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CISG CASE PRESENTATION

Germany 14 August 2006 Appellate Court Köln (Potatoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060814g1.html]

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

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Case identification

DATE OF DECISION: 20060814 (14 August 2006)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 16 U 57/05

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

CASE HISTORY: 1st instance Landgericht Köln (90 O 45/05) 17 August 2005 [reversed]

SELLER'S COUNTRY: Spain (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Potatoes


IHR headnote

Reproduced from Internationales Handelsrecht (2/2007) 68

"1. In accordance with Art. 39(1) CISG, the non-conformity is to be notified within 24 hours in case of perishable goods.

"2. If the parties agree to sell on the non-conforming goods at the best possible price, the loss incurred pro rata in the on-sale equals the agreed reduction of the purchase price: Art. 50 CISG. Under this agreement, the seller loses the right to demand the purchase price if it is not possible to sell the non-conforming goods."

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Case abstract

GERMANY: Oberlandesgericht Köln 14 August 2006

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/80], CLOUT abstract no. 825

Reproduced with permission of UNCITRAL

Abstract prepared by Ulrich Magnus, National Correspondent, and Jan Lüsing

The Spanish claimant, an exporter of agricultural products, and the German defendant, an agricultural dealer, entered into a contract for the sale and delivery of potatoes to Germany. According to the agreement, the claimant sent the potatoes in five consignments. All consignments contained potatoes, which were not conforming to the contract in different degrees, i.e. damages, misshapenness and rottenness. After each delivery, after the quality control of the goods, the defendant informed the claimant by phone of the lack of conformity of the goods. As a result of the nonconformity, the parties agreed that the defendant should try to resell the potatoes at the best possible price. According to those agreements, the defendant reduced the purchase price of the deliveries respectively by 12 per cent up to zero in the case of one delivery, which was entirely unsaleable, and set it off against additional expenses relating to the nonconforming potatoes and for the freight costs. Later on, however, the claimant filed an action for payment of the full purchase price denying the lack of conformity of the goods.

The court granted the claim. Upon the defendant's appeal, the appellate court reversed the lower court's judgment and dismissed the seller's claim.

The appellate court stated that in the case of perishable goods a lack of conformity had to be notified within 24 hours according to article 39 (1) CISG. The court also held that if the parties had agreed on the resale of the goods at the best possible price the buyer might reduce the purchase price in proportion to the amount of the loss incurred by the resale, pursuant to article 50 CISG. Moreover, following the agreement with the buyer, the seller had lost its right to demand the purchase price if the goods delivered turned out to be entirely unsaleable. Finally, since the defendant had the right to reduce the purchase price, the court also found that it was entitled to set-off the purchase price against claims for damages under article 45 (1) (b) and 74 CISG.

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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 38 ; 39 ; 50 ; 74 [Also cited: Articles 45(1)(b) ; 53 ]

Classification of issues using UNCITRAL classification code numbers:

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

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

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

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

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Reduction of price, remedy of ; Damages ; Set-off ; Cumulation or election of remedies

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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/1405.pdf>; Internationales Handelsrecht (2/2007) 68-71

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) Köln

14 August 2006 [16 U 57/05]

Translation [*] by Jan Henning Berg [**]

Edited by Institut für ausländisches und Internationales
Privat- und Wirtshaftsrecht der Universität Heidelberg
Daniel Nagel, editor
[***]

AWARD

Upon Defendant [Buyer]'s appeal, the judgment of the District Court (Landgericht) Köln announced on 17 August 2005 (case docket 90 O 45/05) will be amended. The claim filed by Plaintiff [Seller] is dismissed. [Seller] has to bear the costs of the proceedings.

The judgment is provisionally enforceable.

FACTS

[Seller] is a corporation organized under Spanish law with its seat in Albacete, Spain. It is an exporter of agricultural goods. [Buyer], a limited liability company with its seat in Germany, also trades in agricultural products.

Following an order placed by [Buyer], [Seller] delivered more than 100 tons of a certain type of potatoes to Germany at the end of May 2003. The goods that were ordered were delivered in several parts by truck from Spain to the address of company A. in Beelen as designated by [Buyer]. These deliveries have not been paid for in full because [Buyer] relied on a lack of conformity as well as on counterclaims. The parties dispute the existence of a right to rely on a reduced price.

