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CISG CASE PRESENTATION

Germany 22 September 1992 Appellate Court Hamm (Frozen bacon case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/920922g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19920922 (22 September 1992)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 19 U 97/91

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

CASE HISTORY: 1st instance LG Bielefeld 18 January 1991 [reversed in part]

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Frozen bacon


Case abstract

GERMANY: OLG Hamm 16 January 1992

Case law on UNCITRAL texts (CLOUT) abstract no. 227

Reproduced with permission from UNCITRAL

A German buyer, defendant, offered to purchase ten lots of wrapped bacon from an Italian seller, plaintiff. The seller's reply to the buyer's offer referred instead to unwrapped bacon. However, in its reply to the seller, the buyer did not object to the change in terms. After four lots had been delivered, the buyer refused to accept further deliveries. Therefore, the seller declared the contract avoided and sold the remaining six lots at a price much lower than both the market -- and the agreed purchase -- price. The seller claimed damages, the outstanding purchase price and interest.

The court held that the seller's reply to the buyer's offer was a counter-offer (article 19(1) CISG) and not an acceptance (article 18(1) CISG), and that the buyer's reply to the counter-offer, in as much as it did not contain any objections to the change in terms, should be considered an unconditional acceptance (article 8(2) CISG). Consequently, the seller was entitled to declare the contract avoided because the buyer's failure to take delivery of more than half of the goods constituted a fundamental breach of contract (article 64(1)(a) CISG).

The court also held that the seller was entitled to claim damages (articles 61(1)(b) and 74 CISG). To assess damages, priority had to be given to the method of calculation under article 75 CISG. In mitigating its loss, however, the seller was obliged to undertake a profitable resale of the goods (article 77 CISG). As the seller had been unable to resell the goods for more than the market price, i.e. the market price at the place of delivery rather than that at the seller's place of business, the method of calculation under article 76 CISG was applied. Lastly, the court granted the outstanding purchase price (article 52 CISG) and interest (article 78 CISG).

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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 18(1) ; 19(1) ; 25 ; 64(1)(a) ; 74 ; 75 ; 76 ; 77 ; 78 [Also cited: Articles 4(a) ; 8(2) ; 23 ; 52 ; 61 ; 62 ; 71 ]

Classification of issues using UNCITRAL classification code numbers:

18A1 [Acceptance (time and manner): criteria for acceptance, statement of acceptance];

19A1 [Acceptance with modifications (reply purporting to accept but containing additions or modifications): in general, constitutes counter-offer];

25B [Definition of fundamental breach];

64A1 [Seller's right to avoid contract: fundamental breach of contract];

74A [Damages (general rules for measuring): loss suffered as consequence of breach];

75B [Avoidance (damages established by substitute transaction): relationship between avoidance and substitute transaction];

76B [Avoidance: damages recoverable based on current price];

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

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

Descriptors: Acceptance of offer ; Fundamental breach ; Avoidance ; Damages ; Cover transactions ; 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

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=52&step=Abstract>; [1999] Transportrecht, Beilage "Internationales Handelsrecht" (TranspR-IHR) 24-25

German: OLG Report Hamm (1993) 27

Italian: Diritto del Commercio Internazionale (1995) 227 no. 45

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/57.htm>; OLG-Rp Hamm (1993 27(L)); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=52&step=FullText>; Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995), 142-147

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International legal Forum (4/1998) 138-255 [253 n.1079 (interest issues)]; Honnold, Uniform Law for International Sales (1999) 453 [Art. 76]; Perales, 10 Pace International Law Review (1998) 97-155 at n.91 [materiality of alteration contained in reply to offer]; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 240 n.213 [fundamental breach (gravity of consequences of breach): contract's overall value and monetary loss suffered by aggrieved party]; Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.250; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 3-8 n.71; § 4-5 n.55; Graffi, Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention, Revue de droit des affaires internationales / International Business Law Journal, No. 3 (2003) 338-349 at nn.61, 71; 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. 8 paras. 19, 34 Art. 9 para. 21 Art. 18 para. 8 Art. 19 para. 13 Art. 64 para. 6 Art. 75 paras. 2, 3 Art. 76 paras. 1, 2, 4, 7, 9 Art. 77 para. 10; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 158; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.288; Karen Halverson Cross, Parol Evidence Under the CISG: The "Homeward Trend" Reconsidered, 68 Ohio State Law Journal (2007) 156-157

