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CISG CASE PRESENTATION

Germany 30 September 1992 District Court Berlin (Shoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/920930g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19920930 (30 September 1992)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 99 O 123/92

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 abstract

Prepared by Robert Koch for commentary on fundamental breach

"[I]n a German-Italian shoe dispute, the Berlin District Court found the Italian seller to be entitled to avoid the contract. Here the Italian seller had already manufactured the 212 pairs of shoes ordered by a German buyer. Shortly before handing them over to the carrier, however, the seller noticed that two out of three checks concerning an earlier sale had not been honored and payment had been made only after the courts rendered respectively judgments of consent and default. The seller requested security for the payment, but the buyer refused to honor this request. Highlighting the [seller's] previous experience with the [buyer's] unwillingness to pay, the Court held that, prior to the date fixed for the delivery of the shoes, it was 'clear' ['clear' in the -- unofficial -- German version of article 72 reads 'offensichtlich' (obvious)] that the buyer would not pay the price. The Court defined 'clear', in the sense of article 72, in terms of probability. 'Clear' requires that a fact be obvious to anyone. Probability close to certainty, however, is not required." Koch, Pace Review of the Convention on Contracts for the International Sale of Goods (1998) 252-253.

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Case abstract

Prepared by Camilla Andersen for commentary on notice issues under Article 39(1)

Judgment was entered in favor of seller where notice was given three and a half months after delivery of shoes with easily discernible non-conformities. Andersen, Pace Review, supra at 115.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 39(1) ; 72(1) and 72(2) ; 74 ; 75 [Also cited: Article 78 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach];

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

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

Descriptors: Fundamental breach ; Lack of conformity notice, timeliness ; Anticipatory breach ; Currency issues ; Damages ; Cover transactions ; Legal costs

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: See above; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=79&step=Abstract>

Italian: Diritto del Commercio Internazionale (1995) 444-445 No. 60

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/70.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=79&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Dutch: Wautelet in: van Houtte/Erauw, het Weens Koopverdrag (1997) No. 5.30 [167 n.62] [cited as 30 September 1991]

English: Honnold, Uniform Law for International Sales (1999) 352, 439 [Arts. 54, 72]; Bonell/Liguori, Uniform Law Review (1996-2) 359 [368 n.34]; for a survey of close to 100 judicial and arbitral rulings on Article 39(1), go to the 1998 Pace essay on this subject by Camilla Baasch Andersen; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 252-253 nn. 249, 251, 305 n.458 [fundamental breach: failure to provide security for purchase price]; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.718 ("although there is no bright-line standard for determining the degree of certainty needed to anticipate fundamental breach, there should be a very high degree of probability that the breach will occur"); CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); 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 para. 39 Art. 72 para. 12 Art. 74 paras. 18, 20, 30; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) nn.334-336

French: Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris 1995) 96 n.78, 102 n.95, 103 n.94 n.100

German: Piltz, Int. Kaufrecht (1993) 269 No. 366 = Neue Juristische Wochenschrift (NJW) 1994, 1101 [1105 n.77, 1106 n.92]

Italian: Liguori, Foro italiano (1996-IV) 145 [173 n.129]

Spanish: Piltz, La Ley (Buenos Aires: 5 September 1994) 1-4 nn.56, 68

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Case text (English translation)

Queen Mary Case Translation Programme

District Court (Landgericht) Berlin

30 September 1992 [99 O 123/92]

Translation [*] by Thomas Arntz [**]

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

FACTS

On 16 October 1991, the Defendant [Buyer] (of Germany), owner of a shoe retail business, ordered 212 pair of shoes from the Plaintiff [Seller], a shoe factory seated in Italy, at a price of Deutsche Mark [DM] 11,206.20. The parties agreed on free and untaxed delivery at the end of January 1992. Concerning the payment arrangements, the parties agreed that if payment was made within 10 days after the date indicated on the invoice, a discount of 3 per cent of the purchase price would be given. The payment should be due 60 days after the date indicated on the invoice.

