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Automobile case

Oberlandesgericht Naumburg 27 April 1999

Translation[*]by Jarno Vanto[**]

Translation edited by Ruth M. Janal[***]

GROUNDS FOR THE DECISION

The claim is admissible in terms of its form and the time it was submitted. The [seller]'sappeal was not successful. The [seller] is not entitled to damages according to Art. 75 inconnection with Arts. 64(1)(b), 63 CISG.

The CISG is applicable to the dispute. According to Article 1(1)(a) of the CISG, theConvention is applicable when the parties have their places of business in [different]Contracting States. Both Germany and Denmark are Contracting States. Therefore the

CISG takes precedence over the German Civil Code.

The [seller] cannot recover the difference of Dkr[Danish krona] 16,800 between thecontract price and the price it reached in its substitute transaction, because the [buyer]rightfully declared the contract avoided under Art. 49(1)(b) CISG.

1. In [buyer]'s written communication of 26 January 1997, the [buyer] had issued anoffer to the [seller] (Art. 14(1) CISG). The time of delivery was set at "no later than 15March 1997". On 29 January 1997, the [seller] accepted this offer (Art. 18(1), sentenceone, CISG) even though with regard to the time of the delivery the [seller] had given adifferent delivery date. The time of delivery was named by the [seller] as "April, time ofdelivery remains reserved".

An acceptance that contains alterations is generally regarded as a counter-offer thatconstitutes a rejection of the offer (Art. 19(1) CISG). However, this reply did notmaterially alter the terms of the offer, especially since it did not regard the goods sold ["()da die Abweichung die Bedingungen des Angebots aber nicht wesentlich ndert,insbesondere der Gegenstand des Kaufvertrages dadurch nicht betroffen wird()]. Itwould therefore have been up to the [buyer] to object to the reply (Art. 19(2) CISG).Such an objection has undisputedly not taken place here. The alteration has thusbecame part of the contract. On the other hand, the alteration does not bring forward afixed date for delivery and because the stipulated delivery period was qualified as"reserved", the date is not determinable from the contract (Art. 33 (a) CISG). Thus thedelivery was to be effected within a reasonable time after the conclusion of the contract

(Art. 33(c) CISG). The contract was concluded with the receipt of [seller]'s acceptanceon 29 January 1997. While the [buyer]'s request for delivery no later than 15 March 1997did not become part of the contract, it has to be considered in determining thereasonable time for performance under Art. 33(c) CISG. Because it was clearlyimportant to the [buyer] that the delivery take place within this time frame (29 January1997 - 15 March 1997), the [seller] would have had to deliver by that date in order tohave delivered within a reasonable time.

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It is irrelevant whether delivery delays of two to four weeks are common in theinternational sale of vehicles. When determining a reasonable time for delivery, it is ofthe essence to consider the statements of the parties and the concrete contractualcircumstances. A delivery by 15 May or 3 June would no longer have been reasonable.

2. The rights of the buyer are determined on the basis of Art. 45 et seq. of the CISG.

The buyer may declare the contract avoided in case of a non-delivery when the sellerdoes not deliver the goods within the additional time frame set by the buyer (Art. 49(1)(b)CISG). While Article 47(1) only states that the buyer may fix an additional period of timeof reasonable length for the performance by the seller, the setting of the time frame is aprerequisite for avoiding the contract. (Staudinger / Magnus BGB, 13. Bearbeitung -1994 - Art. 47 CISG, margin note 2). According to the hearing of evidence, the [buyer],represented by witness R., on 16 March 1997 and on 21 March 1997 orally fixed anadditional period of time for performance by the [seller] until 24 March 1997 by the latest.

The testimony of the witness is credible. It does not speak against the witnesses'credibility that he is related to the director of [buyer]'s firm and that he may have aneconomic interest in the case as an employee. The witness unambiguously confirmed

that he called the [seller]'s managing director on the dates named and requesteddelivery within the period given. As to the fact that 16 March 1997 was a Sunday, heconvincingly explained how he managed to reach the [seller]'s manager on the phone.The Court does not need to decide whether the additional period of time set by the[buyer] until 24 March 1997 was too short, as in that instance a reasonable period oftime would have started to run. Such a reasonable period of time would have elapsed atthe latest by 11 April 1997, the day on which the [buyer] sent a further communication tothe [seller].

The hearing of evidence confirmed that the [buyer] sent this further writtencommunication on 11 April 1997. While Witness R could not provide information as tothe concrete content of the communication and whether it had been sent on 11 April1997, Witness K credibly testified that the letter was sent to the [seller] on that very day.She convincingly explained why she remembered facts that happened over two yearsago. She further testified that according to [buyer]'s post outbox records the saiddocuments had in fact been sent on that day. There is no reason to doubt the credibilityof Witness K. The fact that she is employed by the [buyer] casts no shadow on itscredibility. In its written communication of 11 April 1997, the [buyer] declared the contractavoided (Art. 49(1) CISG). It is irrelevant whether the [seller] received this letter.Contrary to 130 of the German Civil Code, the buyer only needs to prove the sending,not the arrival of a communication under Art. 27 CISG. The sender may rely on theoriginal content of its communication as long as it sent the notice by means appropriatein the circumstances, even if it reaches the addressee too late, altered or not at all(Staudinger a.a.O. Art. 27 CISG, margin note 20). Because the [buyer] validly declared

the contract avoided, the [seller] is not entitled to reimbursement of its losses. A claim fordamages under Art. 74 et seq. CISG requires a breach of contract by the other party (v.Caemmerer / Schlechtriem, 2d ed., Art. 74, margin note 26). This, in any case, has notbeen committed by the [buyer], as it rightfully declared the contract avoided.

The appeal thus was denied.

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The division of expenses is determined on the basis of 97 of the German Code of CivilProcedure (ZPO).

The interim enforceability of the judgment is based on the Code of Civil Procedure.

Mixing Machines case

Supreme Court ( Legfelsbb Birsg) of Hungary

2000 [no exact date provided] [Legf. Bir. Gfl.30.299/2000]

Translation[*]by Tams Szabados[**]

Edited by Andrea Vincze[***]

In its judgment, the Court of First Instance obliged the Defendant [Buyer] to pay to thePlaintiff [Seller], within fifteen days, Deutsche Mark [DM] 171,926 with 6% interest for theperiod between 1 November 1995 and the actual payment, as well as the costs of theproceedings. According to the facts of the case, after the [Seller]'s offer was made on 15July 1994, the modified offer of 1 August 1995 was accepted by the [Buyer].Consequently, a delivery contract in foreign commerce was concluded between theparties. The parties did not determine the exact time of delivery, but the offer of 15 July1994 indicates a six-month delivery period calculated from clarification of technical andprice issues. The price in the [Seller]'s offer of 1 August 1995, which was accepted bythe [Buyer] without a formal confirmation, was DM 804,828 with a deadline for payment

determined in the invoice. On 24 February 1995, the [Seller] delivered the orderedmachine for the [Buyer] who took it over but did not pay DM 124,707 from the purchaseprice. Moreover, neither was DM 11,692.98 as the price of the mixing machine paid off.Additionally, the [Seller] obtained by assignment a receivable of another companyaounting to DM 47,218.73 against the [Buyer]. The total amount of the latter is DM171,926.

The Court of First Instance rejected the [Buyer]'s arguments, according to which a delayon the part of the [Seller] resulted in significant damage because of the devaluation ofthe Hungarian forint [HuF] in March 1995. The [Buyer] concluded the contract with the[Seller] on behalf of a third party, and it is not established that the [Buyer] did not receivethe consideration specified in the invoice from its principal. Furthermore, a claim for

damages cannot be enforced also because in February 1994 when the machines weretaken over, the [Buyer] did not did not make a statement for reservation of its rights.

The [Buyer] appealed against the judgment asking for its partial alteration and rejectionof the [Seller] claim with respect to the purchase price of DM 124,707. The [Buyer]alleged that, compared to the offer of 15 July 1994, the [Seller] performed its obligationwith delay, because having accepted the six-month deadline, the performance on 24February 1995 was late. That is, the [Seller]'s performance did not conform to thecontract. Therefore, the change of the exchange rate in March 1995 affected the [Buyer]

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unfavorably, since the purchase price provided was insufficient to pay off the purchaseprice agreed upon with the [Seller].

In its cross-appeal, the [Seller] asked for the approval of the judgment of the FirstInstance.

HOLDING

The [Buyer]'s appeal is unfounded.

The Court of First Instance ruled correctly that, based on Section 25 of the PrivateInternational Law Act (Law Decree 13 of 1979), the seller's law is applicable, that is, inthe instant case the UN Convention on Contracts for the International Sale of Goods of1980 (CISG) promulgated in Hungary by Law Decree 20 of 1987.

