Source: http://cisgw3.law.pace.edu/cases/950405g1.html
Timestamp: 2019-04-18 11:15:32+00:00

Document:
"In a dispute between a German seller and a Swiss buyer where fundamental breach was alleged, the Landshut District Court emphasized that the buyer would suffer considerable detriment because all of the sportswear delivered had shrunk about 10 to 15% after being washed. The Court held that there was a fundamental breach since the buyer's customers would have either returned the merchandise or would not have bought any more from the buyer.
"[In its opinion, the Court] states that as a result of being washed the sportswear shrunk one or two sizes. Accordingly, the customers could not wear the sportswear anymore after having washed them for the first time. As a result, the court concluded, the customers would either complain to the buyer (later a retail seller) or would not buy clothes offered by this seller anymore which would cause substantial detriment to the buyer." Koch, Pace Review of the Convention on Contracts for the International Sale of Goods (1998) 239 and n.211.
"If the goods suffer from more than one sort of non-conformity or defect, each must be duly notified to the seller in order for the buyer to rely thereupon." Andersen, Pace Review of the Convention on Contracts for the International Sale of Goods (1998) 82. "The case concerned sport clothes that suffered from three different non-conformities (color, shrinkage and wrong quantity)." Id. at 121 n.209. "[T]he Court made the general statement that the time-frame for notification of defects which are not hidden could not be considered any longer that a few days after discovery. Id. at 121. "The Court considered notice given nineteen days after delivery too late to be considered given with reasonable time." Id. at 127. Article 40 was, however, applied "since the seller had admitted knowledge of the non-conformity". Id. at 89.
"When the buyer . . . placed the goods at the seller's disposal, the seller failed to take delivery and refused to refund the price . . . The court stated that this matter is not expressly covered by the CISG and that Article 31, which deals with the delivery of the goods by the seller, is not applicable by analogy. After stating that it could find no applicable general principles of the Convention, the court applied domestic law. Instead, the court should have imposed on the seller an obligation of good faith and an obligation to mitigate his losses. The court should have stayed within the Convention rather than referring to domestic law." Phanesh Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, 6 Minnesota Journal of Global Trade (1997) 105-152 [text accompanying note 178].
The [buyer] filed a claim against the [seller] for avoidance of the contract, price reduction and damages for the delivery of defective clothes. The [buyer] conducts its business - resale of sport goods and sportswear - as a limited partnership in accordance with Swiss law. The [buyer], by the end of May / beginning of June 1993, ordered clothes from the [seller] for the total price of DM [Deutsche Mark] 143,394.65, including VAT [*]. The goods were supposed to be delivered by 16 July 1993.
By fax dated 9 August 1993, the [buyer] set an additional time for [seller]'s performance, -- until 13 August 1993.
The [seller] finally delivered goods for a total price of DM 129,524.39 gross. The difference between the goods delivered and ordered is 732 pieces [i.e., short delivery].
The [buyer] has paid for the merchandise, except for a remaining amount of DM 19,889.02. On [buyer]'s instructions, the [seller] delivered the lot of the clothes directly to print plant S to be printed with colored motives.
After inspection of the delivery with spot tests on 4 and 5 September 1993, the [buyer] noticed that the clothes shrank disproportionately (10 - 15%) when washed. This was discussed with the [seller] in a personal conversation on 7 September 1993. Furthermore, by letter dated 11 September 1993, the [buyer] complained about the short delivery of the goods and also the wrong delivery of T-shirts SIMCA and sweatshirts SEPA (wrong color).
Unfortunately there are in the meantime the first return consignments from our customers to us due to the high 'shrinking' of the goods delivered by you (T-shirts and sweatshirts). As agreed with you, you shall take back the defective goods and reimburse the purchase price. The merchandise is stored in our warehouse in [�] at your disposal. Furthermore, we claim damages for the accumulated agency commissions, warehouse commissions, additional costs from the return deliveries and advance costs for the collection."
