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CISG CASE PRESENTATION

Germany 3 April 1996 Supreme Court (Cobalt sulphate case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960403g1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19960403 (3 April 1996)

JURISDICTION: Germany

TRIBUNAL: Bundesgerichtshof [Federal Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: VIII ZR 51/95

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

CASE HISTORY: 1st instance LG Hamburg 5 November 1993 [affirmed]; 2d instance OLG Hamburg 14 December 1994 [affirmed]

SELLER'S COUNTRY: Netherlands (plaintiff assignee of Dutch seller)

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Cobalt sulphate


Case abstract

GERMANY: Bundesgerichtshof 3 April 1996

Case law on UNCITRAL texts (CLOUT) abstract no. 171

Reproduced with permission of UNCITRAL

The Dutch plaintiff was the assignee of a Dutch company, which had sold four different quantities of cobalt sulphate to the [buyer], a German company. It was agreed that the goods should be of British origin and that the plaintiff should supply certificates of origin and of quality. After the receipt of the documents, the [buyer] declared the contracts to be avoided since the cobalt sulphate was made in South Africa and the certificate of origin was wrong. The [buyer] also claimed that the quality of the goods was inferior to what was agreed upon. The plaintiff demanded payment. The German Supreme Court held that there were no grounds for avoidance of the contract and thus found for the plaintiff.

According to the Court, the declaration of avoidance could not be based on article 49(1)(b) CISG since the plaintiff had effected delivery. The delivery of goods which do not conform with the contract either because they are of lesser quality or of different origin does not constitute non-delivery.

The Court also found that there was no fundamental breach of contract since the [buyer] failed to show that the sale of the South African cobalt sulphate in Germany or abroad was not possible (article 49(1)(a) CISG). Thus, the [buyer] failed to show that it was substantially deprived of what it was entitled to expect under the contract (article 25 CISG).

Lastly, the Court held that the delivery of wrong certificates of origin and of quality did not amount to a fundamental breach of contract since the [buyer] could obtain correct documents from other sources. Accordingly, the [buyer] could not refuse payment under article 58.

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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 7 ; 25 ; 31 ; 35 ; 49(1) [Also cited: Articles 8 ; 29 ; 30 ; 50 ; 54 ; 58(1) ; 72 ] [Also relevant: Articles 34 ; 46 ; 69]

Classification of issues using UNCITRAL classification code numbers:

7A11 [Principles of interpretation of Convention: autonomous interpretation v. reliance on domestic law];

25B [Definition of fundamental breach: lack of conformity of goods; lack of conformity of documents];

31D [Delivery of goods: aliud v. peius];

35D [Conformity of goods to contract];

49A [Buyer's right to avoid contract: grounds for avoidance]

Descriptors: Interpretation of Convention ; Delivery ; Aliud vs. peius ; Conformity of goods ; Conformity of documents ; Fundamental breach ; Avoidance

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Editorial remarks

Excerpt from commentary by Peter Schlechtriem on Uniform Sales Law in the Decisions of the Bundesgerichtshof*

         * Commentary on CISG issues considered by the BGH, presented in "50 Years of the Bundesgerichtshof [Federal Supreme Court of Germany]: A Celebration Anthology from the Academic Community". Click here for the full text of this commentary.

Avoidance. "The uniform sales laws have reduced the possibility of contract avoidance to two basic cases: The obligee can avoid the contract if the obligor's breach is a fundamental breach of contract. Furthermore, the obligee can avoid the contract for certain types of breaches when the obligor does not perform before the end of an additional period of time set by the obligee. The 'Nachfristmodell', taken from German and Swiss law - see Art. 107, 108 OR [Obligationenrecht (Swiss Law of Obligations)] - and therefore occasionally called 'le Nachfrist allemand' during the preparations of the Hague Convention on Sales, can under the CISG only be used to avoid the contract in cases of non-delivery by the seller and non-payment or refusal to take possession by the buyer. Differently than under the Hague Convention, in particular for non-conformity of the goods, the buyer cannot avoid the contract by setting a time period for the seller to remedy a defect.52 The reasons for this limitation on the right to avoid the contract, as well as for the corresponding limitation on the buyer's right to require delivery of substitute goods under Art. 46(2) CISG, have often been mentioned and are quite obvious: Avoidance of the contract, but also the buyer's demand for substitute goods with the necessary return shipment of the complained of goods, regularly entail storage and transport costs in addition to the associated risks for the goods. Even if one only sees a limited broadening of legal argument for certain liability rules through consideration of costs and benefits under the economic analysis of law, it is clear that it makes economic sense in such cases 53 that the buyer either reduce the price or utilize the non-conforming goods as well as possible and liquidate the resulting damages.

"The Bundesgerichtshof  has respected this basic conception of restricted avoidability of the contract due to a lack of conformity of the goods and - differently than some foreign courts 54 -- has correctly set high demands to meet the avoidance threshold. In the well-known 'cobalt sulfate case,'55 after careful consideration of the partially differing authorities in this respect, the Court did not allow an irreparable defect alone to be sufficient for the presumption of a fundamental breach of contract.56 Furthermore, the Court emphasized, once again quite correctly in my opinion, that it is primarily the responsibility of the parties to clearly specify in the contract the importance of certain qualities of the goods so that the absence of such qualities would amount to a fundamental breach of contract by the seller.57 Therefore, it remains possible for the parties to give or demand 'guarantees' - or functionally equivalent - to make the existence of certain qualities or characteristics a 'condition,' in order to secure the possibility of avoiding the contract for non-conforming goods."

