Source: http://cisgw3.law.pace.edu/cases/041006g1.html
Timestamp: 2019-04-25 07:58:07+00:00

Document:
Defendant [Buyer]'s appeal (Berufung) against the judgment of the Court of First Instance (see: District Court (Landgericht) Frankfurt am Main, ruling 3/10 O 162/03 of 19 February 2003) is dismissed.
[Buyer] bears the cost of the appeal.
The ruling is provisionally executable. Execution may be suspended, if [Buyer] provides securities to an amount of Euro 775,000.00, given that the claiming parties Plaintiff [Seller] (ad 1.) and (ad 2.) do not themselves offer securities for the executable amount. Securities may be irrevocable, unlimited primary guaranties offered in writing by any German bank functioning as a licensed tax guarantor.
1. [Buyer]'s appeal mainly concerns damages for lost profits due to an alleged fundamental breach of an assumed contract for the delivery of goods by installments. [Buyer] seeks to set-off this claim against the [Seller]'s undisputed claim for payment for delivered cosmetics.
According to [Buyer], [Seller] (ad 1.) had been its predecessor's main supplier - [Buyer]'s predecessor company being [Seller] (ad 1.)'s almost exclusive customer for cosmetics in Germany.
On 1 March 2003, the predecessor company (Gesellschaft bürgerlichen Rechts; GbR) reorganized as [Buyer], a company of limited liability (Gesellschaft mit beschränkter Haftung; GmbH). The predecessor company's stock of cosmetics supplied by [Seller] (ad 1.) was sold to [Buyer], which in turn bound itself to stand behind its predecessor's liabilities to [Seller] (ad 1.). In January 2004, [Buyer] organized itself under its current name. The company was first run by two brothers. One of them quit in December 2003 and became director of a newly-founded company which used [Buyer]'s address and premises and joined [Buyer]'s business [activities].
On 1 April 2004, [Buyer] declared itself insolvent. The insolvency proceedings are still pending.
Since January 2003, [Seller] (ad 1.) and [Seller] (ad 2.) have only partially executed [Buyer]'s orders. Until June 2003, they delivered goods in an amount of Euro 932,844.35, whereas [Buyer] ordered cosmetics for about Euro 3,587,028.35. Since April 2003, [Buyer] ordered goods for the total amount of 43,719.94. However [Seller] (ad 2.) only provided cosmetics for Euro 17,786.17. On 11 June 2003, [Seller] (ad 1.)'s bookkeeper and [Buyer]'s director met for negotiations concerning the payment of [Buyer]'s debt and the [Sellers]' partial refusal to execute [Buyer]'s orders. During these negotiations, [Buyer]'s director declared that due to the shortage [Buyer] had suffered as a result of [Seller]'s partial refusal to deliver, [Buyer] would only be able to pay an additional monthly amount of Euro 100,000.00 to settle [Buyer]'s debts for June and July 2003. Consequently, the settlement agreement had to be modified as far as it concerned the stipulated goal of payment within sixty days after delivery which, according to [Buyer] could at the earliest be achieved by December 2003. [Seller], however, insisted on compliance with the settlement agreement. After the negotiations had been broken up, neither orders nor deliveries were made by the parties.
[Seller] (ad 1.) and [Seller] (ad 2) claim for payment for cosmetics delivered since 1 March 2003, which has been asked for in several reminders since 7 July 2003.
In its response, [Buyer] argues that it had declared a set-off with damages for claimed lost profits up to an amount of Euro 1,238,831.85 against the claim of [Seller] (ad 1.), respectively, with damages to an amount of Euro 31,111.88 against the claim of [Seller] (ad 2.).