With regards to the non-returned merchandise, the [buyer] claims a price reduction of 30% from the purchase price. [Buyer] seeks to have the [seller] make a refund to the [buyer] for this in a total amount of DM 14,665.07, which the [buyer] had passed on as a price reduction to its customers.
DM 1,269.60 for crediting the returned goods.
The [buyer]'s calculations pertaining to its sales prices are made with the mark-up factor 1.9. A projected sales price for the value of the returned sportswear results in the amount of DM 59,635.89 x 1.9 = DM 113,303.19. Due to this, [buyer] has paid futile agency commissions to the agents of B GmbH (= DM 9,064.65). The [buyer] had sold the goods in advance to that company. Pertaining to the commissions for the price reduced goods (DM 14,655.07), a further amount of DM 1,172.40 (= 8%) has been spent in vain.
The [buyer] has undisputedly compiled a collection (fall / winter 1993/1994) of the entire merchandise. Measured against the total turnover, 40% of the goods are defective; therefore, from the total cost of DM 27,314.71 for the collection (so-called "creative costs") DM 10,925.88 has been spent in vain.
A total of 1,458 pieces of clothing have been printed with a cost of DM 3 plus VAT per piece, costing DM 5,030.13.
On the sales price of DM 113,308.20, the [buyer] has paid 5.5% in warehouse fees to [�] GmbH; sum: DM 6,231.95.
In addition, the [buyer] requests lost profit amounting to DM 13,697.19 due to the price reduction.
The [buyer] also seeks 11.5% interest for the use of bank credit.
The sum of the requested amounts is DM 64,785.63. Out of this amount, must be deducted (this is undisputed) DM 19,889.02 for open claims in the sales contract at issue and DM 2,377.50 for other claims of the [seller] against the [buyer]. This results in a sum of DM 42,519.12 (= Motion no. 3).
II. The [seller] be held liable for failing to make restitution of the clothes listed in Motion no. 1, since 25 January 1994.
III. The [seller] be further ordered to pay to the [buyer] DM 42,590.12, 15% VAT included, as well as 11.5% interest on this amount since 25 January 1994.
The [seller] pleads for the dismissal of the [buyer]'s claim.
The [seller] contends that the last delivery of the goods was effected on 17 August 1993. The [seller] had already informed the [buyer] on 10 August 1993 via telephone that the goods shrink excessively, as [seller] had found out before. The agent of the [buyer], witness H, informed the [seller] that it should deliver nevertheless. In another conversation at the end of August 1993, witness H waived the supplementation of the short delivery. The [seller] denies the notice of non-conformity from the [buyer] via phone on 7 September 1993 and the alleged agreement. The [buyer] has in fact negotiated directly with the Portuguese manufacturer about the complaints. The [seller] signed the letter of 11/12 October 1993 only for this purpose. Thereby no claims were supposed to be established against the [seller].
The Court has heard evidence by testimony, not under oath, of witness H. Concerning the further pleadings of the parties, reference is made to the briefs and enclosures as well as the record of the trial; concerning the result of the hearing of evidence, reference is also made to the record of the trial.
I. The [buyer]'s claim is admissible. The international jurisdiction of German courts arises in general from the provisions of the ZPO [*] concerning the local jurisdiction [venue], so that in principle a German court having local jurisdiction also has international jurisdiction.
An overriding treaty does not exist, in particular, the Lugano Convention [*]; it has been signed by the Federal Republic of Germany, but it is yet to be ratified. Local jurisdiction [venue] according to � 12 ZPO is Landshut; thus, the German District Court of Landshut has international jurisdiction.
Also, the other prerequisites for admissibility are given. These are to be specified according to the lex fori. Pertaining to the motion for a declaratory judgment, no objection exists. The legal interest of the [buyer] for a declaratory judgment results with regard to � 756 ZPO.
II. The [buyer]'s claim is granted to a large part.
1. The [seller] is obliged to pay to the [buyer] DM 59,635.89, 15% VAT included, as well as 5% interest on this amount since 25 January 1994, concurrently with the restitution and retransfer of title of the clothes listed in [buyer]'s Motion no. 1.
