Source: http://cisgw3.law.pace.edu/cases/970709g1.html
Timestamp: 2019-04-23 14:03:39+00:00

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An Italian seller, plaintiff, made a series of deliveries of leather goods to a German buyer, defendant. The seller sued the buyer for the total, undiscounted, purchase price and charges for dishonoured cheques. The buyer disputed the amount of the claim, arguing that partial payment had already been made, that two invoices had not been received, and that the goods were defective. The buyer also claimed a set-off, on the grounds that certain goods had not been delivered to its client. The lower court granted the seller's claim and the buyer appealed.
The court dismissed the appeal, finding that the seller's claim for the full purchase price was justified (articles 53 and 62 CISG). Although it was clear by ordinary interpretation that the parties had agreed to a discounted payment arrangement (article 8 CISG), because the buyer had not met the terms of that arrangement, none of the buyer's grounds to reduce the payment owed were acceptable. Moreover, the court stated that the buyer had the obligation to make payment of the purchase price at the seller's place of business and bore the burden of proof that it had been fulfilled (article 57(1)(a) CISG). Whether or not the buyer had received all of the invoices was not significant, since the purchase price had to be paid on the due date without further demand (article 59 CISG). The court found that, as the buyer had not given the seller notice sufficiently specifying the nature of the lack of conformity (article 39 CISG) and had no reasonable excuse for the failure to do so (article 44 CISG), the buyer was not entitled to reduce the purchase price (article 50 CISG). Furthermore, the court held that the buyer had to reimburse the seller for the cost of the dishonoured cheques and stated that payment obligations under article 57 of the CISG also include payment formalities.
The court held as admissible the buyer's claim for set-off because the monetary claims of both parties were subject to the CISG. The claim was dismissed, however, since the seller had no obligation to perform when the buyer did not pay the purchase price (article 80 CISG).
Plaintiff [Seller] is an Italian corporation domiciled in the province of Milan. It produces goods made of leather. Defendant [Buyer] is a limited liability company engaged in commerce and marketing ("Handels- und Marketing-GmbH"). It distributes various kinds of products, inter alia goods made of leather.
[Seller] demands payment for leather goods delivered to [Buyer] as well as banking charges for cheques issued by [Buyer] which had not been cashed.
On 10 January 1994, [Seller] and [Buyer] concluded a "cooperation contract" by virtue of which [Seller] entitled [Buyer] to exclusive distribution in Germany for all goods produced by [Seller] or by a third party upon order by [Seller] in relation to leather cases used for the storage of watches, jewellery and accessories to these products (contract para. 1).
Purchase and resale of these goods should be made by [Buyer] in its own name. According to para. 7(2) of the contract, [Buyer] was allowed to make payment within 90 days after each delivery and receipt of the invoice. Para. 7(3) of the contract contains a provision under which [Seller] grants [Buyer] a discount of 10%, the rate of which should be re-negotiated by 30 June 1994. The prices for resale could be independently fixed by [Buyer] as long as they were on a competitive level. Para. 11(2) of the contract provides that the legal relationship between [Seller] and [Buyer] arising out of their contract should be subject to the law of the Federal Republic of Germany. Additional reference will be made to the content of the contract.
[Seller] has cancelled the contract with immediate effect on 24 September 1996. [Seller] has submitted that [Buyer] owed Lit. (Italian Lira) 167,017,800 from deliveries invoiced between June 1995 and June 1996. The deliveries underlying the invoices had been made in accordance with the contract. [Buyer] had not notified [Seller] of any non-conformities. Save for the three invoices of 29 November 1995 (invoice no. 187 - K 25), 13 February 1996 (invoice no. 9 - K 32) and 27 February 1996 (invoice no. 16 - K 33), the amount of unsettled payment was to be increased by the 10% discount rate. At the time of issuing of the invoices, [Seller] had considered the 10% discount in advance on the assumption that [Buyer] would make due payment.
The invoices concerned by the present proceedings remained unpaid in their entirety, except for a partial payment of Lit. 10,000.
Cheques issued by [Buyer] and handed over to [Seller] by the beginning of 1996 in the amount of Lit 21,472,800 could not be cashed, forcing [Seller] to pay bank charges in the amount of Lit. 343,506. [Buyer] furthermore owed compensation of these bank charges.
[Seller] has requested the Court to order [Buyer] to pay Lit. 167,361,306 and interest in the amount of Lit. 8,362,165 until 30 June 1996 as well as further interest of 15% on Lit. 167,361,306 since 1 July 1996.
[Buyer] has requested the Court to dismiss [Seller]'s action.
[Buyer] has not disputed the deliveries as such under the invoices presented by [Seller]. It however disputes the amount of the invoices.
