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CISG CASE PRESENTATION

Germany 17 September 1991 Appellate Court Frankfurt (Shoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/910917g1.html]

Primary source(s) for case presentation: Case text


Case Table of Contents


Case identification

DATE OF DECISION: 19910917 (17 September 1991)

JURISDICTION: Germany

TRIBUNAL: OLG Frankfurt [OLG = Oberlandesgericht = Provincial Court of Appeal]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 5 U 164/90

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

CASE HISTORY: 1st instance LG Frankfurt 2 May 1990 [reversed]

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Shoes


Case abstracts

GERMANY: OLG Frankfurt 17 September 1991

Case law on UNCITRAL texts (CLOUT) abstract no. 2

Reproduced with permission from UNCITRAL

An Italian manufacturer had agreed to produce 130 pairs of shoes according to specifications given by a German buyer, to be used as a basis for further orders. At a trade fair, the manufacturer displayed some shoes produced according to these specifications and bearing a trademark of which the buyer was the licensee. When the manufacturer refused to remove those shoes, the buyer advised the manufacturer by telex one day after the fair that the buyer discontinued the relationship and would not pay the 130 sample shoes which were no longer of any value to the buyer.

The court applied CISG as the relevant Italian law pursuant to German private international law and considered the above agreement as a contract of sale according to article 3(1) CISG. It held that the buyer had timely and effectively declared the contract avoided; the manufacturer's breach of the ancillary duty of preserving exclusivity constituted a fundamental breach of the contract under article 25 CISG since it endangered the purpose of the contract to such a degree that, as was foreseeable to the manufacturer, the buyer had no more interest in the contract.


Journal of Law & Commerce abstract

Reproduced with permission from 14 Journal of Law & Commerce (1994) 232-233 *

Applicability of the CISG to Germano-Italian transactions entered into before the CISG took effect in the Federal Republic of Germany, CISG, Article 1(1)(b). As the UN Convention . . . did not take effect for the Federal Republic of Germany before January 1, 1991, it cannot become effective [for the transaction before the court] by the provisions of [CISG,] Article 1(1)(a) . . . directly as part of the German legal system as to the time period in which it [the Convention] is effective [see CISG, Article 100]. But applicability of the CISG results from the fact that the German private international law refers to the right [i.e., law] of a Contracting State [Italy] which would apply the CISG to the factual circumstances to be determined. . . . Pursuant to Article 28(1)1 EGBGB, in the absence of a [contractual] choice of law, the classification of the contract [i.e., law applicable to the contract] is determined by the law of the country with which it [the contract] has the closest relationships. Based on the above, the assumption is valid that this is the state in which the party, which is to execute the performance which characterizes the contract [i.e., gives it its defining character], has its customary domicile or its principal place of business at the time of the concluding of the contract. . . .That means that Italian law is applicable because the assignor [i.e., the original seller from whom the plaintiff took an assignment] had his principal place of business in Italy and also it was there that he was to perform. As Italy is a Contracting State of the CISG, and the Convention has been valid in Italy since January 1, 1988, [the Convention] becomes effective as to the legal relations of the contracting parties through [CISG, Article 1(1)(b)].

Requirements of declaration of avoidance, CISG, Article 49. The telegram of the [buyer] of March 3, 1989 constitutes the declaration of avoidance of the contract because the [buyer] unmistakably communicated to the [seller's] assignor that [the buyer], from now on, would produce the collection of shoes with another Italian manufacturer, and she was ending immediately the already-begun collaboration with the assignor. . . .An explicit reference to the avoidance of contract, pursuant to the CISG, was not required for the validity of the legal effects of the avoidance of the contract. It was sufficient that the [buyer] made clear that she would not pay the assignor's bill because of [the assignor's] breach of contract, because meanwhile the delivered model shoes became useless to her.

Time limit for avoidance, CISG, Article 49. The declaration of avoidance of the contract was timely (CISG, Article 49(2)(b)). The [buyer] mailed the telegram, which consisted of the declaration of avoidance of the contract, one day after the end of the trade fair on which she got knowledge of the assignor's breach of the contract. Thus, the declaration was "within a reasonable time period." Even if one might be inclined to be of the opinion that the "reasonable time period" in the instant situation is close to what German law means by "prompt" [unverzüglich], the [buyer] would have met the requirements of the law by sending the telegram the next day. . . .

[Fundamental breach, definition of]. The [seller's] exhibition of the shoes at the fair represents a fundamental breach of contract under Article 25, CISG. Also, the breach of an obligation which is not a primary obligation of the contract, but, rather a secondary obligation can be, without anything further, fundamental. A breach of contract is fundamental when the purpose of the contract is endangered so seriously that, for the concerned party to the contract, interest in the fulfillment of the contract ceases to exist as a consequence of the breach of the contract.