        52. This seems only slightly different than Huber's view in Schlechtriem/Huber, supra note 12, at Art. 45, para. 25, Art. 46 para. 55, 68. See also, id. at Art. 49, para. 55, 56 (The obvious prerequisite for avoidance of the contract (based on expiration of an additional time-period or "Nachfrist") is "that the breach of contract (such as the delivery of defective goods) objectively corresponds in its seriousness to the requirements set for a fundamental breach"); the setting of an additional period of time therefore only has the limiting effect of Art. 47(2) CISG.
        53. Of course, this does not apply for a local sale nor for a consumer sale. That is why the conception upon which is based the EU directive on sales of consumer goods (Richtlinie 1999/44/EG des Europäischen Parlaments und des Rates vom 25. Mai 1999 zu bestimmten Aspekten des Verbrauchsgüterkaufs und der Garantien für Verbrauchsgüter, AblEG L 171/12, Directive of the Parliament and Council of the European Union on the Sale of Consumer Goods and Associated Guaranties of 25 May 1999) and the corresponding easing of the requirements for the buyer's right to require delivery of substitute goods, and for rescission of the contract compared to the CISG, have a different policy basis.
        54. On the delivery of non-conforming red wine, see Cour de Cassation of 23 January 1996, IPRax 1996, 126 [case presentation also at <http://cisgw3.law.pace.edu/cases/960123f1.html>] and on this case, Witz, D. 1996, 334 ff. sub II. A., and Witz/Wolter, RIW 1998, 278 ff., 280: The Cour de Cassation did not worry itself with questions of detail, and with a simple substitution de motifs, it saved the appellate court's judgment from reversal.
        55. BGH of 3 April 1996, BGHZ 132, 298 f.
        56. Id. at sub II. 2. c) dd).
        57. Id. at sub II. 2. c) bb).

Aliud vs. peius. "[I]mportant for understanding warranty law under the CISG, but especially important for the (internal) German sales law, are the Bundesgerichtshof's remarks on peius [delivery of defective goods] and aliud [delivery of the wrong goods]:58 according to the Court, an aliud is the same as a defective delivery.59 Although the Bundesgerichtshof wants to leave the question open for the case of an especially blatant deviation of the goods from the qualities required by the contract, it is nevertheless clear that the equal treatment of aliud and peius has generally been accepted and viewed as an alleviation for the application of the law. Even for cases of blatant deviation, there is no need to qualify them as 'non-delivery' with the resulting possibility of contract avoidance after the expiration of a set additional period of time, the dispensation from giving notice, and the longer statute of limitations compared to § 477 of the German Civil Code (BGB) and Art. 3 of the Contract Act. The more extreme the deviation, the easier it will be to classify it as a fundamental breach of contract, since it will be that much less expected of the buyer that it attempt to use the unsuitable goods. A claim for delivery of substitute goods pursuant to Art. 46(2) CISG is then also available to him. Only in the cases brought as an example for § 378 of the German Commercial Code (HGB), where there is an obvious mix-up or a substitute offer because the seller cannot at all deliver or obtain the promised goods and therefore offers unordered goods, can one presume that no delivery has taken place.60"

        58. [BGH of 3 April 1996, BGHZ 132, 298 f.] at sub II. 2. b).
        59. The same in Austria: OGH [Austrian Supreme Court] of 29 June 1999, TranspR-IHR 1999, 48, 49 sub b) [case presentation also at <http://cisgw3.law.pace.edu/cases/990629a3.html>].
        60. Still considered fundamental on § 378 HGB in this respect is: von Caemmerer, Falschlieferung, in Festschrift für Martin Wolff zum 80. Geburtstag. Beiträge zum Zivilrecht und internationalen Privatrecht, (von Caemmerer ed., 1952) 3, 8 f.

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: 2 European Current Law, Monthly Digest (1997) No. 87 [67] = European Current Law Yearbook (1997); [1998] European Current Law No. 233 [144]; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=182&step=Abstract>

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER) / Revue suisse de droit international et de droit européen (1997) 137-138

