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CISG CASE PRESENTATION

Germany 15 September 1997 District Court Heilbronn (Film coating machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970915g1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISIONS: 19970915 (15 September 1997)

JURISDICTION: Germany

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 3 KfH O 653/93

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

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (defendant)

BUYER'S COUNTRY: Italy (seller's lessee plaintiff)

GOODS INVOLVED: Film coating machine for kitchen furnishings


Case abstract

GERMANY: Landgericht Heilbronn 15 September 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 345

Reproduced with permission from UNCITRAL

A German seller, the defendant, delivered a film coating machine for kitchen furnishings to an Italian leasing company for the use of an Italian lessee, the plaintiff. The buyer paid the purchase price. The negotiations were conducted in Italian. Under one of the seller's general terms and conditions which were drafted in German, the seller's liability was limited. When problems occurred with the machine, the lessee commissioned an expert report which concluded that the machine was defective. The buyer assigned its rights to the lessee, who declared the contract avoided. The lessee sued the seller for the reimbursement of the purchase price and damages.

The court applied the CISG by virtue of Art. 1(1)(a) CISG.

The court held that due to the defectiveness of the machine, the [buyer] was entitled to declare the contract avoided (Art. 49 CISG), to claim reimbursement under Art. 81(1), Art. 81(2) and Art. 49(1) CISG and to claim damages under Art. 74 [sentence one], 45(1) and 45(2) CISG. As the CISG does not deal with the limitation period, this question was governed by the law applicable under the German rules of private international law, according to which the action was not time-barred.

The court stated that no special rules for the incorporation of general conditions were foreseen in the CISG. Therefore these rules had to be interpreted according to Art. 8 CISG. Following the underlying principles of Art. 8 CISG, general terms and conditions had to be drafted in the language of the contract, the Italian language in this case, because the negotiations had been in Italian. Consequently, the terms and conditions in German provided by the German seller were unenforceable and therefore the exclusion clause in German was also ineffective. To assess the validity of the seller's terms and conditions drafted in Italian the court applied German law. In the assessment it replaced the reference to German non-mandatory rules by reference to the rules of the CISG, namely Art. 74 [sentence two] CISG, and held that exclusion of liability in the terms and conditions to be void.

The court found that the buyer was not obliged to fix a final deadline for delivery, a condition normally required under German law to enable subsequent avoidance of the contract and damages. The relationship between the CISG and national law was governed by Art. 4 and Art 7 CISG. Therefore, conditions foreseen under national law could only be applied if the issue was not addressed by the CISG. As the CISG provides an exhaustive set of provisions on remedies for breach of contract in Art. 45 et seq. CISG, no recourse could be had to German national law.

The final calculation of damages and their possible limitation to the foreseeable loss under Art. 74 [sentence two] was kept for the final decision.

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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 4 ; 7 ; 8 ; 25 ; 49 ; 74 [Also cited: Articles 45 ; 81 ] [Also relevant: Articles 24 ; 61 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Issues excluded: validity (general terms and conditions in foreign language); limitation of actions];

7C [Relation between Convention and national law];

8A [Intent of party making statement or engaging in conduct];

25A [Effect of fundamental breach];

49A [Buyer's right to avoid contract: grounds for avoidance (fundamental breach)];

74B [Outer limits of damages: foreseeability of loss]

Descriptors: Scope of Convention ; Validity ; Statute of limitations ; Standard terms and conditions ; Gap-filling ; Avoidance ; Fundamental Breach ; Exculpatory clauses ; Intent ; Language issues ; Damages ; Foreseeability of damages

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Editorial remarks

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Citations to other abstracts, texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=439&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch "http://www.cisg-online.ch/cisg/urteile/562.htm"; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=439&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 8 paras. 53, 54; Pilar Perales, Case cited at n. 12 in Presentation on Nachfrist at September 2005 seminar in Singapore

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Case text (English translation)

Queen Mary Case Translation Programme

District Court (Landgericht) Heilbronn

15 September 1997 [3 KfH O 653/93]

Translation [*] by Felix Haug [**]

Translation edited by Camilla Baasch Andersen [***]

FACTS OF THE CASE

The Plaintiff is a supplier of Italian furniture - in particular to kitchen furniture companies.

The Plaintiff seeks to avoid a sale of a prototype of a film coating machine, produced and delivered by the [seller]. Further, the Plaintiff claims compensation for all expenses arising in regard to the transaction.

The Plaintiff's claims rely on the assigned right of leasing company […] S.p.A., introduced by Plaintiff.

As an improvement to the former three-side coverage in one continuing process, the film coating machine was supposed to cover large-size boards of wooden work pieces used for the fabrication of kitchen furniture, with film material at the top and bottom side as well as at the side edges, therefore on all four sides.

The Plaintiff alleges, the machine does not match the contractual agreed requirements, as the film material creates folds and bubbles and shows wrinkles at the bottom side of the work pieces.

The [seller] is a subsidiary of […] conducting business in Germany and in mechanical engineering.

