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CISG CASE PRESENTATION

Germany 3 November 1999 Supreme Court (Machine for producing hygenic tissues case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/991103g1.html]

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


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Case identification

DATE OF DECISIONS: 19991103 (3 November 1999)

JURISDICTION: Germany

TRIBUNAL: Bundesgerichtshof [Federal Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: VIII ZR 287/98

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

CASE HISTORY: 1st instance LG Bayreuth 11 December 1997 [affirmed]; 2d instance OLG Bamberg 19 August 1998 [reversed]

SELLERS' COUNTRY: Germany [defendant]

BUYER'S COUNTRY: Switzerland [plaintiff (buyer's assignee)]

GOODS INVOLVED: Machine for producing hygenic tissues


Case abstract

GERMANY: Bundesgerichtshof 3 November1999

Case law on UNCITRAL texts (CLOUT) abstract no. 319

Reproduced with permission from UNCITRAL

A German manufacturer of paper, plaintiff, purchased semi-finished articles from a Swiss seller, for the purpose of producing humid tissue-paper. The semi-finished articles had been treated in a paper machine furnished with a grinding equipment, delivered by X, defendant, to the seller. This paper machine suffered a total loss a few days after being used. The buyer gave notice to the seller that rust stains were found on the humid tissue-paper, and that a large portion of the delivered semi-finished articles also tended to develop brown stains. Upon receipt of an examination report carried out by an expert company, the seller made X liable for the damage, as it suspected that such damage had been caused by the defective grinding equipment. The seller assigned its rights to the buyer and the buyer claimed damages from S.

The appellate court left open the issue whether the semi-finished articles were in conformity with the contract. It held that the notice of lack of conformity was not timely given, and that therefore the buyer had lost its right to rely on a lack of conformity. Accordingly, the claim was dismissed. The buyer appealed to the Supreme Court.

The court found that the grinding equipment had a hidden defect, as it was not possible for the seller to notice the defect either upon delivery or after examination of the equipment (article 38(1) CISG). The court did not decide on the issue whether under CISG, a hidden defect must be notified as soon as it is detected, so that the period set for giving notice pursuant to article 39(1) CISG would commence when the defect is actually established, or whether such period should commence as soon as the hidden defect would objectively be recognized as such.

The court held that the total loss of the paper machine was due either to an operating fault or to the defective grinding equipment. It further held that, even if, through internal investigations and without specific expertise, an operating fault could have been excluded in a short period of time, a period of about one week had to be granted to the seller, allowing it to decide which further steps to take, such as the choice and appointment of an expert. Additionally, a period of two weeks had to be accorded for the expert's examination to be followed by a one-month period of time for notification, which according to the court, it was a reasonable time as required by article 39(1) CISG. Therefore, the seller's notice of lack of conformity was not untimely given.

Furthermore, the court stated that, in case of defective technical equipment, a description of the symptoms should suffice in order to satisfy the requirements of article 39(1) CISG. A specification of the reasons causing the defect is not required. By giving notice to X that the buyer had found rust stains on the humid tissue-paper treated with X's alleged defective equipment, the seller complied with the requirements of article 39(1) CISG.

The court remanded the case to the appellate court, as it found that this court had not decided on the possible limitation of X's liability regarding the lack of conformity of the semi-finished articles as well as on the extent of the damages suffered by the buyer.

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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 38(1) ; 39(1)

Classification of issues using UNCITRAL classification code numbers:

38A1 [Time for examining goods: buyer's obligation to examine goods as soon as practicable in the circumstances];

39A11 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Specification of nature of non-conformity: degree of specificity required]

Descriptors: Examination of goods ; Lack of conformity notice, specificity; Lack of conformity notice, timeliness; Latent defects

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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.

Lack of conformity notice, specificity. "Art. 39(2) ULIS contained with the notice requirements the additional condition that the buyer invite the seller to examine the goods or cause them to be examined. This is an added burden for the buyer, which the CISG rightfully discarded. The language "shall specify its nature" had led to a number of decisions under the ULIS, from which it is clear that the German trial courts set an especially strict standard.103 The Bundesgerichtshof, on the other hand, had in a 1982 decision already warned against making the requirements for substantiating a lack of conformity overly strict, because otherwise the risk of defective contract performance would be largely assigned to the buyer.104 This is also the position of the authorities in the legal literature on the Convention.105 Nevertheless, some of the lower courts have continued to set the same strict requirements under the Convention that were adhered to under the ULIS.106 Also decisions of the Bundesgerichtshof on the CISG seemed at first to require a strict duty of substantiation, such as when the complaint "printer documentation" was considered insufficient because the buyer "was held to specify the defect of the documentation so precisely that misunderstandings were impossible and so that the seller could clearly discern what was meant;" the alleged ambiguity of the term "printer" prevented the defect from being clearly specified.107 The decision seems therefore to be rather in line with those of the more severe requirements.108 Lately, however, the Bundesgerichtshof seems to have relaxed the substantiation requirements. In a most recent decision,109 the case concerned defects in supplied machine parts ("set of grinding parts") which at first destroyed existing parts in the machine in which they were installed, and then led to a total loss of the entire machine. The buyer had forwarded to the seller customer complaints, instances in which the buyer's purchasers complained of certain symptoms indicating defects in semi-finished products manufactured with the machine parts. The Bundesgerichtshof found the complaints sufficient to specify the nature of the lack of conformity and to give the seller an idea thereof so that the seller might then take the necessary steps: It was therefore enough that the buyer name the symptoms and not the actual cause.110 With this decision the Bundesgerichtshof has established a sensible alleviation of the notice requirements that also accords with the line of cases from the 7th Senate on defective performance in service contracts.111"