Italian: Diritto del Commercio Internazionale (1997) 759-760 No. 175

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 299-300

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/135.htm>; Der Betrieb (DB) 1996, 1179-1180; Eildienst Bundesgerichtliche Entscheidunger (EBE/BGH) 1996, 180-184; Entscheidungen des Bundesgerichtshofs in Zivilsachen (BGHZ) 132, 290-305; Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1996, 444-448; Monatsschrift für Deutsches Recht (MDR) 1996, 778-780, 693; Neue Juristische Wochenschrift (NJW) 1996, 2364-2367; Recht der Internationalen Wirtschaft (RIW) 1996, 594-597; Wertpapier-Mitteilungen (WM) 1996, 1594-1598; Zeitschrift für die Anwaltspraxis (ZAP) EN No. 479/96; Zeitschrift für Wirtschaftsrecht (ZIP) 1996, 1041-1046; Juristische Schulung (JuS) 1996, 1034; Wirtschaftsrechtliche Beratung (WiB) 1997, 205-207; Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 1997, 342-345; Forum des Internationalen Rechts / The International Legal Forum 1 (1996) 136-139; Juristenzeitung (JZ) 1997, 35-38; Entscheidungssammlung zum Wirtschafts- und Bankrecht (WuB) I H 1.-1.97 [129-131]; [1997] Deutche Zeitschrift für Wirtschaftsrecht (DZWir) 66-70; BGHR CISG Art. 49(1)(a); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=182&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-255 [231 n.843 (rejection of "aliud" concept)]; Honnold, Uniform Law for International Sales (1999) 212 [Art. 25 (standards for avoidance)], 280 [rejection of "alliud" concept], 328 [Art. 49]; T.S. [Simons] Forum des Internationalen Rechts / The International Legal Forum 1 (1996) 139-140; Mullis, Avoidance for Breach under the Vienna Convention: Critical Analysis of Some of the Early Cases (1998) nn.79-80; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 243-245 nn.223, 227, 294 n.431, 351 n.600 [fundamental breach (gravity of consequences of breach): remedy-oriented approach], 258-259 n.267 [unfeasibility of cure does not necessarily constitute fundamental breach]; Schlechtriem, in: Uniform Sales Law in the Decisions of the Bundesgerichtshof (2001), at n.55; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-8 n.60; 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 n.89; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.576, 706-707, 712; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 41; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 8 para. 29 Art. 25 paras. 1, 9, 16, 21, 21a Art. 35 paras. 9, 10, 34 Art. 46 paras. 24, 25, 26, 30 Art. 49 paras. 2, 7, 11, 15, 19; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 149, 159 et seq., 172 et seq.; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) nn.306, 309, 311-315, 354, 367, 369, 371-374; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at pp. 247, 375, 383, 436; Peter Huber, CISG: The Structure of Remedies, 71 RabelsZ (2007) nn.7, 21, 33, 55, 57; Peter Huber, in: Huber & Mullis, "The CISG: A new textbook for students and practitioners", Sellier European Law Publishers (2007) 229

Finnish: Huber/Sundström, Defensor Legis (1997) 747 [755-756]

French: Spiegel, Receuil Dalloz (1997) 218-219; Zuppi, in: Sebastien Bettschart ed., Les ventes internationales (CDICAC 1998) Vol. 38, 36-38

German: Benicke, Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 1997, 326-331; Gaus, Wirtschaftsrechtliche Beratung (WiB) 1997, 207-208; Hohloch, Juristische Schulung (JuS) 1996, 1034-1035; Karollus , Juristen-Zeitung (JZ) 1996; Karollus, Juristen-Zeitung (JZ) (1997) 38-39; Koch, Recht der Internationalen Wirtschaft (RIW) 1996, 678-688; Gaus, Wirtschaftsrechtliche Beratung (WiB) 1997, 207-208; Nielsen, Entscheidungssammlung zum Wirtschafts- und Bankrecht (WuB) I H 1.-1.97 [131-132]; Magnus, Lindenmaier-Möhring, Nachschlagewerk des Bundesgerichtshof zum CISG (LM CISG) No. 3 (9/1996); Piltz, Außenwirtschaftliche Praxis (December 1997) 425-426; Piltz, Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1996, 448 and Transportrecht, Beilage "Internationales Handelsrecht" (TranspR-IHR) 13 [16 n.38, 17 nn.52, 53]; Schlechtriem, Entscheidungen zum Wirtschaftsrecht (EWiR) 1996, 597-598; Sieg, [1996] Außenwirtschafltliche Praxis (AW-Prax) 390-392; T.S. [Simons] Forum des Internationalen Rechts / The International Legal Forum 1 (1996) 139-140; Westerman, Deutsche Zeitschrift für Wirtschaftsrecht (DZWir) 1997, 45-47; Wolf, [1998] Wertpapier-Mitteilungen (WM) No. 47 Special Suppl. 1998/2, 41 [43-44]

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Case text (English translation)

Queen Mary Case Translation Programme

German Federal Supreme Court 3 April 1996

Docket No. VII 51/95

Translation [*] by Dr. Peter Feuerstein [**]

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

Facts of the case

The plaintiff [seller's assignee] requests from the defendant [buyer] payment of the purchase price for 15,0000 kg cobalt sulfate 21%. The basis of the claim constitutes four sales contracts dated 10 and 14 January 1992, which the [seller] had made with the [buyer]. The [seller] had its place of business, as does the [seller's assignee], in the Netherlands. The [buyer] deals with chemical products; its place of business is Hamburg [Germany].

The two written purchase agreements of 10 January 1992, negotiated through a mercantile broker and formulated by [seller], concerned 3,000 kg and 2,000 kg of cobalt sulfate and contained the following details:

"Product: Cobalt Sulfate 21% Quality; ex M. Payment: CAD [cash against documents] by cable transfer; Documents: Certificate of Analysis."

