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CISG CASE PRESENTATION

Germany 16 September 1991 District Court Frankfurt (Shoe case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/910916g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19910916 (16 September 1991)

JURISDICTION: Germany

TRIBUNAL: LG Frankfurt [LG = Landgericht = District Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 3/11 O 3/91

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

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Shoes


Case abstracts

GERMANY: LG Frankfurt 16 September 1991

Case law on UNCITRAL texts (CLOUT) abstract no. 6

Reproduced with permission from UNCITRAL

A German retailer ordered in September 1989 from an Italian manufacturer through a commercial agent 120 pairs of shoes "Esclusiva su B". After delivery in March 1990 and having resold 20 pairs, the buyer learned that identical shoes supplied by the Italian manufacturer were offered for sale by a competing retailer at a considerably lower price. Since attempts to enjoin the competing retailer failed, the buyer returned the unsold 100 pairs and cancelled the "order of March 1990" promising payment for the 20 pairs upon receipt of the credit.

The court, applying CISG as the relevant Italian law, held that a valid contract had been concluded at the latest at the time of delivery and that this contract had not been avoided under article 49 CISG. The cancellation of the "order of March 1990" was not an express declaration of avoidance of the order of September 1990 since it referred to another order. Even if a declaration of avoidance could be made impliedly (a point on which authors disagree), the buyer did not reject the entire contract as evidenced by the promise to pay for 20 pairs. Even assuming such rejection, the buyer was not entitled to avoid the contract for lack of a fundamental breach of the exclusive contract according to article 25 CISG. The manufacturer had no knowledge about the branches of its business partners, and any knowledge of the commercial agent could be imputed to the manufacturer only if the agent had acted as a closing agent.

The court refused reimbursement of fees incurred by the manufacturer in engaging an Italian collection agency since such engagement constitutes an appropriate measure of pursuit of right only if the collection agency can take steps superior to those that the creditor could take. No interest beyond the statutory rate was awarded and a set-off claim by the buyer based on loss of profit was rejected, both for lack of substantiation.


Journal of Law & Commerce abstract

Reproduced with permission from 14 Journal of Law & Commerce (1995) 230-232

Declaration of avoidance, CISG, Article 49. The [buyer] did not validly declare the contract [for the sale of shoes] avoided. The buyer has a right to avoid the contract pursuant to CISG, Article 49(1)(a) if there is a fundamental breach. CISG, Article 49(1)(a), however, allows the buyer to modify its legal obligations only by declaring a cancellation [i.e., there is no automatic termination of the contract]. The breach of contract as such does not result in the termination of the contract, even if the breach is material. For this [i.e., termination], a declaration by the buyer is required. The [buyer] in any case did not explicitly declare the avoidance of the sales contract arising from the order dated September 20, 1989--"Ordine 799". This order was not mentioned in the [buyer's] notification. The [buyer] also did not declare the contract avoided by its conduct. It need not be decided here whether a declaration of avoidance [by conduct] is possible under CISG, Article 49(1). Even if one considers it permissible to declare by conduct that a contract is avoided, it must be made unambiguously manifest that the buyer does not intend to pursue the contract. The [buyer's] conduct did not meet this requirement. The [buyer] returned the remaining shoes to the [seller] and requested adequate crediting in its note dated May 31, 1990. At the same time, [the buyer] stated that it would then pay for the shoes it had already resold. The [buyer] intended that this part of the contract remain valid and be performed. . . .

Foreseeability of impairment as requirement for fundamental breach. [U]nder CISG, Article 49(1)(a), the buyer only has a right to avoid the contract if there is a fundamental breach. Pursuant to CISG, Article 25, however, there is no fundamental breach if the seller did not foresee this consequence * and any reasonable person of the same kind in the same circumstances would not have foreseen such a result. An Italian shoe manufacturer who conducts its business in Germany by using a sales agent does not have knowledge of [German] branches of its business partners. . . .

* The [seller] contracted with a third party to sell the same style of shoes as it had sold to the buyer/defendant. The third party had a branch close to the [buyer], and was a direct competitor. The third party then sold the shoes more cheaply that the [buyer], which caused the [buyer] to lose profits.

