CISG-online 651

Jurisdiction Germany

Tribunal Bundesgerichtshof (German Supreme Court)

Date of the decision 09 January 2002

Case no./docket no. VIII ZR 304/00

Case name Milk powder case

Translation* by Birgit Kurtz

Facts of the case:

The plaintiff [buyer 1] and the assignor [buyer 2], both located in the Netherlands and trading 1
in dairy products, purchased a total of 2,557.5 tons of powdered milk in the first half of 1998,
based on a number of contracts, from defendant [seller 1], which is headquartered in Ger-
many, and its major shareholder [seller 1A]. Of this powdered milk, [buyer 1] and [buyer 2]
sold 7.5 tons to the Dutch company I. and 2,550 tons to the Algerian company G.I., owned by
P.L. S.p.A. (hereinafter G. S.p.A.), formerly known as O.R. S.p.A.

The contents of the telephonic orders were recorded by [buyer 1] and [buyer 2] and/or by 2
[seller 1] and [seller 1A] in written confirmations. The letters of confirmation of delivery of
[seller 1] and [seller 1A] (whose production facility in L. [seller 1] acquired in the beginning of
1998 with all existing contractual relationships) each contained in the footer the following
text:

«We sell exclusively pursuant to our general terms and conditions. Contrary statutory
conditions or contrary general terms and conditions of the buyer are expressly not
acknowledged and are therefore not part of the contract.»

The terms and conditions at issue contain the following warranty clause: 3

«VI. Warranty and Notification of Defects

The buyer must inspect the goods immediately upon delivery and note any complaints
on the delivery note…

*
All translations should be verified by cross-checking against the original text. Amounts in German currency
[Deutsche Mark] are indicated as [DM]; amounts in Dutch currency [Dutch florin] are indicated as [Hfl].
Translator’s note on other abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGH = Bun-
desgerichtshof [German Federal Supreme Court]; BGHZ = Die amtliche Sammlung der Entscheidungen des Bun-
desgerichtshofes in Zivilsachen [Official Reporter of Decisions of the German Federal Supreme Court in Civil Mat-
ters]; NJW = Neue Juristische Wochenschrift [German weekly law journal].

Birgit Kurtz is an attorney in New York City (USA).
 CISG-online 651 (Translation)

Defects that are not noticeable at the time of delivery can only be claimed before the
printed expiration date…
The buyer must make available the goods at issue or enough samples of the goods at
issue; if he does not do so, the buyer cannot make any warranty claims.»

Condition No. 8 in the so-called M.P.C. conditions referred to by [buyer 1] provides: 4

«Section 10. Sampling and Complaints

Notwithstanding any duty of the seller to pay back the purchase price, or a part
thereof, the liability of the seller for damages suffered (and/or to be suffered) is at all
times limited to the invoiced amount for the delivered goods.»

The powdered milk, which was packaged and delivered by [seller 1], was inspected through 5
spot-checks by [buyer 1] and/or [buyer 2] with the assistance of «I.S. Nederland B.V.» (here-
inafter «I.S.») without any special results, then it was newly palletized in the harbor of Ant-
werp and thereafter shipped to Algeria and, to the extent it was sold to I., to Aruba/Nether-
land Antilles.

After local subsidiaries of G S.p.A. processed the powdered milk delivered to Algeria, some of 6
the produced milk had a rancid taste. Thereupon, G. S.p.A. complained to [buyer 1] and [buyer
2] about a total of 207.6 tons of powdered milk as well as part of the powdered milk that had
already been processed into 10,000 liters of milk. On 24 June and 19 August 1998, represent-
atives of G. S.p.A., of [buyer 1], of [buyer 2] and of [seller 1] had several meetings in A. to
clarify the question of the compensation for G. S.p.A. The result of these negotiations, during
which [buyer 1] and [buyer 2] each promised certain compensation to G. S.p.A., was recorded
in four «minutes of amicable settlement»; these documents were also signed by the repre-
sentative of [seller 1].

