CISG CASE PRESENTATION

It is undisputed that the parties concluded a contract for the sale of natural stone specified in the invoice issued by the [seller] on 29 October 1996. The invoice lists several natural stones, predominantly the granite type "verde maritaca levigato". The parties furthermore agree that the [seller] fulfilled its main obligation under the contract, that is, that [seller] delivered the goods ordered. According to Art. 53 CISG, the [buyer] is therefore obligated to pay the purchase price. The [buyer] has paid an amount of DM 12,697.31 of the entire purchase price of DM 20,697.31. The Court of First Instance ordered the [buyer] to pay to the [seller] the remaining amount of DM 8,000.00.

According to Art. 59 CISG, the price is payable on the date fixed by or determinable from the contract and the Convention without the need for any request or compliance with any formality on the part of the seller. If a date for payment has not been fixed by the parties, the buyer is bound to pay the price in accordance with Art. 58 CISG. Under paragraph (1) of this provision, the buyer must pay the price when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and the Convention. Art. 58(3) stipulates that the buyer is not bound to pay the price until it has had an opportunity to examine the goods.

According to the [seller]'s invoice, delivery of the natural stone was effected before 29 October 1996. The [seller]'s request for the payment of interest from 30 December 1996, which was granted by the Court of First Instance, is reasonable in view of the fact that by that time several weeks had passed which allowed a reasonable period for examination of the goods under Art. 58(3) CISG. The Court takes into account that under Art. 38(1) CISG the buyer is bound to examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. A period of two months is certainly sufficient.

According to the prevailing opinion among scholars (cf. Staudinger/Magnus, Wiener UN-Kaufrecht, Art. 78 n. 12), the rate of interest is to be determined according to the law applicable by virtue of the rules of private international law, as the Convention does not expressly settle this matter. The parties did not agree on a choice of law clause. Art. 28(1) and Art. 28(2) EGBGB [*] lead to the application of Italian law, because [seller], who performed the obligation characteristic of the sales contract (the delivery of the goods), is domiciled in Italy. The Court of First Instance granted an interest rate of 5%, which is lower than the rate of 10% provided by Art. 1284 Cc [*] (since 16 December 1990, cf. Piltz, Internationales Kaufrecht, § 5 n. 415). The appeal can therefore not succeed in this regard.

      2. The [buyer]'s defenses against the claim do not withstand legal scrutiny.

The [buyer] was not released from its obligation to pay the remainder of the purchase price through avoidance of contract. [Buyer] did not successfully avoid the contract under Arts. 49(1)(a), 49(2)(b)(ii) and 47(1) CISG.

According to Art. 49(1)(a) CISG, the buyer is entitled to declare the contract avoided if the failure by the seller to perform any of its obligations under the contract or the Convention amounts to a fundamental breach of contract. In its brief of 29 October 1998, the [buyer] for the first time relies on an avoidance of contract based on the delivery of unusable stone.

The [buyer] submits that the [seller] breached the contract by delivering defective goods. According to its submission, roughly 40% of the delivered stones were defective, because the type "verde maritaca" did not conform to the contract. The [buyer] offers proof through expert testimony, as the stone could not be processed due to the many cracks it possessed and could therefore still be examined. If such a breach of contract did indeed exist, it would have to be qualified as a fundamental breach under Art. 25 CISG. Art. 25 stipulates that a breach of contract is deemed to be fundamental if it results in such detriment to the other party as substantially to deprive [seller] of what it is entitled to expect under the contract. The alleged usability of only 60% of the delivered stone would result in such a detriment.

It is, however, irrelevant whether the asserted non-conformity of the stone actually existed. There is no need to obtain the expert report as originally intended in the Court's decree on the taking of evidence on 25 May 2000. The [buyer] is barred from declaring the contract avoided because it failed to fix an additional period of time under Art. 47(1) CISG.