On 23 May 1990 -- after preliminary negotiations, via a further subsidiary of the majority shareholder, firm […] -- the managers of the parties signed a form, headed "contratto di vendita" of firm […] (enclosure K2 = B 22) concerning the purchase of a machine - model PU 130/60 - Fol - for the price of DM [Deutsche Mark] 1,068,000. Above the signatures and handwritten adjustments, the form also contains pre-formulated standard trading conditions in Italian language (translation enclosure B 23).

On 20 June 1990, the [seller] confirmed the order to the Plaintiff on an order confirmation form, which, in addition to a detailed explanation of the machine, contains pre-formulated standard sale and delivery conditions (in German language).

Both documents contain the note that payment will be made by a leasing company, determined by the Plaintiff.

On 13 December 1990 (enclosure B1), firm […] S.p.A., determined by the Plaintiff, ordered the machine, as described in the order confirmation of 20 June 1990, after previous transmission of a pro forma bill by the Plaintiff on 20 November 1990 (enclosure K 28).

The order of […] contains again common standard sale conditions in Italian language.

Under number 3 of these conditions is laid down: "The delivery follows the conditions, agreed upon directly between deliverer and lessee."

By cover letter of 1 February 1991, the [seller] sent this order back with its countersignature.

The first intended date of delivery the parties had agreed on, in June 1991, was not met; however, a pre-acceptance took place in the Plaintiff's production halls on 6 December 1991, but without production of parts.

On 18 December 1991, the machine was sent to the Plaintiff by cargo, where it arrived on 29 December 1991 (delivery note, enclosure K 7). The sales bill was sent at the same time to […] S.p.A. (enclosure K 8). The machine was assembled at the [Plaintiff's premises] by the [seller] and handed over by the [seller] on 11 February or on 26/27 February 1992 (differing statements of the [seller] on the written pleadings of 15 March 1994/page 4 of the encl. and of 23 March 1995/page 100 of the encl.).

According to the statements of the [seller], as a consequence of the problems concerning four-side coverage, subsequent improvements were made during 5-12 and 28-30 May, 1-3 July, 1-17 September and 25-26 September 1992.

By letter of 11 November 1992 (enclosure B 13) to firm […], the [seller] announced further subsequent improvements from 16 November to 2 December 1992. The announcement was forwarded by firm […] to the Plaintiff, translated in Italian by letter of 12 November 1992 (enclosure K 9).

By letter of 18 November 1992 (enclosure K 10/translation enclosure K 10a) to firm […], the Plaintiff asked the firm to stop the subsequent improvement efforts, as it intended to realize a preservation of evidence procedure.

By letter of 16 February 1993 (enclosure K 11) the [seller] accepted the preservation of evidence procedure. In the procedure, an expertise was constituted by the expert Prof. Ing. […] (enclosure K1 with translation) on 20 May 1993, which stated, based on tests carried out, the non-functioning of the machine. The only exception had been with the usage of the film Tacon. But because of its strength, this film was not included in the description of the offer and the intended variety and program of usage.

[Plaintiff's position]

By the suit, received by the court on 30 December 1993, the Plaintiff declares avoidance of the contract in accordance with of Art. 49 of the CISG - because of a fundamental breach of contract (Art. 25 in context with Art. 45 CISG), declared by letter of its lawyers on 17 November 1993 (K27). Plaintiff claims reimbursement of the paid part of the purchase price of DM 668,000 in exchange for the return of the machine. Furthermore, Plaintiff claims compensation according to Art. 45(1)(b) in context with Art. 74 CISG for expenses relating to the intended usage of the machine. These damages are estimated by Plaintiff as follows:

1. Essential preparation measures and parallel investments:
a. Rental expenses: It£ [Italian Lire] 366,758,699
b. Production site: 118,426,965
c. Supplementary instruments: 54,953,193
d. Auxiliary Engine: 438,638,205
e. Transport costs: 19,120,024
f. Material: 93,814,794
g. Personnel: 503,456,871

TOTAL: It£ 1,593,169,721
2. Lost profit 1st year 1993: 750,000,000
3. Financial expenses for the investment: 300,000,000

TOTAL: It£ 2,645,168,721

For further details concerning the amounts of the damages claimed, reference is made to the bill of complaint on page 9/23 of the encl. and the presented enclosures K12/22.

If avoidance of the contract is not justified, the Plaintiff claims reduction of price according to Art. 50 CISG. At the time of delivery, the value of the machine could be estimated at a maximum of DM 300,000. Thus, DM 368,000 was paid in excess. Further, the [seller] was not entitled to demand the rest of the purchase price - DM 400,000.

Interest should accrue on the compensation sums claimed. But the higher interest expenses of the Plaintiff in fact have to be limited according to the 10% interest rate of Italian law.

The Plaintiff requests that the court:

1. Order the [seller] to pay the Plaintiff It£ 2,645,168,721 with interest of 10% from 16 December 1993.

2. Order the [seller] to pay further DM 668,000 in exchange for the coating machine PU 130/60 - Fol in Pesaro (Italy).

Subsidiarily:

- Order the [seller] to pay the Plaintiff DM 368,000 with interest of 10% from 21 December 1992. It has to be considered that the [seller] cannot demand the rest of the purchase price for the machine.

It has to be stated that the [seller] must compensate the Plaintiff for all damages that Plaintiff has suffered since 1 January 1994 as a consequence of the non-functioning of the coating machine, Type […] PU 130/60 - Fol, delivered by the [seller].

