Source: http://cisgw3.law.pace.edu/cases/060420g1.html
Timestamp: 2019-04-19 22:22:26+00:00

Document:
"1. The parties to a sales contract may agree on the property of the goods to be delivered by implicitly referring to a sample of a third party.
"2. If the buyer faces the risk of large consequential losses, he is to examine the goods more thoroughly. Samples are to be taken if a superficial examination reveals deviations, and, if applicable, the goods are to be processed in a test run.
"3. The buyer may not rely on the fact that the sampling of the goods may possibly not have revealed the non-conformity."
The Plaintiff [Buyer] bears the cost of the proceedings.
The judgment is provisionally enforceable by the Defendant [Seller] against a security deposit of 110 percent of the amount to be enforced.
The dispute concerns a claim for damages for breach of contract. The Plaintiff [Buyer] produces mattresses. The Defendant [Seller] is seated in Belgium and produces textiles used in the fabrication of mattresses. The parties have had a longtime business relationship.
Color: oyster /B 8.C 6.
(see pages 444, 449 to 466 of the record).
The orders were given to [Seller], as [Buyer]'s previous supplier had continuously been in default of delivery. In this situation, the former sales manager of [Buyer]'s previous supplier -- who was then working for [Seller] -- had approached [Buyer] and offered the supply of Cotton twilled fabric of the same quality and description [Buyer] was used to receiving from its previous supplier. Before the first order was given to [Seller], [Buyer] had provided a sample of Cotton twilled fabric (design JAY, with pattern G8.G8, Color: Oyster C6.C6 (see page 233 of the case record)). Based on this sample, [Seller] (in the German original mistakenly: "[Buyer]") on 2 March 2000 produced a piece of Cotton twilled fabric, cut it to a size of 100 cm by 210 cm and sent it to [Buyer] on 8 March 2000 (see page 266 of the record).
The dispute between the parties concerns the question of whether, due to its seam slippage strength (Nahtschiebefestigkeit), the Cotton twilled fabric was suitable to be used in the fabrication of mattresses.
The total quantity of Cotton twilled fabric that was delivered could have been used to produce roughly 9,000 mattresses. [Buyer] started processing the material after receiving the first delivery from [Seller] and subsequently supplied its customers, mattress retailers, with mattresses produced for resale to their end customers. Since the middle of June 2001, these retail traders were faced with complaints of their customers about the Cotton twilled fabric's tearing at the seams of the mattresses. These complaints eventually were passed on to [Seller]. After visits at [Buyer]'s place of business in Mainaschaff on 27 June 2001 (p. 108), [Seller] in its letter of 2 July 2001 demanded further inquiries into the quality of the Cotton twilled fabric as a condition for its response to the complaints. Thereafter, by letters of 3 July 2001, 16 August 2001, 30 October 2001 and 3 December 2001 [Seller] denied any responsibility for the claimed deficiencies of [Buyer]'s mattresses (see pages 115, 18/19, 22-24, 118/119, 147/148 of the record).
When [Seller] had been confronted with the complaints, only 2,292.48 meters of the 18,744.2 meters that had been delivered had not yet been processed in [Buyer]'s production. The other 16,451.72 meters had been used up in the production of about 8,225 mattresses, which were sold and delivered to [Buyer]'s customers. 547 of these mattresses -- i.e., 6.65 % of them -- had to be taken back by the retailers [Buyer] had supplied, due to complaints of their customers. Between May and December 2000, [Buyer] had processed a total of 42,053.55 meters of Cotton twilled fabric (No. 72570-71) which [Buyer] received from [Seller] and another supplier. During the year 2000, this material was used in batches of 9,286 pieces, 16,282 pieces and 310 pieces (in total 25,878 pieces) (see p. 405).
- Set-offs of 5,845.87 � and 8,018.15 � with two of [Seller]'s claims as maintained in invoices of 28 August 2001 and 19 September 2001.
