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Reproduced with permission from 16 Journal of Law and Commerce (1997) 345-356

The First Decision of France's Court of Cassation Applying the U.N. Convention on Contracts for the International Sale of Goods:[+]

Claude Witz [++]

Court of Cassation, First Civil Division [*]

January 4, 1995 [+++]

SALES -- International Sales -- Goods -- Vienna Convention of April 11, 1980 [CISG] -- Price Determination -- Initial Price -- Revision Clause -- Market Trends -- Parties' Agreement -- Right of Retention [of goods].

To grant a German seller's request of payment for goods delivered to a French buyer, the Court of Appeals held that the parties had agreed on the goods at issue and on the price, including a revision of the initial price to be subject to market fluctuations, and modifications added to a purchase order which had constituted the subject-matter of the seller's reply.

According to Article 86(1) of the Vienna Convention on Contracts for the International Sale of Goods of April 11, 1980 ("CISG" or "Vienna Convention"), a buyer who has received goods and intends to exercise his right to reject them, is entitled to retain those goods until he has been reimbursed by the seller for his reasonable expenses in preserving them.

The Court of Appeals further held that, given the absence of an agreement as to the existence of an increase or decrease of the market affecting the price, pursuant to the revision accepted in principle, the buyer had agreed to be bound to the price initially agreed upon by the contracting parties.

(Fujitsu Elektronik GmbH Company v. Fauba France Company)

Judgment

THE COURT: Whereas on March 22, 1990, Fauba France Company ("Fauba") [buyer] placed an order for several lots of electronic components with [seller] the German company Fujitsu Mikroelectronik through the intermediary of their agency in France; whereas, due to a disagreement about the price as well as about the delivery dates and contents, [seller] brought an action against [buyer] for payment of the delivered goods; whereas the challenged affirmative judgment (Court of Appeals of Paris, 15th ch. A, April 22, 1992) granted that request;

Regarding the first argument, taken in its two parts:

Whereas [buyer] attacks [the appellate] decision for having so ruled, on the grounds, on the one hand, that a reply which appears to be an acceptance but which contains modifications with respect to the price, quantity of the goods and delivery date, is a rejection of the offer, that in the case at bar, the Court of Appeals held that [seller's] reply to the purchase order of March 22, 1990 constituted an acceptance of the offer, notwithstanding the modifications included in this reply, and thus violated Article 19 of the Vienna Convention; whereas on the other hand, [buyer argues] that a buyer who has received the goods and intends to reject them must take reasonable steps to ensure their preservation; that the Court of Appeals could not, without violating Article 86 of the above-cited Convention, (1) have found fault with [buyer] for not having returned the goods dispatched and (2) thus ordered it to pay for the goods preserved;

But whereas, firstly, the Court of Appeals held that on March 26, 1990, the parties agreed on the goods in question and on the price, including a revision of the initial price as being relative to market fluctuations, and to the modifications made in "item 5" of the March 22, 1990 purchase order which were the subject of the seller's reply of March 23;

And whereas, secondly, according to Article 86(1) of the CISG, a buyer who has received goods and intends to exercise his right to reject them, is entitled to retain those goods until he has been reimbursed by the seller for his reasonable expenses in preserving them; as it happens in the case at bar, [buyer] never alleged having made such expenditures for those of the goods which did not correspond to its purchase orders;

Whence it follows that the argument is groundless.

With respect to the second argument:

Whereas [buyer] further attacks the appellate court's decision, on the basis that the clause by which the final price shall be determined by the parties, with the market trend as sole reference, provides no criterion enabling the determination of the price without a subsequent agreement;

But whereas the Court of Appeals also held that, because of the absence of an agreement as to the existence of an increase or decrease in the market affecting the price, that, pursuant to the revision accepted [by the parties] in principle, the buyer had accepted on May 30, 1990 to be bound to the price initially agreed upon and which was billed; [thus, buyer's] argument cannot prevail.

For these reasons, [the court] denies [the appeal].