* These passages were excerpted from a case translation prepared by Prof. Vivian Curran, University of Pittsburgh School of Law, assisted by Daniela Lichti, in 12 J.L. & Com. 261, 263-270.

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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 3(1) ; 4 ; 25 ; 26 ; 49(1)(a) and 49(2)(b) ; 81(1) ; 82 [Also cited: Articles 46 ; 95 ; 100 ] [Also relevant: Articles 30 ; 48 ]

Classification of issues using UNCITRAL classification code numbers:

3A [Goods to be manufactured: covered by the CISG];

4B3 [Issues covered and excluded (issues excluded): exclusivity issues];

25B [Definition of a fundamental breach (substantial deprivation of expectation, etc.): breach of exclusivity clause held to constitute fundamental breach];

26A [Effective declaration of avoidance (notice to the other party required): implied notice deemed adequate];

49A1 ; 49B [Buyer's right to avoid contract (grounds for avoidance): fundamental breach; Buyer's loss or right to declare avoidance after delivery: avoidance must be within a reasonable time after delivery]

81A [Effect of avoidance on obligations];

82A [Restitution of goods sold as a prerequisite to buyer's right to avoid the contract];

Descriptors: Scope of Convention ; Fundamental breach ; Avoidance ; Restitution

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Editorial remarks

EDITOR: Albert H. Kritzer

The transaction involved the manufacture and sale of shoes by seller, (an Italian firm) to buyer (a German firm). The shoes were to be manufactured according to specifications provided by buyer and marked with an "M" designation. The contract stated that buyer was to have exclusive rights to market shoes with this designation. Seller delivered to buyer "130 pairs of model shoes, which was only a preliminary step of the planned exchange of goods". Seller also exhibited shoes with the designation "M" at a trade fair. Seller refused to honor buyer's demand that such shoes be removed from this exhibit.

KEY ISSUES

Scope of the Convention: contract for labor and materials. The court stated: "The contract for labor and materials in question comes within the scope of the Convention because, pursuant to Article 3(1) CISG, sales contracts are to be considered equal to contracts for the supply of goods to be manufactured or produced. The exception of the situation in which the orderor is to provide an essential part of the raw materials necessary for the manufacturing or producing himself, does not apply here."

Scope of the Convention: exclusivity issues. The seller raised as a defense certain provisions of German antitrust law. The court ruled on that defense pursuant to that law, not the CISG.

Fundamental breach/Avoidance, buyer's right to avoid the contract. The court stated:

Avoidance, specificity of declaration of. The court stated: "The telegram of the [buyer] of March 3, 1989 constitutes the declaration of the avoidance of the contract because the [buyer] unmistakably communicated to the [seller] that she, from now on, would produce the collection of shoes with another Italian manufacturer, and she was ending immediately the already-begun collaboration with the [seller]. As to that the [seller] could have no doubts -- even, in the absence of a separate, explicit statement thereof -- that the [buyer] rejected the performance [by the seller] of sending the [buyer] 130 pairs of model shoes, which was only a preliminary step of the planned exchange of goods and, with its avoidance, the purpose of the delivery of the model shoes was not achieved. An explicit reference to the avoidance of the contract, pursuant to the CISG, was not required for the validity of the legal effects of the avoidance of the contract . . . It was sufficient that the [buyer] made clear that she wouldn't pay the [seller's] bill because of her breach of contract, because meanwhile the delivered model shoes became useless to her . . . ."

Avoidance, timeliness of notice. The court stated: "The declaration of the avoidance of the contract was timely (Article 49(2)(b) CISG). The [buyer] mailed the telegram, which consisted of the declaration of the avoidance of the contract, one day after the end of the trade fair on which she got knowledge of the [seller's] breach of the contract. Thus the declaration was "within a reasonable time period." Even if one might be inclined to be of the opinion that the "reasonable time period" in the instant situation is close to what German law means by "prompt" ["unverzüglisch"] (Section 121 of the BGB . . .), the [buyer] would have met the requirements of the law by sending the telegram the next day."

Avoidance, obligation to make restitution. The court stated: "The avoidance of the contract is not precluded by Article 82 of the CISG, pursuant to which the buyer can lose the right to declare the contract avoided if it is impossible for him to make restitution of the good substantially in the condition in which he received them. Nothing has been claimed to the effect that such impossibility could be the case here. Moreover, this provision encompasses only the case of the perishment or deterioration of goods before the declaration of the avoidance of the contract . . . . However, there are no indications that the goods delivered on March 2, 1989 could have been in a condition of deterioration before the declaration of the avoidance of the contract on March 7, 1989, more particularly since the 4th and 5th of March were weekend days."

