Source: http://cisgw3.law.pace.edu/cases/021029g1.html
Timestamp: 2019-04-19 14:55:09+00:00

Document:
- The parties had not entered into a contract of sale and that the evidence of the testimony of Witness H. (the wife of the Plaintiff) had shown that a contract of undisclosed agency had been concluded between the parties on the basis of the Plaintiff's letters of 5 and 18 June 1998.
- It could be concluded from these letters that the insurance of the stallion during the transport should have been paid for by the Defendant. It was undisputed that the Defendant had not insured the stallion. Contrary to the Defendant's allegations, he also had arranged for the carriage, as otherwise could not be explained either the letters by the Defendant's wife, or by his counsel prior to these proceedings, of July 1998 and 3 December 1998, respectively, in which letters the Plaintiff had been notified of the exact name and address of the carrier. If the Plaintiff had arranged for carriage, this notice would have been superfluous.
The Defendant now objects to this ruling, and alleges that there had not been any contract of undisclosed agency between himself and the Plaintiff. The mere fact that the Defendant was to make the down payment militated against this. No undisclosed agent would do such a thing. Nor had there been any final and binding contract of sale between the Defendant and the Plaintiff, but an open purchase, as is usual in the sale of horses. The conclusion of the contract was subject to the Defendant's, approval of the stallion. In provisional contracts, the risk can only pass to the buyer upon such approval. Due to the death of the horse, the approval has not been given by the Defendant. The risk has therefore stayed with the Plaintiff. Thus the Defendant, is not liable for damages. An agreement on the payment of the insurance as it was alleged by the Plaintiff cannot -- even if it had existed -- alter the statutory distribution of the risk. Nor could the agreement have amounted to an instruction in the sense intended by sec. 390(2) of the German Commercial Code. It was unusual to insure a horse that needs to be transported against illness or death. Therefore, an explicit agreement would have been necessary, but there had not been such an agreement. A cargo insurance policy, however, would only have covered the risks of carriage, not a colic entailing death. Apart from this, the content of the facsimile of 5 June 1998, at least insofar as the insurance is concerned, has remained a proposition of the Plaintiff. This fact is not altered by the testimony of Witness H. Nor has the horse been received by the carrier on the Defendant's, instructions. Upon the offer of the Plaintiff to arrange for transport, the Defendant had merely recommended his freight forwarder, with whom he has always co-operated to his fullest satisfaction. The Plaintiff "then" was of the opinion that this firm could be given the task of carriage. Should the Defendant, in this context, have given any recommendation as to insurance, it would only have related to the cargo insurance offered by the freight forwarder.
The Defendant requests the Court to alter the judgment under appeal, and to dismiss the claim.
The Plaintiff requests the Court to dismiss the Defendant's appeal.
The Plaintiff defends the judgment under appeal, and states: The District Court has correctly classified the parties' contract. The content of the contract emerges from the letters of 5 and 18 June 1998, a fact proven by the testimony of witness H. The carrier has neither been contracted, nor paid by the Plaintiff, but by the Defendant. As the Defendant, after receiving the letter of 18 June 1998, arranged for the transport of the horse without objecting to the letter, he acquiesced to the letter's content. This fact suffices to make the Defendant liable for the payment of Deutsche Mark [DM] 30,000. As he failed to arrange for insurance, the Defendant is liable according to sec. 447(2) of the German Civil Code. It is common to arrange for insurance, and, in this case, insurance cover had explicitly been agreed on. In particular as regards living animals there was the special danger of the carriage causing illness. An insurance policy covering this risk, too, would have cost DM 900.
I. As regards the result, the District Court correctly allowed the Plaintiff's claim against Defendant for the payment of DM 30,000.
The Plaintiff's claim against the Defendant results from the contract concluded by the parties in June 1998.
1. It does not need to be decided whether the contract was already concluded during the telephone conversations whose content was merely recorded in the letters of 5 and 18 June 1998 -- to this effect, see the testimony of Witness H. -- or whether the contract was concluded by the offer contained in the letters undisputedly received by the Defendant, and by his arranging for the collection of the stallion at the stud farm of P. on 28 June 1998 without objecting to the letters. The Court finds that the Defendant arranged for carriage. The Defendant has not been able to conclusively show that he contracted the carrier in the name and for the benefit of the Plaintiff. Such an arrangement is contradicted by the undisputed fact alleged by the Plaintiff that the Defendant paid the carrier. Furthermore, the Defendant, in a letter written by his wife in July 1998, and, later, in a letter written by his counsel prior to these proceedings on 3 December 1998, notified the Plaintiff of the name and address of the carrier. This indicates that the transport of the horse was the exclusive responsibility of the Defendant.
