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CISG CASE PRESENTATION

Germany 14 January 1994 Appellate Court Düsseldorf (Shoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/940114g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19940114 (14 January 1994)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 17 U 146/93

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

CASE HISTORY: 1st instance LG Krefeld 28 April 1993 [affirmed]

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Shoes


Case abstract

GERMANY: OLG Düsseldorf 14 January 1994

Case law on UNCITRAL texts (CLOUT) abstract no. 130

Reproduced with permission from UNCITRAL

The [buyer], a German company, ordered 140 pairs of winter shoes from the [seller], an Italian shoe manufacturer. After having manufactured the ordered shoes, the [seller] demanded security for the sales price as the [buyer] still had other bills to settle with the [seller]. The [buyer], however, did neither pay nor furnish security. Therefore the [seller] declared the contract avoided and resold the shoes to other retailers: only 21 pairs for the same price as agreed upon with the [buyer], 109 pairs for a much lower price, 10 pairs remaining unsold.

The [seller] demanded compensation for various damages caused by the breach of the contract: (1) compensation for the difference between the contract price and the price in the substitute transactions, (2) the attorney's fees, (3) interest loss of 16.5%, (4) exchange rate loss of 15%, (5) and current interest of 16.5%. The [buyer] accepted responsibility in general but disputed the extent of damages which it attributed to the [seller]'s failure to resell the shoes in a reasonable manner.

The appellate court held that the [seller] was entitled to avoid the contract according to article 72 CISG and consequently granted the [seller] the rights listed in articles 74 and 75 CISG. Accordingly, the [seller] was allowed to recover the difference between the contract price and the price in the substitute transactions (art. 75 CISG). In addition, the court found that the [seller] had performed the resale in a reasonable time noting that the [seller] was not obliged to resell the shoes before the date of avoidance. In the court's view, a resale nearly 2 months after avoidance (avoidance on 7 August, resale on 6 and 15 October) still succeeded within reasonable time and was no breach of the [seller]'s obligation under art. 77 CISG to mitigate the loss. In that regard, the court accepted the [seller]'s argument, who had offered the shoes on the Italian market, that in August most retailers have already filled their stock for the coming season and have no reason to buy more goods for the winter season.

The court also granted the interest loss according to article 74 CISG. The [seller] argued that it had made use of a bank loan with an interest rate of 16.5%. The court accepted this allegation according to article 287 of the German Civil Procedure Code. However, the [seller]'s claim for attorney's fees was rejected. Although such fees in general could be recovered under article 74 CISG, in the present case this would lead to double compensation as the attorney had demanded his costs already in the special procedure for fixing costs.

The court also rejected the [seller]'s claim for damages to cover the exchange rate loss between the Italian Lira and the German Mark. The court found that there existed no general custom to exchange money paid in the local currency to a foreign one unless this was the claimant's usual practice. As this could not be established, it was held that the [seller] had not suffered a damage.

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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 Article 25 ; 72 ; 74 ; 75 ; 77; 78 [Also relevant: Articles 64 ; 71 ]

Classification of issues using UNCITRAL classification code numbers:

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

72A ; 72B [Avoidance prior to date for performance: when clear that party will commit fundamental breach; Advance notice of intent to avoid];

74A [Damages (general rules for measuring): loss suffered as consequence of breach (excluding loss suffered due to currency devaluation as no proof of "concrete loss" provided; can include legal fees that have arisen until avoidance)];

75A1 ; 75C1 [Damages established by substitute transaction: substitute transaction after avoidance (resale by aggrieved seller); Damages recoverable: difference between contract price and price in substitute transaction];

76B [Damages (Avoidance without purchase or resale under Article 75): damages recoverable based on current price = difference between contract price and current value of goods];

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: Avoidance ; Fundamental breach ; Anticipatory breach ; Damages ; Currency issues ; Legal costs ; Cover transactions ; Mitigation of loss ; Interest

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Editorial remarks

"The Court of first instance held that the seller had the right to declare the second contract avoided under art. 72(1) and (2) CISG, since even before the delivery of the goods it was clear that the buyer would not pay the purchase price and would thereby commit a fundamental breach of contract. The buyer had not performed under the prior contract although the seller had requested it several times and had even commenced a legal action . . . The Appellate Court affirmed." Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.237

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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=84&step=Abstract>