Unless the buyer has received notice from the seller that it will not perform within a period fixed under Art. 47(1) -- such a notice was not given in the present case -- the former may not, during that period, resort to any remedy for breach of contract. The [buyer] does not submit that it fixed such an additional period of time for performance by the [seller]. As the burden of proof is on the [buyer] (for the burden of proof, cf. Staudinger/Magnus, Wiener UN-Kaufrecht, § 47 n. 29), it is not entitled to declare the contract avoided. Rather, the [buyer]'s submission rules out a request for the delivery of substitute goods on the part of the [buyer]. [Buyer] submits that the parties agreed on a reduction of the purchase price, leaving a payment obligation only with respect to the usable stone. Thus, the [buyer] did not insist on a substitute delivery -- such a lack of insistence, however, is incompatible with the fixing of an additional period of time under Art. 47 (cf. Staudinger/Magnus, Wiener UN-Kaufrecht, Art. 47 n. 18). Art. 39 CISG shows that the Convention evidently requires a proper notice of the lack of conformity of the goods to the other party. The right to require delivery of substitute goods is therefore limited. The buyer is bound to make its request in conjunction with the notice given under Art. 39, or within a reasonable time thereafter (Staudinger/Magnus, Wiener UN-Kaufrecht, Art. 46 n. 43). The [buyer] did not adhere to this procedure. [Buyer] was therefore not entitled to declare the contract avoided.

The [buyer] submits that the granite "verde maritaca levigato" contained cracks throughout, so that of the entire delivery of stone only 60% remained usable. As a result, the [buyer]'s representative, witness G., and the [seller]'s representative, witness D., had a telephone conversation immediately after the stone was delivered in October of 1996. During the phone call, [buyer]'s employee gave notice of the lack of conformity of the goods and the parties had agreed that [buyer] was to effect payment only with respect to the usable material. [Buyer] had processed only roughly 60% of these stones, and paid [seller] DM 12,687.31. According to the [buyer], a further claim for payment is therefore not justified.

Under the law, the asserted facts would constitute a modification of the original sales contract, agreed between witnesses G. and D., as the parties' representatives, and limiting the purchase price to the usable material. Art. 6 CISG allows the parties to derogate from any of its provisions; the agreement would validly exclude the Convention's provisions. Art. 6 affirms the principle of party autonomy (cf. Reinicke/Tiedtke, Kaufrecht, 6th ed., n. 987). The [buyer], however, has not succeeded in convincing the Court that its submission is correct.

[Buyer]'s employee, witness G., testified before the Court that she called witness D. after it had been discovered that the granite "verde maritaca" was defective and not fit to be used for its intended purpose. [Buyer] informed [seller] that this substitute delivery had turned out to be just as cracked as the initial (queried) delivery. Payment for the delivery had been the subject of a subsequent telephone conversation, which had taken place after the invoice of 29 October 1996 had already been issued. During this phone call, witness G. told witness D. that the [buyer] would use those pieces of the defective granite slabs that could still be used in smaller parts. Witness G. then stated that [buyer] would pay the price for these usable parts in instalments depending on the respective state of processing. While witness D. had not been happy about this suggestion, [buyer] was sure that witness D. had voiced his agreement on behalf of the [seller]. Witness D. clearly told [buyer] that the defective slabs would only be paid insofar as the [buyer] was able to use them. According to witness G.'s recollections, witness D. had consented.

It does not even follow from the testimony by witness G. that the parties entered an agreement providing for the payment of solely 60% of the invoice at hand. Witness G.'s testimony does not support an express consent on the part of the witness D. Furthermore, witness D. testified that at no point in time did he have a conversation with witness G. about the alleged non-conformity of the substitute delivery in question. Witness D. testified that witness G. had not called [seller] following the substitute delivery in order to inform it about the lack of conformity of the goods. When presented with the testimony by witness G., he declared it incorrect.

The testimony of the two witnesses cannot be reconciled. Their submissions exclude each other. When faced with the two contradicting explanations, the Court does not only reach a non liquet (this alone would burden the [buyer], as it bears the onus of proof), but finds the testimony given by witness D. to be more persuasive. The Court has considerable doubt as to the accuracy of the testimony of the witness G., and is therefore not persuaded that the asserted phone conversation did in fact taken place and that an agreement was formed. This is due to the following reasons:

Insofar as witness G. testified that only the material which the [buyer] found fit to be used was to be paid in instalments depending on the state of processing, the [buyer]'s behavior is not in accord with the alleged agreement. Such an agreement did not apply to the further material, which undisputedly conformed with the contract: the stone "bianco galizia lucido", "bianco galizia fiammato"; "bianco bardeiras bocciardato". The [buyer] was bound to pay for this material immediately after payment was due, that is, at the end of 1996 at the latest. The [buyer], however, did not even make a partial payment. The first payment was effected on 13 May 1997 in the amount of 5,607.31 DM. With respect to the further partial payments -- 3,000.00 DM on 7 July 1997, 2,000.00 DM on 24 October 1997 and 2,000.00 DM on 8 January 1998 -- [buyer] also does not substantiate which parts of the delivery the payments relate to and whether they were made based on the processing of the allegedly defective material. The [buyer]'s payment behavior is therefore in stark contrast to its assertion of an agreement. It is not conclusive that [buyer] itself complied with such an agreement.

