Reproduced with permission from the Cornell Review of the
Contracts for the International Sale of Goods (1995) 51-94 Martin Karollus [*]
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[Contracts for the manufacture of goods] German courts have applied the CISG via Article 3(1) in three
cases involving contracts for the manufacture of goods. In the first case,
an Italian manufacturer contracted to produce shoes according to the
detailed instructions of the German buyer [OLG Frankfurt 17 September
1991]. In the second case, the American
manufacturer promised to produce a machine for an industrial plant [OLG Düsseldorf 2 July
1993]. In the third case, a French manufacturer of
computer printers developed software for the special needs of the buyer [OLG Koblenz 17 September
None of these contracts are sales contracts under German law because German
sales law is applicable only if the goods manufactured are generic. If the goods are custom-made, the provisions concerning
a Werkvertrag (contract of manufacture) apply. Nevertheless, the contracts are sales contracts under the
CISG; the only distinction made by the CISG concerns the origin of the raw
or component materials. Since these materials were not
supplied by the buyer, the CISG properly applied.
Judicial Interpretation and Application of The
CISG in Germany 1988-1994
Martin Karollus [*]
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[Contracts for the manufacture of goods]
German courts have applied the CISG via Article 3(1) in three cases involving contracts for the manufacture of goods. In the first case, an Italian manufacturer contracted to produce shoes according to the detailed instructions of the German buyer [OLG Frankfurt 17 September 1991]. In the second case, the American manufacturer promised to produce a machine for an industrial plant [OLG Düsseldorf 2 July 1993]. In the third case, a French manufacturer of computer printers developed software for the special needs of the buyer [OLG Koblenz 17 September 1993].
None of these contracts are sales contracts under German law because German sales law is applicable only if the goods manufactured are generic. If the goods are custom-made, the provisions concerning a Werkvertrag (contract of manufacture) apply.
Nevertheless, the contracts are sales contracts under the CISG; the only distinction made by the CISG concerns the origin of the raw or component materials. Since these materials were not supplied by the buyer, the CISG properly applied.Go to entire text of Karollus commentary
* Professor of Law at the University of Bonn, Germany, from 1992 to February 1995. Currently, Professor of Law at the University of Linz, Austria. Address: Institut für Handels-und Wertpapierrecht, Universität Linz, A-4040 Linz-Auhof, Austria, Europe.
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77. Judgment of Sept. 17, 1991, OLG Frankfurt am Main, 1991 RIW 950.
78. Judgment of July 2, 1993, OLG Düsseldorf, 1993 RIW 845.
79. Judgment of Sept. 17, 1993, OLG Koblenz, 1993 RIW 934.
80. Bürgerliches Gesetzbuch [BGB] § 651.
81. BGB §§ 633-50.
82. CISG Article 3(1) states: "Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials. . . ." CISG, supra note 4, art. 3(1). No court has yet considered the meaning of "substantial part." For discussion of the interpretation of "substantial part," see Honnold, supra note 1, § 59; Herber & Czerwenka, supra note 16, at 28; Karollus, supra note 20, at 22-23; Rolf Herber, Art. 3: Verträge über herzustellende Waren oder Dienstleistungen, in Kommentar zum Einheitlichen UN-Kaufrecht 68 (Ernst van Caemmerer & Peter Schlechtriem eds., 2d ed. 1995).
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[Fundamental breach: analysis of German court rulings]
Several decisions have dealt with the question of fundamental breach. It is interesting that this question has arisen only in the context of the buyer's right of avoidance. Other CISG provisions that require a fundamental breach have not yet been considered by the German courts.
In one case, an Italian seller promised to deliver shoes within a particular geographic area exclusively to the German buyer [LG Frankfurt 16 September 1991]. The seller delivered shoes to another merchant whose main place of business was outside the area reserved to the buyer but who had a place of business within the reserved area. The second buyer sold the shoes within the restricted area and in competition with the first buyer. Apparently, the seller did not intentionally violate his contractual obligation because the sale to the second buyer was organized by a commercial agent. The agent either intentionally violated the contract or was unaware that the second buyer had a secondary place of business in the area reserved for the first buyer.
Because the first buyer did not receive exclusive deliveries as promised, he declared the contract void under CISG Article 49(1)(a). However, the LG Frankfurt am Main held that the breach was not fundamental (presumably, the court would deny that there was a breach of contract at all). The court argued that the Italian seller could not have known where his German buyers had places of business, and that the knowledge of the commercial agent could not be imputed to the seller. These arguments are not convincing. A seller who has promised exclusive delivery to the buyer is obliged to organize his distribution such that it meets his contractual obligations.
Of course, the seller is not liable for the acts of his other buyers. The seller must, however, impose contractual duties on other buyers to prevent them from selling the goods in the area reserved for the first buyer, and he must stop further deliveries if they do not comply. In any case, the seller is liable if he enters into contracts with other buyers who would foreseeably sell the product in the reserved area. The result is not different if the commercial agent alone can foresee the interference, since a seller who engages commercial agents is liable for their actions under CISG Article 79(2) to the extent they concern his obligations.
In a second case, an Italian manufacturer promised to manufacture shoes with a trademark ("Marlboro") [OLG Frankfurt 17 September 1991]. The manufacturer was allowed to use the trademark only with special permission from the buyer. Nevertheless, the manufacturer displayed the shoes with the trademark during a fair at Bologna and did not remove them upon demand of the buyer. The buyer declared the contract void under CISG Article 49(1)(a). The OLG Frankfurt am Main decided that the manufacturer had committed a fundamental breach because his actions severely shook the buyer's confidence in the manufacturer's contract fidelity. The court held that violation of additional obligations could amount to a substantial breach. Therefore, the buyer could not be expected to cooperate further with the manufacturer. While this decision seems correct, it does not answer the question of how to distinguish the fundamental character of a present breach from expected future breaches. As to an expected breach, the requirements of Article 72 go beyond those of Article 25 and should take precedence.