According to sec. 151 of the German Civil Code, the contract was concluded in the fashion mentioned by the Plaintiff in his offer waiving the requirement of an express acceptance. An implied acceptance is not ruled out by the fact that the Defendant collected the stallion prior to sending a check of DM 30,000 to the Plaintiff. In this context, the acceptance of the offer must be distinguished from the non-performance of the contract. Should the Defendant have had mental reservations against accepting the offer at the same time as the collection of the stallion he had arranged for took place, such a reservation, according to an analogous application of sec. 116 of the German Civil Code, would be irrelevant (cf. Palandt/Heinrichs, BGB, 59th Edition, Marginal Note 2 at sec. 151).
Also if one applies Art. 18(1) and (3) and Art. 23 of the UN Convention on the Contract for the International Sale of Goods (CISG) -- as concerns that Convention's applicability see below section 3 -- the contract has been concluded in the same manner. Thus, the Defendant, prior to the collection of the stallion, owed a "first down-payment" of DM 30,000 by sending a check. The Defendant undisputedly has not fulfilled this obligation.
2. The parties concluded a contract of sale. It must be conceded to the District Court that the agreements between the parties indeed may lead one's thoughts to this being a contract for sale by undisclosed agency, to the extent the parties' joint aim was the onward sale of the stallion. Two considerations, however, militate decisively against concluding that there is a contract of undisclosed agency in this case.
- First, it was the duty of the Defendant to make a first down-payment of DM 30,000 before collecting the stallion. This would be atypical for the obligations of a seller by undisclosed agency. A sale by undisclosed agency is essentially about covert representation without any interest in acquisition on the part of the undisclosed agent.
- Second, the parties did not in any way mention the remuneration due to the Defendant for his services as an undisclosed agent. The idea was, rather, that he finance the transaction by the proceeds of the onward sale, which were supposed to be his profits to the extent the proceeds exceeded the minimum onward price of DM 75,000.
Thus, the contract between the parties must be classified as a contract of sale containing additional agreements as to the maintenance of the stallion during the three months it was envisaged that it be in the care of the Defendant [Buyer].
3. The UN Convention on the Contract for the International Sale of Goods (CISG) is applicable to the parties' contract of sale. This is due to this contract being a contract of sale between parties who have their places of business in different Contracting States. It is irrelevant in this context, whether the parties are businessmen or not, or whether their contract is commercial or between private individuals (cf. Art 1(1)(a) and Art. 3 of the CISG). The content of the CISG is directly applicable German law (cf. Schlechtriem/Ferrari, Kommentar zum einheitlichen UN-Kaufrecht - CISG, 3rd edition, Marginal Note 25 before Arts. 1-6) and, as such, according to Art. 3(2) of the German Code of Private International Law, enjoys precedence over the rules of private international law. Private international law only supplements the CISG to the extent the latter does not contain applicable rules (cf. Schlechtriem/Ferrari, ibidem, Marginal Notes 34 and 35 before Arts. 1-6). Animals being the object of the contract are not excepted in the final provisions of Art. 2 of the CISG.
The application of German law and of the CISG, however, lead to the same results in the present case.
4. The claim of the Plaintiff [Seller] regarding the payment of DM 30.000 is neither barred by this contract of sale being suspended by a condition precedent (a.), nor by the performance of the Plaintiff [Seller] -- namely the passing of the ownership of the stallion to the Defendant [Buyer] -- having become impossible by a circumstance for which neither the Plaintiff [Seller], nor the Defendant [Buyer], was responsible (b.).
a. The approval of the stallion by the Defendant [Buyer] cannot be a condition subsequent, as the contract between the parties is not a provisional contract of sale. The envisaged handing over of the stallion to the Defendant [Buyer] for three months was not motivated by the idea that Defendant [Buyer] should examine the stallion, but should improve the skills of the animal by appropriate training. The contract of sale between the parties was, rather conditioned by the onward sale of the stallion. This is the result of an interpretation of the parties' contractual statements based on the understanding of a reasonable recipient of the statements (cf. secs. 133 and 157 of the German Civil Code, and Arts. 8(1) through (3) of the CISG, respectively).
It emerges from the agreements that the legal validity of the contract was dependent on the onward sale of the stallion. At the time of the conclusion of the contract, the onward sale of the horse, on which hinged the remaining payment, was uncertain, and depended decisively on the success of the three months of training.