The [buyer]'s claim is based on Articles 45(1)(a), 49 and 81(2) second sentence, of the United Nations Convention on Contracts for the International sale of Goods, Vienna, 11 April 1980 (hereinafter abbreviated: CISG).
a. The CISG is applicable to the present case. The timely application results from Art. 100 CISG. The Convention came into force in the Federal Republic of Germany on 1 January 1991 and in Switzerland on 1 March 1991, thus before the conclusion of the sales contract at issue.
Also, the regional application is opened. Switzerland as well as the Federal Republic of Germany are Contracting States and the parties have their places of business in different States, namely in Switzerland and in the Federal Republic of Germany (Art. 1(1)(a) CISG). It has not been argued that the foreign place of business was not recognized; therefore, Art. 1(2) CISG does not apply.
Also, the scope of application of the CISG is affected. The case concerns a sales contract for goods and Art. 2 CISG is not applicable. The application of the CISG was also not excluded under Art. 6 CISG. The fact that the [buyer] bases its claim and the [seller] its defense on provisions of the BGB [*], does not change anything. While an implied choice of law is possible, according to the rules of private international law, under Art. 27 EGBGB [*], in the present case there is no recourse to the rules of private international law, so that the provisions of Art. 27 et seq. EGBGB do not apply at all. The CISG is uniform law, thus also directly German law. The parties can only exclude the application of the CISG by explicit agreement, but that was not done here. The mere agreement that German law applies would not be sufficient according to the prevailing opinion on the application of Art. 6 CISG.
b) The prerequisites of Arts. 45(1)(a), 49 and 81(2) second sentence, of the CISG are met. The [buyer] may declare the contract avoided and may claim restitution under the contract, in accordance with Art. 81(2) CISG.
The [seller] did not comply with one of its obligations under the contract, Art. 45(1) in connection with Art. 35 CISG. The [seller] had to deliver goods of the quality and description required by the contract. By delivering goods that shrank by 10 - 15%, i.e., one to two sizes, the [seller] has breached its contractual obligations.
This breach of contract also constitutes a fundamental breach of contract under Art. 25 CISG. The breach of contract resulted in such detriment to the [buyer] as substantially to deprive [buyer] of what it was entitled to expect under the contract. The clothes after having been washed did not become just negligibly smaller but had shrunk one to two sizes. As a result, the end customer could no longer wear these clothes after having washed them for the first time. The end customer, thus, would either complain to the retailer or would no longer buy goods from this retailer. Thereby, the retailer suffers a substantial detriment. The [buyer]'s interest in the contract are thus considerably affected. It also has to be taken into account that all the clothes shrink. Thus the entire delivery is defective.
c) The [buyer] also did not lose its warranties under Arts. 38 and 39 CISG, as the non-conformity of the goods relates to facts known to the [seller], Art. 40 CISG. The [seller] itself submits that it knew already on 10 August 1993 about the shrinking of the goods, i.e., before the goods were delivered to the [buyer].
The [seller] could not prove that it had informed the [buyer] about this defect and that the [buyer] had requested the delivery with knowledge of the defect. Though witness H confirmed that conversations took place between it and the [seller] prior to the delivery of the goods, it testified that he had not been informed about the defects of the goods. The Court, in the normal course of evaluation of the evidence, does not misjudge that the witness in its capacity as limited partner of the [buyer] has a close relationship with the [buyer]. However, the witness presented to the Court correspondence between the parties, of the period around 10 August 1993, in which there was no indication from the [seller] of the defectiveness of the goods or of a conversation in this regard with witness H. The [seller] has not managed to furnish this evidence. According to Art. 40 CISG, the [seller] is thus not entitled to rely on an allegedly belated notice of non-conformity.