Due to their close business relationship which lasted over 15 years during which time [Seller] (ad 1.) and [Seller] (ad 2.) had been [Buyer]'s, respectively, his predecessor's, main supplier and [Buyer] in turn had been the almost exclusive customer for [Sellers]' products in Germany, according to [Buyer], a permanent agreement for the delivery of goods by call emerged, which comprised not only the delivery of cosmetics but also cooperation as regards product innovation and development, advertisement campaigns, appearances at international business congresses, and protection of registered trade marks. Drawing an analogy to � 624 of the German Civil Code (Bürgerliches Gesetzbuch; BGB), [Buyer] argues that the thus established permanent business relationship could have only been validly revoked for the future after the expiration of a six months' time limit. An implicit revocation by [Seller] (ad 1.) or [Seller] (ad 2.) could only be seen in the refusal to deliver anything at all after 30 June 2003. However, the partial shortcomings as regards the execution of earlier deliveries by [Seller] in 2003 constituted a wrongful violation of this contract. In the years before 2003, [Seller] did not hold back deliveries. [Seller] did not hold back deliveries for competitors in 2003 either.For 2003, (the parties had planned to achieve a higher turnover. Calculating on the basis of average figures, [Buyer] estimated an income of about Euro 4,200,000.00 for the sale of cosmetics in 2003. . Assuming a profit margin of 18 %, [Buyer] claims lost profits of Euro 475,773.12 due to the [Sellers]' refusal to deliver goods valued at Euro 2,643,184.00 until the middle of June 2003, respectively, losses of Euro 763,058.73, for the rest of that year. Hence, [Buyer] claims damages for lost profit for a total amount of Euro 1,238,831.85.
[Seller] (ad 1.) and [Seller] (ad 2.) reply that in the years before 2003 [Buyer]'s predecessor equally failed to comply with its contractual obligations as regards payment for delivered goods, which always gave reason for complaints. Reacting to this, [Seller] had held back deliveries before 20 November 2002. Moreover, [Seller] had always accepted [Buyer]'s orders only on condition that the requested goods were on stock or could be supplied within a foreseeable time. [Buyer] complied with the settlement agreement of 20 November 2002 only in February 2003. From January to June 2003, [Buyer] paid back only Euro 794,495.89 of its debt, instead of Euro 1,200,00.00 as required by the settlement plan. The goal of payment within sixty days after delivery by June 2003 has not been achieved. During the conversation of 11 June 2003, [Buyer]'s director placed another order for goods of about Euro 240,000.00 declaring that the [Sellers] "could take it or leave it". According to [Seller] (ad 1.) and [Seller] (ad 2.), it was only this order they refused to accept.
The Court of First Instance (see: District Court (Landgericht) Frankfurt am Main, ruling 3/10 O 162/03 of 19 February 2003) found the [Seller]'s claim justified. [Buyer]'s obligation to pay for delivered goods has not been disputed before the Court. As concerned the date when delivery should had been due and the interest due for delay, the Court of First Instance found [Seller]'s standard terms to apply. Diverging agreements were invalid.
The Court of First Instance held that [Buyer] was not entitled to damages for lost profit, as a permanent agreement for the delivery of goods by call could not be assumed. It contended that following � 28(2) of the German Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche; EGBGB), the relation between the parties was governed by Belgian law. As concerns the presumed permanent contract, [Buyer] could not provide evidence sustaining that [Seller] (ad. 1) had either expressly or implicitly agreed to defer the long term agreement with [Buyer]'s predecessor to [Buyer]. On the other hand, [Buyer] itself only placed six orders for cosmetics. The Court of First Instance concluded that this was hardly enough to assume a permanent business relationship.
The Court also found that under CISG provisions incorporated into the applicable Belgian law, a permanent contract for the delivery of goods by call, which [Buyer] could base his claim for damages upon, could not be assumed.