        103. See the decisions numbered 3, 6, 8, 11, 12, 14, 15, 21, 22, 37, 38, 46 in the collection of decisions on Art. 39 ULIS in Schlechtriem/Magnus, supra note 93.
        104. BGH of 2 June 1982, supra note 99, at sub II. 1. a) bb).
        105. See Schlechtriem/Schwenzer, supra note 12, at Art. 39 para. 6.
        106. Compare the decisions in id. at Art. 39 para. 6 n.22a. See also Magnus, Die Rügeobliegenheit des Käufers nach UN-Kaufrecht, TranspR-IHR 1999, 29 ff., 31 f.; Pilz, supra note 13, at 559. It should remain open here whether, due to the failure to give proper or timely notice, the resulting ability to dispense with the taking of evidence on the conformity of the goods influenced the strictness of the lower instances.
        107. BGH of 4 December 1996, NJW-RR 1997, 690, 691 sub II. 2. b) bb) [case presentation also at <http://cisgw3.law.pace.edu/cases/961204g1.html>] (yet, this decision also contains the observation "the specificity requirements should not become too strict").
        108. See the short analysis in Schlechtriem/Schmidt-Kessel, Rüge der Vertragswidrigkeit der Ware nach UNWaVtrÜbk. Art. 39 Abs. 1, EwiR 1997, 653 f.
        109. BGH of 3 November 1999, ZIP 2000, 234 ff.
        110. Id. at sub II. 3.
        111. See BGH of 28 October 1999, ZfBR 2000, 118 (requirements for demand to cure equate those for a preliminary showing at trial) … if the phenomenon stemming from the lack of conformity is sufficiently described. [The plaintiff] is not required to describe the individual causes of the defect); see also BGH of 14 January 1999, BauR 1999, 899.

Lack of conformity notice, timeliness. "The real importance of the decision of November 3, 1999 lies in the Bundesgerichtshof's statements on the time period for the giving of notice and on the interaction between the period of time for examination and that for the giving of notice. Concerning the time period for notice, the Bundesgerichtshof has established a "regular" time period of one month.112 In view of the risk that German trial courts might perceive that as being set precedent, the decision gives cause for concern. The reasonableness of the time period for giving notice depends on various circumstances such as the type of goods involved, the commercial branch, the level of knowledge concerning the cause of the lack of conformity within the time for examination, etc.113 It is therefore a question of the circumstances of the particular case. The lower courts have accordingly applied quite diverse time periods,114 and the French Supreme Court has recently left measurement of the time period completely within the discretion of the trial judge, which in my opinion is sensible.115 As previously mentioned and explained in more detail elsewhere,116 establishing fixed standards, which risk to be misunderstood as precedent, is especially dangerous because they contradict the precept found in Art. 7(1) CISG that regard is to be had to the need to promote uniformity in the application of the Convention and the need to therefore to preserve the utmost harmony in the international interpretation and application of the Convention. When, however, the Austrian Supreme Court allows only fourteen days for examination and notice together, as long as no special circumstances speak for the shortening or lengthening of this period,117 then a perhaps reasonable notice period of four weeks for the concrete situation of a particular case should not be established as a "regular" or "general" time period."