French: Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995), 58-59, 103-104, 106 n.115

German: Hager in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht (2d ed. 1995) 557 n.12a; Piltz, Int. Kaufrecht (1993) 272 No. 377, 285 No. 429, 288 No. 436 = Neue Juristische Wochenschrift (NJW) 1994, 1101 [1103 n.32, 1104 n.48, 1105 n.75, 1106 n.84, 1106 n.86]; Staudinger-Magnus (1994) Art. 76 No. 13; Schlechtriem, Internationales UN-Kaufrecht (1996) 56 n.39, 135-136 n.205-207

Spanish: Perales, Cuadernos Jurídicos 3 (1996) No. 43, 5 [7 n.29] [commentary on Article 78: determination of rate of interest under the CISG (review of case law)]; Piltz, La Ley (Buenos Aires: 5 September 1994) 1-4, n.21, n.33, n.54, n.62, n.63

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Appellate Court (Oberlandesgericht) Hamm

22 September 1992 [19 U 97/91]

Translation [*] by Stella Heyken [**]

Edited by Andrea Vincze [***]

[...]

REASONS FOR THE DECISION

The appeal by Defendant [Buyer] is accepted and is partially successful. The [Buyer] is ordered to pay to the Plaintiff [Seller] 31,062.61 Deutsche Mark [DM].

A. [Buyer] owes the [Seller] damages in the amount of DM 30,652.00 because of failure to perform its obligations under Art. 61(1)(b) of the United Nations Convention on Contracts for the International Sale of Goods (CISG), in connection with Art. 76 CISG. The Convention applies to the contract between the parties, as concluded by the Court of First Instance. Insofar as this appeal is concerned, both parties accept application of the CISG.

      I. The [Seller]'s claim follows from Art. 61(1)(b) CISG, pursuant to which the [Seller] can claim damages according to Arts. 74 et seq. CISG with the avoidance of the contract where the buyer fails to perform any of his obligations under the contract. This is the case here, as the [Buyer] did not take delivery of about 116.6 tons of bacon from the [Seller].

            1. In August 1989, the parties concluded a contract for the sale of 200 tons of frozen skinless bacon, which [Seller] was to provide in ten installments. [Seller] made four partial deliveries of 83.4 tons to [Buyer], for which [Buyer] paid DM 821.21 altogether (see B, below). [Buyer] was obliged to take delivery of the remaining 116.6 tons of bacon. Buyer's objection, that it was not obliged to take delivery of the remaining 116.6 tons because the sales contract was concluded with a suspensory condition applicable to the remaining amount of 116.6 tons, is not accepted. [Buyer] had contended that, because of customs and food regulations with regard to the loose delivery method agreed upon, each deliveries under the sales contracts had always always been made subject to the suspensory condition that there had been no objections to the previous partial delivery. As the fourth installment was objected to on food regulation grounds, the suspensory condition applied to the delivery of the remaining 116.6 tons.

In contrast with that, the [Seller] proved that the sales contract was concluded for delivery of 200 tons of bacon altogether:

                         a) The correspondence between the parties which resulted in conclusion of the contract pursuant to Arts. 23, and 18(1) CISG, where [Buyer] was represented by G., does not justify in any way the suspensory condition [Buyer] alleged. [Buyer] alleged to the Appellate Court that this was a conditional sale. However, the original offer that [Buyer] sent to [Seller] by fax on 31 July 1989 does not state that several sales contracts should be concluded concerning several installments; it solely refers to a total amount of 200 tons, that is, 100 tons for delivery in September 1989 at a price of DM 1.35 per kg and 100 tons for delivery in October 1989 at a price of DM 1.40 per kg. The [Buyer]'s offer also contains information on packaging (in polyethylene bags). [Seller]'s response by fax on 4 August 1989, because of rejection of the bag-packaging method and loose delivery, does not constitute an acceptance of the [Buyer]'s offer pursuant to Art. 18(1) CISG but rather a counter-offer pursuant to Art. 19(1) CISG. It assumes that the contract must be concluded for a total amount of 200 tons, without mentioning any suspensory condition in connection with that.

