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CISG CASE PRESENTATION

Germany 19 October 2006 Appellate Court Koblenz (T-Shirts case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061019g2.html]

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

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Case identification

DATE OF DECISION: 20061019 (19 October 2006)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 6 U 113/06

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

CASE HISTORY: 1st instance Landgericht Koblenz (15 O 192/05) 16 December 2005

SELLER'S COUNTRY: Hungary (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: T-Shirts


Case abstract

GERMANY: Oberlandesgericht Koblenz 19 October 2006

Case law on UNCITRAL texts (CLOUT) abstract no. 723

Reproduced with permission of UNCITRAL

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

The decision of the Higher Regional Court of Koblenz determines among other things that the whole delivery may be rejected as non-conforming, if all random samples reveal non-conformities of the goods.

The claimant, a Hungarian company producing, processing and distributing textiles, sued the purchaser, a German intermediary, for payment of the purchase price of several shipments of T-shirts, which the defendant had undisputedly received. The buyer set off the purchase price against several alleged claims for damages due to non-conformity and delay of the deliveries. The claimant had sent the T-shirts directly to the defendant's customer. Random samples taken by the defendant's customer showed that the T-shirts had not been packaged in the manner required by the contract, that they partly had flaws in the weave and that they were dirty. Additionally, some T-shirts had long sleeves although they had been ordered with short-sleeves. Being faced by its customer with the alternatives of accepting a reduction in price or taking back the T-shirts altogether, the defendant accepted a price reduction. The defendant claimed that it had given notice of non-conformity to the claimant via fax, while the claimant alleged that it had never received such a fax.

In the first instance at the Regional Court, the claimant was granted the full amount of its claim for payment of the purchase price plus interest. On appeal, the Higher Regional Court partly reversed the judgement, accepting the defendant's set-off with its damages claim for delivery of non-conforming goods and awarding the claimant the remaining purchase price after set-off against the defendant's damages.

The appellate court stated that delivery is deemed non-conforming as a whole, if all random samples of the goods turn out to be non-conforming. It further held that the notice period of, by and large, one month was met and it allowed the defendant's set-off without any redress to the applicable national law on the requirements of setoff. The court also held that the defendant met its obligation under article 77 CISG to take reasonable measures to mitigate the loss resulting from breach of contract by accepting a reduction of the purchase price instead of accepting the goods back in all. Referring to article 27 CISG the court considered the claimant's objection that it had never received the notice of non-conformity to be irrelevant. With regard to the claimant's demand for interest on the remaining purchase price the court stated that the rate of default interest is to be determined by the national law applicable according to the conflict of laws rules of the forum state, since article 78 CISG omits to state the rate of interest.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 27 ; 35 ; 38 ; 39 ; 74 ; 77 ; 78 [Also cited: Articles 45(1)(b) ; 53 ; 58(1) ]

Classification of issues using UNCITRAL classification code numbers:

27A1 [Dispatch of communication by appropriate means: effective in spite of delay, error or loss in transmission];

35A [Conformity of goods to contract: quality, quantity, description required by contract];

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

39A1 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Specification of nature of non-conformity: degree of specificity required];

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

77A [Obligation to take reasonable measures to mitigate damages];

78B [Rate of interest]

Descriptors: Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity ; Damages ; Mitigation of loss ; 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/1407.pdf>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

French: Claude Witz, Recueil Dalloz (23 October 2008) 2622, 2628

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Case text (English translation)

Queen Mary Case Translation Programme

Court of Appeal (Oberlandesgericht) of Koblenz

19 October 2006 [6 U 113/06]

Translation [*] by Veit Konrad [**]

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

JUDGMENT

The Judgment of the District Court (Landgericht; LG) of Koblenz of 16 December 2005 is changed as follows:

   -    Defendant-Appellant [Buyer] is liable to pay to the Plaintiff-Appellee [Seller] 8,374.90 plus 5% interest from 4 July 2003 to 26 July 2004 and interest of five percentage points above the applicable base lending rate fixed by the European Central Bank since 27 July 2004.
 
   -    Plaintiff-Appellee [Seller]'s further claims are dismissed.
 
   -    Defendant-Appellant [Buyer]'s further appeal (Berufung) is dismissed.
 