Pursuant to Article 33 CISG, the seller must deliver the goods, if a date is fixed by ordeterminable from the contract, on that date; if a period of time is fixed by or

determinable from the contract, at any time within that period unless circumstancesindicate that the buyer is to choose a date; or in any other case, within a reasonable timeafter the conclusion of the contract. The default of the [Seller], i.e., non-conforming andlate performance by [Seller], should have been proved by the [Buyer] [Section 164(1)Civil Procedure Act].

Based on the available documents, it can be established that the performance of thecontract was undertaken by the [Seller] until "approx." the end of 1995 in the orderconfirmation of 1 August 1994 which was accepted by the [Buyer] through impliedconduct (Article 18 CISG). Within the meaning of Article 33 CISG, such an indication canbe considered neither as a fixed date nor a fixed period of time from which the sellercould not depart in a way to be still able to perform within a reasonable time after such

date of period of time. The [Seller] performed its contractual obligation on 22 February1995, when the [Buyer] took over the machines without any objection or reservation ofany right. The fact that the [Buyer] did not refer to delay on delivery (see deliveryminutes of 22 February 1995) and that it did not demand performance in writing inJanuary 1995, shows that the [Seller]'s performance on 22 February 1995 wasconsidered by the [Buyer] as having been carried out within a reasonable time andconforming to the contract, based on the order confirmation of 1 August 1994. Incontrast with the [Buyer]'s view, commencement of the approximately six-month periodindicated in the offer made on 15 July 1994 depended on the date of the clarifying of alltechical and price issues. The parties agreed on the price according to the orderconfirmation of 1 August 1994; thus the approx. six months can by no means becalculated from 15 July 1994.

Pursuant to Article 74 CISG, damages may not exceed the loss which the party inbreach foresaw or ought to have foreseen at the time of the conclusion of the contract, inthe light of the facts and matters of which he then knew or ought to have known, as apossible consequence of the breach of contract. The parties determined the purchaseprice in DM. Unless otherwise agreed/provided for, the [Seller] did not have to expectthat the DM exchange rate might develop unfavorably for the [Buyer], therefore, the[Buyer] could not claim damages deriving from the latter even if late performance is

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proved. In addition, the [Buyer] also failed to show the exact amount of the allegeddamage in detail.

The [Buyer] did not dispute that the [Seller] had issued its invoices on the datesindicated in the lawsuit and that those had been taken over by the [Buyer]. If the [Buyer]suffered damages due to fluctuation of the exchange rate, the [Buyer] must settle this

with its principal provided that the conditions for such settlement are fulfilled.Consequently, as shown in detail above, the [Buyer] was not entitled to retain DM124,707 from the purchase price against the [Seller].

With regard to the merits above, the unchallenged part of the judgment of the Court ofFirst Instance remains unaffected, and its challenged part was approved by the Court ofSecond Instance based on section 253(2) of the Civil Procedure Act.

Furniture case

District Court (Landgericht) Mnchen

6 April 2000 [12 HKO 4174/99]

Translation[*]by Stefan Kuhm[**]

Translation edited by Ruth M. Janal[***]

JUDGMENT

In consideration of the legal dispute arisen out of a claim for payment between the[seller] as Plaintiff v. [buyer] as Defendant, the 12th Commercial Chamber of the DistrictCourt (Landgericht) Mnchen I, Presiding Judge Dr. Bachmann and Commercial JudgesDr. Bauer and Saur, rules as follows with regard to the Court's hearing of 3 February2000:

1. The [buyer] is directed to pay [seller] the principal amount of DM[DeutscheMark]15,729.70 plus accrued interest of 5% since 27 February 1998.

2. [Seller]'s claim is dismissed in all other respects.3. The costs of these legal proceedings shall be borne 2/5 by [seller] and 3/5 by

[buyer].

4. Claims by the [Seller] are preliminarily enforceable against the provisionof DM18,750 as security deposit. Claims by the [Buyer] are preliminarilyenforceable without provision of a security deposit. [Seller] may prevent thecommencement of enforcement proceedings by [buyer] against provisionof DM900 as security deposit, unless [buyer] provides for a security deposit inthe same amount before she commences to enforce its claims under this

judgment.

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FACTS OF THE CASE

[Summary of undisputed facts]

[Seller] delivered to [buyer] furniture on several occasions between 1995 and 1998.[Seller] claims payment of the purchase price for delivered furniture as further specifiedin two invoices.

[Seller's pleading]

After [seller] has already reduced the amount claimed for in an amount of DM2,000, itasks the Court to direct [buyer] to pay [seller] the principal amount of DM24,572.18 andaccrued interest of 12% on DM2,900.30 since 19 December 1997 and on DM21,671.88since 23 December 1997.

[Buyer's pleading and submission]

[Buyer] asks the Court to dismiss [seller]'s action. Additionally, within this legal action,[buyer] sets-off against [seller]'s claim several claims for damages under separate salescontracts concerning the delivery of furniture.

[References made by the Court]

As to all other respects, the Court refers to the parties' submissions, particulars and theirschedules.

REASONING OF THE COURT

[Seller]'s legal action is admissible and mainly justified. The parties are in dispute as to

the basis and amount of [seller]'s claim for payment of the purchase price. [Buyer] isentitled to claim damages in an overall amount ofDM8,842.48. Therefore, [seller]'s claimhas been reduced to DM15,729.70 due to [buyer]'s declared set-off with its claimeddamages.

[Jurisdiction of the Court over buyer's set-off claims]

It is irrelevant that the declared set-off by [buyer] does not stem from the same salescontract and is not based on the equivalent circumstances as [seller]'s claim within theseproceedings. This fact does not lead to the lack of jurisdiction and competence of theCourt to hear this action. The provisions set out in the EuGV[*]have only enshrinedthe principle of necessary connection with regard to a defendant's counterclaim. The set-

off declared by [buyer] is not directly regulated pursuant to any provision as to thequestion whether a German court or any foreign court may have jurisdiction to hearthese proceedings. Italian law is applicable in relation to this set-off (Art. 32 Par. 1 No. 4EGBGB[*]) because [seller]'s claim for payment of the purchase price is also governedby Italian law (Art. 28 Par. 1, 2 EGBGB[*]).

All pre-requisites under Art. 1243 Par. 1 Cc[*]are complied with, hence the Court hasthe power to decide upon the counterclaim too. [Seller] has not objected to the facts

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underlying the counterclaim by bringing forward as necessary [seller]'s own submissionof facts. [Seller] only raised legal objections.

[Specification of buyer's counterclaim as set-off]

[Buyer] has a counterclaim for damages against the [seller], because [seller] did notdeliver the furniture at the date specified in the sales contract and such a non-performance is deemed a fundamental breach of contract (Art. 49 CISG). For thisreason, the [buyer] was entitled to declare the avoidance of the sales contract here inquestion (seeArts. 33a, 49(1)(a), 74, 75 CISG). The [seller] was not entitled to suspendthe delivery of the sold furniture (Art. 71 CISG). After the parties had entered into theirsales contract, there were no indications brought forward that [buyer] would not fulfil itsduty to pay the purchase price (Art. 71(1) CISG). Although [buyer] actually had itscheque stopped, [seller] was not entitled to reschedule the delivery of the furniture.

[Reason for buyer's right to suspend payment]

[Buyer] had the right to stop payment of its cheque and to temporarily refuse thepayment of the purchase price (Art. 71(1)(b) CISG), because [seller] did not deliverfurniture in a material mix and combination in compliance with the terms set out in theirsales contract. Therefore, [seller] did not meet its duty to deliver fully compliant goods(Art. 35(1) CISG).

[Parties' agreement as to a reduction of the purchase price ]

Thereafter, the parties agreed to a reduction of the purchase price. As a result, [buyer]proceeded to perform its duty to pay the purchase price pursuant to Art. 71(3) secondclause, in that it had a cheque delivered to [seller] drawn upon an amount reflecting thereduced purchase price. [Seller], however, was not entitled to postpone the delivery of

the sold furniture unilaterally until that cheque was credited to its bank account. It wasthe customary practice of the parties that, on the one side, [buyer] had alwaysdischarged its payment liability in advance by providing the respective carrier of thegoods with a cheque. On the other side, [seller] usually delivered the sold furniture priorto the crediting of that cheque. [Seller] was not empowered to unilaterally alter such atrading practice between the parties by declaring the delivery of the furniture dependenton the successful crediting of the cheque to its account. Further, [buyer] was not even indefault with regard to its payment duty. Particularly, there were not any additionalcaveats as to the [buyer]'s creditworthiness, which might have justified such anextraordinary alteration of their trading practice. There was no indication whatsoever thatthe [buyer] lacked financial standing.

[Claim for damages due to buyer's loss through buyer's replacement transaction ]Since [buyer] bought furniture in replacement of the originally sold goods after [buyer]'sdeclaration of avoidance of the sales contract, [buyer] has the right to claim damages.The compensation for the damages [buyer] suffered encompasses the differencebetween the purchase price under the sales contract concluded with the [seller] and thepurchase price that [buyer] had to pay under the second sales contract for replacementof the furniture. Thereby, it is paramount that [buyer] was not in arrears to pay the

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purchase price under the sales contract here in question (Art. 75 CISG). This pecuniarydifference amounts to DM6,762 in damages.