Expenses for collection proceedings as damages under CISG, Article 74. The losses that have to be compensated for under CISG, Article 74 embrace expenses for appropriate legal proceedings, especially the seller's costs for collection proceedings if the purchase price was due at the time of request for payment. The interposition of a collection agency, however, can only be looked at as an appropriate action in legal proceedings if the collection agency has access to legal proceedings that are superior to those of the creditor. Especially in transnational legal relations, [this requirement] normally is not met, [and] consequently the creditor is not entitled to reimbursement of expenses for collection proceedings.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 49 and 49(1)(a) ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

26A [Effective declaration of avoidance];

49A [Buyer's right to avoid contract: grounds for avoidance];

74A [Damages, general rules for measuring: lost suffered as a consequence of breach (cost of a collection agency)];

78B [Interest on delay in receiving price or any other sum in arrears: rate of interest]

Descriptors: Fundamental breach ; Avoidance ; Damages ; Collection costs ; 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

English: Uniform Law Review (1991-I) 377; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=3&step=Abstract>

French: Uniform Law Review (1991-I) 376-377

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER)/ Revue suisse de droit international et de droit européen 1993, 662-663

Italian: Diritto del Commercio Internazionale (1992) 635-636, No. 6

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 237

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/26.htm>; Recht der Internationalen Wirtschaft (RIW) 1991, 952-954; Uniform Law Review (1991-I) 376-381; Die deutsche Rechtsprechung auf dem Gebiete des internationalen Privatrechts im Jahre (IPRspr) 1991 No. 41 [78-79]; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=3&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Honnold, Uniform Law for International Sales (1999) 215 [Art. 26]; Behr, 17 Journal of Law and Commerce (1998) 266-288 [abstracts and comments on 29 interest rulings from 10 countries (this case presented at 272)]; Ferrari, International Legal Forum (4/1998) 138-255 [254 n.1081 (interest issues)]; Ferrari, 15 Journal of Law and Commerce (1995) 116-125 [comments on interest issues, citing this and other cases]; Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.64, n.73] and 42 other interest rulings; Karollus, Cornell Review of the CISG (1995) 51 [62-63, 65] [comments on issues under Articles 25, 26 and 74 in the context of German case law on the CISG]; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 248-249, 351-352 n.603 [fundamental breach (no-reliance on other party's future performance): violation of exclusive rights], 259 n.268 [fundamental breach: court did not need to decide relevant point in time at which foresseability is measured]; Eberstein/Bacher, ibid, [Art. 78] 596 n.31, 598 n.43; Schlechtriem, Singapore Conference on International Business Law, September 1992: L.R. Penna (ed.), Current Developments in International Transfers of Goods and Services, Singapore (Butterworths 1994) 132 n.80; Shen, Declaring the Contract Avoided, 10 New York International Law Review (1997) 7-57 [n.2]; for analysis of the remedy of avoidance citing this and other cases, go to Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.161; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [avoidance 247-264 (this case at 256)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-18 n.226; § 6-28 n.325; Liu Chengwei, Recovery of interest (November 2003) nn.83, 184, 275; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.651 ("A cancellation of the 'order of March 1990' was [held to be] insufficient notice of avoidance") and n.716 (grounds for avoidance); Article 78 and rate of interest: Mazzotta, Endless disagreement among commentators, much less among courts (2004) [citing this case and 275 other court and arbitral rulings]; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 26 para. 10 Art. 49 para. 24 Art. 74 paras. 16, 20 Art. 75 para. 5 Art. 78 para. 39 Art. 81 para. 8 Art. 82 para. 6; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.322

French: Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995), 97-99, 101-102, 105-106

German: Huber in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht (2d ed. 1995) 486 n.86; n.87 [Art. 49]; Jametti-Greiner, Schweizerische Zeitschrift für internationales und Schweizerisches Recht (SZIER) 5/1993, 653; Karollus, [österreichisches] Recht der Wirtschaft öRdW) 1992, 168-169; Kathman, in: Hartwieg, International Business Transactions (1997) [comparative analysis of this case with OLG Frankfurt 17 September 1991 and Filanto v. Chilewich (U.S.) 14 April 1992] 440 [468-477, 484-486, 488]; Staudinger-Magnus (1994) Art. 75 No. 61, Art. 78 No. 13

Italian: Bonell, Diritto del Commercio Internazionale (1992) 635-636

Spanish: Perales, Cuadernos Jurídicos 3 (1996) No. 43 5 [7 n.27] [commentary on Article 78: determination of rate of interest under the CISG (review of case law)]

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

District Court (Landgericht) Frankfurt am Main

16 September 1991 [3/11 O 3/91]

Translation [*] by Stefan Kuhm [**]

[…]

EXCERPT OF REASONING GIVEN BY THE COURT FOR ITS DECISION

[Summary of the Court's decision]

The claim is founded up to an amount of Italian Lire [ItŁ] 4,710,000 plus accrued interest as indicated in the tenor of this decision. In respect of the remaining part of the amount as claimed [by seller], the claim shall be dismissed.

