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CISG CASE PRESENTATION

Germany 23 June 1995 Lower Court München (Tetracycline case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950623g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19950623 (23 June 1995)

JURISDICTION: Germany

TRIBUNAL: AG München [AG = Amtsgericht = Petty District Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 271 C 18968/94

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: Pharmaceutical goods (tetracycline)


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 47 ; 48 ; 74 ; 77 ; 80 [Also cited: Articles 14 ; 45(1)(b) ]

Classification of issues using UNCITRAL classification code numbers:

4B [Issues covered and excluded (issues excluded): set-off];

47A [Buyer's right to fix additional period for performance: not a condition for a claim of damages];

48A2 [Seller's right to remedy any failure to perform: restrictions on right to cure (unreasonable delay, inconvenience)];

74B [Damages (general rules for measuring): foreseeability of loss];

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

80A [Failure of performance caused by other party: party causing non-performance]

Descriptors: Scope of Convention ; Set-off ; Cure ; Nachfrist ; Damages ; Foreseeability of damages ; Mitigation of loss ; Failure of performance, other party

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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: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=147&step=Abstract>

Italian: Diritto del Commercio Internazionale (1997) 741-742 No. 155

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/368.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=147&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-255 [194 n.487 (definition of "goods"), 226 n.792 (scope of CISG: set-off issues)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-9 n.87; § 6-17 n.215; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.488, 496, 498; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 48 paras. 11, 23 Art. 74 paras. 15, 41 Art. 77 paras. 7, 12 Art. 80 para. 3; CISG-AC advisory opinion on Calculation of Damages under CISG Article 74 [Spring 2006] n.34 (related cases cited in addendum to opinion)

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Case text (English translation)

Queen Mary Case Translation Programme

Lower Court (Amtsgericht) München

23 June 1995 [271 C 18968/94]

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

Translation edited by Camilla Baasch Andersen [***]

FACTS OF THE CASE

The parties to the contract are in dispute over the payment of the remaining purchase price invoiced by the [seller] on 5 May 1993.

On 15 March 1993, the [buyer] ordered from the [seller] 200 kg of the product Tetracycline HCL with the specification of "a micronization below 25 microns". The shipment of the goods - initially agreed for the end of [March] 1993 - was effected on 5 May 1993 via air freight at the [seller]'s expense.

The goods arrived in Munich, Germany, on 10 May 1993 and were dispatched by the [buyer] on 11 May 1993 to the [buyer]'s customer. On 25 May 1993, the [buyer]'s customer complained that the micronization was not fine enough for the start of the production process for which the goods were intended. The [buyer] forwarded that complaint of non-conformity to the [seller]. With the [seller]'s consent, a "test production" was initially undertaken at the place of the [buyer]'s customer. When that failed, on 25 May 1993 the parties agreed to return all of the delivered goods to Italy for remedying and curing of the defects. The [seller] gave the [buyer] specific instructions for the return of the goods by letter of 25 May 1993. The Court refers specifically to attachment K5. In this letter, the haulage contractor A. in Munich was identified by name, and the company L.G.&C. in Italy was named as the recipient freight agency. In the last sentence of its fax of 25 May 1993, the [seller] furthermore stated that after receipt and remedy of the goods, the goods would be immediately returned to the [buyer] with the same transport (TIR) and the same haulage contractor.

According to the [seller]'s fax of 25 May 1993, the [buyer] was furthermore supposed to attach a return bill, following the EC-customs regulations. The [seller] explicitly stipulated that "freight collect", that is, "freight costs born by the recipient" was to be noted on the bill.

On 25 May 1993, the [buyer] commissioned company A., Munich, with the transport of the goods for the disposal of the [seller]. Company L.G.&C. was noted as the recipient freight agency. The address of company L. [the [buyer]'s customer] in E. was given for the collection of the goods with the particular instructions that the goods were to be picked up as quickly as possible - even on that day, if possible - at L.'s place of business and to be immediately transported to Italy. It was expressly stated in the haulage contract that the freight costs were to be borne by the [seller]. The Court refers specifically to the haulage contract of 25 May 1993.