By letter dated 24 August 1998, the legal department of [seller 1A], which was entrusted by 7
[seller 1] with the resolution of the matter, informed [buyer 1] and [buyer 2] of the following,
among other things:

«We acknowledge that a partial quantity of 177 tons of the total quantity of 3,495 tons of
powdered milk, delivered pursuant to the letters of confirmation of delivery dated … did
not meet the contractual requirements.
«We do not deny that you have warranty claims because of the quality deviation, but the
following two aspects must be considered:
1. […]
2. All letters of confirmation of delivery mentioned above refer to our general terms
and conditions, which must therefore govern our legal relationship. Thus, S. AG does
not have to deal with any warranty or damages claims raised by company G.

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 CISG-online 651 (Translation)

«… We expressly emphasize here that we are willing to rescind the contractual relationship
with you and/or company A. because of the 177 tons of inadequate powdered milk. Fur-
ther claims that company G. may raise against you or company A. are not substantively
justified and will not be accepted by us.»

By letter dated 1 September 1998, [buyer 2] claimed damages from [seller 1] in the amount 8
of $198,150.36; it assigned this claim to [buyer 1] on 30 November 1998.

Company I. also complained to [buyer 1] regarding the delivery of 7.5 tons of powdered milk
because of, among other things, a sour taste of the powdered milk, and claimed damages in
the amount of Hfl [Dutch florin] 29,256, which [buyer 1] paid.

[Buyer 1] alleged that the rancid taste, noticed by the ultimate buyers, was caused by an in- 9
festation of the powdered milk by lipase that already existed at the time of the transfer of the
risk as a result of the faulty processing of the milk. [Translator’s note: lipase is an enzyme.]
This defect was only noticeable after the delivery and was immediately complained of by it.
[Seller 1] acknowledged its warranty in the agreements recorded in Algeria as well as in its
letter dated 24 August 1998. Under the rules of the CISG, [seller 1] is liable for the damages
incurred by [buyer 1] and [buyer 2] that resulted from the payment of damages to the ultimate
purchasers and the travel costs for the meeting in A., totalling DM [Deutsche Mark]
780,506.46; this was not excluded by [seller 1]’s general terms and conditions of delivery.

[Seller 1] alleged that the lipase infestation of the powdered milk delivered to Algeria first 10
occurred after the transfer of the risk, or at least it was not caused by it. The powder delivered
to company I. could not be consumed because of an insect infestation. In any case, the appli-
cation of the CISG is excluded by its general terms and conditions. Thus, the German BGB
governs, with the consequence that [buyer 1] has no claim for damages because the delivered
powdered milk did not lack an assured quality.

The District Court [Landgericht] dismissed the complaint for payment of the above-referenced 11
amount. On appeal by [buyer 1], the Court of Appeal [Oberlandesgericht] granted the claim in
the amount of DM 633,742.45 – after obtaining an oral expert opinion regarding the cause of
the defect – and dismissed the appeal as to the rest, especially insofar as the complaint con-
cerns the last partial delivery to G. S.p.A. on 6 July 1998 (650 tons) and the delivery to com-
pany I. On appeal to the Supreme Court, [seller 1] continues to request the dismissal of the
case in its entirety.

Grounds for the decision:

I.
The Court of Appeal stated in essence:

The warranty claims asserted by [buyer 1], based on its own rights and on rights assigned to 12
it, are justified according to the rules of the CISG. The CISG was neither totally nor partially
replaced by the General Terms and Conditions and Delivery Conditions of [seller 1] nor by the
M.P.C. conditions used by [buyer 1]. The latter did not become part of the agreements with

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 CISG-online 651 (Translation)

[buyer 2] and was also altogether superseded by the rejection clause in the General Terms
and Conditions of [seller 1]. The fact that the mutual general terms and conditions partially
contradicted each other did not prevent the existence of the sales contracts because the par-
ties did not view this contradiction as an obstacle to the execution of the contracts.