        112. See BGH of 3 November 1999, supra note 109, at sub II. 2. b) bb); cf. Obergericht Kanton Luzern [High Court of the Canton of Lucerne] of 8 January 1997, TranspRIHR 1999, 53 [case presentation also at <http://cisgw3.law.pace.edu/cases/970108s1.html>]. This Swiss decision is similar and represents a midpoint between the strict requirements of the German courts and the more generous decisions of the American and Dutch courts. See also Witz, Recueil Dalloz, 35ème Cahier, Sommaires commentés, 315 (1998).
        113. See öst. OGH [Austrian Supreme Court] of 15 October 1998, öst. ZfRV 1999, 63. f., LS 12 [case presentation also at <http://cisgw3.law.pace.edu/cases/981015a3.html>] ("In examining whether the time period was reasonable within the meaning of Art. 39(1) CISG, the objective and subjective circumstances of the particular case are to be considered. These include the business and personal circumstances of the buyer, the type of the goods, the scope of the delivery or the type of the chosen remedy;" see also Magnus, supra note 106, at 32-33.
        114. See AG Kehl [Local Court] of 6 October 1995, CISG-online 162 [case presentation also at <http://cisgw3.law.pace.edu/cases/951006g1.html>] (six weeks for a defective sweater no longer reasonable); OLG Köln [Regional Court of Appeals] of 22 February 1994, CISG-online 127 [case presentation also at <http://cisgw3.law.pace.edu/cases/940222g1.html>] (tropical wood, four to seven days reasonable); LG Bielefeld [Regional Court] of 18 January 1991, CISG-online 174 [case presentation also at <http://cisgw3.law.pace.edu/cases/910118g1.html>] (bacon, three days reasonable); AG Nordhorn [Local Court] of 14 June 1994, CISG-online 259 [case presentation also at <http://cisgw3.law.pace.edu/cases/940614g1.html>] (shoes, ten days reasonable); LG Heidelberg [Regional Court] of 2 October 1996, CISG-online 264 [case presentation also at <http://cisgw3.law.pace.edu/cases/961002g1.html>] (protective foil, twenty-one days (for examination and notice) reasonable); OLG Karlsruhe [Regional Court of Appeals] of 25 June 1997, CISG-online 263 [case presentation also at <http://cisgw3.law.pace.edu/cases/970625g1.html>] (protective foil, thirteen days not reasonable (!)); LG Stuttgart of 31 August 1989, CISG-online 11 [case presentation also at <http://cisgw3.law.pace.edu/cases/890831g1.html>] (shoes, two weeks not reasonable); LG Aachen of 3 April 1990, CISG-online 12 [case presentation also at <http://cisgw3.law.pace.edu/cases/900403g1.html>] (shoes, one day reasonable); LG Berlin of 16 September 1992, CISG-online 49 [case presentation also at <http://cisgw3.law.pace.edu/cases/920916g1.html>] (children's shoes, three and a half months not reasonable); LG Mönchengladbach of 22 May 1992, CISG-online 56 [case presentation also at <http://cisgw3.law.pace.edu/cases/920522g1.html>] (fabric, eighteen days not reasonable); OLG Düsseldorf of 12 March 1993, CISG-online 82 [case presentation also at <http://cisgw3.law.pace.edu/cases/930312g1.html>] (fabric, eighteen days not reasonable); OLG Saarbrücken of 13 January 1993, CISG-online 83 [case presentation also at <http://cisgw3.law.pace.edu/cases/930113g1.html>] (doors, two and a half months not reasonable); OLG Düsseldorf of 10 February 1994, CISG-online 115 [case presentation also at <http://cisgw3.law.pace.edu/cases/940210g2.html>] (clothing, two months not reasonable); OLG Stuttgart of 21 August 1995, CISG-online 150 [case presentation also at <http://cisgw3.law.pace.edu/cases/950821g1.html>] (machine, more than one month not reasonable); OLG Düsseldorf of 8 January 1993, CISG-online 76 [case presentation also at <http://cisgw3.law.pace.edu/cases/930108g1.html>] (pickles, seven days not reasonable); ICC Paris, No. 5713/89, UNILEX [case presentation also at <http://cisgw3.law.pace.edu/cases/895713i1.html>] (eight days reasonable [sic]); ICC Paris, No. 7331/94, UNILEX [case presentation also at <http://cisgw3.law.pace.edu/cases/947331i1.html>] (cow hides, one month (for examination and notice) reasonable); OGH [Austrian Supreme Court] of 15 October 1998, CISG-online 380 [case presentation also at <http://cisgw3.law.pace.edu/cases/981015a3.html>] (wood, more than fourteen days (for examination and notice) not reasonable); Cour d'Appel de Grenoble of 13 September 1995, CISG-online 157 [case presentation also at <http://cisgw3.law.pace.edu/cases/950913f1.html>] (cheese, one month (for examination and notice) reasonable); Tribunale Civile di Cuneo (Italy) of 31 January 1996, CISG-online 268 [case presentation also at <http://cisgw3.law.pace.edu/cases/960131i3.html>] (sport clothing, twenty-three days (for examination and notice) not reasonable); Hoge Raad [Netherlands Supreme Court] of 20 February 1998, CISG-online 313 [case presentation also at <http://cisgw3.law.pace.edu/cases/980220n1.html>] (tiles, four months not reasonable); Obergericht Kanton Luzern [High Court of the Canton of Lucerne] of 8 January 1997, CISG-online 228 [case presentation also at <http://cisgw3.law.pace.edu/cases/970108s1.html>] (medical appliances, one month (for examination and notice -- ten days for examination alone) reasonable); Handelsgericht des Kantons Zürich [Commercial Court of the Canton of Zurich] of 30 November 1998, CISG-online 415 [case presentation also at <http://cisgw3.law.pace.edu/cases/981130s1.html>] (lamb fleece jackets, more than fourteen days not reasonable); OLG Saarbrücken of 3 June 1998, NJW-RR 1999, 780 [case presentation also at <http://cisgw3.law.pace.edu/cases/980603g1.html>] (flowers, notice on same day required); OLG Düsseldorf of 8 January 1993, IPRax 1993, 412 [case presentation also at <http://cisgw3.law.pace.edu/cases/930108g1.html>] (pickles, seven days no longer reasonable). Decisions under the ULIS are stricter than these, but Art. 39 ULIS required notice to be given "promptly" after discovery or discoverability. Accordingly, those decisions are of only limited relevance here and therefore not cited.
        115. Decision of 26 May 1999, I.C.P. Edition Entreprise et Affaires 2000, 214 [case presentation also at <http://cisgw3.law.pace.edu/cases/990526f1.html>].
        116. Schlechtriem, Beginn und Dauer der Untersufhungs- und Rügefrist beim grenzüberschreitenden Kauf, EwiR 2000, 125 f.
        117. öst. OGH [Austrian Supreme Court] supra, note 113, headnote 13 ("In as much as none of the named special circumstances speak for a shorter or longer period of time, a total period of fourteen days for examination and notice is to be presumed"; see also öst. OGH of 27 August 1999, ZfRV 2000, 31, No. 10 [case presentation also at <http://cisgw3.law.pace.edu/cases/990827a3.html>] (fourteen days for examination and notice).