For further details, the Court refers to [Buyer]'s original claim of 20 May 2003 (p. 3/4 of the case record), and to the extension of the claim of 9 January 2006 (see p. 406/407).
[Buyer] alleged that [Seller]'s sales manager, Mr. ___ since 27 June 2001, positively knew that [Buyer] was faced with complaints from its customers about tearing seams, and had to take back sold mattresses. 2,292.48 meters of the remaining Cotton twilled fabric that had not yet been processed in [Buyer]'s production were given back to [Seller]. Hence, further specifications of the damages suffered -- according to [Buyer] -- would be unnecessary.
The Cotton twilled fabric that had been delivered by [Seller] was generally unsuitable to be used for the contractually agreed purpose, i.e., for [Buyer]'s production of mattresses, and therefore, did not conform to the contract. [Seller] had been provided with a sample that met the quality and description required for [Buyer]'s purposes. Moreover, [Seller] had been supplying the mattress industry for a long time, and thus should have known exactly about the specific quality requirements for the production of mattresses. For this reason, extensive and sufficient specifications of the expected quality of the textile were defined. [Seller]'s submission that it had never been told what kind and quality of Cotton twilled fabric would suit [Buyer]'s purposes, was wrong, as [Buyer]'s order of 13 March 2000 entailed detailed specifications concerning the kind and quality of the fabric.
The reason why the Cotton twilled fabric tore in 547 of the manufactured mattresses was its insufficient seam slippage strength: The warp thread (Kettgarn) of the Cotton twilled fabric consisted of different yarns; one sleek and another less sleek propylene yarn.
Expertises of the Belgian "Centexbel" Institute conducted according to the British standard "BS 3320 1988" and tests of the German Inspection Office for the Textile Industry in Münchberg (Staatliches Prüfungsamt für das Textlgewerbe) conducted under the "DIN V 61010" standard revealed very volatile results for the weft direction (Schussrichtung), which did not satisfy the standard requirements concerning the seam slippage strength. This resulted in the tearing of the seams of the mattresses, and was the subject of [Buyer]'s customers' complaints. Due to the warranty it had given, [Buyer] had to cover for all these defects.
[Buyer] alleges that the defects that occurred did not result from poor manufacturing of the mattresses. According to [Buyer], so-called tunnel-sewing (tunneln), was uncommon in the production of mattresses. Instead, the overlocking technique had to be applied. Finally, [Buyer] alleged that the Cotton twilled fabric had been cut correctly for the purposes of production.
The defect of the material would have been detectable only through a lab examination. It could not be expected that it would have been possible for an ordinary mattress manufacturer, such as [Buyer], to have conducted such a thorough examination. Testing the seam slippage strength would consume a lot of time and effort and was not common at all in [Buyer]'s field of business. Insufficient seam slippage strength of a material would only be revealed after the material had been in use for a certain time, and hence can neither be checked upon at the time fabrics were delivered nor at the time they were processed. [Buyer] also submitted that the seam slippage strength varied considerably within each batch, and thus was particularly hard to spot.
On 19 June 2001, one of [Buyer]'s customers made a complaint in writing and returned a delivery (see page 117 of the case record). Mr. van Iseghem, [Seller]'s sales manager at that time, had been informed about this on 27 June 2001 (p. 18). He had also been given one piece of the Cotton twilled fabric as a sample for his company to check on the presumed defect. According to the standard terms applicable to the contract, this constituted a sufficiently specified notification to [Seller] of the hidden defect (p. 7/8).
Eventually, [Seller]'s sales manager acknowledged the complaint on its merits. However no damages were paid, as the parties could not reach agreement on how these would be set-off. When the extent of damage was increasing, [Seller]'s sales manager distanced himself from his own previous acknowledgement. According to the judgment of the German Federal Court of Justice (Bundesgerichtshof; BGH) of 25 November 1998 (in: NJW 1999, p. 1259), the negotiations that were conducted to settle the dispute have to be interpreted as an implicit waiver concerning the other party's duty to give notice within reasonable time as stated under the CISG.