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Uniform Law Review (1991-I) 382-383; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=8&step=Abstract>

French: Uniform Law Review (1991-I) 382-383

German: Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1992, 352; Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER)/ Revue suisse de droit international et de droit européen 1993, 662

Italian: Diritto del Commercio Internazionale (1992) 633-634 No. 2

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 234-235

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/28.htm>; Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1992, 352; Entscheidungen zum Wirtschaftsrecht (EWiR) 1991, 1081; Neue Juristische Wochenschrift (NJW) 1992, 633-635; Recht der Internationalen Wirtschaft (RIW) 1991, 950-952; Der Betrieb 1991, 2281; Uniform Law Review (1991-I) 382-387; Die deutsche Rechtsprechung auf dem Gebiete des internationalen Privatrechts im Jahre (IPRspr) 1991 No. 42 [79-81]; Schack Höchstrichterliche Rechtsprechung IPR (1993) 62-64 No. 16; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=8&step=FullText>

Translation (English): 12 Journal of Law & Commerce (1993) 261-270 [text presented below]

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-255 [188 n.429, 190 n.454 (analysis of Art. 3(1))]; Mullis, Avoidance for Breach under the Vienna Convention: Critical Analysis of Some of the Early Cases (1998) n.79; Honnold, Uniform Law for International Sales (1999) 58 [Art. 3], 212 [Art. 25 (standards for avoidance)], 328 [Art. 49]; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 247-248 n.239, 351-352 n.601 [fundamental breach (no-reliance on other party's future performance): violation of exclusive rights]; Babiak, 6 Temple International and Comparative Law Journal (1992) 124; Behr, 12 Journal of Law and Commerce (1993) 271-275 [case commentary] = 6 International Quarterly (1994) 26-31; DiMatteo, 22 Yale Journal of International Law (1997) [161-162]; Karollus, Cornell Review of the CISG (1995) 51 [62-65] [commentary on issues under Article 3, 25 and 26 in the context of German case law on the CISG]; Lookofsky, Understanding the CISG in the USA [CISG/USA] (1995) 71 n.44; Lookofsky, CISG/Scandinavia (1996) 86; Bernstein/Lookofsky, CISG/Europe (1997) 14 n.29; Winship in: Contemporary International Law Issues: Opportunities at a Time of Momentous Change (1994) 122 [126]; 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.n.122, 162, 187; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 2-5 n.42; § 6-8 n.61 ; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.649, 651 and 658 (buyer's obligation to give notice of avoidance), 715; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 3 para. 3 Art. 4 para. 8 Art. 7 para. 32 Art. 8 para. 39 Art. 25 paras. 7, 9, 14, 24 Art. 49 paras. 12, 24 Art. 82 para. 13; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.321

French: Vida, Revue trimestrielle de droit commercial et de droit économique (RTDCom) 1994, 21 [34]; Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995), 35, 97, 99 n.85, 101 n.91

German: Jametti-Greiner, Schweizerische Zeitschrift für internationales und Schweizerisches Recht (SZIER) 5/1993, 653; Karollus, [österreichisches] Recht der Wirtschaft (öRdW) 1992, 169; Kathman, in: Hartwieg, International Business Transactions (1997) [comparative analysis of this case with OLG Frankfurt 16 September 1991 and Filanto v. Chilewich (U.S.) 14 April 1992] 440 [457-467, 484-486, 487]; Magnus, Zeitschrift für Europäisches Privatrecht (ZEuP) 1993, 79; Schack Höchstrichterliche Rechtsprechung IPR (1993) 62 [65]; Schlechtriem, Entscheidungen zum Wirtschaftsrecht (EWiR) Art. 25 CISG 1/91, 1081-1082; Schlechtriem, Internationales UN-Kaufrecht (1996) 70 n.21, 111

Hungarian: Vida, Jogtudományi Közlöny (Budapest) 1993, 169 [174-175]

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Case text (English translation)

Translation reproduced with permission from 12 Journal of Law and Commerce 261-270 (1993)

Oberlandesgericht [1] Frankfurt am Main 17 September 1991

Journal of Law & Commerce Headnote

Summary of Facts

A seller, whose principal place of business was in Italy, contracted to manufacture shoes for a German buyer. The shoes were to be manufactured according to the buyer's instructions and marked with an "M" designation. The buyer also held a separate permit for exclusive rights to market the shoes with the designation "M." At a trade fair held in Italy from March 3 to March 6, 1989, the seller exhibited shoes marked with an "M." The buyer demanded that the shoes be removed from the exhibit, but the seller refused. The buyer then sent a telegram the day after the trade fair ended, declaring an end to the contract due to the seller's breach, and its intent to produce the shoes through another Italian manufacturer. The assignee of the seller's right sued the buyer for non-payment.