Company A. commissioned a shipping agency in Hannover [Germany], company H.P., which collected the goods at the place of business of [buyer]'s customer in E. Subsequently, difficulties arose in the communication between the [seller] and the haulage contractor, because - as the [seller] informed the [buyer] by fax of 28 May 1993 - nobody knew that the goods were not in Munich, but in E. with the [buyer]'s customer.

On 1 June 1993, the [buyer] inquired from company A. whether the goods were on their way to Italy. It then transpired that the goods were stored in Munich at A.'s grounds and that this company had not taken any steps to forward the goods to the recipient freight agency in Italy. The parties then immediately telephoned each other several times. In the meantime, company A. had delivered four barrels of the goods to the [buyer]'s warehouse. On 4 June 1993, the [buyer] took a quantity of 20-kg of the goods from that delivery and dispatched it to its customer. This material - which had been taken from the top part of the barrels - also did not conform to the required micronization specification. By fax of 8 June 1993, the [buyer] informed the [seller] of this circumstance. The [buyer] further noted that a local micronization company needed to perform the micronization immediately, as the [buyer]'s customer had already been required to stop its production. By a further fax of 8 June 1993, the [seller] was informed by the [buyer] that the micronization costs for 20 kg of the goods amounted to DM [Deutsche Mark] 2,680. The [buyer] offered to return the remaining 180-kg to the [seller] in Italy. The [seller] declared by telex of 9 June 1993 that it did not consent to a micronization by a German company at those particular conditions, because the price was way too high. The [seller] again expressed that the [buyer] had already been asked to return all of the goods on 26 May 1993 and that the remedy in Italy could have taken place within as short a period as possible, if only the [buyer] had communicated the storage place of the goods.

Still on 8 June 1993, the [buyer] was informed by its customer that the production could under no circumstances be started and continuously maintained with the 20 kg. The entire quantity of properly micronized material had to be at the customer's disposal immediately. The customer would not have accepted a further delay; alternatively, a further delay would have given rise to a considerable claim for damages. These expenses would have stood above and beyond the cost of the micronization of the material in Germany, which is now in dispute.

On 9 June 1993, the [buyer] commissioned company G. in Bremen [Germany] with the micronization of the entire material. From there, the goods were delivered directly to the [buyer]'s customer on 14 June 1993. The [buyer] subtracted from the [seller]'s invoice of 5 May 1993 for DM 8,300 an amount of DM 6,276.90 for the micronization of the entire material by company G. including the freight costs. Thus, the [buyer] paid only the balance of DM 2,023.10 by check.

The [seller] insists on payment of a remaining amount of DM 5,562.90. [Seller] only concedes to the [buyer] notional costs in the amount of DM 714 for the return of the goods to Italy. As a precaution, the [buyer] declares a set-off against the [seller]'s claim for payment of the purchase price with [buyer]'s counterclaim for damages in the amount of DM 6,276.90. The Court refers specifically to the [buyer]'s list of damages of 27 July 1993, attachment K 12.

[Seller's submissions]

The [seller] submits that it was initially unaware of the location of the stored goods. As the [buyer] had commissioned the freight agency in its own name, [buyer] was insofar responsible for the proper completion of the haulage contract.

The [seller] further pleads that the [buyer] was not entitled to commission a third company with the micronization of the material without the [seller]'s consent and at the [seller]'s expense. Under Art. 48(1) CISG, the [seller] was entitled to remedy the failure to perform its obligations. By letter of 25 May 1993, the [buyer] was asked to return the goods and thus [buyer] was implicitly asked whether it would accept the [seller]'s remedy. Instead of complying with that request, the [buyer] commissioned a third company with the micronization of the goods. However, the [buyer] was not entitled to take such action as under Art. 48(2) CISG the buyer may not resort to any other remedy which is inconsistent with performance by the seller. Until the [buyer]'s faxes of 8 June 1993, the [buyer] had not informed the [seller] at any point in time that the [buyer]'s customer required the goods for the commencement of its production on 7 June 1993. The [buyer] did not set the [seller] an additional period of time for the performance of [seller]'s obligations until 7 June 1993. Therefore, the [buyer] thwarted the [seller]'s right to remedy the non-conformity, even though a remedy by the [seller] would have been reasonable in the circumstances.

