3 April 1996,
For a summary of the facts see C 35-3 above.
II. These findings withstand the test of legal review in all major points.
a) The Court of Appeals also correctly held—and was insofar unchallenged by the final appeal—that only Art 49 CISG can constitute the legal basis for the [buyer’s] avoidance of contract. An application of Art 72 CISG is not possible, because the [seller] complied with his contractual obligation to store the goods in a warehouse in Antwerp and to notify the [buyer] that she could pick up the goods, while at the same time sending the documents. With this, the [seller] performed his delivery obligation, even though this performance was defective. Thus, there is no room to assume only an imminent future breach of contract, which is required for the preventive avoidance of contract under Art 72.
b) Nevertheless, the [buyer] in her appeal expresses the opinion that the seller can only request payment of the purchase price if he fulfills his obligation to deliver goods that conform to the contract (Art 30 CISG). Buyer alleges that as long as the seller does not submit and, if necessary, prove such delivery of conforming goods, the breach constitutes a case of non-delivery, entitling the buyer to avoid the contract under Art 49(1)(b) CISG. Therefore, [buyer] asserts that it is irrelevant whether the [seller’s] breach of contract was fundamental in the sense of Art 25, 49(1)(a) CISG.
c) aa) As a legal basis for the [buyer’s] avoidance of the contract, only the provision of Art 49(1)(a) CISG remains. This provision states that the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract amount to a fundamental breach. A breach is fundamental according to the definition of Art 25 CISG, if it results in such a detriment to the other party, as to substantially deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. Basically, contractual obligations of every kind are to be considered for the determination of a substantial contractual interest, irrespective of whether they constitute a main or ancillary obligation or concern quality, quantity, time of delivery or other manners of performance. The agreement of the parties is of first and foremost relevance (Art 35(1) CISG). Except where the parties have agreed otherwise, the goods do not conform with the contract unless they are fit for the purposes for which goods of the description would ordinarily be used; unless they possess the qualities of goods which the seller has held out to the buyer as a model or sample; and unless the goods are packed in the usual and necessary manner (Art 35(2) CISG). If the non-conformity results from a divergence from the contractual quality or another deficiency of the goods, it needs to be ascertained whether a different method of processing or sale of the goods was possible and reasonable in the normal course of business, even if it had to be combined with a price reduction.
bb) For the final appeal proceedings, it has to be assumed that the goods delivered by [seller] did not conform with the contractual agreement pertaining to their origin and condition. However, as the Court of Appeals correctly stated, the [buyer]—who is insofar burdened with the obligation to submit and prove the facts—did not substantially submit that she was substantially deprived of what she was entitled to expect under the contract as a result of the [seller’s] breaches.
cc) The [buyer] did not make use of the—useful—opportunity to expressly state in the contracts which obligations she considered essential. An implicit agreement to this extent cannot be concluded from the circumstances of the contracts.
dd) In the absence of express contractual stipulations, the Court needs to determine whether the seller’s breach of contract substantially deprives the buyer of what she was entitled to expect under the contract. In doing so, regard is to be had to the CISG’s tendency to limit avoidance of contract in favor of other possible remedies, in particular a reduction of the purchase price or a claim for damages (Art 50, 54(1)(b) CISG). As the Court of Appeals correctly stressed, avoidance of contract is only supposed to be the [buyer’s] last resort to react to a breach of contract by the other party which is so grave that the [buyer’s] interest in the performance of the contract essentially ceases to exist. Only if the buyer has substantiated and, if necessary, proven these prerequisites, does the question arise whether the seller foresaw or could have reasonably foreseen this result. This has to be assumed according to Art 25, last part of the sentence, CISG.