The increase of 10% in relation to the invoiced amounts was unjustified; para. 7 of the contract did not contain a provision on a discount but meant a quantity rebate.
The amount requested by invoice dated 27 July 1996 (invoice no. 104 - exhibit K 21) in the amount of Lit. 17,429,000 was excessive; [Buyer]'s own bank statement demonstrated that only Lit. 96,860 were still owed.
The amount requested by invoice dated 5 February 1996 (invoice no. 007) had to be reduced by Lit. 790,000 because at least part of the goods had not been in conformity with the contract and had also been put to the disposal of [Seller] (exhibit B 6); on the same grounds a further reduction of Lit. 3,315,500 had to be made.
Moreover, the amount of [Seller]'s claim had to be reduced by Lit. 13,412,700 (exhibit B 3), Lit. 251,200 (exhibit B 4) and Lit. 1,073,110 (exhibit B 5). These formed amounts invoiced by [Buyer] for materials delivered to [Seller] for which the latter had not paid.
Furthermore, [Seller] failed to consider that another payment had been made by [Buyer] in the amount of Lit. 3,000,000.
The invoices no. 009 (exhibit K 32) and no. 016 (exhibit K 33) had never been received by [Buyer].
Finally, [Buyer] has asserted a breach of the exclusivity clause by [Seller] on the basis that the latter had made deliveries to other leather retailers in Munich.
[Seller] was entitled to claim the purchase price for the delivered leather goods according to � 433(2) BGB [*].
The defenses raised by [Buyer] in terms of the amount of the sum claimed were unfounded. The increase of 10% concerning the invoiced sum could not be challenged because para. 3(3) of the contract clearly provided for a discount. [Buyer] did not establish that it had made any payments other than the sum of Lit 10,000 correctly considered by [Seller]. Any invoices in relation to which [Buyer] relied on non-receipt had then been delivered and were to be paid.
Insofar as [Buyer] argued that it was entitled to reductions following non-conformity of the goods it did not sufficiently prove the existence of any lacks of quality. The alleged counterclaims were unfounded; [Buyer]'s invoices related to deliveries of material which was intended for the performance of the orders. Since, however, these orders had not been placed, [Buyer] could not be entitled to demand settlement of the invoices.
[Buyer]'s further allegation that [Seller] had breached [Buyer]'s right to exclusive distribution was made too late and was therefore precluded from judicial consideration.
Any lacks of conformity in relation to the production of the leather goods had been notified to [Seller] mostly orally; the fact that [Seller] delivered defective goods was further proved by written complaints raised by customers of [Buyer]. Because non-conforming deliveries had been made, existing orders were cancelled and follow-on orders were not placed. [Buyer] suffered damages in the amount of DM 795,500, which it made subject to a set-off against [Seller]'s claims. [Buyer] was entitled to damages also on the basis that [Seller] had breached its right to exclusive distribution.
[Buyer] requests the Court to repeal the judgment of the District Court (Landgericht) München I, case docket 17 HK0 1 80019/96, pronounced on 19 December 1996, and to dismiss [Seller]'s action.
[Seller] requests the Court to dismiss [Buyer]'s appeal.
It had not delivered non-conforming goods and that there had never been any complaints about non-conformity before the present litigation. Any possible complaints by customers of [Buyer] had not been forwarded to [Seller].
Insofar as [Buyer] asserts cancellations of orders and the absence of follow-on orders, this could not have been the result of [Seller] having purportedly delivered leather goods of bad quality. [Seller] further contests that other retailers were supplied during the existence of the cooperation contract.
Supplementing the factual basis, reference is made to the content of the memoranda submitted by the parties and their exhibits, to the factual basis established in First Instance and the further content of the file.
[Buyer]'s appeal is admissible but unfounded.
[Seller] is entitled to claim payment of the undisputedly delivered leather goods. [Buyer]'s defenses against the invoiced amounts are unfounded; [Buyer] is further not entitled to the counterclaim on which it relied as a set-off. [Buyer] is also not entitled to damages claims against [Seller] for alleged non-conformities.
1. The legal relationship between [Seller] and [Buyer] arising out of the exclusive distribution contract concluded on 10 January 1994 must be considered under German law. The parties had made a choice of law to that effect in para. 11 of the contract. The individual contracts concluded between [Seller] and [Buyer] under the framework contract fall within the scope of the CISG, being part of German law. The parties -- both having their places of business in a Contracting State -- neither expressly nor impliedly excluded the application of the CISG. Circumstances which could indicate such derogation or the intent to apply the same substantive law to the framework contract and the individual sales contracts have neither been submitted nor are any of them apparent.
