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CISG CASE PRESENTATION

Spain 26 September 2005 Appellate Court Palencia (Printing machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050926s4.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20050926 (26 September 2005)

JURISDICTION: Spain

TRIBUNAL: Audiencia Provincial [Appellate Court] de Palencia, sección 1ª

JUDGE(S): Don Carlos Javier Álvarez Fernández, Don Angel Muñiz Delgado, Don Mauricio Bugidos San José

CASE NUMBER/DOCKET NUMBER: 227/2005

CASE NAME: Simancas Ediciones, S.A. v. Miracle Press Inc.

CASE HISTORY: 1st instance Juzgado de Primera Instancia No. 4 de Palencia 15 May 2002

SELLER'S COUNTRY: United States (defendant)

BUYER'S COUNTRY: Spain (plaintiff)

GOODS INVOLVED: Printing machine


Case abstract

SPAIN: Audiencia Provincial de Palencia, 26 September 2005

Case law on UNCITRAL texts (CLOUT) abstract no. 732

Reproduced with permission of UNCITRAL

Abstract prepared by Pilar Perales Viscasillas, National Correspondent

A U.S. seller and a Spanish buyer entered into a contract for the purchase and installation of a printing machine. When the machine did not work properly upon its installation, the seller refused to repair the machine under the existing electric generator, but required the buyer to first put the machine to an electronic connection with a different electric voltage. In July, the cause for the machine defect had not been found yet. The buyer, nevertheless, bought a substitute machine from a Dutch company, as its production phase had started in March, as usual. The machine did not work either with the new electric connection. The buyer sought avoidance of the contract concluded with the U.S. seller and asked for damages, including the costs for the bank transfers to pay the contract price, the costs for the import of the machine, for the new electronic connection, diverse costs for material required by the technicians of the seller in the period of the failed installation of the machine, the costs for the technicians' stay in Spain, the costs of other companies that the buyer had to hire to help fulfil its printing obligations to its clients and the price for the substitute machine less the amount which the buyer received for its resale.

The court of the first instance recognized the avoidance of the contract and granted the buyer all damages sought except for the substitute purchase. Its reasoning was that the purchase had taken place prematurely. Both parties appealed the decision. The buyer claimed that it was entitled to all damages including the costs for the substitute purchase, whereas the defendant claimed that it had fulfilled its obligations under the contract and that the defect of the machine was due to the inadequate place of installation provided by the buyer.

The court of appeals reversed the first decision in so far as it granted the buyer all damages sought. It noted that the first instance had rightfully deemed the CISG as applicable law, as the U.S. and Spain were both contracting States to the CISG [article 1 (1)(a) CISG]. The court then examined whether the seller had fundamentally breached its obligation under the contract by delivering a defective machine pursuant to articles 25, 30 and 35 (1), (2) CISG. The court rejected the allegation of the seller that the machine did not work as it had been installed in an inadequate place. This allegation, according to the court, was not proven. Further, the court found that there was no failure of the buyer under its obligations to take delivery, pursuant to article 60 CISG. Thus, the court noted that the first instance had rightfully declared the contract avoided, which obligated the parties to concurrently make restitution of what they had received from the other party under the contract according to article 81 CISG. The court further noted that the buyer was entitled to damages pursuant to article 45, 74 CISG. The damages should also include the purchase price for the substitute machine less its resale price, because the default of the seller's machine caused the substitute purchase. Though the reason for the machine failure had not been found in July, the court held that the machine did not properly function either at that time or later. As the buyer was already late in fulfilling its printing obligations, the court deemed the substitute purchase reasonable, timely and adequate.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 35 ; 49 ; 74 ; 75 [Also cited: Articles 30 ; 45 ; 60 ; 81 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

35A [Conformity of goods to contract: quality, quantity and description required by contract];

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

74A [General rules for measuring damages: loss suffered as consequence of breach];

75A2 [Damages established by substitute transaction: repurchase by aggrieved buyer]

Descriptors: Avoidance; Fundamental breach ; Conformity of goods ; Damages ; Cover transactions

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1109&step=Abstract>

Spanish: CISG-Spain and Latin America website <http://www.uc3m.es/cisg/respan46.htm>

CITATIONS TO TEXT OF DECISION

Original language (Spanish): CISG-Spain and Latin America website <http://www.uc3m.es/cisg/sespan46.htm>; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1109&step=FullText>; Fuente: Aranzadi Westlaw

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Palencia Appellate Court 26 September 2005
Simancas Ediciones S.A. v. Miracle Press Inc.