[Failure to establish claim for damages due to loss of profit]

Nevertheless, [buyer] cannot claim compensation for loss of profit because it did notincur such a loss. The damages that occurred merely comprise the price of thesubstitute furniture which was more expensive than under the parties' original salescontract. This difference in the price level was mainly caused by the higher acquisitionand production costs to get the equivalent furniture in replacement of the goodsoriginally purchased from the [seller]. [Buyer] was particularly obliged to seek such areplacement in order to meet [buyer]'s delivery duties under re-sale contracts with[buyer]'s customer. [Buyer]'s customer paid the whole purchase price agreed to, so that[buyer] did not suffer any loss of profit. If [seller] paid damages as claimed for in anamount of DM10,962, [buyer] would receive an aggregate amount of DM21,700including the additionally received purchase price under its re-sale contractof DM10,378 with the aforementioned customer. This amount might then be opposed toproduction costs of DM13,300. Thereby, [buyer] would attain a profit of DM8,400

although it would have only made a profit of DM4,200 if the sales contract in questionhad been satisfactorily performed by [seller]. In consideration of this difference, one hasto appreciate that the [buyer]'s claim for damages is inflated in an amount of DM4,200.

[Buyer's right to set off with another counterclaim for damages]

[Buyer] is authorized to set-off another outstanding claim against the [seller]'s claim in anamount of DM595. This amount is based on the direct delivery of a defective wardrobeto [buyer]'s customer, i.e., the firm Katharina Rausch Interior Decoration.

[Buyer's notice of lack of compliance of the goods]

[Buyer] gave notice of the lack of compliance of the delivered goods within reasonabletime (Art. 49(1) CISG). In this case, there was a defect of fabrication or material whichwent fundamentally beyond the defect initially reprimanded by [buyer]'s customer, i.e.,protrusion of an edge of the respective furniture. For this reason, this material orproduction failure cannot be deemed a pure consequence of the aforementionedprotrusion. In its note of 27 June 1997, [Buyer] gave timely notice to [seller] about thelack of conformity. It has not been disputed by the parties that the wardrobe had beenalready been previously collected from the [buyer]'s customer by a forwarding agentacting on behalf of [seller]. [Buyer] notified [seller] in [buyer]'s letter of 27 June 1997 that[buyer] was not able to repair this wardrobe on its own. Thereafter, a handwritten notewas added restating the notification of the successful repair of this piece of furniture by a

repairer acting on [buyer]'s order and behalf. The Court concludes from that note the factthat [buyer] and [seller] entered into a corresponding agreement about a subsequentrepair of that wardrobe; a matter of fact to which [seller] has not objected during theproceeding.

[Buyer's claim for costs of repair]

Under Art. 45(1)(b) CISG, [buyer] is at least entitled to claim compensation for [buyer]'sexpenses to have that wardrobe repaired, since this is one of the admissible positions of

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claimed damages. In particular, [buyer] could have declared the avoidance of the salescontract or demanded repair of the defect by the [seller], which could have been more ofa hardship for the [seller]. In fact, the subsequent recovery of their sales contract mightthen have led to much higher costs for [seller] than the reparation of the wardrobe at theplace of delivery.

[Buyer's right to set off with buyer's claim under a debiting note ]

[Buyer] has additionally the right to set-off a claim of DM1,485.48 under [buyer]'sdebiting note of 5 July 1995 against [seller]'s claim for payment of the purchase price.[Seller] has denied neither the existence nor the amount of [buyer]'s claim, but solelyargues that [seller] had credited [buyer]'s account with the respective amount andassigned the sum. However, the [seller] failed to submit facts to prove this assertion; inparticular, [seller] has not submitted any receipt for such a transfer of this amount ofmoney. [Seller] would all the more have been obliged to give such details and facts,because [seller] submitted crediting note states differing amounts and "Com. No." incomparison to [buyer]'s debiting note.

[No claim for loss of profits with regard to another re-sale contract ]

The [buyer] may not recover damages from the sales contract regarding the goods to bedelivered to [buyer]'s customer XXX & Partner. The delivery date named in the [buyer]'sorder, namely the end of the 27th calendar week, was not agreed between the [buyer]and the [seller]. The contract was not formed -- according to trade usage and the parties'practices -- before the confirmation of order was sent to the [buyer]. Any priorconfirmations of the delivery time stipulated by the [buyer]'s offer are consequently not tobe considered binding. The confirmation of order, however, named 20 September 1997as the date of dispatch and therefore materially differed from the [buyer]'s offer. [Seller]thus made a new offer [counter-offer] as to the terms of entering into a sales contract(seeSec. 150 Par. 2 BGB[*]), which [buyer] did not object to, but solely asked [seller] fora confirmation of 3 July 1997 as the agreed date of taking delivery of the goods.However, [buyer] did not have the right to ask for such a confirmation, as no contracthad as yet been concluded. By holding on to the order and continuously requesting the[seller] to effect an expeditious delivery, the [buyer] concurrently and implicitly acceptedthe [seller]'s offer. For this reason, [buyer] accepted in particular to enter into a salescontract based on distinguished terms concerning the date for delivery of the goods.[Buyer] bore the duty to refuse [seller]'s new offer after [seller] had not confirmed theprior date for the delivery of the goods which [buyer] requested. Since the [buyer] heldon to [seller]'s delivery obligation, the contract was formed with the content of [seller]'sconfirmation of order. Hence, [seller] was not under any duty to effect delivery of thegoods before 20 September 1997.

[No claims for damages due to lack of declaration of avoidance of contract ]

With regard to the order for [buyer]'s customer Interior Decoration Store XXX, [buyer]also cannot claim damages. [Buyer] claims compensation for loss of profit. This is a losscaused by culpable delay; that is not "ancillary damage", but damages for non-performance. [Buyer] suffered a loss of profit because its customer cancelled a contractwith the [buyer]. However, [buyer] was only in the position to claim compensation forsuch a loss incurred after [buyer] had declared the avoidance of its sales contract with

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[seller]. But, [buyer] has yet not declared the avoidance of that sales contract. [Buyer] isnot entitled to claim restitution of the already paid purchase price as well ascompensation for an incurred loss of profit in respect of a non-performed re-sale of theacquired goods solely based on Art. 45(1)(b) CISG. [Buyer] was obliged to first declarethe avoidance of the sales contract (seeSchlechtriem/Kober[*], Art. 45, Note 41a).Otherwise, all provisions of the CISG dealing with the pre-requisites for a declaration of

the avoidance of a sales contract thereunder would be superfluous (Art. 49(1) CISG).The same applies to Arts. 75 and 76 CISG which also require the avoidance of contractfor the compensation of damages for non-performance. Art. 74 CISG only contains adefinition of what can be demanded in cases in which the basis for a damages claim isprovided.

[Buyer failed to declare avoidance of contract within a reasonable time ]

Even if the declaration of a set-off against claims for damages may be interpreted as animplicit declaration of the avoidance of the underlying sales contract, [buyer] did notdeclare it within a reasonable period of time after the actual delivery of the goods. Forthis reason, [buyer] has lost its right to declare the sales contract avoided (Art. 49(2)(a)

CISG).

[Time-barred forfeiture of buyer's warranty claim in respect of another re-salecontract]

In contemplation of the delivery of a dining table to the [buyer]'s customer XXX & XXXGmbH[*], [buyer] cannot claim compensation for any suffered loss of profits. Such aclaim has been forfeited and is time-barred. [Buyer]'s claim does not qualify as a claimcoming into existence after the actual exercise of the unilateral right to alter the legalrelationship between a buyer and the seller, i.e., the declaration of avoidance.Henceforth, [buyer]'s claim is not concerned with the restitution of the sales contract (Art.81(2) CISG). In opposition, one may claim compensation for any loss of profits incurredthrough the delivery of non-complying goods, independently from a declaration ofavoidance of the sales contract (Art. 45(1)(b) CISG). Such a claim is not a "warrantyclaim". The CISG does not contain any provisions dealing with prescription or a statuteof limitations. Italian law is the governing law as to this legal issue (Art. 28 Par. 1 and 2EGBGB[*]). According to Art. 1495(2) Cc[*], the period is one year when a right isdeemed forfeited, i.e., time-barred. This period commences at the physical and actualdelivery and hand-over of the respective goods. In this case, the actual delivery tookplace in June 1995 and thus any rights under this sales contracted have been forfeited.