In its claim [Buyer] did not substantiate that the presumed complaints of [Buyer]'s customers had actually been caused by breaches of contract by [Seller]. [Buyer] did not provide any written complaints of its customers. By no means had [Buyer] specified the claimed defect; neither when it might have occurred, nor which of the deliveries it might have affected.
[Buyer]'s first order of 13 March 2000 did not entail any specifications concerning the required seam slippage strength. [Buyer] never did provide a profile of the expected quality standard of the ordered textile, nor did [Buyer] make any specifications concerning kind and quality of the Cotton twilled fabric. In fact the term "slippage strength" had first been used in an order of 11 July 2001 concerning other Cotton twilled textiles (see page 91/92 of the case record /Swallow). It must also be noted that the term "slippage strength" is not identical with the technical term "seam slippage strength". In any case, specifications of a no more than minimal technical standard had first been communicated in the letter of 8 March 2002 (see page 93).
However, at no point of time did [Buyer] actually clearly demand that the Cotton twilled fabric had to have a specific seam slippage strength. Therefore [Buyer] may not rely on any defect concerning a technical standard which [Buyer] had failed to communicate and specify to [Seller].
Moreover, [Buyer] had never used the correct technical term of "seam slippage strength" to specify what might have been required for its production. It is this term, which is the subject of the DIN 53868 standard; a regulation that does not constitute any substantive quality standard, but rather stipulates a certain procedure for the assessment of the seam slippage strength of textiles. The procedure used by the German Inspection Office for the Textile Industry in Münchberg (Staatliches Prüfungsamt für das Textilgewerbe Münchberg) deviates from this DIN 53868 standard, as this institute conducts its tests with a test speed of 10 mm per minute. However, the DIN 53868 requires a test speed of 100 mm per minute and allows a tolerance of +/- 10 mm per minute. Hence, the examinations of the Münchberg Inspection Office were incorrect (see pages 94, 102, 142, 282 of the case record).
There is no general standard for the production of mattresses. The mattress producing industry generally believed that materials other than pure mattress Cotton twilled fabrics might equally be suitable for usage in the production of mattresses if they are properly processed and sewed.
Yet, [Buyer]'s processing and sewing of the Cotton twilled fabric had not been lege artis. In its production, two lines of Cotton twilled fabric were improperly sewed together. The seams were too weak because the Cotton twilled fabric that was used had not been folded there. That was the true reason why the material was tearing apart.
Further, [Buyer] wrongly cut the Cotton twilled fabric crosswise instead of along the line. According to the generally agreed standards of the textile processing industry, Cotton twilled fabric always has to be cut alongside the line.
In addition to failing to provide a specific profile, [Buyer] did not properly examine the incoming Cotton twilled fabric. However, this was common practice within the textile industry. All the claimed defects could have easily been spotted in a proper examination of the goods, respectively, by processing samples taken in the production as a test. According to widespread commercial custom, failure to examine incoming goods amounts to implicit acceptance of the goods as delivered.
[Buyer] did not give notice as required under � 377(3) of the German Commercial Code (Handelsgesetzbuch; HGB). [Buyer] had been confronted with the complaints of its customers in the time between April and August 2002. Yet, [Buyer] first gave notice to [Seller] on 17 September 2002 (see page 103/104 of the case record). At that point of time, [Buyer] ought to have discovered the claimed defects of the Cotton twilled fabric. The notice [Buyer] gave did not even comply with the provisions stated in [Buyer]'s own standard terms of business.
In the proceedings, [Seller] has referred to two decisions of the Court of Appeal of Karlsruhe (in: RIW 1998 p. 238 and in: TranspR-IHR 1999, p. 23) (see pages 252, 268/269 of the case record).
On 20 July 2004, the Court decided to seek an expert opinion (pages 149/150). This was first given in writing on 18 October 2004 (pp. 223-230) and subsequently has been amended on January 2005 (pp. 223-230), on 22 April 2005 (pp. 273-281) and on 23 June 2005 (pp. 329/330).