[Seller] has substantiated and valuated during the First Instance proceedings its claim for the full purchase price of EUR 14,740.91. [Seller] is referred to five invoices of five partial deliveries and [Seller] has also valuated the residual claims that were still not settled. [Seller] has alleged that there had not been any defects. Concerning any notices of non-conformity submitted by [Buyer], the [Seller] alleges that these were given too late in the light of the short timeframe for such notice under the CISG that is applicable to the contract. Supplementary reference will be made to the factual basis of the appealed judgment. [Buyer] has made submissions concerning the defects and referred to the testing protocols of company A. ([Buyer]'s customer) as well as to oral and written notices of non-conformity.

The District Court has applied the CISG to this dispute. This has not been challenged by either party. The District Court affirmed [Seller]'s request for the purchase price and held that [Buyer]'s argument on any purported lacks of conformity, corresponding notices of non-conformity and any price reductions was not sufficiently substantiated.

[Buyer] continues to argue for its position with its appeal. [Buyer] alleges that the District Court had not properly assessed its submissions and that the Court had refrained from a necessary taking of evidence.

Upon request of the Court, [Seller] has submitted a new accounting with respect to the five invoices in question. [Seller] asserts that all five invoices -- partially different than those of the First Instance proceedings -- entitle [Seller] to residual claims, which [Buyer] refuses pursuant to its own position, yet contrary to the law. The newly submitted invoices amount to the same total claim as in the First Instance. [Seller] also reiterates its argument that the purported notices of non-conformity had been given too late.

[Buyer] continues on to allege that the deliveries did not conform to the contract. [Buyer] alleges that the goods delivered under invoice no. 1450 (truck: V - 15800 - R) were useless in their entirety and that, therefore, [Buyer] refrained from paying for this delivery. [Buyer] alleges that oral and written notices of non-conformity were submitted on the days of delivery. [Buyer] furthermore relies on a set-off with counterclaims against [Seller] that were caused by the non-performance. Pursuant to [Buyer]'s overall calculation, [Seller] would not be entitled to any claims against [Buyer].

POSITIONS OF THE PARTIES

Position of [Buyer]

[Buyer] requests accordingly to dismiss [Seller]'s action and to have the First Instance judgment amended.

Position of [Seller]

[Seller] requests the Court to dismiss [Buyer]'s appeal. In that respect, it relies on the corrected accounting as submitted during the proceedings in the Second Instance.

The Court has heard witnesses for the question whether notices of non-conformity had been submitted within the time required. Reference is made to the resolution of 8 March 2006 (sheet 160 GA) and, for the result of the taking of evidence, reference is made to the session protocol of 19 June 2006 (sheet 217 GA).

REASONING OF THE COURT

The admissible appeal filed by [Buyer] is justified on the merits. [Seller] is not entitled to claims for payment of the purchase price following the five deliveries under the invoices nos. 1447, 1449, 1450, 1453 and 1454. These claims were terminated by justified claims on the side of [Buyer] for a price reduction (Art. 50 CISG) as well as by the declared set-off with claims for damages under Arts. 45(1)(b), 74 CISG.

1. [Applicability of the CISG]

In order to assess the claims asserted by either party arising out of the contractual relation Spanish law applies. Failing a choice of law by the parties, their legal relation is governed by the law applicable at the seller's seat under Art. 28 EGBGB [*]. In the present case, the [Seller] has its seat in Spain. However, Spanish law is only subsidiarily applicable. Primarily, the contract concluded between the parties is governed by the CISG, because both parties have their places of business in different states and both Spain and Germany are Contracting States to the United Nations Convention on Contracts for the International Sale of Goods (CISG).

2. [Merits of Seller's claims]

As to the invoices on which [Seller] relies in detail:

1) Invoice no. 1447 (truck: OG - 52 - DV) dated 29 May 2003

This invoice refers to a delivery of 24,200 kgs (kilograms) of potatoes on 29 May 2003 that arrived in Germany on 2 June 2003 on the truck specified above. It is undisputed that [Seller]'s initial claim for the purchase price according to Art. 53 CISG had amounted to EUR 6,200.

      a) [Justification for price reduction]

      [Buyer] can properly rely on the alleged price reduction in the amount of EUR 971.72. The goods were decomposed, damaged and deformed so that only 20,600 kgs were useable.

