Facts

In September 1967 the plaintiff, who had often done business with the defendant before, ordered from him 4 million flowerpots for the 1967-68 season. In December 1967 and on several occasions thereafter the defendant informed the plaintiff that it would not be able to supply all four million pots within the time allowed. Although the plaintiff continued to insist on timeous delivery, the defendant unilaterally decided to ration his output, and delivered only 600,000 pots in all.

The plaintiff claimed damages for the harm due to the defendant's failure to adhere to the terms of delivery. The Landgericht allowed the claim, but the Oberlandesgericht rejected it. The defendant appealed, and the decision of the Landgericht was reinstated.

Reasons

III. The appellant is right to say that, contrary to the view of the court below, this is not a case in which damages for non-performance may be claimed without a time for performance having been set under para. 326 BGB.

1. The contract of September 1967 is a contract for delivery in instalments, the agreement being for the remunerated delivery of fungible goods in instalments determined by quantity and type. Notwithstanding that delivery is agreed to take place in successive portions, such a contract is a single contract, if the parties envisage the contractual content as a whole. This is evidently what the court below assumed.

2. The court below considered whether there might not be a custom in the flowerpot business to dispense with the need to set a time under para. 326 BGB within which delivery must be made. A party who invokes such a trade practice must prove its existence and its terms. Here the plaintiff did not even assert that any such trade practice existed, but simply said that it was "usual" in the flowerpot trade for a gardener whose wholesaler did not deliver on time to withdraw from the contract and obtain pots from another source. Such an assertion relates to the relationship between wholesaler and gardener, and not, as in our case, that between producer and wholesaler.

3. a) This court has held that where there is a long-term contract for instalment deliveries based on a relationship of mutual reliance the buyer can, if the seller's faulty conduct seriously imperils the purpose of the contract and its smooth operation, withdraw from further performance on the ground of positive breach of contract [references].

b) In one case decided by this court, two contracts had been formed and the debtor immediately stated that he could not fulfil the second contract in the time allowed. The court decided to apply para. 326 BGB by analogy, and held that if the debtor, before performance falls due, states that by reason of unforeseen circumstances he will be unable to perform in time, the creditor must set a time within which the debtor is to declare whether or not he will perform on time and must let the debtor know that if performance is not rendered on time, he will decline to accept it [references].

c) This applies equally to a contract for successive or partial deliveries. Here, too, the creditor can and normally must, by analogy with para. 326 BGB before performance has fallen due, set a period within which the debtor must declare, on pain of the creditor's withdrawal, whether or not he will perform the contract according to its terms. The maxim of Treu und Glauben, as the decision in NJW 1976, 326 = WM 1976, 75 explains, requires no less. A debtor who declares that he will not perform his contractual obligations as they fall due and cannot keep to the delivery dates is admittedly guilty of a positive breach of contract, but even so, para. 326 BGB must be applied by analogy, for if before performance falls due the debtor asserts that he will not perform, and or perform on time, the creditor cannot be expected to wait until performance is due and only then proceed under para. 326 BGB. So, where the debtor has seriously and definitively refused to perform on time, the creditor must have the opportunity to arrange covering contracts, which also serves the interests of the debtor. On the other hand, if the debtor has not definitively refused to perform, the creditor must not take him by surprise by withdrawing or claiming damages without prior notice.

d) Here, then, it was necessary to set a time for performance under para. 326 BGB unless the defendant had already declared, unequivocally and definitively, that it would under no circumstances deliver the four million flowerpots within the contractual period, and any attempt to persuade him otherwise would clearly have been futile.

aa) It is generally agreed that strict tests should be applied before finding that a debtor has made such a declaration, since the purpose of fixing a time for performance is to make him face the dilemma of accepting the consequences of para. 326 BGB or avoiding them by due performance. Thus setting a period for performance can only be dispensed with if the debtor has already unequivocally and definitively made it clear that he does not want, and would not use, any time to perform, if no change in his attitude is to be expected and if notice under para. 326 BGB can be seen to be an empty and futile formality [references}.

bb) The court below misunderstood these requirements. It said that it was unnecessary to set a time here because the defendant had repeatedly said that it was unable to deliver more or more rapidly and had therefore adopted a policy of rationing. It is true that the defendant did say this, but the court made no finding that the defendant had thereby said "its final word" and that any fixing of time would be a futile formality. No such finding could be drawn from the correspondence between the parties. ... We cannot therefore exclude the possibility that the defendant would have delivered the agreed quantity of flowerpots in accordance with the contract if the plaintiff had timeously referred to the time for performance set in the contract of September 1967 and had required the defendant, under threat of refusal to accept under para. 326 BGB, to state within a given time whether or not it would perform the contract. The plaintiff did not do this, but accepted short deliveries from the defendant, admittedly under protest; it cannot therefore now claim damages under para. 326 BGB for non-delivery of the balance of the order.

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