Italian: Diritto del Commercio Internazionale (1995) 453-454 No. 75

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 270-272

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/119.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=84&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Honnold, Uniform Law for International Sales (1999) 390 [Art. 64], 448 [Art. 74 (damages based on currency devaluation)], 451 [Art. 75]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 178-179 [Art. 72 avoidance issues]; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 252 n.248, 305 n.458 [fundamental breach: failure to provide security for purchase price]; Saidov, Damages under the CISG (December 2001) n.247; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-11 n. 101; § 6-15 n. 189; § 6-26 n. 317; Liu Chengwei, Recovery of interest (November 2003) n.56; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.718, 738, 779; 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. 6 para. 6 Intro. 14-24 para. 9 Art. 14 para. 16 Art. 72 para. 12 Art. 74 paras. 16, 20, 53 Art. 75 paras. 6, 7 Art. 77 para. 9 Art. 84 para. 15a; CISG-AC advisory opinion on Calculation of Damages under CISG Article 74 [Spring 2006] nn. 46, 47, 49 (related cases cited in addendum to opinion); Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 525; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.333

German: Schlechtriem, Internationales UN-Kaufrecht (1996) 151 n.237; Hammer, Zurückhaltung . . ., thesis Hamburg (1999) 86 n.715

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court (Oberlandesgericht ) Düsseldorf

14 January 1994 [17 U 146/93]

Translation [*] by Ruth M. Janal [**]

Translation edited by Camilla Baasch Andersen [***]

FACTS OF THE CASE

On 31 March 1992, the [buyer] ordered 140 pairs of shoes from the [seller]. The [seller] manufactured the shoes. However, [seller] was unwilling to dispatch the shoes without having received a security for payment of the purchase price by the [buyer]. This was because the [buyer] was in default of payment with respect to an earlier invoice. The [seller] therefore informed the [buyer], by way of a letter of [seller]’s attorney on 9 July 1992, that [seller] would consider avoidance of the contract if the [buyer] failed to provide an adequate assurance of payment by 16 July 1992. As the [seller] did not receive such an assurance, the [seller]’s attorney declared the contract avoided by letter of 5 August 1992.

Of the shoes manufactured for the [buyer], the [seller] sold 21 pairs on 16 September 1992 to a company M. for Italian Lira [ItŁ] 255,000; this was the price that the [seller] and the [buyer] had originally agreed upon. The [seller] sold another 109 pairs to a company S. at a price lower than that agreed in the contract with [buyer], namely ItŁ 50,000 per pair, overall ItŁ 5,450,000. The remaining 10 pairs are still in the [seller]’s warehouse and are valued by him at a price of ItŁ 50,000 per pair.

-  [Seller's claim of damages at First Instance]

With his claim, the [seller] aims to recover the difference between the contract price and the price reached in the substitute transaction and the difference between the contract price and the value of the remaining pairs, in the total amount of ItŁ 9,215,000. The [seller] withdrew his claim with respect to the commercial agent’s commission. [Seller] also demands compensation in the amount of Deutsche Mark [DM] 954 for the cost of retaining an attorney; further damages for loss of interest at a rate of 16.5% until 23 November 1992, that is, ItŁ 1,037,000; compensation for a currency devaluation of 15% (total: ItŁ 2,658,000) and current interest at a rate of 16.5%.

-  [Decision of Court of First Instance]

The Court of First Instance essentially granted the [seller]’s claim and dismissed it only with respect to a part of the damages claimed for the currency devaluation and a part of the time period for which the [seller] had requested interest. The Court of First Instance reasoned that the [seller] had been entitled to declare the contract avoided under the CISG and was therefore entitled to request damages. The Court of First Instance held that the damages claimed by the [seller] – apart from the exceptions named – were recoverable.

-  [Buyer's position at appeal]

The [buyer]’s appeal challenges this finding of the Court of First Instance. While the [buyer] no longer denies the basis of its liability, it submits that the damages from the substitute transactions arose because the [seller]’s efforts to find new customers were neither timely, nor were they made with sufficient diligence. The [buyer] holds that the attorneys’ fees claimed are not recoverable because the attorneys’ relevant services are already covered by the attorney fee for the current proceedings. The [buyer] furthermore objects to compensation for the currency devaluation, making the argument that there is no indication that the [seller] had intended to exchange the amounts paid in Italian Lira to Deutsche Mark. Finally, the [buyer] disputes the extent of the interest loss claimed by [seller].

The [buyer] requests that the decision by the Court of First Instance be partially reversed and that the [seller]'s claim be dismissed.

-  [Seller's response at appeal]

The [seller] requests that the [buyer]'s appeal be dismissed.

With respect to the further pleadings of the parties, the Appellate Court refers to the decision of the Court of First Instance as well as the parties' briefs and attachments.

REASONS FOR THE DECISION OF THE APPELLATE COURT

The [buyer]'s appeal is only partly justified.