The decision as to whether this is a condition precedent or a condition subsequent must be made in accordance with the interests of the parties. The question of who is to bear the risk of the stallion dying before its onward sale without the fault of either party depends on this decision. If the contract was potentially dissolved, the failure of the condition subsequent to be fulfilled would entail the contract being deemed not to have been conditioned, meaning that the risk would have passed to the Defendant [Buyer] upon his receiving (sec. 446(1) of the German Civil Code) or taking over (Art. 66 and 69(1) of the CISG) the stallion. If the contract, however, had been suspended, the Plaintiff [Seller]'s claim for the payment of the price, upon the failure of the condition precedent to be fulfilled, would not have arisen, and the question as to the passing of the risk would not arise in relation to this claim. This is due to the fact that the passing of the risk generally requires a valid contract and a legally effective claim for the payment of the price (Supreme Court of Germany, NJW 1975 p. 776, on p. 777 et seq.; cf. Palandt/Putzo, BGB, 61st edition, Marginal Note 6 to 9 at sec. 446). When assessing whether a condition is a condition precedent or subsequent, regard must, in particular, be paid to the fact that a condition precedent has less thoroughly binding effects than a condition subsequent (cf. Supreme Court of Germany, ibidem, Marginal Note [sic!] 777).
As the condition, due to the death of the animal, undisputedly has not been fulfilled, the Plaintiff [Seller]'s claim for the payment of the price, lacking a binding contract of sale, has not legally arisen.
b. Nevertheless, the Plaintiff [Seller]'s claim for the payment of the down payment of DM 30,000 is justified.
The Defendant [Buyer]'s duty to pay, prior to the collection of the stallion, a down payment of DM 30,000, according to the agreement of the parties, was an independent obligation, and was as such not conditioned on the onward sale of the stallion. This duty must be deemed to constitute an independent agreement between the parties concerning the passing of the risk during the time the contract was not yet finally binding (cf., concerning the possibility of such special agreements concerning the passing of the risk, Supreme Court of Germany, ibidem, p. 778). By way of this agreement, the parties evidently wanted to take into account the fact that the Plaintiff [Seller] was to relinquish the horse into the care of the Defendant [Buyer] for an extended period of time, by which the latter obtained the opportunity to improve the horse in order to be able to achieve as high a price in the onward sale as possible. Given the constant danger of the horse being injured during training and of decreasing in value, the down payment was meant to constitute a just balancing of the interests of the parties, which avoided the Plaintiff [Seller]'s risk of both losing the horse and not obtaining a claim for the payment of the purchase price. The risk was, thus, to be divided between the parties as of the moment of receiving or taking possession of the stallion. To this extent, the agreement as to the down-payment was independent, and hinged on the onward sale of the stallion only to the extent the down payment was to be handed back in case the stallion was returned. The obligation of the Defendant [Buyer], thus, was subject to the condition subsequent of the return of the stallion. As this condition, too, failed to materialize -- due to the death of the animal -- the duty of the Defendant [Buyer] to pay DM 30,000 is finally to be deemed to be unconditioned.
The risk passed when the horse was handed over to the Defendant [Buyer] (sec. 446(1) of the German Civil Code), or was taken over by the Defendant [Buyer] (cf. Arts. 66 and 69 of the CISG), respectively. The stallion was handed over at the time the Defendant [Buyer] had the carrier he assigned collect the horse at the stud farm. It was agreed that the stallion be collected by the Defendant [Buyer]. The fact that he made use of the services of a carrier, and therefore only obtained indirect possession, accorded with the agreement of the parties and therefore did not prevent the passing of the risk (cf. Palandt/Putzo, ibidem, Marginal Note 6 at sec. 446). Nor is the link between the collection and the passing of the risk prevented by the fact that the collection of the stallion prior to the sending over of a check did not accord with the intention of the Plaintiff [Seller]. In accordance with the principle of good faith (sec. 242 of the German Civil Code), the Defendant [Buyer] cannot not rely on the lack of intent to pass the risk on the part of the Plaintiff [Seller], as he would thus assert a legal entitlement which he would have acquired by behavior in breach of contract (cf. Palandt/Heinrichs, ibidem, Marginal Note 43 at sec. 242). The passing of the risk at the time of the handing over of the goods is independent of the passing of ownership (cf. Palandt/Putzo, ibidem, Marginal Note 5 and 6 at sec. 446). This also applies in respect to the CISG, as can be derived from the provision in Art. 67(1), third sentence, of the CISG applying to the sale of goods to be transported -- which form of sale, however, is not at hand in the present case. According to this provision, the passing of the risk does not change in cases where the seller has the right to retain the documents entitling to the disposition of the goods.
II. The decision on interest is based on sec. 291 and 288 (old version) of the German Civil Code. The Statement of Claim was delivered to the Defendant [Buyer] on 14 May 1999.
* All translations should be verified by cross-checking against the original text. For translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellee is referred to as Plaintiff or Plaintiff [Seller] and Defendant-Appellant is referred to as Defendant or Defendant [Buyer]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM].
** Jakob Heidbrink, LL.D. M. Jur. (Oxon), Lecturer in Law at Jönköping International Business School.

References: Art. 18
 Art. 23
 Art 1
 Art. 3
 Art. 3
 Art. 2
 Art. 67