Germany 2 March 1994 Appellate Court München (Coke case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/940302g1.html]
Primary source(s) for case presentation: Case text
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 7 U 4419/93
CASE HISTORY: 1st instance LG München 24 May 1993 [affirmed]
SELLER'S COUNTRY: Sweden (plaintiff)
BUYER'S COUNTRY: Germany (defendant)
GOODS INVOLVED: Coke
Reproduced with permission from UNCITRAL
The plaintiff, a Swedish seller of coke which was delivered to a company in the former Yugoslavia under instructions of the defendant, a German buyer, sued demanding payment of the purchase price. The [buyer] objected mainly relying on a complaint made by the Yugoslav company that the coke was of inferior quality.
The court held that the supply of goods of inferior quality did not constitute a fundamental breach of contract that could justify the avoidance of the contract and the refusal to pay. It was found that, in any event, the [buyer] would have lost the right to declare the contract avoided since the [buyer] claimed avoidance of the contract four months after delivery, which could not be considered as a reasonable time under article 49(2) CISG.
In addition, it was held that the [buyer] should have expressed its intention to reduce the price in order to be entitled to a reduction of the purchase price for lack of conformity of the goods (articles 35 and 50 CISG). Moreover, it was held that the [buyer] was not entitled to damages under article 45(a)(c), since it failed to establish that it suffered any damages and to offset those damages against the purchase price.
The court ordered the [buyer] to pay the purchase price plus interest (CISG 78). As the CISG does not set an interest rate, the court applied the statutory interest rate of 8% according to the applicable Swedish law.
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue: Articles
Classification of issues using UNCITRAL classification code numbers:
49A1 ; 49B [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract; Buyer's loss of right to declare avoidance after delivery]; 50A [Buyer's right to reduce price for non-conforming goods]; 78B [Interest on delay in receiving price or any other sum in arrears: rate of interest]
49A1 ; 49B [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract; Buyer's loss of right to declare avoidance after delivery];
50A [Buyer's right to reduce price for non-conforming goods];
78B [Interest on delay in receiving price or any other sum in arrears: rate of interest]
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=51&step=Abstract>; Forum des Internationalen Rechts/The International Legal Forum (1996) 144, 209
French: Revue de Droit des Affaires Internationales/International Business Law Journal (1995) 752
German: OLG Report München 1994, 121; Der Betrieb (DB) 1994, 1236; Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER)/Revue suisse de droit international et de droit européen (1996) 46-47; Forum des Internationalen Rechts/The International Legal Forum (1996) 144
Italian: Diritto del Commercio Internazionale (1995) 231 No. 50
Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 251
CITATIONS TO TEXT OF DECISION
Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/108.htm>; Der Betrieb (DB) 1994, 1236; Recht der Internationalen Wirtschaft (RIW) 1994, 595-597; Neue Juristische Wochenschrift - Rechtsprechungs Report (NJW-RR) 1994, 1075-1076; Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1995, 31-32; Die deutsche Rechtsprechung auf dem Gebiete des internationalen Privatrechts im Jahre (IPRspr) 1994 N. 30 ; Wirtschaftsrechtliche Beratung (WiB) 1994, 611-612; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=51&step=FullText>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Honnold, Uniform Law for International Sales (1999) 341 [Art. 50]; Van Alstine, 146 University of Pennsylvania Law Review (1998) 767 n.334 [interest issues]; Behr, 17 Journal of Law and Commerce (1998) 266-288 [abstracts and comments on 29 interest rulings from 10 countries (this case presented at 280)]; Karollus, Cornell Review of the CISG (1995) 51 [62-64, 71-72, 75] [comments on issues under Articles 25, 49 and 78 in the context of German case law under the CISG]; Koneru, 6 Minnesota Journal of Global Trade (1997) 123-138 and Ferrari, 15 Journal of Law and Commerce (1995) 116-125 [comments on interest rulings in this case and other CISG cases]; Ferrari, International Legal Forum (4/1998) 138-255 [247 n.1027, 253 n.1079]; Mullis, Avoidance for Breach under the Vienna Convention: Critical Analysis of Some of the Early Cases (1998) n.81; Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.63] and 42 other interest rulings; Mullis, Avoidance for Breach under the Vienna Convention: Critical Analysis of Some of the Early Cases (1998) n.51; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 241 n.216 [fundamental breach (gravity of consequences of breach): contract's overall value and monetary loss suffered by aggrieved party], 255 n.260 [fundamental breach: offer to cure/possible cure]; Van Alstine, 146 University of Pennsylvania Law Review (1998) 687 [767 n.334]; for analysis of the remedy of avoidance citing this and other cases, go to Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.n.187, 261; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.567; Article 78 and rate of interest: Mazzotta, Endless disagreement among commentators, much less among courts (2004) [citing this case and 275 other court and arbitral rulings];  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 49 para. 32 Art. 50 para. 4; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) nn.294, 348; Peter Huber, CISG: The Structure of Remedies, 71 RabelsZ (2007) n.54