[Seller] produced the shoes and prepared them for handing over to the carrier. Afterwards, [Seller] was having second thoughts in respect to [Buyer]'s ability to meet its financial obligations. On 27 January 1992, [Seller] wrote to [Buyer] asking [Buyer] to provide security in the amount of the agreed purchase price by way of check or bank guarantee and set a time limit until 4 February 1992. [Seller] further pointed out that, if the security was not provided within that time limit, it would exercise its right to avoid the contract, to resell the goods and to hold [Buyer] responsible for damages. On 13 May 1992, [Seller] sold the 212 pair of shoes to __ at a price of Italian Lira [LIT] 4,240,000.

[Seller] asserts that [Buyer] had not been able to pay the purchase price due to the following undisputed facts:

      On the occasion of a previous business transaction between the parties concerning winter clothing 1991/1992, [Seller] granted [Buyer] the possibility to pay by three checks, each for one-third of the purchase price, due on 1 November, 1 December 1991 and 1 January 1992. The first check was cashed without problems. The other two checks, however, could not be cashed because they had been stopped by [Buyer].

Concerning the check due on 1 December 1991, a court rendered a judgment by confession on 2 March 1992 / 6 April 1992. Concerning the check due on 1 January 1992, a court rendered a default judgment against [Buyer]. The enforcement of the default judgment was unsuccessful as [Buyer] refused to let the bailiff search its offices on 8 May 1992. [Buyer] then paid on 15 May 1992.

[Seller] believes that, because of its concern about an obvious future breach of contract on the part of [Buyer], it was entitled to declare the contract avoided and to resell the goods pursuant to Art. 72(1), (2) CISG. [Seller] alleges that it was therefore entitled to recover the difference between the purchase price and the price in the substitute transaction pursuant to Arts. 74, 75 CISG, as well as any further damages suffered.

In detail, [Seller] claims:

  1. [DM] 5,736.60, the difference between the purchase price fixed by the parties and the price in the substitute transaction;
  2. [DM] 784.43 for a provision paid to [Seller]'s commercial agent in the amount of 7 per cent of the price of sale;
  3. [DM] 641.00 for attorneys' fees;
  4. [DM] 456.20 for the interest [Seller] paid for a bank loan.

[Seller] requests that [Buyer] be ordered to pay [Seller] the amount of [DM] 7,618.23 plus interest of 16 per cent on [DM] 7,618.03 from 14 July 1992 to 23 July 1992 as well as interest of 17 per cent since 24 July 1992.

[Buyer] requests the court to dismiss the claim and to impose costs on [Seller]. [Buyer] alleges that [Seller] did not have to fear a future breach of contract. A breach had not been committed by [Buyer] but by [Seller] who had delivered defective goods and therefore was not entitled to avoid the contract.

REASONING

The [Seller]'s claim is predominantly justified.

1. [Seller] is entitled to recover damages from [Buyer] pursuant to Arts. 74, 75 CISG in the amount of [DM] 6,833.80.

The applicability of the CISG results from Art. 1(1)(a) CISG. According to this provision, the CISG is applicable to contracts for the sale of goods between parties, who have their places of business in different Contracting States. The parties concluded a contract concerning the delivery of 212 pair of shoes. [Seller] has its seat in Italy, [Buyer] in Germany. Both States are Contracting States. In Italy, the CISG entered into force on 1 January 1988 and, in Germany, on 1 January 1991 (concerning the ratification status comp. v. Caemmerer/Schlechtriem, Commentary on the CISG [Kommentar zum Einheitlichen UN-Kaufrecht], Munich 1990, before Arts. 1 - 6 margin number 17).

The avoidance of the contract as a precondition for a claim for damages under Art. 75 CISG is fulfilled. [Seller] was entitled to declare the contract avoided pursuant to Art. 72(1), (2) CISG. Prior to the agreed delivery of shoes at the end of January 1992, it has already been clear that [Buyer] would commit a fundamental breach of contract by not paying the purchase price. In accordance with Art. 25 CISG, a breach of contract is fundamental if it results in such detriment to the other party as to substantially deprive it of what it is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

Under the present contract, [Seller] could primarily expect [Buyer] to pay the purchase price. From [Seller]'s point of view, the non-payment would have deprived it of its main expectation under the contract. This was easily foreseeable to [Buyer].

