Source: http://cisgw3.law.pace.edu/cases/060111g1.html
Timestamp: 2019-04-25 07:55:59+00:00

Document:
"On the necessity of giving notice of third party claims in a timely fashion in accordance with Art. 41, 43 para. 1 CISG."
The claimant, a car dealer based in the Netherlands, bought a used car from the defendant, a German car dealer in April 1999. In August 1999, the police seized the car from the claimant on the suspicion that the car had been stolen prior to the contract of sale. The insurance company of the original owner demanded the turnover of the car from the claimant in a letter dated May 2000.
Meanwhile, in October 1999, the claimant requested refund of the purchase price from the defendant stating that the contract was invalid because the car had been stolen. After the seller rejected the request, the buyer filed an action for refund of the purchase price and for damages relating to expenses allegedly incurred in connection with the pick-up of the car from the seller.
Although the claimant was successful in the first instance, on appeal its claims were dismissed. The Federal Court of Justice upheld the appeal decision. It held that the buyer had no right to remedies under article 45 CISG if it had lost its right to rely on article 41 CISG by failing to give notice of legal defects within a reasonable time according to article 43 (1) CISG. The court pointed out that the length of the "reasonable time" under article 43 (1) CISG was to be determined by the circumstances of each individual case. Therefore, a rigid interpretation of the concept was to be excluded. However, the buyer had to be granted a certain period of time within which it could get an approximate picture of the legal situation, also depending on the type of legal defect. On the basis of those standards, the court confirmed the view of the court of appeals that the notification to the seller in the letter of October 1999, more than two months after the seizure of the car, was beyond the reasonable time as intended in article 43 (1) CISG.
Furthermore, the Federal Court of Justice held that the buyer could not derive any rights from the insurance company's demand for handover of the car, because it had failed to notify the claim to the seller within a reasonable time after receiving that letter. The court noted that the notification of the claim of a third party had to contain the relevant information on the claiming person and the steps taken by it, as the notification was supposed to allow the seller to contact the third party and to reject the claim against the buyer. The claimant had sent the seller a letter after the seizure of the car by the police in October 1999, but only to inform the seller of the seizure based on the police suspicion of a stolen car. It seemed that no other letter had been sent to the seller after the buyer had received the letter of the insurance company in May 2000.
Finally, the Federal Court stated that the requirements of the exception to article 43 CISG contained in article 44 CISG were not fulfilled, as the buyer lacked a reasonable excuse for its failure to give the required notice within a "reasonable time".
CISG Art. 41 and Art. 43(1): Regarding the requirement to give notice of a legal defect within a reasonable time pursuant to Art. 41, Art. 43(1) CISG.
BGH, Judgment of January 11, 2006 - VIII ZR 268/04 - Hamm Court of Appeals (OLG Hamm); Bielefeld Regional Court (LG Bielefeld).
Panel VIII of the German Supreme Court for Civil and Criminal Matters (BGH) has, upon the oral argument of January 11, 2006, through Chief Justice Dr. Deppert and Justices Dr. Beyer, Ball, Dr. Leimert and Dr. Wolst, adjudged: [Buyer's] appeal of the judgment of the Second Civil Panel of the Hamm Court of Appeals of July 15, 2004 is dismissed. [Buyer] is to carry the costs of the appeal.
1. [Buyer], a car dealer headquartered in H./Netherlands, on April 28, 1999, purchased a used car P. from [Seller], who operates a car dealership in B., at a price of Deutsche Mark [DM] 39,000. Upon payment in cash of the purchase price, the car was transferred to [Buyer] together with the vehicle registration documents issued on March 5, 1999 by County H. On August 23, 1999, the police seized the car from [Buyer] because of the suspicion that the car had been stolen in Paris during the night of February 15-16, 1999. The French insurance company C., by letter dated May 16, 2000, demanded the turnover of the car by [Buyer] based on the reasoning that the car was an automobile that had been registered as stolen on February 16, 1999, which, because of the payment for loss made to the car owner, now belonged to the insurance company. [Buyer] refused, stating that it had acquired the car in good faith. Because of the turnover demanded by the insurance company against [Buyer], a lawsuit is pending and not yet concluded in the Netherlands.