The [buyer’s] appeal holds that it is solely decisive for the differentiation between a fundamental and a non-fundamental breach whether the defect can be remedied by the seller. The Court does not follow this position. The present case does not warrant a decision on whether the possibility of a subsequent remedy of the goods excludes the assumption of a fundamental breach, either completely or for a period of time. Even if, as in the dispute at hand, a subsequent remedy of the non-conformity is impossible, it does not necessarily follow that the [buyer’s] performance interest essentially ceases to exist (quite independent of the kind and extent of the non-conformity). ‘Fundamental’ in the meaning of Arts 49 and 25 CISG requires a considerable breach of contract—both when interpreting the wording, and when looking at the purpose of the CISG’s provisions regarding the buyer’s legal remedies. Such gravity can be derived from the contract itself, from the relevant circumstances (Art 8 CISG), or from the reasons listed in Art 35(2) CISG. If a considerable breach does not follow from these criteria, then even a defect of the goods which cannot be remedied does not entitle the buyer to avoid the contract under Art 49(1)(a) CISG.
It is mainly up to the trial judge to determine whether a breach of contract is deemed fundamental according to the above standard. The circumstances of the case are always decisive. In particular, it has to be considered whether it can be expected for the buyer to put the goods to another reasonable use. The Court of Appeals has followed these principles. Thus, its finding that in the present case there is no fundamental breach cannot be rejected as an error of law.
aaa) Concerning the origin of the goods: The [buyer’s] submission that she exports and sells ‘primarily’ to India and South East Asia and that she would have had ‘unforeseeable’ difficulties there due to the South Africa embargo, is not sufficient to demonstrate that the possibility to export the goods to one of these countries constituted an essential part of the contract for her. The [buyer] neither named potential customers in one of these countries nor specified her previous export business, nor did the [buyer] submit that a disposal in Germany or an export to another country was not possible or only possible with unreasonable difficulties.
bbb) Concerning the condition of the goods, the above said also applies. A remedy of the goods (removal of the auxiliary flow) is not possible. Not even the [buyer] submits that a certain quality was expressly agreed upon (Art 35(1) CISG). But the [buyer] pleaded and offered corresponding proof that, failing the specification of a certain condition, technical quality was agreed upon (Art 35(2)(a) CISG). However, under the present circumstances it cannot be concluded that the—allegedly non-conforming—delivery of cobalt sulfate with auxiliary flow (fodder quality) constitutes a fundamental breach in the meaning of Art 49(1)(a) CISG. A major indication to the contrary is the fact that the [broker’s] final remark on the contract of 10 January 1992 (concerning the delivery of 2,000 kg cobalt sulfate 21%) regarding the description of goods contains the addendum ‘feed grade’. The [buyer] did not object to this specification.
e) It is questionable, whether—as the [buyer] asserts—the fraudulent foisting of non-conforming goods (here: South African origin) always constitutes a fundamental breach of contract under Arts 25, 49 CISG. The question does not have to be decided in the present case, as the [buyer] did not show any fraudulent behavior by the seller. Such behavior would require that the seller consciously took advantage of the [buyer’s] alleged ignorance of the South African origin of the goods. The [buyer] pleaded and rendered proof that neither she, nor the broker knew that the cobalt sulfate delivered by the [seller’s] supplier, firm M, is produced exclusively in South Africa, and that this was also not general knowledge. Furthermore, the [buyer] holds that the [seller’s] assertion that firm M only delivers cobalt sulfate stemming from South Africa is incorrect. The [buyer’s] submission has to be interpreted—following its general context—in the way that the supplier also deals with English goods. This assumed, there was still no fraudulent behavior on the part of the seller. The [buyer] neither submitted nor provided any proof that the [seller] had ordered South African goods from firm M or even knew that the delivery was going to be made from there. On the other hand, if one follows the [seller’s] argument that firm M exclusively distributes cobalt sulfate produced in South Africa and affixes an English certificate of origin, then the assumption of fraudulent behavior fails for lack of the subjective requirements. If this was the case, there would be a misconception about the origin of the goods on the part of the [buyer], but not a conscious exploitation of this misconception on the part of the [seller]. The [seller] submitted—undisputed by the [buyer]—that the [buyer] was aware of these practices. In doing so, the [seller] plausibly explained the incorrectness of the origin of the goods, which consisted either already in the contractual agreement about goods stemming from England, or at the latest in the delivery of a false Certificate of Origin. It would have been the task of the [buyer] to contradict this explanation.
f) Thus the [buyer] did not substantially submit a tortious act by the [seller]. Contrary to the [buyer’s] opinion, the Court of Appeals consequently did not have to examine whether the [buyer] was entitled to refuse payment of the purchase price under the aspect of damages from tort under German or Dutch domestic law.