2. [Seller]'s claim for payment of the purchase price is well-founded according to Arts. 53, 62 CISG in conjunction with the agreement of 10 January 1994. It is undisputed that the claim put forward by [Seller] relates to actual deliveries to [Buyer] which [Seller] invoiced in accordance with para. 7 of the contract and which [Buyer] has failed to pay.
The defenses raised by [Buyer] against [Seller]'s invoices are unfounded.
a) The increase of the sums invoiced in the first place by the 10% discount -- except for invoices nos. 187, 9 and 16 (exhibits K 25, K 32 and K 33) -- is justified because the invoices in question remained unpaid by [Buyer] within the period for payment of 90 days. The Court of First Instance properly considered that under para. 7(3) of the contract, a discount would be granted only if payment was made within the time stated.
The objective content of the clause is unambiguous, its overall content and the particular wording "discount" cannot raise any doubts that the parties intended to reach an agreement on a discount in accordance with a reasonable understanding which must be applied under Art. 8 CISG. This conclusion is further supported by the fact that there are no facts which would typically indicate the existence of a quantity rebate -- namely, provision of a fixed number of orders within a fixed period of time.
b) [Buyer]'s argument that it made partial payment of invoice no. 104 (exhibit K 21) and that any sum awarded to [Seller] had to be reduced accordingly is unfounded.
Pursuant to Art. 57(1)(a) CISG, the purchase price is a debt which the buyer must ensure to be discharged at the seller's domicile ("Bringschuld"); in case of cashless payment by bank transfer, this duty is performed only as soon as the amount is credited to the seller's account. [Seller] has contested that any such sum had been credited to its account. [Buyer] has not sufficiently brought proof for having performed payment.
c) A further reduction of the sum awarded to [Seller] by Lit. 3,000,000 is unfounded, as well. Again, [Buyer] failed to prove that it had effected payment of this sum.
In accordance with Art. 57 CISG, [Buyer] bore the risk and the costs necessary to discharge the purchase price at the place of business of the Italian seller. However, it is established without objections that a loss of the money occurred during transfer, which had been sent as cash to [Seller] by UPS.
d) [Buyer]'s argument in defense that it had not received the deliveries underlying invoices nos. 009 and 0016 (exhibits K 32 and K 33) do not lead to a reduction of the sum to be awarded to [Seller]. Art. 59 CISG provides that the buyer must pay the price on the date fixed by or determinable from the contract and this Convention. Under the CISG, no reminder or other formal request needs to be issued in order to effect maturity of an obligation to pay. Insofar as [Buyer] had not been actually aware at that date of the exact amount because an invoice had not yet been received, the obligation to settle the invoices in question became mature at the time of their presentation within the present proceedings, at the latest.
e) A right to reduce the purchase price by the amount of Lit 790,000 on the grounds of partial non-conformity of the delivery made under the invoice dated 5 February 1996 (K 31) is not existent in favor of [Buyer]; the requirements for such right to reduction pursuant to Art. 50 CISG, namely, a proper notification of non-conformity (Art. 39 CISG) or a reasonable justification for the failure to notify (Art. 44 CISG), are not fulfilled.
In this respect, [Buyer] relies on the letter dated 18 February 1996 (B 6) which contains the statement "... this item has not been manufactured in accordance with our specification and cannot be surrendered to the customer ...". It does not satisfy the requirements of a proper notification of non-conformity under Art. 39 CISG because the nature of the non-conformity has not been sufficiently specified and because [Seller] was not informed in a way that it could know how to react. Pursuant to Art. 39(1) CISG, [Buyer] has lost the right to rely on a possible non-conformity failing a proper notification.
f) Also, [Buyer] cannot exercise a right to reduce the purchase price in the amount of DM 1,250.
Again, no proper notification of non-conformity has been made in terms of Art. 39 CISG and in relation to the goods of Company F. The statement contained in [Buyer]'s letter of 3 August 1995 -- "reduction of invoice by our customer, because 250 pieces have been very poorly embossed" (exhibit B 2) -- does not specify the nature of the lack of conformity; furthermore, [Buyer] failed to make any substantiated submission saying that notification of the alleged non-conformity has been given within the appropriate time after it had discovered it.
g) [Buyer] is furthermore not entitled to rely on reductions of the sum claimed by [Seller] in the amounts of Lit. 13,412,700 (invoice of 10 May 1995, B 3), Lit. 251,200 (invoice of 19 January 1995, B 4) and Lit. 1,073,100 (B 5). The invoices B 3 and B 4 undisputedly relate to deliveries of material by [Buyer] to [Seller], which the former made in expectation of a future order by Company I. for the manufacture of cases for watches. However, an order by Company I. has not been placed and, consequently, no use has been made of the material according to the uncontested submissions by [Seller].