[Failure to establish an additional counterclaim for damages due to not timelydeclaration of avoidance]

[Buyer] does also not have the right to claim damages with regard to [buyer]'ssubmission that [seller] did not take delivery of a chair being in its possession forsubsequent removal of defects. This is again a claim for damages due to [seller]'s non-performance of its duties. Then, [buyer] seeks (i) for restitution of their sales contract,i.e., redemption of the already paid purchase price, and (ii) for compensation of [buyer]'sloss of profits. The establishment of such an action required [buyer]'s declaration ofavoidance of the sales contract as mentioned above. However, [buyer] has not madesuch a necessary declaration. Insofar as such a declaration has been implicitly made

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through [buyer]'s declaration of a set off, [buyer] cannot make a case for [buyer]'sclaimed damages on that ground. The sole non-delivery of a chair is not a fundamentalbreach of contract (Art. 25 CISG). [Buyer] reprimanded [seller] for the last time to havethis repaired chair recovered in [buyer]'s letter of 27 June 1996. Consequently, [seller]could assume from that moment that [buyer] might lose any advantages under theirsales contract, if it did not act in accordance with his liabilities thereunder. For this

reason, [buyer] would have been obliged to fix an additional and final period of grace(Art. 49(1)(b) and Art. 47(1) CISG). Only after the lapse of that additional period of grace,would [buyer] have been entitled to declare the avoidance of this sales contract.

[Succession of seller's legal action in contemplation of buyer's counterclaims]

In consideration of all aforementioned [buyer]'s counterclaims, [seller]'s legal actionsucceeded and was founded in an amount of DM15,729.70. [Buyer] has been in arrearswith regard to this claim since 27 February 1998 (Art. 59 CISG). On that day, [buyer]stopped payment on [buyer]'s cheque drawn in favor of the [seller] to pay the purchaseprice in an amount of DM24,572.18. Therewith, [buyer] made it quite obvious that it wasnot willing to pay the purchase price anymore. Nevertheless, [buyer] was not in default at

the moment when it received [seller]'s invoices. As explained above, [buyer] was at thattime entitled to suspend its payment by cheque (Art. 71 CISG).

[Rate of interest owed by the buyer]

The rate of interest on the sum in arrears comes to 5% p.a. (Art. 78 CISG, Art. 1284Cc[*]). A claim for compensation of interest for drawn credit would require that the[seller] conduct its business with an ongoing bank credit which exceeds the sum claimedduring the time the payment was in arrears. Furthermore - and this is decisive - thecredit has to be repaid by all of the payments received by the [seller] unless suchpayments must be used immediately for the interest owed on the credit. It is only in sucha case that a loss in the meaning of Art. 74 CISG, which exceeds the legal damage fordelay, exists. The [seller] did not submit any facts demonstrating such a loss.

[Seller] could only claim for payment of an overdraft interest rate if it had established toconduct its business while permanently using an overdraft facility. Further, this overdrafthad to extend its claim within these proceedings while [buyer] was in default. And mostimportantly, this overdraft would have had to be repaid with all incoming cash flow underhis trade receivables, unless those cash flows were appropriated to redeem any accruedinterest. Only if that were the case, might one establish a claim for compensation ofdamages beyond the statutory default interest rate pursuant to Art. 74 CISG. [Seller] hasnot, however, demonstrated any facts as to the aforementioned ingredients to establishsuch a claim beyond the statutory default interest rate.

[Ancillary decisions held by the Court]

The Court's decision on the costs for these legal proceedings is based on Secs. 92 Par.1, 263 Par. 3 ZPO[*]. The decision on the preliminary enforcement ensues from Sec.709 and Sec. 708 No. 11 ZPO[*].

Dr. Bachmann, Dr. Bauer, Saur

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Egyptian Cotton Case

preme Court of Switzerland (Bundesgericht)

1st Civil Court Division

15 September 2000 [4C.105/2000]

Translation[*]by Alban Renaud[**]

Translation edited by Claude Witzand Julia Eisengrber[***]

COURT COMPOSITION: M.M. Walter, President; Corboz, Judge; Pagan, SubstituteJudge. Clerk of the Court: Ramelet. PARTIES and COUNSEL: FCF S.A., of Geneva,Switzerland, Defendant and Appellant, [seller], represented by Me Michel Amaudruz,

Lawyer in Geneva, v. Adriafil Commercial S.r.l., of Rimini, Italy, Claimant and Appellee,[buyer], represented by Me Le Houelleur, Lawyer in Geneva.

In a matter of: International sale of goods

A. [Background facts]

a) Intervening for the [buyer], an Italian company with its registered office in Rimini,Italy, a company under Italian law, Vieffe S.r.l. (hereinafter: Vieffe), located at Milan,Italy, sent, on 15 February 1994, to [seller], a Swiss company for which Vieffe was anagent, a proposal of Order No. 28 concerning the purchase by [buyer] of four times fivetonnes of cotton, goods to which the quality and place of delivery had been specified.

The goods were to be delivered between 25 May and 5 June 1994, payment to be madeby letter of credit due sixty days after the date of customs clearance.

On 2 March 1994, [seller] and [buyer] signed Contract No. 94-36/CY-EG concerning thesale of:

- 5,000 kg +/- 10% of cotton Ne 8/1 for IT5,460 / kg [IT = Italian Lira],- 5,000 kg +/- 10% of cotton Ne 12/1 for IT5,460 / kg,- 5,000 kg +/- 10% of cotton Ne 16/1 for IT5,460 / kg,- 5,000 kg +/- 10% of cotton Ne 30/1 for IT5,510 / kg.

The contract stipulated that the loading of the goods must take place in a harbor in Egyptduring the month of May 1994.

On 14 April 1994, Vieffe sent to [seller] a new proposal, Order No. 69, concerning thepurchase by [buyer] of twenty tons of cotton thread with delivery at the end of August,payment due sixty days after customs clearance.

The same day, [seller] and [buyer] signed Contract No. 94-52/ CY-EG concerning thesale of:

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- 5,000 kg +/- 10% of cotton Ne 8/1 for IT5,450 / kg,- 5,000 kg +/- 10% of cotton Ne 12/1 for IT5,450 / kg,- 2,500 kg +/- 10% of cotton Ne 16/1 for IT5,450 / kg,- 2,500 kg +/- 10% of cotton Ne 20/1 for IT5,450 / kg,- 5,000 kg +/- 10% of cotton Ne 30/1 for IT6,850 / kg.

The loading was planned for the month of August 1994, payment due in sixty days.

The total goods included in the order were according to these two contracts, "cottonGIZA 75 on cone with Q.D.R. 5,57 non parafin, raw".

b) On 27 April 1994, [seller] sent an acknowledgement by fax to [buyer] advising thatthe Egyptian authorities had imposed on the weaving mill of the country an increase inthe price of cotton between 8.5% and 9% and that [buyer] was obliged to pay anincrease of 8% in the price of sale. On 2 May, [seller] sent to [buyer] a second messageasking [buyer] to accept and confirm the increase of prices decided by the contract of 2March by 6%, which represented IT5,790 / kg for the cotton Ne 8/1, 12/1 and 16/1and IT5,840 / kg for the cotton Ne 30/1. [Buyer] accepted the increase of 6%.

c) On 3 June 1994, [buyer] was surprised to be informed that, after the delay takenby the [seller], both the agreement of 2 March and that of 14 April 1994 would not berespected. After having explained that this had the consequence of limiting [buyer's]ability to fulfil its own contractual obligations, [buyer] invited [seller] to perform thecontract as soon as possible. [Buyer] also asked to be informed exactly which goodswould be delivered and reserved the possibility of legal action in case of non-performance.

Receiving no answer to this letter, [buyer] informed [seller] on 27 June 1994 that,concerning the goods of the contract of 2 March 1994, [buyer] was forced to purchasesubstitute goods from other suppliers at a more expensive price. Insistent especiallyupon the damage caused to its reputation, [buyer] valued its damagesat IT100,000,000 and asked for compensation by [seller]. [Buyer's] written document of27 June 1994 was not a letter of cancellation from the [buyer], but an incentive for the[seller] to execute its obligations.

On 30 June 1994, Vieffe informed [buyer] that the "thread" contained in the contract of 2March 1994 could be delivered during the month of July 1994 against payment by letterof credit due in sixty days.

On 8 July 1994, [buyer] wrote to [seller] that it had taken note that [seller] was ready todeliver during the month of July, the total quantity of the goods contained in the two

contracts, and that [buyer] was happy with this result as far as the contract of 14 April1994 was concerned. However, [buyer] stated that it could not accept the delivery ofcotton contained in the contract of 2 March 1994 for the reasons explained in [buyer's]letter of 27 June 1994. [Buyer] noted that if it had waited for an answer from [seller]before purchasing substitute goods from other suppliers, the damages for which it wouldbe asking reparation would have been more significant.

On 23 July 1994, quantities of 6,357 kg and 5,697 kg of cotton Ne 16/1 and also 6,745kg and 6,085 kg of cotton Ne 8/1 were loaded at Alexandria by [seller], and unloaded at

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Genoa on 7 August 1994. These goods corresponded little to the goods described in thecontract of 14 April 1994.

After 7 August, the parties had not established contact in relation to the delivery ofcotton.

d) Between 31 May 1994 and 30 August 1994, [buyer] ordered elsewhere 47,243 kgof cotton of several categories to replace the undelivered cotton ordered from [seller].35,197 kg of the same quality cotton ordered in the earlier contracts concluded with[seller], were ordered on 7 July and 30 August.

