| Decisions of the Federal Court of Justice (Bundesgerichtshof) |
Translation [*] by Alston
& Bird LL.P.
Editors: William M. Barron, Esq.; Birgit Kurtz, Esq.
Plaintiff [seller's assignee] demands payment of the purchase price from defendant [buyer] for a computerized printing system including software arising out of an assigned right.
On November 11, 1992, the [buyer], located in Vienna, ordered a printing system called "dynamic page printer" from Company A [hereinafter seller], located in P. near N. for the total price of DM [Deutsche Mark] 65,100. The unit consisted of a thermal transfer printer, a color monitor, a computer and a software package. [Seller] confirmed the order by letter dated November 22, 1992. With respect to the warranty, the order confirmation contained the following arrangement, which indisputably became part of the contract:
"The warranty covers software and hardware as a unit. The warranty period is 6 months and starts with the non-defective functioning of the system. The start of the warranty period is calculated from the installation and operational handover.
In the event that a subsequent malfunction or a defect appears later, the buyer shall give prompt written notice of this fact to [seller]. . . . If cure of the defect fails twice, the buyer may then, according to his choice, reduce the purchase price or declare the contract avoided."
On January 30, 1993, the printing system was installed at the [buyer's] offices, and on February 8, 1993, it was handed over for the purpose of commencing operation. By letter dated February 9, 1993, the [buyer] already informed [seller] of eight - 4 "open points," among others under Point 4 "Documentation of the Printer," and requested resolution by February 25, 1993 at the latest. [Seller] commented on this by letter dated February 11, 1993; it announced that the delivery of the documentation would take place during the 7th calendar week 1993.
By further letter dated March 2, 1993, the [buyer] complained that despite the additional period of time set until February 25, 1993, [seller] had not remedied the defects listed under Points 1, 2, 3, 5 and 8 of the letter dated February 9, 1993; at the same time, [the buyer] declared the contract avoided "because of non-compliance with the additional time period granted." [The buyer] did not mention the Documentation of the Printer any more.
Until now, the [buyer] has neither in total nor in part paid the purchase price, which was due in installments of 20% upon receipt of the confirmation of the order, of 60% upon announcement of delivery, and of 20% after the installation and operational handover. The Regional Court [Landgericht] granted the claim for payment of DM 65,100 in all respects. On appeal by the [buyer], the Higher Regional Court [Oberlandesgericht] revised the decision of the Regional Court and dismissed the complaint. On appeal, the [seller's assignee] requests that the judgment of the Trial Court be reinstated.
I. The Appeals Court stated: It was not necessary to decide whether the Regional Court had wrongfully assumed its local, and through that, its international jurisdiction, as the [buyer] argues. Pursuant to ZPO [*] § 512, the appeal cannot be based upon this anymore.
On the merits, however, [the Court held] the appeal of the [buyer] was successful. The [buyer] did not owe the purchase price because it was entitled to declare the contract avoided under Art. 49(1)(a) of the Uniform U.N. Sales Law (CISG), which is applicable here; the reason was that the delivered printing system did not meet the requirements of the contract within the meaning of CISG Art. 35 in any case because there was no delivery of a complete documentation. No handbook for the computer was delivered at all. The instructions to the user software given to the [buyer] met the requirements of complete documentation only to a small extent. According to the jurisprudence of the Federal Court of Justice, a complete user handbook was part of the supplier's principal obligation to perform, and the (partial) failure to perform this principal obligation entitles the buyer generally to repudiate pursuant to BGB [*] § 326.
[The Court stated that] the [buyer] had given timely notice of the defect of incomplete documentation. Under an objective and reasonable view, the chosen term "Documentation of the Printer" referred to the entire system, i.e., to the hardware as well as to the software; it was timely and sufficiently detailed. Since [seller] did not deliver complete documentation despite the [buyer's] notice of the defect, the [buyer] repudiated the contract rightfully on account of a fundamental breach of contract.
[The Court held that,] besides -- if it still mattered -- the second attempt to cure the defect failed as well, since the [seller's assignee] also remained inactive after the [buyer's] second demand of August 24, 1994. This letter by the [buyer] was also still timely; specifically, the claim for delivery of complete documentation was not time-barred. Finally, the failure to mention the insufficient documentation in the [buyer's] letter of repudiation dated March 2, 1993 did not constitute a waiver of the right to assert the defect. After all this, the [buyer] (once again) declared the contract avoided by letter dated October 12, 1994, which amounts to an avoidance under CISG Art. 64(1)(a). Therefore, pursuant to CISG Art. 81(1), it was freed from the obligation to pay the purchase price.
II. These statements do not withstand legal scrutiny.
1. The international jurisdiction, which must be analyzed sua sponte at every stage of the proceeding (BGH,[*] decision of February 3, 1993 - XII ZB 93/90 = BGHR [*] ZPO before § 1 / Competence, international, alimony 1), was wrongfully not considered by the court of appeals. The rule in ZPO § 512a cited by the court does not apply to the question of international jurisdiction (BGHZ [*] 44, 46).