Translation [*] by Luiz Gustavo Meira Moser [**]

Edited by Guillermo Coronado Aguilar [***]

Having reviewed and considered, on appeal before this Court of Appeals, the present records of Ordinary Judgment on high claims, regarding the contract of sale of industrial machinery, by virtue of recourse of Appeal lodged against the decision rendered on 15 May 2002 between parties, both as appellants, on one side "SIMANCAS EDICIONES, S.A." [of Spain] (hereinafter referred to as "[Buyer]"), represented by Don José Carlos Hidalgo Martin and José Alberto Carretero, lawyers; and, on the other, "MIRACLE PRESS INC." [of the United States] (hereinafter referred to as "[Seller]"), represented by Luis Antonio Herrero Ruiz and Esteban Barreda, lawyers,

OVERVIEW

FIRST.- The legal finding of the Sentence rendered on 15 May 2002:

Considering the principal claim filed by [Buyer] against [Seller], I declare avoided the contract of sales entered into by the parties on 4 November 1998 and require [Seller] to pay to [Buyer] 1,194,798.50 plus interest in arrears, and release the parties from further orders against the contract. I reject the [Seller]'s counterclaim and release the [Buyer] from the orders formulated with respect to it. Each party will apportion the court costs. The counterclaim court cost, however, must be borne by [Seller].

SECOND.-Against that sentence, both parties indicated a desire to appeal.

THIRD.- The petitioners lodged their appeals. The court notified the opposing parties so they can respond within the term of ten days.

FOURTH.-Each party presented opposition to the appeal lodged by the other party.

LEGAL GROUNDS

FIRST.- The Court of First Instance No. 4 had rendered sentence on 15 May 2002, on which the contract of sale entered into by the parties on 4 November 1998 was declared avoided. The product involved in the contract was a printer manufactured by [Seller]. Due to the seriousness of the goods not being fit for the particular purpose, the [Buyer] was directed to return the printer and [Seller] was ordered to pay to [Buyer] the amount of 1,194,798.50 plus interest in arrears.

Against this sentence, [Buyer] lodged an appeal which only dissented from the amount of compensation. [Buyer] referred to the amount spent for the acquisition of a second-hand printer in Holland in July of 1999 for the amount of 337,399.93, which was later resold in Argentina, discounted 30,000. [Buyer] asked the Court to increase the award to 1,529,197.83 by adding to the amount granted for damages the amount of 334,399.33, due to the [Seller]s breach, with the aim to ease the situation for the fabrication commitments acquired. [Buyer] alleged that it had proceeded with due diligence in order to reduce damages.

Against the sentence of the Court of First Instance, but in this case appealing the entire sentence, [Seller] alleged once again that there is no legal basis that can support the breach of the contract on his side. [Seller] alleged that it installed and put into function the machine according to the agreed specifications and that, if the machine did not work properly or was not according to what was expected, this was fundamentally due to the factory at which it was installed pursuant to [Buyer]s directions. [Seller] alleged that this factory did not provide the proper conditions for this purpose; that problems included defects in the factorys construction, weather conditions, dust and water leaks or humidity, improper electric supply, as well as the absence of water supply; and that the factory was without the normal conditions required for the normal working of the machinery. [Seller] also challenged the amount of damages claimed, alleging a lack of relation between the supposed breach and the origin of it; [Seller] considered the amount of damaged claimed disproportionate. Accordingly, [Seller] requested the Appellate Court to reverse the sentence and render a new one which overrules the [Buyer]'s claims.