The decisive interpretation is also affected by the fact that [Buyer], represented by G., accepted this counter-offer of the [Seller] by the fax of 23 August 1989 referring to [Seller]'s fax of 4 August 1989, without any limitation, in particular, without any reference to an agreed-upon suspensory condition. Special attention must be paid to the fact that, with this fax, [Buyer] accepted the loose delivery method proposed by [Seller] expressly and unconditionally. [Buyer], nevertheless, states that exactly this loose delivery method could give rise to agreement upon a condition because of the underlying food regulation considerations. However (cf. Art. 8(2) CISG), [Seller] could only understand [Buyer]'s unambiguous acceptance of [Seller]'s counter-offer in a way that a total amount of 200 tons of bacon would be supplied by loose delivery.

                        b) The contents of the contract as presented and as included in the documents that led to conclusion of the contract, are complete and correct. However, [Buyer] alleged that different oral agreements had been made and, therefore, claimed that the written subject matter of the contract was incomplete and incorrect, and thereupon, the alleged suspensory condition (that the previous installment was not objected by veterinary and customs authorities) was agreed upon during undisputed telephone conversations between [Seller] and Witness Z. Yet, [Buyer] could not convince the Appellate Court with this statement. [Buyer] failed to refute that, as assumed upon the contract documents, an unconditional sales contract had been concluded:

Witness M., acting on behalf of G. representing [Buyer], who negotiated on the phone with K. who represented [Seller], testified before the Appellate Court in support of [Buyer]'s position. In particular, he sought to explain why the fax of his company dated 23 August 1989, signed by his father and which finally led to conclusion of the contract, does not fully correspond with the contents agreed upon on the phone (delivery on by truck, and the suspensory condition concerning non-objection). [...] The Appellate Court could not, however, attach to this statement a higher weight than to the statement of A., a member of [Seller]'s Board of Directors, who was accepted as a joining party in accordance with 448 ZPO [*]. His representations, that a total quantity of 200 tons of bacon was to be sold unconditionally and that, due to [Seller]'s positive experience in the past with loose delivery of bacon, the alleged condition could not be agreed upon, is also realistic and believable. [...]

                         c) If the parties agreed to conclude an unconditional contract for delivery of 200 tons of bacon, then [Buyer] was obliged to take delivery of the rest of the bacon, that is, 116.6 tons, without application of the condition (objection or lack of objection to the fourth installment on food regulation grounds), an issue put forward by [Buyer].

            2. The present sales contract is not void according to Art. 34 EGBGB [*] in connection with 134 BGB [*] either. [Buyer] claimed without any success that loose delivery of the bacon violated food regulations. On the one hand, it must not be assumed that violation of food regulation and hygiene law regulations lead to the nullity of the sales contract (on marketing perished food, see Palandt Heinrichs, BGB, 51. Edition, 134 No. 20). On the other hand, it is not proved either that the regulations referred to by [Buyer] were violated. Thus, violation of 15(5) of the Food Hygiene Regulation of North Rhine-Westphalia is not ascertained. Pursuant to this regulation, by carriage of food it must be ensured that unpacked food does not come into direct contact with the floor if the transportation area must be entered at loading and unloading. [Seller] presented on this issue that the vehicles used for the transportation of the bacon were refrigerator vehicles which do not have to be entered at the time of loading or unloading. Thereupon, also the Witness and Expert S. demonstrated before the Appellate Court that loose delivery of the bacon, as selected by the parties, in containers lined with plastic, is in compliance with the applicable EC law and domestic provisions. In accordance with that law and these provisions, pieces of bacon do not have to be packed individually if, at loading and unloading, the plastic foil was gradually rolled in and out hygienically.