Examination of goods. "The decision is for yet another reason worthy of attention: First of all, for the examination period under Art. 38(1) CISG, the Bundesgerichtshof granted the buyer a deliberation period of one week for the clarification of certain characteristics indicative of defects, and then -- correctly -- lengthened this period by the amount of time required by an expert for the explanation of the cause of the defect (for a total of up to three weeks).118 Evidently, the Court then simply added this time period for examination together with the four-week period set for notice and thus granted the buyer a total time period of seven weeks for the notice of lack of conformity. Certainly, it is correct that the examination period and the notice period are to a certain degree interdependent. However, simply adding them together and thereby allowing the buyer to expand its time for examination greatly beyond that required under the circumstances, in order to then still be able to react due to waiver of the "regular" notice period, seems to me not to correspond to the reason and aim of the two time periods.119 Moreover, it seems to neglect the seller's interest in prompt clarification. In my opinion, in the case of a generous time period for examination permitted by the circumstances, it must be presumed that the buyer already devises its reasonable reaction to possible examination results during this period and therefore does not require a further time period of four weeks to give notice. In other words, where the intervening expert, coming in after one week, clearly and distinctly exposes the causes of the suspected defects after a further two weeks, then the buyer is expected to react quickly. In this actual case, the buyer gave notice within three days after a total of six and a half weeks of "examination." Conversely, it would also be unreasonable and incompatible with the statutory provisions if the buyer, who despite requiring examination by an expert and the related added time period of two weeks, attained knowledge of the causes of the defect symptoms earlier and then added the examination period theoretically possible to the "regular" notice period in order to thus arrive at a longer period of time. This manner of adding together the time periods from Art. 38(1) CISG and Art. 39(1) CISG as a matter of course can hardly correspond to the intention of the drafters of the Convention, even though it often occurs in CISG decisions.120

"Finally, the Bundesgerichtshof has also left undecided whether the duty to examine continues (or is revived) when, some time after delivery of the goods, characteristics indicating a non-conformity arise. The Convention assumes, as is evident from Art. 38(2) and (3) CISG, that the duty to examine arises with delivery to the buyer.121 However, this duty does not cease to exist at the accomplishment of delivery, but rather continues latently and becomes activated upon the manifestation of characteristics indicating a non-conformity. The buyer must then once again examine the goods or cause them to be examined within as short a period as is practicable under the circumstances. Non-conformities discoverable within this examination period then trigger the duty to give proper notice and comply with the "reasonable" time period of Art. 39(1) CISG."

        118. But see Pilz, supra note 13, at 558 ("For the short examination period the German courts have worked out a middle point of three to four work days or one week." (citations omitted)).
        119. Also against this decision of the Bundesgerichtshof, see Piltz, supra note 13, at 558 ("Supplementary, further time periods (beyond those of the actual time period for notice) for the buyer's decision on how to proceed and for the examination of the goods by experts are not compatible with this concept.").
        120. See supra note 114: LG Heidelberg of 2 October 1996, CISG-online 264 [case presentation also at <http://cisgw3.law.pace.edu/cases/961002g1.html>]; ICC Paris, No. 7331/94, UNILEX [case presentation also at <http://cisgw3.law.pace.edu/cases/947331i1.html>]; OGH (Austria) of 15 October 1998, CISG-online 380 [case presentation also at <http://cisgw3.law.pace.edu/cases/981015a3.html>]; Cour d'Appel de Grenoble of 13 September 1995, CISG-online 157 [case presentation also at <http://cisgw3.law.pace.edu/cases/950913f1.html>]; Tribunale Civile di Cuneo of 31 January 1996, CISG-online 268 [case presentation also at <http://cisgw3.law.pace.edu/cases/960131i3.html>]; Obergericht Kanton Luzern [High Court of the Canton of Lucerne, Switzerland] of 8 January 1997, CISG-online 228 [case presentation also at <http://cisgw3.law.pace.edu/cases/970108s1.html>]. See also öst. OGH (Austria) of 15 October 1998, supra note 113.
        121. See Herber/Czerwenka, supra note 12, at Art. 38 para. 7; Schlechtriem/Schwenzer, supra note 12, at Art. 38 para. 19.