Holding

The Oberlandesgericht held that the contract was properly avoided by the buyer, and that seller's exhibition of the shoes constituted a fundamental breach.

Reasoning of the Court

1. CISG Articles 1(1)(b) and 95 -- While both Italy and Germany were originally Contracting States of the 1964 Hague Convention on the Law of the International Sale of Goods, Italy declared it void as of December 31, 1987. Thus, this Convention no longer applied to Germano-Italian contracts entered into after January 1, 1988.

CISG, however, applied to the instant case even though Germany was not a Contracting State of CISG at the time of contract formation. Under German private international law, the applicable law for a contract for labor and materials is the law of the state in which the manufacturer has its usual domicile or principal place of business, because it is performance that gives the contract its "defining character." Here, the seller performed the contract and had its principal place of business in Italy; thus Italian law applies.

Since CISG entered into force for Italy on January 1, 1988 and Italy did not file an Article 95 reservation to exclude the application of Article l(l)(b), the German rules of private international law required the application of CISG to resolve this dispute.

2. CISG Article 3(1) -- Sales contracts are considered equal to contracts for the supply of goods to be manufactured or produced, unless the party who orders the goods supplies a substantial part of the materials necessary for such manufacture or production. Thus, this contract for labor and materials comes within the scope of CISG.

3. CISG Article 25 -- The seller's exhibition of the goods at the trade fair breached a secondary obligation under the contract, namely buyer's exclusive right to market and sell the shoes with the "M" designation. Though a breach of an implied secondary obligation, this nonetheless, constituted a fundamental breach of contract because the exhibition communicated to the public that these shoes could be purchased from the seller.

This unwritten "exclusivity stipulation" was valid under the GWB (German antitrust, or restraint of trade law) because the seller failed to allege and produce tangible evidence of the restriction of competition on the market. Moreover, if this exclusivity element were void under the GWB because it was not in written form, the entire contract would be voided, not just the exclusivity obligation.

4. CISG Article 49(1)(a) -- The buyer properly declared the contract avoided in the telegram sent to the seller, because seller's failure to fulfill a contractual obligation amounted to a fundamental breach of contract. It was not necessary for [buyer] to explicitly declare avoidance pursuant to CISG in the telegram.

5. CISG Article 81(1) -- The valid avoidance of the contract resulted in the release of both parties from their contractual obligations, except for any damages which may be due under Article 81. Thus, the obligation of the defendant to pay the sales price for the delivered shoes ceased.

6. CISG Article 49(2) -- In cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so within a reasonable time. The declaration of avoidance of this contract was "within a reasonable time period" because the telegram was mailed the day after the trade fair ended.

7. CISG Article 82 -- While a buyer may lose the right to declare the contract avoided if it is impossible for him to make restitution of the goods substantially in the condition in which he received them, Article 82 did not apply here, since there was no evidence that the shoes deteriorated in the five days between delivery and declaration of avoidance.

TRANSLATED TEXT [2]

Syllabus

1. On the applicability of the Convention of the United Nations for the International Sale of Goods -- CISG -- in Germano-Italian legal transactions on contracts which were entered into before this Convention took effect in the Federal Republic of Germany.

2. Pursuant to Article 28, Section 2 EGBGB,[3] the applicable law for a contract for supply of goods to be manufactured or produced is the law of the country in which the entrepreneur has his customary domicile or his principal place of business.

3. The avoidance of the contract due to a fundamental breach (Article 49(1)(a); Article 25 CISG) can be declared, if the purpose of the contract is so seriously endangered through said breach that, consequently, the interest in completing the contract dissipates for the injured party, and the party who breached knew or should have known this. Such a fundamental breach of contract can also be caused by the breach of secondary contract obligations.