The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies to the contractual relationship between the parties. It is no longer disputed between the parties that the [seller] was entitled to declare the contract avoided by virtue of Article 72 CISG. Thus, the [seller] is entitled to damages on the basis of Articles 74 and 75 CISG. However, this compensation claim only amounts to ItŁ 10,252,000 plus the current interest from 24 November 1992. The amount is comprised of the difference between the contract price and the price in the substitute transaction and the value of the remaining shoes, in the amount of ItŁ 9,215,000 – and the interest loss, in the amount of ItŁ 1,037,000 for the time until 23 November 1992.

I. [Damages for substitute transaction after avoidance]

The right to recover the price difference stems from Art. 75 CISG. According to that provision, the seller may recover the difference between the contract price and the price in the substitute transaction, if it has resold the goods in a reasonable manner and within a reasonable time after avoidance of contract.

The avoidance of contract was declared by letter of 5 August 1992, which was received by the [buyer] on 7 August 1992. Therefore, the relevant time frame under Art. 75 CISG started on 7 August 1992. The [buyer]’s objection that the [seller] was obliged to enter a substitute transaction before declaring the contract avoided is incorrect. It might even be doubted whether the [seller] was at all entitled to enter a substitute transaction before declaring the contract avoided. In any case, even if a seller is entitled to enter a substitute transaction before his declaration of avoidance, it is not obliged to act in such a way. Rather, it is entitled to initially insist on the performance of the contract and enter the substitute transaction only when it has declared the contract avoided (v.Caemmerer/Schlechtriem/Stoll, Kommentar zum Einheitlichen UN-Kaufrecht, 1990, Art. 75 n. 8). Whether the seller breaches his obligation to mitigate damages pursuant to Art. 77 CISG if it delays the decision to avoid the contract in an unreasonable manner, is a different matter. Such conduct cannot be found in the present case.

It is true that the [seller], in order to meet the requirements of Arts. 75 and 77 CISG, was obliged to make a reasonable effort to sell the shoes as favorably as possible. The Appellate Court is convinced that the [seller] satisfied this obligation. The [seller] has submitted that it offered the shoes in Italy to merchants who buy remaining stock at the end of the season. [Seller] has also submitted that his German attorney contacted the commercial agent active in Germany and inquired about the possibility of a substitute transaction; the commercial agent replied that it did not see a chance, as all customers were already well supplied and the stocks were still filled from the previous winter season, which had been a very mild one.

The [buyer] considers the [seller]’s efforts in Italy as insufficient and disputes the [seller]’s inquiry with the German commercial agent. Despite the [buyer]’s challenge, the Appellate Court does not see a reason to conduct a hearing of evidence. Instead, the Appellate Court makes use of the possibility available under § 287 ZPO [*] and estimates the damages incurred at the amount claimed by the [seller]. In doing so, the consideration is decisive that retailers already order the desired winter goods – such as the goods in the present dispute – from manufacturers or wholesalers in spring or summer, and then start their resale in October. Therefore, there was hardly any possibility to sell further winter goods in the relevant time period from 7 August onwards. This is because there is generally no reason for a retailer to stock further goods after his supplies have been filled and the selling season has begun. It must be attributed to a piece of luck if at that point in time a sale at the original price is still possible – as in the present case the sale to company M. Such an isolated case cannot set the standard for the efforts required under Arts. 75 and 77 CISG. In view of these facts, it can be assumed that the [seller] would also not have been able to resell the goods with a reasonable effort on the German market, and that it had to accept price reductions on the Italian market.

II. [Damages for loss of interest]

The [seller] is entitled to recover damages for interest loss under Art. 74 CISG, which is applicable in addition to Art. 75 CISG.

[Seller] submits that it borrows credit at an interest rate of 16.5%. The Appellate Court again makes use of its possibility to estimate the damage under § 287 ZPO [*] and estimates the amount of the interest damage at the interest rate claimed by the [seller]. The Appellate Court bases this estimation on its knowledge from numerous other proceedings that an interest rate of 16.5% is relatively low for Italy.

The [seller] calculated his interest on the basis of the original contract price by taking into account the proceeds from the later substitute transactions, leading to a total amount of ItŁ 1,037,000 for the time period from 12 July until 23 November 1992. The [buyer] did not make any submissions regarding this calculation.

Therefore, interest of 16.5% is due on the amount of ItŁ 9,215,000 from 24 November 1992.

III. [Other damages]

The [seller] is not entitled any further compensation.