   -    The costs of the proceedings in the first instance will be shared between Plaintiff-Appellee [Seller] (58.8%) and Defendant-Appellant [Buyer] (41.2%). As for the costs for the appeal Plaintiff-Appellee [Seller] bears 74.4% and Defendant-Appellant [Buyer] 25.3%.

The judgment is provisionally enforceable.

REASONING

I. Plaintiff-Appellee [Seller], a Hungarian company, produces, processes and distributes textiles. Defendant-Appellant [Buyer] is a textile dealer. [Seller] has claimed payment of 20,327.00 for the delivery of T-shirts. The existence of a sales contract for the delivery of these T-shirts is undisputed.

[Buyer] has declared a set-off with damage claims due to various alleged defaults of the deliveries.

The Court of First Instance granted [Seller]'s claim. Its findings upon the facts of the case are relied upon in the appellate proceedings. The Court of First Instance has reasoned that [Buyer] was not entitled to declare a set-off with its damage claims, because [Buyer] had failed to substantiate that specified notice of the defects had been given to the [Seller] within a reasonable time. In particular, [Buyer]'s subsequent submissions had been delayed and thus were not considered by the Court of First Instance.

[Buyer] has accepted the judgment of the First Instance up to an amount of 4,326.85. As for the remainder, [Buyer] has argued that [Seller]'s claim had been diminished by its set-off against damages, and by a rebate of 3% as stipulated in the framework agreement that was concluded between the parties, which would amount to another 572.18.

[Buyer]'s appeal seeks to have the judgment of the Court of First Instance set aside and the [Seller]'s claim dismissed to the extent that it exceeds 4,326.85. [Seller], in turn, seeks the dismissal of the [Buyer]'s appeal.

The Court has acknowledged the further submissions of the parties. It has also summoned several witnesses. For further details is made to the minutes of 8 June 2006 (p. 203 et seq. GA) and 28 September (p. 255 et seq. GA).

II. The [Buyer]'s appeal is partly justified. In its appeal [Buyer] objects to [Seller]'s claim up to an amount of 16,000.15 ( 20,327.00 minus 4,326.85). [Buyer] alleges that it is entitled to 11,952.10 of damages from a transaction with firm W. The amount of 11,952.10 has been set-off against [Seller]'s claim for 20,327.00. Hence, [Buyer] owes payment of the remaining 8,374.90.

      1. The contract for the delivery of T-shirts is governed by the CISG. The Convention has been adopted on 1 January 1991 in the Federal Republic of Germany and on 1 January 1998 in Hungary.

      2. Under Art. 53 CISG, [Buyer] originally owed payment of 20,327.00 for the deliveries of the T-shirts.

      3. This amount has been reduced by 11,925.10 through [Buyer]'s rightfully declared set-off.

            a) [Buyer] is entitled to damages from a transaction with firm W. under Arts. 74, 45(1)(b) CISG. These damages cover all losses suffered due to breach of contract, including lost profits.

                  aa) [Seller] did not deliver goods of the quantity, quality and description required by the contract (Art 35 CISG). This must be concluded from the testimony of witness J. M., firm W.'s purchasing agent at the time, who took the delivery. J.M. has confirmed that - contrary to the agreement - the T-shirts had been loosely thrown into the card boxes, that they suffered from flaws in the knitting, and they were dirty. For part of the delivery, long sleeves had been delivered instead of the ordered T-shirts with V-neck or round neck. The Court believes the testimony of the witness. The submitted photographs have confirmed what he has said. Also, the witness seems to be reliable, trustworthy and impartial as to the outcome of the case.

Against [Seller]'s allegations, it must be assumed that the defects concerned the whole delivery, not only parts of it. According to witness M., samples had been taken from ten different boxes. All of them were deficient. Taking these samples, [Buyer] satisfied its duty to examine the delivered goods.

                  bb) [Buyer] gave specified and timely notice about the defects. In contrast to the Court of First Instance's findings, Art. 38 et seq. CISG, and not 377 of the German Commercial Code (Handelsgesetzbuch; HGB) apply. Under Art. 38(1), the buyer must examine the goods, or cause them to be examined, within as short a period as it is practicable in the circumstances. The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it (Art. 39(1) CISG).

[Buyer] complied with its duties under the Convention. Within the appellate proceedings, on 28 September 2006, [Seller]'s managing director has eventually admitted that on 6 July 2003 witness T.S. had complained about the deficient deliveries. [Seller]'s managing director has maintained, however, that the complaint only concerned one particular box. Yet, he has admitted that, for this box, the parties agreed that its contents were sheer waste and that [Buyer] would not be charged for it.