In the purchase made on 7 July 1994, of 10,197 kg of cotton at an average priceof IT6,500 / kg, which related to the contract of 2 March, there was a differenceof IT700 per kg in comparison with the price fixed after the increase of 6% at IT5,800

/ kg. The increase of the cost represented IT7,137,900 (10,197 kg x IT700).

In the purchase concluded on 30 August 1994, for 25,000 kg of cotton at an averageprice of IT7,640 / kg, which related to the contract of 14 April 1994, there was adifference of IT1,492 / kg in comparison with the increased price of this contractof IT6,148 / kg. Therefore, [buyer] paid an extra IT29,840,000 in comparison with thepurchase of 20 tons of cotton stipulated in the previous contract (20,000 kg x IT1,492).

[Buyer] was able to acquire 35,197 kg of replacement cotton of the same quality; thus,4,803 kg less of what was decided in the contracts. [Buyer] resold 31,000 kg, making aprofit of IT17,000 / kg. The loss caused by the 4,803 kg that was missing wastherefore IT81,651,000 (4,803 kg x IT17,000).

B. [First Instance and Appellate Court proceedings]

Founded on the fact that no quantity of cotton had been delivered, [buyer] claimed from[seller], on 21 October 1994, the payment of the sum of IT334,527,898.

On 5 December, [buyer] notified [seller] that it would commence a lawsuit, and, on 5April 1995, it brought an action against [seller], claiming the payment of Sf[Swiss francs]238,000.60 (IT294,925,126). [Buyer] claimed against the [seller] that [seller] hadbreached its contractual obligations by not delivering the cotton included in the contractsof 2 March and 14 April 1994, conduct which, first, forced the [buyer] to purchasereplacement goods with an increase of IT127,983,126 in the price, and to indemnify[buyer's] clients, for IT52,800,000, and second, caused [buyer] a loss of profitof IT104,142,000 and commercial damage of IT10,000,000.

The [seller] replied that the [buyer] had unilaterally cancelled the contracts and,additionally, that the loss claimed was neither justified nor proven.

By judgment on 18 February 2000, the Appellate Court of the Canton of Geneva, ruledon an appeal made by the [seller], partly quashing the judgment of the Court of FirstInstance [District Court of Geneva] on 20 May 1999; it ordered [seller] to pay to[buyer] Sf95,720 plus interest at the rate of 5% from 5 December 1994, and ordered thewithdrawal.

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In substance, the cantonal Appellate Court declared applicable the United NationsConvention on Contracts for the International Sale of Goods, concluded in Vienna on 11April 1980 (CVIM [*], RS 0.221.211.1).

The cantonal Appellate Court recognized that the [buyer], who had never received thegoods ordered by the contract of 2 March 1994 in the period of time fixed by article 33(b)

CISG, validly avoided the contract by the letter of 8 July 1994.

Concerning the contract of 14 April 1994, the cantonal Appellate Court considered that,on 8 July 1994, [buyer] had noted without protest that the goods would be deliverableduring the month of August 1994. Many tons of cotton Ne 16/1 and 8/1 had beenunloaded in Genoa on 7 August 1994 for [seller]; nonetheless, these goodscorresponded only partly to the subject matter of the contract, which required thedelivery of cotton Ne 8/1, 12/1, 16/1, 20/1 and 30/1. [Seller] did not succeed inestablishing an offer to [buyer] for the cotton that arrived at Genoa, nor did it ask the[buyer] to take delivery.

The cantonal Appellate Court concluded that that the [seller] had given up fulfilling itsobligations and that it could not complain of the fact that [buyer] considered the contractas not being performed. The Appellate Court referring to articles 45(1), 74 and 75 CISG,noted that [buyer] had a right to claim damages for replacement purchases of substitutegoods that [buyer] had made since the month of July 1994; the damagerepresented IT7,137,900 and IT29,840,000; thus, a total of IT36,977,900.Concerning the loss of profit, it was IT81,650,000. Nonetheless, the Appellate Courtheld that the [buyer] did not render proof that it had indemnified some subcontractors, orproof of loss of any clients. The damage justified was therefore IT118,627,900;i.e., Sf95,720 at the exchange rate of the day of filing the [buyer's] claim.

C.[Pleadings on appeal to the Federal Supreme Court]

At the same time as raising an appeal in public law, which has been rejected byjudgment of that day due to its inadmissibility, [seller] lodged an appeal to the FederalSupreme Court. [Seller] pleads to the Federal Supreme Court to quash the cantonalAppellate Court judgment and, subsequently, to deny the [buyer's] claim. Additionally,the [seller] requests an application for remand of the proceedings to the cantonalAppellate Court to decide the matter in accordance with the solution given by theFederal Supreme Court.

The [buyer] pleads that the [seller's] demand be rejected and seeks the confirmation ofthe decision challenged.

Considering in law:1. [Jurisdictional issues]

Considering a recourse to appeal, the Federal Supreme Court must exercise itsreasoning on the basis of facts contained in the judgment under appeal, except ininstances where some Federal rules concerning proof have been broken, or where thereare some manifest oversights (art. 63 al. 2 OJ [*]), or where it is necessary tosupplement the facts noticed by the cantonal Appellate Court because it did not take

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notice of some fundamental proven facts (art. 64 OJ; ATF [*] 126 III 59 consid. 2a andother decisions). In the case that the [seller] presents facts, as here in ten pages, whichare quite different from the facts contained in the decision under appeal without,nonetheless, satisfying any of the exceptions quoted above, the Federal Supreme Courtis precluded from using such facts. [Seller] can neither present attacks against someestablished facts nor can he use facts or instruments of proof that are new (art. 55(1)(c)

OJ).

2. [Applicability of CISG; Formal requirements; Fixing date of delivery; Avoidance]

The [seller] criticizes the cantonal Appellate Court as having misapplied articles 47 and49 CISG by considering that the [buyer], on 8 July 1994, had validly cancelled [avoided]the contract of 2 March 1994.

a) [Applicability of the CISG (Art. 1(1)(a) CISG)]

Italy, where the [buyer] has its headquarters, adopted the CISG on 1 January 1988.Switzerland, where the [seller] is located, has been a Contracting State to theConvention since 1 March 1991. In this case, the two contracts for the sale of goods witha commercial purpose were concluded between two companies having theirheadquarters in Contracting States, therefore, for correct reasons, the Appellate Courtdeclared, in conformity with art. 1(1)(a) CISG, that this Convention was applicable to thepresent dispute (cf. Neumayer/Ming, Vienna Convention on International Sale of Goods:Commentary, n. 3 ad art. 2 CISG).

The application of CISG is exhaustive; it governs the entire contract, meaning theformation of the contract and rights and obligations of parties, including theconsequences of non-performance. In principle, the additional application of national lawis excluded (Stoffel, le droit applicable aux contrats de vente internationale demarchandise in: Publication Cedidac No. 20, Les contracts de vente international demerchandises, p. 36). CISG contains some rules directly applicable; therefore, thebreach of such rules can also make possible a recourse to appeal (art. 43(1) OJ [*]; ATF[*] 124 III 382 consid. 7b p. 398).

b) [Formal requirements (Art. 11 CISG); Fixing date of delivery (Art. 33 CISG)]

It results from the fact that the offer made on 15 February 1994 by Vieffe in the nameof the [buyer] has been solidified on 2 March 1994 by the conclusion of a contract ofsale. Because this agreement did not modify the offer concerning the delivery of thegoods, it must be considered that the offer made on 15 February 1994 had beenaccepted. Article 11 CISG establishes freedom from requirement as to form of contracts

for the international sale of goods, with the results that parties are allowed, according toarticle 33(b) CISG, to fix, for the contract of 2 March 1994, the moment of the delivery byan interval of time determinable by two fixed dates. These dates were 25 May 1994 and5 June 1994, a period during which the goods should have been delivered. In otherswords, the date 5 June 1994 represented the last day on which goods should have beendelivered (Neumar/Ming, op. cit., n. 4 ad art. 33 CISG).

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Concerning the contract signed on 14 April 1994, by reference to the offer of the sameday on the basis of which it had been concluded, it must be accepted that it was decidedthat the delivery should occur by the end of August 1994 (cf. art. 33(a) CISG).

c) [Buyer's right to avoid the contract (Art. 49 CISG)]

According to article 49(1) CISG, the buyer may declare the contract avoided if thefailure by the seller to perform any of its obligations amounts to a fundamental breach ofthe contract (para. (a)), or when, in the case of non-delivery, the seller does not deliverthe goods within an additional period of time that has been fixed by the buyer or if theseller declares that he will not deliver within the period so fixed (para. (b)). It is not anavoidance in the juridical way of the words with effects ex tunc, but a rsiliationwhichreleases both parties from their contractual obligations yet to be executed and whichexecutes itself ex nunc(Neumayer/Ming, op. cit., n. 1 ad art. 81 CISG).

