Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980128g1.html
Timestamp: 2019-04-19 08:29:40+00:00

Document:
An Italian seller, plaintiff, sued a German car dealer, defendant, for the outstanding purchase price of a car under the first contract and restitution of money paid without obligation under a second contract for the purchase of additional cars. The buyer had paid for the first contract with a cheque, which was dishonoured. When the second contract was cancelled by the parties, the seller made a cash reimbursement of the advance payment that had been made by the buyer with another cheque, which later was also dishonoured. The buyer claimed set-off.
The court allowed the seller's claim under the first contract and held that the buyer was obliged to pay for the car (article 53 CISG). The award included damages for the costs of the dishonoured cheque (article 74 CISG).
Concerning the claim for restitution, the court stated that it was not governed by the CISG (article 4 CISG). It held that a claim for restitution is governed by the CISG only if payment is made under the original contract (article 81(2) CISG). If, after cancellation of a contract the seller redeems the purchase price which the seller, in fact, has never received, this cannot be considered as payment made under the contract. The seller performed a non-existing obligation with no connection to a contract of sale. However, the court held that, under the rules of German private international law, Italian law was applicable to justify the claim for restitution.
Similarly, as the CISG does not deal with set-off (article 4 CISG), the court held that, under the rules of German private international law, Italian law was applicable such that the claim for set-off was inadmissible.
The [seller] is seeking payment of the purchase price based on two contracts for the sale of cars.
Upon the [buyer]'s order, the [seller] delivered an automobile VW Passat GLX Highland 2.9 TDI at the price of IT� [Italian Lira] 40,300,000, which [seller] invoiced on 23 February 1996. The [buyer] made an advance payment and paid for the remainder of the purchase price in the amount of IT� 36,757,000 by check. When the check was not honored, the [seller] was charged protest fees in the amount of IT� 173,775.
In February of 1996, the [buyer] ordered eight cars VW Golf straight from the factory. An advance payment of IT� 88,000,000 was agreed; the [seller] issued an invoice in this amount and the [buyer] paid with a crossed check. After it turned out that the [seller] would be unable to deliver the ordered cars, on 11 March 1996 the parties agreed to nullify the contract. The [seller] issued a credit note to the [buyer] as a cancellation of the invoice regarding the advance payment and made a cash reimbursement to the [buyer]'s manager. It was not until 13 March 1996 that the [seller] tried to cash the [buyer]'s check. This check was also not honored and the [seller] was again burdened with protest fees in the amount of IT� 173,775.
The [seller] seeks payment of the remaining purchase price for the car VW Passat and restitution of the amount of IT� 88,000,000 paid to the [buyer].
The [seller] requests the Court to order the [buyer] to pay [seller] IT� 124,757,00 with 10% interest on IT� 36,757,000 from 7 March 1996 and on IT� 88,000,000 from 14 March 1996, as well as pre-litigation costs in the amount of IT� 347,550.
The [buyer] requests the Court to dismiss the claim.
The [buyer] submits that the [seller]'s claim was relinquished by set-off. [Buyer] maintains that [buyer] itself sold and delivered to the [seller] through its Italian place of business in [�] three cars at a price of IT� 18,450,000, IT� 18,600,000 and IT� 23,900,000 in the year 1998. [Buyer] submits that the [seller] failed to pay the respective invoices until the present day and claims set-off with the open amount plus interest. [Buyer] further submits that the set-off is admissible under the applicable German law. [Buyer] had initially intended to settle its claims with the billing of the eight automobiles it ordered of the type VW Golf, and [buyer]'s advance payment was only intended as a security for the [seller]. [Buyer] alleges that its claims are also liquid. The [seller]'s manager had repeatedly declared that while it was sure that the respective invoices had been paid, it would arrange for payment if they had not. Despite the fact that "all this happened so long ago", [seller] stated that it would not remain in the [buyer]'s debt. Insofar as the [seller] now referred to a settlement in the year 1993 regarding del credere liability, this settlement concerned leases and not the claims arising out of the sales contracts.
The [seller] alleges that the set-off is not admissible under the governing Italian law. [Seller] denies that the company that issued the invoices is identical with the [buyer]. [Seller] further disputes that the invoices concern contracts for the sale of cars. The invoices had been issued pro forma and the purpose of the transfer of the cars was a lease. The [seller] further submits that the business relations with the [buyer] were already settled in the summer of 1993.
The Court of First Instance granted [seller]'s claim with its order of 6 May 1997.
The Court held that the [seller]'s claim was founded on Art. 53 CISG, respectively Art. 81 CISG. The claim for restitution of the IT� 88,000,000 paid could also be based on unjustified enrichment. Questions not settled in the Convention are to be supplemented by Italian national law. The stopping of the check of IT� 88,000,000 constituted bad faith and thus excluded a set-off. Furthermore, the set-off was not admissible under Italian law as the [buyer]'s claims were neither liquid nor enforceable; the [seller] contested the [buyer]'s claims and these could not be easily and immediately ascertained (cf. Art. 1243 Cc [*]).
In its appeal, the [buyer] objects to the Courts decision that its set-off was inadmissible. [Buyer] argues that the legal basis for the [seller]'s claim for restitution of the IT� 88,000,000 is not the contract of sale. Instead, [buyer] maintains that it is a claim based on unjustified enrichment whose prerequisites and consequences are to be settled under German law. [Buyer] adds that it did not in any way act in bad faith. It was only after [buyer]'s manager had accepted the cash reimbursement from the seller that it had decided the last chance to realize [buyer]'s claims against the [seller] was by way of set-off. Furthermore, it is 'buyer]'s position that the Court of First Instance did not interpret Art. 1243 Cc correctly. An arbitrary denial by the opponent does not lead to an exclusion of set-off under this provision.