[Buyer]'s appeal (Berufung) seeks the dismissal of [Seller]'s claim. [Buyer] claims that the proceedings before the Court of First Instance suffered from procedural errors as the Court failed to notify [Buyer] that it held Belgian law to be applicable to the case. Further, the Court failed to interpret and apply the foreign Belgian law in accordance with Belgian jurisprudence, which would have had to be found out through consultation of expert witnesses. In the appeal, [Buyer] maintains its presumption that the parties through their long term close business relationship impliedly entered into a permanent contract for the delivery of cosmetics by call. [Buyer] argues that through their conduct the parties at least established a binding semi-contractual relationship in which [Buyer] could rightfully rely on [Seller]'s ability and willingness to provide it with the requested cosmetic products. Thus bound, [Seller] was not entitled to refuse delivery. [Buyer] asserts that it is the legal successor of its directors' former company to which [Seller] stood in long-term business relationship, which had been subrogated to [Buyer] after 1 March 2003. [Buyer] submits that the presumed permanent relation between the parties is not excluded by CISG provisions.
With its appeal (Berufung), [Buyer] seeks to have the judgment of the Court of First Instance (see: District Court (Landgericht) Frankfurt am Main, ruling 3/10 O 162/03 of 19 February 2003) set aside and [Seller]'s claim dismissed. In eventu, [Buyer] wants the case remanded to the Court of First Instance for retrial.
In the event its appeal is dismissed, [Buyer] asks to be given the option to suspend the execution of the judgment by providing appropriate security according to � 771 of the German Code of Civil Procedure (Zivilprozeßordnung; ZPO), i.e., unlimited primary guarantees by a German bank functioning as a licensed tax guarantor.
[Seller] (ad 1.) and [Seller] (ad 2.) seek the dismissal of the [Buyer]'s appeal.
They submit that as [Buyer] itself cited CISG provisions as being adopted by Belgian law, [Buyer] impliedly alleged Belgian law as being applicable to the case.
Further, the merely factual business relationship between the parties may not establish a binding permanent contract, considering that [Buyer] had neither been economically dependent on [Seller] nor was [Buyer] entitled to rely on [Seller]'s ability and willingness to provide [Buyer] with the requested goods. [Seller] (ad 1.) never did consent to the deference of the business relationship with [Buyer]'s predecessor company to [Buyer]. [Buyer] further failed to substantiate the claimed damages for lost profits, submitting no evidence as regards presumed substitute transactions and cancellations of orders by its customers as a consequence of [Seller]'s refusal to deliver.
2. The appeal (Berufung) is admissible but unjustified. The judgment of the Court of First Instance is upheld.
Given that [Buyer] was represented by its attorney who should have taken care of his client's interests, it was not up to the Court of First Instance to notify [Buyer] that it might possibly find Belgian law applicable to the case. As the pleading submitted by [Buyer]'s attorney on 17 February 2004 touched upon the question of the substantive law applicable to the case (see page 12 of that pleading), the Court could rightfully assume that [Buyer] had taken this question into consideration. Moreover, the omission of such a notification has no effect on the Court's decision.
In the appeal, [Buyer] neither disputes [Seller]'s claim for payment as a whole, nor does [Buyer] question the time when payment would have been due, nor the interest due for [Buyer]'s delay.
[Buyer] fails to substantiate its claim for damages as a possible object of its set-off. Such a claim would require that [Seller] in refusing delivery had wrongfully breached the presumed permanent contract for the delivery of goods by call that had been established between the parties due to their long term business relationship.
