Source: http://cisgw3.law.pace.edu/cases/061214g1.html
Timestamp: 2019-04-25 07:55:02+00:00

Document:
"1. If the seller is obliged to deliver bottles ex works and if the goods are not picked up by buyer�s haulier, the risk of loss or damage to the goods passes to the buyer upon the goods being picked up. The seller is nevertheless liable for any defects in the wrapping of the goods which occurred before they were handed over, if the loss or damage of the goods is a consequence of the seller breaching the contract.
"2. The buyer is free to exercise his right to avoid the contract, reduce the contract price or demand damages. The buyer may reduce the contract price even if the avoidance of the contract is not longer possible, for example, if the time under Art. 49(2)(b) CISG has run out or if he failed to timely notify a defect. The right to reduce the contract price may also be employed as an objection against a claim for the payment of the contract price.
"3. The notice under Art. 39 CISG is to enable the seller to form his own opinion about the non-conformity and to take the necessary steps. The buyer has to identify those defects in quality he objects to: a description of the symptoms, not a report of the causes, is decisive."
The decision of the Higher Regional Court of Koblenz on the claimant's appeal shows the independence of the remedies of avoidance of the contract (article 49(1)(a) CISG) and price reduction (article 50 CISG).
The claimant, an Italian manufacturer of wine bottles, sued the buyer, a customer from Germany, for payment of the purchase price of several shipments of bottles, after the defendant had declared that it would not pay. The defendant argued that due to defective packaging by the claimant the bottles had been either broken or had lost their sterility and therefore became unsuitable for further use. The contract obliged the claimant only to deliver "ex factory" while it was up to the defendant to take delivery.
On first instance, the Regional Court partly rejected the claim, on the ground that the buyer had declared the contract avoided pursuant to article 49(1)(a) CISG and declared its unwillingness to pay. The Higher Regional Court dismissed the claimant's appeal against the judgement of the Regional Court.
The Higher Regional Court held that the claimant had failed to perform its obligation, pursuant to article 35(2)(d) CISG, to provide packaging for the bottles in a manner adequate for transport by truck. Therefore the court regarded the seller to be liable for the damage to the bottles under articles 36(2) and 66 CISG, although the risk of loss or damage passed to the buyer, when the bottles were taken over by the buyer's carrier. However, contrary to the Regional Court's reasoning in first instance, the Higher Regional Court stated that the requirement of article 49(2)(b) CISG to declare the contract avoided within a reasonable time does not allow to consider the buyer's refusal of payment to be an implied declaration of avoidance. The court considered the buyer's refusal to be a declaration of reduction of the purchase price to zero. Explicitly the court pointed out that the buyer may reduce the price according to article 50 CISG even if it had lost its right to avoid the contract for instance as a result of missing the deadline pursuant to article 49(2)(b) CISG. According to the court the right to reduce the price may also be used as an objection against a claim for the payment of the purchase price. As for the interpretation of article 50 CISG itself the court stated that the wording "at the time of delivery" means the time the goods are available to the buyer after having arrived at their destination.
The failure of the claimant to provide adequate packaging for the bottles to preserve them and to ensure their arriving in a marketable condition was deemed as a fundamental breach of contract by the court under article 25 CISG.
Concerning the notice of defects as per article 39 CISG the court clarified that the requirement of "specifying the nature of the lack of conformity" is satisfied if the buyer describes the divergence from quality by description of the symptoms, while a specification of the causes is not required.
Plaintiff [Seller]'s appeal against the judgment of the District Court (Landgericht; LG) of Bad Kreuznach, Commercial Division (Kammer für Handelssachen) of 26 May 2006 in favor of Defendant [Buyer] is dismissed.
The [Seller] bears the costs of the appeal.
[Seller]'s appeal (Berufung) is not justified.
During the proceedings, on 10 October 2006, the Court has already communicated its opinion that the appeal does not concern legal issues of fundamental importance for the unity of jurisdiction, which would justify further appeal under � 522(2) sentence one of the German Code of Civil Procedure (Zivilprozessordnung; ZPO). On that occasion, the Court also informed the parties that most likely the appeal would be found unjustified.
- The transaction would not qualify as a sale to destination according to the buyer's instructions (Versendungskauf).
- Hence, the risk passed to [Buyer], when [Seller] offered the goods to [Buyer]'s carrier at the Italian manufacturer's place of business. The risk for the further carriage of the goods was therefore to be borne by the [Buyer].
- [Seller] fails to acknowledge that the defects of the bottles were actually not due to their miscarriage, but due to their improper packaging with a particular porous and unsuitable foil.
- In this respect, [Seller]'s appeal expressly does not focus on the Court of First Instance's finding that the packaging was deficient due to the improper bottles that had been used. [Seller] admitted that it fell within its own sphere of responsibility to provide for packaging that allowed for a safe and secure carriage by truck to their final destination as defined under the contract (see Art. 35(2)(d) CISG).
[Seller] further fails to acknowledge that this duty existed irrespective of whether, by handing over the goods to [Buyer]'s carrier, the risk of loss or damage had been passed to [Buyer] according to Arts. 66, 67, 69 CISG. Art. 66 CISG stipulates that loss and damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.
The CISG provisions regulating the passing of the risk presuppose that the loss or damage does not fall within the responsibility of the seller. On the other hand, if loss or damage results from a breach of contract by the seller, then Articles 45 et seq. of the Convention regulate the buyer's remedies for that case.
- Art. 36 CISG clearly distinguishes these two scenarios, stating that the seller is liable for any lack of conformity which exists at the time when the risk passes to the buyer, or after that time, when it is due to a breach of any of the seller's contractual obligations.
