUYER'S COUNTRY: Germany (defendant)
GOODS INVOLVED: Leather for furniture
Reproduced from Internationales Handelsrecht (2/2005) 70
"1. If the debtor declares unequivocally and finally that he is unwilling to fulfill his contractual obligations by denying the mere existence of a sales contract, the creditor is entitled to the rights arising out of Articles 75, 76 CISG even if he has not declared the avoidance of the contract.
"2. The duty to observe good faith pursuant to Art. 7 para. 1 CISG allows the autonomous construction of the Convention to take into account established principles of the national law of the member states that were created to specify the duty to observe good faith. Among these principles is the prohibition of venire contra factum proprium.
"3. It is sufficient for the substantiation of a market price pursuant to Art. 76 para. 1 CISG that a going price has been established for identical commodities at a specific trading place."Go to Case Table of Contents
GERMANY: Oberlandesgericht München 15 September 2004
Case law on UNCITRAL texts (CLOUT) abstract no. 595
Reproduced with permission of UNCITRAL
An Italian tannery (the plaintiff) sued a German manufacturer of upholstered furniture (the defendant) claiming the outstanding purchase price for a delivery of leather ordered in summer 2000. The action failed before the court of first instance because the defendant had successfully exercised a compensation defence. The setoff claim was based on the plaintiff's refusal to make further deliveries in accordance with a promise made in February 2000. The court of first instance regarded this refusal to perform as a fundamental breach of contract. Consequently, under article 76(1) CISG the defendant could recover the difference between the price fixed by the contract and the price paid for the covering purchase.
The question of law raised on appeal was whether articles 49(1)(a) and 76(1) CISG would require the buyer's express declaration of avoidance of the contract-- which was missing in the case at hand--even if the seller definitely refuses to fulfil his obligations under the contract.
The appellate court ruled that an express declaration of avoidance is dispensable in a situation where the seller seriously and ultimately refuses performance, when requiring an express declaration of avoidance would amount to an unjustified formalism. While some legal writers hesitate to release the buyer from an express declaration of avoidance, the Court pointed out that, in light of the principle of legal certainty, it should not be more difficult to determine the moment of the seller's refusal to perform his obligations than to determine the moment the buyer declared the contract avoided.
The Court sees its interpretation of articles 49(1)(a) and 76 CISG in accordance with the principle of an autonomous interpretation of the CISG. Although the duty to observe good faith in international trade pursuant to article 7(1) CISG does not allow equitable considerations of any kind, this provision enables the courts to apply established principles of the national law of the member States that consider the principle of good faith. Due to his serious and ultimate refusal to perform, the plaintiff could not rely on the requirement of a declaration of avoidance under article 49(1)(a) CISG without contravening the prohibition of "venire contra factum proprium", an established principle of good faith. The appellate court therefore upheld the decision of the court of first instance.Go to Case Table of Contents
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
7A33 [Principles of interpretation of Convention: application of good faith standards]; 26A [Effective declaration of avoidance: notice of avoidance unnecessary where obligor clearly and conclusively refuses to perform]; 49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]; 75A [Damages established by substitute transaction after avoidance]; 76B [Damages recoverable based on current price]
7A33 [Principles of interpretation of Convention: application of good faith standards];
26A [Effective declaration of avoidance: notice of avoidance unnecessary where obligor clearly and conclusively refuses to perform];
49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];
75A [Damages established by substitute transaction after avoidance];
76B [Damages recoverable based on current price]
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1088&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/1013.pdf>; Internationales Handelsrecht (2/2005) 70-72; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1088&step=FullText>;  Zeitschrift für Wirtschaftsrecht (ZIP) 175
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
15 September 2004 [7 U 2959/04]
Translation [*] by Mariel Dimsey [**]
Edited by Institut für ausländisches und Internationales
Privat- und Wirtshaftsrecht der Universität Heidelberg
Daniel Nagel, editor [***]
In the dispute Compagnia T___ S.r.l. ... Plaintiff and Appellant [Seller] of Italy ... vs. M___ GmbH & Co. KG ... Defendant and Appellee [Buyer] of Germany ...