What circumstances of the above case (C 49-1) did the court consider and how did it treat them when dealing with fundamental breach?
(a) Express Stipulations
It is up to the parties to stipulate what they consider to be the essence of the contract. If the seller then fails to deliver in accordance with the express stipulations given, it cannot argue that it did not foresee any detriment that occurs to the buyer.
Oberlandesgericht Stuttgart (Germany),
12 March 2001,
The appeal is not successful.
II. The Court furthermore agrees with the district court that the [seller] was unable to prove that the delivered apple juice concentrate conformed to the contract at the time of the passing of risk. […] III. In the opinion of the Court, the [buyer] was nevertheless not entitled to declare the contract avoided by virtue of Art 49 CISG.
1. Regarding goods that do not conform to the specifications of the contract, the CISG does not distinguish between the delivery of defective goods and the delivery of different kinds of goods. The delivery of an aliud does in any case not constitute a non-delivery in the meaning of Art 49(1)(b) CISG. Therefore, the avoidance of contract can in the present case only be based upon Art 49(1)(a) CISG. In the Court’s opinion, the [buyer] is not entitled to declare the contract avoided because there is no fundamental breach of contract in the meaning of Art 49(1)(a) CISG. Following the definition in Art 25 CISG, a breach of contract is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind could not have foreseen such a result. The goods delivered by the [seller] had been mixed with glucose syrup and could therefore no longer be referred to as apple juice concentrate; drinks produced from it could not be traded as apple juice. Consequently, the goods did not conform to the contract. If the breach of contract—as in the present case—consists of a lack of conformity of the goods, it is decisive whether the buyer was without unreasonable expenditure able to process the goods differently or sell them in the normal course of business, if only with a price discount, and if the buyer could reasonably be expected to take such measures. It is true that the [buyer] submitted before the Court of First Instance that her customer, company S., had been unable to use the delivered concentrate, so that the goods had to be destroyed. However, before the first hearing in the appellate proceedings, the [buyer]’s attorney in his brief of 6 April 2000 pleaded that the goods were in the end used—in a permissible way—for the production of apple fruit drinks after all [translator’s note: these drinks, in contrast to ‘apple juice’ may contain sugar additives]. It is the Court’s opinion that the fact that [buyer]’s customer did in the end process and trade the goods speaks against assuming a fundamental breach of contract in the meaning of Art 49(1)(a) CISG in the present case.
2. Even if the delivery of the sugared goods was to be considered a fundamental breach of contract in the meaning of Art 49(1)(a) CISG—an opinion that could be based upon the fact that the [buyer] explicitly ordered apple juice concentrate, which was why the [seller] had to assume that the receipt of unsugared goods usable for the production of apple juice mattered to the [buyer]—the [buyer] would still not have been entitled to declare the contract avoided.
It needs to be said that the [buyer] did not lose the right to declare the contract avoided under Art 49(2)(b). [Buyer] declared the avoidance of contract with letter of 26 March 1997. This was after the additional period of time for the delivery of goods that conformed to the contractual specifications—which had been set on 19 March 1997 in accordance with Art 47 CISG until 26 March 1997—had expired without the [seller] performing a substitute delivery. If one assumes a fundamental breach of contract, the requirements for the setting of an additional period of time for the delivery of substitute goods in the meaning of Art 46(2) CISG are met: The [seller] was notified of the lack of conformity of the delivered concentrate with [buyer]’s letter of 29 January 1997 and the [buyer] required the [seller] to make a substitute delivery with letter of 26 February 1997.
(b) Purpose for which Goods are Bought
28 October 1998,
Three German sellers and a Swiss buyer concluded a contract for the sale of meat to be further resold on the Egyptian market. After delivery the buyer complained about non-conformity of the goods caused by an excess of the fat and moisture content of the meat and declared the contract terminated. In the notice of non-conformity the buyer also offered to take delivery of the goods at a reduced price. As the buyer refused to pay the price the sellers filed suit against the buyer to recover the purchase prise plus interest. The buyer counterclaimed damages determined by defects of the goods and loss of profits.