[Seller 1] must pay damages under Arts. 74, 75 CISG because 177.6 tons of the delivered pow-
dered milk must be considered defective, the defects were claimed in time and the liability of
[seller 1] was not excluded under Art. 79 CISG. According to the expert report of Prof. Dr. F.,
the powdered milk was infested by lipase. Because [seller 1] acknowledged the defect in
177.6 tons of powdered milk by letter dated 24 August 1998, which caused a reversal of the
burden of proof according to the applicable (non-CISG) German law, it was its duty to show
and prove that the powdered milk met the requirements of the contract at the time of the
transfer of the risk. [Seller 1] did not submit such evidence. According to the expert report of
Prof. Dr. F., it cannot be ruled out that the powdered milk was infested by inactive lipase at
the time of the transfer of the risk. This assumption was not changed by the considerations of
the private expert Prof. Dr. B. (who was retained by [seller 1]), which are based on the fact
that no lipase activity was diagnosed in the analysis of the powdered milk by I.S.; that is so
because the expert does not deal with the question whether the contamination by inactive
lipase could have been determined. Therefore, the commissioning of another report, as re-
quested by [seller 1], is not necessary, the more so since the expert Prof. Dr. F. has testified
that, in 1998, there was no scientifically accepted method to quantitatively determine inactive
lipase in powdered milk.

The assertion of [seller 1] about the comprehensive sensory, physical and microbiological ex- 13
amination of the powdered milk, carried out in its facilities, can be assumed to be correct,
because also through this examination, knowledge could also not be gained about the exist-
ence of inactive lipase. Even if – as asserted by [seller 1] – the powdered milk was stored in
Algeria at high temperatures and very high humidity, according to the statements of the ex-
pert Prof. Dr. F., it must remain undecided whether the cause of the spoiled flavor commenced
first after the transfer of the risk or whether the powdered milk was infested by lipase from
the outset. At least to that extent, a new trial is not necessary because the improper storage
is only one possible explanation for the spoiled flavor, which does not, however, exclude the
oxidation processes caused by lipase.

Finally, a contamination by inactive lipase that already existed at the time of delivery cannot
be excluded by the fact that the lipase-induced taste allegedly appeared already at the time
the powdered milk was mixed because that could be easily explained with inactive lipase ex-
isting in the powdered milk.

[Seller 1] did not sufficiently set forth the requirements of an exemption from the duty of 14
compensation under Art. 79(1) CISG. It may remain open whether this rule can generally be
applied to goods that do not meet contractual requirements; in any case, [seller 1] did not
show that the causes for the inactive lipase were outside its sphere of influence. It is true that,
because of the expert report of Prof. Dr. F., it can be ruled out (in favor of [seller 1]) that the
powdered milk was infested by lipase-forming microorganisms or by inactive lipoprotein-li-

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 CISG-online 651 (Translation)

pase (at the time of the transfer of the risk). But there is still the possibility of the contamina-
tion by inactive lipase, which must have developed either in the milk that was delivered by
the milk producers, or in the production process at [seller 1]’s facilities; [seller 1] is liable for
either.

In addition, [seller 1] also did not show that it was unable to avoid the lipase infestation. It is
true that, according to the expert report, it must be assumed that, even with the highest dili-
gence, the existence of heat resistant lipase in the powdered milk cannot be ruled out with
certainty. That does not, however, say anything about the question whether the undisputedly
existing lipase was caused by a development that was fateful for [seller 1] or by the failure to
comply with optimal standards.

The amount of damages granted must not be diminished because of a violation of a duty of
[buyer 1] and [buyer 2]. [Seller 1] has agreed to the stipulated resolution of the damages ques-
tion between [buyer 1], [buyer 2] and G. S.p.A., and it therefore cannot now argue that the
defective powdered milk cannot be returned to it.