I. The [Seller]'s appeal against the judgment of the Munich District Court I of 30 March 2004 is dismissed.
II. The [Seller] bears the costs of the appellate proceedings.
III. At this preliminary stage, the judgment can be enforced. The [Seller] can defer the enforcement by making a security payment in the amount of 110% of the sum to be enforced if the [Buyer] does not itself offer securities for the executable amount.
IV. Appeal is not allowed.
I. The [Seller] claims payment for the delivery of furniture leather.
The [Buyer] seeks to set-off this claim with a claim for damages due to a breach of contract (non-delivery of additional furniture leather).
The [Seller] operates a tannery in Italy. The [Buyer] manufactures upholstered furniture in Germany. In the summer of 2000, the [Buyer] ordered furniture leather from the [Seller]. The [Seller] invoiced the [Buyer] for the deliveries at an amount of EUR 19,680.67 on 9 June 2000 and at an amount of EUR 39,797.73 on 23 June 2000. The [Buyer] only made partial payment of the total amount of EUR 59,478.40. The partial payment which has been estimated at EUR 19,963.98 by the [Seller] and at EUR 19,994.30 by the [Buyer].
With its claim, the [Seller] seeks the payment of the remainder of the purchase price in the amount of EUR 39,515.42.
The [Buyer] argues that the [Seller]'s claim is extinguished by having declared a set-off for damages in the amount of EUR 37,105.00 = (DM 72,571.00), and, furthermore, with a justified reduction of a 3% discount and a 1% bonus. The [Buyer] alleges that the parties had concluded a contract on 16 February 2000 for the delivery of 10,000 square meters of hide of the description "Savanne Madras" at a price of DM 24.00 per square meter and the same amount of "Delta Pony" at a price of DM 26.00 per square meter. In contrast to the contractual duty, 7050 square meters of "Delta Pony" and 2,462 square meters of "Savanne Madras" had not been delivered. Consequently, the [Buyer] had been forced to undertake a substitute transaction elsewhere. [Buyer] was thereby entitled to claim damages for the loss arising from the difference between the agreed price and the market prices in the summer of 2000. In the summer of 2000, the market price for "Madras" had been DM 32.00 per square meter and DM 33.50 per square meter for "Pony". The counterclaim arises from this price difference.
The [Seller] contests this by alleging that it was under no obligation to the [Buyer] to deliver the furniture leather described. [Seller] alleges that the order confirmation of the Italian agent, Company B___ S.r.l., did not have any effect with respect to the [Seller] and that, apart from this, owing to the force majeure of the BSE crisis in the summer of 2000, it was not possible for the [Seller] to fulfill its contractual duties anyway.
The District Court dismissed the [Seller]'s claim after hearing Witnesses B., H. and V. on the issue of a potential conclusion as well as a potential cancellation of the contract upon which the counterclaim was based, and after obtaining an expert report from Expert F. on the issue of the prices for furniture leather in Italy in the summer of 2000. In support of its claim, the [Buyer] had proven the conclusion of a contract by the witnesses examined; whereas, the [Seller] had been unable to prove the cancellation of the order. After the [Seller], by letter dated 13 July 2000 (Appendix AMC 10), communicated that further deliveries would not be forthcoming as, in this regard, the [Seller] had not concluded a contract, the [Buyer] was entitled to damages under Article 76 of the CISG, which is applicable here. The [Buyer] was also entitled to calculate its damages on an abstract basis, as the substitute transactions undertaken cannot be specifically attributed to the unperformed contract with the [Seller]. The additional costs of 8.00 DM per square meter ("Madras") and 7.50 DM per square meter ("Pony") asserted by the [Buyer] are proven by the findings of the expert.
