Janal, Ruth M.

Vanto, Jarno

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Pace International Law ReviewVolume 13Issue 2 Fall 2001 Article 9September 2001Translation from German - Court of Appeal(Oberlandesgericht) of Braunschweig - October28, 1999 - Docket No. 2 U 27/99Jarno VantoRuth M. JanalFollow this and additional works at: http://digitalcommons.pace.edu/pilrThis Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in PaceInternational Law Review by an authorized administrator of DigitalCommons@Pace. For more information, please contact cpittson@law.pace.edu.Recommended CitationJarno Vanto and Ruth M. Janal, Translation from German - Court of Appeal (Oberlandesgericht) ofBraunschweig - October 28, 1999 - Docket No. 2 U 27/99, 13 Pace Int'l L. Rev. 463 (2001)Available at: http://digitalcommons.pace.edu/pilr/vol13/iss2/9Translation from GermanCourt of Appeal (Oberlandesgericht) ofBraunschweigOctober 28, 1999Docket No. 2 U 27/99English translation by Jarno Vanto*Editor: Ruth M. Janal**Key CISG provisions at issue:Articles 4; 6; 7(2); 57(1)(a); 61(1)(b); 64(1)(a); 74; 77; 78; 88[Also cited: Articles 14; 18; 24; 31(1); 71(1)(b); 76; 851Key issues addressed:Choice of law, Place of payment, Jurisdiction, Scope of Con-vention, Statute of limitations, Standard terms and condi-tions, Avoidance [cancellation] of contract, Damages, Loss ofprofits, Preservation of goods, Storage of goods, Cover transac-tions, Mitigation of loss, InterestFACTS:A German seller (the plaintiff) sold to a Belgian buyer (thedefendant) 12600 kg of deer meat [venison]. The contract stipu-lated that the meat be shipped to Antwerp. Shipment was to bemade upon payment of the invoice. Shortly after formation ofthe contract the seller informed the buyer that part of the meatwould arrive via plane at Brussels. The seller asked the buyerto accept the goods at Brussels and Antwerp and issued invoicesfor the two shipments. The buyer refused to take the goods atBrussels. The seller then offered to deliver all of the goods toAntwerp within the time limit of the contract and reiterated its* Jarno Vanto is an LL.M. student at the University of Turku, Finland. He iscurrently working on his thesis on damages under the CISG.** Ruth M. Janal, LL.M. (UNSW) is a PhD. candidate at Albert-Ludwigs-UniversitAt Freiburg.1PACE INT'L L. REV.demand for immediate payment. The buyer did not pay, arguingthat the seller had refused to perform under the contract withregard to the place of performance. The seller then sued fordamages for non-performance. The first instance court (Lan-dgericht Braunschweig February 3, 1999, 9 0 332/97) ruled infavor of the [seller].GROUNDS FOR THE DECISIONThe [buyer's] appeal is admissible but unsuccessful apartfrom a change to the damages awarded to the [seller] for thedelay in payment and an adjustment to the applicable interestrate.The [buyer], a Belgian firm, fundamentally breached thecontract concluded between her and the [seller], a German firm,on November 3, 1995 by finally and unequivocally refusing totake over the venison meat that was the subject matter of thecontract. The [seller] is therefore entitled to a damages awardby the Court of First Instance irrespective of whether UN SalesLaw (CISG) or the German Civil Code applies.I. The international jurisdiction of the German courts isbased on Art. 17 EuGVJ.1 The parties expressly concludedtheir contract on the basis of [seller's] standard terms. Section17 of these terms names the legal forum as being at Goslar[Germany]. Since the parties are acting in their commercial ca-pacity, the incorporation of these standard terms is valid bothunder domestic German law (Art. 27 Abs. 3, 31 Abs. 1 EGBGB, 2§ 24 sent. 1 AGBG,3 see Palandt/Heinrichs BGB 58th ed. § 2ABGB n.23) and under the alternatively applicable UN SalesLaw (CISG). Following the undisputed submission of the[seller], his standard terms were already used by the parties ina series of earlier transactions and were also made accessible tothe [buyer].1 EuGVO = Europaisches t0bereinkommen uber die gerichtliche Zus-tandigkeit und die Vollstreckung gerichtlicher Entscheidungen in Zivil- undHandelssachen [European Convention on Jurisdiction and the Enforcement ofJudgments in Civil and Commercial Matters].2 EGBGB = Einfdihrungsgesetz zum Birgerlichen Gesetzbuche [GermanCode on the Conflict of Laws].3 AGBG = Gesetz zur Regelung des Rechts der Allgemeinen Geschiftgsbed-ingung [German Code on General Terms and Conditions].