[...]

SECOND.- To attend to the appeals lodged by the parties, it is convenient to start with [Seller]. The [Seller] asks the Appellate Court to the reverse the entire sentence, establishing a breach of the contract by the [Buyer] and to award damages by virtue of that breach.

By analyzing the issue of the applicable law, the present Court establishes that there was no mistake on the part of the Court of First Instance: the law applicable to the contract is the CISG, to which the nations of both parties have subscribed and which forms part of their internal law. The regulation of the Convention, especially when it refers to the obligations of the parties and the consequences of a breach, is in essence the same as under the Spanish Civil Code, as to the doctrine of breach of the sales contract by virtue of the lack of conformity of the goods or the doctrine of "aliud pro alio", widely known in our judicial field. Also, the applicability of the CISG is recognized the pleadings filed by [Seller]s legal representatives from the State of Connecticut, USA. After recognizing that the aforementioned Convention forms part of the internal national law of the United States, and, therefore, of the referenced federal state, counsel has submitted an exhaustive study of Article 60 CISG, applying it to [Buyer]s obligations to provide reasonable installation facilities for the goods, obligations that the [Seller] alleges were not fulfilled by [Buyer]. It is [Seller]'s position that this supports modification of the [Seller]s obligations. That will be analyzed latter on.

First, discussing the factory in which the machinery was installed:

      There is evidence that this factory was not complete and that it presented defects including the cover and presence of dust, filthiness, inclusive humidity -- all of which can damage delicate impression mechanisms. And [Seller] made a gigantic effort to document the factory's condition, essentially bringing to this process probatory material that had already been entered in the records of a related Court of First Instance proceeding (77/00 First Instance Court number 3 of Palencia) between [Buyer] and "Hormigones Sierra", the contractor that built the factory. However, even assuming that [Seller]'s allegations of improper development of the factory are as [Seller] has stated, it has not being demonstrated that this situation impacted equally on all the parts of the installation compound and, what is most important, from the expert opinions, the logical deduction is that:

   -    The situation referred to did not affect at all the fundamental fact of the impression machinery;
   -    That was not what caused the machinery to fail after the installation.

It is also surprising that none of the technicians that, by [Seller]s orders, went to help with the installation and the running of the machinery stated anything about the factory conditions at that time -- without regard to what they declared later in these proceedings

In a similar vein, are the allegations that lack of stable electricity and water supply to feed the machinery in the [Buyer]s factory made the proper functioning of the referred machinery impossible. It is far from certain that these factors affected the machinery.

      The power supply. As to the electricity supply, it is true that when the machinery arrived, the factory had a lack of power supply -- because a high voltage line was pending. Accordingly, it was offered to make it function with an electric generator with a far more superior power than required. This, in the judgment of the expert and the manifestations of one of [Seller]'a witnesses, the British motors technician, was sufficient to enable the machinery that was installed to start and function normally. Thus, it has not been proved that the alleged lack of stable electricity was the cause of the malfunction. [Seller] also alleges that damages may have been caused because it had been contemplated that the machine would be used in an installation with lower voltage, thus causing an unnecessary expense which forms part of the claim. It is true that, from the expert opinion and the testimony, it can be deduced that the electrical problems (fundamentally overheating) that the machinery presented were due to the fact that it was not prepared for European voltage, although this had been made known before the order was placed, and was perfectly evidenced due to the utilization of an electric converter to adapt the voltage.

      The water supply. As to the water supply for the proper functioning of the machinery, the evidence indicates that a water supply did not exist inside the factory at the moment of the installation. Nevertheless, outside and in the same location as the factory, there was a municipal water faucet, in normal purity conditions, and there is not sufficient proof that this water was not pure enough for proper utilization with the machinery.