That an agreement was in fact formed is also not plausible with respect to the entire amount of 20,697.31 DM. First, it is not comprehensible why witness G. should have made the suggestion, as the defective material was not fit to be used for the intended order and the [buyer] had thus been forced to enter a substitute transaction within Germany. There was no reason for the [buyer] to make such a suggestion, as witness G. herself testified that selling the material had been difficult due to its extraordinary defect. It is incomprehensible why the [buyer] would make such a suggestion -- especially in view of the fact that previous deliveries had never consisted of such inferior quality. For the [buyer], the obvious thing to do would have been to rely on the non-conformity and resort to its remedies under the Convention. The purported agreement would only have been in the interest of the [seller].

Secondly, it is not plausible that a company such as the [seller], invoicing an order of over 20,000.00 DM, would only rely on a notice of non-conformity placed via the telephone; and would also enter an agreement that would put the payment of the purchase price entirely in the discretion of the buyer -- with no time limits attached. The [buyer] did not submit that the parties established the prerequisites under which the alleged defect was to be examined, or criteria for the usability of the goods, or indeed the calculation of the payment. As a result, it would have been in the [buyer]'s discretion to pay the delivered material according to its own declarations and needs without any time limits imposed. Moreover, it seems to be inconsistent with relevant trade usage that neither of the parties set down a written confirmation of the purported agreement. It is thus irrelevant whether witness D. was authorized to enter such an extensive agreement by telephone without consulting his superiors.

[The Court thoroughly assesses the appearance of both witness G. and witness D. in the witness stand and finds the testimony given by witness D. to be more conclusive and convincing.]

The taking of evidence has therefore not convinced the Court that the [buyer]'s assertion of an agreement to modify the contract is highly plausible. The Court was unable to form a conviction beyond reasonable doubt that the agreement was concluded. The [buyer], therefore, did not succeed in proving its submission.

While it is a prerequisite for the application of Art. 50 CISG that the delivered goods do not conform with the contract, the Court again does not need to decide whether the delivered stone was in fact defective. The buyer loses the right to demand a reduction in price under Art. 50(1) CISG if it does not give a proper notice specifying the lack of conformity of the goods (cf. Staudinger/Magnus, Art. 50 n. 11). This corresponds to the general rule contained in Art. 39(1) CISG which stipulates that the buyer loses the right to rely on a lack of conformity of the goods if it does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after [buyer] has discovered it or ought to have discovered it. While the [buyer] submits that its employee, witness G., had informed the [seller] of the defective material immediately after it had been delivered in October of 1996, [buyer] has not offered sufficient proof to convince the Court of the accuracy of its submission.

Witness G. testified before the Court that she had discovered the alleged non-conformity immediately after the granite "verde maricata" had been delivered and had subsequently given notice specifying the non-conformity in a telephone conversation with the [seller]'s employee, witness D. Witness D. contested this statement. As set out above, the two testimonies exclude and contradict each other. To avoid repetition, the Court refers to the above remarks concerning the asserted modification of contract. With respect to the notice of non-conformity, the Court again does not only reach a non liquet (which would burden the [buyer]), but finds the testimony given by witness D. to be more convincing. Witness D. unequivocally and credibly denied that a phone conversation between [seller] and witness G. concerning the defective material took place at the end of October 1996. Apart from the Court's impression regarding the credibility of the witness D., the Court also takes into account that its testimony fits in with [seller]'s records concerning requests for payment and the [buyer]'s course of payment in instalments. Witness D.'s testimony is conclusive and does not leave room for a notice of non-conformity or a modification of contract. Therefore, the [buyer] did not succeed in proving its submission by way of testimony of witness G. [Buyer] has not offered any further proof.