[Seller's position]

The [seller] requests that the court dismiss Plaintiff's suit at the Plaintiff's expense.

The [seller] has abandoned a challenge to the local jurisdiction of the court which it raised at first.

Firstly, [seller] raises the defense of time limitation against the named claims. The action was not filed within the six-month period of time limitation according to sect. 477 BGB [*].

The claims had already expired according to the statute of limitations before the launch of the preservation of evidence procedure at the court of Pesaro, as the time limitation had only been restrained for the admitted 27 days period of subsequent improvement. Besides, only a German, and not an Italian, preservation of evidence procedure met the requirements for an interruption of the time limitation. Finally, the claims had fallen under the statute of limitations when the action had been filed on 30 December 1992, as the six-month period of limitation, beginning on 20 May 1995 with the constitution of the expertise for the preservation of evidence, had been terminated on 30 November 1993. For itself, [seller] had not waived the defense of time limitation. The declaration of [seller]'s insurer company not to raise this defense till 31 December 1992 could not be attributed to [seller], as the insurer's authority to compensate damages did not exceed the duty to do so and the insurer, by letter of 16 November 1992, has denied insurance coverage for this kind of damages.

Moreover, the Plaintiff had introduced the preservation of evidence procedure in contradiction to its former behavior. Namely, the Plaintiff had agreed, since 16 November 1992, on further subsequent improvements by installation of an extension part and, instead, unexpectedly denied access to the machine to [seller]'s employees sent to undertake subsequent improvements.

Further, the compensation of consequential damages caused by a defect, as they are claimed by the Plaintiff beyond the reimbursement of the purchase price, are excluded, according to the exculpatory clause under No. VIII. 8 of the [seller]'s standard trading conditions, which the Plaintiff had received with the confirmation of the order, unless based on intention or gross negligence. Moreover, in the Italian contractual conditions of the order, signed by both parties, all compensation claims beyond the repair of the goods had been excluded.

Finally, the Plaintiff had not set a Nachfrist for the [seller] to remove defects according to sect. 326 BGB [*] before compensation of damages could be claimed in context with the simultaneous warning, also provided by law, that further subsequent improvements would be rejected.

[Plaintiff's position]

In contrast, the Plaintiff argues that the claims did not expire according to the statute of limitations, as, firstly, the time limitation had been suspended by the [seller]'s - unsuccessful - improvement efforts and had been interrupted further by the preservation of evidence procedure, realized in Italy. Finally, the insurance company's waiver had to be attributed to the [seller]. Consequently, the filing of the action on 30 December 1992 was not expired.

The [seller] also could not refer to the exclusion of the compensation claims, named beside the claimed reimbursement of the purchase price, as consequence of the exculpatory clauses stated by him. These were not included effectively in the contractual relationship of the parties.

Fixing a time limit had not been necessary. As the CISG contains a complete regulation, which did not provide the fixing of a time limit, no reference had to be made to sect. 326 BGB [*].

[Seller's position]

The claim for damages of It£ 2,645,168,721 is contested by the [seller] on its reason and on its sum in all positions.

For further statements of the parties and in particular their extensive legal outlines, reference is made to the correspondence and their enclosures.

Evidence has been taken by hearing witnesses […] and […]. So far reference is made to the protocol of 11 June 1996.

REASONING OF THE COURT

I. [Plaintiff's claim allowed in part]

The suit is successful on its reasoning and partly re. the sum, as far as the reimbursement of the purchase price of DM 668,600 is claimed.

Regarding the Plaintiff's further claims, and in particular claims for compensation, these are awarded in general. Yet the case cannot be decided so far as extensive taking of evidence is necessary in respect of the single question of alleged damages.

However, the court considers that it is appropriate to reach a partial decision, as the existence of the claims, named above, depends decisively on the prior judgment of questions of legal principle. Namely, if the defense of time limitation or an exclusion of compensation claims as consequence of the inclusion of the [seller]'s standard trade conditions (derived from the assigning firm […]) in the contractual relationship of the parties, comes into effect.

It is necessary to clear these questions between the parties definitively, before further, probably very expensive, evidence has to be taken.

II. [Plaintiff's claim for reimbursement of purchase price]

The Plaintiff's claim for the reimbursement of part of the purchase price, paid by the assignor, against return of the machine, is successful pursuant to Art. 81(1) and (2) in context with Arts. 49(1)(a) and 45(1)(a) of the United Nations Convention on Contracts for the International Sale of Goods (CISG), as well as Plaintiff's claims for compensation pursuant to Art. 74 sentence 1 in context with Article 45(1) and (2) CISG by its reason.

     1. [Applicable law]

Unequivocally, the United Nations Convention on Contracts for the International Sale of Goods is applicable to the contractual relationship between the parties, derived from the assignor.

In bilateral transactions of members of the European Union, the United Nations Convention on Contracts for the International Sale of Goods supercedes German private international law, as well as national private law (BGB [*]).

The Federal Republic of Germany as well as the Republic of Italy are Contracting States to the CISG, and the Plaintiff as well as the assignor is resident in one of these States in the sense of Art. 1 CISG. Therefore, the relationship between the parties is subject to the CISG.