In the final remarks of the mercantile broker, the goods were described as "cobalt sulfate, at least 20/21%; origin: England". Pertaining to the delivery of the 2,000 kg, the description of the goods contained after the percentage the addendum: "Feed Grade". The payment clause stated: "Net cash against documents". Under "remarks", it was stated: "Certificate of Origin and Certificate of Analysis have to be provided by the [seller]". The two purchase contracts of 14 January 1992 for 5,000 kg cobalt sulfate each, were concluded via phone. The written version of these contracts, drawn up by the [seller] on that very day, contained the same description of the goods and payment conditions as the contracts of 10 January 1992. Under "documents", it was stated: "Certificates of Analysis and Origin". All four contract documents contained the following remark: "Without return of a signed copy by mail within 2x24 hours (after you received originals) we consider this contract accepted". No response to this remark was made by the [buyer].

On 29 January 1992, [seller] sent to the [buyer] at its request and for its information the Certificate of Analysis of firm M, dated 2 December 1991, concerning another contract. On 2 March 1992, [seller] informed the [buyer] that the goods were ready for collection at a warehouse in Antwerp. The [seller] then sent to the [buyer] two invoices for DM [Deutsche Mark] 172,000 and DM 348,250, a Certificate of Origin of the Chamber of Commerce of Antwerp, wherein it was stated that the goods had their origin in the EEC, as well as a Certificate of [chemical] Analysis of firm M. The [buyer] considered these documents insufficient and complained about differences between the Certificate of Analysis provided on 29 January 1992 and the Certificate of Analysis provided on 2 March 1992. About the Certificate which was subsequently provided to her, the [buyer] complained that it contained two, moreover, two different values of zinc. After [seller] provided another Certificate of Analysis on 17 March 1992, the [buyer] declared, via fax of 19 March 1992, the avoidance of all four contracts. The [buyer] explained that, due to the unresolved discrepancies and after a further inquiry with the London based manufacturer M, it had great doubts about the correctness of the Certificates of Analysis presented. At the proposal of [seller], who had objected to the avoidance by the [buyer], the [buyer] agreed to an examination of the goods by an expert, to be commissioned by [buyer].

By letter dated 26 March 1992, firm M informed the [buyer] that the objected different values of zinc in the Certificate of Analysis of 2 March 1992 were due to a typo. After the [buyer] had obtained the opinion from the commissioned expert, the [buyer] stated in a fax to [seller], dated 23 April 1992, that due to the discrepancies found in the chemical values of the examined goods, the [buyer] confirmed its avoidance of 19 March 1992. In the correspondence that followed, [seller] insisted on the payment of the purchase price. The [buyer] repeated its declaration of avoidance after an additional period of time, granted by [buyer] to the [seller] to provide four separate Certificates of Analysis, had elapsed without result. Expressly, the [buyer] now also based its avoidance on the fact that the goods consisted of 2% of indissoluble parts and that, therefore, the goods did not constitute customary trade quality. On 8 January 1993, the [buyer] declared once again the avoidance of the contracts, now also for the reason that the goods were neither of English origin, as stipulated, nor did they have their origin in the EEC, as stated in the Certificate of Origin. In the course of the legal proceedings, it became undisputed between the parties that the cobalt sulfate had been manufactured by a South African firm for firm M. The District Court granted [seller]'s motion for payment of the full purchase price of DM 520,250. The Court of Appeals dismissed the appeal by the [buyer]. With the final appeal, the [buyer] continues to pursue the dismissal of the claim.

Grounds for the decision

I.   The Court of Appeals stated:

According to Art. 53 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) , which applied in the present dispute, the [buyer] was obligated to pay the purchase price.

The Court held that the [buyer]'s declaration of avoidance based on Art. 49(1)(a)(b) CISG does not prevail because there was no fundamental breach of contract in the meaning of Art. 25 CISG. Even if one assumed that the delivery of English goods had been stipulated and that cobalt sulfate was actually manufactured in England, goods produced in South Africa would admittedly constitute an aliud.[*] However, such an aliud is treated under the Convention as a delivery of goods not in conformity with the contract, which in the present case does not cancel the [buyer]'s contractual interest. The [buyer] neither submitted that the goods were not usable in the normal course of business, nor that it could not be expected for it to attempt to resell the goods. As far as the [buyer] referred to export business with India and other countries in South East Asia with which the [buyer] would have had "unforeseeable difficulties" due to the (then existing) embargo for goods from South Africa, [buyer]'s pleading was unsubstantiated. The [buyer] did not show that it would have been more difficult, possible only at lower prices, or completely impossible to sell the goods in other countries. The [buyer]'s allegation that [seller] deceived [buyer] about the origin of the goods also does not have any merit. It was not apparent that the [seller] knew or at least considered that an English origin of the goods was decisive for the [buyer]'s purchase. In particular, the [buyer] did not sufficiently disprove the [seller]'s allegation that firm M only distributes cobalt sulfate manufactured in South Africa and customarily affixes on these goods an English ("UK") Certificate of Origin; for this reason, the [buyer]'s orders were also to be understood in this sense.