It was also obvious prior to the agreed delivery date at the end of January that [Buyer] would not pay the agreed purchase price.

It is true that a strict test has to be applied in respect to the obviousness of a future breach of contract. However. it is not necessary to prove a degree of probability close to certainty. Rather, a very high probability, obvious to everybody, is required (v. Caemmerer/Schlechtriem, Art. 72, margin numbers 11, 12). These requirements have been met in the present case.

The circumstances which suggest the non-payment by [Buyer] result from the previous business relationship of the parties. An important indication of [Buyer]'s incapacity to pay is the fact that two of the three checks handed over to [Seller] in the course of the business concerning winter clothing 1991/1992 could not be cashed.

[Buyer] cannot counter that it had not paid the outstanding amount of [DM] 6,471.10 because the goods had been defective, and that it had thus been entitled to rely on a right of retention.

[Buyer] could only have relied on the lack of conformity of the goods if it had given notice thereof and specified their non-conformity within a reasonable time in compliance with Art. 39(1) CISG. [Buyer] has failed to do so in the present case. [Buyer] has only given notice of the asserted defectiveness of the shoes approximately three month after delivery. This does not suffice to meet the time limit as set out by Article 39 CISG, especially considering the fact that generally defects of shoes can easily be recognized.

Moreover, [Buyer] stopped the check due on 12 December 1991 prior to that date. Consequently, [Buyer] must already have recognized the non-conformity of the goods at that time. However, it did not give notice until two month later, in the middle of January 1992. This behavior suggests that [Buyer] has not stopped further payments due to the non-conformity of the goods but due to financial difficulties. In addition, [Buyer] even let the court render a default judgment against it in respect to the third check.

On 27 January 1992, [Seller] informed [Buyer] that it would avoid the contract if [Buyer] did not provide security and thus acted in accordance with Art. 72(2) CISG.

[Seller] entered into the substitute transaction in a reasonable manner and within a reasonable time after the avoidance, as required by Art. 75 CISG. There are no indications which would justify a different view. The contrary assertions made by [Buyer] have not been substantiated.

[Seller] is entitled to recover [DM] 5,736.60, the difference between the contract price ([DM] 11,206.20) and the price of the substitute transaction ([DM] 5,469.60), pursuant to Art. 75 CISG. Since the parties agreed on payment of the purchase price in [DM], damages are also payable in the German currency (concerning the currency owed, cf. Herber/Czerwenka, CISG [UN-Kaufrecht], Art. 53 , margin numbers 5 - 8; v. Caemmerer/Schlechtriem Art. 54, margin numbers 8 - 10).

[Seller] is entitled to recover the additional damage suffered as a consequence of [Buyer]'s breach of contract pursuant to Art. 74 CISG. The loss includes the attorneys' fees amounting to [DM] 641.00 as well as the loss of interest amounting to [DM] 456.20. However, the provision paid to [Seller]'s commercial agent cannot be claimed because this loss would have occurred even if [Buyer] had complied with its contractual obligations. The aim of Art. 74 CISG is to put the aggrieved party in the same position it would have been in if the contract had correctly been performed (cf. v. Caemmerer/Schlechtriem, Art. 74 para. 3).

2. The decision on the recovery of interest is based on Art. 78 CISG.


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 [Buyer] and the Defendant of Germany is referred to as [Seller]. Amounts in the former currency of Germany (Deutsch Mark) are indicated as [DM]; amounts in the former currency of Italy (Italian Lira) are indicated as [LIT].

** Thomas Arntz is a law student at the University of Cologne. During 2002-2003, he spent a year in Clermont-Ferrand, France, as an Erasmus student. In 2004/2005, he participated in the Twelfth Willem C. Vis Moot.

*** Ph.D. candidate Daniel Nagel has studied law at the University of Heidelberg and at the University of Leeds.

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