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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=447&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): Click here for this text (sourced from <http://www.rws-verlag.de/bgh-free/volltex/1999/vo63673.htm>) see also cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/475.htm>; [2000] Zeitschrift für Insolvenspraxis 234; [2000] Transportrecht-Internationales Handelsrecht 1-3; [2000] Wertpapier-Miteilungen 481; [2000] Recht der Internationalen Wirtschaft 381; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=447&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Schlechtriem, [2000] [Text of commentary presented below (translation of EwiR commentary)]; Witz, ICC International Court of Arbitration Bulletin, Vol. 11/No. 2 (Fall 2000) 17 n.23, 20 n.40; Kuoppala, Examination of the Goods under the CISG and the Finnish Sale of Goods Act (2000) § 4.4.1.2 [analysis of related articles 38, 39, 40 and 44 (includes digests of relevant material in many CISG cases; also digests cases under a domestic sales code that is patterned, for the most part, after the CISG)]; Taschner, Transportrecht-IHR (1-2000) 3-4; Schlechtriem, in: Uniform Sales Law in the Decisions of the Bundesgerichtshof (2001), at n.109; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 4-9 n.129 & n.145; CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 72, 83, 94; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 38 para. 17 Art. 39 paras. 6, 8, 15, 17, 20; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at pp. 307, 320

French: Witz, Dalloz, Cahier Droit des Affairs (30 November 2000) No. 42/7007, 434-435

German: Schlechtriem, [2000] Entscheidungen zum Wirtschaftsrecht (EwiR) 125; Taschner, [2000] Transportrecht-Internationales Handelsrecht 3-4

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Case text (English translation)

Federal Supreme Court (Bundesgerichtshof) 3 November 1999

Translation [*] by Alston & Bird LL.P.

Editors: William M. Barron, Esq. & Birgit Kurtz, Esq.

and Schönherr Rechtsanwälte OEG, Vienna, Austria

Editor: Dr. Peter Konwitschka, Esq.

Key CISG provisions at issue

Articles 38(1), 39(1)

Facts

Plaintiff [buyer's assignee] is a paper converting company and produces, inter alia, H.-moist tissues. It purchases the required semi-finished moist tissue-crepe from T. paper factory in B./Switzerland [buyer] in an ongoing business relationship; for the manufacture of the semi-finished product, the [buyer] uses cellulose material that is refined in a PM 3 paper machine in several production stages. This machine contains three grinding gears which are connected in series, so-called double-disk refiners, which are equipped either with model EWR 5/76/60 grinding devices of the manufacturer E. or with model E 6533 R/L grinding devices of the defendants [sellers].

On March 31, 1993, the [buyer] ordered one E 6533 R/L grinding device set from the [sellers] at the price of DM [Deutsche Mark] 3,065; at the time, the [sellers] did not know that this grinding device was intended for the production of moist tissues. The grinding device, which was delivered on April 7, 1993, was assembled on April 13, 1993 into the PM 3 paper machine as double disk refiner No. 1, which is connected in series prior to double disk refiners Nos. 2 and 3, and was put into operation on April 17, 1993. On April 25, 1993, the [buyer] first discovered a total loss of double disk refiner No. 2, which had been equipped with a grinding device supplied by company E.; as a result, the defective grinding device was replaced on April 26, 1993. On April 26, 1993, the grinding device which had been delivered by the [sellers] suffered a total loss; as a result, it was replaced by a grinding device supplied by company E.

From April 19 until April 22, 1993, the [buyer] produced with the aforementioned PM 3 paper machine a total of 243.51 tons of semi-finished moist tissues, of which the [buyer] delivered 120.953 tons in April and May 1993 to the [buyer's assignee]. On May 17, 1993, the [buyer's assignee] gave notice by telephone to the [buyer] that the already processed H. semi-finished moist tissues showed patches of rust and that the not yet processed semi-finished moist tissue-crepe also showed a tendency to brownish specking. On May 27, 1993, the [buyer] commissioned company P. in M. to identify the patches of rust and, for this purpose, had the grinding device inspected together with other things that had been delivered by the [sellers]. After receipt of the test report prepared by company P. dated June 9, 1993, which the [buyer] received on June 11, 1993, the [buyer] contacted the [sellers] by letter dated June 14, 1993 and, as a precaution, stated that it held them liable for the damages incurred because the [buyer] suspected that the grinding device delivered by the [sellers] on April 7, 1993 was defective. After the [buyer] assigned to the [buyer's assignee] all of its claims arising from the purchase agreement concluded with the [sellers] on March 31, 1993, the [buyer's assignee] claims a partial amount of DM 100,000 as damages arising from the lack of conformity of the grinding device with the contract. The [sellers] opposed this claim on the grounds that, inter alia, neither the [buyer] nor the [buyer's assignee] had met their obligations to examine and to give timely notice; the [buyer's] notice to the [sellers] of the defect was untimely. Further, the [sellers argued,] no particular specification of the grinding device delivered on April 7, 1993 had been agreed upon; in addition, the [buyer] had overloaded the delivered grinding device during its use.