2. By attorney letter dated October 26, 1999, [Buyer] demanded from [Seller] a refund of the purchase price based on the reasoning that the purchase contract was invalid in view of � 935 BGB [*] because the car had been stolen in France. [Seller] refused. [Buyer] thereupon brought suit on December 8, 2000 for a refund of DM 39,000. [Buyer] subsequently withdrew the complaint, which had been served on [Seller] on December 14, 2000. [Buyer] then filed another complaint, which demanded payment of � 19,940.38 as well as a further � 1,683.84 as damages for expenses [Buyer] allegedly incurred in connection with the pick-up of the car from [Seller], maintenance and paint work.
3. The Court of First Instance (Landgericht) granted the [Buyer]'s complaint. Upon appeal by [Seller], the Court of Appeals (Oberlandesgericht) modified the judgment of the Court of First Instance and dismissed the complaint. Through the appeal permitted by this Panel, [Buyer] continues to pursue its claim in its entirety.
5. The Court of Appeals had explained that, pursuant to the provisions of the UN Convention on Contracts for the International Sale of Goods (CISG), which is applicable here, [Buyer] cannot claim avoidance of the contract and/or damages. A prerequisite for that would be the existence of a legal defect within the meaning of Art. 41 CISG. Such a legal defect exists if a good faith acquisition by [Buyer] is countered by � 935 BGB [*], which must be applied under German conflict of laws rules (here, Art. 43 EGBGB [**]). [Buyer]'s corresponding statement on this issue was, however, comprehensively disputed by [Seller]. The questions that are disputed to that extent, however, need no clarification because [Buyer] did not give [Seller] notice of the legal defect within a reasonable time period from the date of knowledge, and not in the required manner (Art. 43 CISG). In view of the clear facts -- seizure of the car based on the suspicion of theft -- which even for a legal layman are recognizable as an especially important circumstance without further consideration or legal advice, notice would have to have been given within a month at the latest, i.e., by September 23, 1999. Accordingly, the seizure would have been cause for [Buyer] to inform its contract partner immediately of this serious incident so that it might reach a prompt resolution as soon as possible, or to permit [Seller] to file a claim of its own against the one from whom it had purchased the car. According to the results of the evidentiary hearing, it is not sufficiently certain that [Buyer] communicated its knowledge to [Seller] within the above deadline. The first written notice of defect was dated October 26, 1999 and can therefore no longer be viewed as timely.
6. Also, insofar as [Buyer] rests its claim of legal defect on the assertion of rights to the car by third parties, the compliance with a notice deadline of at most one month cannot be determined. The corresponding attorney letters are dated May 16 and 24, 2000, so that the notice would have had to have been made by June 24, 2000 at the latest. [Buyer] has not, however, made any concrete statements on this issue. The first (and later withdrawn) complaint is dated December 8, 2000 and is therefore in no event to be considered a timely notice.
7. The preconditions under which a notice can, as an exception, be dispensed with under Art. 43(2) CISG are not present here. This would have required positive knowledge by [Seller] of the right or the claims of third parties at the time when the claim would have had to have been presented to him. Such knowledge cannot be determined. Finally, a sufficient excuse of [Buyer] for missing the notice deadline (Art. 44 CISG) cannot be assumed.
II. 8. These explanations withstand legal scrutiny, so that the appeal by [Buyer] must be dismissed.
9. The Court of Appeals correctly assumed the applicability of the United Nations Convention on Contracts for the International Sale of Goods (CISG), since both parties have their places of business in different signatory countries (Art. 1(1)(a) CISG). Pursuant to Art. 81(2) CISG, the Court of Appeals correctly denied [Buyer's] claims for a refund of the purchase price and the reimbursement of expenses. [Buyer] cannot declare the contract avoided based on a fundamental breach of contract pursuant to Art. 45(1)(a), Art. 49(1)(a) CISG, and it is also not entitled to damages pursuant to Art. 45(1)(b), Art. 74 CISG, because it did not give notice of a legal defect within the meaning of Art. 41 CISG in a timely manner pursuant to Art. 43(1) CISG.