II. 15
These elaborations do not withstand legal scrutiny on all points. Because of the current status
of the facts and the dispute, it cannot be ruled out that the defects in the powdered milk are
based on causes for which [seller 1] is not liable under Arts. 36, 45, 74 CISG.

1. 16
The Court of Appeal, however, correctly assumed that the compensation rules of the CISG for
the claims of [buyer 1] are not excluded by its General Terms and Conditions («M.P.C. condi-
tions»), which provide considerable limitations of liability for the seller, inter alia, by restrict-
ing any compensation to the amount invoiced for the delivered goods.

a) 17
The Court of Appeal correctly assumed that the partial contradiction of the referenced general
terms and conditions of [buyer 1] and [seller 1] did not lead to the failure of the contract within
the meaning of Art. 19(1) and (3) CISG because of the lack of a consensus (dissent). His judicial
appraisal, that the parties have indicated by the execution of the contract that they did not
consider the lack of an agreement between the mutual conditions of contract as essential
within the meaning of Art. 19 CISG, cannot be legally challenged and is expressly accepted by
the appeal.

b) 18
The Court of Appeal further correctly stated that the warranty clauses in the M.P.C. conditions
used by [buyer 1], which are beneficial to [seller 1], were replaced by the rejection clause of
[seller 1]. The objections raised by the appeal in this regard are not persuasive.

The question to what extent colliding general terms and conditions become an integral part 19
of a contract where the CISG applies, is answered in different ways in the legal literature. Ac-
cording to the (probably) prevailing opinion, partially diverging general terms and conditions
become an integral part of a contract (only) insofar as they do not contradict each other; the
statutory provisions apply to the rest (so-called «knock-out theory» [Restgültigkeitstheorie];
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 CISG-online 651 (Translation)

e.g., Achilles, Komm. zum UN-Kaufrechtsübereinkommen [Commentary to the CISG], Art. 19

para. 5; Schlechtriem/Schlechtriem, CISG (3d ed.), Art. 19 para. 20, esp. p. 226; Staudin-
ger/Magnus, CISG (1999), Art. 19 para. 23). Whether there is such a contradiction that im-
pedes the integration, cannot be determined only by an interpretation of the wording of indi-
vidual clauses, but only upon the full appraisal of all relevant provisions. The appeal misun-
derstands this when it wants to compare only the limited rejection clause of [seller 1] to
[buyer 1]’s warranty clauses, which are favorable to [seller 1]. As the Court of Appeal has cor-
rectly determined, the Dutch M.P.C. conditions contain substantial deviations from the CISG’s
warranty rules - which would essentially remain applicable based on the General Terms and
Conditions of [seller 1] – and it cannot be assumed that [buyer 1] wanted to have the M.P.C.
conditions, which are internally balanced, apply to it insofar as they are noticeably more det-
rimental than the statutory provisions without having the benefit of the clauses that are fa-
vorable to it. Vice versa, there is nothing to show that [seller 1] wanted those clauses of the
M.P.C. conditions that are unfavorable to it apply to the contracts.

The result is no different if one follows the contrary opinion («last shot» doctrine; re. the cur- 20
rent status of opinions and the concerns against the application of this theory where the CISG
applies, compare Schlechtriem/Schlechtriem, supra, para. 20 and fn. 62). Certainly under the
point of view of good faith and fair dealing (Art. 7(1) CISG), [seller 1] should not have assumed
that the question whether certain provisions of the opposing terms and conditions contra-
dicted its own (even insofar as it served its Terms and Conditions last) could be answered in
isolation for individual clauses with the consequence that the individual provisions that were
beneficial to it would apply.