A testimony of the [seller] ex officio in accordance with � 448 ZPO [*] did not have to be undertaken. Even if one construes the application of Arts. 38, 39 CISG in favor of the [seller], the time limit for [buyer] to give notice of the non-conformity had not elapsed. The shrinking of the clothes constitutes a hidden defect; the [buyer] was not obliged to wash the delivered goods on a trial basis. The time period for the notification has been met.
d) The prerequisites [for a declaration of avoidance] are thus satisfied; under CISG Art. 81(2) second sentence, the parties must make restitution concurrently.
2. The [buyer]'s claim for interest is based on Art. 84(1) CISG. The purchase price was paid in the year 1993; therefore, the claim for interest exists since 25 January 1994. The rate of interest is not regulated by Art. 84 CISG. Also, in Art. 78 CISG no mention is made of the rate of interest. According to the prevailing opinion, the rate of interest within the scope of Art. 78 CISG is governed by the applicable national law, which is determined by the rules of private international law. This notion is also applicable to Art. 84 CISG.
Thus, the applicable law of the contract needs to be is determined in accordance with Art. 27 et seq. EGBGB [*]. According to Arts. 32(1) no. 3 and 27(1) EGBGB, the parties can choose the applicable law. By both parties pleading the provisions of the BGB [*] from the beginning, they have chosen German law. This contract regarding the choice of law has been validly concluded under Art. 27(4) EGBGB.
Thus, the provisions of the German law apply. The rate of 11.5% interest was disputed. As the [buyer] has not proven [the interest rate], the legal provisions apply. According to � 352 I HGB [*], the legal interest rate is 5% for mutual commercial transactions. Both [buyer] and [seller] are merchants in accordance with � 1 II no. 1 HGB. The conclusion of the sales contract at issue is part of the commercial business of both parties, � 343 HGB. Thus, the rate of interest is 5%.
III. The [buyer]'s Motion no. 2 is also granted.
The [seller] is in default of acceptance since 24 March 1994. The default of acceptance has to be determined according to �� 293 et seq. BGB.
The matter of restitution after avoidance of the contract is not expressly settled in Article 81(2) CISG. Especially, the [seller]'s failure to accept delivery and refund the purchase price after the [buyer] has placed the goods at the [seller]'s disposal is not provided for. Article 31 et seq. CISG deals with the delivery of the goods by the seller; due to the different legal rights involved (Interessenlage) these provisions of the CISG are not applicable by analogy to the restitution matter.
In the present case, it has to be considered that the question of [seller]'s failure to take back the goods is relevant to the enforcement of the judgment, on account of � 756 ZPO [*]. Since the [seller] is domiciled inland, the enforcement of the judgment is regulated by the lex fori, namely, the ZPO. Thus, it seems suitable to settle the question of the [seller]'s failure to accept delivery according to the provisions of the BGB [*]. The regulation of the [seller]'s failure to take back the goods cannot be decided in accordance with the general principles on which the Convention is based, under Art. 7(2) CISG. In fact, the enforceability of the judgment is not governed by the CISG, but is reserved to the lex fori.
The performance was actually offered to the [seller] just with the filing of the claim on 23 March 1994, � 294 BGB. Only with the filing of the complaint were the relevant clothes to be taken back by [seller] identified. By letter, dated 12 January 1994, reference was made only to the defective goods complained about, without specifying them and without explaining which defective goods should be returned and which ones should be kept.
The performance was also offered at the right place according to � 269 BGB. Place of performance for the restitution of the sales contract is the place where the goods are in accordance with the contract; thus, the warehouse of the [buyer]. Therefore, the [seller] is in default of acceptance since 24 March 1994.
IV. 1. The [buyer], considering the set-off by the [seller], has a claim for payment in the amount of DM 17,896.05. In accordance with Art. 45(1)(b) CISG, the [buyer] is entitled to claim damages for a total amount of DM 40,162.57, under Art. 74 CISG.