     2. [Declaration of avoidance of the contract]

2.1 By written pleading of the Plaintiff's lawyers on 17 November 1993, the Plaintiff has declared the avoidance of the contractual relationship according to Art. 49 CISG (enclosure K 27).

Based on the statement of the expert Prof. […] in his report on the preservation of evidence procedure of 25 May 1993, the Plaintiff was entitled to do so.

The expert has stated clearly and without any doubt that the machine, delivered by the [seller], is not functioning in the sense of the contractually agreed potential usage, which is the four-sided coverage in one process under usage of materials provided by the Plaintiff. This is also undisputed.

Therefore, the Plaintiff is entitled to declare avoidance of the sales contract and to obtain compensation for damages.

In this context it is unimportant that, according to the statement of the [seller], the machine has been fully operable in respect of three-sided coverage and has been used extensively by the Plaintiff for the production of three-sided coverage of work pieces.

The purpose of the development of the prototype and the technical improvement was to facilitate four-sided coverage in one continuing process. It is undisputed that machines facilitating three-sided coverage were already placed on the market by the [seller], as well as by competitors.

To the extent that the machine in fact could have been or has been used for three-sided coverage, this has to be cleared within the question - and therefore by further taking of evidence - how far the Plaintiff's claims for compensation are reduced or limited by such a usage.

2.2 In spite of the [seller]'s subsequent improvement efforts from February to September 1992 and the [seller]'s intention to undertake renewed, subsequent improvements beginning on 16 November 1992, the Plaintiff was neither obliged to permit the subsequent improvement effort nor prohibited from introducing the preservation of evidence procedure.

The [seller] concedes to have visited the Plaintiff for subsequent improvements during the periods 5-12 and 28-30 May and further 25-26 September 1992. Furthermore, as it is obvious from hotel confirmations, produced by the Plaintiff, employees of the [seller] have visited the Plaintiff's location during the periods 3-6, 11-14 and 18-20 March, 4-21 May, 22 June - 3 July, 20-26 October and 4-5 November 1992. The purpose of these visits could also have been subsequent improvement efforts.

As the hearing of witnesses […] and […] has shown, two factors led the shareholder, responsible for the subsequent improvement process, to dismiss talks about further subsequent improvements intended by the [seller] from 12 November 1992 and to pursue the introduction of the preservation of evidence procedure.

On the one hand, it was the divergent from the telephonically discussed - and confirmed by witness - extension of the machine from 5 meters to only 1.3 meters, as it was announced in the letter of 12 November 1992 (enclosure B 14/4/2a). According to the statement of the witness, as consequence of the contradictions, this made the [seller] worry and created fear about the future development.

This extension was intended by the [seller]'s side to solve the problem of the insufficient paste of the 4th (bottom) side, which, among other things, was seen in the too strong cooling of the heating during the working process so far, by installation of new heat sources.

On the other hand, it was an open question, if and to what extent the damage of the Plaintiff so far should be compensated. That this open question was a decisive background for the termination of the subsequent improvement warranty, is shown not least by the circumstance that it has been the reason for a talk of the parties in Milan, accompanied by their lawyers, on 22 December 1992. That talk also ended without an agreement, whereby both parties blame each other for the termination from then on.

According to the opinion of the court, the decision of the Plaintiff, to refuse further subsequent improvement efforts and to introduce a preservation of evidence procedure, is justified by the doubt - also explained by witness […]'s doubts, which emerged in open questioning - whether the subsequent improvement effort by extension of the machine of 1.3 meters, instead of the previously addressed 5 meters, would be sufficient, and additionally by the [seller]'s unsuccessful subsequent improvement efforts of nine months, since the assembly of the machine in February 1992, in context with the fact that the [seller] could not give a decisive statement concerning its compensation duty.

Additionally, during that preservation of evidence procedure the [seller] also had the possibility to make the machine operable. As can be seen from the chronological account given by the expert, in total, four dates of inspection had taken place over a longer period of time and the expert had made his statement only at the last of these dates, as the previous inspections had been terminated in order to give the [seller] the opportunity to make the machine operable for a satisfactory expertise. Therefore, [seller] would not have been hindered, if in fact its progress had been at that stage to install the alleged, existing extension and supplementary parts, in order to prove that the machine is fully operable.

     3. [Statute of limitations]

The claims of the Plaintiff do not fall under the statute of limitations.

3.1 The CISG does not contain a rule of time limitation. As well as the Republic of Italy, the Federal Republic of Germany also has not joined the U.N. Convention on the Limitation Period in the International Sale of Goods of 14 June 1974 (in the version of the Vienna amending protocol of 11 April 1980), which contains in Art. 8 a time limitation of 4 years.

However, the Federal Republic of Germany has introduced in Art. 3 Transformation Act of the CISG (Act relating to the United Nations Convention of 11 April 1980 on Contracts for the International Sale of Goods … of 5 July 1989/Contract Act) a special rule of time limitation. According to that, for claims of non-conformity, sect. 477, 478 BGB [*] have to be applied by analogy under the provision that the period of six months begins on the day when the Plaintiff gives notice of the lack of conformity to the seller pursuant to Art. 39 CISG.