      1. [Attorneys' fees]

The [seller] may not claim damages for attorneys’ fees (DM 954) incurred by the avoidance of contract. It is true that Art. 74 CISG encompasses compensation for the cost of a reasonable pursuit of one’s legal rights. However, the [seller] is acting contrary to good faith if it claims the compensation of attorneys’ fees from the [buyer], while the same attorney, whose fees the [seller] is seeking to recover, is requesting that his costs as a correspondence attorney (Verkehrsanwalt) [*] are fixed as a cost of the current proceedings and are borne by the [buyer]. The avoidance of contract and the communication between the [seller] and his representing attorney in the present compensation proceedings regard the same matter in the meaning of §§ 13(2) and (5) and § 118(9) BRAGO [*]. Therefore, the attorney is only allowed to demand one fee, the fee for his actions as a corresponding attorney.

It may be the case that the attorney’s services regarding the avoidance of contract and his actions as a corresponding attorney are based on two different commissions. Nevertheless, the question whether several activities of an attorney regard one or more matters in the meaning of the BRAGO is determined not only by the individual commission, but also by the circumstances of fact that form the basis of the attorney’s activities (cf. BGH [*] AnwBl [*] 1976, 937; OLG [*] München JurBüro [*] 1973, 1160). Consequently, the services rendered by the [seller]’s attorney need to be considered as a single activity. The avoidance of contract constituted solely a preliminary stage of the claim for damages, which is the subject of the current proceedings. This is already evident from the attorney’s first letter of 9 July 1992, with which the [buyer] was warned that the [seller] might declare the contract avoided. This letter announces that, in case of avoidance of the contract, the [seller] would enter into a substitute transaction and would request compensation from the [buyer] for the damages incurred. The written declaration of avoidance of 5 August 1992 again announces a substitute transaction and a damages claim. It was therefore clear from the beginning that the [seller] not only intended to free himself from the contract, but also that [seller] primarily wanted to recover damages from the [buyer]. Seen in this light, the announcement and the declaration of avoidance of contract constitute only a preparatory step for the claim for damages envisaged from the beginning.

      2. [Currency devaluation]

The [seller] also may not recover the currency devaluation of the Italian Lira against the German Mark in the amount of ItŁ 1,382,250.

A currency devaluation can only be compensated if it leads to damages on the part of the creditor, for instance, if the creditor usually conducts his money transfers in a third currency and therefore always converts other currencies immediately after their receipt. In such a case, the currency devaluation has an unfavorable effect. Generally, however, an unfavorable development in the exchange rate does not lead to losses if the payment was to be effected in the creditor’s currency. Usually, the creditor’s currency is not converted into a different currency (cf. Asam/Kindler RIW [*] 1989, 841 at 846 et seq.). Nothing in the present case indicates that the [seller] suffered losses as a result of the exchange rate fluctuation. The [seller]’s contention that it needed German currency for visits to trade fairs and similar activities in Germany is irrelevant. The [seller] needed and bought those foreign currencies independently of the [buyer]’s breach of contract. In that respect, the [seller]’s damage consists solely in the fact that it had to take further bank credit. This damage does not have anything to do with the currency devaluation.

      3. [Inflation rate]

It is irrelevant whether the [seller] made an alternative request for the domestic currency devaluation of the Italian Lira, that is, for inflation. The [seller] would in any case not be entitled to such compensation, because he claims to be using bank credit. Consequently, [seller] did not suffer any losses as a result of inflation, as the amount of the [seller]’s debts is not dependent on the inflation rate.

The decision on costs is based on § 92(1) ZPO [*]; the decision on the provisional enforceability is based on §§ 708 no. 10, 713 ZPO. There is no reason to allow an appeal on points of law.

The Appellate Court fixes the costs of the appeal at DM 16,446.


FOOTNOTES

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

Translator's note on other abbreviations: AnwBl = Anwaltsblatt [German law journal]; BGH = Bundesgerichtshof [Federal Court of Justice, the highest German Court in civil and criminal matters]; BRAGO = Bundesrechtsanwaltsgebührenordnung [German Ordinance on Attorneys' Fees]; JurBüro = Das juristische Büro [German law journal]; OLG = Oberlandesgericht [German Court of Appeals]; RIW = Recht der Internationalen Wirtschaft [German law journal]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

Translator's further note: The German term "Verkehrsanwalt" [correspondence attorney] describes an attorney who does not deal with the client directly, but who conducts matters that the client's home attorney is unable to do - such as (in this instance) pleading before a German Court.

** Ruth M. Janal, LL.M. (UNSW), is a Ph.D. candidate at Albert-Ludwigs-Universität Freiburg. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

*** Camilla Baasch Andersen is a Lecturer in International Commercial Law at the Centre for Commercial Law Studies, Queen Mary, University of London, and a Fellow of the Institute of International Commercial Law of the Pace University School of Law. She is currently finishing her Ph.D. thesis on uniformity of the CISG at the University of Copenhagen.

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