In January 1924, the parties concluded a contract for sale, according to which the claimant, during the months of March/April 1924, was to supply the defendant with various textiles. The claimant has delivered some of these articles and received payment for them. In respect of the remainder, the defendant, by letter of 1 May 1924, set the claimant a Nachfrist (additional period of time) in which to deliver; once that period had lapsed without result, he rescinded the contract. The claimant asserts that the defendant’s rescission was illegal: after the buyer’s default to take delivery, he had by auction resold the merchandise and, converting it into French currency, thereby made a net profit of 35, 955. 27 FFrs.

The claimant brought an action for payment of the purchase price of the entire goods, plus interest, less the sum of 35, 955, 27 FFrs., realised from the resale, and the payments already received. The defendant rejects the basis for and the amount of the claim. The Landgericht has decided in favour of the claimant. During appeal proceedings, the claimant has furthermore demanded compensation for the defendant’s alleged default in payment, which resulted from the devaluation which the French francs had meanwhile undergone. The appeal court rejected the claim insofar as the claimant demands payment of his invoices of 30 and 31 May 1924, i.e. payment of 74, 323 FFrs., minus 35, 955.27 FFrs. plus compensation of the damage from the debtor’s default and resulting from the devaluation of the French Francs. The claimant’s further appeal was partially successful.

Reasons

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1. The appeal court assumes that the defendant, once the Nachfrist set by him in his letter of 1 May 1924 had lapsed without effect, had, under the provisions of s. 326 BGB legally rescinded the contract in respect of the outstanding late deliveries. In so doing it refers to the sentence in the letter:

" ... we hereby declare you to be in default and grant you for delivery of the goods under contract the legal Nachfrist of four weeks. Once this time has lapsed we shall pass on to you all claims for damages which our clients, to whom we have bindingly sold the goods, might raise against us."

The appeal court holds that the defendant had hereby made it sufficiently clear that he will refuse "acceptance of the goods once the additional term has lapsed", as set out in para. 326 (1) (1) BGB. Such a declaration is intended and perceivable as a threat of rescission and in his letter of 13 May 1924 the claimant had understood it to mean just that.

The further appeal rightly opposes this result. According to established legal opinion, the threat under para. 326 BGB to refuse acceptance of performance must in all circumstances clearly express the intention of the person voicing such threat not to
want any further performance of the contract, once the period of time set by him has passed without effect. The contents of the letter of 1 May 1924 does not satisfy these requirements, as it does not make clear what kind of claims for damages will be brought. Since no special circumstances have been ascertained, the question remains open as to (i) the nature of the claims for damages made by the defendant’s clients, which the defendant threatened to shift off to the claimant, and especially (ii) as to whether or not the defendant had been able and intended, from other sources, to make deliveries to his clients, to whom he had definitely sold the goods, as stated in that letter, with the result that only damage from default could come into play. Otherwise, the defendant might intend to raise direct or indirect claims for damages for non-performance. Only in the latter case can the statement made in the letter of 1 May 1924, i.e. to hold the claimant liable for the resulting damage be seen as sufficient threat under para. 326 BGB to refuse acceptance of performance. The claimant’s letter of 13 May 1924 cited by the appeal court, does not alter this result. It is correct that this letter contains the claimant’s request, not to "annul" the contract and the phrase: "it would be a very hard blow for us (i.e. the claimant) if you were to annul the contract." But, as its beginning shows, this letter was preceded by discussions which, after the defendant’s letter of 1 May 1924 had been received by the claimant, took place between an agent of the latter and the defendant. The fear expressed in the claimant’s letter of 13 May 1924, that the defendant might rescind the contract could very well be the result of these discussions. Under these circumstances the appeal court’s previous findings provide an insufficient basis for its assumption that the claimant himself had recognised the threat of "annulment" from the defendant’s letter of 1 May 1924. According to para. 326 BGB, the threat of refusing to accept performance must be linked to the concurrent setting of a Nachfrist. If the claimant only threatened to refuse acceptance of delivery after he had set a Nachfrist on 1 May 1924, the setting of a Nachfrist could only become effective as from the date of that threat, and the appeal court’s reasoning as to the appropriateness of the time-limit fixed would be inconclusive. The appeal court’s deliberations are thus incapable of carrying the decision appealed against.

2. Moreover, the following is to be noted: the previous court assumes that the agreement on payment of the purchase price "on receipt of the invoice, before the goods are sent off", as originally reached according to the letter of confirmation of 22 January 1924 has retroactively been altered. According to this new agreement the claimant needed to dispatch the goods as soon as the invoice was sent out, whilst the defendant did not need to pay the purchase price as soon as he received the invoice but only on receipt of the goods. Starting from this presumption, the appeal court states that the defendant by his letter of 1 May 1924 effectively put the claimant into default as far as the outstanding goods were concerned and that the claimant had only dispatched the goods listed in the invoices of 30 and 31 May 1924 after the Nachfrist fixed in that letter had expired. The right of rescission which the defendant has under para. 326 BGB is not impaired by his failure, before expiry of that Nachfrist, to pay for another delivery made by the claimant, which he received on 7 May 1924 and which was invoiced for on 16 April 1924. The reason being, that although the purchase price for the delivery of 16 April 1924 became due on 7 May 1924, the defendant was not in default in respect of payment of this purchase price as he had not received a reminder within the Nachfrist.