The [Seller]'s appeal is directed against the judgment of the District Court, and in pursuit of the [Seller]'s original claim for payment. The [Seller] claims that the District Court wrongly assumed that the requirements of Article 76 CISG had been met. It is [Seller]'s position that, on the one hand, the party seeking damages had not avoided the contract; and on the other hand, there was no market price for the furniture leather in question.
Against this, the [Buyer] regards the requirements of Article 76 CISG as having been satisfied and alleges that, due to the fact that the [Seller] expressly and conclusively refused to deliver, a declaration of avoidance was not necessary.
For the remainder, reference is made to the judgment of the District Court, the memoranda, plus appendices, exchanged in the appeal and the protocol of the oral proceedings on 15 September 2004.
II. The [Seller]'s appeal is not justified. The District Court rightfully accepted the [Buyer]'s set-off in the amount of EUR 37,105.00. And with the additional rightful reduction of 4% discount and bonus, the [Seller]'s claim is thereby totally extinguished.
1. The District Court rightfully applied the provisions of the CISG to the contractual relationship of the parties (Art. 1(1) CISG).
And the District Court rightfully accepted the existence of a sales contract between the [Seller] and the [Buyer] for 20,000 square meters of furniture leather in accordance with the order confirmation presented as Appendix AMC 2 and held the alleged subsequent (mutual) cancellation of the contract to be unsubstantiated. The [Seller] does not pursue the originally claimed cancellation with its appeal.
2. The District Court rightfully allowed the [Buyer]'s claim for damages under the first sentence of Article 76(1) CISG.
a) The [Seller]'s explicit refusal to deliver owing to its assumption that the contract was cancelled not only stands in contrast with its partial deliveries, but also constitutes a fundamental breach of contract according to Article 49(1)(a) CISG (Schlechtriem/Schwenzer-Müller-Chen, 4th edition, Article 49, para. 6 CISG).
b) In addition, a claim for damages under Article 76 CISG does not fail due to the fact that the [Buyer] did not expressly declare the avoidance of the contract. As the [Seller] seriously and conclusively refused to perform its contractual obligations by disputing the existence of a binding contract, a declaration of avoidance of the contract by the [Buyer] was no longer necessary (cf. Hamburg Hanseatic Higher Appellate Court, judgment dated 28 February 1997, file ref. 1 U 167/95; Schlechtriem/Schwenzer-Stoll/Gruber, Article 75, para. 5 in conjunction with Article 76, para. 3 CISG; Staudinger-Magnus, Article 75, para. 8 in conjunction with Article 76, para. 10 CISG). The alternate view (cf. Mankowski in Münchner Kommentar zum HGB [*], Article 75, para. 4, Article 76, para. 3 CISG; Soergel-Lüderitz/Dettmeier, 13th edition, Article 75, para. 3 CISG; Bamberger/Roth-Saenger, Article 75, para. 3 CISG), which, for reasons of legal certainty and clarity, requires a declaration of avoidance of contract even in such cases, is not followed by the court.
If the obligor unambiguously and definitely declares that it will not perform its contractual obligation, it would be a mere formality to require a separate declaration of avoidance of the contract from the obligee. Legal certainty (determination of the point in time from which the obligee is entitled to make a substitute transaction or the point in time which is decisive for the determination of the current price according to Article 76 CISG, respectively) can still be maintained. On the one hand, an avoidance of the contract by the obligee is only unnecessary in cases in which the obligor clearly and conclusively refuses to perform. On the other hand, such a declaration from the obligor regardless whether in written or in oral form can usually be just as easily referenced to a particular date as an avoidance of the contract declared by the obligee.