            3. As a further condition of claiming damages under Art. 74 CISG,[Seller] effectively avoided the contract concluded with [Buyer] by the letter sent by its lawyer on 6 February 1990. [Seller] was entitled to do so in accordance with Art. 64(1)(a) CISG because failure to accept more than half of the goods purchased (116.6 tons out of 200 tons) qualifies as a fundamental breach of contract.

This would be denied only if [Seller], as suggested by [Buyer], would have itself failed to perform its contractual obligations and therefore [Buyer] was allowed to deny performance of its contractual obligations (i.e., taking delivery of the bacon) pursuant to Art. 71 CISG. . Concerning this matter, [Buyer alleged that [Seller] breached its contractual obligations when it failed to send the bacon for customs clearance in a condition meeting hygiene law requirements, as is clear from [Buyer]'s objection to the fourth installment. However, [Buyer] has not proved that [Seller] breached its contractual obligations:

The question whether [Seller], in its agreements in writing, undertook further obligations and/or risks regarding the ability of the bacon to pass customs (free and duty-free) can stay open. The hearing of evidence did not produce any indications that the transportation accomplished by [Seller] was not declarable. The parties undisputedly agreed in the contract upon loose delivery of the bacon. Thereupon, [Seller] performed delivery in accordance with transportation requirements set by food regulations and hygiene laws, as veterinary expert S. found. Therefore, loose transportation of frozen bacon in containers fully lined with plastic foil, as it is required by the [Seller], is acceptable and it is not objectionable. The expert and Witness S. also could not confirm [Buyer]'s statement that veterinary authorities objected to the fourth installment basically due to the fact that loose transportation took place.

In this respect, the question whether 420 kg in the fourth installment of bacon was dirty and objected to by the receiver, as stated by [Buyer] and considered as likely by the Witnesses and the Experts, can remain open. As only a minor part of one installment was non-conforming (420 kg out of 22,400 kg), it cannot be considered as a failure to perform a substantial part of [Seller]'s obligations, with regard to the 200,000 kg sold in total, and it does not entitle [Buyer] to not take delivery of the remaining amount due. In that, [Buyer] was and is limited to exercise guarantee rights specified in Art. 35 et seq (see paragraph B).

      II. The amount of [Seller]'s claim for damages is governed by Art. 76 CISG, but the sum specified by [Seller] does not apply. [Seller] is entitled to calculate its damages abstractly upon Art. 76 CISG, i.e., according to the difference between the contract price (DM 1.35 and/or DM 1.40 per kg) and the market price which, at DM 0.79, is set by [Seller] too low.

            1. [Buyer] rightfully points out, however, that such abstract calculation of damages according to Art. 76 CISG is only subsidiary. Primarily, the calculation of exact damages, specified in Art. 75 CISG, prevails, based on a real cover transaction (general opinion, see von Caemmerer/Schlechtriem/Stoll, Kommentar zum CISG, No. 5 on Art. 76).

Art. 77 on the mitigation of damages infers that [Seller] is obliged to conduct a beneficial cover transaction as far as this is possible and reasonable (cf. von Caemmerer/Schlechtriem/Stoll l.c., Art. 74 No. 37, Art. 76 No. 5, Art. 77 No. 7). On that issue, [Buyer] also stated that [Seller] indeed conducted a beneficial cover transaction, that is, it sold the bacon at a price higher than the contract price and the market price, consequently, it suffered no damages at all, or, in any event, less than the amount claimed. However, Plaintiff [Buyer], who bears the burden of proof, was unable to prove this statement. (cf. von Caemmerer/Schlechtriem/Stoll, l.c., Art. 76 No. 5). B., appointed as witness by [Buyer], and also by [Seller] for counter-evidence, presented several times at his/her hearing as party before the Appellate Court that [Seller] sold the remaining bacon in March or April 1990 only for 200 to 250 Lira per kg (approx. DM 0.35) for clearance purposes. Upon the statements of Expert S. and B., as well as upon considering all circumstances of the case, the Appellate Court is convinced that it was impossible for [Seller] to conduct a beneficial cover transaction, that is, sale of the goods at a price over the market price of DM 1.13 (see 2 a) below).