The Regional Court dismissed the complaint, and the [buyer's assignee's] appeal against that decision was unsuccessful. On appeal, the [buyer's assignee] pursues its claims further.

Grounds for the decision

[Translator's note: In part I, the Supreme Court recites the holding of the Court of Appeals, and in part II, it analyzes the applicable law.]

I. The Court of Appeals explained: It can remain undecided whether the [buyer] has met its obligation to examine pursuant to Art. 38(1) CISG. Even on the assumption that the defect in quality alleged by the [buyer's assignee] was a latent defect, the period for making a claim pursuant to Art. 38(1) CISG began on April 26, 1993 upon the total loss of the grinding device delivered by the [sellers] on April 7, 1993. The [buyer's assignee] (correctly: the [buyer]) should not have simply accepted the total loss of the grinding device in question on April 26, 1993 and should not have blamed itself or an operating error of its employees, which it apparently did. According to the [buyer's assignee's] own argument, either an operating error or a lack of conformity with the contract was a possible reason for the total loss. A possible operating error by its own employees could have been clarified without difficulty and did not occur according to the [buyer's assignee's] own assertions. All the more, the defectiveness of the delivered grinding device must have been apparent. If the grinding device delivered by the [sellers] was destroyed after only a few days of use, then there was cause for the examination which the [buyer's assignee] (correctly: the [buyer]) omitted at first. Notice of latent defects must be given not only after actual discovery in each specific case but within a reasonable time after the buyer ought to have discovered them.[**] Upon review of the possible causes of the loss, a clue as to the defectiveness of the delivered grinding device suggested itself upon the total loss on April 26, 1993, so that, at that time, the examination and notice period under Article 39(1) CISG commenced. Assuming that the [buyer], as it did later, ordered an expert opinion immediately after the total loss on April 26,1993, the communication of the result thereof had to be expected within no more than two weeks. If one added on a period of one month for the notice of the defect, then the notice letter dated June 14, 1993 was untimely - if only by a few days.

As the [buyer] therefore lost its right to rely on the alleged lack of conformity, the [buyer's assignee] cannot proceed upon the assigned right. It can therefore remain undecided whether the letter dated June 14, 1993 met the substantive requirements of Art. 39(1) CISG, which quality of the grinding device had been agreed upon and whether there was a deviation relevant to the damages incurred.

II. These elaborations do not withstand scrutiny.

      1. The Court of Appeals correctly and undisputedly applies the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 (CISG), which became effective for the Federal Republic of Germany on January 1, 1991 and for Switzerland on March 1, 1993, to the purchase agreement entered into by the [buyer] and the [sellers] dated March 31, 1993.

      2. In the absence of a contrary ascertainment of facts by the court of appeals, it must be assumed, for purposes of the proceedings on appeal, that the grinding device's defect claimed by the [buyer's assignee] is a latent defect that could not have been discovered by an appropriate examination (Art. 38(1) CISG) either upon delivery on April 7, 1993 or upon the installation on April 13, 1993 or during its use. If, thereafter, the lack of conformity with the contract of the delivered grinding device showed up for the first time at the time of the total loss on April 26, 1993, the beginning of the examination and notice period under Arts. 38(1), 39(1) CISG cannot yet be assumed at April 26, 1993.

a) In this context, it can be left undecided whether, under UN Sales Law, latent defects must, as the appeal argues, be brought to the [sellers'] attention only after actual discovery in each specific case, so that the reasonable period of time referred to in Art. 39(1) CISG only begins at the time of the (later) actual discovery of the defect, or whether, as the court of appeals assumes, the time at which the latent defect could be discovered is relevant to the beginning of the reasonable period of time (compare Schwenzer in von Caemmerer/Schlechtriem, CISG, 2d ed., Art. 39 20 for "defects occurring later catching one's eye"; Koller in Staub, Großkommentar HGB [Comprehensive Commentary to the German Commercial Code], 4th ed., before § 373 Art. 39 WKR [CISG] 674; Honsell/Magnus, Kommentar zum UN-Kaufrecht [Commentary to the UN Sales Law], 1997, Art. 39 17; Piltz, Internationales Kaufrecht [International Sales Law], 1993, § 5 64; Heilmann, Mängelgewährleistung im UN-Kaufrecht [Warranties under the UN Sales Law], 1994, p. 324 et seq; see also Staudinger/Magnus, CISG, 1994, Art. 39 32, who derive such an obligation of the buyer from the principle of good faith).