The parties entered into a sales contract, which is inter alia governed by the UN Convention on the International Sale of Goods dated 11 April 1980 (CISG) - being the applicable law in this case. The [buyer] has not declared avoidance of this sales contract effectively. Furthermore, the [buyer] has not demonstrated that it is the holder of a counterclaim which it could use for setting off against the [seller]'s claim. Further, the [seller] is not in the position to claim any remainder costs. Furthermore, [seller] can claim interest only in an amount of 5% until 15 December 1990 and only beyond this date in an amount of 10%.

I. [Reasoning for the seller's claim]

The parties entered into a sales contract regarding the sale of 120 pairs of shoes for a purchase price of ItŁ 4,710,000. The [seller] accepted the [buyer]'s offer on 20 September 1989 at the latest, when it delivered the shoes.

The [seller] is the holder of a claim against the [buyer] in the amount of the ItŁ 4,710,000 purchase price for the shoes sold to the [buyer].

[Application of the CISG]

The CISG is applicable. According to Art. 1(1)(b) CISG, [the Convention] shall be applicable when

(i) the parties to a sales contract have their establishments in different States; and
(ii) the provisions of the relevant private international law lead to the application of the law of one of those States as the governing law of the sales contract.

In this case, the parties do have their establishments in different States. The [seller] has its seat in Italy and the [buyer] in Germany.

The principles of private international law lead to the application of Italian law as the governing law of the sales contract. Italy is a Contracting State to the CISG (see Martiny, in: MüKo [*], Volume VII, EGBGB [*] / International Private Law, 2nd edition, Munich 1990, Art. 28 Annex II No. 2 EGBGB).

The principles of private international law, which one has to consider for the stipulation of the relevant substantive law, entail all provisions in respect of conflict of laws. In particular, this considerable private international law comprises of the German provisions on conflicts of laws. According to Art. 28 Par. 1 S. 1 EGBGB [*], a contract shall be governed by the law that has the "closest connection" to this contract. Thereby, Art. 28 Par. 2 S. 1 EGBGB presumes that there shall be such a "closest connection" with that State in which the party carrying out the "characteristic performance" under the contract has its main seat or establishment. In the light of a sales contract, the sale and transfer of the title of the sold goods regularly appears as the "characteristic performance" under this kind of agreement. Therefore, the law of that State in which the seller has its establishment is applicable (see Martiny, in MüKo [*], op. cit., Art. 28 No. 30, 32, 112 EGBGB). The establishment of the seller of the shoes is in Italy.

It is irrelevant that the Federal Republic of Germany, being a Contracting State to the CISG only after 1 January 1991, was not a Contracting State to the CISG at the point of time when the parties entered into the sales contract in question, since the CISG is also applicable to sales contracts when just one party has its establishment in a Contracting State to the CISG (see LG [*] Stuttgart in RIW 1989, p. 984; LG Aachen in RIW [*] 1990, p. 491; Herber, in: Schlechtriem [*], Art. 1 No. 35 CISG; Martiny, in: MüKo [*], op. cit., Art. 28 Annex II No. 23 EGBGB [*]).

II. [Objection to the seller's claim via avoidance of the contract]

The [buyer] is not entitled to object to the amount claimed by the [seller] through its defense of a declaration of avoidance of the sales contract pursuant to Art. 49(1) CISG, since the [buyer] has not declared effectively the avoidance of the sales contract.

Though under Art. 49 CISG, a buyer does have the right to avoid a sales contract, if there is a fundamental breach of contract, Art. 49(1)(a) CISG merely grants a right to the relevant party to unilaterally influence the legal relationship between the contractual parties. A fundamental breach of a sales contract never leads automatically to the avoidance of such a contract by operation of law. To the contrary, it is always mandatory to declare the avoidance of the contract (see Huber, in: Schlechtriem [*], op. cit., Art. 49 No. 29 CISG; Herber/Czerwenka, International Law on Sales Contracts, Munich 1991, Art. 26 No. 2, Art. 49 No. 11 CISG). In this case, the [buyer] pleads the avoidance because [buyer] would have been obliged to declare it.