For the following reasons:

Contrary to the opinion of the Lower Court, the [seller] has no claims against the [buyer] based on a right assigned by Company X -- i.e., a claim for the payment of shoes delivered on March 2, 1989. This claim initially arose pursuant to Article 53, Section I of the CISG (of April 11, 1980, BGB1 II,[4] p. 58) for the amount in dispute of 4,268,970 [Italian] Lira. However, subsequently, it became void through the effective declaration of the avoidance of the contract. . . . (Article 49(1)(a); Article 46(1)(a); Article 25; Article 26; Article 81 (1), Sentence 1 CISG). The Lower Court [the "Landgericht"],[5] correctly based the adjudication of the legal relationships on the above-referenced CISG. The Uniform Sales Act [6] which was declared void for the Federal Republic of Germany as of December 31, 1990 (Article 5(1), Article 7(1), Contract Law of the CISG of July 5, 1989, Bundesgesetzblatt II, p.586 [7]) is not even applicable [to the instant facts], through the temporary regulations of Article 5 § 2 of the Contract law. Indeed, both Italy and the Federal Republic of Germany belong to the contracting states of the Hague Convention on the Sales of Goods of July 1, 1964; however, it was declared void by Italy already by the end of December 31, 1987. Therefore, the EKG [8] [ULIS] is no longer applicable to German-Italian contracts concluded after January 1, 1988 because its Article 1, Section 1 required that the place of business be located in differing Contracting States (OLG of Hamburg/IPRax [9] 1989, 247; OLG of Koblenz RIW [10] 1989; Asam [11] RIW 1989 942, 943). Italy, however, was no longer a "Contracting State" at that time.

As the U.N. Convention [i.e., CISG] did not take effect for the Federal Republic of Germany before January 1, 1991, it cannot become effective by the provisions of Article l(l)(a), CISG, directly as part of the German legal system (as to the time period in which it is effective, cf. Article 100, CISG). But applicability of the CISG results from the fact that the German private international law refers to the right of a Contracting State which would apply the CISG to the factual circumstances to be determined (cf. judgment of June 13, 1991 -- 3U 261/90 [12] -- RIW 1991, 501 = DB [13] 1991, 1512: Asam RIW 1989, 942, 943).

Pursuant to Article 28, Section 1, Sentence 1, EGBGB, in the absence of a choice of law, the classification of the contract is determined by the law of the country with which it [the contract] has the closest relationships. Based on the above, the assumption is valid that this is the state in which the party, which is to execute the performance which characterizes the contract [i.e., gives it its defining character], has its customary domicile or its principal place of business at the time of the concluding of the contract. In this case, a contract for labor and materials is in question, rather than a sales contract, in that the assignor assumed the obligation to manufacture the shoes, according to the [buyer's] instructions, from the raw materials which were to be procured by the assignor. With a contract for labor and materials, usually the law applied is of the country in which the entrepreneur has his usual domicile or principal place of business, because it is his performance which gives the contract its character (Reithmann/Martiny,[14] 4th ed. 1988, marginal note No. 408; similarly for the sales contract as well as for the manufacturing contract: cf. Palandt/Heldrich,[15] 50th ed., Article 28 EGBGB, marginal notes 8, 14). That means that Italian law is applicable because the assignor had his principal place of business in Italy and also it was from there that he was to perform.

As Italy is a Contracting State of the CISG, and the Convention has been valid in Italy since January 1, 1988 (law No. 765 1985 of December 1985, supplement to Ordinaria alla Gazetta Ufficiale No. 303 of December 27, 1985, cf. Herber/Czerwenka,[16] International Law of Sales, 1991, before Article 1, marginal note No. 16; Schwenzer,[17] NJW 1990, 602, Footnote 5), [the Convention] becomes effective as to the legal relations of the contracting parties through Article l(l)(b) CISG. According to this, the Convention is applicable to contracts for the sale of goods between parties which have their principal places of business in different states, if the provisions of the private international law result in the application of the law of one contracting state. A possible reservation according to Article 95 CISG which would exclude the application of Article l(l)(b) CISG (Herber/Czerwenka [18] Article 96, marginal note No. 3), was not declared by Italy [i.e., that reservation therefore will not apply] (von Caemmerer/Schlechtriem [19] 1990, Article 2, Contract Code G, marginal note No. 2, footnote 6; Herber/ Czerwenka [20] before Article 1, marginal note No. 16; as to the applicability of the CISG in Germano-ltalian legal transactions before the enactment in the Federal Republic of Germany, further: LG Stuttgart RIW 1989, 841; Asam [21] RIW 1989, 942, 943). The contract for labor and materials in question comes within the scope of the Convention because, pursuant to Article 3(1) CISG, sales contracts are to be considered equal to contracts for the supply of goods to be manufactured or produced. The exception of the situation in which the orderor is to provide an essential part of the raw materials necessary for the manufacturing or producing himself, does not apply here [i.e., such an exception is not the case here].