As already stated above, the [seller] has breached its contractual obligations by delivering goods that shrink disproportionately. According to Art. 45(2) CISG, the [buyer] is not deprived of any right it may have to claim damages by declaring the avoidance of the contract. According to Art. 40 CISG, the [seller] is not entitled to allege that the [buyer]'s notice of non-conformity was untimely.
a) The claim for damages encompasses the price reduction given by [buyer] to its customers, totaling DM 14,655.07. By granting this price reduction, the [buyer] has suffered a loss in that amount. The [buyer]'s claim for this loss is allowed.
The [buyer] has proven, by presenting the invoices and by the testimony of witness H, that [buyer] has granted this price reduction to its customers to this extent. The Court decides on the adequacy of this price reduction, i.e., the amount of the damages, by appreciating all the relevant facts in accordance with � 287 ZPO [*]. � 287 ZPO is also applicable to cases with a connection to a foreign country, as it is a procedural provision. The request for an expert opinion could thus be omitted. Having regard to the fact that the clothes shrink one or two sizes, a price reduction of 30% of the sales turnover is by all means reasonable.
b) In addition, the [buyer] has proved a loss in the amount of DM 4,008.40. The [buyer] had commissioned the firm [�] GmbH with the order processing and the processing of the complaints about the defective clothes. This firm, as proved by the invoices, has been paid DM 1,368.50 for sorting and packing material; DM 281.75 for interim inventories; DM 1,088.59 for postage for freight collected merchandise, and DM 1,269.60 for crediting the returned goods.
c) The [buyer] has also paid agency commissions to the agents of firm B in the amount of DM 9,064.65. As proven by the testimony of the witness, the [buyer] had pre-sold the goods at issue. The agency commissions are calculated out of the sales price, multiplying the purchase price of the goods to be returned by the mark-up factor 1.9, totaling DM 113,303.19.
Besides that, further commissions amounting to DM 1,172.40 and pertaining to the scope of the reduction which has been passed on to the customers of the [buyer], were spent in futility. According to � 87a HGB [*], the [buyer] does not have a claim against the agents for repayment of the commissions; so the [buyer] has suffered loss to this extent.
d) Of the returned clothes, a total of 1,458 pieces were printed with a cost of DM 3 plus VAT [*] per piece. These costs total DM 5,030.10.
e) Pertaining to the returned clothes having a sales price of DM 113,308.20, the [buyer] has paid 5.5% of that price to [�] GmbH for warehouse fees; thus, DM 6,231.95.
The [buyer] has thus a claim for damages amounting to DM 40,162.57. The [seller] could also foresee at the time of the making of the contract a loss to this extent as a possible consequence of the breach of contract, under Art. 74 sentence 2, CISG.
2. The [seller] declares a set-off with claims amounting to a total of DM 22,266.02, so that a claim for payment of DM 17,896.05 remains.
3. The [buyer]'s claim for interest is provided basically by Art. 78 CISG. According to the prevailing opinion, Art. 78 CISG also applies to claims for damages (cf. von Caemmerer / Schlechtriem - Eberstein/Bacher, Kommentar zum einheitlichen UN-Kaufrecht, Art. 78, Annotation 15). The claim comes into existence with the occurrence of the loss. On 25 January 1994, the asserted loss had already occurred.
The interest rate of 5% is applicable, as already stated above, from � 352 I, sentence 1, HGB [*].
V. The remaining part of the [buyer]'s claim has to be dismissed.
1. The [buyer] has no claim for the reimbursement of the "creative costs" amounting to DM 10,925.88, under Art. 45 and in connection with Art. 74 CISG. These creative costs would have accrued to the [buyer] anyway. The defect in the goods is not causal of that.
2. The [buyer] is not entitled to claim reimbursement of the lost profits in the amount of DM 13,697.13 pertaining to the short delivery. Even though the short delivery also constitutes a breach of contract by the [seller] which can lead to a claim for damages under Arts. 45(1)(b) and 74 CISG, the [buyer] did not give notice of this defect within the due time for the notice of non-conformity.
