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Reproduced with permission from 12 Journal of Law and Commerce 271-275 (1993)

COMMENTARY ON OBERLANDESGERICHT FRANKFURT AM MAIN, 17 September 1991

On January 1, 1988, the United Nations Convention on Contracts for the International Sale of Goods ("CISG") entered into force.[1] The United States of America was one of the first nations to ratify CISG,[2] and, since then, CISG has become effective in more than 30 States. [3] In Europe, CISG has largely replaced the 1964 Hague Conventions relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods and to a Uniform Law on the International Sale of Goods ("Hague Convention on a Uniform Sales Law").[4] Thus, CISG is likely to become the worldwide law governing international sales transactions.

Due to the recent enactment of CISG, only a few courts have had occasion to apply it. However, at least ten German decisions and one Austrian decision deal with CISG, even though CISG entered into force in Germany as recently as January 1991. Why, then, is there such a comparative wealth of CISG cases in the German courts, particularly focusing on Germano-Italian contracts?

Prior to 1991, all of the Germano-Italian cases which arose fell within the ambit of the Hague Convention on a Uniform Sales Law. Italy, however, denounced this Hague Convention pursuant to Article 99(3) when it ratified CISG. German courts, therefore, could no longer apply the Uniform Sales Law because it applies only between Contracting States of the Hague Convention. Thus, German courts, aware that CISG was already in force in Italy, applied CISG whenever German private international law required application of Italian law. In Journal of Law & Commerce Case I, the Oberlandesgericht Frankfurt decision ("Case 1"), the applicability of CISG was based on private international law.

Generally, CISG only applies to transnational sales contracts either where the parties to the contract have their respective places of business in different Contracting States, or where the rules of private international law lead to the application of the law of a Contracting State.[5] The applicability of CISG based on private international law can be confusing since CISG provisions only address "Contracting States." Further adding to the complexity of this issue is Article 95, which permits Contracting States to make a reservation against Article l(l)(b) and effectively withdraw from coverage of this part of the choice-of-law rule.[6]

Although Germany was not a Contracting State at the time of Case 1, the German court correctly applied CISG. Relying directly on German private international law,[7] rather than CISG Article 1, the court correctly applied Italian law to the case. As opposed to the general rule of German private international law, the applicability of a foreign law in contract cases includes only foreign contract law.[8] CISG Article I (and accordingly, Italian law) requires that CISG preempt domestic sales law in transnational cases.[9] CISG, as part of Italian contract law, was thus applied by the Frankfurt court instead of the sales law of the codice civile.

In its ratification of CISG, the United States made an Article 95 reservation as to CISG Article l(l)(b). Despite this reservation. American courts may very well be in a situation to apply CISG based on private international law. Courts of a State which has made such a reservation are not obliged to apply Article l(l)(b). But when a State's private international law requires its courts to apply a foreign law under which CISG is triggered, the court must apply CISG as part of that foreign law.[10]

More generally, CISG is applicable to contracts for the sale of goods[11] and to contracts for the supply of goods to be manufactured or produced, unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.[12] Article 3(1) defines this type of contract somewhat differently not only from the Hague Convention on a Uniform Law for the International Sale of Goods, but from some nations' domestic sales law as well. Because the contract in Case I met both the German definition and the CISG definition, no problems or conflicts arose on this point. Should a court face differing definitions, however, the court must follow CISG Article 3 rather than a particular national contract law.

In applying CISG, the Frankfurt court had to decide whether the buyer was entitled to declare the contract avoided on the grounds that the seller failed to perform his obligations under the contract or CISG.[13] Four separate questions were raised: a) which obligations of the seller, if not performed, constitute a fundamental breach;[14] b) what constitutes a fundamental breach;[15] c) what is a reasonable time period, after knowledge or alleged knowledge of the breach, within which the buyer has to declare the contract avoided if he is not to lose this right;[16] and d) what constitutes impossibility of restitution of the goods, whereby the buyer loses his right to declare the contract avoided.[17]

On the first issue, the Frankfurt court held that the failure to perform any obligation may lead to a fundamental breach. This included the seller's obligation not to exhibit shoes with the "M" designation at a trade fair under circumstances that indicated the shoes could be ordered directly from him. To a reader of the English text ("any of his obligations") or the French text ("l'une quelconque des obligations") of CISG, this result may seem obvious. The German text is not so clear, as it uses the wording "einer Pflicht" or "a duty" instead of "irgendeiner Pflicht" or "any duty." Moreover, another aspect of this question not addressed by the court is that in German law a distinction can be drawn between primary and secondary obligations. The Frankfurt court did not solve this problem by referring to the authentic texts. Instead, the court considered legal literature addressing this issue, but nevertheless found the correct answer to the question. The mere fact that German legal literature alone was considered is of little importance because the German legal literature itself reflects extensive consideration of international legal commentary.