The [buyer] correctly [i.e., as she was legally entitled to] through a declaration which modified the respective rights of the parties in a telegram of March 7, 1989 to the assignor, declared the avoidance of the contract, because she [the assignor] failed to fulfill a contractual obligation, and this represents a fundamental breach of the contract (Article 49(1)(a); Article 25 CISG). The valid avoidance of the contract results in the release of both parties from their contractual obligations (with the exception of any damages which may be due (Article 81(1), Sentence 1 CISG). Thus, the obligation of the [buyer] to pay the sales price for the delivered shoes ceased (cf. Herber/ Czerwenka,[22] Article 81, marginal note No. 2).

The telegram of the [buyer] of March 3, 1989 constitutes the declaration of the avoidance of the contract because the [buyer] unmistakably communicated to the assignor that she, from now on, would produce the collection of shoes with another Italian manufacturer, and she was ending immediately the already-begun collaboration with the assignor. As to that the assignor could have no doubts -- even, in the absence of a separate, explicit statement thereof -- that the [buyer] rejected the performance [by the seller] of sending the [buyer] 130 pairs of model shoes, which was only a preliminary step of the planned exchange of goods and, with its avoidance, the purpose of the delivery of the model shoes was not achieved. An explicit reference to the avoidance of the contract, pursuant to the CISG, was not required for the validity of the legal effects of the avoidance of the contract (cf. Herber/Czerwenka,[23] Article 49, marginal note No. 11). It was sufficient that the [buyer] made clear that she wouldn't pay the assignor's bill because of her breach of contract, because meanwhile the delivered model shoes became useless to her.[24]

The declaration of the avoidance of the contract was timely (Article 49(2)(b) CISG). The [buyer] mailed the telegram, which consisted of the declaration of the avoidance of the contract, one day after the end of the trade fair on which she got knowledge of the assignor's breach of the contract. Thus the declaration was "within a reasonable time period." Even if one might be inclined to be of the opinion that the "reasonable time period" in the instant situation is close to what German law means by "prompt" ["unverzüglich"] (Section 121 of the BGB [25]), the [buyer] would have met the requirements of the law by sending the telegram the next day. The avoidance of the contract is not precluded by Article 82 of the CISG, pursuant to which the buyer can lose the right to declare the contract avoided if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. Nothing has been claimed to the effect that such an impossibility could be the case here. Moreover, this provision encompasses only the case of the perishment or deterioration of goods before the declaration of the avoidance of the contract. (Schlechtriem/Leser [26] Article 82, marginal note No. 13; Herber/Czerwenka [27] Article 82, marginal note No. 3). However, there are no indications that the goods delivered on March 2, 1989 could have been in a condition of deterioration before the declaration of the avoidance of the contract on March 7, 1989, more particularly since the 4th and 5th of March were weekend days.

The assignor is responsible for a fundamental breach of contract which gave [the buyer] the right to its immediate avoidance. The assignor was not allowed to exhibit the shoes, which were marked with a designation of "M," in the fair in Bologna which took place from the 3rd to the 6th of March, 1989, and she was not allowed to leave them there despite the demands of the [buyer] to remove the model shoes.

The parties argued as to whether it had been agreed between the assignor and the [buyer] that those shoes which had been manufactured in accordance with the [buyer's] instructions, but which were not marked with the "M" designation, could not be marketed (and exhibited) elsewhere. Such an agreement, the existence of which the lower court was unable to determine, would not be relevant; however, because the assignor in any case undertook the obligation towards the [buyer] to refrain from marketing shoes with the "M" designation, and a breach thereof is already so weighty, the [buyer] was allowed to avoid the contract.

It is irrelevant if the assignor explicitly agreed to such a condition because it is sufficient that it [i.e., the agreement to not market "M" shoes] was conclusively established [i.e., sufficient for the [buyer] to withdraw from the contract if that condition was breached]. That is the case [i.e., what happened here]. After all of the evidence preferred in the [court of] first instance, it is established that the representative of the [buyer] in the course of negotiating the contract mentioned that the shoes with the "M" designation could be sold only to her as the permit holder of the right to dispense the designation of "M" and that the designation could only be used with her permission . . . When the assignor subsequently engaged in manufacturing the shoes for the [buyer], she conclusively agreed to a corresponding contractual obligation towards the [buyer]. This did not only encompass a sale of shoes with the "M" designation to third parties [28] but generally also encompassed an exhibit of such shoes at a trade fair.[29]