The [seller] requests that the [buyer] be ordered to pay the [seller] DM 5,562.90 plus 10% interest from 1 November 1993.

[Buyer's submissions]

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

[Buyer] submits that the recipient freight agency L.G.&C. did not give the declaration sought by the forwarding agent A. that the freight costs would be borne by the recipient. It was for this reason that company A. refused to forward the goods by truck from Munich [Germany] to Rome [Italy]. Otherwise, A. would have borne the risk that the goods would not be accepted upon delivery and the risk of bearing the costs for storage in Rome and the return to Germany. The [buyer] relies on the [seller]'s fax of 25 May 1993 and is of the opinion that it acted solely as the [seller]'s vicarious agent with respect to the commissioning of company A.

[Buyer] further pleads that while the [seller] was initially entitled to remedy the lack of conformity under Art. 48(1) CISG, [seller] failed to perform the remedy within reasonable time. Therefore, the [buyer] was entitled to remedy the defect on its own at the [seller]'s expense according to Art. 45(1)(b) CISG. The fixing of an additional period of time under Art. 47(1) CISG was not necessary.

[Buyer] holds that the [seller] is not entitled to claim that a delay occurred while the remedy was carried out. The [seller]'s allegation that it was unaware of the fact that the goods were stored in E., not in Munich, was incorrect. In the freight contract of 25 May 1993, company A. was told to collect the goods in E., and the goods were in fact picked up by company H.P. - commissioned by company A. - on 26 May 1993. Moreover, the return of the goods was the [seller]'s own responsibility. The [buyer] only commissioned the freight company as a favor for and at the expense of the [seller].

With respect to the further details, the Court refers to the parties' briefs including the attachments as well as the content of the transcripts of the oral hearings on 10 February 1995 and 23 June 1995 and the Court's informative decision of 31 March 1995.

REASONING OF THE COURT

The [seller]'s claim is admissible but unsuccessful.

The Court's international jurisdiction results from Art. 2(1) and Art. 53(1) Brussels Convention [*]. The local jurisdiction is given under §§ 12, 17 ZPO [*], the jurisdiction over the subject results from §§ 123 no. 1, 71 GVG [*].

1. [Seller's claim for payment of purchase price]

The [seller]'s claim for payment of the purchase price under Art. 53 CISG was extinguished by the [buyer]'s set-off with its claim for damages. The preconditions for the set-off result from the Italian Civil Code [*], which is applicable by virtue of Art. 28(1) and (2), 32(1) no. 4 EBGBG [*]. Following Art. 45(1)(b) and Art. 74 CISG, the [buyer] is entitled to damages for the losses incurred by commissioning company G. with the micronization of the goods.

2. [Buyer's counterclaim for damages and set-off]

The contract between the parties is governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG), pursuant to Art. 1 CISG.

      a. The [seller]'s claim for payment of the purchase price initially existed, as the parties had formed a valid contract under Art. 14 CISG.

      b. The [buyer]'s claim for compensation results from Art. 45(1)(b) CISG since the [seller] failed to perform its obligations under the contract. The [seller] did not deliver the product Tetracycline HCL with a micronization lower than 25 microns, as was required under the contract. The [buyer]'s claim for damages is not barred by Art. 48(2), sent. 2, CISG.

The [seller]'s remedy of the goods, that is, a further micronization of the material in Italy, would have led to an unreasonable delay after 8 June 1993. This fact precluded a further right of the [seller] to remedy the goods at its own expense under Art. 48(1) CISG.

