Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950609g1.html
Timestamp: 2019-04-23 08:03:07+00:00

Document:
The [seller], an Italian manufacturer of doors and windows, concluded with the German [buyer] a contract for the sale of 19 windows. The windows were delivered to and installed by the [buyer]. Some of the delivered windows were found to be defective. The [seller] agreed to replace the defective windows with new ones, which were subsequently installed by the [buyer].
The [buyer] withheld payment of part of the price and argued that the outstanding balance was to be set off against the [buyer's] counter-claim for the costs incurred with the replacement of the defective windows.
The court found that the CISG was applicable to the contract, holding that the express reference made by the parties during the court proceedings to the German civil law amounted to a valid choice of law but not to an exclusion of the CISG, since the CISG is an essential part of German law (article 6 CISG).
As the CISG does not contain provisions on set-off, the court held that this question was to be decided in accordance with German law as the governing law chosen by the parties. According to article 387 of the German Civil Code, set-off presupposes the existence of a counter-claim. The existence of the [buyer's] counter-claim, however, had again to be determined according to the CISG. Although the CISG does not contain any explicit provision for reimbursement of replacement costs when the seller has delivered defective goods, the court interpreted article 48(1) CISG to the effect that the seller had to bear the corresponding costs.
Furthermore, although the period of limitation of the applicable German statute of limitations had expired, the court noted that the [buyer's] counter-claim was not time-barred because article 478 of the German Civil Code allows set-off even after the limitation period if the buyer has given timely notice of the defects of the goods, which the buyer had done in this case. Accordingly, the court rejected the [seller's] claim.
The transaction involved a 1991 sale of window elements by an Italian seller to a German buyer. The CISG took effect in Italy on 1 January 1988 and in Germany on 1 January 1991.
Applicability/Agreements to apply Convention: choice of law. The court stated: "[A]n implicit choice of law is deemed to have taken place where the parties assumed, throughout their lawsuit, that a certain legal system applies, especially where they referred to its statutory provisions . . . This happened here; the parties have referred to the provisions of the German Civil Code in the proceedings before the two lower courts. This choice of German law, in turn, leads to the application of the CISG which is part of German law and which has, within its scope of application, priority over the German Civil Code. Indications that the parties have excluded the CISG by their implicit choice of law are neither submitted nor apparent in any other way . . ."
Scope of the Convention: set-off issues. The court stated: "[S]et-off itself is not regulated in the CISG. The requirements and consequences of the set-off can be found in the legal system that is applicable, under the principles of Conflict of Laws, to the principal claim that has been set off . . . As a result of the choice of law due to the trial conduct of the parties, German law applies."
"An explicit basis for a claim for reimbursement of the costs is, however, not contained in the CISG . . .
"But CISG Art. 46(2) provides that if the goods do not conform to the contract, the buyer may require delivery of substitute goods if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under CISG Art. 39 or within a reasonable time thereafter. Pursuant to CISG Art. 46(3), the buyer may require the seller to remedy the lack of conformity by repair if the goods do not conform to the contract, and there is no need to decide whether this is considered a delivery of substituted goods or a repair.
"One can conclude from CISG 48(1) that the seller bears the costs for the delivery of substitute goods for the repair . . . Moreover, according to subparagraphs 1(b) and 2 of CISG Art. 45, the seller must reimburse the buyer for all other damages caused by nonconformity of the first delivery in so far as they cannot be remedied by a delivery of substituted goods or a repair. Those damages include the costs for the exchange of . . . windowpanes by [buyer]. This applies at least where, as in this dispute, the buyer's own performance does not injure the seller's interests. [Seller] did not allege such a scenario . . . ."
Scope of the Convention: Statute of Limitation issues. The court stated: "The CISG does not contain any provisions concerning the limitation of actions. Rather, the applicable provisions are found in the law that applies to the contract . . . here German [domestic] law."
Translation [*] by Alston & Bird LL.P.
[Seller], a manufacturer of windows and doors located in South Tyrol/Italy, asserts a balance of purchase price claim against [buyer] (located in Germany).
[Buyer] ordered 19 window elements altogether from [seller] for the building project of his customer F. The window elements were delivered by [seller] between July 9 and July 19, 1991, and, after that, were installed by [buyer]. On July 5, 1991, [seller] billed [buyer] in the amount of DM [Deutsche Mark] 15,363.80 for the window elements.
After the installation of the window elements by [buyer], it was discovered that a part of the ISO window-panes had defects. Because of [buyer's] complaint, [seller] delivered new window-panes which were installed by [buyer] himself.