The buyer in a third case argued that the shoes delivered were not merchantable due to their lack of conformity [OLG Frankfurt 18 January 1994]. The OLG Frankfurt am Main held that this statement alone was not sufficient because it did not give the court enough details to decide whether the breach was fundamental. Accordingly, the court regarded the buyer's declaration of avoidance under Article 49(1)(a) as ineffective, and the buyer had to pay for the shoes. This raises the question of how a buyer can convince the court that the goods are not saleable. In my opinion, it should be sufficient for the buyer to specify the non-conformity and the reasons why it is likely that the goods will not be saleable. The buyer should not be forced to wait until his customers reject the goods, which seems to be the result of the strict requirments stated by the OLG Frankfurt am Main. From this perspective, these requirements seem too severe. Nevertheless, the result is correct, because the buyer did not state exactly why the shoes lacked conformity.
Finally, the OLG München decided as to a contract for the sale of coke that the alleged breaches -- minor lack of conformity and a direct sale to the contracting partner of the buyer -- were not fundamental [OLG München 2 March 1994]  (in fact, it was not proven that the seller had committed a breach of contract at all). I agree as far as the minor lack of conformity is concerned. If exact conformity is a special requirement of the buyer, then the contract should contain an appropriate clause. As far as the direct sale is concerned, I do not agree with the OLG München. The direct sale should be regarded as a fundamental breach even if it did not cause present prejudice to the buyer. In effect, the seller tried to interfere with the business relations of the buyer. This is a severe breach of confidence and it is reasonable to expect further interferences in the future. There is no reason to treat this breach of confidence differently from the impermissible use of the "Marlboro" trademark.Go to entire text of Karollus commentary
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119. See CISG, supra note 4, art. 49(1)(a).
120. See, e.g., id. arts. 46(2), 64(1)(a), 70.
121. Judgment of Sept. 16, 1991, LG Frankfurt am Main, 1991 RIW 952.
123. See Karollus, supra note 20, at 169.
124. Judgment of Sept. 17, 1991, OLG Frankfurt am Main, 1991 RIW 950.
125. Id. at 950-51.
126. Judgment of Jan. 18, 1994, OLG Frankfurt am Main, 1994 RIW 240. See CISG, supra note 4, art. 35.
127. Id. at 241.
128. See Ulrich Huber, Art. 46: Recht des Käufers auf Erfüllung oder Nacherfüllung, in Kommentar zum Einheitlichen UN-Kaufrecht 428, 441 (Ernst von Caemmerer & Peter Schlechtriem eds., 2d ed. 1995).
129. Judgment of Mar. 2, 1994, OLG München, 1994 RIW 595.
130. See supra notes 124-25 and accompanying text. (. . .)
[Declarations of avoidance: German court rulings]
For a declaration of contract avoidance to be effective, Article 26 requires that it is made by notice to the other party. One of the main issues under Article 26 is the required content of the notice. Generally, the notice has to make clear to the other party that the contract is avoided. However, the degree of clarity required in the notice is unsettled. This question is very important because a notice of avoidance not meeting the requirements of Article 26 will not be effective, and the party may subsequently lose the right to avoid the contract under Articles 49(2) or 64(2).
According to the OLG Frankfurt am Main, the declaration of avoidance is effective if the avoiding party unmistakably tells the other party that the contractual relationship will be terminated [OLG Frankfurt 17 September 1991]. In one case, the AG Oldenburg in Holstein stated that the buyer's refusal to take delivery would suffice as an Article 49 declaration of avoidance [AG Oldenburg 24 April 1990]. This is especially true in the cases of late delivery where the refusal to accept delivery has a clear meaning. On the other hand, the meaning would not be clear if the buyer rejects defective goods, because the rejection could be understood as a demand for substitute delivery under Article 46(2).
According to the LG Frankfurt am Main, a buyer who sends back one part of the goods and demands credit but declares that he will pay for the other part which he has already resold has not made an effective declaration of avoidance [LG Frankfurt 16 September 1991]. The court held that, although the seller had committed a fundamental breach which allowed the buyer to avoid the contract under Article 49, the buyer did not make explicit his desire to avoid the contract as required by Article 26. This is not convincing. The return of the goods and the additional demand for a credit entry unmistakably show that the buyer did not want substitute delivery, but instead wanted to terminate the contract. The buyer's actions should have been understood as a partial avoidance under Article 51(1). The issue should have been whether a partial avoidance was possible in those circumstances.Go to entire text of Karollus commentary
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131. For discussion of the contents of contract avoidance notices, see, e.g., Enderlein et al., supra note 15, at 105; Hans G. Leser, Art. 26: Aufhebungserklärung, in Kommentar zum Einheitlichen UN-Kaufrecht 221, 223-24 (Ernst van Caemmerer & Peter Schlechtriem eds., 2d ed. 1995); Karollus, supra note 20, at 151.
132. Judgment of Sept. 17, 1991, OLG Frankfurt am Main, 1991 RIW at 951.
133. Judgment of Apr. 24, 1990, AG Oldenburg in Holstein, 1991 IPRax at 338.
134. Fritz Enderlein, Die Verpflichtung des Verkäufers zur Einhaltung des Lieferzeitraums und die Rechte des Käufers bei dessen Nichteinhaltung nach dem UN-Übereinkommen über Verträge über den internationalen Warenkauf,1991 IPRax 313, 315.
135. Judgment of Sept. 16, 1991, LG Frankfurt am Main, 1991 RIW at 953.
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