The exhibition of the shoes at the fair represents a fundamental breach of contract pursuant to Article 25 CISG. Also the breach of an obligation which is not a primary obligation of the contract, but, rather, a secondary obligation can be, without anything further, fundamental. (von Caemmerer/Schlechtriem,[30] Article 25, marginal No. 24. Herber/Czerwenka [31] Article 25, marginal No. 5). A breach of contract is fundamental (similar to Article 10, EKG) when the purpose of the contract is endangered so seriously that, for the concerned party to the contract, the interest in the fulfillment of the contract ceases to exist as a consequence of the breach of the contract (and this was capable of being known by the party in breach of the contract) (cf. Walter, Kaufrecht [32] Paragraph 14 II lg, bb, p. 645). These conditions are present because the assignor communicated, through the exhibit at a trade fair of the shoes, with the brand designation [i.e., the "M" designation], that such shoes also could be ordered from her. The [seller] did not testify that she had marked these exhibit pieces in a clearly recognizable way as being part of a fair which does not include actual trading [33] and as samples not for sale; therefore, the court need not resolve how such a restriction would have influenced the outcome. The confidence of the [buyer] in the assignor's adherence to the terms of the contract was in any case severely disturbed by the exhibition of the shoes with the "M" designation without any qualification [as described above with respect to lack of capacity for sale]. More specifically, the refusal of the assignor to remove the exhibit pieces created such serious doubt as to her readiness to adhere to the agreement to refrain from delivering such shoes to third parties without permission, that the [buyer] could not be expected to further adhere to the contract. Differences of opinion about the rights of the assignor with respect to the shoes without the "M" designation do not justify her exhibiting shoes with the "M" designation. All of this could easily have been foreseen by the assignor.

Incorrectly, the [seller] maintains that the "exclusivity stipulation" is invalid due to its not being in written form, pursuant to Section 34, GWB [34] and therefore incapable of resulting in a breach of contract. Whether Section 34 of the GWB applies to the underlying facts of this case is to be decided according to the conflicts of law provision of Section 98, Paragraph 2, GWB, which requires a tangible result of the restriction of competition on the market within the country (cf. BGH [35] GRUR [36] 1979, 790, 791 -- "Organische Pigmente").[37] The unwritten element [of this provision] of a "tangible" reference to the area within the [given] country serves to exclude all occurrences which are irrelevant to the market within the country or which minimally affect the area within the country. The [seller] not saying anything to the contrary, it is to be assumed that such a situation exists here.

Therefore, the result is not affected by the question of antitrust [restraint of trade] law if Section 34 of the GWB is applicable. Because even if the exclusivity obligation were void as a result of the lack of a written provision, the [seller] would have no claim with respect to the sales price because the voidness would extend to the entire contract, (Immenga/Mestmäcker,[38] Section 34, GWB, marginal note No. 107: V. Gamm, Kartellrecht,[39] Section 34, marginal note No. 9), but it [the exclusivity obligation] does not let fall away only the isolated part which includes the obligation, as the [seller] obviously thinks.


FOOTNOTES

1. The German term for the Court of Appeals is Oberlandesgericht (hereinafter referred to as "OLG"). The OLG has exclusive jurisdiction over civil appeals from, inter alia, judgments of the Landgericht. For a more complete account of German appellate procedure, see Timothy Kearly & Wolfram Fischer, Charles Szladits' Guide to Foreign Legal Materials: German 16-29 (2[d] ed. 1990) [hereinafter Szladits].

2. This Journal of Law & Commerce case translation was prepared by Vivian Curran, Legal Writing Instructor, University of Pittsburgh School of Law (B.A. University of Pennsylvania; Ph.D., J.D., Columbia University), with the assistance of Daniela Lichti, M.B.A. candidate 1993, Katz Graduate School of Business, University of Pittsburgh (Rechtsreferendarin, Graduate of the University of Augsburg, Germany, Law School, 1992). Any reader who intends to rely on this case must consult the original text, a copy of which can be obtained from the Journal of Law & Commerce. [For Internet access to this text, see: "http://www.jura.uni-freiburg.de/ipr1/cisg"]

3. "EGBGB" is an abbreviation for Einführungsgesetz zum Bürgerlichen Gesetzbuch, or Introductory Law to the Civil Code. The EGBGB is the most important supplementary law to the Civil Code. The Civil Code, however, does not contain all of the law even on those matters which it regulates. See Szladits, supra note 1, 65-66.

4. "BGBl II" is an abbreviation for the second part of the Bundesgesetzblatt, or Federal Gazette. It includes international treaties, international agreements and customs regulation. For a fuller discussion of the BGBl, see Szladits, supra note 1, at 9, 11.

5. The Landgericht is the general court of first instance. See Szladits, supra note 1, at 17-18.

6. Here the court is referring to the Einheitliches Gesetz über den internationalen Kaufbeweglicher Sachen vom 17. Juli 1973 (BGBl I, p.856) or Uniform Law on International Sale of Goods of July 17, 1973. This was the German law which implemented the 1964 Hague Convention on the Law of the International Sale of Goods into German national law. The EKG came out of force on December 31, 1990 when CISG went into force and, pursuant to Article 99 CISG, Germany denounced the 1964 Hague Convention.