It is true that the [seller] initially claimed its right to remedy the non-conformity in Italy under Art. 48(1) CISG. Accordingly, the [seller] asked the [buyer] on 25 May 1995 to return the goods to Italy. However, this attempt to remedy the lack of conformity failed after the goods were not transported to Italy, but were left in Munich. Consequently, the [seller] did not perform the remedy within a time period that would not have caused the [buyer] unreasonable inconvenience, that is, until 8 June 1993. A longer delay - after 8 June 1993 - would cause the [buyer] unreasonable inconvenience as it is undisputed that such a delay would have led to considerable claims for damages by the [buyer]'s customer.

The [buyer] was not obliged to fix an additional period of time for performance by the [seller] of its obligations under Art. 47 CISG. Contrary to § 326 BGB [*], the fixing of a period of time as provided in Art. 48(1) CISG does not constitute a prerequisite for a claim for damages under the Convention. The [buyer] was therefore entitled to perform a repair at the expense of the [seller] (cf. v. Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, Art. 48 n. 25).

The [buyer]'s claim for damages is also not excluded by Art. 80 CISG, because [buyer] did not thwart the [seller]'s possibility to remedy the lack of conformity within reasonable time.

As is shown by the freight commission of company A. on 26 May 1993, the [buyer] exactly followed the [seller]'s instructions in the fax of 25 May 1993. According to those instructions, the [buyer] commissioned company A. - named by the [seller] - with the carriage of the goods for handing over to the recipient freight agency L.G.&C. in Italy - also named by the [seller]. As is shown by the order slip, the [buyer] expressly told company A. to pick up the goods at its customer's place of business in E. According to the forwarding bill of 26 May 1993, the goods were in fact picked up by the forwarding agent H.P., which had been commissioned by company A. The possibility can therefore be excluded that the execution of the freight order was delayed because the [buyer] had not sufficiently specified the location of the goods.

The [seller]'s allegation in its letter of 28 May 1993, that the [buyer] is responsible for the delayed execution of the freight forwarding contract, because [buyer] allegedly did not reveal the place where the goods were stored, is disproved by the freight order and the loading confirmation. Furthermore, following the [seller]'s own submissions, the [seller] knew that the goods were initially delivered to the [buyer]'s customer on 11 May 1993 and it was therefore to be expected that the goods would have remained there.

The [buyer] commissioned forwarding agency A. in [buyer]'s own name, but on the [seller]'s account and in performance of the [seller]'s obligation to remedy the lack of conformity. Thus, the [buyer]'s actions can be compared - under German law - with the actions of a commission agent for services according to the provisions of § 406 in connection with §§ 383 et. seq. HGB [*].

It is obvious that the [buyer] commissioned the freight order based solely on the [seller]'s instructions. The freight contract therefore needs to be viewed as a transaction made to execute the [seller]'s commission and not as a transaction for the [buyer]'s own account. Consequently, the [buyer] was merely obliged to commission the freight order, but was not liable for the orderly performance of that contract.

The [buyer] did not breach its obligation to initiate the execution of the freight order. At least, the [seller] did not make any submissions in respect to Art. 80 CISG to the effect that the performance of the freight forwarding contract failed because of the [buyer]'s conduct. On the contrary, the [buyer] undisputedly inquired on 1 June 1993 from company A., whether the goods had already been transported to Rome. It is further undisputed that the [buyer] called the [seller] after it received knowledge from company A. that the goods were still stored in Munich.

At that point in time, it would have been up to the [seller] to instruct that the goods were to be delivered to Italy by company A. It would also have been up to the [seller] to clear any remaining obstacles by giving instructions to the [buyer], to company A. or to the recipient freight agency L.G.&C. However, the [seller] itself has declared that it did not give any such instructions. Rather, [seller] denies in its brief of 20 June 1995 that contacts between the [seller] and companies A. and L.G.&C. existed (On a side note: this submission is inconsistent with the [seller]'s own brief of 6 February 1995, in which the [seller] concedes that there were difficulties in communication between the [seller] and the freight agency, and the [seller]'s fax of 28 May 1993, in which the [seller] itself remarked that it had given instructions to the recipient freight agency).

