The defendant supplied the plaintiff with a contraflow heat-exchanger for installation in a customer's brewery. It had to be removed shortly after it was installed, allegedly because it did not work properly or have the guaranteed attributes. The original negotiations between the parties effectively started on 19 November 1954, when the defendant sent a telegram to the plaintiff offering to supply the heat-exchanger. This was followed by telephone conversations for a week. Then on 26 November the plaintiff wrote the defendant a letter whose terms differed from those of the defendant's original telegram. Four days later the defendant replied with a brief 'Confirmation of Order', which contained, for the first time, the clause 'Conditions of Delivery: VDMA'. Those were the conditions of the German Machine Builders Association, which included a clause limiting the supplier's liability.

The plaintiff claimed damages of 25,558.28 DM. The Landgericht ordered the defendant to refund the price, viz. 7,921.30 DM with interest. The Oberlandesgericht dismissed the plaintiff's appeal, and his further appeal was equally unsuccessful].

2. The appellant contests the Court of Appeal's view that the VDMA conditions were incorporated into the contract. His objections are unfounded.

(a) It must certainly be granted that the Court of Appeal misunderstood the plaintiff's evidence about the parties' telephone communications between 19 and 26 November. The plaintiff did not assert that the contract was formed during those telephone communications but that the defendant then made a new offer, varying his offer of 19 November so as to meet the wishes of the plaintiff, and that the plaintiff, after consulting his customer, wrote its letter of 26 November in acceptance of this telephonic offer of the defendant's.

(b) But even if one accepts the plaintiff's evidence as accurate, one must agree with the Court of Appeal's conclusion that the VDMA conditions became incorporated in the contract.

This is not, as the Court of Appeal thought, because the defendant's letter of 30 November constituted a fresh offer and the plaintiff's subsequent conduct an acceptance of it. The VDMA conditions became part of the contract because the defendant's letter of 30 November is in law a proper 'commercial letter of confirmation' to which the plaintiff took no exception, and this is true although it was described as a 'confirmation of order' and did not expressly refer to prior oral or telephonic negotiations (on commercial letters of confirmation, see BGHZ 7, 187; 11, 1; 18, 212; 40, 42; BGH NJW 1965, 965; BGH NJW 1966, 1070; other references omitted).

(aa) The fact that the defendant called its letter of 30 November a 'Confirmation of Order' rather than a 'Letter of Confirmation' does not prevent its being regarded in law as a 'commercial letter of confirmation'. The name the parties give to the document is not critical. Nor is it absolutely necessary that the letter should expressly mention or refer to prior oral or telephonic agreement. What is important is that the document should be substantially designed to avouch the result of prior contractual negotiations in a binding manner (references omitted). Here the plaintiff could have been in no doubt that this was the purpose of the defendant's letter of 30 November.

So far, it is only in cases where the negotiations have been oral, telephonic, telegraphic or by telex that the court have found a 'commercial letter of confirmation' and held that its content became part of the contract in the absence of protest by the addressee (reference omitted). The Bundesgerichtshof has never decided whether a commercial letter of confirmation might not exist in other cases: the question was expressly left open in our judgment of 25 May 1970.

The question falls for decision now, for, treating the plaintiff's assertions as correct for the purposes of the appeal, we have here a contract where the defendant's offer was made by telephone (between 19 and 26 November) and the plaintiff's acceptance was made in writing (letter of 26 November).

The plaintiff's letter of 26 November cannot itself be a commercial letter of confirmation, for on his own view the contract was not yet formed, there having been no acceptance prior to that letter. Thus of the two declarations of will which formed the contract, one of them (the defendant's) was telephonic, and the other (the plaintiff's) was in writing. In such a case it is right to apply the rules concerning 'commercial letters of confirmation' and the addressee's failure to object. This is implicit in the scope and purpose of the judge-made rules on the matter, which are rooted in the practice of tradesmen. Tradesmen have an interest in clarifying their contractual relations and in avoiding disputes over the content of contracts; in pursuit of this interest they habitually draw up a document in writing to confirm and fix the content of agreements which have been reached otherwise than in writing. If such a confirmatory document is unacceptable to the other party, he must, within the limits that good faith requires, make an immediate protest. If he fails to do so, the terms of the letter of confirmation take effect as the terms of the contract.

The clarification provided by a letter of confirmation is just as necessary in cases like the one here assumed, where the contract is concluded by a telephonic declaration on one side (the defendant's) and by a declaration in writing on the other (the plaintiff's). At least this is true for the party, here the defendant, whose contractual declaration has so far been only oral or telephonic. In such cases the single written declaration of will is insufficient to fix the terms of the contract so as to avoid disputes in the future, since the nature and terms of the other party's telephonic declaration remain uncertain.

The present case is a striking example of such uncertainty. The parties are in dispute over the range and substance of their telephone conversations between 19 and 26 November, and cannot agree whether the defendant made an offer on terms like those of the plaintiff's letter of 26 November. This uncertainty greatly affects the effect of the plaintiff's letter of 26 November, for depending on whether the plaintiff's assertion is true or false, that letter is either the acceptance of an offer or a new offer in itself, linked with a rejection of the offer in the defendant's original telegram. In the midst of such uncertainty the defendant, on receiving the plaintiff's letter of 26 November, had every reason to finalise and clarify the terms of the contract, and it must have been evident to the plaintiff that this was the purpose of the defendant's letter of 30 November.

(cc) The relative brevity of the letter of 30 November does not prevent its being treated as a 'commercial letter of confirmation'. The defendant in it referred to the plaintiff's letter of 26 November, and could thus dispense with an iteration of the details without forfeiting the necessary specificity.

(dd) The letter of 30 November also makes it sufficiently clear that the defendant was not prepared to contract except on VDMA terms.

(ee) It is not at all unusual for a machine shop such as the defendant's to import VDMA conditions into a contract. As a dealer in such machinery the plaintiff should have expected this, and cannot therefore now maintain that he had no need to protest because he had no reason to expect any such term in the defendant's letter of confirmation.

Back to top

This page last updated Thursday, 01-Dec-2005 11:04:42 CST. Copyright 2007. All rights reserved.