Court of Cassation 1st Civil Division, January 4, 1995. . . . Denial of appeal from the judgment of the Court of Appeals, Paris, April 22, 1992 (l5th ch. A).

Commentary

Several fundamental issues of the new uniform law of international sales were at the heart of the suit between [buyer] a French company and a German company, a seller of electronic components. The Court of Appeals of Paris did not deal with them to the extent and with the rigor they deserved.[1] The traditional role of the Court of Cassation, which rules within the limits of the appeal, did not allow the High Court to clarify the ambiguities, nor to correct the errors contained in the decision of the Court of Appeals.

The action that gave rise to the present decision was between a French [buyer] and a German [seller], which one can surmise to be the subsidiary in Germany of the world-famous Japanese computer concern. The purchase order placed by the French [buyer] for several lots of components was dated March 1990, and the reply by the German [seller] was of the same month. After delivery of the goods, the French [buyer], which was sued for payment of the purchase price, denied that a contract ever could have been formed on the ground that the reply of the German [seller] was not an acceptance but a counter-offer. [According to the French buyer,] even assuming that a contract had been formed, it would have to be null and void for lack of a determinable price, because the contract contained a price revision clause.

The first issue raised by the present case is the applicability of the new uniform law of sales. According to Article 1(1) of the CISG, which "applies to contracts of sale of goods between parties whose places of business are in different States: (a) When the States are Contracting States; or (b) When the rules of private international law lead to the application of the law of a Contracting State."[2] The Convention went into effect in France on January 1, 1988, and in Germany on January 1, 1991, without either of those countries opting for the Article 95 reservation, which would have permitted them not to have been bound by Article l(l)(b).[++++] Given the date of the disputed contract (March 1990), the Convention could have been applied only by way of the rules of private international law. But before applying these rules, judges must verify that the first requirement for their application has been fulfilled: that is, the contract must be of an international character. The two places of business, those of the seller and the buyer, must be in different States.

This condition was problematic for the Paris Court of Appeals. The German company claimed that the disputed sale had "occurred between two French companies," the purchase order having been received by a liaison business office of the German company, which is registered at the trade registry of Créteil. The existence of two places of business in different countries was thus disputed. The Convention does not define the concept of a place of business, even though Article 10(1) clarifies it by envisioning that, where a party has more than one place of business, it is appropriate to consider the one which has the closest relationship to the contract and its performance.[3] After recalling the objective of this business entity, the Court [of Appeals] of Paris should have implicitly recognized the seller's lack of a place of business in France: the business liaison office did "not have a corporate status of its own," as it was "simply a commercial office set up in France by the German-regulated company Fujitsu." We would have expected the judges to further reason that it therefore could not be a place of business within the meaning of the Convention.[4] The appellant [buyer] did not attack the lower court's decision on this point, which explains the Court of Cassation's silence with respect to this first condition for the application of the Convention.

As to the application of the rules of private international law, they did not cause any particular difficulties. The judges on the merits applied the solutions of the Hague Convention of June 15, 1955, on the law applicable to the sale of tangible personal property: since the purchase order was received in the country of the buyer's place of business, it is French law -- the law of a Contracting State -- which consequently is applicable. It is thus by virtue of Article l(l)(b), a provision to which neither the [Court of Appeals of Paris] nor the Court of Cassation explicitly referred, that the uniform law on international sales was applied on this occasion.

The judges of the second level were less elliptical when it came to confirming the existence of a valid contact between the parties. In its appeal, the [buyer] maintained that the judges erred both in finding that a contract existed and in finding that it was valid. This finding bound the Court of Cassation to reach a verdict on these two issues [discussed below as issues I and II]. The third criticism formulated by the [buyer] involved the execution of the contract. The [buyer] claimed it received more goods than it ordered. According to the Court of Appeals of Paris, the buyer should have returned the excess goods immediately to the seller company. In its appeal, the [buyer] referred to Article 86 of the Vienna Convention. Even though that provision was only cited as a secondary argument, the Court of Cassation reasoned exclusively on that ground, thus avoiding the fundamental issue raised by the [buyer]. [See III below].