2. 21
We also reject as unsubstantiated the argument in the appeal to this Court that the Court of
Appeal incorrectly placed the burden of proof on [seller 1] for the allegation that the partial
amount of 177.6 tons of the delivered powdered milk met the requirements of the contract
at the time of delivery.

a) 22
According to the case law of the Panel [of the Federal Supreme Court] referenced by the Court
of Appeal, where the CISG applies and where the goods were accepted by the buyer without
any complaints, it is the buyer who must show and prove that the goods did not meet the
contractual requirements, and it is not the seller who must show and prove that the goods
met the contractual requirements (BGHZ 129, 75, 81). It is true that, in the instant case, no
claim was made at the time of delivery. But the Court of Appeal correctly assumed that the
letter from [seller 1A] dated 24 August 1998 led to a reversal of the burden of proof.

The appeal objects to this holding mostly with the argument that the CISG also regulates the 23
question of the burden of proof, so that any recourse to the national laws is blocked; [the
appeal argues that] the CISG does not, however, contain a reversal of the burden of proof
based on actual admissions of liability. [The appeal argues, that] thus, the rule/exception prin-
ciple, which applies to all burdens of proof where the CISG applies, remains. [The appeal ar-
gues that,] as a consequence, [buyer 1] must prove that the goods were already defective at

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the time of delivery; [the appeal argues that] the uncertainty acknowledged by the Court of
Appeal therefore had be detrimental to [buyer 1]. This argument cannot be followed.

b) 24
The starting point of the appeal to this Court is correct, that the CISG regulates the burden of
proof explicitly (e.g., in Art. 79(1)) or tacitly (Art. 2(a)), so that consequently, recourse to the
national law is blocked to that extent, and that the CISG follows the rule/exception principle
(compare in detail Baumgärtel/Laumen/Hepting, Handbuch der Beweislast [Manual of the
Burden of Proof], Vol. 2 (2d ed.), Introduction before Art. 1 CISG, paras. 4 et seq. and 16 et
seq.; Achilles, supra, Art. 4 para. 15; Schlechtriem/Ferrari, supra, Art. 4 para. 48 et seq.; Stau-
dinger/Magnus, supra, Art. 4 paras. 63 et seq.; also Panel [of the Supreme Court] decision
BGHZ 129, 75, 81).

The appeal to this Court overlooks, however, that the burden of proof rules of the CISG cannot 25
go farther than the scope of its substantive applicability. That scope results from Art. 4(1) CISG;
according to that provision, the CISG regulates exclusively the execution of the sales contract
and the duties and responsibilities of the buyer and the seller resulting from that contract.
The question whether and possibly which evidentiary consequences an actual admission of
liability has, is not part of that scope. That question – just like the meaning of a defective mens
rea, an assignment, a set-off, or similar issues – does not implicate a specific sales-law-related
problem, but rather a legal aspect of a general type; there is no intimate relationship to the
actual or legal aspects of the international trade in goods, which make up the regulatory sub-
ject of the CISG.

c) 26
Under these circumstances, we do not fault the Court of Appeal’s view that the letter from
[seller 1A] dated 24 August 1998 contained a statement that was, as an actual admission,
generally able to result in the reversal of the burden of proof, and that it further came to the
conclusion, based on its judicial evaluation of the letter, that in the letter, [seller 1A] acknowl-
edged the existence of a defect for which it was liable – with an effect for and against [seller 1].
In view of the clear wording of the latter, which mentions a partial amount «that does not
meet the contractual requirements» and «defective» powdered milk and «the rescission of
the contractual relationship,» the appeal to this Court with the argument that the letter was
only meant to clarify that [buyer 2] did not have any legal right to damages, is baseless.