It must be determined if, on 8 July 1994, the [buyer], without having fixed for the [seller]the additional period to deliver goods as provided by the article 49(1)(b) CISG, waswithin its rights to avoid (rsolution) the contract of 2 March 1994 by reason of the lack ofdelivery of goods by [seller].

In fact, because, on 8 July 1994, the time within which the cotton had to be deliveredaccording to the contract had already passed by more than one month, the additionaldelay of reasonable time that the buyer must give to the seller according to article 47CISG was no longer applicable. Therefore, there was no breach of the previous article,and it is not useful for the [seller].

aa) [Fundamental breach of contract (Art. 25 CISG)]The concept of fundamental breach as defined in article 25 CISG must beinterpreted in a restrictive way and, in case of doubt, it must be considered thatconditions of such breach are not fulfilled (Neumayer/Ming, op. cit., n. 2 ad art.25 CISG). The breach must concern the essential content of the contract, thegoods, or the payment of the price concerned, and it must lead to seriousconsequences to the economic goal pursued by the parties. The importance ofthe breach is not determinative; only the consequences of the breach to thedamaged party are determinative. This means that a principal obligation musthave been breached in such a way that the economic goal of the contract cannotbe achieved; the damaged party being interested no longer in the performance ofthe contract. Absolute loss of all objective interests of the creditor is not required.Moreover, it does not matter whether or not the default is objectively reparable(Neumayer/Ming, op. cit., n. 3 ad art. 25 CISG).

According to that view, the breach of an ancillary obligation can only constitute afundamental breach if it has some repercussions on the performance of theprincipal obligations in a such way that the interest of the creditor in theperformance of the contract is lost, without the necessity that the latter sufferssome monetary damage (Neumayer/Ming, op. cit., n. 4 and 7 ad art. 25 CISG).The motivation of the creditor must be identifiable by the debtor, so the debtorcould have known or it would be possible to know that the creditor considered theperformance of the breached contractual clause so essential that he would haverefused the contract if he had known of such future breach (Neumayer/Ming, op.

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cit., n. 5 ad art. 25 CISG). To judge that point, at the place and at the time of theconclusion of the contract, the determining interest of each of the parties must beidentifiable by the other (Neumayer/Ming, op. cit., n. 6 ad art. 25 CISG). Finally,the damage must be foreseeable by the breaching party or by any otherreasonable person of the same kind in the same circumstances at the time thebreach of contract is committed. The contract determines if there existed a risk of

a substantial detriment to the reasons and interests of the affected party, whichhad encouraged that party to conclude the contract (Neumayer/Ming, op. cit.,n. 8ad art. 25 CISG).

A delay in the delivery of goods constitutes a fundamental breach of contract ifthe parties decided that the delivery must be made at a specific date, and thatdate was determinative from the point of view of the interest of the buyer in theperformance of the contract and that the seller knew it, especially in casesconcerning seasonal goods. The circumstances determine if it must be withoutother and also for the delivery at a certain date of goods for which the price in themarket varies everyday. This is the case when it concerns an agreement with areseller and the price goes down suddenly and considerably. In the presence of

minor fluctuation in prices, the avoidance of the contract depends on the fixing ofa supplementary period of a short time in accordance with article 49(1)(b) CISG.Against a considerable delay which constitutes a fundamental breach of thecontract according to article 25 CISG, the buyer receives the right to immediatelyavoid the sale without giving a notice for a supplementary period(Neumayer/Ming, op. cit., n. 3 ad art. 49 CISG).

bb) In the present case, it must be considered that the final term decided for thecotton delivery, 5 June 1994, constituted a fixed date that was determinative forthe buyer, who, on the day in question, should have received the material inorder to be able to transform it and send it to its clients. In that case, the perioddecided for the delivery was relied on as the essential content of the contract; at

the moment of the failure to deliver on the correct date, the realization of the[buyer]'s economic goal in the contract was halted and the [buyer] was obliged tobuy the goods from other suppliers on less advantageous conditions. Thissituation had the result for the [buyer] of erasing all interest it had in the contractof 2 March 1994. Concerning the commercial sale of the untreated material, the[seller] could not have ignored that the buyer regarded the delay in the deliveryas of prime consideration, as indicated by the precise period of time decided forthe delivery. Moreover, in its letter of 3 June 1994, the [buyer] declared that thedelay in the delivery prevented [buyer] from performing its own obligations.

Finally, at the moment of the non-observation of the additional delay expiring on5 June, [the seller] the party in breach was able to foresee the consequences of

its conduct, especially as the [buyer] stated precisely on 27 June that, in order todischarge [buyer's] obligations to third parties, [buyer] had to ask other suppliersto deliver substitute goods.

In these circumstances, the failure of the [seller] to deliver amounted to afundamental breach of the contract. It was not necessary that [buyer], on 8 July1994, before declaring avoidance of the contract of 2 March 1994, give an

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additional period to [seller] for delivery of the ordered goods, under article49(1)(b) CISG. The argument of the [seller] is irrelevant.

3. [Notice affixing additional final period for performance (Art. 47); Notice ofavoidance (Art. 26 CISG)]

The [seller] also makes an argument concerning the contract of 14 April 1994.This argument is based on the fact that [seller] had not been properly notified ofthe fixing of the additional period for it to perform, in breach of articles 47 and 49CISG. If this argument were accepted, it would not be possible to have a validavoidance of this contract.

In a way that links the Federal Supreme Court (article 63(2) OJ [*]), the AppellateCourt stated that the parties did not have any contact concerning the goodsordered on 14 April 1994 after 7 August 1994, the date on which the goodsloaded in Alexandria at the end of July 1994 were unloaded in Genoa. In otherwords, after 7 August, neither of the parties to the contract cared about thosegoods. It may be that this is because of the fact that this cotton correspondedonly very little, in respect to quality, to the goods expected according to thecontract of 14 April 1994. But that does not matter, as will be seen below.

Indeed, the CISG does not provide any obligation concerning the form of theavoidance of sale contracts (Neumayer/Ming, op. cit., n. 1 ad art. 11 CISG).Therefore, it is accepted that a conclusive conduct constituted by a rejection ofthe goods that do not conform to the contract and a refusal to pay may,depending on the circumstances, be held as an implicit declaration of avoidanceof the contract (Neumayer/Ming, op. cit. n. 1 in fine ad art. 26 CISG).

According to the freedom of form granted by CISG, some juridical effect must begiven to the inaction of the parties after the 7 August 1994. This commoninactivity of parties must be analyzed as the reciprocal manifestation of a tacit willto renounce the performance of the contract. The common adoption by parties ofsuch conduct before the goods arrived in Genoa leads one to think there was awill to cancel the contract of 14 April 1994.

Accordingly, the [seller] could not complain that it was not formally informed toexecute its obligations.

There is no breach of articles 47 and 49 CISG.

4.[Impediment excusing a party from damages (Art. 79 CISG)]

The [seller] argues that there was an impossibility of performance accordingarticle 79(1) and (2) CISG.

This argument is founded on a presentation of facts that are different from thefacts adopted by the cantonal Appellate Court.

The determinative facts do not reveal the existence of circumstances that mayconstitute an unforeseeable or unavoidable impediment, or an obstacle that the

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[seller] could not reasonably have overcome (cf. Neumayer/Ming, op. cit., n. 2 et4 ad art. 79 CISG). The [seller's] criticism is unfounded.

5. [Principle and amount of damages]

The [seller] invokes breaches of many rules to contest the principle and theamount of the damages held by the cantonal Appellate Court.

a) [Burden of proof of damages]

The [seller] argues that, especially, the Appellate Court violated article 8 of theCivil Code of Switzerland concerning the burden of proof by considering that theclaimant [buyer] had proven its damages concerning the replacement goods.

That legal rule is not applicable even though CISG does not contain direct ruleson the burden of proof and all procedural questions are outside its scope ofapplication. When the judge examines this question, he should keep in mind the

content of the material law applicable, the lex causae, which, in this case, is theCISG. The competent tribunal should not found its solution on the domestic law.Indeed, in an indirect way, CISG contributes to the repartition of the burden ofproof, and the reason for this is the meaning of the wording used in theprovisions of the CISG. There is the establishment of a relationship between arule and its exception. That is why, in general, we can use the maxim "actoriincumbit probation". The result is that the party who invokes a right bears theburden of proof to its establishment of that right and, on the other hand, the otherparty must prove any facts that exclude the invoked claim (Neumayer/Ming, op.cit., n. 13 ad art. 4 CISG).

As CISG does not contain rules directing the judge how to reach its own opinion,

there is no obstacle, which does not allow the use of the jurisprudence of article 8of the Swiss Civil Code.