The Court of Appeals stressed the above in view of the fact that the parties did not conduct direct negotiations for the two purchase contracts of 10 January 1992, but acted through a broker. It is undisputed that the origin of the goods was not expressly discussed in the course of the later negotiations about the purchase contracts of 14 January 1992. The [seller]'s assertion about the existence of a trade custom pertaining to the British ("UK") Certificate of Origin being issued for cobalt sulfate from South Africa was disputed by the [buyer]. Still, neither the [buyer]'s challenge nor the fact that such a usage would have to be disapproved of as unfair and legally unbinding, excludes the possibility that such an actual handling has spread and that the [seller] understood the [buyer]'s offer accordingly.

As far as the condition of the goods is concerned, the parties are in dispute over whether the [buyer] bought cobalt sulfate in technical quality or fodder quality. At any rate, the [buyer] did not submit that it expressly requested technical quality. Even if one assumed such a stipulation, this does not mean that the delivery of fodder quality constitutes a fundamental breach of contract entitling the [buyer] to avoid the contract. The [buyer] did not state that such cobalt sulfate was more difficult for it to resell, that it could only have resold such cobalt sulfate at a lower price, or that such an attempt of disposal, perhaps with the help of the already employed broker, could not have been expected from [buyer] at all.

The Court of Appeals further held that the delivery of incorrect documents by the [seller] did not give the [buyer] the right to avoid the contract. The Court left open whether the case concerned a typical documentary transaction and whether the delivery of the Certificate of Analysis and the Certificate of Origin was a main obligation of the [seller]. At least with the expert's opinion commissioned by the [buyer], the [buyer] received a correct Certificate of Analysis. Likewise, the expected success of the transaction was not defeated by the delivery of the incorrect Certificate of Origin; the [buyer] was able to obtain a correct Certificate of Origin without difficulties from the local chamber of commerce.

The Court of Appeals also found that the [buyer]'s loss of trust caused by the delivery of inaccurate documents did not constitute a ground for avoidance of contract. The discrepancies between the respective Certificates of Analysis were in part excused, and in part they were not material. Apart from that, the Court held that Art. 49 CISG deals extensively and conclusively with the avoidance of contract as the "ultima ratio". It does not provide for avoidance of contract for a fundamental loss of trust, based upon the principles of loyalty and good faith. The question whether the [buyer] can request release from the obligation to pay the purchase price under the aspect of tort according to German or Dutch domestic law and whether such a claim can come into consideration besides the CISG, does not have to be discussed, as the [buyer] did not plead a deception by the [seller]. Furthermore, the payment is also due, as the [buyer] does not have a right of retention. The [buyer] was obligated to pay at the presentation of the documents, and it obtained them. The [buyer] did not request a new (correct) Certificate of Origin and Warehouse Receipt. Furthermore, the [buyer] cannot claim a right of retention under a different aspect.

II.  These findings withstand the test of legal review in all major points.

      1.   The Court of Appeals was correct to apply the CISG. The parties to the sales contracts have their respective place of business in different States, which both are signatories to the CISG (Art. 1(1)(a) CISG; cf. Schlechtriem/Schlechtriem, 2nd ed. appendix 1).

      2. a) The Court of Appeals also correctly held – and was insofar unchallenged by the final appeal – that only Art. 49 CISG can constitute the legal basis for the [buyer]'s avoidance of contract. An application of Art. 72 CISG is not possible, because the [seller] complied with its contractual obligation to store the goods in a warehouse in Antwerp and to notify the [buyer] that it could pick up the goods, while at the same time sending the documents. With this, the [seller] performed its delivery obligation, even though this performance was defective. Thus, there is no room to assume only an imminent future breach of contract, which is required for the preventive avoidance of contract under Art. 72.

         b) Nevertheless, the [buyer] in its appeal expresses the opinion that the seller can only request payment of the purchase price if it fulfills its obligation to deliver goods that conform to the contract (Art. 30 CISG). Buyer alleges that as long as the seller does not submit and, if necessary, prove such delivery of conforming goods, the breach constitutes a case of non-delivery, entitling the buyer to avoid the contract under Art. 49(1)(b) CISG. Therefore, [buyer] asserts that it is irrelevant whether the [seller]'s breach of contract was fundamental in the sense of Art. 25, 49(1)(a) CISG.

[Buyer]'s position is incorrect. Contrary to German domestic law, the CISG does not differentiate between delivery of different goods and delivery of goods that do not conform to the contract. Under the CISG, an aliud delivery does therefore, at least generally, not constitute a non-delivery, but constitutes a delivery of non-conforming goods. The CISG is different from German domestic law, whose provisions and special principles are, as a matter of principle, inapplicable for the interpretation of the CISG (Art. 7 CISG). The Court does not need to resolve whether, in the event of a blatant divergence from the contractual condition, a non-delivery in the meaning of Art. 49(1)(b) CISG can arise (see the references at Schlechtriem/Schwenzer, Art. 35 CISG, n. 10, fn. 32, and at Soergel/Lüderitz, 12th ed., UN-Kaufabkommen, Art. 35, n. 5 fn. 5). Such a violation of contract did not occur in the present case. The [buyer] bought cobalt sulfate 21%; this has been delivered by the [seller]. According to the [buyer]'s submissions in the final appeal proceedings, the Court must assume that the [buyer] did not order the delivered fodder quality, but technical quality; i.e., goods without the flow auxiliaries. This divergence is certainly not severe enough to regard the delivery not only as non-conforming, but as not having been made at all (cf. Herber/Czerwenka, Internationales Kaufrecht, Art. 49, n. 8; Schlechtriem/Schwenzer, op. cit., n. 9 and 10; Art 49, n. 19; Soergel/Lüderitz, op. cit., Art 35, n. 5; Staudinger/Magnus, BGB,[*] 13th edition. Art. 35 CISG, n. 7 seq., Hothause, RIW [*] 1990 (101, 106); Kappus, NJW [*] 1994 (984)).

