Germany 13 January 1999 Appellate Court Bamberg (Fabric case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990113g1.html]
DATE OF DECISIONS:
CASE NUMBER/DOCKET NUMBER: 3 U 83/98
CASE HISTORY: 1st instance LG Aschaffenburg (2 HKO 9/97) [partly reversed]
SELLER'S COUNTRY: Portugal [plaintiff]
BUYER'S COUNTRY: Germany [defendant]
GOODS INVOLVED: Fabric
GERMANY: Oberlandesgerichts Bamberg 13 January 1999
Case law on UNCITRAL texts (CLOUT) abstract no. 294
Reproduced with permission from UNCITRAL
A Portuguese seller, plaintiff, claimed against a German buyer, defendant, for the outstanding purchase price. The buyer sought set-off with damages arising from, inter alia, late and incomplete delivery, which resulted in additional costs for substitute purchases and for processing a part of the goods in Germany instead of Turkey.
In connection with the incomplete delivery, the court held that the buyer was not entitled to set-off with a claim for recovery of the additional costs incurred for purchases in replacement of the undelivered goods under article 75 CISG, as it failed to declare the contract avoided. Any substitute purchase cannot replace a notice of declaration of avoidance of the contract under article 26 CISG, since the CISG does not provide for a termination of the contract by operation of law.
As to another delivery, the court held that the seller's telephone call stating that it could only deliver a portion of the agreed amount was sufficient to replace a notice of declaration of avoidance. The seller thereby sincerely and finally refused performance, which allowed the buyer to purchase goods in replacement without any prior declaration of avoidance of the contract.
Furthermore, the court held that the buyer was not allowed to claim for additional costs arising out of processing the goods in Germany. As the burden of proof was placed on the buyer, it had to show that such damages either could have been foreseen or ought to have been foreseen by the seller at the time of the conclusion of the contract under article 74 CISG. The court stated that, generally, damages caused by the surrounding circumstances of one party could only be covered, if those circumstances were known by the other party at the time of the conclusion of the contract. Since the buyer failed to prove such knowledge or foreseeability at the time of the conclusion of the contract, it was not entitled to such damages.
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APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
6B [Agreement to apply Convention: choice of law]; 26A [Notification of avoidance: effective declaration of avoidance]; 74B [Outer limits of damages: foreseeability of loss as possible consequence of breach at time of
conclusion of contract]; 75A2 [Damages established by substitute transaction after avoidance: repurchase by buyer]
6B [Agreement to apply Convention: choice of law];
26A [Notification of avoidance: effective declaration of avoidance];
74B [Outer limits of damages: foreseeability of loss as possible consequence of breach at time of conclusion of contract];
75A2 [Damages established by substitute transaction after avoidance: repurchase by buyer]
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CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=504&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/516.htm;  Oberlandesgerichts-Rechtsprechungsreport (OLGR) Bamberg 149;  Transportrecht-IHR, No. 2; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=504&step=FullText>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Saidov, Damages under the CISG (December 2001) n.356; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.738-739, 759;  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 26 para. 2 Art. 74 paras. 43, 51Go to Case Table of Contents
Queen Mary Case Translation Programme
Translation [*] by Ruth M. Janal [**]
Edited by Jan Henning Berg [***]
REASONING OF THE COURT
The admissible appeal is successful in part.
1. The United Nations Convention on Contracts for the International Sale of Goods (CISG) of 11 April 1980 is the law governing the legal relations between the parties. The parties' explicit agreement solely stipulates "German law". However, according to leading authorities such a reference includes the CISG (cf. BGHZ [*] 96, 313 for ULIS [*]), as Germany is a Member State of the Convention (BGBl.[*] 1990 II 1477). While the circumstances of the individual case need to be considered when interpreting a clause stipulating the application of German law, there is no indication in the present dispute that the parties wanted to exclude the uniform sales law under Art. 6 CISG. A possible mental reservation on the part of Plaintiff [Seller] would be insignificant. The prerequisites of Art. 1(1)(b) CISG are met. The Court refers to the correct explanations provided in the decision of the Court of First Instance.