According to that jurisprudence, article 8 of the Civil Code forbids a judge fromconsidering as an established fact that which is pertinent to the use by one partyto found its right, where this fact, contested by the opposite party, has no startingof proof (ATF [*] 114 II 289 consid. 2a). On the other hand, when the appreciationof proof convinces the judge of the reality of a fact, the question of the applicationof article 8 of the Civil Code does not exist anymore; only the element comingfrom the arbitrary appreciation of proof, to invoke imperatively a recourse topublic law, is admissible (ATF 122 III 219 consid. 3c; 119 II 114 consid. 4c p.117; 117 II 387 consid. 2e). Indeed, article 8 of the Civil Code does not prescribe,

in the example of the CISG, how the judge must appreciate proof and on whichelements he may found his decision.

In cause, the [seller] contests that the products billed by the [buyer] in relation toreplacement purchases, were of same quality as the cotton ordered. The [seller]attacks the way in which the cantonal Appellate Court appreciated the proofrendered. The argument is therefore not admissible.

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b) [Measurement of damages; replacement goods (Arts. 74, 75 and 76CISG)]

Invoking art. 75 CISG, the [seller] argues that replacement purchases madeby the [buyer] could not have qualified as replacement purchases for the reasonthat a reasonable time should have passed after the avoidance of the contract

before the purchase replacement goods.

Article 75 CISG deals with the calculation of the damages, which must beeffected in a concrete manner in the case of avoidance of the contract. In thatway, if that article provides that the buyer purchases replacement goods within areasonable time, it is only for the reason that [buyer] can obtain an advantageousprice and contribute to the reduction of the loss resulting from the breach. If thesubstitute transaction does not correspond to these conditions, the damage iscalculated in conformity with article 74 CISG or at the market price (article 76CISG) (cf. Neumayer/Ming, op. cit., n. 2 ad art. 75 CVIM [*]).

Therefore there is no reason why the [buyer] could not have bought substitutegoods without delay, except in the case in which the seller could prove that the[buyer] was able to find other goods at a more favorable price.

Also, when the [seller] claims that the [buyer] refused the goods which arrived inGenoa on 7 August 1994, [seller] moves away from the facts recognized by thecantonal Appellate Court. The Appellate Court found that parties were notinterested in what would happen to the goods that arrived in that port.

c) [Mitigation of damages (Art. 77 CISG)]

The [seller] claims that if the Federal Supreme Court should arrive at the

conclusion that purchases made on 7 July 1994 constituted replacementpurchases under article 75 CISG, damages should be determined, in accordancewith article 77 CISG, by the difference between the price concluded by parties,with an increase of 6% and 10%, and the prices of the replacement supplier forthe same goods; only this difference can be claimed by the [buyer].

Assuming that there was loss suffered, the amount of damages is a question offact, removed from the examination of the Federal Supreme Court in the instanceof appeal (ATF [*] 123 III 241 consid.3a; 122 III 61 consid. 2c/bb; 122 III 219consid. 3b). On the other hand, it is a question of law to decide whether or notthe judge missed the necessity of juridical damage or misunderstood the senseof that notion to have founded its decision on erroneous grounds or without

criteria pertinent to the calculation of the damages (cf. ATF 120 II 296 consid. 3bet les rfrences).

If the claim for damages is related to principles applied to determine thedamages, the claim is nonetheless unfounded. The cantonal Appellate Court hasindeed taken into account the difference of price existing between the cottonordered from the [seller] and the cotton actually delivered, conforming to article75 CISG. As the [seller] does not indicate the reasonable measures that the

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[buyer] should have taken to limit the damage, the Appellate Court correctly didnot apply article 77 CISG.

d) The [seller] criticizes the Appellate Court as having held in "an arbitrarymanner" that the loss of profit claimed by the [buyer] was established. The [seller]alleges that the Appellate Court founded its decision on contested elements for

which facts have not been proven.

The [seller's] claim is irrelevant, because it is based on the appreciation of proof,which depends only on the cantonal Appellate Court.

6. [Ruling of the Federal Supreme Court]

To conclude, the appeal of the [seller] must be rejected even though it isadmissible, the decision of the cantonal Appellate Court that is challenged by the[seller] is confirmed. Fees will be at the expense of the [seller] (art. 156 al. 1 et159 al. 1 OJ).

For these reasons, the Federal Supreme Court:

1. Dismisses the [seller's] appeal and affirms the challenged decision of thecantonal Appellate Court;

2. Places a judiciary emolument of Sf5,000 at the expense of the [seller];

3. Declares that the [seller] will pay to the [buyer] an indemnity of Sf6,000;

1. Transmits the present decision in copy to order the parties and to the CivilChamber of the cantonal Appellate Court of Geneva.

Textile case

Commercial Court (Rechtbank van Koophandel) Oudenaarde

10 July 2001 [A.R. 44/97]

Translation[*]by Maarten Draye[**]

PARTIES

S.r.l. L.E., a company under Italian law, having its legal seat in Vaiano Loc, Italy,(...), Plaintiff on the main claim, Respondent on the counterclaim [Seller]

vs.

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NV B., [a company under Belgian law], having its legal seat in Haaltert-Heldergem [Belgium] (...). Defendant on the main claim, Claimant on thecounterclaim [Buyer].

[...]

1. Procedural aspects

1. The facts and circumstances, as well as the subject of the dispute, wereexplained in their totality in the intermediary judgment dated 22 June 1999 and are atthis place considered to be repeated.

Before passing judgment on the merits, the court has ordered the reopening of thedebates ex officio, in order to allow the parties to present their written arguments inrelation to the applicable legal provisions and the legal consequences deriving thereof,considering the fact that the claim at the basis of the present proceedings is based oncrossborder contracts for the purchase and sale of moveable goods.

2. In their written submissions, submitted afterthe intermediary judgment, bothparties agree that the Vienna Sales Convention of 11 April 1980 [further referred to asCISG] applies.

2. Assessment

A. Jurisdiction

Article 2 of the European Execution Treaty of 27 September 1968 sets out the basicrule of jurisdiction, which allows for a Defendant domiciled on the territory of aContracting State to be summoned before the courts of that State.

As the Defendant [Buyer] has its legal seat in Haaltert-Heldergem, the present Court hastherefore, pursuant to the abovementioned article 2, jurisdiction to assess the presentdispute.

B. Applicable law

1. As mentioned above, the contractual relation between the parties relates tothree international sales agreements of moveable goods, namely textiles.

The rules of private international law applicable to this legal relationship are governed bythe Hague Convention of 15 June 1955.

The fact that Belgium has withdrawn from this Convention and that this withdrawal hastaken effect from 1 September 1999 onwards (B.S. 30 June 1999, 24535), does notprevent that in the present case, given the date of the sales agreements in dispute(March, April and May 1995), the rules of reference contained in the abovementionedConvention are to be applied.

This Convention provides a two-tier rule as rule of reference:

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First, the rule of party autonomy; the choice of the applicable law must be madeby means of an explicit contractual stipulation, or appear beyond any disputefrom the provisions of the agreement (article 2);

Second, in the absence of a choice of law by the parties, the law of the countrywhere the seller has his usual residence at the moment at which he receives theorder applies (article 30). (VAN NECK F., "Over de bevoegde rechter, het

toepasselijk recht, herroepingsbedingen en de Belgische internationale openbareorde" A.J.T., 1998-99, 944 e.v.)

In the case at hand, it does not appear from the exhibits brought forward that the partieshave made a choice of law, either explicitly or impliedly. As a consequence, the law ofthe residence of the seller, in the case at hand, Italian law, applies.

2. The CISG has been part of Italian law since 1 January1988. The salesagreements in dispute date from March, April and May 1995 and therefore came intoexistence afterthe coming into force of the CISG in Italy. As a result, the CISG applies inthe present case.

C. The [Seller]'s main claim

The [Buyer] disputes the main claim for reasons of (1) multiple late deliveries and (2)the non-delivery of KABUL fabric by [the Seller].

(1)Article 33 of the CISG provides that, when the sales-agreement or a lateragreement between the parties has determined a date of delivery, that date binds theseller (HERBOTS J., "Verplichtingen van de verkoper" in Het Weens Koopverdrag, eds.VAN HOUTTE H. e.a., Intersentia, 1997, p. 109). The court must therefore assess in thecase at hand whether the deliveries by [the Seller] were late. In doing so, it must takeinto account the dates agreed between the parties, and not the dates requested by the

[Buyer] in the order letters: Order no. 21463 dated 30 March 1995: where the [Buyer] had requested in its

order letter dated 30 March 1995 that the goods be delivered at the latest by theend of April (1995), the [Seller] responded in its confirmation of 5 April 1995 thatit was nearly impossible to deliver by the end of April. Subsequently, in a fax-message dated 13 April 1995, the [Seller] confirmed that the order would bedelivered on 10 May 1995, after which the [Buyer] did not react at all.Consequently, it may be considered that it agreed with the delivery dateproposed by the [Seller]. This order was delivered on 5 May 1995.

Order no. 21713 dated 20 April 1995: where the [Buyer] requested in its orderletter dated 20 April 1995 that the goods be delivered as soon as possible, and in

any case beforethe end of May (1995), the [Seller] responded in the confirmationof the order dated 12 May 1995 that it would not be able to deliver prior to15June 1995.