            2. Therefore, [Seller] is entitled to apply the subsidiary abstract method of calculation of damages as set forth in Art. 76 CISG. Concerning this method of calculation of damages, pursuant to subparagraph (2), the market price prevailing at the place where delivery of the goods takes place shall be applied. Upon the contractual agreements and legal provisions (Art. 31 CISG), that place is V. and not F., where [Seller]'s place of business is located, as suggested by [Seller]. As a result of the hearing of evidence conducted by the Appellate Court, this market price was at the actual time of avoidance early February 1990 not DM 0.79 as presented by [Seller] but DM 1.13 per kg.

                         a) Increase or a reduction of this price with regard to the transport costs cannot be evidenced. However, Expert S. stated that price mentioned was free V., thus, excluding transportation costs. Yet, this conclusion was not drawn from the meaning and purpose of Art. 76. This provision relies upon the idea that obligor is entitled to conduct cover transaction at the market price (cf. von Caemmerer/Schlechtriem/ Stoll, l.c., Art. 76 No. 4). By abstract calculation of damages, it must also be considered that Plaintiff [Seller] sold its bacon in V. at the market price. The transportation costs claimed by [Seller] would accrue also at performance of the contract because [Seller] had to deliver the goods free V. [...]

                         b) [Buyer] cannot raise an objection under Art. 77 against [Seller]'s claim for damages, based on Art. 76, by stating that [Seller] could and should have mitigated its damages by packaging the remaining bacon individually. [Seller] was not obliged by the contract to do so at its own expenses. Yet, in the fax of 13 October 1989, [Seller] offered to pack the bacon individually after the fourth installment against an additional charge of DM 0.14 per kg. Therefore, [Seller] fulfilled its obligations under Art. 77 CISG.

                         c) [Seller]'sdamages shall be calculated as follows, based on the market price of DM 1.113: [...]

The total amount of damages suffered by [Seller] is DM 30,652.00.

B. Thereupon, [Buyer] has to pay [Seller] the remaining purchase price in the amount of DM 410.61 DM, pursuant to Art. 52 CISG. The fourth partial delivery involving 22.4 tons of bacon, which was undisputedly performed by [Seller] on 9 October 1989, resulted in a duty to pay the purchase price in the amount of DM 30,240.00, out of which DM 821.21 was complied with. At the oral hearings, with regard to the remaining amount, the parties presented their positions concerning the dispute relating to foreign transfer costs (DM 54.21), a set-off against overpayment concerning the third delivery (DM 200,000) and a discount due to 420 kg of dirty bacon in the fourth installment (DM 567.00). They agreed that payment of only half of the remaining amount of DM 821.21, is justified. Therefore, [Buyer] must pay an additional DM 410.61.

C. The [Seller]'s interest claim is justified based upon Art. 78 CISG, in accordance with Art. 1284 Cc [*] and Art. 28(1) EGBGB [*].

D. Therefore, as a result of its appeal, [Buyer] must pay DM 31,062.61 DM. In all other respects, [Buyer]'s appeal must be rejected.

[...]

E. The decision on costs is based on 91, 92(1) and 97 ZPO [*] and the decision on preliminary enforceability of the award is based on 708 (No. 10) ZPO.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Italy is referred to as [Seller]; Defendant of Germany is referred to as [Buyer]. Amounts in former German currency (Deutsche Mark) are indicated as [DM].

Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Code Civil Law]; Cc = Codice civile [Italian Code on Civil Law; EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuch [German Code on Private International Law]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

** Stella Heyken is a law student of the University of Osnabrück, Germany.

*** Andrea Vincze is a Ph.D. candidate at the Department of European Law and Private International Law, University of Miskolc, Hungary, specializing in international business and investment law and international commercial arbitration. She has taught the CISG at the University of Miskolc and at the Pace University School of Law.

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