## Facts

- An Austrian owner of a vine nursery (buyer) used a special wax to protect vine cuttings from drying out and infection.
- For several years, the buyer regularly purchased “black vine wax” from a German vine-nursery owner (seller) and resold some of the wax to other nurseries.
- The seller did not manufacture the wax; it procured the wax through a supplier (F.W. Company), which obtained it from a manufacturer (S. Werke GmbH).
- In January 1994, consistent with prior dealings, the seller offered to sell approximately 5,000 kilograms of “black vine wax” to the buyer at a stated price per kilogram, and the buyer accepted.
- For the 1994 delivery, the seller—through its supplier—requested a new type of wax from the manufacturer.
- The manufacturer shipped the wax directly to the buyer in original packaging; the seller never physically received or inspected the goods before delivery to the buyer.
- The buyer applied the wax to its nursery vines, and additional wax was resold and applied by third parties.
- In June 1994, the buyer notified the seller that the wax was defective and had caused major damage to vines.
- Investigation indicated the wax had been produced using an improper raw material.
- The buyer sued the seller for damages under the United Nations Convention on Contracts for the International Sale of Goods (CISG).
- The seller argued, among other defenses, that it should not be liable because it acted only as an intermediary and the defect was outside its control (CISG Article 79), and that the buyer failed to take reasonable steps to reduce losses (CISG Article 77).
- The trial court dismissed the claim; the appellate court reversed and issued a Grundurteil (interlocutory judgment on liability) and remanded for a later determination of the amount of damages; the seller sought review by the German Federal Supreme Court (BGH).

## Issues

1. Can a seller who functions only as an intermediary avoid damages liability under CISG Article 79 when nonconformity results from a defect arising in the supplier/manufacturer chain?
2. Under German procedural law (ZPO § 304), may a court enter a Grundurteil on liability while postponing decision on a CISG Article 77 mitigation defense when that defense could eliminate the damages claim in whole or in large part?

## Decision

- The BGH set aside the appellate court’s Grundurteil and remanded the case for further proceedings.
- The BGH held that the seller could not obtain an exemption from damages under CISG Article 79 merely because it was an intermediary and the causes of the defect lay with upstream suppliers or the manufacturer; the seller bears responsibility for performance of its procurement chain toward the buyer.
- The BGH noted that it did not finally decide, in the abstract, whether Article 79 can be invoked for every type of nonperformance (including delivery of nonconforming goods), but concluded that Article 79 did not excuse the seller on these facts.
- The BGH held that the appellate court erred procedurally by issuing a Grundurteil on liability without deciding the seller’s mitigation defense under CISG Article 77, because a serious failure to reduce loss can, depending on the circumstances, defeat damages in full; such a point cannot be deferred to a later stage limited to calculating the amount.

## Legal Principles

- Under the CISG, the seller’s duty to deliver conforming goods (Arts. 35–36 CISG) is not avoided simply because the seller arranged delivery through third parties; the seller remains answerable to the buyer for defects arising within its supply chain.
- CISG Article 79 grants an exemption from damages only for a qualifying impediment beyond the party’s control that could not reasonably have been taken into account, avoided, or overcome; it does not shift the contractual allocation of procurement risk from seller to buyer.
- A seller acting as an intermediary cannot rely on Article 79 solely on the ground that the defect originated with suppliers or subcontractors chosen to perform the seller’s delivery obligation.
- CISG Article 77 requires the aggrieved party to take reasonable measures to reduce loss; if it fails to do so, damages must be reduced by the amount that should have been avoided, and in extreme cases the reduction may reach the full claimed loss.
- Under ZPO § 304, a Grundurteil on liability is improper when unresolved defenses—such as a mitigation defense under CISG Article 77—could completely defeat the claim; those matters must be addressed before entering an interlocutory judgment on liability.

## Conclusion

The BGH held that an intermediary seller could not escape CISG damages liability under Article 79 merely because defective goods resulted from faults in its suppliers’ or manufacturer’s sphere, and it reversed the appellate court’s interlocutory liability judgment because the court deferred the buyer’s Article 77 duty-to-reduce-loss issues even though they could bar recovery, requiring remand for further fact-finding and decision.


German Federal Supreme Court, 24 March 1999, VIII ZR 121/98 (1999)