Finnish: Huber/Sundström, Defensor Legis (1997) 747 [759 n.62]
French: Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995) 94 n.67, 100, 106 n.115
German: Gaus, Wirtschaftsrechtliche Beratung (WiB) 1994, 611-613; Karollus, [österreichisches] Recht der Wirtschaft (öRdW) 1991, 387; Piltz, Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 1995, 32
Spanish: Perales, Cuadernos Jurídicos 3 (1996) No. 43, 5 [8 n.30] [commentary on Article 78: determination of rate of interest under the CISG (review of case law)]Go to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
2 March 1994 [7 U 4419/93]
Translation [*] by Ruth M. Janal [**]
FACTS OF THE CASE
The [seller], a Swedish stock corporation, demands from the [buyer], a German private limited company, payment of Deutsche Mark [DM] 116,535 for the delivery of Polish coke to the former Yugoslavia in the spring of 1991. With fax of 11 March 1991, the [seller] confirmed to the [buyer] the sale to "franko Osijek" [former Yugoslavia]. The coke arrived in Osijek on 30 March 1991 and reached the company OL, which was invoiced by the [buyer] by letter of 2 April 1991. On 10 April 1991, company OL complained to the [buyer] about the composition of the coke. The [buyer] forwarded the complaint to the [seller] on 15 April 1991. The [buyer] demanded that company OL return the coke to [buyer] in the beginning of June 1991. However, company OL, which by that time had gone bankrupt, refused to return the goods, arguing that the coke did not belong to the [buyer].
The [buyer] submits that company OL had entered into the contract between the [seller] and the [buyer]. [Buyer] holds that it notified the [seller] within reasonable time of the lack of conformity of the coke. The previous instance granted the [seller]'s claim. The [buyer]'s appeal is unsuccessful.
EXCERPT FROM THE REASONS OF THE DECISION
1. [Delivery of the goods and payment of the price]
The [seller]'s claim for payment of the purchase price results from Arts. 53 and 58(1) CISG. The CISG is applicable by virtue of its Art. 1(1)(a), because the parties had their places of business in two different Contracting States to the CISG at the time of the conclusion of the contract.
The [seller] placed the coke sold at the [buyer]'s disposal in accordance with the contract, i.e., the [seller] dispatched the goods directly to the [buyer]'s customer (company OL) in Osijek, as had been agreed between the parties. The [buyer] does not dispute that the goods were to be delivered to company OL. This fact furthermore results from the fixing of the delivery destination in the [buyer]'s order and the [seller]'s confirmation. [...]
Company OL already confirmed to the [buyer] the receipt of the coke on 5 April 1991. [...] It also needs to be said that the [buyer] - for months after the delivery - was still of the opinion that the coke had been delivered to company OL on [buyer]'s behalf. Otherwise, it would be inexplicable why the [buyer] would have asked company OL to hand over the coke. [...]
2. [No declaration of avoidance by seller]
The [seller] himself did not declare the contract avoided under Art. 64 CISG. The [seller]'s fax of 19 April 1992 does not constitute a declaration of avoidance, but is rather a reminder of the [buyer]'s obligation to pay the purchase price and a comment on the possibility of a cancellation of contract. [...]
3. [No grounds for declaration of avoidance by buyer]
There is also no avoidance of contract declared by the [buyer] under Art. 49 CISG.
a) [Buyer's loss of right to declare avoidance after delivery]
An avoidance of contract by the [buyer] already fails because the [buyer] did not - as it would have been required under Art. 49(2)(b) CISG - declare the contract avoided within a reasonable time after it had become aware of the alleged breach of contract. At the earliest, a corresponding declaration can be seen in the [buyer]'s letter of 6 September 1991 or in the [buyer]'s statement of defense on 6 November 1991. However, following the [buyer]'s own submissions, it knew since 10 April 1991 that the data of the delivered coke allegedly did not conform to the contract. [Buyer] furthermore knew - according to its own submissions - since 19 April 1991 that the [seller] had allegedly transferred the property of the coke directly to company OL, thereby eliminating the [buyer] from the transaction. However, a time period from mid-April 1991 to the beginning of September 1991, that is, of more than four months, does not constitute a reasonable period of time in the meaning of Art. 49(2)(b) CISG. This provision is intended to prevent a long state of uncertainty for the [seller] after the delivery and to inform the [seller] of how it itself may proceed with the goods. At the same time, the provision is supposed to exclude speculation on the part of the [buyer]. It seeks to prevent the possibility that the [buyer] initially tries and demands the - possibly profitable - purchase price owed by company OL and then, after the failure of this attempt, releases the goods to the [seller].