The principle of the autonomous interpretation of the CISG (cf. in this regard BGH [*] NJW [*] 1999, 2440, 2441; Schlechtriem/Schwenzer-Ferrari, Article 7, para. 9 CISG) does not conflict with such a view. Article 7(1) CISG expressly clarifies that, in the interpretation of this Convention, regard is to be had to the need "to promote ... the observance of good faith in international trade". Although this does not open up the interpretation of the Convention to every single equitable consideration, it does, however, pave the way for the consideration of established and fixed principles of the national legal systems of the Contracting States, created as concrete ideals of the principle of good faith. To this extent, it is recognized (Schlechtriem/Schwenzer-Ferrari, Article 7, para. 50 CISG; Herber/Czerwenka, Article 7, para. 6 CISG) that, for example, the prohibition of venire contra factum proprium can apply to the interpretation of the provisions of the CISG. As a consequence thereof, a party who definitely refuses to perform the contract, or -- as here -- denies the very existence of contractual duties, cannot successfully rely on the argument that a declaration of avoidance of contract was not made by the opposing party.
In this context, the [Seller] cannot successfully rely on the argument that the [Buyer], in a letter dated 13 July 2000 (Appendix AMC 8), refused a cancellation of the (outstanding) deliveries and insisted on complete delivery at the confirmed prices. This letter of the [Buyer] actually referred to the fax from the Italian agent, B., dated 22 June 2000, in which the latter had declared the cancellation of all ongoing transactions and a large part of the ongoing orders, by indicating quality problems with the [Seller]'s initial supplier and its requests for, from the perspective of the [Seller], "unbearable price increases" (Appendix AMC 9). In contrast to this and in accord with the District Court, the court regards the letter of the [Seller] dated 13 July 2000 as a conclusive refusal of performance (Appendix AMC 10), in which the [Seller] comprehensively denies its contractual obligations. This letter was not received by the [Buyer] until 17 July 2000, as shown by the receipt stamp.
c) The objection of the [Seller] that the District Court accepted the existence of a current price, which amounted to DM 32.00 and DM 33.50 per square meter in the summer of 2000, on the basis of unsupported facts cannot be sustained. In particular, the objection is incorrect in stating that the expert declared, in his report dated 15 January 2004 (page 4), that he could not comment on the article descriptions "Pony" and "Madras".
Upon a consideration of the idea behind Article 55 CISG, it is sufficient for the existence of a market price in the sense of Article 76(1) CISG if, owing to regular business transactions for goods of the same type at a particular trade location, a current price has been established (Schlechtriem/Schwenzer-Stoll/Gruber, Article 76, para. 4 CISG; similar Staudinger-Magnus, Article 76, para. 13 CISG).
In this respect, particular article descriptions are not decisive. What is decisive is that, according to the information of the expert, a market for furniture leather made of cow hide existed in Italy, which indicated a price increase of approx. 30% in the timeframe between the conclusion of the contract in mid-February 2000 and the [Seller]'s refusal of performance in mid-July 2000. Additionally, this determination of Expert F. was confirmed by the invoices of an Italian supplier provided by the [Buyer] for the timeframe of September until December 2000.
3. The [Buyer]'s entitlement to deduct the discount and the bonus of a total of 4% results firstly from the contract (Appendix AMC 2), and secondly from the invoices provided by the [Seller] dated 9 June and 23 June 2000.
The decision on costs is based on § 97(1) ZPO [*], the decision on the preliminary enforcement results from §§ 708 No. 10, 711 ZPO.
The requirements for allowing appeal, under § 543(2) ZPO, are not present here. The legal issues are not of general significance. Neither the development of the law nor the assurance of uniform case law requires a decision of this appeal court. In particular, the legal opinion of this court does not diverge from the current case law of the Higher Appellate Court.
Judge of the Higher
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant of Italy is referred to as [Seller] and Defendant-Appellee of Germany is referred to as [Buyer]. Amounts in the former currency of Germany (Deutsche Mark) are referred to as [DM].
Translator's notes on other abbreviations: BGH = Bundesgerichtshof [Federal Supreme Court of Germany]; HGB = Handelsgesetzbuch [German Commercial Code]; NJW = Neue Juristische Wochenschrift [German law journal]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].
** Mariel Dimsey is a Research Assistant and Teaching Assistant at the University of Basel.
*** Daniel Nagel has been a law student at Heidelberg University since October 2002 and an exchange student at Leeds University in 2004/2005.Go to Case Table of Contents