10. (1) Pursuant to Art. 41 (first sentence) CISG, a seller must deliver goods free from any right or claim of a third party. If, however, the buyer fails to meet its obligation imposed in Art. 43(1) CISG to give notice of the right or claim of the third party, it cannot invoke its rights under Art. 41 CISG.
11. a) The conclusion of the Court of Appeals that [Buyer] did not give timely notice to [Seller] of the legal defect -- primarily the existing interest of a third party in the car -- must be followed. The reasonable time of Art. 43(1) CISG begins to run when the buyer becomes aware or ought to become aware of the legal defect. [Buyer] asserts that it learned of the alleged theft of the car in Paris, which is disputed by [Seller], upon its seizure on August 23, 1999. However, [Buyer's] notification in a letter by its attorney of October 26, 1999, approximately two months after the seizure, is then, as the trial court correctly states, no longer within the reasonable time period.
12. The circumstances of each individual case are decisive in measuring the time period, so that a schematic fixing of the time for the notice of defect is impossible. The buyer must be granted a certain time period within which he can get a general picture of the legal situation (Schwenzer in Schlechtriem/Schwenzer, CISG, 4th ed., Art. 43 � 3; Staudinger/Magnus, CISG (2005), Art. 43 � 20; each with further citations); the type of legal defect must also be considered. Based on these standards, the Court of Appeals determined legally correctly that a time period of more than two months after the seizure was not within a reasonable period of time.
13. The appeal claims in vain that, in cases of cross-border traffic of goods, a protracted legal evaluation with the involvement of attorneys with specialized knowledge is necessary. As the trial court accurately stated, even for a legal layperson such as [Buyer], the suspicion of theft, made obvious by the police seizure, was easily recognized as an especially significant occurrence without the need to secure legal advice. It was possible and reasonable for [Buyer] to inform [Seller] of the suspicion of theft by describing the actual occurrence, so that [Seller] would be put in a position to refute any claims by a third party as soon as possible, which is the purpose of the notice obligation (Schwenzer, id. � 2). That [Buyer] did in fact undertake a legal review to the extent generally required by the appeal, is not documented by the appeal through reference to a corresponding showing by [Buyer] in the trial court.
14. b) The appeal incorrectly argues that, even assuming a delay of the notice, [Buyer] did not lose all defect claims because it has a "reasonable excuse" for missing the deadline within the meaning of Art. 44 CISG. That is not correct.
15. Pursuant to Art. 44 CISG, the buyer can, regardless of missing the deadline of Art. 43(1) CISG, demand damages if he has a reasonable excuse for failing to give notice of a factual or legal defect. In this connection, the buyer's conduct is excused if, under the circumstances of the individual case, he equitably deserves a certain understanding and a certain consideration (see Huber/Schwenzer in Schlechtriem/Schwenzer, id., Art. 44 � 5). This is the case when the violation of the obligation under Art. 43 CISG -- especially with regard to the personal circumstances of the buyer-- has such slight repercussions that a buyer is customarily forgiven for it and therefore does not justify the substantial consequences of a complete exclusion of warranties (Achilles, Commentary on the CISG, 2000, Art. 44 � 3; Staudinger/Magnus, id., Art. 44 � 10). Here, however, restraint is called for; a broad application of Art. 44 CISG is prohibited in light of its character as an exception provision.
16. In this context, just like regarding [Buyer's] arguments regarding the question of the length of time under Art. 43 CISG, the appeal claims a "complicated set of circumstances with reference to three different legal systems" and "language complications." This consideration does not apply because the appeal, as explained, cannot show a presentation by [Buyer] in the trial court that it required so much time to prepare the notice due to the evaluation of the complicated set of facts and based on language difficulties.
17. After all of this, the Court of Appeals correctly left undecided whether [Buyer] had become the rightful owner of the car, as claimed in the litigation with the legal successor to C.