In a fax-message dated 24 May 1995, the [Seller], moreover, stated that two ofthe articles ordered could not be delivered before end of June 1995 - early July1995, while the other articles would be delivered by mid-June.

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In a fax message dated 24 May 1995, the [Buyer] responded that it wanted thedelivery, at the latest by mid-June (1995), in default of which it would not acceptthe delivery.

In a fax message dated 5 June 1995, the [Seller] requested the confirmation ofthe [Buyer] that it would accept those goods that would only be delivered at the

end of June - beginning of July (1995).

In a fax message dated 6 June 1995, the [Buyer] responded that the goodsordered had to be in its possession before7 July 1995.

This order was delivered in part on 9 June 1995, while the remaining part wasdelivered during the first week of July 1995.

Order no. 22105 dated 16 May 1995: in its order letter dated 16 May 1995, the[Buyer] did not propose a time of delivery. This order was delivered on 9 June1995.

From the documents submitted, it appears that orders no. 21463 and 22105 have beendelivered within the proposed limitations, and even earlier than anticipated.

As far as order no. 22713 of 20 April 1995 is concerned, an agreement originally existedbetween the parties that delivery would take place by mid-June 1995. In its fax messageof 6 June 1995, the [Buyer], however, agreed to a postponement of the time of deliveryto 7 July 1995 for two items of the order. As this newly agreed time of delivery wasrespected by the [Seller], there can be no finding of a late delivery by the [Seller].

(2)Pursuant to article 23 of the CISG, an agreement comes into existence at themoment on which the acceptance of an offer becomes effective.

A proposal to conclude an agreement, directed at one or more specific personsconstitutes an offer, on the condition that it is sufficiently definite and indicates theintention of the offeror to be bound in case of acceptance (article 14(1) CISG).

Article 18(1) of the CISG stipulates that a statement made by or other conduct of theofferee indicating assent to an offer constitutes an acceptance.

Article 19(1) of the CISG prescribes that a reply to an offer which purports to be anacceptance but contains additions, limitations or other modifications is a rejection of theoffer and constitutes a counter-offer.

In the case at hand, the [Buyer] made an offer in the sense of article 14(1) CISG to buy100 meters of KABUL fabric in its order letter dated 20 April 1995.

In contradiction to what the [Buyer] submits, no agreement has come into existencebetween the parties with regard to the KABUL fabric.

In its written response dated 21 April 1995 to the offer by the [Buyer], the [Seller]proposed a modification in the sense of Article 19(1) of the CISG relating to

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the KABUL fabric, more specifically by suggesting the delivery of LIMA fabric as analternative for KABUL fabric.

As demonstrated by the subsequent correspondence between the parties, the [Buyer]did not accept this counter-offer.

In its letter dated 16 May 1995, the [Seller] therefore stated very clearly that it could notconfirm the delivery of the KABUL fabric ("nous ne pouvons pas confirmer cet article").

Afterwards, the [Seller] proposed another counter-offer, in which it proposed to start upthe production of the KABUL fabric after all, provided that a minimum order of 100meters would be placed. However, the [Buyer] did not want to agree to this counter-offereither.

In these circumstances, there can therefore be no finding of a failure by [the Seller] tomeet its contractual obligations.

Consequently, the [Seller] is entitled to the amount due under invoice no. 581 dated 5May 1995.

Moreover, the [Seller] is entitled to interest (article 78 CISG).

As no formal notice of default is required for interest to start accruing (VAN HOUTTE H.,"Het Weens Koopverdrag in het Belgisch recht", T.B.H., 1998, 353), interest can beawarded from the date on which the invoice became overdue, being 5 June 1995,onwards.

Article 78 CISG does not determine which interest rate is to be applied.

The interest rate that is to be applied is either the legal interest rate of the place wherethe debtor has its residence (NEUMAYER, K. & MING, C., Convention de Vienne sur lescontrats de ventes internationales de marchandises, Cedidac, 1993, 303) or the rateunder the law of the currency used (VAN HOUTTE H., o.c., 352). In both hypotheses,the legal interest rate in force in Belgium is to be applied (as the debtor - [Buyer] has itsresidence in Belgium and the currency of payment is Belgian).

The [Seller]'s main claim is therefore considered to be founded.

D. The [Buyer]'s Counterclaim

Considering the above, the [Buyer]'s counterclaim is considered to be unfounded.

Machines case

Kantonsgericht [Cantonal Court] of Appenzell Ausserrhoden

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10 March 2003 [No. 433/02]

Translation[*]by Mariel Dimsey[**]

Edited by Jan Henning Berg[***]

[...]

VALUE OF THE CLAIM: Swiss francs [CHF] 9,500.00.

POSITIONS OF THE PARTIES

[Buyer]'s action

a) The Plaintiff [Buyer]:

aa) Before the Justice of the Peace (Vermittleramt) and in the statement of claim:

1. [Seller] should be obliged to pay [Buyer] the amount of Euro 6,599.76 plus5% interest since 10 May 2002.

2.The amount in Swiss francs owing to [Buyer] should be determined in the

judgment.

3.The right of [Buyer] to amend its claim (Nachklagerecht) should be noted,subject to costs and damages.

bb) Before the court:

4. [Seller] should be obliged to pay [Buyer] the amount of Euro 7,179.76 plus5% interest since 10 May 2002.

5. The amount in Swiss francs owing to [Buyer] should be determined in thejudgment.

6.The right of [Buyer] to amend its claim (Nachklagerecht) should be noted,subject to costs and damages.

[Seller]'s response

b) The Respondent [Seller]:

aa) Before the Justice of the Peace (Vermittleramt): The above claims should berejected in their entirety.

bb) In the response to [Buyer]'s claim and before the court: If this point is to beargued, the claim should be dismissed and everything should be subject to costsand damages.

FACTUAL BACKGROUND

A. [Chronology of events]

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1. On 21 January 2002, [Seller] sent [Buyer] information and photos concerning aparticular machine by e-mail, which, according to [Seller], was operational in thecompany of a third party until approximately the beginning of March 2002 (act. 4/1).

2. On 24 January 2002 (act. 4/2), the parties concluded a sales contract regardingthe above-mentioned machine. A price of Euro 15,000.00 was agreed on, payable

fourteen days before collection from Switzerland. Furthermore, [Buyer] was informedthat the precise collection date would be communicated to it in the following days.

3. By e-mail dated 25 January 2002, [Buyer] confirmed to [Seller] the purchase of themachine and requested the dispatch of an invoice and communication of the collectiondate (act. 17).

4. On 3 February 2002, [Seller] sent [Buyer] an invoice, which contained its requestfor payment of the purchase price by bank transfer by 22 February 2002 (act. 4/3).

5. By e-mail dated 10 February 2002, [Seller] informed [Buyer] of the postponementof the collection date and stated that further information would be forthcoming (act. 4/5).

6. By e-mail dated 7 March 2002, [Buyer] reminded [Seller] that the communication ofthe definite delivery date was still outstanding, in response to which [Seller] informed onthe same day that it itself had not yet received information as to the precise date fromthe suppliers; however, the reasons for the delay were known (act. 4/6).

7. On 8 March 2002, [Buyer] concluded a sales contract with Company C for amachine at a purchase price of Euro 21,500.00. The delivery date for this machine wasset for around 15 March 2002 (act. 4/12).

8. By e-mail, [Buyer] set [Seller] a deadline until 8 April 2002, in which to state

whether it could perform the contract at all (4/7). By e-mail dated 8 April 2002, [Seller]disputed its alleged inability to perform and referred to the lack of communication of thedelivery date of the machine from the suppliers (4/8).

9. With letter dated 12 April 2002, the then-legal representative of [Buyer] set [Seller]a deadline until 17 April 2002, in which to state a collection date (act. 4/9). In its letterdated 16 April 2002, [Seller] referred to the statement contained in the offer dated 21January 2002 of an approximate delivery date at the beginning of March and re-emphasized its current inability to give a precise collection date (act. 4/10). In responsethereto, the then-legal representative of [Buyer] demanded payment of Euro 6,500.00 by10 May 2002 (act. 4/11).

10. With letter dated 16 April (in any case, May) 2002, [Seller] again disputed itsalleged inability to perform and re-emphasized the comprehensive information suppliedby it to [Buyer] regarding the temporal course and the background (act. 11/1). By meansof a fax dated 17 May 2002, the then-legal representative of [Buyer] set [Seller] a finaldeadline of 23 May 2002 to resolve the dispute outside the courts (act. 11/2).

11. In this proceeding, [Buyer] claims a total of Euro 7,179.76 plus 5% interest since10 May 2002, in accordance with its legal pleadings before the court.

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B. [Earlier proceedings]

On 21 May 2002, [Buyer] requested settlement proceedings (Vermittlungsvorstandes).Settlement was attempted to no avail on 12 June 2002; however, the protocol was leftopen until 12 Au