As regards further submissions by the parties -- in particular concerning the dispute whether the official expert had properly applied the standards of DIN 61010/95, respectively, DIN 61010/98 (p. 217) and of RAL GZ 441/2, respectively, RAL RG 439/4 (pp. 229/230) for his expertise -- the Court refers to the case record.
The [Buyer]'s claim is admissible but not justified.
[Buyer] is neither entitled to damages under the applicable international sales law, i.e., the Convention on Contracts for the International Sale of Goods (CISG), nor under any other applicable law. [Buyer] failed to give notice as required under Art. 38 CISG and hence may not rely on a claimed lack of conformity of the goods according to Art. 39 CISG.
1. Pursuant to Art. 1(1) CISG, the Convention applies to the contract at issue, as both parties -- [Buyer] of Germany and [Seller] of Belgium -- have their places of business in Contracting States to the Convention (see Schlechtriem/Schwenzer, Kommentar zum Einheitlichen UN-Kaufrecht - CISG -, 4th ed., Attachment I -- Contracting States, p. 917), and none of the exceptions mentioned in Art. 2 CISG applies.
2. Arts. 35 and 36 CISG regulate the conformity of the goods -- similar to the old version of � 434 of the German Civil Code (Bürgerliches Gesetzbuch; BGB).
- "possess the qualities of goods which the seller has held out to the buyer as a sample or model" (Art. 35(2)(c) CISG).
Art. 35(2) CISG only applies if the parties have not themselves expressly or impliedly stipulated the required performance conforming to their contract, or when such duty to perform in the sense of Art. 35(1) has not been sufficiently specified (see Schlechtriem, ibidem, Art. 35, para. 12).
Art. 36(1) CISG states that the seller is liable for any lack of conformity at the time when the risk passes to the buyer, even though the lack of conformity may become apparent only after that time.
b) In its orders of 13 March 2000 (pp. 86/96 of the case record), of 7 September 2000 (pp. 9, 88, 90) and most likely also those of 31 July 2000 and of 20 December 2000, [Buyer] specified color, size, yarn density et cetera of the ordered Cotton twilled fabric.
Yet, it must be concluded from the expert's opinion furnished on 15 November 2005 that apart from these specifications, the so-called slippage strength or seam slippage strength essentially determines the quality of a textile. The slippage strength depends on the quality of warp yarn and weft yarn, as well as the finish of the textile. Finish here refers to the coating of the Cotton twilled fabric.
Given all this, it must be considered as highly unusual that -- although the suitability of the Cotton twilled fabric for use in mattress production essentially depended on its seam slippage strength -- neither of the parties deemed it necessary to expressly write down a certain standard of seam slippage strength in their contract. Instead, they left this standard to be determined by the provision of a sample of Cotton twilled fabric. However, the Court holds that in providing this sample, which had been produced by another manufacturer, [Buyer] still had implicitly specified its order concerning the required slippage strength, respectively, seam slippage strength.
[Buyer] and [Seller] are both operating in the mattress producing industry, and hence must be considered to be competent in this field of business. Right from the beginning of their business relation, it had always been clear to either party for which purpose the Cotton twilled fabric that was ordered would be used, and therefore of which quality it had to be in order to fit this purpose. The particular purpose of the goods thus had been known to [Buyer] and [Seller] as demanded by Art. 35(2) CISG, and therefore had been bindingly incorporated into the contract.
The official expert has examined one piece of the originally delivered Cotton twilled fabric and four mattresses. He has concluded that the Cotton twilled fabric that had been produced by [Seller] did indeed conform to the description that [Buyer] had expressly demanded in its orders. Equally, [Buyer]'s cutting and processing was done properly.
The expert noticed, however, that the Cotton twilled fabric of the mattress M3 examined as regards pattern on the inside (Musterrapporthöhe), the used weft yarn, and the color, was of a different quality than the other mattresses M1, M2 and M4. Indeed, it turned out that mattress M3 had been produced with the Cotton twilled fabric of another supplier than [Seller]. Whereas the Cotton twilled fabric of mattresses M1, M2, and M4 was torn on the sides, where the seams ran parallel to the rayon warp yarns of the Cotton twilled fabric, the mattress M3 did not have this flaw.