The international jurisdiction of German courts follows from the general rules of jurisdiction. Accordingly, the Regional Court of Nürnberg-Fürth, acting as the trial court and constituting the venue of the contractual place of performance, had local and international jurisdiction (ZPO § 29(1)). Pursuant to CISG Art. 57(1), which applies in this case, the disputed purchase price claim (obligation which must be fulfilled at the debtor's address) had to be satisfied at the location of the seller's seat -- P. near N.; the regulation of CISG Art. 57(1)(b), according to which, under certain circumstances, the payment must take place at the location of the handover of the goods, does not apply because the conditions of payment agreed upon -- also regarding the last installment payable after the installation and operational handover of the system -- do not contain a reciprocal and simultaneous [performance] provision in the sense of the mentioned rule.
2. On the merits, the appeal is successful. The Court of Appeals based its opinion, that the [buyer] rightfully declared the contract avoided, only on the failure to deliver complete documentation of which the [buyer] gave notice. The appealed decision cannot be based upon this reasoning.
a). It can be left open, whether the contract concluded between [seller] and the [buyer] is a pure sales contract or a contract for the supply of goods to be manufactured or produced. Pursuant to CISG Art. 3(1), contracts for the supply of goods to be manufactured or produced generally are to be deemed sales contracts; therefore, the warranty provisions of the CISG apply without restriction (Schlechtriem/Herber, CISG, 2d ed., Art. 3 ¶ 3).
b). If the [buyer] has warranty claims against the seller -- and of what kind -- primarily depends upon the warranty terms and conditions of [seller], which became part of the contract. They have priority over the CISG provisions (CISG Art. 6).
The contractual provisions merely regulate the extent, the beginning and the duration of the warranty, the obligation of the buyer to give immediate notice of the defects occurring after the handover, as well as the buyer's right to reduce the purchase price or to declare the contract avoided after attempts to cure failed twice. Apart from that, the warranty provisions of the CISG remain applicable.
aa). The latter initially apply to the timeliness of the notice of those defects that already exist at the goods' handover. To that extent, CISG Art. 38(1) provides that the buyer must examine the goods within as short a period of time as the circumstances will allow. He must give notice to the seller of any defect within a reasonable period after this point in time (CISG Art. 39(1)).
The [buyer] already complained about the "Documentation of the Printer" as an "open point" by letter dated February 9, 1993, i.e., one day after the February 8, 1993 handover of the system and instructions by an employee of the seller. Therefore, the timeliness of the notice is beyond question.
bb). We cannot agree, however, with the court of appeals insofar as it deemed the [buyer's] notice to be detailed enough with respect to the lack of complete documentation for the printer unit.
Pursuant to CISG Art. 39(1) (last clause), the buyer must, in his notice, describe with particularity the kind of lack of conformity with the contract. That way, the seller shall be enabled to get an idea of the kind of breach of contract and to take the necessary steps, e.g., to initiate a substitute or subsequent delivery. On the other hand, the demands of specificity must not be carried too far (Schlechtriem/Schwenzer, supra, Art. 39, ¶ 6). The determination as to whether a notice of defects complies with this standard is primarily made by the trial judge.
The Court of Appeals held that the term "Documentation of the Printer" under Point 4 of the [buyer's] notice of defects dated February 9, 1993 referred to the whole unit including the software. This interpretation does not hold up against the arguments on appeal [here].
Since the printer unit delivered by the [seller] consisted of a thermal transfer printer, a color monitor, a computer and a software package, the term "printer" -- as the court of appeals did not correctly see -- was, without further specification, at least ambiguous because it could relate to the unit as well as to the individual element. Therefore, in order to meet the requirements of CISG Art. 39(1), the [buyer] would have been obligated to describe the defect in such a detailed manner that any misunderstandings were impossible and to enable the seller to determine unmistakably what was meant. Special knowledge on the part of the [buyer] was not necessary for this task because anyone who handles these kinds of systems is able to distinguish the printing system from the printer itself as an individual component. Therefore, the ambiguity of the term "printer" goes against the [buyer].
Up to now, the Court of Appeals has not reached any findings from which one could discern that the parties nevertheless understood the [buyer's] notice of defects unambiguously in the sense of the missing documentation for the entire printer unit. The [seller's assignee's] submission in the lower courts indicates the opposite, i.e., that the notice of defect really only covered the documentation for the printer. The [seller's assignee] already claimed at trial that [seller] had sent the demanded documentation for the printer by letter dated February 22, 1993 in order to settle the notice of defects concerning Point 4 of the letter dated February 9, 1993. It additionally referred to this allegation in its reply to the notice of appeal in an admissible manner (BGH, decision dated October 20, 1992 - VI ZR 361/91 = BGHR ZPO § 520(2)(1), reply to notice of appeal 1, with further citations). If the seller, in reaction to the [buyer's] notice of defects, sent documentation for the "printer" as an individual component -- which must be presumed for the appeal to this court -- and if the [buyer] did not mention Point 4 anymore in its letter of rescission dated March 2, 1903 but objected to five of the formerly eight defects as "not cured," one must infer that what the [buyer] received from [seller] corresponded to what it had asked for in its letter dated February 9, 1993.