Further provision of the time limitation of Art. 3 Contract Act, is the standard of German law as law of the contract. This means, to the extent that the provisions of the CISG are not applicable, the rules of Art. 27 EGBGB [*] have to refer supplementarily to German law (v. Cammerer/Schlechtriem, Kommentar zum einheitlichen UN - Kaufrecht, Art. 3 VertragsG, Rdn.3).

Under Art. 27 EGBGB, the parties are free to choose the applicable law. In the present instance, none of the standard trade conditions named by the parties as possible contractual basis contains an agreement which refers to applicable national law. Therefore, the basic link of Art. 28(1) sentence 1 EGBGB [*] comes into effect. According to that provision, the national law to which the contract has the closest relation is applicable.

In respect of the provision "closest relationship", Art. 28(2) EGBGB [*] contains a legal assumption according to which the conduct of the characteristic performance is decisive. Therefore, it is assumed that the contract has the closest relation to the law to which the obligor of the characteristic performance is a subject at the time of conclusion of the contract. According to that, if the parties have chosen no law in the sales contract, the law at the usual residence or at the seat of the seller is decisive (Palandt, Kommentar zum Bürgerlichen Gesetzbuch, Art. 28 EGBGB No. 4 a, bb).

In the present instance, the [seller] has its seat in Germany. Therefore, according to Art. 28 EGBGB, the German law of time limitation is applicable, especially relating to restraint or interruption of the time limitation.

3.2 Restraint of the time limitation

     3.2.1 Beginning of the time limitation

As outlined above, according to Art. 3 Contract Act the time limitation begins with notification of the lack of conformity.

This claim of non-conformity is not subject to special formal provisions. Therefore, notice given in oral form is sufficient.

It is not disputed between the parties, that the Plaintiff and also the [seller]'s employees occupied with the installation, stated immediately after the local assembly of the machine in Italy that the machine was not operable for four-sided coverage and that this has been addressed by the Plaintiff. Therefore, an orderly notification of the lack of conformity, immediately after installation of the machine in the Plaintiff's halls, can be assumed.

It is undisputed that the machine was delivered in Italy on 29 December 1991. In regard to the contradictory statements of the [seller] relating to the installation dates, it has to be assumed in favor of the Plaintiff that the machine was installed on 26/27 February 1992.

Therefore the period of time limitation of 6 months according to sect. 477 BGB [*] began on this date.

     3.2.2 Period of the restraint of the time limitation

According to sect. 639(2), half sentence one BGB, the time limitation is restrained for the period during which the contractor, in agreement with the principal, examines the existence or removal of the lack of conformity.

In this context, the restraint of the time limitation begins already with the agreement on the examination of the deficiency or on the realization of the subsequent improvement (BGH [*] NJW [*] 1997, 727/728) and lasts till its completion, declared by the contractor, or till the end of the parties' agreement on the realization of subsequent improvement (sect. 639 (2) BGB [*]).

As it is evident from the receipts of the hotels "Ambassador" and "Principe" in … (enclosure K 33 a to e), presented by the Plaintiff, employees of the [seller] stayed regularly for several days at the Plaintiff's seat in the time between 3 March and 5 November 1992. It is also without dispute that subsequent improvement efforts have been carried out by the [seller] during those time periods. Consequently, the time limitation was restrained during these improvement efforts, corresponding to sect. 639(2) BGB [*].

The further, undisputed visit to the Plaintiff by employees of the [seller] on 16 November 1992 cannot be included in the period of time limitation. By the refusal to allow the employees of the [seller] access to the machine for subsequent improvement, the Plaintiff has made clear that it disagrees with further subsequent improvement efforts. Separately, the Plaintiff decided to realize a preservation of evidence procedure and gave notice to the [seller] thereof by writing of 18 November 1992 (enclosure K. 10).

The beginning of the restraint of the time limitation corresponds to the date of the completed installation of the machine. Therefore, the real time limitation began only with termination of the restraint by levying the agreement on subsequent improvement efforts, and therefore after 16 November 1992, when the employees of the [seller] were not allowed to perform further subsequent improvements; thus, on 17 November 1992.

3.3 The same result is reached when the permanent efforts of the [seller] to make the machine operable for four-sided coverage are not only considered as measures … "of removal of the deficiency" (sect. 639(2) BGB [*]), which leads to the restraint of the time limitation, but measures, by which the seller "… recognizes the right of warranty in another way" (sect. 208 BGB [*]). Here, the consequence would be interruption of the time limitation with the beginning of the works (see BGH [*] NJW[*] 1988, 254) and therefore would only begin from 17 November 1992.

3.4 Interruption of the time limitation by the preservation of evidence procedure

It need not be decided whether the beginning of the preservation of evidence procedure, and therefore the interruption of the time limitation according to sect. 477 BGB [*], has to be set on the application for ordering a preservation of evidence procedure of 20 November 1992 (enclosure K 30) or on the [seller]'s joining of the preservation of evidence procedure by letter of 16 February 1993 (enclosure K 11). Because even on 16 February 1993, the time limitation of six months, beginning on 17 November 1992, had not lapsed.