     1. [No express declaration of the avoidance of the sales contract]

At any rate, the [buyer] has not expressly declared the avoidance of the sales contract in question, which is based on [buyer]'s order of 20 September 1989. The Court does not concur with the [buyer]'s view, that it avoided the sales contract vis-á-vis the [seller] in its letter of 31 May 1990, wherein it used the wording: "… [the buyer] avoids the order of March 1990 …"

The order of March 1990 is not the same as the order of the sales contract in question. The [seller] claims its purchase price by virtue of a sales contract, based on the [buyer]'s order of 20 September 1989 - "Ordine 799" - . That particular order was not addressed in any respect in the [buyer]'s letter of 31 May 1990.

     2. [Implied declaration of the avoidance of the sales contract]

The [buyer] has also not impliedly declared the avoidance of the sales contract.

In this case, it may remain undecided whether or not one would be at all in the position to declare impliedly the avoidance of a sales contract (contra: Herber/Czerwenka, op. cit., Art. 49 No. 11 CISG ; Enderlein/Maskow/Sargardt, Art. 26 No. 2 et seq. CISG; pro: Leser, in: Schlechtriem [*], Art. 26 No. 10 CISG). Even if an implied declaration of avoidance were possible, the recipient of this declaration must be in the position to undoubtedly realize the [buyer]'s obvious will not to be bound any longer under the sales contract (see Leser, in: Schlechtriem, Art. 26 No. 10 CISG ; Herber/Cyerwenka, op. cit., Art. 49 No. 11 CISG. In the light of those prerequisites, the [buyer]'s behavior and activities are not satisfactorily convincing to the Court that it has avoided the sales contract.

The [buyer] sent the remaining shoes back to the [seller] and requested the equivalent credit in its letter of 31 May 1990. Contemporaneously, the [buyer] further mentioned that it is willing to pay for the shoes sold already. According to the [buyer]'s obvious will, that part of the sales contract should remain in full force and effect and should be performed properly.

Even if the [buyer] had declared the avoidance of the sales contract in spite of the aforementioned considerations of the Court, such a declaration would have been of no effect. Art. 49(1)(a) CISG provides for a right to avoid a sales contract by one party only if there has been a fundamental breach of the sales contract. According to Art. 25 CISG, the precondition for the presumption of such a fundamental breach of contract is that the [seller], i.e., the party in breach of the contract, did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result […]. In this case, an Italian supplier for shoes, carrying out its business in Germany via German commercial agents, does not have any knowledge about potentially existing branches of its business partners.

One could assume that there was a fundamental breach of contract only if the positive knowledge of the German commercial agent could be imputed to the [seller]. However, there would be such an imputation only if the commercial agent L. conducted business in the name and on behalf of the [seller] in a capacity as "Abschlussvertreter", i.e., a representative empowered with the authority to conclude a contract, pursuant to Section 84 Par. 1 S. 1 Alt. 2 HGB [*].

The German Commercial Code is generally applicable to the legal relationship between the [seller] and its German commercial agent, carrying out its business in Stuttgart, whereby this commercial agent should intermediate between the [seller] and prospective clients in Germany. However, the [buyer] has not set forth anything upon the aforementioned application of the HGB and the facts circumventing the activities of the commercial agent located in Stuttgart. Therefore, the Court was not in a position to assume any positive knowledge of this German commercial agent that could be imputed to the [seller].

III. [No effect on the seller's claims by virtue of the declared set-off]

The [seller]'s claim for payment of the purchase price is not partly reduced further due to the set-off declared by the [buyer]. The [buyer] did not satisfy sufficiently the necessary prerequisites for its asserted counterclaim.

Though Art. 74 sentence one CISG grants a purchaser a claim for damages, including any loss of profit, provided that the relevant seller breaches any of its obligations under a sales contract, such a breach of a contractual obligation has not been demonstrated sufficiently by the [buyer] in this case. […]

IV. [Claim for accrued interest on the amount as claimed in the seller's writ]

The [seller] is the holder of a claim for payment of 5% accrued interest since 16 May 1990 and 10% accrued interest since 16 December 1991.