[Buyer] submits that its claims can be quickly and easily ascertained. The [seller]'s manager repeatedly acknowledged the basis of these claims; [seller] only voiced the reservation that it might be able to prove that the invoices had already been paid. This proof had not been given. There was a declaratory acknowledgment of indebtedness. [Buyer] further holds that the [seller] was aware of the [buyer]'s company structure in Italy under which it basically established subsidiaries (sede secundare) for the rental business in several provinces. The [buyer] refers to several documents to prove her identity with the company I.L.; the most convincing proof being the identical tax number of all Italian subsidiaries. The [buyer] submits that the [seller] also purchased countless other cars from [buyer] through its subsidiary. The [seller] paid all of the respective invoices except for the three cars that the [buyer] is still seeking payment for and that form the basis of the claims with which [buyer] declared the set-off. [Buyer] maintains that its claims for payment of the purchase price are specified by the presented invoices. The documents proved that the three cars in question were delivered to the [seller] and accepted by it as a performance based on a sales contract, not on a lease. The documents further show that the [seller] re-sold the cars to third parties "per atto notarile". [Buyer] maintains that the [seller] is therefore acting in bad faith.
The [buyer] requests the Court to reverse the decision of the Court of First Instance and to dismiss the claim.
The [seller] requests the Court to dismiss the appeal.
The Court furthermore refers to the [buyer]'s brief supporting the appeal of 28 July 1997, the [seller]'s reply to the appeal on 7 August 1997 and the parties' briefs of 29 September 1997, 11 October 1997 and 12 November 1997.
The admissible appeal is unfounded. The Court of First Instance was correct in granting the [seller]'s claims.
1. The [seller]'s claims as such are undisputed in their ground and extent; in [buyer]'s appeal, the [buyer] solely objects that the set-off declared by its was not considered.
a. With respect to an amount of IT� 36,757,000 the [seller]'s claim is based on Art. 53 CISG.
The claim is therefore based on Art. 2033 Cc,[*] which orders restitution in the case of a payment made without legal cause.
2. The [buyer] is not entitled to set-off its alleged claims against the [seller]'s claims. The set-off is inadmissible under Art. 1246 no. 4 Cc, as the [buyer] waived its right to set-off in advance.
a. The set-off is governed by Italian law. Insofar as the [buyer] intends to set-off against contractual claims, this results from Art. 32(1) no. 4 AGBG (cf. Palandt, BGB, 57th ed., Art. 32 EGBGB n. 6). Regarding other claims, the law governing the set-off is also the law that applies to the claim that the set-off is declared against (cf. Reithmann/Martiny, n. 284). In the present dispute, both these claims are governed by Italian law.
b. Regarding Art. 1246 Cc,[*] it is important to note that under Italian law the principle of good faith applies to the interpretation of contracts (Art. 1366 Cc). In the present dispute, the [buyer] each time agreed with the [seller] to effect payment of the agreed deliveries by check. Both under Italian and German law, this principally constitutes an implicit agreement to exclude a set-off in the event that the check is not honored (cf. Palandt, � 387 BGB [*] n. 14; OLG [*] Köln, NJW [*] 1987, 262). Obviously, this agreement directly regards only the claim for payment of the purchase price (which remains unpaid because the check was stopped). However, the exclusion of a set-off remained valid after the agreed cancellation of the second contract. It needs to be considered how a reasonable person in the position of the [seller] was to understand the declaration of the [buyer] when the latter accepted the cash reimbursement of the sum her check was made out to. By accepting this reimbursement, the [buyer] unambiguously declared that it still wanted to count the check given by [buyer] as cash.
3. The other reasons given by the Court of First Instance for the exclusion of set-off under Art. 1243 Cc [*] are therefore of no importance.
4. The other claims granted by the Court of First Instance are also justified.
b. Under Art. 2033 sent. 2 Cc [*] the seller's claim accrues interest from the date of payment if the recipient of the payment was acting in bad faith. In the present case, the [buyer] acted unfaithfully by the latest on the day when [buyer] dishonored the check given to the [seller], that is, on 13 March 1996. The interest rate again follows from Art. 1284 Cc.
c. The [seller] is further entitled to reimbursement of its bank charges for the check protests in the amount of IT� 173,775 each. This claim is based on Art. 61 and Art. 74 CISG (damages for breach of contract, cf. v.Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, 2nd ed., Art. 61 n. 4) and based on Art. 1218 Cc,[*] with respect to matters not settled in the Convention, that is, with respect to the breach of the restitution agreement.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee of Italy is referred to as [seller] and the Defendant-Appellant of Germany is referred to as [buyer]. Amounts in Italian currency (Lira) are indicated as [IT�].
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; Cc = Codice civile [Italian Civil Code]; EGBGB = Einführungsgesetzbuch zum Bürgerlichen Gesetzbuche [German Code on the Conflict of Laws]; NJW = Neue Juristische Wochenschrift [German law journal]; OLG = Oberlandesgericht [Court of Appeal].
** Ruth M. Janal, LL.M (UNSW), a PhD candidate at Albert-Ludwigs-Universität Freiburg, has been an active participant in the CISG-online website of the University of Freiburg.

References: Art. 53
 Art. 81
 Art. 1243
 Art. 1243
 Art. 53
 Art. 2033
 Art. 1246
 Art. 32
 Art. 32
 Art. 1246
 Art. 1243
 Art. 2033
 Art. 1284
 Art. 61
 Art. 74
 Art. 61
 Art. 1218