According to sect. 477(2) sentence 2 BGB [*], the interruption lasts till the termination of the independent preservation of evidence procedure. In this context, the [seller] cannot defend itself - i.e., that the time limitation can only be interrupted by an independent preservation of evidence procedure according to the provisions of the German Code of Civil Procedure. As a consequence of [seller] joining, documented by its signature on the application for preservation of evidence and its acceptance of the independent preservation of evidence procedure according to Italian law, it must also accept that the legal consequence of this procedure is the interruption of the time limitation according to German law. On the other hand, sect. 477(2) sentence 1 BGB [*], which refers to the independent evidence procedure according to the (German) Code of Civil Procedure, contains no exclusion rule. But the same effect has to be adjudged to corresponding rules of the further European Member States, subject to the CISG.

Art. 24 of the European Communities Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters of 27 September 1968 (EuGVÜ [*]), provides explicitly that application for interim orders, including security orders, may also be made at a domestic court, when the main decision falls in the judicial competence of another Contracting State.

As it can be seen from the presented application (enclosure K 11) to the regional court, the procedure of preservation of evidence according to Italian law is also a statutory governed, formal institution of preservation of evidence, which therefore meets the provisions according to German law for interruption of the time limitation.

It is undisputed that the expertise of the expert Prof. […] has been delivered on 20 May 1993. At the latest with the delivery, which, as consequence of lack of details provided by the parties, can be assumed to be on 30 May 1993, the preservation of evidence procedure was completed and according to sect. 477(2) sentence 3 in context with sect. 211(2) BGB [*] the time limitation of six months began again on 30 May 1993.

3.5 Contractual waiver of the defense of time limitation

In spite of the termination of the renewed period of time limitation on 30 November 1993, however, the time limitation of the Plaintiff's claims has been renewed and it lasted until it was interrupted by filing an action in writing on 26 December 1993 according to sect. 209(1) BGB [*], received by the District Court of Heilbronn on 30 December 1993. This is a consequence of the waiver on the time limitation until 31 December 1993 by the liability insurer of the [seller] on 11 November 1993 (enclosure K 26), which is attributed to the [seller], to the extent that the time limitation did not yet come into effect.

The [seller] was requested in writing of 5 November 1993 by the Plaintiff's lawyers (enclosure K 24) to waive the defense of time limitation, otherwise an action would be filed. In the following, [seller] has responded by fax of 5 November 1993 (enclosure K 25) "we would like to inform you, that we have delegated the answer of your letter and therefore the whole file to our industry liability insurer…."

The insurer has declared by letter of 11 November 1992 (enclosure K 26) that a statement concerning coverage and liability was not possible yet, but corresponding to the letter of 5 November 1993, that it waived the defense of time limitation, to the extent that this had not already come into effect.

In the following, the [seller]'s manager has been asked by the insurer on the carbon copy of the writing of 11 November 1993 (enclosure B10), to give a corresponding statement also in the [seller]'s name. Further, it has been informed by the insurer by letter of 16 November 1993 (enclosure B 9) that there was no insurance coverage, as claims for non-performance had been excepted explicitly from the insurance coverage in the insurance contract, as far as they do not refer explicitly to insured consequential losses.

By writing of 17 November 1993 from the Plaintiff's lawyers to the insurer (enclosure K 32), the Plaintiff made again reference to the missing statement of the [seller]. Reference was also made to the fact that thereby the insurance company was treated as agent of the insured. Furthermore, the insurer was asked to work towards a corresponding statement of the [seller] for reasons of clarity.

Correspondingly, a letter of the Plaintiff's lawyers of 17 November 1993 (enclosure B 11) was also sent to the [seller]. In the letter, reference was also made to the [seller]'s missing declaration of a waiver, and further it was explained: "Therefore we proceed from the fact, that the statement of your liability insurer has been approved by you."

Because of these facts, that the [seller] has announced by writing of 9 November 1993, that it had delegated the "whole file" to the liability association, and that it has not objected to the Plaintiff's statement "We proceed from the fact, that the statement of your liability insurer has been approved by you", the [seller] can maintain neither that it did not itself waive or approve the waiver of the insurance company, nor that the statement of the insurer is of no importance to him, as the authorization of regulation would not exceed the duty of regulation.

On the one hand, this common basic principle has been restricted by decision of the German Federal Supreme Court (BGH [*] NJW [*] 1987, 924, 925). According to that decision, the principle is (only) applicable, "…to the extent that … there is no mandatory reason for representation of the insured by the insurer without duty of regulation …", and by [seller]'s writing of 3 November 1992, in which it announced the delegation of the whole file, and in the following objection of the [seller] to deal with further letters of the Plaintiff, such a mandatory reason can be seen.

On the other hand, it is the court's point of view, that, because of the informed, complete delegation of the file by the [seller] to the insurer and the attitude of the Plaintiff, explained to [seller] in writing, that Plaintiff assumes the [seller]'s approval of the insurance company's waiver of the time limitation, the [seller] was obliged according to the reciprocal, loyal relationship of the contract between the parties, to inform the Plaintiff in time, i.e., without hesitation, and clearly, if it did not accept the insurer's waiver.

Moreover, since the [seller] did not refute the Plaintiff's imputation of approval, it has to be assumed as a consequence of [seller]'s silence, that [seller] shared the Plaintiff's attitude. Therefore [seller] is tied up with Plaintiff's implied approval.