2. The Defendant [Buyer]'s objections to [Seller]'s claim for the remaining purchase price are only partially founded.
a. [Seller]'s delivery of the items 19094/M/46 and 19094/M/49 was late and did not consist of the quantity ordered. However, as [Buyer] failed to declare the contract avoided, [Seller] is not obliged to reimburse [Buyer] for its substitute purchases in the amount of 694.54 DM and 883.30 DM [Deutsche Mark]. Also, [Buyer] does not submit that [Seller] seriously and finally refused to perform its obligation to deliver. Under Art. 75 CISG, the seller is only obliged to bear the cost of a substitute transaction if that transaction takes place after the avoidance of contract. Only avoidance of contract makes it clear that the contract will not be performed. When the contract is avoided, the parties lose their right to demand performance and they regain their freedom of disposition. Up until then it is their duty to remain loyal to the other party as provided in their contract. A breach of contract by one party does not entitle the other to get rid of the contract by entering into a substitute transaction, as long it has not declared the contract avoided by notice to the party in breach (Art. 26 CISG). The CISG does not provide for an automatic legal termination of contract (cf. v. Caemmerer/Schlechtriem, Einheitliches UN-Kaufrecht, 2nd ed., Art. 75 n. 5).
b. [Seller] also failed to deliver item 22564/RE/001 in the agreed quantity. Through a phone call made on 1 August 1996, [Seller] informed [Buyer] that it would be unable to deliver more than 1,702.80 meters of the ordered item. [Seller] thereby seriously and finally refused to effect further performance of the contract. [Buyer] was thus entitled to enter into a substitute transaction without declaring the contract avoided (cf. v. Caemmerer/Schlechtriem, Art. 75 n. 5). Through the substitute purchase, [Buyer] suffered additional costs in the amount of 10,039.95 DM, proven by the testimony of witness S. [Buyer] rightfully declared a set-off with this sum against [Seller]'s claim.
c. [Buyer] is not entitled to reimbursement of additional costs it suffered from the processing of the item 22564/TE/001 in Germany instead of Turkey. Under Art. 74 CISG, the party in breach is only liable for such loss that it foresaw or ought to have foreseen at the time of the conclusion of the contract. Facts [Buyer] became aware of only after the conclusion of the contract are not material. Damages that are influenced by the surrounding circumstances and economic decisions of the other party are to be reimbursed only if the party in breach was aware of them. The burden of proof for the foreseeability of the loss is on the damaged party (cf. v. Caemmerer/Schlechtriem, Art. 74 n. 45). [Buyer] did not prove that at the time of the conclusion of the contract [Seller] knew or could not have been unaware of the fact that a late delivery of the items would necessitate a processing of the goods in Germany and thus give rise to considerable additional costs. This does not follow from the testimony given by witness S., as he did not testify that [Seller] was aware of [Buyer]'s special processing conditions.
d. It is irrelevant whether item 22564/TE/001 was defective. [Buyer] would only be entitled to reduce the purchase price if it had given notice of the lack of conformity to [Seller] within a reasonable time (Art. 39 CISG). [Buyer] failed to prove this. Witness S. was unsure whether he had informed [Seller] about the alleged defect. Witness K. testified that he had not given notice of the alleged lack of conformity to [Seller].
e. Item 22657/01, delivered by [Seller], was defective. Both texture and color did not conform to the sample. [Buyer] discovered the lack of conformity after processing the material and gave notice of the lack of conformity to [Seller]. The Court refers to the testimonies of witnesses M. and S. as well as the explanations of the expert S. As a result of the deviation in color and texture, [Buyer] had to offer its customer a reduction in price of 10%, that is, DM 7,339.75 (as confirmed by witness S.). [Seller] is obliged to reimburse [Buyer] for this loss of profit under Art. 74 CISG. The damage was foreseeable at the time of the conclusion of contract. The set-off declared by [Buyer] is thus justified with respect to a further DM 7,339.75.
f. [Seller]'s claim for the remaining purchase price in the total amount of 76,312.95 DM is therefore reduced by way of set-off in the amount of 17,379.70 DM. [Seller] is entitled to payment of 58,933.25 DM with interest of 5% from the time the action was pending (§§ 291 BGB,[*] 345 HGB [*]). [Seller] did not prove that it suffered higher interest costs.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Portugal is referred to as [Seller]; the Defendant of Germany is referred to as [Buyer]. Amounts in German currency (Deutsche Mark) are indicated as [DM].
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGBl. = Bundesgesetzblatt [Federal Law Gazette]; BGHZ = Entscheidungen des Bundesgerichtshofs in Zivilsachen [Case Reporter on decisions of the Federal Court of Justice in civil matters]; HGB = Handelsgesetzbuch [German Commercial Code]; ULIS = Uniform Law on the International Sale of Goods (1964 Hague Sales Convention).
** Ruth M. Janal, LL.M. (UNSW) is a PhD candidate at Albert-Ludwigs-Universität Freiburg.
*** Jan Henning Berg is a law student at the University of Osnabrück, Germany, who participated in the 13th Willem C. Vis Moot with the Osnabrück team. He has coached the team of the University of Osnabrück for the 14th Willem C. Vis and the 4th Willem Vis (East) Moot.Go to Case Table of Contents