The [buyer]'s claim for damages is based on Art. 74 CISG and encompasses all of the loss suffered by the [buyer] as a consequence of the [seller]'s breach. This includes the expenses of DM 6,270.90 for the substitute performance, with which the [buyer] declared the set-off, and which are undisputed regarding the amount. The [seller] could have foreseen that expenses to remedy the non-conformity might result from the breach of contract. [Seller] could have also foreseen the extent of those expenses (Art. 74 CISG).

Regarding the claim for compensation, it needs to be considered that the [seller] was already in delay with the delivery of the goods - which had initially been set for the end of March [1993] - and that the [buyer] had repeatedly reminded the [seller] of its obligation to deliver the goods. The fact that the goods were finally dispatched via air freight reveals that the [seller] knew that a quicker delivery of the goods was necessary. After it then turned out that the goods delivered did not conform to the contract, the [seller] could have realized that any further delay might possibly not be acceptable to the [buyer].

The [buyer] cannot be accused of not taking all the measures reasonable in the circumstances to mitigate the loss resulting from the breach as provided under Art. 77 CISG. Firstly, the [buyer] cannot be held responsible for its failure to inform the [seller] before its faxes of 8 June 1993 that its customer needed the goods to commence production by 7 June 1993. It is not known whether the [buyer] itself had been given a fixed date for the start of production by its customer. Moreover, as has been explained above, the [seller] could not have been unaware that a further delay might no longer be acceptable. Secondly, the [buyer] cannot be held responsible for the fact that it did not dispatch the goods to the [seller] via air freight. Such action would have required specific instructions by the [seller], as the right to remedy was the [seller]'s own responsibility and had to be effected at the [seller]'s expense under Art. 48(1) CISG.

The extent of the expenses incurred by the substitute remedy was also foreseeable to the [seller]. At least the [seller] does not submit that it was unable to foresee such high costs of repair. Under Arts. 74, 77 CISG the [seller] - as the party bearing the burden of submission and proof (cf. Herber/Czerwenka, Internationales Kaufrecht, 1991, Art. 74 n. 13 and Art. 77 n. 8) - does not plead that the [buyer] would have been able to find another company within the short period of time available, which would have performed the micronization at a lower cost.

The [buyer] is therefore entitled to claim damages in the amount indicated in the [buyer]'s statement of 26 July 1993, as those expenses were necessary for a further micronization of the goods in Germany at the relevant point in time.

3. [Set-off]

Under Art. 1243 C.c. [*] the [seller]'s claim for payment of the purchase price was extinguished when the [buyer] declared a set-off with its claim for damages in the amount of DM 6,276.90. Following Art. 1243 C.c., a so-called ipso iure set-off was effected with the consequence that both claims were extinguished the moment they could be set-off against each other.

The preconditions for the set-off are met: the claim (for payment of the purchase price) and the counterclaim (for damages) are reciprocal, both claims are similar and both are enforceable, i.e., they have matured and there are no objections against them. Both claims are determined as to their basis and their amount ("liquidita").

The Court holds that the [buyer]'s claim for damages is also determined regarding its legal basis, as the [seller]'s denial of the claim is evidently unfounded. Therefore, a judicial set-off under Art. 1243(2) C.c. was not necessary (cf. in general: Einführung in das italienische Recht von Peter Kindler, München, Beck Verlag, 1993, p. 155 et. seq.). The Court possessed international jurisdiction to decide upon the [buyer]'s counterclaim under Art. 6(3) Brussels Convention [*], in particular as the [buyer] would also have been entitled to bring an independent action for the counterclaim before this Court.

It follows that the [seller]'s claim, while admissible, was unfounded.


FOOTNOTES

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

Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; Brussels Convention = EC Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters; C.c. = Codice civile [Italian Civil Code]; EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuche [German Code on Private International Law]; GVG = Gerichtsverfassungsgesetz = [German Code on Court Constitution]; HGB = Handelsgesetzbuch [German Commercial Code]; ZPO = Zivilprozeßordnung [German Code on Civil Procedure].

** Ruth M. Janal, LL.M. (UNSW), is a PhD 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 PhD thesis on uniformity of the CISG at the University of Copenhagen.

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