b) [No fundamental breach by seller]
In any case, the [seller] did not commit a fundamental breach of contract in the meaning of Art. 49(1)(a) CISG.
aa) [Conformity of the goods]
If one supposes that the measured data reported by company OL were true for the entire delivery of coke, the goods would not conform to their description in the order confirmation (Art. 35(1) CISG). However, this lack of conformity would not constitute a fundamental breach of contract, as the deviation was objectively not of considerable importance. [...]
bb) [Place of delivery]
A fundamental breach of contract also does not exist with respect to the [buyer]'s allegation that the [seller] sold the coke to company OL in [seller]'s own name on 18 April 1991. The Appellate Court does not need to conduct a hearing of evidence in this matter. It could be argued that the [seller] breached the contract by not transferring the property of the goods to the [buyer]. However, the [seller] did exactly what had been agreed between the parties, i.e., [seller] delivered the coke to company OL. If this led to the result that the property was not transferred to the [buyer], but directly to company OL, the result conformed to the contractual agreement, which did not provide for any further actions on the part of the [seller]. The direct sale of the coke by the [seller] to company OL and the elimination of the [buyer] from the transaction - as it was alleged by the [buyer] - could constitute an interference with the [buyer]'s rights and therefore a breach of the [seller]'s post-contractual obligations (cf. Schlechtriem/Huber, Art. 31 CISG n. 76).
However, such a breach of contract would not be fundamental, i.e., a breach which is objectively of considerable importance for the [buyer]. In the present case, the [buyer] possessed its own claim for payment of the purchase price against company OL from the beginning. This claim was also governed by the CISG, because Yugoslavia was at that time also a Contracting State. Under the CISG, however, company OL would not have been entitled to refuse paying the purchase price to the [buyer], even if OL and the [seller] had subsequently also formed a sales contract regarding the coke that had already been sold to OL by the [buyer].
4. [Remedy of reduction of price]
A reduction in price under Art. 50 CISG cannot be considered in regards with the alleged lack of conformity of the coke. This is because the [buyer] did not make a corresponding declaration, which would have been necessary (Schlechtriem/Huber, Art. 50 CISG n. 11).
5. [Remedy of damages]
Any claims for damages under Art. 45(1)(b), 74 et seq. CISG the [buyer] might possibly possess cannot be considered by the Appellate Court, because the [buyer] did not declare a set-off with such claims. Contrary to the avoidance of contract (Art. 81 CISG), the [buyer] is not automatically (ipso iure) released from its obligation to pay the purchase price. Therefore, a set-off would have been necessary.
In any case, a claim for damages already fails because the [buyer] did not plead that it suffered damages. It was neither submitted nor is it obvious that the [buyer] suffered a loss as a consequence of the alleged deviation of the coke composition. The same goes for the alleged conduct of the [seller] towards OL and the forwarding agent in mid-April 1991. Again, it was neither submitted nor is it obvious that without the [seller]'s conduct the goods would not have reached OL (as the delivery had already been effected fourteen days prior to that time), or that otherwise OL would have paid the coke, or that the goods would have at least been handed over to the [buyer] by OL following [buyer]'s demand for a return in June 1991.
6. [Interest on sums in arrears]
The claim for interest is based on Art. 78 CISG, since the [buyer] failed to pay the purchase price due under Art. 58 CISG. Following Art. 28(2) sent. 1 EGBGB [*], the rate of interest is determined by Swedish law, as the [seller]'s obligation is the one characteristic of a sales contract. Under Swedish law, the [seller] is entitled to interest at a rate of 8% on top of the discount rate of the Swedish State bank, par. 6 Räntelag (1975: 635) (cf. Högland, Sveriges Rikes Lag, date: 1 January 1991, p. 530/531).
There, a surcharge ("tillägg", cf. Parsenow, Fachwörterbuch für Recht und Wirtschaft Schwedisch/Deutsch Deutsch/Schwedish, 2nd ed., p. 168) of 8% ("atta", cf. Kornitzky, Taschenwörterbuch Schwedisch/Deutsch, 1958, p. 521) is fixed. Therefore, the lower interest rate referred to in the literature (cf. Fischler/Vogel, Schwedisches Handels- und Wirtschaftsrecht mit Verfahrensrecht, 3rd ed. 1978, p. 94) is incorrect.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Defendant-Appellant of Germany is referred to as [buyer]; the Plaintiff-Respondent of Sweden as [seller]. Amounts in German currency (Deutsche Mark) are indicated as [DM].
Translator's note on other abbreviations: EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuche [German Code on Private International Law].
** Ruth M. Janal, LL.M. (UNSW), is a Ph.D. candidate at Albert-Ludwigs-Universität Freiburg. The second-iteration redaction of this translation is by Dr. John Felemegas of Australia.Go to Case Table of Contents