18. (2) The Court of Appeals further correctly assumed that [Buyer] could have a claim because the French insurance company C., by letter dated May 16, 2000, demanded that [Buyer] turn over the car to it, but the Court also correctly denied existence of a timely notice in this context.
19. a) A legal defect within the meaning of Art. 41 CISG also exists when the item is not free from third party claims. According to its meaning and purpose, Art. 41 CISG is supposed to protect the buyer from the very outset from having to deal with any third party claims concerning the purchased item, the justification of which he cannot immediately check (Achilles, id., Art. 41 � 3; Schwenzer in Schlechtriem/Schwenzer, id., Art. 41 � 9; Staudinger/Magnus, id., Art. 41 � 15). Whether this also applies to claims pulled out of thin air is disputed (see Schwenzer, id., � 10; Staudinger/Magnus, id., � 16 et seq.), but does not require a decision here.
20. b) [Buyer] cannot, however, derive any rights from the demand for the car by C. because it did not notify [Seller] of this in a timely manner. A claim for the turnover of the car was raised against [Buyer], according to the findings of fact, by letter dated May 16, 2000. This took place by a letter of the Dutch attorney of the French insurance company C., which, according to [Buyer]'s allegations, compensated the French leasing company that owned the car that was allegedly stolen in Paris on February 16, 1999. This letter was received by [Buyer] on May 17, 2000. It has not been determined, and is also not referenced by the appeal in [Buyer]'s submissions in the trial court, that [Buyer] contacted [Seller] based on C.'s turnover demand on May 16, 2000, aside from the (later withdrawn) complaint of December 2000. Whether the December 2000 complaint, served on [Seller] on December 14, 2000, satisfied the content requirements of Art. 43(1) CISG and must therefore be viewed as the notice of legal defect can remain undecided; that is so because [Buyer], in any event, did not meet the deadline of Art. 43(1) CISG triggered by the turnover demand of May 2000, as correctly stated by the Court of Appeals. Nearly seven months had elapsed from the turnover demand to the complaint.
21. c) The deadline by which notice had to be given regarding C.'s claim to the vehicle is not to be viewed as complied with by [Buyer] having already informed [Seller] of the police seizure by letter dated October 26, 1999. In that letter, [Buyer] based its claim solely on the police suspicion of theft. In that letter, [Buyer] was not able to notify [Seller] of C.'s third-party claim, which was raised later. It is not enough that [Seller] was generally advised of the alleged theft. The notice of a third party claim is supposed to allow the seller to make contact with the third party and to defend the claim against the buyer. The notice must therefore set forth the name of the third party and inform the seller of the steps taken by the third party (Schwenzer in Schlectriem/Schwenzer, id., Art. 43 � 2). These requirements are not met by the earlier letter of October 26, 1999. The letter never mentioned the claim of a third party that would have created a legal defect within the meaning of Art. 41 CISG; this is clearly based on the fact that such a claim had not been raised against [Buyer] at that time. Additionally, the identity of the claimant was missing. In this context, the statement that the car was "provided to the entitled party" -- which, by the way, was based on an error by [Buyer]'s attorney and did not reflect the facts -- was not enough. It is obvious that [Buyer] does not have an excuse for the untimely notice regarding C.'s turnover demand within the meaning of Art. 44 CISG.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant of the Netherlands is referred to as [Buyer] and Defendant-Appellee of Germany is referred to as [Seller]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM].
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuch [Introductory Act to the BGB].

References: Art. 41
 Art. 41
 Art. 43
 Art. 41
 Art. 43
 Art. 41
 Art. 43
 Art. 43
 Art. 81
 Art. 45
 Art. 49
 Art. 45
 Art. 74
 Art. 41
 Art. 43
 Art. 41
 Art. 43
 Art. 41
 Art. 43
 Art. 43
 Art. 43
 Art. 44
 Art. 44
 Art. 43
 Art. 44
 Art. 43
 Art. 44
 Art. 44
 Art. 44
 Art. 43
 Art. 41
 Art. 41
 Art. 41
 Art. 41
 Art. 41
 Art. 43
 Art. 43
 Art. 43
 Art. 41
 Art. 44