[Vol. 13:4632http://digitalcommons.pace.edu/pilr/vol13/iss2/9COURT OF APPEAL OF BRAUNSCHWEIGIn the event the CISG is the law governing the contract, theinternational jurisdiction of the German Courts also resultsfrom Art. 5 No. 1 EuGVO (forum at the place of performance).Under CISG Art. 57(1), the place of performance for the[buyer's] obligation to pay the purchase price is the seller'splace of business. The secondary obligations under CISG Art. 61- including the above-mentioned claim for damages - follow theprimary obligation of payment of the purchase price. Conse-quently, the place of performance for a remedy for breach of con-tract is also determined by CISG Art. 57(1)(a) (Ensthaler/Achilles, § 382 Art. 31 n.15, Art. 57 n.1).II. The damages in question are based on CISG Art. 61, ifthe CISG applies. In the event one finds the standard terms tocontain an implicit choice of German domestic law, the [seller's]claim for damages results from § 326 of the German Civil Code(BGB). Contrary to the [buyer's] submission, these claims arenot time barred, as the period of limitations - to be determinedunder German domestic law - is four years and has not yet runout (Art. 31(1) no. 4 EGBGB, § 196(1) no. 1 BGB, cf. Palandt/Heinrichs, § 195 Rn. 8).1. If the CISG governs the contract, the [seller] may claimdamages on the basis of CISG Art. 61, because the [buyer] fun-damentally breached her duties under the contract. Contrary tothe agreed advance performance by the [buyer], she did not paythe purchase price, which was due immediately after the[seller's] invoice had been issued, and [buyer] renounced thecontract in its entirety with her letter of December 11, 1995.The Court neither follows the [buyer's] position that she wasnot yet obliged to pay for the goods due to a faulty invoice, nordoes the Court follow her allegation that the [seller] had notsufficiently fulfilled his duty to deliver. [Seller's] invoice of De-cember 5, 1995 covering the majority of the goods delivered can-not be queried; it correctly described the agreed payment anddelivery conditions. At the latest by fax of December 7, 1995,the [seller] in addition clarified that the goods would be placedat [buyer's] disposal at the agreed place of delivery, Antwerp.The same goes for [seller's] invoice of December 7, 1995, for inthe above mentioned fax there was a written promise by the[seller] to fulfill the contract, leading to immediate payment du-200113PACE INT'L L. REV.ties on the part of the [buyer]. The [seller's] fax of December 8,1995 did not hinder the [buyer] from fulfilling her duties underthe contract. That written message was not a conditional decla-ration of avoidance on the part of the [seller]. Instead, it con-tained a statement announcing a claim for damages for nonperformance, combined with the accurate remark that the[buyer] - whose conduct had given rise to doubts regarding herwillingness to pay - was obliged to pay the price upon the re-ceipt of the invoice and afterwards obliged to take possession ofthe goods in Antwerp.The [buyer's] submission that [seller] was unready to de-liver the goods, is unconvincing. Quite apart from the questionwhether the [buyer's] clear unwillingness to perform wouldhave entitled the [seller] to suspend his performance on the ba-sis of CISG Art. 71, the [seller] was not under any duty to per-form in advance. The [seller] was in particular not under a dutyto place the goods at the [buyer's] disposal before the paymenthad taken place (as a side note: contrary to the [buyer's] sub-mission, it would have been sufficient if the [seller] had releasedthe goods by naming the place of delivery). The [buyer] was un-able to show that the [seller] would not have been willing orable to correspondingly perform his obligation if the [buyer] hadresumed her loyalty to the contract.In her written document of December 11, 1995, the [buyer]had, with final and serious intent, renounced the concluded con-tract. Admittedly, the [buyer] currently questions that interpre-tation of her statements. However, as late as in the briefarguing her appeal, she submitted that this letter contained arefusal to perform the contract. Following the understandingthat a reasonable person of the same kind as the [seller] wouldhave had in the same circumstances, no other interpretation ofthe [buyer's] letter makes sense. In view of the [buyer's] clearand growing unwillingness to perform the contract, the [seller]reasonably had to assume that the [buyer] would not take deliv-ery of the goods. Based on these circumstances, the [seller] wasentitled to declare the contract avoided under CISG Art.64(1)(a) and did not have to keep up his readiness to fulfill hiscontractual duties.