I. The Contract Formation Procedure

A recapitulation of the facts, as determined by the judges on the merits, is necessary in order to understand the holding reached by the Court of Appeals of Paris, as well as the [buyer's] arguments [on appeal] and the resolution reached by the Court of Cassation.

A.

On March 22, 1990, [buyer] placed a purchase order for batches of electrical components at the price previously offered by the supplier but "[t]o be reassessed in relation to market decreases." On March 23, 1990, the [seller] acknowledged receipt of the purchase order, confirming the following points:

"[T]he prices are subject to modification according to market increase or decrease, as agreed. We cannot proceed to record item 5 of the order, as version 70 NS does not yet appear as such a designation. We nevertheless will inform you as soon as possible of our earliest delivery date and we will inform you as soon as we are in a position to accept the first orders."

On March 26, a telephone conversation took place between the parties, and on the same day, the [seller] addressed a telex to its partner, indicating the latter's agreement to modify item 5 of the order as follows: "5,000 units at a price of 12.00DM, deliverable 25K units for April and 25K units in May 90 -- regarding the last item, we will proceed as agreed, with the delivery of the 2000 units in four (4) shipments of 500 units." By a telex of April 13, 1990, the [buyer] again modified its order, a modification which the [seller] on May 18 declared itself unable to accept regarding the short term deliveries.

After receiving the goods, the [buyer] claimed that the contract was never formed. The ground for this assertion must be considered in light of Article 19 of the Vienna Convention regarding the nature and effects of a reply at variance with the offer. Article 19(1) provides that "[a] reply . . . which . . . contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer." Although the principle set forth by this provision is self-explanatory, the implementation of this rule can pose problems. According to Article 19(2), a reply which "contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect."

The Court of Appeals of Paris decided to apply Article 19(2), construing the March 23 letter as an acceptance of the March 22 offer "whose essential terms regarding the possible price revision and delivery times were mentioned above. . . . [T]his reply does not contain terms of a sort which materially alter the terms of the order."

B.

The [buyer] justifiably relied on the violation of Article 19 of the Vienna Convention. Indeed, the Paris Court bypassed Article 19(3), according to which "additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially."

It is clear that the revision relative to an increase, mentioned for the first time in the March 23 correspondence on the one hand, and the carrying forward the delivery date of item 5 of the order on the other hand, are within the scope of the provisions of Article 19(3). The Court therefore should have determined whether the presumption of Article 3 is rebuttable or not. Scholarly opinion is divided. It appears that the majority of scholars characterize the presumption as rebuttable.[5] The basis for this flexible position is ascertainable in light of the present case. If, as the Court finds, upward modification implied a subsequent agreement of the parties, in order that the increase might be implemented, and if it appeared that item 5 of the purchase order corresponded only to an insignificant portion of the contract (it would have been interesting to know the exact proportion), the judges could have found that the March 23 letter was an acceptance.

In a hypothetical situation where the factual elements would have called for a different outcome, the judges could, nevertheless, have held that a contract was formed. According to a finding made by the Court of Appeals, on March 26, [buyer] proposed by telephone modifications regarding item 5 of the order, and such modifications were accepted by the [seller], as evidenced by a telex of the same day. From that point on, instead of holding in a highly questionable manner that the contract was formed at the time of the receipt of the March 23 correspondence, the judges at trial could have established March 26 as the date of contract formation. In other words, instead of viewing a modification of the contract as implicit in the telephone order, it would have been possible to characterize the agreements exchanged on that occasion as forming a contract.

It is indeed in this manner that the Court of Cassation seemed to have reasoned. In prioritizing the finding of the judges below with respect to the March 26 agreement, the High Court distanced itself from the lower court's decision, according to which the contract was formed by the acceptance of the March 22 purchase order. The Court of Cassation nonetheless understandably rejected the argument: the contract having been formed, the triggering element is irrelevant if no interest was attached to the specific date of the contract. Regretably, the Court of Cassation did not clearly indicate its reservations with respect to the Court of Appeals' findings regarding the legal nature of the seller company's written response to the March 22, 1990 purchase order. Those findings were surely subject to challenge in light of Article 19 of the Vienna Convention.