[Buyer] paid DM 2,131.20 of the invoice. For the balance of DM 13,232.60, [seller] obtained a court order to pay the debt, which was delivered on February 8, 1993 and to which [buyer] objected in due time. [Seller] then abandoned the action for the amount of DM 724.50 because she acknowledged that the costs for the removal of the defects were justified. After [buyer] paid DM 6,313.94 by check dated February 1, 1993, the parties agreed that the main issue was settled. This claim is for the balance of DM 6,194.16.
[Buyer] set off his claim for the costs of the installation of the replacement window-panes against [seller]'s claim.
The admissible appeal of [buyer] is, in its essential part, legally justified.
I. The U.N. Convention on Contracts for the International Sale of Goods ("CISG"), which took effect in Italy on January 1, 1988 and in Germany on January 1, 1991, applies to the legal relationship of the parties.
The fact that the parties chose German law, as indicated by their behavior in the litigation proceedings (EGBGB [*] Art. 27(2)), is without consequence. Such an implicit choice of law is deemed to have taken place where the parties assumed, throughout their lawsuit, that a certain legal system applies, especially where they referred to its statutory provisions (compare BGH [*] NJW [*] 1991, 1293). This happened here; the parties have referred to the provisions of the BGB [*] in the proceedings before the two lower courts. This choice of German law, in turn, leads to the application of the CISG which is part of German law and which has, within its scope of application, priority over the German Civil Code. Indications that the parties have excluded the CISG by their implicit choice of law are neither submitted nor apparent in any other way (compare Piltz, Internationales Kaufrecht [The International Law of Sales], § 2 ¶¶ 109 et seq.).
II. [Seller's] purchase price claim under CISG Art. 53 (the basis and amount of which is not in dispute between the parties) was voided by way of set-off by [buyer] with a counterclaim of at least an equal amount.
1. The set-off itself is not regulated in the CISG. The requirements and consequences of the set-off can be found in the legal system that is applicable, under the principles of Conflict of Laws, to the principal claim that has been set off (Piltz, supra, § 2 ¶ 148). As a result of the choice of law due to the trial conduct of the parties, German law applies.
2. The counterclaim, which, pursuant to BGB § 387, is necessary for a set-off, is legally justified. [Buyer] is, contrary to the trial court's (the Landgericht) view, entitled to demand the costs and expenses for the exchange of the ISO windows.
a) An explicit basis for a claim for reimbursement of the costs is, however, not contained in the CISG (compare von Caemmerer/Schlechtriem, CISG, Art. 46 ¶ 54 (2d ed.)).
b) But CISG Art. 46(2) provides that if the goods do not conform to the contract, the buyer may require delivery of substitute goods if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under CISG Art. 39 or within a reasonable time thereafter. Pursuant to CISG Art. 46(3), the buyer may require the seller to remedy the lack of conformity by repair if the goods do not conform to the contract. In the case at bar, it is not disputed that the ISO window-panes delivered by [seller] do not conform to the contract; [seller] has agreed to deliver goods that conform to the contract, and there is no need to decide whether this is considered a delivery of substituted goods or a repair.
d) Further, [buyer's] counterclaim, which he set off against [seller's] claim, is not barred by the statute of limitations. The CISG does not contain any provisions concerning the limitation of actions. Rather, the applicable provisions are found in the law that applies to the contract as determined by EGBGB Art. 27 et seq., here German law. Therefore, Vertragsgesetz [*] Art. 3 applies, according to which BGB §§ 477, 478 apply analogously. Pursuant to BGB § 478, even after the expiration of the limitations period, the buyer may refuse to pay the purchase price as far as he may have declared the contract avoided or reduced the purchase price and has given notice of the defective goods within a reasonable time. Here, these requirements are undoubtedly met; the replaced ISO windows did not conform to the contract, and [buyer] immediately gave notice of the fact that the goods did not conform to the contract.
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGH = Bundesgerichtshof, [German Federal Supreme Court]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuch [Introductory Law to the German Civil Code]; NJW = Neue Juristische Wochenschrift [Germany's foremost weekly law journal]; Vertragsgesetz = German implementing statute to the CISG.

References: Art. 46
 Art. 39
 Art. 46
 Art. 45
 Art. 27
 § 2
 Art. 53
 § 2
 § 387
 Art. 46
 Art. 46
 Art. 39
 Art. 46
 Art. 27
 Art. 3
 § 478