- Accordingly, Art. 66 CISG constitutes an exception to the passing of the risk regulations, in case the loss or damage to the good is due to an act or omission of the seller. Such an act causing loss or damage to the sold goods prima facie constitutes a breach of contract (Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht-CISG, 3ld ed., 2000, Art. 66 note 5).
Hence, [Seller] is liable for damages that occurred due to improper packaging prior to the passing of the risk to [Buyer] or, respectively, to [Buyer]'s carrier. As a general principle, although the risk might have been passed, the seller is not entitled to receive the full purchase price for goods that are defective due to his own non-compliance with the contract (Staudinger, BGB, Wiener Un-Kaufrecht (CISG), 2005, Art. 66 note 12, 13).
The buyer may also declare the reduction of the price, if -- as in the case at issue -- he lost the right to declare the contract avoided for some reason, e.g., due to missing the deadline of Art. 49(2)(b) CISG, or if he violates his duty to give notice (Schlechtriem, ibidem, Art. 50 note 13; Staudinger, ibidem, Art. 50 note 23). The right may also be used as an objection to the seller's claim for payment of the purchase price (Schlechriem, ibidem, Art. 50 note 16).
[Buyer]'s refusal to pay the purchase price -- after [Buyer] had given specified notice of the lack of conformity of the delivered bottles -- can be interpreted as a reduction of the price to zero (Art. 50, Art. 45 et seq. CISG; see Schlechtriem, ibidem, Art. 50 note 13 with further references; Staudinger, ibidem, Art. 50 note 23). [Seller] wrongly argues that, pursuant to Art. 50 sentence one CISG, the Court has to compare bottles that have been poorly packed at the place of delivery (i.e., before the transport by the carrier), but which are otherwise conforming to the contract, with bottles that were properly packed. According to [Seller], both have the same value. Hence, [Seller] alleges that [Buyer] would not be entitled to reduce the price, but may only resort to damages for breach of contract. This cannot be upheld by the Court: If the packaging of the bottles had been deficient to a degree that would not allow safe carriage of the goods to their final destination, then the damages that occurred, i.e., the breaking of the bottles and their lack of sterility, entitle [Buyer] to a complete reduction of the price. A reduction of the price under Art. 50 CISG, does not take into account the value of improper packaging in respect to proper packaging (GA 128).
As in distance selling, the risk of loss or damage is passed to the buyer at the time the seller offers the delivery to the carrier, irrespective of the value of the good at that particular time. The value of the goods, which in accordance with the seller, are to be packed for further carriage, is determined, ex ante, by how much the goods will be worth when they arrive at their final destination. The value of the goods "at the time of delivery" is compared with the value of the goods after they have arrived at their destination. With respect to a reduction of the price, one has to compare the real with the supposed value of the goods at the time the goods have arrived at their destination as defined in the contract. The Art. 66 CISG stipulation that loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, only applies to damages occurring in the time between the passing of risk and the time the goods are inspected at their final destination, unless the loss or damage is due to an act or omission of the seller (Schlechtriem, ibidem, Art. 50 note 11). However, in the present case, the damage of the bottles is due to a fundamental breach of contract by [Seller] that happened before the risk has passed to [Buyer]. When the goods actually arrived at their destination they were no longer of any value at all. Therefore, a reduction of the price to zero seems justified.
In its appeal, [Seller] wrongly questions the Court of First Instance's presumption that [Buyer] gave specified notice of the claimed defects as required by Art. 39 CISG. As the Court has explained to the parties during these proceedings, Art. 39 CISG is designed to ensure that the seller is provided with sufficient information about the lack of conformity of the delivered good, so that the seller can take all necessary steps to make up for the defect. Therefore, the buyer has to specify the non-compliance of the good with the contractually agreed qualities. It suffices that the buyer describes the symptoms of the claimed defect. The buyer does not need to enquire into its causes (see German Federal Supreme Court (Bundesgerichtshof, BGH), NJW-RR 2000, page 1361 with further references). These requirements of Art. 39 CISG were met, when in a telephone conversation with Mr. Ca. Mr. C described the state of the delivered bottles in Italian language. In particular, he mentioned that the pallets had been wrongly piled and that the foil had been torn apart. Thus, he sufficiently specified the lack of conformity of the packaging as required under CISG regulations.
[Seller]'s supplementary submissions of 28 November 2006 only concern speculations on what might have caused the defects in the foil wrapping. [Seller] argues that possibly the tearing of the foil happened due to improper piling of the pallets by [Buyer] or, respectively, by its carrier. Or the defect might have occurred during the dispatching of the goods at the premises of [Buyer]'s carrier. All this, however, does not accord with the Court of First Instance's conclusion after the evaluation of the evidence that the used foil, because it was porous and unsuitable for that kind of use, could not provide for the stability and sterility of the bottles. This defect was specified and communicated to [Seller] within reasonable time as required by the CISG provisions.
The [Seller['s appeal is therefore unjustified and is dismissed.
The decision on the costs relies on � 97(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 presentation, the Plaintiff-Appellant of Italy is referred to as [Seller]; the Defendant-Appellee of Germany is referred to as [Buyer].

References: Art. 49
 Art. 39
 Art. 35
 Art. 66
 Art. 36
 Art. 66
 Art. 66
 Art. 66
 Art. 49
 Art. 50
 Art. 50
 Art. 50
 Art. 45
 Art. 50
 Art. 50
 Art. 50
 Art. 50
 Art. 66
 Art. 50
 Art. 39
 Art. 39
 Art. 39