[The Court briefly discusses proof offered in the [buyer]'s brief of 15 March 2000 and reaches the conclusion that the testimony offered would not shed any light on the question of whether a notice of non-conformity had been given.]

Since the [buyer] was unable to prove that it notified the [seller] of the alleged non-conformity of the goods, it is not entitled to a reduction of the purchase price under Art. 50 CISG.

Contrary to the [buyer]'s submission, the notice of non-conformity was not dispensable in accordance with Art. 40 CISG. Under this provision, the seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which it knew or could not have been unaware and which it did not disclose to the buyer. [Buyer]'s submission that the substitute delivery was part of the same mass of rock as the initial delivery (which had undisputedly been defective) is pure conjecture. However, even if it this were the case, it would not prove that the [seller] was aware of or could not have been unaware of the non-conformity of the substitute delivery. Again, the onus of proof is on the [buyer] (cf. Staudinger/Magnus, Wiener UN-Kaufrecht, Art. 40 n. 5 and 13). The notice of non-conformity under Art. 39 cannot therefore be dispensed with. In the end, it is thus irrelevant that the testimony given by witness D. managed to convince the Court that the [buyer] itself had selected both the substitute delivery of the already refined "verde maritaca" and the remainder of the delivery at the [seller]'s place of business.

Art. 71(1) allows a party to suspend the performance of its obligations under the sales contract. Given the prerequisites of Art. 71(1), the suspension of [buyer]'s performance does not constitute a breach of contract, but expresses the right to unilaterally modify the time of performance due to the surrounding circumstances (cf. Piltz, Internationales Kaufrecht, § 4 n. 255). The entitlement to suspend performance remains until the breach ceases to exist, until the other party commits a fundamental breach of contract, or until the other party provides adequate assurance of performance under Art. 71(3) CISG (cf. Piltz, Internationales Kaufrecht, § 4 n. 257). The party suspending performance must immediately give notice of the suspension to the other party (Art. 71(3) CISG). As soon as [buyer] has made the decision to suspend its performance, it is bound to inform the other party without delay, which regularly requires an appropriate sending of the notice as stipulated by Art. 27 CISG (cf. Piltz, Internationales Kaufrecht, § 4 n. 261; Staudinger/Magnus, Wiener UN-Kaufrecht, Art. 71 n. 45). The [buyer] did not give any such notice.

Simply failing to pay the purchase price does not replace the notification that payment of the purchase price is being suspended until the other party properly fulfils the contract. Such a suspension of performance would furthermore contradict [buyer]'s own submission, according to which the parties had agreed on a modification of contract by reducing the purchase price. Following the submission, a suspension of performance until a substitute delivery was effected was thus not the [buyer]'s intent. Since the [buyer] did not notify the [seller] of the suspension, [buyer] was not entitled to suspend its performance (cf. v.Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, Art. 71 m- 21 and 30; AG [*] Frankfurt, IPRax [*] 1991, 345 [<http://cisgw3.law.pace.edu/cases/910131g1.html>]. The declaration was issued for the first time in the brief arguing the appeal on 2 December 1999 (after three years) and was thus belated. The [buyer] is therefore not entitled to rely on Art. 71(1) CISG.

FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation the Plaintiff-Appellee of Italy is referred to as [seller] and the Defendant-Appellant of Germany is referred to as [buyer]. Monetary amounts in German currency (Deutsche Mark) are indicated as [DM].

Translator's note on other abbreviations: AG = Amtsgericht [Local Court]; BGBl. = Bundesgesetzblatt [German Federal Law Gazette]; Cc = Codice Civile [Italian Civil Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Fesetzbuche [German Code on the Conflict of Laws]; IPRax = Praxis des Internationalen Privat- und Verfahrensrechts [German Law Journal]; ZPO = Zivilprozeßordnung [German Civil Procedure Code].

** Ruth M. Janal, LL.M. (UNSW), a PhD candidate at Albert-Ludwigs-Universität Freiburg, has been an active participant in the CISG online database of the University of Freiburg.

*** Camilla Baasch Andersen is a Lecturer in International Commercial Law at the Centre for Commercial Law Studies, Queen Mary, University of London and a Fellow of the Institute of International Commercial Law of the Pace University School of Law. She is currently finishing her PhD thesis on the uniformity of the CISG at the University of Copenhagen.