Given that delivery of the said material lay wholly within the sphere of risk of [Buyer], which was in expectation of orders, and because no breach of contract by [Seller] can be assumed (see below 4.b), there might be a claim for restitution of the material but, in any event, no claim for payment.
[Buyer] has failed to submit any reasoning in relation to the invoice dated 13 December 1995.
3. [Seller] is entitled to claim payment of the bank charges for uncashed cheques in the amount of Lit. 343,506.
The claim follows from Art. 57 CISG. As has been set out, [Buyer] has to ensure performance of its own obligation to pay which includes any payment formalities; insofar as costs are incurred due to the situation that cheques were submitted for performance but which could not be cashed, then these costs must be borne by [Buyer].
4. [Seller]'s claim is not mitigated by any set-off by [Buyer] with alleged counterclaims.
A set-off is admissible when the opposing claims by [Seller] and [Buyer] are all aimed at payment of money and they arise out of the contractual relationship governed by the CISG (Staudinger/Magnus, 1994, Art. 4 para. 46).
However, [Buyer]'s counterclaim is unfounded; claims for damages in accordance with Arts. 74-77 CISG following non-delivery of ordered goods, defective delivery, or losses incurred by [Buyer] as a consequence of that do not exist.
a) [Buyer] cannot rely on a damages claim on the basis that [Seller] had not performed the order placed by [Buyer] for its customer M. in Augsburg, Germany.
The claim under Arts. 45, 74 et seq. CISG is excluded according to Art. 80 CISG since [Seller] has justified its non-performance by stating that it was under no obligation to perform further orders on the basis of [Buyer] having been in arrears with payment.
b) Furthermore, [Buyer] cannot rely on claims for damages by arguing that Company I. did not place one order -- respectively, follow-on orders -- for the manufacture of cases for watches.
The "small cases" delivered by [Seller] had been accepted by I.; this can be concluded from the correspondence submitted by [Buyer], which disproves that any defective previous delivery had been the cause for the non-placement of orders. Having submitted specifications for changes of the cases and having requested sample cases, Company I. indicated that it was apparently interested in future business transactions. According to [Seller]'s uncontested submission, a contract was not ultimately concluded because the leather bought by [Buyer] and surrendered to [Seller] for production of the cases did not conform with the high expectations of Company I., as can be seen in its letter of 22 May 1995.
Since it is undisputed that [Buyer] bore the procurement risk in relation to that material, [Seller] will not be responsible for the fact that the orders in question were not placed; the particular impediment was outside of its sphere of control. Furthermore, [Buyer] itself had stated in the first place that the cases delivered by [Seller] were properly manufactured. [Buyer] did not challenge [Seller]'s submissions that the expected contract conclusion finally failed due to excessive expectations by Company I.
c) Finally, a claim for damages in favor of [Buyer] does not follow from the fact that the Sultan of Brunei cancelled an order, which was allegedly already placed, concerning the delivery of 2,000 cases for lack of quality.
[Seller] has contested the existence of an order placed at [Buyer] for manufacture of 2,000 cases. [Buyer] did not present any proof of the alleged placement of such order. Therefore, [Buyer] is not entitled to exercise the remedies under Arts. 45 et seq. CISG following non-performance of contractual obligations.
Insofar as [Seller] -- in preparation of a possible future order -- was requested to manufacture two sample items, [Buyer] neither proved any lack of conformity of these cases (Art. 35 CISG) nor proved to have made a proper notice of non-conformity.
d) Insofar as [Buyer] has made submissions relating to complaints by its own customers, e.g., C. Service/Hong Kong and R&R S./Singen, these submissions have no bearing upon this dispute. First, it is undisputedly established that these complaints have not been forwarded to [Seller]. Second, neither has [Buyer] argued that it made the respective notice to [Seller], nor is it otherwise apparent which particular claims it wants to establish on these facts.
e) [Buyer] has not proved a breach of the cooperation contract of 10 January 1994 by [Seller]. The cooperation contract was terminated by virtue of [Seller]'s immediate cancellation of 24 September 1996. A delivery to customer K. has undisputedly been made on 19 November 1996. However, [Buyer] has not established before the Court that [Seller] had made deliveries to other customers in Germany during the existence of the contract.
5. The ancillary decisions are based on �� 97(1), 708 No. 10, 711, 546(2) ZPO [*].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Italy is referred to as [Seller] and Defendant of Germany is referred to as [Buyer]. Amounts in the former currency of Italy (Italian Lira) are indicated as [Lit.]; 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]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

References: Art. 8
 Art. 57
 Art. 57
 Art. 59
 Art. 50
 Art. 39
 Art. 39
 Art. 39
 Art. 57
 Art. 4
 Art. 80