     4. Inclusion of standard trading conditions

According to the Plaintiff's point of view, the [seller] is obliged to inform it as Italian business partner about the inclusion of its standard trading conditions in the German language. The Plaintiff refers to the article of Piltz "Neue Entwicklungen im UN Kaufrecht" (NJW [*] 1996, 2768, 2770).

That argument cannot be followed. As far as it is visible, Piltz represents an isolated opinion. Rather the argumentation of Schlechtriem has to be followed (v. Cammerer/Schlechtriem, Art. 14 Rdnr. 14). According to that, as the CISG does not contain special provisions for the inclusion of standard trading conditions, the essential regulations for such an inclusion in a contract have to be construed pursuant to Art. 8 CISG. Schlechtriem argues, with reference to Art. 8(3) CISG, that an indication of the standard terms and/or trading conditions has to be made in a way that it is understandable to a reasonable person from the recipient's point of view. Moreover, the addressee has to be able to get to know its content, because a "reasonable person" in the manner of the "recipient" must have an understanding of the content of the declaration "under the same circumstances" (Art. 8(2) CISG ). Therefore the [recipient] must have a possibility of information and therefore of understanding. In this context, the language in which reference is made to the standard trade conditions and in which they are written, could be significant.

This corresponds to the jurisprudence accessible to the court. It has focused decisively on the language of contract chosen by the parties, whereby it has always been stated that the contract was subject to a certain language.

It has been decided by the German Federal Supreme Court (BGHZ [*] 87, 112), that basically the foreign contracting party has to accept the complete German content of the contract including the underlying standard trading conditions, if the contracting parties have chosen the German language as negotiating and contractual language. The understanding of German standard trading conditions could be very difficult for foreigners. But when the foreign partner has accepted German as the negotiating and contractual language, it can be expected that it acquire the essential translation before entering into the contract. Otherwise, it is subject to the not noticed text of the trading conditions.

Also the regional appellate court of Hamm (NJW [*] 19833 523 et seq.) has agreed with the inclusion of German standard trading conditions, because, in the decided case, the negotiating language, as it was evident from the correspondence, order forms, and the invoices, has been German.

Also the regional appellate court of Stuttgart (IPRax [*]1988, 293 et seq.), in the opposite way, has considered hints on German standard trading conditions as insufficient, because the negotiating language was English.

Also the decision of the lower court of Kehl (NJW [*] RR 1996, 565), cited by the Plaintiff, has denied the inclusion of German standard trading conditions, because the contracting language was not German (but Italian).

4.2 A statement that the contractual relationship of the parties is ruled by the German language, cannot be made. Moreover, it is the court's attitude that the contractual relationship of the parties is subject to Italian language. It can only be taken into consideration that the parties contracted ambivalently in Italian, as well as in German language. But both assumptions lead to the result that no reference can be made on provisions of damage compensation, used by the [seller], because they do not pass the terms control or because they were not added in an Italian translation.

Finally it has to be laid down in the contract between the [seller] and the firm […] S.p.A., which, according to the agreement of the parties, ordered the machine as leasing company (by written order of 13 December 1990/ countersigned by the [seller] in a covering letter of 1 February 1991/enclosure K4). This has been written in the Italian language. In its conditions, it refers to the regulations the parties agreed on in advance.

That the business relation of the parties should be based on the Italian language as the contracting language can also be seen from the following facts:

The Plaintiff has corresponded with the [seller] only by letters in Italian to firm […], and also the [seller] directed all documents essential for the Plaintiff to firm […] for translation into Italian and forwarding them to the Plaintiff, or firm […] has transformed the documents by translating them into Italian and subsequently forwarding them to the Plaintiff.

The regulations for the contractual relationship, effective as consequence of the reference made in the contract with firm […], can only be found in the document signed by the parties on 23 May 1990 (enclosure B 22). That has to be recognized as the real contract of the parties.

This document is only a form of the [seller]'s sister company, firm […], which was placed between the parties in the pre-contractual period and which also had intermediate functions in respect of the later subsequent improvement process, not least because of an improved understanding of the language.

This document is signed also by firm […] in its function as mediator, as well as by both parties. Therefore it comes into effect as a final, unreserved sales contract between the parties. It cannot be considered merely as an order. It is a concluded, legally binding sales contract, which entitles both parties, in case of non-performance, to insist on performance and enforce it by judicial support if necessary.

The [seller] cannot maintain that it has only been an order. In spite of the word "aquista", used in the text, it is not an order, but a sales contract - a final and definite binding obligating for both parties.

This can be seen from the strongly highlighted heading "contratto di vendita" (contract of sale), as well as from the signature of both parties. They show their mutual commitment. If the intention had been merely an order from the Plaintiff, the signature of the [seller]'s executive manager would not have been necessary. Moreover, it has accepted the order by its signature in the sense of the contratto di vendita, which led to the conclusion of the contract between the parties.

That cannot be altered by amendments to and further details of the contract by the [seller]'s confirmation of the order of 20 June 1990 (enclosure K 3). These have regulated only details of the sale, in particular technical details of the sale, more particularly technical details of the object of sale, but also payment conditions. The concluded executable agreement, binding for both parties in the sense of a sales contract, was not affected.