In any event, [Buyer] gave specified notice in a fax of 10 July 2003. [Seller]'s excuse that [Seller] did not receive this fax is irrelevant. According to Art. 27 CISG, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication. Hence, the seller bears the risk for the transmission of the notice about defects (Schlechtriem/Schwenzer, Kommentar zum einheitlichen UN-Kaufrecht - CISG - , 4th ed., Art. 39 note 11 with further references). From the testimony of witness S. as well as from the fax device's protocol of communications sent dated 13 July 2003, it is established that the fax, which has been submitted in [Buyer]'s plea of 21 November 2005, was sent on 10 July 2003. [Seller]'s argument that the fax listed on the protocol refers to another order for 25,041 T-shirts that was placed on that day by [Buyer] cannot be followed, because this order was actually given on 16 July 2003 and referred to a deal with another customer, firm R. (see below under b)). Neither is that communication linked to the transaction at issue through a presumed framework agreement. Such an agreement had indeed been sent by a fax dated 10 July 2003. However, this fax was sent at 4:29 p.m., whereas the one at issue was sent at 10:14 a.m.

The notification sent on 10 July 2003 was sent within reasonable time as stated under Art. 39(1) CISG. The period of time regarded as reasonable under Art. 39 CISG must be seen in the particular circumstances of the case. Perishable or seasonal goods must be discerned. In general, however, an average of about one month after the goods have or ought to have been discovered the defect ought to be regarded as reasonable (see judgment of the German Federal Court of Appeal (Bundesgerichtshof; BGH) in: NJW 1995, 2099). In the case at issue, the goods had been delivered to firm W. on 4 July 2003. Hence the notification by fax on 10 July 2003 undoubtedly was given within reasonable time.

The damage that occurred to [Buyer] due to the deficient deliveries amounts to 11,952.10 (see attachment 1 of the appeal note, p. 127 GA). The testimony of witness M has established that firm W. gave [Buyer] the choice between accepting a reduction of the purchase price or, alternatively, taking back the whole delivery.

Opting for a reduction of the price, [Buyer] complied with its duty towards [Seller] under Art. 77 CISG to mitigate the losses resulting from a breach of contract that fell within the responsibility of the other party.

[Buyer]'s submissions of 21 November 2005 concerning the notice of 10 July were not delayed and thus must be taken into account by the Court. The Court of First Instance mistakenly presumed them to be unfounded and delayed. However, unfounded submissions can never be dismissed as delayed. Neither can a wrongful dismissal be maintained on other legal grounds (see judgment of the German Federal Court of Appeal (Bundesgerichtshof; BGH) in BGHZ 83, 371, 378; NJW 1991, 2773). Therefore, the submissions must be heard by the Court (Reichhold in: Thomas/Putzo, ZPO, 26th ed., 531, note 10).

            b) [Buyer] cannot bring damage claims for breach of contract under Art. 74 CISG. Indeed, [Buyer] was not able to proof that [Seller] committed a breach of contract under Art. 74, 35 CISG. After summoning the witnesses T.S. and P.S. and considering the submitted documents it has remained unclear what exactly had been bindingly agreed by the parties.

[Buyer] claims that, on 16 June 2003, an order was placed for 25,042 T-shirts (15,172 T-shirts with a round neck and 9,870 V-neck T-shirts) and that a delivery date of 10 July 2003 had been bindingly agreed. (See attachment B.3, p. 34 GA).

[Seller], however, maintains that by e-mail of 26 June 2003 25,512 T-shirts (15,642 T-shirts with a round neck and print and 9,870 printed V-neck T-shirts) had been ordered and delivery had been set for 15 July 2003. Consequently, [Seller] declared on 27 June 2003 that as the original order has been altered in kind and quantity of the goods, [Seller] could not comply with it. (See attachment K3, 29 May 2006, p. 194).