b) Even if the [buyer] were not allowed to let the total loss of April 26, 1993 rest, but rather had to take measures to detect the cause of the damage, the court of appeals should not have assumed, as the appeal correctly argues, on the basis of the facts ascertained so far, that a possible operating error of the [buyer's] own employees "could have been clarified without difficulty," so that the defectiveness of the delivered grinding device must have suggested itself to the [buyer] already on the day of the loss.

     aa) A possible reason for the total loss on April 26, 1993 was, as the [buyer's assignee] submitted uncontestedly, and as the court of appeals also discussed, either an operating error or a lack of conformity with the contract of the delivered grinding device. The independent evidentiary process later initiated by the [buyer's assignee] was supposed to clarify which of the two reasons for the loss was the case; even in the instant lawsuit, the [sellers] still claimed improper handling because the grinding discs moved at a very short distance (quasi-zero-zero-distance) in opposite direction. If hence an operating error could also have occurred unnoticed, it is not evident how such an error could have been excluded immediately after the damage occurred, without special effort, by merely questioning the [buyer's] employees.

     bb) Even if the [buyer] could have excluded a possible operating error quickly by internal investigation and without commissioning an expert opinion, it had to be allotted, in any case, a certain period of approximately one week for the decision as to what to do next and for the initiation of necessary measures - e.g., the selection and commissioning of an expert - followed by the two weeks assumed by the Court of Appeals for the expert's investigation, followed by the - regular - one-month notice period pursuant to Art. 39(1) CISG (compare BGHZ [***] 129, 75, 85 et seq.). But in that case, the [buyer's] notice letter to the [sellers] dated June 14, 1993 - seven weeks after the total loss - was not untimely.

      3. The notice letter dated June 14, 1993 also met the substantive requirements of Art. 39(1) CISG, an issue the Court of Appeals was able to leave open based on its legal view point. By means of this provision, pursuant to which the buyer must specify "the nature of the lack of conformity," the seller shall be enabled to get an idea of the lack of conformity in order to take the necessary steps. In that context, the buyer, in any case, must specify the complained-of deviation of quality; concerning machinery and technical equipment, only an explanation of the symptoms can be demanded, not an explanation of the underlying causes (Schwenzer, id., Art. 39 6 et seq.; Staudinger/Magnus, Art. 39 21). Here, the [buyer] gave notice to the [sellers] by letter dated June 14, 1993 that a customer had found steel splinters in the semi-finished goods that had been produced using the grinding device in dispute and that, as a result, when processing the semi-finished goods into moist tissues, patches of rust occurred thereon. At the same time, the [buyer] expressed the suspicion that the grinding device delivered on April 7, 1993 was defective, so that the [buyer], as a precaution, stated that it held the [sellers] liable for all damages incurred and to be incurred in the future. Thus, the complained-of lack of conformity of the shipment was sufficiently specified in accordance with the [buyer's] state of knowledge at that time, so that the [sellers] were able to learn from the letter dated June 14, 1993 the delivery item as well as the complained-of lack of conformity with the contract.

      4. Because the Court of Appeals - consistent with its legal view point - did not make any findings on the existence of the complained-of lack of conformity with the contract, on a possible limitation of liability of the [sellers] or on the extent of the alleged damages, the matter had to be remanded to the court of appeals for further clarification. Prior decisions: OLG [***] Bamberg, LG [***] Bayreuth.


FOOTNOTES

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

** Translator's note: The German original uses the term "objektive Erkennbarkeit", which means "objective discoverability."

*** Translator's notes: BGHZ = Die amtliche Sammlung der Entscheidungen des Bundesgerichtshofes in Zivilsachen [Official Reporter of Decisions of the German Federal Court of Justice in Civil Matters]; LG = Landesgericht [District (trial) Court]; OLG = Oberlandesgericht [Higher Regional Court, a Court of Appeals].

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Case commentary

Comments on Bundesgerichtshof VIII ZR 287/98, 3 November 1999

Peter Schlechtriem
Albert-Ludwigs-Universität Freiburg
January 2000

Translation by

William M. Barron, Esq., Birgit Kirtz, Esq.
Alston & Bird LL.P.

and

Dr. Peter Konwitschka
Schönherr Rechtsanwälte OEG, Vienna

Headnote

Articles 38(1), 39(1) CISG; cross-border sale; examination and notice period

The notice period pursuant to Art. 39 CISG does not always commence upon the occurrence of destruction of property that was possibly caused by a lack of conformity of the purchased good.

Comments

1. On April 7, 1993, defendant delivered a so-called grinding device to a Swiss paper factory (buyer) for its paper machine for the production of moist tissues. The semi-finished moist tissues that were produced on this machine were delivered to the plaintiff, who objected to rust-spots. As early as April 25, 1993, the grinding device caused a total loss of certain parts of the paper machine that were connected in series; the device itself was destroyed and replaced by a different product on April 26, 1993. On June 14, 1993, the paper factory gave notice of the defect to the defendant and claimed damages; it assigned its claims to the plaintiff, who sued for a partial amount of DM 100,000.