Also the written order of firm […] S.p.A. of 13 December 1990 and its counter-signature by the [seller], including the alteration of the payment agreement (only 4 rates instead of 6), does not affect the basic agreement of the parties. This is already a decisive consequence of the interference of the leasing company, and the fact that its payment of the machine was already contained in the contract of 23 May 1990, as it is evident there from the last handwritten sentence: "A meno socieà di leasing di votra scelta" - ("by a leasing company of your choice").

4.3 [Exculpatory clause]

Regarding the Plaintiff's reference to the exclusion of liability under number 3, which is contained in the general terms of contract on the back of the contratto di vendita, this does not pass the terms control and is therefore invalid.

The clause limits the liability to the exchange or repair of defective parts "escluso quasiasi risacrimento di danni"("exclusion of any compensation").

The complete exclusion is an inappropriate disadvantage for the Plaintiff, and contradicts the legal provisions. Therefore such a term has to be considered as compulsorily invalid according to sect. 9 AGBG [Standard Terms of Business Act].

As there are no regulations in the unified European law concerning control of the validity of terms, this follows among sale persons according to sect. 9 AGBG. For a judgment in the sense of otherwise applicable law of sect. 9(2) AGBG, only the CISG and its no-fault liability rule in Art. 74 sentence 2 is applicable. Therefore, a complete exclusion of compensation claims has to be considered as inappropriate in the sense of sect. 9 AGBG.

The [seller] is subject to the exclusion prohibition. According to sect. 24, sect. 9 AGBG, it is also applicable in commercial matters (OLG [*] München BB 93, 1753; Köln BB 93, 2044, Hamm NJW [*] - RR 96, 969).

4.4 Also the [seller] cannot refer to its own standard terms of business, printed on the back of the [seller]'s confirmation of the order. Such terms which exclude claims for compensation are only valid if they rely on intention or gross negligence.

But this exception clause is not applicable, if it had been included in the contractual relationship at all, because it had not been translated into Italian for the Plaintiff. This was necessary, as the language of the contract -- as explained above -- was not German, but Italian. Therefore, the Plaintiff could not be aware of the sentence of warranty exclusion. This leads Schlechtriem to the conclusion (see above): "What you cannot know reasonably, you cannot understand and construe."

     5. Application of sect. 326(1) BGB [*]

Finally, the defense of not having fixed a Nachfrist in context with a notice of avoidance is not applicable.

A Nachfrist in context with a notice of avoidance is not a requirement of the CISG. Therefore, the fulfillment of that requirement cannot be introduced into the contractual relationship of the parties by the help of the common German civil law. The relationship between the provisions of the CISG and national law is determined only by Arts. 4 and 7 CISG. According to that, the admissibility of a competing legal remedy of the Plaintiff, or as here, the additional requirement for a legal remedy, relying on national law, depends among other things on the proviso that it is not subject to the uniform law on sales. But if it is subject to the uniform law on sales, the legal remedy is excluded because of the priority of the uniform law on sales (v. Cammerer/Schlechtriem, 2d ed., Art. 45, Rdn. 48/509).

But the scope of impairments of performance is completely regulated by Art. 45 et seq. CISG. Therefore, sect. 326 BGB [*] is not applicable.

     6. Limitation of damages according to the CISG

In contrast to national German law, which does not contain a limitation of damages, a compensation claim under Art. 74 sentence 2 CISG is limited to "foreseeable damages". According to that, the damage incurred by the breach of contract consists of the loss, including loss of profit, as consequence of the breach of contract. However the compensation may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of conclusion of the contract, in the light of the circumstances of which it then knew or ought to have known, as a possible consequence of the breach of contract.

If at least parts of the claims of compensation, by reason or amount, are subject to this limitation, this can be estimated only by taking evidence of the stated loss; therefore this is subject to a later final decision.

III. Costs

The order to pay costs is subject to the final decision. The order of provisional enforceability against security deposit relies on sect. 709 ZPO [*].


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Defendant of Germany is referred to as [seller]. The Plaintiff of Italy is the lessee of the goods in question, leased from the lessor company which is a third party and the actual buyer of the goods but not party in the litigation. Amounts in German currency (Deutsche Mark) are indicated as [DM]; amounts in Italian currency (Italian Lire) are indicated as [It£].

Translator's note on other abbreviations: AGBG = [German Standard Terms of Business Act]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGH = Bundesgerichtshof [German Federal Supreme Court of Justice]; BGHZ = Entscheidungen des Bundesgerichtshofs in Zivilsachen [Judgements of the German Supreme Court in Civil Matters]; EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuche [German Code on Private International Law]; EuGVÜ = [European Communities Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters]; IPrax = Praxis des Internationalen Privat- und Verfahrensrechts [German law journal]; NJW = Neue Juristische Wochenschrift [German law journal]; OLG = Oberlandesgericht [Appellate Court]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

** Felix Haug is a graduate of Westfaelische Wilhelms- Universität Münster, currently studying for the LL.M. degree at Queen Mary, University of London. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

*** Camilla Baasch Andersen is a Fellow of Pace University School of Law and a Lecturer at Queen Mary, University of London.

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Pace Law School Institute of International Commercial Law - Last updated December 7, 2006
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