7. Statutes and regulations are published in the Bundesgetzblatt ("BGBl"). The publication in the BGBl of statutes and of regulations or, alternatively, with respect to regulations, of the place of publication and the effective date, is required in order for them to become binding. For a more complete discussion of the BGBl, see Szladits,supra note 1, at 9.

8. "EKG" is the abbreviation for Einheitliches Gesetzüber den internationalen Kaufbeweglicher Sachen vom 17. Juli 1973 (BGBl I, p.856). [i.e., the 1964 Hague Sales Convention (ULIS)]

9. "IPRax," an abbreviation for Praxis des Internationalen Privat-und Verfahrensrechts or The Practice of International Private and Procedural law, is a bi-monthly publication of excerpts and full decisions in the area of conflicts of law. See Szladits, supra note 1, at 138.

10. "RIW" is an abbreviation for Recht der Internationalen Wirtschaft or Law of International Commerce, a monthly journal on international trade law and practice.

11. Herbert Asam, UN-Kaufrechtsübereinkommen im deutsch-italienischen Rechtesverkehr, RIW, 942-43 (1989).

12. "3U" refers to the file number.

13. "DB" is an abbreviation for Der Betrieb, or The Enterprise, a bi-weekly legal periodical on taxation law, commercial law, and labor law.

14. Christoph Reithmann & Dieter Martiny, Internationales Vertragsrecht [Choice of Law in Contracts] n.408 (4th ed. 1988).

15. Otto Palandt & Andreas Heldrich, Bürgerliches Gesetzbuch [Commentary on the German Civil Code], Article 28, n.8, 14 (50th ed. 1991).

16. Rolf Herber & Beate Czerwenka, Internationales Kaufrecht [International Sales Law], n.16 (1991).

17. Ingeborg Schwenzer, Das UN-Abkommen zum internationalen Warenkauf, NJW 602 (1990) ("NJW" is the abbreviation for Neue Juristische Wochenschrift, or New Weekly Law Journal, a weekly law journal covering all fields of the law).

18. Herber & Czerwenka, supra note 16.

19. Ernst von Caemmerer & Peter Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht-CISG [Commentary on the Uniform UN Law of Sales-CISG], Article 2, n.2, fn. 6 (1990).

20. Herber & Czerwenka, supra note 16.

21. Asam, supra note 11.

22. Herber & Czerwenka, supra note 16.

23. Id.

24. Because the Defendant [buyer] in this case is a firm, it is referred to in the feminine form (die Beklagte as opposed to der Beklagte which refers to a male [buyer]).

25. "BGB" is an abbreviation for Bürgerliches Gesetzbuch, the German Civil Code. For further discussion of the BGB, see Szladits, supra note 1, at 61-72.

26. Schlechtriem and Leser are German professors and CISG commentators.

27. Herber & Czerwenka, supra note 16.

28. This sentence may be confusing because the obligation referred to here is the obligation described earlier; namely, to refrain from selling shoes which bear the "M" designation.

29. Once again, this may be confusing because the obligation encompassing "an exhibit," when read in light of what precedes, means an obligation to refrain both from selling and exhibiting shoes which bear the "M" designation.

30. Caemmerer & Schlechtriem, supra note 19.

31. Herber & Czerwenka, supra note 16.

32. Gerhard Walter, Kaufrecht [Law of Sales] (1987).

33. The word used by the court is a Leistungsschau, as opposed to a Verkaufsmesse, or a trade fair. The latter, but not the former, would include actual trading.

34. "GWB" is an abbreviation of Gesetz gegen Wettbewerbsbeschränkungen or law against restraint of trade (BGB1 I p. 236).

35. "BGH" is an abbreviation for Bundesgerichtshof, Germany's Supreme Court.

36. "GRUR" is an abbreviation for Gewerblicher Rechtsschutz und Urheberrecht, a monthly journal containing "fairly full reports of the important decisions on patents, trademarks, copyrights and unlawful competition." Szladits, supra note 1, at 138-39.

37. "Organic Pigmente" is a reference to a German case: Bundesgerichtshof, May 29, 1979, GRUR, 790 (1979).

38. Ulrich Immenga and Ernst Joachim Mestmäcker, GWB, Gesetz gegen Wettbewerbsesbchränkungen (2n ed. 1992).

39. Otto-Friedrich v. Gamm, Kartellrecht [Antitrust Law].

All translations should be verified by cross-checking against the original text.

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