The Cotton twilled fabric of mattress M3, which had been supplied by another producer, was visually different than [Seller]'s. It was made of proper warp and weft yarn, and possessed the right finish. This Cotton twilled fabric met the required standard concerning the seam slippage strength for mattress manufacture.
The Court's expert has pointed out that currently there are no generally agreed European standards for the production of mattresses. Even within Germany, the DIN 53868 standard is only inconsistently applied. Yet, comparing the Cotton twilled fabric of mattress M3 with the Cotton twilled fabric delivered by [Seller] -- irrespective of the applicable DIN and RAL standards -- it must be concluded that the parties had bindingly stipulated the required description and quality of the ordered Cotton twilled fabric in their contract as provided under Art. 35 CISG.
c) [Seller]'s Cotton twilled fabric did not have the required quality and description as stipulated pursuant to Art. 35 CISG. Unlike the Cotton twilled fabric of [Buyer]'s other supplier, [Seller]'s did not consistently have the seam slippage strength of the weft yarn that was necessary for mattress manufacture. This caused the mattresses that were produced to tear on the seams when in use (for further details see summary of the expertise of 18 October 2004 (pp. 173/174 of the case record).
The Court did not inquire into the question whether this defect of the goods concerned all of [Seller]'s deliveries, or only some of them. At the hearing of 16 March 2006, both parties concurred that given the varying quality within each batch, one cannot easily presume a certain fixed quota of 7 or 8 % of 16,451.42 m (18,743.90 m -- 2,292.48 m) and then apply it to the single deliveries of 27 September 2000 (1,492.80 m) and of 11 October 2000 (1,052.60 m).
3. The question of how to prorate the defective goods to each of [Seller]'s deliveries within the year 2000 is irrelevant, because [Buyer] has lost its right to rely on the lack of conformity of the delivered material under Art. 38(1) and Art. 39(1) CISG.
a) Due to Art. 39(1) CISG, the buyer loses his right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it -- irrespective of the question of what might have caused the defect. This duty to give notice presupposes the duty of the buyer to examine the goods as stated by Art. 38 CISG: Both duties aim to ensure that the seller has the chance to remedy a failure to perform his obligations, i.e., by providing for another delivery within reasonable time, by delivery of substitute goods, by repair, or by mitigating the damage in any other way.
b) [Buyer] obviously failed to comply with these strict requirements of Art. 38 CISG, accepting all six deliveries from [Seller] without any examination. Instead, [Buyer] relied on the integrity of [Seller]'s sales manager, who had been employed by [Buyer]'s previous supplier before. Thus [Buyer] presumed [Seller]'s goods to be of the kind and quality [as those of its former supplier]. Yet, [Buyer] ought to have been aware that, despite dealing with the same sales manager, the textile produced and delivered by [Seller] might not be identical to the Cotton twilled fabric [Buyer] used to receive. Considering that, in the present case, a relatively small defect in the processed material could cause vast consequential damages that might even overreach the overall volume of [Buyer]'s production, a particularly strict adherence to the duties set forth in Art. 38 and Art. 39 of the Convention was required by [Buyer].
c) According to one debated legal doctrine, failure to comply with the duties to examine the goods and to give specified notice about any presumed defect is irrelevant in situations in which the defect could not have been revealed even through thorough examination (see Schlechtriem, ibidem, Art. 38 para. 5 esp. footnote 12). However, this was not the case here. According to the expert opinion, only very specific examinations, conducted by institutions or companies specializing in that kind of inspection, allow conclusions about the quality of Cotton twilled fabric with some degree of certainty. However, a simple "test by hand" of a given sample would have revealed a first indication about the seam slippage strength of the textile. If, for that purpose, the sample had to have seams to check on the strength on the material, this would not have constituted a disproportionate effort for the buyer.