In any event, we cannot assume, based on the facts known so far, that the notice of defects dated February 9, 1993 referred to the documentation for the entire printer system with the clarity CISG Art. 39(1) requires in the interests of the seller.
c).
aa). In the opinion of the Court of Appeals, however, the [buyer] had the right to revive the notice of defective documentation by letter dated August 24, 1994 -- after the issuance of the first judgment dated July 26, 1994 -- and to grant the [seller] another period for subsequent improvement.
In this respect, the legal starting point of the Court of Appeals is already incorrect: It assumes that the beginning of the time period is the time of the delivery of the complete documentation and relies on the decision of the Federal Court of Justice dated November 4, 1992 - VIII ZR 165/91 (NJW [*] 1993, 461, 462). In doing so, it overlooks that HGB [*] § 377, upon which the decision was based, refers to the time of "delivery," which requires the complete delivery of the goods into the buyer's sphere of influence (decision of the Federal Court of Justice, supra, at II.2.b). In contrast, CISG Art. 39(1) speaks of a "reasonable time after (the buyer) has discovered or ought to have discovered (the lack of conformity of the goods)." Recourse to the mentioned jurisprudence is, therefore, for this reason alone not possible.
It is obvious, that the limitations period of CISG Art. 39(1) had run by August 1994; upon a reasonable examination, the [buyer] could have, within a short period of time, recognized the complained-of alleged breach of contract regarding "the documentation, i.e., the operating or service instructions," which was noticed in the letter dated August 24, 1994. The question whether this period of time had expired on the day of the [buyer's] letter of repudiation dated March 2, 1993, can be left open (for the calculation of the time period during which to give notice, compare BGHZ 129, 75, 85 et seq.). It can further be left open whether the [buyer] has forfeited its right to give notice of defects by basing its repudiation exclusively on other defects, without reserving its right to raise warranty claims concerning any defects with respect to the documentation. The Court of Appeals' assumption that the [buyer] validly declared the contract avoided in its letter dated October 12, 1994 after the notice of defects dated August 24, 1994 and the failure to cure, is therefore incorrect.
bb). Insofar as the Court of Appeals reasons that the [buyer's] repudiation "amounts to an annulment within the meaning of CISG Art. 64(1)(a)," it must be noted for clarity purposes that this provision refers to the seller's right to repudiate. Here, however, we are only looking at the question whether the [buyer] in his role as the buyer was able to declare the contract avoided. As long as we do not deal with contractual conditions that have precedence, this must be answered pursuant to CISG Art. 49.
Moreover, the Court of Appeals did not consider -- as the appeal has rightly claimed -- whether the [buyer's] repudiation dated October 12, 1994, was already null and void simply because it was not declared vis-à-vis the seller but only vis-à-vis the [seller's assignee]. The [seller's assignee] only became the owner of the purchase price claim by assignment. A transfer of the contract did not take place.
3. The Court of Appeals judgment can therefore not be valid (ZPO § 564). This panel cannot finally decide the matter because the determination of further facts is necessary. In both lower courts, the [buyer] gave notice of further defects concerning the functioning of the system. On remand, the Court of Appeals will have to consider whether those defects of the system justify the repudiation of the contract because of a fundamental breach of contract pursuant to CISG Art. 49(1)(a) or a repudiation pursuant to the seller's terms and conditions of warranty. Therefore, the matter must be remanded to the lower court (ZPO § 565(1)(1)).
* For purposes of this translation, the Plaintiff of Germany is referred to as [seller]; the Defendant of Austria is referred to as [buyer]. Amounts in German currency (Deutsche Mark) are indicated as [DM].
Translator's note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGH = Bundesgerichtshof [Federal Court of Justice]; BGHR = Systematische Sammlung der Entscheidungen des Bundesgerichtshofs (LBl) [Systematic Collection of Decisions of the Federal Court of Justice (looseleaf)]; BGHZ = Entscheidungen des Bundesgerichtshofes in Zivilsachen (amtliche Sammlung) [Official Reporter for Decisions of the Federal Court of Justice in Civil Matters]; HGB = Handelsgesetzbuch [German Commercial Code]; NJW = Neue Juristische Wochenschrift [a weekly law journal]; ZPO = Zivilprozeßordnung [German Code of Civil Procedure].
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