Opposing this view, the further appeal correctly asserts that such declaration of the defendant’s default is irrelevant; but this does not alter the final result. This case concerns a contract for successive delivery, for which in principle performance and counter-performance mirror each other. If one applies the principles of para. 320 BGB to this reciprocal contract, the following legal situation arises: When the defendant, by letter of 1 May 1924, put the claimant in default for late delivery in respect of the goods which were later invoiced for on 30 and 31 May 1924, according to the findings of the appeal court, the claimant’s late delivery was not countered by any contractual obligation due from the defendant. The resulting default in respect of the claimant’s performance lasted until the end of the Nachfrist. In particular, during this Nachfirst it was not removed by the fact that the defendant, failed in time to pay the purchase price for the goods invoiced on 16 April 1924 and due on 7 May 1924, since the fact that this purchase price was due did not entitle the claimant, under the provisions of para. 320 BGB, to retain on his part the delivery which the defendant by letter of 1 May 1924 had requested. Otherwise the claimant would obtain an advantage from his own default in respect of the deliveries, for he cannot derive a right of retention under para. 320 BGB from facts which only occurred after he was late with his own delivery. This would run counter to the generally applicable rule of law that, in cases of a reciprocal contract, the party who is in breach of that contract cannot deduce legal consequences detrimental to the other party who later himself is in breach of contract. As a consequence, and under para. 320 BGB, the buyer can refrain from paying for earlier partial deliveries where the seller is in default in respect of other partial deliveries , until the seller has fully executed his duty to deliver. Until such time the buyer can under no circumstances be in default in respect of payment for a purchase price which becomes due only later (see Staub/Könige, 12. and 13. ed., app. to para. 374 HGB, n. 1 b, 36, 136 b, 142, 179; RGZ 67, 319; 93, 301; RG decision of 8 May 1925, II 260/24). The reminder contained in the defendant’s letter of 1 May 1924 concerned a duty of the buyer which constitutes an obligation to be performed in advance, compared to the defendant’s obligation to pay the purchase price for the claimant’s delivery, invoiced for on 16 April 1924, received by the defendant on 7 May 1924 and due at that latter date. As a result of the claimant’s late delivery, the defendant could refrain from paying. On the other hand, the claimant who was already in default, had no right of retention in respect of his deliveries invoiced for on 30 and 31 May merely because the purchase price for the goods became due whilst he was in default.

Furthermore, the purchase price listed in the invoice of 16 April 1924 was a direct consideration in a narrower sense only in respect of these goods and not also for the goods invoiced on 30 and 31 May. If one were thus to assume that no right of retention existed under para. 320 BGB but rather, if at all, only under para. 273 BGB one must take into account that the claimant has not exercised his alleged right of retention before the Nachfrist had lapsed which the defendant had set by his letter of 1 May 1924. This would, however, have been necessary, since the defendant must have remained able, under para. 273 (2) BGB, to avert the exercise of the claimant’s right of retention by depositing a security (RGZ 77, 438: JW [1921] 523, No.2). Under para. 273 BGB, the defaulting debtor can exercise his right of retention for reasons of a counter-performance which will only become due at a later stage, where he takes actions capable of remedying the default, especially by offering to perform his outstanding obligations concurrently with the other party’s performance (RGZ 92, 216; 93, 301; WarnRspr. [1919] No.3, 1926, No.95; Recht [1925] No. 1260).

In respect of the claimant’s demand for compensation of the loss allegedly sustained through the devaluation of the French Franc, it is correct that such devaluation cannot lead to a claim for revalorisation under para. 242 BGB. The devaluation as such is insufficient for a justification of a claim for default under paras 286, 288 (2), 249 BGB (see RG decision of 6 April 1925, IV 643/24 in JW [1925] 1986, No.2; of 24 October 1925, IV 209/25 in Zeiler Aufwertungsfälle, No. 192; of 11 December 1925, II 120/25 in Jur. Rundschau, [1926] No. 550; of 25 February 1926; IV 505/25 in WarnRspr. [1926] No. 69; of 21 May 1926, II 405/255 in Zeiler, op. cit., No. 25; of 22 October 1926, II 599/25 in JW [1927] 980, No. 13 and in Zeiler, op. cit., No.483; of 3 November 1926, I 411/25 in Zeiler, op. cit., No. 396 and others). This does not, however, rule out that a claim for damage caused by default could be raised under special circumstances for which the claimant must bring proof. The claimant’s statements in this respect are, however, too vague for a damage for reasons of default of a kind which is only justified under specific circumstances to be seen to exist.