[Vol. 13:4634664http://digitalcommons.pace.edu/pilr/vol13/iss2/9COURT OF APPEAL OF BRAUNSCHWEIG2. If German domestic law were applied, the duty to paydamages would result from § 326 of the German Civil Code(BGB). In particular, the [seller's] fax message of December 8,1995, as mentioned before, did not fix an additional period oftime for performance combined with a conditional declaration ofavoidance that - if judged to be premature - could possibly beseen as a breach of contract on the part of the [seller]. As late asin her brief arguing the appeal, the [buyer] submits that sheherself did not interpret the [seller's] letter as the fixing of anadditional period of time combined with a conditional declara-tion of avoidance, but concluded that the [seller] intended tohold on to the contract.Following the [buyer's] unequivocal refusal to perform,which was expressed in her letter of December 11, 1995, the[seller] was entitled to avoid the contract without fixing an ad-ditional period of time and to claim damages for non-perform-ance. He did so by letter of March 26, 1996, in particularbecause the [buyer] at no point in time signaled that she wouldreturn to a conduct loyal to the contract.3. The following losses are to be compensated as damages:When applying the CISG, the duty to pay damages is basedon Article 74, in part also on Article 85. The Court does not fol-low the [buyer's] submission that the seller failed to take obvi-ous steps to mitigate damages and that the reimbursement ofhis damages should consequently be reduced under CISG Art.77. The [seller] was not obliged to undertake a substitute trans-action. First, the [seller] did not have to agree to partial substi-tute sales of goods which he then would have possibly lacked,had the [buyer] desired to go through with the transaction afterall. Second, CISG Art. 77 does not principally oblige a party toenter a substitute transaction. It is only in exceptional circum-stances that the seller is obliged to rescind his primary rights toperformance for secondary rights in the form of damages (En-sthales/Achilles, after § 382, Art. 77 n.4). Scholarly opinion cor-rectly assumes that the seller is not obliged to enter a substitutetransaction even if prices are falling, as this basically meansputting himself in a position of inability to perform the contract.Exceptions apply if the promisee delays avoiding the contractwithout a plausible reason or speculatively, that is, if enough200115PACE INT'L L. REV.time has passed to expect a decision by him whether he intendsto require performance or ask for remedies for breach of con-tract (cf. v. Caemmerer/Schlechtriem/Stoll, Kommentar zumEinheitlichen UN-Kaufrecht, 2d edition, Art. 77 n.10).Such an exception is not given in the present case. In par-ticular, the [seller] could not have been expected to decide dur-ing the last remaining days of the year 1995, whether to requirethe [buyer] to pay the purchase price and take over the goods orto declare the contract avoided and to confine himself to secon-dary remedies. As long as this decision had not been made - andhe was not required to make it - the seller was not under aduty to sell the goods to third parties. In a similar manner, the[seller] was not under a duty to sell the goods under CISG Art.88, because the meat in question could be preserved throughfreezing, because the cost of such preservation did not exceed10% of the value of the meat, and because the decrease in pricesin venison to be expected after the Christmas holidays does notconstitute a deterioration in the meaning of CISG Art. 88 (En-sthaler/Achilles, § 382 Art. 88 n.6).The following damages and expenses were held asacceptable:a. The Court of First Instance determined the [seller's] lossof profit under CISG Art. 74 