Whether this had been the case must be decided by Belgian law, which is the applicable law to govern the case. As the parties did not stipulate the substantive law to govern their contract, according to Art. 28(1) of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche), the law which is closest connected to the case applies. According to a rebutable presumption in Art. 28(2) of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche). the law with the closest connection to the case is the law of the country where the party owing the performance characteristic to the agreement at the time when the contract had been concluded was domiciled, respectively, where the company had its headquarters or its main place of business. The performance characteristic to a sales contract in the sense required by Art. 28(2) of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche) is considered the seller's duty to deliver the agreed goods. As in the case at issue, [Seller] (ad 1. and 2.)'s main place of business was in Belgium, Belgian law applies to the case. As both parties to the contract had been domiciled in Contracting States -- [Seller] (ad 1. and 2.) in Belgium; [Buyer] in Germany -- the CISG, that is incorporated into Belgian law, applies (see Palandt-Heldrich, BGB, 63rd ed., Art. 28 EGBGB, note 7). According to Art. 7(2) CISG, questions concerning matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law, which is Belgian law. [Buyer]'s submission that Belgium had joined the CISG on 1 November 1997, affects neither the applicability of the Convention, nor the subsidiary applicability of Belgian national law as stated in Art. 7(2) CISG: The case at issue concerns sales contracts presumably concluded between April and June 2003 and, respectively, an assumed permanent agreement for the delivery of cosmetics between [Seller] and [Buyer]'s predecessor, which was transferred into [Buyer] on 1 March 2003. At this time, the Convention had undisputedly been adopted in Belgium. It follows from Art. 73(1) CISG, which expressly mentions contracts for the delivery of goods by installments, that the Convention also applies to permanent agreements of the kind mentioned above.
[Buyer]'s claim for damages for lost profits can neither be brought under CISG provisions nor under the subsidiary applicable Belgian national law.
The question whether a permanent agreement for the delivery of cosmetics by call had been established between [Seller] and [Buyer]'s predecessor before the adoption of the CISG in Belgium is irrelevant to the case at issue.
[Seller] (ad 1.) or (ad 2.) wrongfully failed to comply with obligations arising from this agreement.
As concerned the first presumption, the only supporting document [Buyer] submitted was the notification about the deference of the firm from his predecessor company to [Buyer] dated 16 January 2003. Yet this letter had remained unanswered by [Seller] and thus cannot be regarded as a binding agreement to shift obligations and rights arising from the assumed permanent contract between [Seller] and [Buyer]'s predecessor to [Buyer] himself. Under Art. 14 et seq. CISG as well as under Belgian law (see Hoffmann, Grundzüge des belgischen Handels-, Gesellschafts- und Wirtschaftsrecht, � 2 Teil 1, note 9 et seq.) such an agreement would have required the consent of all the three parties involved and affected by the subrogation. The thus required consent can be given either expressly or impliedly by the seller through continuous execution of the new party's orders (see ruling of the Court of Appeal (Oberlandesgericht; OLG) Hamburg in WUW/E OLG page 4192, concerning German law). However, [Seller] (ad 1.) has not continuously executed the orders but insisted in the conversation of 20 November 2002 as well as in the letter referring to this conversation that it will accept [Buyer]'s calls only on the condition that payment will be effected within sixty days after delivery. In a letter dated 27 March 2003, [Seller] (ad 1) again confirmed this condition. Besides, [Seller] held back goods to be delivered on [Buyer]'s call due to delayed payment. Hence, the fact that [Seller] kept to the business relationship with [Buyer] as a whole cannot be considered as consent to the unmodified deference of contractual rights and obligations from [Buyer]'s predecessor to [Buyer], taking into account that with such a deference from [Buyer]'s preceding company (Gesellschaft bürgerlichen Rechts; GbR) to a limited (Gesellschaft mit beschränkter Haftung; GmbH) on 1 March 2003, [Buyer]'s directors would have abandoned any personal liability as towards their contractual duties to [Seller]. Moreover, the predecessor company continued to exist after the transformation of the enterprise on 1 March 2003. It cannot be inferred that [Seller], an established company within its field of business, would have waived its interests concerning the liability of its business partners by impliedly consenting to such a transformation for no notable reason. On the other hand, it is perfectly understandable that [Seller] entered into business relations with [Buyer] on the condition of payment within reasonable time limitations. This does not mean that [Seller] accepted honoring the transfer to [Buyer] of the assumed established permanent business relationship with [Buyer]'s predecessor, nor does it imply that [Seller] would accept payments of [Buyer] in settlement of previous debts of his predecessor company.