II. The Price

It is hardly surprising that the famous "Franco-French" debate over the price determinable in the sale appears within the context of the first suit regarding the new uniform law of sales. The contract contained a clause for the revision of price in function of an increase or decrease in the market. The [buyer] attacked the Court of Appeals for having held that that clause did not make the price indeterminable. In its second argument, the buyer contended that this clause "doesn't offer any kind of precise, serious or objective element of reference which could make the price determinable without a subsequent agreement by the parties; . . . in so holding, the Court of Appeals violated Article 1591 of the Civil Code."

One should note that traditional French case law is very demanding with respect to the determinable character of price: out of concern for protecting the buyer, the price must not remain under the influence of the seller; if such is the case, the judges deem the price not to be determinable.[6] Clauses providing that the price shall be that of the seller's catalogue on the delivery date, or clauses referring back to the market price each time there is no objective rate for goods are accordingly judged to be void.[7] Fortunately, the Court of Cassation is in the process of abandoning this harsh position. In two decisions of November 29, 1994, the First Chambre civile found that a price clause referring to a supplier's future price list does not render the price indeterminable.[8] Instead of voiding the clause, the Court of Cassation accepts henceforth the validity of such a contractual stipulation, and in case of abuse, subjects it to subsequent judicial scrutiny. A supplier would be abusing its right by applying its price list if it attempted thereby to gain "an illegal profit,"[9] thus violating Article 1134, paragraph 3 of the Civil Code.[10]

By relying on Article 1591 of the Civil Code, the [buyer] implied that the issue of price determination arises, not from the uniform law, but from the internal French law applicable to sales. Article 4 of the Vienna Convention seems to support this: "except as otherwise expressly provided in this Convention, it is not concerned with . . . [t]he validity of the contract or any of its provisions or of any usage. . . . " The interpretation of this provision by the judges on the merits permitted them to sidestep the problem: an effective modification implies a subsequent agreement by the parties. Thus, the price could not have been thought to remain under the [sole] influence of one of the parties. The validity of the clause therefore could not be contested under the aegis of internal French law. The conditions of price determinability that Article 14 of the Vienna Convention requires in order for a proposal to constitute an offer were all met.[11] Thus, the effectiveness of the clause could not have been doubted either under French internal law or under the uniform law of international sales.

The Court of Appeals of Paris did not specify the rules under which it found the clause valid. Although the appellant, in its second argument, referred to Article 1591 of the Civil Code,[12] the Court of Cassation rejected that argument, taking cover behind the lower court judges' interpretation of the clause. No element in the Court of Cassation's decision allows one to discern the basis on which the High Court's reasoning was founded.

It is unfortunate that the Court of Cassation did not take the opportunity which it was offered to discuss the nature of the applicable rules. No doubt the Vienna Convention leaves outside its scope of application validity issues "except as otherwise expressly provided" (Art. 4). Article 14 nevertheless sets forth the required conditions with respect to the determination of quantity and price in order for a proposal to constitute an offer. Article 14 appears to be a complete rule which cannot be circumvented by national case law imposing stricter conditions.[13] It is a pity that neither the Court of Appeals nor the Court of Cassation took a position on this issue. It is regrettable even if the reversal made by the First Chambre civile in its decisions of Nov. 29, 1994 eliminates a portion of the controversy's interest.[14]

III. The Fate of the Excess Goods

The buyer claimed before the judges on the merits that the quantity of goods delivered did not correspond to that in the purchase order. The Court of Appeals cut this argument short by stating that "it was [buyer's] duty to immediately return the surplus goods to [seller]." To better illustrate the disputable character of this assertion, the [buyer] referred to the provisions of the Vienna Convention regarding the preservation of goods, particularly Article 86 which contemplates a situation where the buyer, having received the goods, intends to exercise his right to refuse them: "he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller." The [buyer], therefore, would have the Court deduce from this provision that it was not obligated to return the goods immediately, even though the Vienna Convention required it to take reasonable steps to assure their preservation and recognizes its right of retention to guarantee the reimbursement of his expenses.