as being DM [Deutsche Mark]20,148.99. In accordance with the undisputed expert testimony,the Court held that the prices for frozen venison are on declineand that the profit margin of 10%, as set by the [seller], is at thelowest possible level. The Court of First Instance was thus enti-tled to estimate the [seller's] loss of profit - to be determinedunder CISG Art. 76 - as constituting 10% of the purchase priceagreed with the [buyer].b. Regarding the 1,365 kilograms of venison that the[seller] had been able to sell to a third party before preservationat only one-third of the price the [buyer] had agreed to pay, the[seller] can demand a sales commission of DM 500 as damages.These losses represent additional expenditures which would nothave been accrued had the contract concluded between the par-ties to this dispute been performed (CISG Art. 74).c. The sum of DM 527.90 also falls under damages to becompensated under CISG Art. 74. Again, these expenses wouldnot have been accrued had the [buyer] not breached her duty to468 [Vol. 13:4636http://digitalcommons.pace.edu/pilr/vol13/iss2/9COURT OF APPEAL OF BRAUNSCHWEIGtake over the meat which was ready to be placed at herdisposal.d. The same goes for the expenses incurred by processingthe meat for cold storage. These expenses, amounting to DM1.15/kg, were regarded as extraordinarily low by the (undis-puted) expert's testimony, therefore the Court of First Instancewas entitled to rely on them for its estimation under § 287 ofthe German Civil Procedure Code (ZPO).e. In addition to the loss of profit resulting from deteriora-tion of the meat, the [seller] may claim the disputed transporta-tion costs under CISG Art. 74 resulting from transporting themeat in Belgium. The [buyer] does not dispute that these ex-penses led to an additional loss of profit upon the resale of thestored meat; therefore, these damages are to be compensatedunder CISG Art. 74.f. The Court of First Instance held that the phone expensesof DM 50 were compensable, relating to the necessary efforts bythe [seller] to resell the goods. The Court of Appeals upholdsthis.g. The additional costs for storing the goods, namely coldstorage of the meat in Goslar [Germany], were considered to beexceptionally low by the undisputed testimony of the expert.The Court of First Instance thus correctly included thesebreach-induced costs in the calculation of damages under CISGArt. 74.h. This Court reverses the appealed decision only with re-spect to the damages resulting from a delay in payment. The[seller] may not rely on the interest clause contained in Section7 of his standard terms. This section of his standard terms de-termines delay damages as an abstract lump-sum without giv-ing due consideration to the actual nature of the damages (cf.§ 11 no. 5(b) AGBG). Following §§ 9 and 24 AGBG, such a vary-ing clause is also forbidden in business transactions. The CISGdoes not diverge from these provisions. The decision of the do-mestic German law to regard such a clause as invalid comes inunder CISG Art. 4(a), EGBGB Art. 31(1). Because the [seller]does not submit a concrete basis for determining the interestrate, the [buyer's] duty to pay interest is based on CISG Art. 78,whereas the interest rate is to be determined by the law appli-cable by virtue of the rules of private international law, that is20011 4697PACE INT'L L. REV.§ 352 HGB4 (cf. Ensthaler/Achiles, after § 382, Art. 78 n.3).Consequently, the DM 3,887.40 interest determined by theCourt of First Instance is to be replaced by only DM 2,556.10.The interest on the [seller's) entire claim again is based onCISG Art. 78, while the interest rate is determined by § 352 ofthe German Commercial Code (HGB). Following the above rea-soning, the decision on interest also needs to be adjusted so thatthe [seller] receives an interest rate no higher than 5% perannum.4 HGB = Handelsgesetzbuch [German Commercial Code].[Vol. 13:4638http://digitalcommons.pace.edu/pilr/vol13/iss2/9

Translation from German - Court of Appeal (Oberlandesgericht) of Braunschweig - October 28, 1999 - Docket No. 2 U 27/99

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Translation from German - Court of Appeal (Oberlandesgericht) of Braunschweig - October 28, 1999 - Docket No. 2 U 27/99

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