Because of the plaintiff's notice, the buyer initially commissioned an expert company to investigate the symptoms of the defect and the grinding device; its test report was received on June 11, 1993. Defendant opposed this claim on the grounds of, inter alia, a failure to examine and to give notice in a timely fashion. The appellate court dismissed the complaint, reasoning that the period to give notice pursuant to Art. 39(1) CISG had begun upon the total loss on April 26, 1993. The Federal Supreme Court, however, held that notice given seven weeks after the occurrence of the total loss was timely, reversed the appellate court's decision and remanded the matter for an analysis of the lack of conformity and other questions that had to be clarified.

2. According to the Federal Supreme Court's opinion, "a commencement of the examination and notice period under Art. 38(1), 39(1) CISG cannot yet be assumed at the time of the total loss." The Federal Supreme Court left undecided whether defects that could not have been discovered upon delivery in spite of an examination had to be brought to the seller's attention as soon as they ought to have been discovered later, or whether notice was not required until the time of actual discovery; the Court did so because the notice was not untimely even if the notice period had begun at the time at which the defect ought to have been discovered. In this context, the Federal Supreme Court stated that the buyer had to be allotted a period of approximately one week on discovery of symptoms of defects for the decision on what to do next, followed by a period of two weeks for the expert's investigation. A "regular" one-month notice period followed, so that the notice given seven weeks after the loss was not untimely.

3. In regard to the periods to which a buyer must adhere in order to preserve his rights arising from a lack of conformity, the examination period and the notice period must be strictly distinguished and must not be added up to one lump sum period. A period "as short . . . as is practicable under the circumstances" is available to the buyer for the examination, Art. 38(1) CISG. Among these "circumstances," there is doubtless the time needed by an expert for the examination as to whether and, if applicable, which lack of conformity is present and can be specified in the notice; in the case at issue here, this period was therefore two weeks. In addition, the Federal Supreme Court, rather generously, granted the buyer one week to consider and to decide if the commissioning of an expert was necessary and to clarify possible operating errors; this is understandable, especially in cases of complex machines, where the causes of malfunction can be difficult to ascertain and perhaps only through specific experts, although this should not become a rule for all cases. Contrary to a misleading statement of the Federal Supreme Court's decision (see II.2.a.e.) that seems to stand for the adding-up of both periods into one single period, the examination period began in any case upon the total loss, i.e., upon the occurrence of the symptoms of the defects; under the circumstances, the period was set at three weeks. Although not stated explicitly in Art. 38(1) CISG, it is true that the examination period generally begins upon the arrival of the goods at the buyer's establishment (compare Art. 38(2) and (3) CISG). But this does not mean that the examination obligation and the examination period are irrelevant in cases of latent defects; rather, the period and the obligation begin when causes for suspicion later suggest a -- possibly renewed -- examination.

Only at the end of the short examination period, which has to take account of the circumstances, does the reasonable notice period pursuant to Art. 39(1) CISG begin, which the Federal Supreme Court set as a "regular" four-week period.

4. Chiefly, it is a welcome development that, contrary to some German decisions which, regarding the specification requirement of notices of lack of conformity, had set extremely rigorous demands, at least in the case of complex and complicated goods, notice of the defect symptoms shall be sufficient (but compare BGH 25 November 1998, NJW-RR 97, 680 = EWiR 97, 653 (Schlechtriem/Schmidt-Kessel with further references)). A general adding-up of the examination period and the notice period resulting in the buyer's option to remedy his default during one period by his accelerated action during the other period will, however, probably not comply with the statutory provisions. The statement that the notice period is "regularly" one month must also give rise to concern. The reasonableness of the period depends mainly on the goods, but also on the type of the business and other circumstances. For certain goods, significantly shorter notice periods are advocated and applied by the courts; of course, these shorter periods must also not be misunderstood as standard periods. In the case of easily perishable goods or goods whose price fluctuates greatly, the buyer's right to give notice within four weeks would put the seller at an unreasonable disadvantage (compare OLG Saarbrücken 3 June 1998, NJW 1999, 780 (flower business): "on the same day"; OLG Düsseldorf 8 January 1993, IPrax 1993, 413 (cucumbers): "seven days was already untimely"). Also in the case of an unambiguous identification of the defect, for example by experts, a faster reaction by the buyer could be "reasonable" (in the case at issue, he gave notice three days after receipt of the expert's opinion!). But above all, when applying international uniform law, the Federal Supreme Court cannot, as it can for German law, claim the last word and suggest with the term "regular" a ruling with precedential effect; instead, it must -- Art. 7(1) CISG -- in the interest of keeping legal uniformity, consider how foreign case law and legal scholars interpret the reasonable period.

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Pace Law School Institute of International Commercial Law - Last updated February 21, 2007
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