The special circumstances of the case – dispatch of two employees of [seller 1] to the Algerian 27
purchaser of [buyer 1]’s goods, where at least one of them was able to gain its own knowledge
regarding the quality of the powdered milk and the milk produced from the powdered milk,
[seller 1]’s own expertise – justify the evaluation that the content of the letter resulted in a
reversal of the burden of proof and did not serve only as circumstantial evidence.

d) 28
The argument in the appeal to this Court that the prerequisites for a reversal of the burden of
proof are not present because [buyer 1] and [buyer 2] did not, in reliance on the letter, give
up on otherwise possible exploratory possibilities and they therefore did not suffer any evi-
dentiary problems, is also baseless; according to the appeal to this Court, that is so because

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 CISG-online 651 (Translation)

the proof that the powdered milk was infested by inactive lipase could not have been ascer-
tained before or after the letter dated 24 August 1998. The appeal to this Court explains that,
except for cases of factual statements of actual observations of the party, the reversal of the
burden of proof is only possible in cases where such reliance must be protected (compare
BGH, Decision of 10 January 1984, VI ZR 64/82, NJW 1984, 799). This argument cannot be
successful for factual reasons. In the part of the Court of Appeal’s opinion referenced by the
appeal to this Court, the Court of Appeal explained that, according to the expert report of
Prof. Dr. F., the result of the analysis of I.S. – which was based on a spot check analysis of the
powdered milk upon arrival in Antwerp – did not permit a definitive statement about the «sole
decisive question» whether the powder was infested by inactive lipase at the time of the
transfer of the risk. It thus does not seem far-fetched that, upon targeted investigations after
24 August 1998 – for example, if [seller 1A] had denied all liability – the existence of inactive
lipase at the time of the transfer of the risk could have been proven or that at least other
causes, especially the subsequent contamination of the powdered milk or the spoiling through
inadequate storage, could have been excluded. Thus, the evidentiary situation has deterio-
rated to the detriment of [buyer 1] and [buyer 2] by the fact that they relied on the written
statement of [seller 1] dated 24 August 1998 and therefore refrained from conducting further
investigations.

Based on all this, the Court of Appeal correctly assumed that, based on the reversal of the 29
burden of proof resulting from the letter dated 24 August 1998, [seller 1] should have shown
and proven that the powdered milk at issue met the requirements of the contract at the time
of the transfer of the risk.

3. 30–37
[In this section of the decision, the Supreme Court, based on its prior case law, discusses the
Court of Appeal’s incorrect evaluation of the evidence as a procedural error. The expert opinion
presented by [seller 1] regarding the defect in the powdered milk at the time of the transfer of
the risk contradicted the oral expert opinion (which had been commissioned by the Court) in a
decisive point. According to the Supreme Court, the Court of Appeal, without its own know-
how in this question, should have at least obtained a supplementary statement of the expert
on the issue of the contradictory expert opinion presented by [seller 1].]

III. 38
For the further proceedings, the Panel [of the Supreme Court] notes the following:

If, after a new trial, it should appear that an infestation of the powdered milk by microbiolog-
ical inactive lipase cannot be excluded at the time of the transfer of the risk, the outcome will
depend on whether [seller 1] is not liable for this infestation under Art. 79 CISG. The appeal
to this Court is of the opinion that Art. 79 CISG also applies to the delivery of goods that do
not meet the requirements of the contract (left open in the Panel [of the Supreme Court]
decision BGHZ 141, 129, 132); it argues that the failure to fulfil the contractual duties to per-
form of [seller 1] was based here on a ground for which it was not responsible under Art. 79
CISG because (according to its evidence) the powdered milk had been manufactured accord-
ing to the current knowledge of science and technology and that any existing lipase stock

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could have only been such stock that could have never been excluded based on standard pro-
cedure. In this context, we note, as a precaution, that [seller 1] can only be freed from its
obligation to pay damages for its failure to comply with the contract if it can prove that any
lipase infestation of the delivered milk would not have been detectable, even upon the careful
use of the necessary methods of analysis before any further processing, and that a possible
infestation in the manufacture of the powdered milk was based on grounds that were outside
of its sphere of influence. As long as the cause of the lipase infestation before the transfer of
the risk cannot be determined, the factual testimony of [seller 1], as taken into account by the
appeal to this Court, lacks the necessary cumulative exonerative proof.

Dr. Deppert Dr. Beyer Wiechers

Dr. Wolst Dr. Frellesen