[Buyer] has delivered proof of the non-conformity through submission of the testing protocol of its customer, Company A., of 2 June 2003 (exhibit B 1, sheet 14 AH) as well as by the statements of Witness L. During the present proceedings, [Seller] has contested that the goods were non-conforming and has flatly challenged the testing protocol. However, [Seller] has requested in the first place only EUR 5,228 through invoice no. 1241, which can be derived from its own accounting (see sheet 141 GA) and from the statements of Witness F. It is therefore evident that even [Seller] had accepted the price reduction. Moreover, Witness L. has provided detailed description of the testing procedures that were conducted by [Buyer]. The whole load of goods was put to a random test of either 25 or 12.5 kgs. The test was conducted by employees who are experts in German and European business for the delivery of potatoes. These employees have prepared the protocol at hand which documents the asserted non-conformity. The witness has ruled out any exchange or unloading of the goods during the transport from Spain to Germany.

      b) [Timely notice of non-conformity]

      [Seller] has been notified of the non-conformity within the required time, meaning that [Buyer] has not forfeited its right to rely on a price reduction according to Art. 39 CISG. The question of which periods of time are applicable for a sale of perishable goods need not be resolved. The Court considers the timeframe of 24 hours for perishable goods as proposed by [Seller], within which non-conformity must be notified (argument by [Seller] in its memoranda of 7 June 2006 and 20 January 2006). The (shorter) periods of time according to the provisions of the RUCIP were not agreed to according to [Seller]'s argument.

The taking of evidence has given proof that [Buyer] has complied with the period of 24 hours. Representatives of [Buyer] have notified [Seller] of the non-conformity generally on the day of delivery -- which was effected at Company A. in Beelen -- at the next morning at the latest by telephone and fax. This follows from the testing protocols (exhibits B 1 - B 5) as well as from testimony by Witnesses L., H. and F. The protocol compiled by Company A. indicates 2 June 2003 as the date of delivery (truck: OG - 52 - DV). In conjunction with the testimony of Witness L., who stated that the goods were put to the test immediately after arrival and before unloading, this serves as sufficient proof for the date of delivery. [Seller]'s pointing to the submitted way-bills (exhibits K 12 et seq.) does not help here, as they only indicate the date of loading and start of transport; the date of arrival is necessarily a later date due to the distance involved and the possible driving bans for trucks at weekends.

Witnesses L. and H. have correspondingly testified that Company A. communicated any possible lacks of conformity at the very day of delivery and immediately after the testing process to Witness H. -- employee of [Buyer]. He then immediately contacted Witness F. of Company Cryka in Spain, which worked as a process coordinator for [Buyer] in Spain. After a few hours, Witness F. would have got back to Witness H. in order to inform him of the outcome of the consultation of the deliverer. Witness H. then informed Company A. about how to proceed with the delivery that was alleged as non-conforming. Even the sending of the written documents was effected on the same day, in rare cases during the following morning. Witness H. explained that the same procedure applied for all deliveries that form the subject of this dispute. Witness F. gave supplementary testimony that he forwarded the complaints including the testing protocols immediately at the same day to the [Seller]'s board members.

The notice of non-conformity under Art. 39 CISG does not require a specific form and may be given through a mere telephone conversation (cf. Schlechtriem/Schwenzer, UN-Kaufrecht, 3rd ed., Art. 39 para. 11). At hand, [Buyer] has properly given its notice of non-conformity within the time of 24 hours.

      c) [Extent of price reduction]

      The extent of the price reduction (about 15.52%) cannot be successfully contested.

According to the statements of both Witness H. and Witness F., the board of [Seller] has declared concerning all five deliveries in dispute that it agreed to a resale at conditions "the best possible rate", after the non-conformity had been communicated. Therefore, [Seller] did not require any downward price limit. Witness F. stated that [Seller]'s board was comfortable that it "awaited the outcome, whatever it may be". At the same time, [Seller] had stopped the loading of potatoes from those fields from which the rejected potatoes had been harvested.