The Court of Cassation reasoned solely on the basis of Article 86, pretending to ignore the reasoning which underlies the reference to this provision. Moreover, the Court of Cassation focused solely on the right of retention provided by Article 86 in fine. According to the High Court, Article 86 was without effect since "[Buyer] never alleged having assumed such expenses for those goods which did not correspond to its purchase orders."

This reasoning is very disappointing. The Court of Appeals' holding must be viewed with the most explicit reservations. The legal issue regarding the existence of excess goods should have been decided differently. According to Article 35 of the Vienna Convention, "the seller must deliver goods which are of the quantity, quality and description required by the contract. . . ." The delivery of excess goods is nothing but a lack of conformity, to which the Convention devotes a particular provision. Indeed, Article 52(2) actually provides that

"[i]f the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate."[15]

This norm completes the common law regime applicable to conformity defaults. According to scholarly opinion, a buyer who intends to refuse the excess quantity nevertheless must examine the goods within as short a period as is possible (Art. 38(1)) [**] and give notice of the lack of conformity within a reasonable time period (Art. 39(1)).[16] The loss of the buyer's rights can only come from this authority (Art. 39(1)) and not from a supposed obligation to return the goods immediately. In the absence of giving notice of the defect, the buyer must pay for the excess goods at the contract price.

It is a pity that the Court of Cassation implicitly endorsed the wrong interpretation of the Vienna Convention by the judges on the merits. In light of the overriding need to take account of the case law of the various Contracting States to assure uniform interpretation of the Vienna Convention, foreign observers will be interested in the Court of Cassation's decision.[17] The latter is in danger of being perceived as being the first case law application of Article 86 of the Vienna Convention. Great will be their disppointment when, after much effort, they will have deciphered the decision!

The number of decisions applying the Vienna Convention abroad is increasing.[18] The jurisdictions of the various Contracting States are called on to participate in the creation of a common case law. Case law decisions, however, can only "circulate" abroad if they rest on a well-supported and rigorous rationale. The first decision of the Court of Cassation to have applied the Vienna Convention unfortunately does not meet these requirements. It is unfortunate that the weight of traditions and structural difficulties that our courts must face do not allow French case law to play, at an international level, a role of primary importance in the interpretation of the Vienna Convention. This is even more regrettable in that France was one of the first countries to ratify the Vienna Convention, and because French academic writers have spared no effort to explain, synthesize and closely study the new uniform law.


FOOTNOTES

+ The following is a translation from the French of France's Court of Cassation's Decision of January 4, 1995, and accompanying commentary, originally published in Recueil Dalloz-Sirey (1995), at 289-292, with modifications added for the present version for an international readership. In this piece, the editor's notes are indicated by daggers (+), the translator's notes are indicated by asterisks (*), and the author's notes are indicated by arabic numerals.

++ Professor of Law, University Jean Moulin (Lyon III), détaché to the University of the Sarre.

* France's Court of Cassation is a supreme court. It is divided into six divisions, called chambres, of which five are civil and one criminal. The instant case was heard in the first civil chambre, which specializes in contract law, insurance law, the law of persons and international law. See, e.g., Andrew West et al., The French Legal System 96-99 (1992).

+++ Translated by Vivian Groswald Curran, Assistant Professor of Law at the University of Pittsburgh, School of Law; B.A., University of Pennsylvania; M.A., M. Phil., Ph.D., J.D., Columbia University.

1. T.G.I. Paris, Apr. 22, 1992, Juris-Data no. 24410, available in Claude Witz, Les Premières Applications Jurisprudentielles du Droit Uniforme de la Vente Internationale (1995) app.

2. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, art. 1(1), S. Treaty Doc. No. 98-9 (1983), 19 I.L.M. 668 (1980) [hereinafter CISG] (entered into force on Jan. 1, 1988), available in 15 U.S.C.A. app. at 49 (West Supp. 1996), 52 Fed. Reg. 6262-80, 7737 (1987), Doc. A/CONF. 97/18 (1980).