In its communication of 10 July 2003, [Buyer] then seemingly presupposed a transaction for 25,512 T-shirts (15,642 T-shirts with print and round neck; 9,870 T-shirts with print and V-neck), which was yet to be bindingly concluded by the parties. Again, on 10 July 2003 [Buyer] claims to have set an additional deadline until 18 July 2003 for the whole delivery to firm R. Regardless of the fact that, in the order of 26 June 2003, delivery should have only been due on 15 July 2003, [Buyer] alleges to have informed [Seller] that after that additional period of time delivery would not be accepted any more. These submissions cannot be squared with the content of the document of 10 July 2003. According to witness T.S., firm R. requested the delivery of a total of 44,000 T-shirts. The fax of 10 July 2003 therefore concerned a second order. Witness P.S., a former assistant of the [Buyer], on the other hand, could only remembered the placement of one order.

If one assumes, in favor of [Buyer], that the fax of 10 July 2003 concerned a second order (albeit the fact that the specifications of the ordered goods are identical to the order of 26 June 2003) the question remains whether a second order had been bindingly accepted, given [Seller]'s refusal to accept the order of 26 June (as declared in the fax of 27 June 2003).

[Buyer] bears the risk to specify and prove the facts supporting its claim for further damages due to a presumed breach of contract by [Seller]. These facts cannot be established beyond doubt. Therefore a claim concerning further damages is not justified.

            c) [Buyer]'s claim for a 3% rebate, which had been supposedly stipulated under clause 3 of the framework agreement, is not justified either. [Buyer] has failed to substantiate the requirements of such claim. According to clause 3.2. of the framework agreement, the price should be reduced by the seller, and not by [Buyer]. Under clause 3.3. the buyer may reduce the price by 3%, only if the rebate has not already been accounted for by the supplier (i.e. [Seller]). Whether or not this had been the case, cannot be established.

      4. [Seller]'s claim for interest is governed by Art. 78 CISG, 352 of the German Commercial Code (Handelsgesetzbuch; HGB) and 288(1), 286(1) of the German Civil Code (Bürgerliches Gesetzbuch; BGB). Under these regulations, interest of 5% is due after payment had become due (4 July 2003 to 26 July 2004). From 27 July 2004, the date the remainder had been served, [Buyer] owes interest of five percentage points above the applicable base lending rate issued by the European Central Bank.

Art. 78 CISG only states the conditions under which interest has to be paid. Under this provision, a party is entitled to interest if the other party fails to pay the price or any other sum that is in arrears (see also Schlechtriem/Schwenzer, ibidem, Art. 78 notes 2, 7). As the parties did not regulate this point, it must be assumed that payment was due when the goods had been delivered to firm W. on 4 July 2003 (Art. 58(1) CISG). From that day interest was due.

The provisions of the Convention do not fix the applicable interest rate. According to the leading doctrine, the latter is to be determined by the applicable national law as provided by the conflict-of-laws rules of the forum (see Schlechtriem/Schwenzer, ibidem, Art. 78 note 27 et seq.). According to Art. 28 of the German Introductory Statute to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch; EGBGB) German national law, and particularly the German Commercial Code (Handelsgesetzbuch; HGB) and the German Civil Code (Bürgerliches Gesetzbuch; BGB) apply. As the parties did not agree on the question of applicable law, the law of the state, which has the closest relation to the case, governs the contract. This is the law of the Federal Republic of Germany: The ordered goods were to be delivered to Germany, to a recipient known to [Buyer]. [Buyer] itself is seated in Germany. [Seller] itself in its complaint note refers to provisions of the German Civil Code (Bürgerliches Gesetzbuch; BGB) to justify its claim for interest, and thus seems to presuppose the applicability of German law on that point. According to 352 of the German Commercial Code (Handelsgesetzbuch; HGB), [Buyer] owes interest of five percent from the date payment was due (4 July 2003 to 26 July 2004). Under 288(1) and 286(1) of the German Civil Code (Bürgerliches Gesetzbuch; BGB) an interest of five percentage points above the applicable base lending rate is due since 27 July 2004, the date, when [Seller]'s remainder had been served.

III. The decision on the costs relies upon 92(1), 97(1) of the German Code of Civil Procedure (Zivilprozessordnung; ZPO). The ruling is provisionally enforceable according to 708 No. 11, 711, 713 of the German Code of Civil Procedure (Zivilprozessordnung; ZPO).

The value of the appeal is 16.000,15.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this presentation, the Plaintiff-Appellee of Hungary is referred to as [Seller]; the German Defendant-Appellant is referred to as [Buyer].

** Veit Konrad has studied law at Humboldt University, Berlin since 1999. During 2001-2002 he spent a year at Queen Mary College, University of London, as an Erasmus student.

*** 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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