The approval of [Seller] to a resale by [Buyer] at the best possible conditions that it was able to achieve in itself contains the approval to a corresponding reduction of the purchase price, as long as this procedure would not conflict with resale "at the best possible rate." Such assertion has not been raised and would not be backed by the factual background in this case. The reduction rate applied by [Buyer] rather reflects that part of the delivery that was useless due to the defects. The reduction rate therefore complies with the requirements imposed by Art. 50 CISG.

      d) [Admissibility of a set-off]

      [Buyer] has rightfully subjected the residual claim of EUR 5,228.28 to a set-off based on a counterclaim of EUR 1,750. The pertinent set-off is admissible under 533 no. 1 ZPO [*] and is substantiated by [Buyer] by alleging a claim for damages according to Art. 74 CISG. [Buyer] has coherently argued that due to a delivery under invoice no. 1450 that is useless in its entirety, it had suffered transport costs in the said amount. This assertion is backed by [Buyer]'s submission of the carrier's invoice for the transport of the useless goods from Spain to Beelen between 29 May and 2 June 2003 (sheet 156 GA).

Therefore, the prerequisites for a claim for damages due to breach of contract pursuant to Art. 74 CISG are fulfilled. Without further requirements, this claim can be brought forward in conjunction with a price reduction (Schlechtriem/Huber, Art. 45 para. 42).

Consequently, the reduced claim for the purchase price will be put to a further subtraction in the amount of the set-off. It remains a residual claim of EUR 3,478.28.

[Buyer] has properly effected payment of the invoice in that amount, which has also been recognized by [Seller]. Therefore, [Seller] is not entitled to further claims from invoice no. 1447.

2) Invoice no. 1449 (truck: AC - RL - 116) dated 28 May 2003

The basis for this invoice is a delivery of 23,520 kgs on 28 May 2003. The initial purchase price to which [Seller] would have been entitled amounts to EUR 5,060.40.

      a) [Justification for price reduction]

      Against this claim, [Buyer] can rely on a reduction in price in the amount of EUR 1,042.08. Only 19,416 kgs of the potatoes were useable due to damage and deformation.

[Buyer] has delivered sufficient proof for the non-conformity, again through its submission of a testing protocol of its customer (Company A.) dated 2 June 2003 (exhibit B 2, sheet 15 AH) in conjunction with the testimony by Witness L. The same argument applies as set out above for invoice no. 1447. The statement in question made by L. also refers to this delivery.

      b) [Timely notice of non-conformity]

      As to the timeliness of the notice of non-conformity, it can also be referred to the above reasoning. This delivery has been incorporated into the statements of the relevant witnesses. Therefore, the non-conformity has been notified to [Seller] at the day of delivery.

      c) [Extent of price reduction]

      Concerning the rate of the price reduction (here: about 12.3%), further reference is made to the above reasoning. With the approval given by [Seller] to a resale at the best possible conditions, [Seller]'s board impliedly gave its consent to a corresponding reduction in the purchase price. The reduction rate proposed by [Buyer] is even below the amount of defective goods of about 15%, which shows that it is not inappropriate. Finally, it can be derived from the submissions of [Seller] itself (exhibit K 17, sheet 141 GA) as well as from the testimony of Witness F., that [Seller] had initially invoiced this delivery under no. 1245 at an amount of EUR 4,927.32. Therefore, its has readily accepted the reduction in price (see also the letter delivered by Witness F., sheet 209 GA).

      d) [Seller's residual claim]

      The residual claim for the purchase price of EUR 4,927.32 has been paid by [Buyer].

3) Invoice no. 1450 (truck: V - 15800 - R) dated 29 May 2003

This invoice refers to a delivery of 22,440 kgs of potatoes on 29 May 2003. The initial purchase price was calculated at EUR 5,331.27, which is not in dispute.

[Buyer] successfully challenges this claim by relying on a price reduction to zero. [Buyer] asserts that the delivery in its entirety was unmerchantable.

      a) [Justification for price reduction]

      The defective character of the deliveries is again indicated by the protocol of Company A. of 2 June 2003 (exhibit B 3, sheet 16 AH). It was assessed by the experts at 26.36% of the total volume. The witness statements by L. and F. have further confirmed the unmerchantability. Both witness could remember that a delivery was returned as it had not been accepted by its sub-customers.

      b) [Timely notice of non-conformity]

      The claim for a reduction is not excluded by any purported delayed notice of non-conformity. In that respect, the testimony of Witnesses H. and F can be relied on. They confirm that a notice had been submitted on the day of delivery.

      c) [Extent of price reduction]

      [Buyer] is therefore entitled to a price reduction to zero.