++++ See Journal of Law and Commerce CISG Contracting States and Declaration Table, 15 J. L. & Comm. 205 (1995).

3. On the idea of place of business, see Karl-Heinz Neumayer et al., Convention de Vienne sur les Contrats de Vente Internationale de Marchandises 41-42 (1993).

4. This showing would have been even more welcome than the first element emphasized by the judges, the absence of a corporate status, which creates a misleading impression: if the seller's liaison office established in France had had corporate status, the existence of two places of business in different States would have been absent.

5. See Christian Mouly, La Formation du Contrat, in La Convention de Vienne sur la Vente Internationale et les Incoterms, Colloque des 1er et 2 Décembre 1989, At 63 (Yves Derain et al. eds., 1990); Neumayer et al., supra note 3, at 181; see also Bernard Audit, La Vente Internationale de Marchandises No. 69 (1990); Philippe Kahn, Vente Commerciale Internationale, in Juris-Classeur Int. Fasc. 565, A-5, no. 65. But see Vincent Heuzé, La Vente Internationale de Marchandises No. 186 (1992).

6. See Collart Dutilleul et al., Contrats Civils et Commerciaux No. 145 (2d ed. 1993).

7. In order for the clause to be valid, the goods must be the subject of an official evaluation (Commodities Exchange) or semi-official evaluation by some entity whose reputation is established; as it is for the Argus evaluations of used vehicles.

8. Cass. le civ., Nov. 29, 1994, J.C.P. 1995, II, 22371, note Ghestin; Cass. le civ., No. 29, 1994, D. 1995, 122, note Aynès. These two cases did not involve a sales contract, but a long-term telephone installation lease. Commentators unanimously agree that the new solution also applies to sales.

9. These are the terms used in the two decisions of November 29, 1994, supra note 8.

10. Article 1134(3): "They (the agreements) must be executed in good faith."

11. See CISG, supra note 2, art. 14(1) ("A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price"); see also Audit, supra note 5, at no. 63; Mouly, supra note 5, at 174.

12. This reference disappears in the summary of the argument used by the Court of Cassation.

13. See Mouly, supra note 5, at 79-80. But see Heuzé, supra note 5, at 174.

14. See supra note 8.

15. See Audit, supra note 5, at no. 99.

** The official English-language version of the CISG refers to a "practicable" period in Article 38(1). Professor Witz uses the word "possible" rather than "practicable" in keeping with the official French-language version of Article 38(1), which contains the word "possible." For a discussion of the substantive significance of differences in the CISG which emerge in its various language versions, see Harry Flechtner, Sources of Textual Non-Uniformity in the U.N. Sales Convention: The Several CISGs, Address to the Third International Workshop on a Legal Expert System for the U.N. Convention on Contracts for the International Sale of Goods (CISG), Washington, DC, May 20, 1995; and Vivian Grosswald Curran, The Interpretive Challenge to Uniformity, 15 J.L. & Comm. 175, 176 (1995).

16. See Neumayer et al., supra note 3, at 363; Michael R. Will, in Article 52 Commentary, Commentary on the International Sales Law: The 1980 Vienna Sales Convention 379, 381-82 (C.M. Bianca & H.J. Bonell eds., 1987).

17. This judgment will be summarized in the journal CLOUT ("Case Law on UNCITRAL Texts") of UNCITRAL, which collects and disseminates information on judicial and arbitration decisions concerning conventions and model laws that emanate therefrom. Summaries are developed by national correspondents designated by their governments -- in France, it is the Bureau for International Law of the Ministry of Justice. The summaries are reproduced by the journal disseminated by UNCITRAL. Although this system is useful, it is far from complete: thus the Paris Court of Appeals' decision, which was the subject of the instant appeal, was not catalogued.

18. See Claude Witz, La Convention de Vienne sur la Vente Internationale de Marchandises à L'épreuve de la Juridprudence Naissante, D. 1995, chronique 143; Witz, supra note 1.


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