         c) aa) As a legal basis for the [buyer]'s avoidance of the contract, only the provision of Art. 49(1)(a) CISG remains. This provision states that the buyer may declare the contract avoided if the failure by the seller to perform any of its obligations under the contract amount to a fundamental breach. A breach is fundamental according to the definition of Art 25 CISG, if it results in such a 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. Basically, contractual obligations of every kind are to be considered for the determination of a substantial contractual interest, irrespective of whether they constitute a main or ancillary obligation or concern quality, quantity, time of delivery or other manners of performance. The agreement of the parties is of first and foremost relevance (Art. 35(1) CISG). Except where the parties have agreed otherwise, the goods do not conform with the contract unless they are fit for the purposes for which goods of the description would ordinarily be used; unless they possess the qualities of goods which the seller has held out to the buyer as a model or sample; and unless the goods are packed in the usual and necessary manner (Art. 35(2) CISG). If the non-conformity results from a divergence from the contractual quality or another deficiency of the goods, it needs to be ascertained whether a different method of processing or sale of the goods was possible and reasonable in the normal course of business, even if it had to be combined with a price reduction (cf. Herber/Czerwenka, op. cit., Art. 25 CISG, n. 7; Soergel/Lüderitz, op. cit., Art. 25, n. 2 and Art. 49, n. 3; Staudinger/Magnus, op. cit., Art. 25 CISG, n. 12; Kappus, op. cit., p. 984 under II).

              bb) For the final appeal proceedings, it has to be assumed that the goods delivered by [seller] did not conform with the contractual agreement pertaining to their origin and condition. However, as the Court of Appeals correctly stated, the [buyer] – who is insofar burdened with the obligation to submit and prove the facts – did not substantially submit that it was substantially deprived of what it was entitled to expect under the contract as a result of the [seller]'s breaches.

              cc) The [buyer] did not make use of the – useful (see Kappus, op. cit., p. 985 under II; Holthausen, op. cit, p.102) – opportunity to expressly state in the contracts which obligations it considered essential. An implicit agreement to this extent cannot be concluded from the circumstances of the contracts.

              dd) In the absence of express contractual stipulations, the Court needs to determine whether the seller’s breach of contract substantially deprives the buyer of what it was entitled to expect under the contract. In doing so, regard is to be had to the CISG's tendency to limit avoidance of contract in favor of other possible remedies, in particular a reduction of the purchase price or a claim for damages (Art. 50, 54(1)(b) CISG). As the Court of Appeals correctly stressed, avoidance of contract is only supposed to be the [buyer]'s last resort to react to a breach of contract by the other party which is so grave that the [buyer]'s interest in the performance of the contract essentially ceases to exist (cf. Kappus, op. cit.; similar Herber/Cerwenka, op. cit., Art. 49 CISG, margin no. 1 and 2; Schlechtriem/Huber, op. cit., Art. 49 CISG, n. 2). Only if the buyer has substantiated and, if necessary, proven these prerequisites, does the question arise whether the seller foresaw or could have reasonably foreseen this result. This has to be assumed according to Art. 25, last part of the sentence, CISG.

The [buyer]'s appeal holds that it is solely decisive for the differentiation between a fundamental and a non-fundamental breach whether the defect can be remedied by the seller. The Court does not follow this position. The present case does not warrant a decision on whether the possibility of a subsequent remedy of the goods excludes the assumption of a fundamental breach, either completely or for a period of time (cf. Schlechtriem/Schlechtriem, op. cit., Art. 25 CISG, n.12; Schlechtriem/Huber, op. cit., Art. 49, nn. 9, 12; Staudinger/Magnus, op. cit., Art 25 CISG, n. 12). Even if, as in the dispute at hand, a subsequent remedy of the non-conformity is impossible, it does not necessarily follow that the [buyer]'s performance interest essentially ceases to exist (quite independent of the kind and extent of the non-conformity). "Fundamental" in the meaning of Arts. 49 and 25 CISG requires a considerable breach of contract – both when interpreting the wording, and when looking at the purpose of the CISG's provisions regarding the buyer's legal remedies. Such gravity can be derived from the contract itself, from the relevant circumstances (Art. 8 CISG), or from the reasons listed in Art. 35(2) CISG. If a considerable breach does not follow from these criteria, then even a defect of the goods which cannot be remedied does not entitled the buyer to avoid the contract under Art. 49(1)(a) CISG.