     1. [Legally owed interest under the CISG and Italian law]

According to Art. 78 CISG, one party can claim payment of accrued interest if the other party does not meet its obligation to pay the due and payable purchase price. It is sufficient enough that such a mature claim has not been paid at the agreed payment day. Further, it is worth noting that there is no need for a default under German law (see Eberstein, in: Schlechtriem [*], Art. 78 No. 11 CISG).

The [seller] invoiced for the shoes on 16 March 1990, whereby it granted the [buyer] a term of payment of 60 days. Therefore, this claim was due and payable on 16 May 1990.

The level of the interest rate has not been set forth in Art. 78 CISG. Consequently, the relevant obligor is to pay the interest rate which is due and payable pursuant to the relevant national substantive law of the creditor (see LG [*] Stuttgart, op. cit., p. 985 providing further literature references; Asam/Kindler, Indemnification of any interest and/or money devaluation damages under the CISG, RIW [*] 1989, p. 842; Eberstein, in: Schlechtriem [*], Art. 78 No. 11 CISG).

The owed interest rate in Italy is 5% per annum up to 15 December 1990 and thereafter 10% per annum pursuant to Art. 1284 Par. 1 Cc [*] (see Kindler, Upon the increase in the legally owed interest rate in Italy, RIW [*] 1991, S. 304 et. seq.).

     2. [No further interest owed vis-á-vis the seller]

The [seller] does not have the right to claim any further interest under Art. 74 CISG. The [seller] has not provided evidence for its disputed assertion that it borrows money continuously at an interest rate of 15% per annum. It is hereby irrelevant that the [seller] demonstrated that the discount interest rate was 12.5%, respectively 13.5% in Italy. Furthermore, any agreement to a higher interest rate than what is legally owed would require a document complying with the written form (Art. 1284 Par. 3 Cc [*]). In this case, however, the [buyer] has not provided such a document.

V. [No claim for remainder costs]

Further, the [seller] does not have any right to claim the indemnification of any remainder costs incurred before the commencement of these legal proceedings. These costs are not the consequence of petitioning for a proper legal action. Though losses which must be indemnified under Art. 74 CISG generally comprise all costs petitioning for proper legal actions. Namely, any remainder costs of the creditor should be indemnified, if the purchase price was due and payable at the time of such a remainder.

However, the mandate for a debt collection agency would appear as such an aforementioned petition for a proper legal action only if the debt collection agency could provide for the conduct of any legal actions or preparations that are superior to any capacities of the creditor in this respect.

Since such a superior capacity of debt collection agencies usually does not exist within bilateral legal transactions. Therefore, a creditor generally cannot request indemnification for fees invoiced by debt collection agencies (see Stoll, in: Schlechtriem [*], Art. 74 No. 14 CISG providing further literature references). In this case, the [seller] instructed the Italian debt collection agency, though after the maturity of its claim. However, the Italian debt collection agency did not have superior capabilities to carry out any legal actions against the German defendant, i.e., the [buyer], as the [seller] would have had. This ensues even from the fact that this Italian debt collection agency merely sent out a written payment request to the [buyer]. After that, the [seller] has been assisted by a lawyer. However, the [seller] was in the position to seek such help and assistance by a German legal professional at an earlier stage without producing those additional costs of the Italian debt collection agency.

Furthermore, the involvement of the debt collection agency could not be successful from the beginning, since the [buyer] denied any further performance of its obligations under the sales contract in its letter of 31 May 1990.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Italy is referred to as [seller]; the Defendant of Germany as [buyer]. Amounts in Italian currency (Italian Lire) are indicated as [ItŁ].

Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; C.c. = Codice civile Italiano [Italian Civil Code]; EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuche [German Code on Private International Law]; HGB = Handelsgesetzbuch [German Commercial Code]; LG = Landgericht [District Court]; MüKo = Mnchener Kommentar [One of the most important Commentaries on the German Civil Code and the German Code on International Private Law]; NJW = Neue Juristische Wochenschrift [a well-known German Law Journal]; RIW = Recht der Internationalen Wirtschaft [Monthly Law Journal focusing on international commercial law]; Schlechtriem = Kommentar zum einheitlichen UN-Kaufrecht, München 1990 [German Commentary on the CISG, Munich 1990].

** Stefan Kuhm is a Member of the Bar Association, Frankfurt a.M., and a Ph.D. candidate at Eberhard-Karls-Universität Tübingen. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

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