Even on the assumption that [Seller] and [Buyer] had entered into a permanent agreement for the delivery of cosmetics by call, [Buyer]'s claim for damages being the subject of his declared set-off, is not justified. [Buyer] itself failed to comply with its obligations under the alleged contract, and thus is responsible for [Seller]'s reaction, i.e., the holding back of deliveries in part. Neither its predecessor nor [Buyer] itself adhered to the agreement of 21 November 2002 as far as it concerned the monthly payment of an additional Euro 200,000.00 to settle previous debts. Undisputedly, this amount had been paid only once, in February 2003. The agreed long-term requirement of payment within sixty day after delivery has never been achieved. It further remained undisputed within the proceedings that on 11 June 2003 [Buyer]'s director expressly refused to comply with both agreements. Failing to comply with its own contractual obligations, which in the light of the settlement agreement of 21 November 2002 must be regarded as essential, [Buyer] is not entitled to damages due to a presupposed fundamental breach of contract on [Seller]'s side. To the contrary, [Seller] could rightfully hold back delivery after [Buyer], respectively. its predecessor, had refused payment. This follows from the synallagmatic character of the assumed contract, as is drawn from Art. 80 and Art. 71(1) CISG, which - as expressly stated in Art. 73(2) CISG - equally apply to contracts for the delivery of goods by installments. Due to the fact that the oral order with the additional remark "take it or leave it" cannot be seen as a basis for the emergence of an obligation to deliver, a further breach of contract was not possible. It has not been questioned that thereafter no calls for further deliveries have been made.
The Court finds that [Seller] was entitled to declare the assumed contract avoided for the future, on the condition that [Buyer] failed to effect payment until 23 July 2003. At that time, not only the deadline of thirty days as been set in [Seller]'s reminders, but also the limitation of sixty days as stipulated in the settlement agreement of 21 November had long expired.
In any event, [Buyer]'s director in a letter of 15 July declared that "if [Seller] was not responding to this letter, he assumed their business relation terminated". This is to be considered as an offer to end the contract, which has been impliedly accepted by [Seller].
As [Buyer]'s claim for damages is not justified, there is no need to investigate into the amount of [Buyer]'s suffered losses due to [Seller]'s refusal to deliver.
The testimony of [Seller] (ad 1.)'s previous director which had been submitted by [Buyer] on 4 October 2004 after the taking of evidence had been finished, does not give rise to a reopening. The proffered evidence is delayed and thus precluded from being taken into account for the trial. However, even if it had been submitted on time [Seller]'s director's testimony would have had no effect on the conclusions drawn by the Court, because it concerned circumstances that presumably happened before the settlement agreement had been undisputedly concluded on 20 November 2002 and confirmed by a letter of [Seller] (ad 1.) on 21 November 2002. Hence, it has no effect on the Court's decision, which is based on these undisputed facts.
Following � 97(1) of the German Code of Civil Procedure (Zivilprozeßordnung; ZPO) [Buyer] bears the costs of his unjustified appeal.
The decision upon the provisional executability relies upon � 708 No. 10; � 711 and � 108 of the German Code of Civil Procedure (Zivilprozeßordnung; ZPO).
The case does not touch on issues of fundamental significance that need to be clarified by the Supreme Court, nor does it affect the development jurisprudence as a whole. Hence further appeal (Revision) cannot be allowed under � 543(2) No.1 and No.2 of the German Code of Civil Procedure (Zivilprozeßordnung; ZPO).
* All translations should be verified by cross-checking against the original text. For the purposes of this translation the Plaintiff-Appellees, seated in Belgium, are referred to as [Seller] (ad 1.) and [Seller] (ad 2.); the German Defendant-Appellant is referred to as [Buyer].
** Veit Konrad has studied law at Humboldt University, Berlin since 1999. During 2001-2002 he spent a year at Queen Mary College, University of London, as an Erasmus student.

References: Art. 28
 Art. 28
 Art. 28
 Art. 28
 Art. 7
 Art. 7
 Art. 73
 Art. 14
 Art. 80
 Art. 71
 Art. 73