The provision in Article 40 CISG is not applicable, as the [seller] at the time of the delivery did not have any knowledge of the short delivery. The [seller] alleges that it had talked with the [buyer] about the short delivery by the end of August. As the last delivery was effected on 18 August 1993 at the latest, thus by the middle of August, it is not proven that the [seller] was at that time already informed of the short delivery.
According to Art. 38(1) CISG, the buyer must examine the goods within as short a time period as is practicable in the circumstances. In principle, the place for examination of the goods is the place of performance within the meaning of Art. 31 CISG. Even if it is assumed in the [buyer]'s favor that the contract necessitated a carriage of the goods, the goods were not examined in due time. The destination of the goods, in the meaning of Art. 38(2) CISG, was the warehouse for part of them and printing plant B for the other part.
Also with non-perishable goods, an immediate examination with regard to the quantity of the goods is to be expected (cf. von Caemmerer / Schlechtriem-Schwenzer, Kommentar zum einheitlichen UN-Kaufrecht, Art. 38, Annotation 17). The [buyer] was under an obligation to examine the quantity of the goods after their arrival at the warehouse and at the printing plant.
The fact that witness H was at a trade show in the meantime does not change anything regarding the deadline. The [buyer] was under an obligation to cause the delivered goods to be counted. The last delivery, according to witness H, has been made on 18 August 1993. According to H's statements, the counting takes several days. In these circumstances a time limit of one week is reasonable; i.e., the counting of the goods ought to have been completed at the latest on 25 August 1993.
According to Art. 39(1) CISG, the [buyer] should have given notice of the lack of conformity to the [seller] within a reasonable time after this point of time. Even if it is assumed in favor of the [buyer] that this notice had been given in the course of the conversation between witness H and the [seller] on 7 September 1993, the reasonable time period in the meaning of Art. 39(1) CISG has elapsed. A short delivery does not constitute a hidden defect, so that the time limit for the notice runs only for a few days. A notice on 7 September 1993 would have been too late.
From the fact that the [seller] refrained from invoicing the non-delivered goods, it cannot be concluded that [seller] waived (impliedly) its right to rely on the fact that the notice of non-conformity was not made in due time. The respective invoices were made during 9 August - 16 August 1993, at a time when the [seller] did not have any knowledge of the short delivery. Thus, this non-invoicing does not constitute an unreserved acknowledgment of the non-conformity.
According to Art. 39(1) CISG, the [buyer] thus cannot plead the short delivery. The [buyer] therefore cannot claim damages for loss of profit suffered as a consequence of the short delivery.
VI. The decision on costs and temporary enforcement follows from �� 92 I, 709 I, 708 no. 11, 711 ZPO [*]. The motion to lodge security in the form of depositing an absolute guaranty was not granted, as the name of the bank was not stated (cf. Thomas-Putzo, ZPO, � 108, Annotation 10).
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Switzerland, is referred to as [buyer]; the Defendant of Germany is referred to as [seller]. [DM] indicates monetary amounts in German currency (Deutsche Mark).
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuch [German Code on the Conflict of Laws]; HGB = Handelsgesetzbuch [German Commercial Code]; Lugano Convention = EC EFTA Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters - Lugano, 16 September 1988; VAT = Value Added Tax; ZPO = Zivilprozessordnung [Civil Procedure Code].

References: Art. 100
 Art. 1
 Art. 2
 Art. 6
 Art. 27
 Art. 27
 Art. 6
 Art. 81
 Art. 45
 Art. 35
 Art. 25
 Art. 40
 Art. 40
 Art. 81
 Art. 84
 Art. 84
 Art. 78
 Art. 78
 Art. 84
 Art. 27
 Art. 27
 Art. 7
 Art. 45
 Art. 74
 Art. 45
 Art. 40
 Art. 74
 Art. 78
 Art. 78
 Art. 78

V. 
 Art. 45
 Art. 74
 Art. 38
 Art. 31
 Art. 38
 Art. 38
 Art. 39
 Art. 39
 Art. 39