It is mainly up to the trial judge to determine whether a breach of contract is deemed fundamental according to the above standard. The circumstances of the case are always decisive (cf. Soergel/Lüderitz, op. cit., Art. 25, n. 2; Staudinger/Magnus, op. cit, Art. 25, n. 13). In particular, it has to be considered whether it can be expected for the buyer to put the goods to another reasonable use. The Court of Appeals has followed these principles. Thus, its finding that in the present case there is no fundamental breach cannot be rejected as an error of law.

                    aaa) Concerning the origin of the goods: The [buyer]'s submission that it exports and sells "primarily" to India and South East Asia and that it would have had "unforeseeable" difficulties there due to the South Africa embargo, is not sufficient to demonstrate that the possibility to export the goods to one of these countries constituted an essential part of the contract for the [buyer]. The [buyer] neither named potential customers in one of these countries nor specified its previous export business, nor did the [buyer] submit that a disposal in Germany or an export to another country was not possible or only possible with unreasonable difficulties.

                    bbb) Concerning the condition of the goods, the above said also applies. A remedy of the goods (removal of the auxiliary flow) is not possible. Not even the [buyer] submits that a certain quality was expressly agreed upon (Art. 35(1) CISG). But the [buyer] pleaded and offered corresponding proof that, failing the specification of a certain condition, technical quality was agreed upon (Art. 35(2)(a) CISG). However, under the present circumstances it cannot be concluded that the – allegedly non-conforming – delivery of cobalt sulfate with auxiliary flow (fodder quality) constitutes a fundamental breach in the meaning of Art. 49(1)(a) CISG. A major indication to the contrary is the fact that the [broker]'s final remark on the contract of 10 January 1992 (concerning the delivery of 2,000 kg cobalt sulfate 21%) regarding the description of goods contains the addendum "feed grade". The [buyer] did not object to this specification.

         d) Furthermore, the [buyer] pleads that it was also entitled to avoid the contract because the seller had delivered false documents and had let elapse the fixed additional time to deliver four original Certificates of Analysis and four Certificates of Origin. The [buyer] pleads that the [seller] also failed to perform its contractual obligations in this regard, and that consequently the prerequisites of an avoidance of contract were present according to Art. 49(1)(b) CISG.

              aa) It is correct that the delivery of contractually stipulated documents can be an essential contractual obligation, which, if breached, may entitle the buyer to declare the contract avoided according to Art. 49(1) CISG (cf. Schlechtriem/Huber, Art. 49 CISG, nn. 16, 25 seq.; Staudinger/Magnus, Art. 49 CISG, n. 9 and 33). However, it is not necessary to discuss in detail whether the present contracts constituted true documentary transaction with regard to the clause "cash against documents", resp. "CAD by cable transfer". This is because the sales contracts of 10 January 1992 mentioned only the Certificate of Analysis as a document and the contracts of 14 January 1992 named solely the Certificate of Origin; neither mentioned the Certificate of Deposit, which the [buyer] needed in order to receive the goods at the place of deposit. The [buyer] did not plead in the trial phase that the seller withheld the Certificate of Deposit. But even if all four sales contracts were to be considered as typical documentary transactions there would be, contrary to [buyer]'s assertion, no case of non-performance. The same principles apply to the documents which apply to the goods themselves: If the documents – though faulty – are handed over to the buyer, they are "delivered" with the consequence that Art. 49(1)(b) CISG does not apply. It is then relevant whether the buyer, through the defective documents, is substantially deprived of what it was entitled to expect under the contract. For this, one cannot consider solely the documents alone and whether the goods could be traded or not with the delivered documents. If the buyer can remedy the defect itself without difficulty by obtaining a correct document, it is able to sell the goods or the goods to be manufactured from them without difficulty, unless the goods themselves have grave defects. In such a case it cannot be said that the essential interest in the contract ceases to exist. It is also conceivable that the origin of the goods is irrelevant for the further disposal of the goods (sale or manufacturing). If that is the case, the faulty documents all the more so do not lead to a substantial deprivation of the contractual interest.

              bb) This is how the matter lies in the dispute at hand. The [buyer] is correct when it points out that the Certificate of Origin from the Antwerp Chamber of Commerce that was delivered by the [seller] was incorrect and that a use of this certificate in the course of the on-sale could not be expected from [buyer]. The term "origin" is understood – both according to the normal usage as well as the relevant provisions of the EEC – to refer to the place of production or the place of the (essential) manufacturing. The [seller]'s objection that one has to rely mainly on the correct import, and that the Certificate of Origin "EEC" was therefore at the time of its issuance correct, is consequently not convincing. However, if the [buyer] itself was able to obtain a correct Certificate of Origin, as the [seller] submitted without the [buyer]'s objection, then the [buyer]'s substantial contractual interest was preserved as far as such a certificate was needed for the resale of the goods. The same principles apply to the Certificate of Origin as to the goods themselves. The [buyer] did not plead that it could not utilize the cobalt sulfate with a correct Certificate of Origin "South Africa".