On the second question, the court defined "fundamental breach" by comparing this notion with the similar notion under the German Uniform Sales Act, based on the 1964 Hague Convention. This may not have been the best analysis available, but there seems to be little conflict between CISG and the Hague Convention on this point.

As to the third issue, the court compared the term "reasonable time" [18] with the term "unverzüglich" (prompt) used in German law. Again it is questionable whether this was the best approach. But, in fact, it may prove to be a sound comparison, since whatever meets the harsh "promptness" requirement may also meet the less rigid "reasonableness" requirement. Nevertheless, the court should have clarified why the mailing of the declaration of avoidance was sufficient to meet the time requirement, as this is not the usual practice in all Contracting States. It is by virtue of CISG Article 27 that, "unless otherwise expressly provided . . . delay or error in the transmission of the communication... does not deprive a party of the right to rely on the communication.[19]

The court addressed the fourth issue only in dicta, where it tried to define what constitutes impossibility to make restitution under Article 82, even though the [seller] did not claim impossibility. In substance, however, this would have been consistent with international legal literature discussing CISG which posits that "if it is impossible . . . to make restitution" the buyer can be deprived of his right to have the contract declared avoided only in cases where the impossibility occurred before the declaration.

The final outcome of the case is beyond question. CISG was correctly applied, and the case was correctly decided thereunder. To the international lawyer, this decision may prove helpful in providing some explanation for such important concepts as "fundamental breach," "reasonable time," and "impossible to make restitution," as used in the Convention. More important is the way in which the Frankfurt court reached its results. The court could have given greater weight to the official text and to international legal literature on CISG. Comparing CISG with the court's domestic law is, at the very least, risky, particularly if it leads to the confusion of CISG concepts with national notions of the law. Nevertheless, such comparison may sometimes prove helpful in judicial analysis. Similarly, comparing CISG with the German Uniform Sales Act and the Hague Convention on a Uniform Sales Law may be problematic. On the other hand, such comparison can be advantageous, since both conventions are similar to CISG in many respects. European courts thus may be able to contribute to the development of CISG by utilizing twenty years of experience with the Uniform Sales Law.

Of utmost importance in this case is the court's reliance on legal literature addressing CISG, which, by its very nature, is of an international type. For now, international legal literature on CISG may be the sole link between the courts of the Contracting States, at least until international publication of court decisions applying CISG allows for a truly uniform interpretation, as required by CISG Article 7.

FOOTNOTES

* Professor of Law, University of Augsburg, Germany.

1. U.N. Conference of Contracts for the International Sale of Goods, Final Act (April 10, 1980), U.N. Doc. A/Conf. 97/18, English version reprinted in 52 Fed. Reg. 6264 (1987). The date CISG "entered into force" is calculated as the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession. CISG art. 99(1).

2. The CISG has been in force in the United States since January 1, 1988. See 52 Fed. Reg. 46014 (1987).

3. For an updated list of States in which CISG is in force, see Journal of Law & Commerce CISG Contracting States and Declarations Table, 12 J.L. & Com. 283 (1993).

4. See Journal of Law & Commerce Case I, regarding the denunciation of the 1964 Hague Convention on a Uniform Law on the International Sale of Goods ("Hague Convention on a Uniform Sales Law"). At the time of that decision, the German Uniform Sales Act was still in force in Germany. Germany has now denounced the Hague Conventions and has repealed the German Uniform Sales Act and the Uniform Formation Act pursuant to CISG Article 99(3). The CISG has been effective in Germany since January 1, 1991.

5. CISG art. 1(1).

6. For a compete listing of declarations and reservations by Contracting States, see Journal of Law & Commerce CISG Contracting States and Declarations Table, 12 J.L. & Com. 283 (1993).

7. Einführungsgetz zum Bürgerlichen Gesetzbuch ("EGBGB"), art.28, §: 2, 1st sentence. The EGBGB is the most important supplementary law to the German Civil Code. See TIMOTHY KEARLY & WOLFSON[SIC] FISCHER, CHARLES SZLADITS' GUIDE TO FOREIGN LEGAL MATERIALS: GERMAN 16-29 (2d ed. 1990).

8. As to the confusion arising out of a private international law which does lead into the private international law of the foreign state, see Martin Karollus, UN-Kaufrecht: Hinweise für die Vertragspraxis, JURISTISCHE BLÄTTER 23 (1993); BGHS WIEN, RECHT DER WIRTSCHAFT (1992).

9. CISG art. 1(1)(b).

10. See ROLF HERBER & BEATE CZERWENKA, INTERNATIONALES KAUFRECHT, art. 95, note 2 (1991).