Considering the scope of Art. 38 and Art. 39 CISG (see under a) above) and the demonstration of the "hand test" at the hearing of 15 November 2005 and its significant results, the Court finds that to satisfy its duties under Art. 38 and Art. 39 CISG, [Buyer] would have needed to conduct such a "hand test" on samples taken from [Seller]'s six deliveries. If -- most likely -- this test gave rise to suspicion, [Buyer] then would have needed to initiate further examinations, i.e., by having samples inspected by a specialized authority in that field. By no means, can it be assumed that the defect had been undetectable to [Buyer].
Given the strongly varying quality of the Cotton twilled fabric within each batch, there was a possibility that the defect might never have been spotted by taking a few samples. Indeed [Buyer] validly could have relied on that argument, if only [Buyer] had complied with its duties under Art. 38 and Art. 39 CISG by taking any samples at all. In that event, [Buyer] would not have lost its right to rely on the defect and might have been entitled to damages under Art. 45 et seq CISG.
However, as [Buyer] did not take any samples or any other measures to check on the vitally important seam slippage strength of the Cotton twilled fabric -- especially considering the merely vague and indirect references of the contract on this point -- the requirements of Art. 38 and Art. 39 CISG were not satisfied.
d) [Buyer] was obliged to examine the Cotton twilled fabric between April and December 2000 but did not do so. Thus [Buyer]'s notice communicated to [Seller] in June 2001 was given too late according to Art. 39(1) CISG.
As regards [Seller], on the other hand, it cannot be inferred that entering into negotiations to settle the dispute implied that [Seller] would not rely on [Buyer]'s failure to give timely notice under Art. 39(1) CISG.
Unlike the cited Supreme Court's decision of 25 November 1998 (see NJW 1999, p. 1259), in the case at issue [Seller], in all its correspondence with [Buyer] concerning the complaints, did not signal any willingness to pay any sort of compensation. To the contrary, [Seller] denied any responsibility for the claimed deficiency of the Cotton twilled fabric right away in its first letter in June 2001, after [Seller] had been notified about the complaints. Never did [Seller] acknowledge that some of its produced and delivered Cotton twilled fabric did not conform to the contract.
This cannot be interpreted as an unconditioned acknowledgment of, or even as a willingness to further enquire into the claimed defects, and hence does not amount to an implicit waiver of any legal positions (see Schlechtriem, ibidem, Art. 39 note 33).
4. Inquiry into the questions concerning a possible limitation of the claims is unnecessary, as is the question whether [Seller] would also be liable for those complaints that went beyond a responsibility of the seller under Art. 45 et seq CISG and had only been accepted by [Buyer] as a gesture of good will towards its customers.
Equally irrelevant is the problem of how to exactly prorate the flaws in the mattresses to [Seller]'s deliveries.
5. The decision on the costs relies on � 91(1) of the German Code of Civil Procedure (Zivilprozessordnung; ZPO). Taking into account the amount of the prospective enforceable costs of the proceedings, the provisional enforceability of the judgment is governed by � 709 sentence 1 of the German Code of Civil Procedure (Zivilprozessordnung; ZPO).
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the German Plaintiff is referred to as [Buyer]; the Defendant seated in Belgium is referred to as [Seller].
*** Florian Arensmann studies law at the University of Osnabrück, Germany, and has participated in the Willem C. Vis International Commercial Arbitration Moot with the University of Osnabrück team.

References: Art. 38
 Art. 39
 Art. 1
 Art. 2

Art. 35
 Art. 35
 Art. 35

Art. 36
 Art. 35
 Art. 35
 Art. 35
 Art. 38
 Art. 39
 Art. 39
 Art. 38
 Art. 38
 Art. 38
 Art. 39
 Art. 38
 Art. 38
 Art. 39
 Art. 38
 Art. 39
 Art. 38
 Art. 39
 Art. 45
 Art. 38
 Art. 39
 Art. 39
 Art. 39
 Art. 39
 Art. 45