              cc) As far as the Certificates of Analysis to be presented by the [seller] are concerned, it has to be concluded that none of the four documents presented was in accordance with the contractual requirements. However, this fact also does not lead to the [buyer] being substantially deprived of what it was entitled to expect under the contract. At the [seller]'s proposal, the parties agreed to have the delivered cobalt sulfate examined by an expert to be chosen by the [buyer]. The Court of Appeals held that the [buyer] received a correct Certificate of Analysis with the expert report and that therefore one cannot speak of a cessation of its contractual interest. This Court does not object to those findings. The fact that the [seller] did not hand over four Certificates of Analysis for the deliveries, which undisputedly stemmed from one production, provides even less justification for an avoidance of contract. At the [buyer]'s order, the expert viewed all the goods in store, took samples and examined these samples. Therefore, its expert opinion included the deliveries pertaining to all four contracts for the sale of goods. Even if the [buyer] had intended to dispose of the four lots separately and would have needed a Certificate of Analysis for each of them, [buyer] could have produced additional certificates itself by making photocopies.

         e) It is questionable, whether – as the [buyer] asserts – the fraudulent foisting of non-conforming goods (here: South African origin) always constitutes a fundamental breach of contract under Arts. 25, 49 CISG. The question does not have to be decided in the present case, as the [buyer] did not show any fraudulent behavior by the seller. Such behavior would require that the seller consciously took advantage of the [buyer]'s alleged ignorance of the South African origin of the goods. The [buyer] pleaded and rendered proof that neither the [buyer], nor the broker knew that the cobalt sulfate delivered by the [seller]'s supplier, firm M, is produced exclusively in South Africa, and that this was also not general knowledge. Furthermore, the [buyer] holds that the [seller]'s assertion that firm M only delivers cobalt sulfate stemming from South Africa is incorrect. The [buyer]'s submission has to be interpreted – following its general context – in the way that the supplier also deals with English goods. This assumed, there was still no fraudulent behavior on the part of the seller. The [buyer] neither submitted nor provided any proof that the [seller] had ordered South African goods from firm M or even knew that the delivery was going to be made from there. On the other hand, if one follows the [seller]'s argument that firm M exclusively distributes cobalt sulfate produced in South Africa and affixes an English certificate of origin, then the assumption of fraudulent behavior fails for lack of the subjective requirements. If this was the case, there would be a misconception about the origin of the goods on the part of the [buyer], but not a conscious exploitation of this misconception on the part of the [seller]. The [seller] submitted – undisputed by the [buyer] – that the [buyer] was aware of these practices. In doing so, the [seller] plausibly explained the incorrectness of the origin of the goods, which consisted either already in the contractual agreement about goods stemming from England, or at the latest in the delivery of a false Certificate of Origin. It would have been the task of the [buyer] to contradict this explanation (Baumgärtel/Laumen, Handbuch der Beweislast im Privatrecht, Bd. 1, 2nd edition, § 123 BGB, n. 13).

         f) Thus the [buyer] did not substantially submit a tortious act by the [seller]. Contrary to the [buyer]'s opinion, the Court of Appeals consequently did not have to examine whether the [buyer] was entitled to refuse payment of the purchase price under the aspect of damages from tort under German or Dutch domestic law.

     3. Also without merit is the appeal's objection that [buyer] was at least entitled to exercise a right of retention according to Art. 58(1) CISG. According to this provision, the buyer is only bound to pay the purchase price when the seller places the goods or the documents controlling their disposition at the buyer's disposal. Documents in this sense are mainly the so-called true transfer documents, besides this, also similar documents granting the buyer a right of disposition to the goods and excluding the seller from same (cf. Schlechtriem/Haager, op. cit., Art. 58, n. 10). Among these are in particular the Warehouse Receipt, but not the Certificate of Origin or of Quality: their tender is normally neither necessary nor sufficient to found the maturity of the purchase price (cf. Staudinger/Magnus, op. cit., Art. 58, n. 21). The [buyer] never pleaded in the course of the trial phase that the [seller] was not able and willing to turn over the Warehouse Receipt against concurrent payment of the purchase price. The [buyer]'s assertion that the goods were no longer available was apparently made without any actual basis; the [buyer], and also the hired expert, could have ascertained the existence of the goods by inspecting them at any time. Whether the [buyer] would have been entitled to retain the payment of the purchase price because of the initially incomplete documents or the false EEC Certificate of Origin, even though the payment clause "cash against documents," respectively CAD was agreed, does not have to be decided. At any rate, such a right of retention would have ceased to exist prior to the end of the trial phase. The [buyer] received the correct Certificate of Analysis with the expert's report. The [buyer] itself would have been able to obtain the correct Certificate of Origin at the latest after the issue of the origin of the goods was resolved.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff's assignor of Netherlands 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: aliud [supplying totally different goods = no delivery] vs. peius [supplying non-conforming goods = delivery] is a concept that has had a certain significance in internal German sales law, as partially explained in the Court's opinion; BGB = Bürgerliches Gesetzbuch [German Civil Code]; NJW = Neue Juristische Wochenschrift [German law journal]; RIW = Recht der Internationalen Wirtschaft [German law journal].

** Peter Feuerstein is an International Legal Consultant. He conducted his post graduate research at Cambridge University, England, where he studied at Clare College in preparation of his Doctoral Dissertation. He received his Dr. jur. from Philipps-Univeristy of Marburg, Hessia, Germany, in 1977.

*** Ruth M. Janal, LL.M. (UNSW) is a Phd candidate at Albert-Ludwig-Universität Freiburg.

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