When the board of [Seller] again approved a resale at the best possible conditions, it also approved the worst case, which is the total unmerchantability of the goods. The said clause also comprises a case in which no resale is possible due to an excessive quota of defective goods. [Seller]'s board has declared its consent to any application of the goods and its approval of any outcome. If there is no customer willing to buy the goods -- which is comprehensible in the light of the high quota of more than 25% and the quick perishability of the goods --, the seller also has to bear such outcome. [Seller] asserts that its board had reiterated in June 2003 that it would not accept claims relying on non-conformity to that extent. This, however, is without relevance when it had previously given its consent to any application of the goods.

Hence, [Seller] is not entitled to the purchase price with respect to the delivery under invoice no. 1450.

4) Invoice no. 1453 (truck: R - 5670 - BBF) dated 27 May 2003

The invoice refers to a delivery of 23,460 kgs effected on 27 May 2003. The claim for the purchase price was initially calculated at EUR 5,954.20.

      a) [Justification for price reduction]

      The claim is put to a reduction by EUR 2,046.89. The testing protocol of 30 May 2003 (exhibit B 4, sheet 17 AH) confirms that the potatoes suffered from decomposition, heat damage, and deformation. Merely 15,240 kgs of the goods were merchantable.

For the issue of timeliness of the notice of non-conformity it is referred to the ruling for the previous invoice. The extent of reduction (about 35%) reflects the amount of useless goods. Furthermore, the board of [Seller] has once again approved an application of the goods by [Buyer] at the best possible conditions. This is confirmed by the witnesses.

      b) [Seller's residual claim]

      [Buyer] has properly subjected the residual claim of EUR 3,907.35 to a counterclaim of EUR 657.30.

This sum corresponds to a claim for damages due to breach of contractual obligation under Art. 74 CISG (non-conformity of the goods). [Buyer] has undisputedly brought forward and proved by an invoice dated 27 May 2003 that it had to pay for the sorting of the goods pursuant to the poor quality.

This results in a residual claim of EUR 3,250.05 which has undisputedly been paid by [Buyer].

5) Invoice no. 1454 (truck: MU - 7572 - R) dated 26 May 2003

The delivery refers to 24,040 kgs of potatoes. The initial and undisputed claim for the purchase price was calculated at EUR 6,346.80.

      a) [Justification for price reduction]

      The claim is subject to a price reduction in the amount of EUR 2,274.39 since the goods did not conform to the contract, which has been confirmed by the protocol of 30 May 2003 (exhibit B 5, sheet 18 AH). The timeliness of the notice of non-conformity and the extent of the reduction can again be derived from the reasoning set out above. [Seller] had already conceded in its letter of 17 June 2003 that a complaint had been given concerning the delivery in question. The complaint itself had been accepted, yet not the extent of the reduction (exhibit B 8). Contrary to that, [Seller] has asserted during the present proceedings that no notice was given in time.

Reducing the price by 35% is not unreasonably high in the light of the loss of usable goods of about 34.5%. Furthermore, [Seller] has consented to an application of the non-conforming goods at the best possible conditions.

[Buyer] can furthermore subject the residual claim of EUR 4,072.41 to a counterclaim similar to that for invoice no. 1453. [Buyer] had to bear sorting costs of EUR 667.30.

[Buyer] has properly settled the residual claim of EUR 3,405.11.

3. [Ancillary decisions]

The decision on costs and expenses follows from 91 ZPO [*]. The decision on the preliminary enforceability is based on 708 No. 10, 713 ZPO.

There is no cause to admit revision ( 543(1) No. 1, (2) ZPO). The dispute at hand is neither of fundamental relevance nor would interests of legal development or the securing of a unified jurisprudence require a decision by the German Federal Supreme Court.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellee of Spain is referred to as [Seller] and Defendant-Appellant of Germany is referred to as [Buyer]. Amounts in the uniform European currency (Euro) are indicated as [EUR].

Translator's note on other abbreviations: EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuche [German Code on Private International Law]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

** Jan Henning Berg is a law student at the University of Osnabrück, Germany and participated in the 13th Willem C. Vis Moot with the team of the University of Osnabrück.

*** Daniel Nagel has been a law student at Heidelberg University since October 2002 and an exchange student at Leeds University in 2004/2005.

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