Definitely, none of the above referenced conditions were shown to have affected the proper functioning of the machinery. Thus, the findings were that the causes of the malfunction of printing work and blending were due to a different cause. The expert opinions concentrated basically on the inadequate design of the machine for the final purpose for which it was acquired, which is the printing of paper for the elaboration of agendas, being more proper for the printing of a finest paper, similar to newspaper. The legal findings concentrated principally on the folding machine once printed, and being more of an structural problem which only can be allocated to [Seller] that, without any doubt, knew and was aware of the necessary specifications for the production process of the buying entity, but was incapable of complying with the goods fabricated. This is shown by the fact that the machine did not print any piece of paper with the adequate and needed specifications, but [Seller] discarded these proofs of the failure of the machine.

This Court confirms that conclusion reached by the Court of First Instance.

The theory of contractual breach of "aliud pro alio" is defined by case law as the delivery of goods different from that contracted for. As to whether this was a breach by delivery of an aliud, or a breach by delivery of non-conforming goods, or goods not to [Buyer]s satisfaction. The first supposition occurs when the goods delivered contain elements vastly different from what was agreed and, for the second supposition, it is necessary that the goods delivered are not for for the particular purpose, or that [Buyer] is objectively dissatisfied. An absolute lack of utility means that the goods delivered are not useful at all, to the point of frustrating the object of the contract.

Article 25 of the CISG provides that:

"A breach of the contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."

Related to that are [Seller]'s obligations under Articles 30 and 35(1) and 35(2) CISG. Under Article 60 CISG, [Buyer], in turn, is obligated to proceed with the reception of the machinery and perform all the acts that are reasonable to expect so [Seller] could perform delivery.

The alleged condition of the factory in which the machinery was installed, neither rendered the installation and functioning of the machine difficult nor did it influence the faulty operation of the machine

That being the case, this Court confirms the appealed sentence which supports the avoidance of the sales contract due to breach of the contract by the [Seller].

THIRD.- The appealed sentence declares that, in this contract avoided due to the [Seller]s fundamental breach of the contract, the parties must make mutual restitution of benefits: [Seller] must make restitution of the price, as well as damages, and [Buyer] must return the machinery sent by [Seller] -- conforming to Articles 45, 74 and 81 of the CISG, which are equivalent to the Civil Code. This sentence is well sustained.

As to the determination of damages, [Buyer] claims different concepts of damages. They are detailed in its demand and were, mainly, accepted in the sentence of the Court of First Instance, except for damages related to the acquisition of a second-hand printer in Holland. In its appeal, [Buyer] claims the inclusion of damages on that account also. This is a claim that was rejected by the Court of First Instance for the lack of an adequate relation between the breach of the contract and those damages.

When we consider the [Buyer]'s damage claim having to do with the acquisition of the printer to be delivered by the [Seller] for 800,000 (the claim approved by the Court of First Instance), here we have damages perfectly justified related to the banking movements, and successive transfers made in order to pay the price, as well as the ones derived from the import operation. Also, [Buyer] had to connect to a lower voltage where [Seller] was in a negative position to keep the machinery functioning with the electric generator. Although it was demonstrated that the machine could feed perfectly without causing any problem; the paper acquired for use in the new machinery, nonetheless, had to be cut to fit to other machines. There were diverse expenses by [Buyer] for electric material and mechanization of pieces required for the [Seller]s technicians. With the aim to attend to its clients' demands and within a short period, due to the delivery period being half of December, [Buyer] had to contract impression work with a third party which generated great expenses not foreseen. All these expenses, therefore, resulted from the breach and must be borne by [Seller], due to the fact that, if the printer that was acquired had been installed and put into functioning correctly, it is obvious that these expenses would not have been incurred, these damages being perfectly justified in the records of the case, so that it is appropriate to confirm the sentence appealed.

With respect to [Buyer]'s claim for added damages related to the acquisition of the second-hand printing machine, "Miller" brand, purchased by [Buyer] in Holland on July 1999, in the appealed sentence, this damage claim was rejected. In denying this added damages claim, the Court of First Instance had reasoned that: there did not exist sufficient proof of the causal relation and the necessity of acquiring that machine; and that it was acquired in July 1999 when it was not known that the [Seller]'s machine was not fit for the particular purpose.

The factories' facilities were not the most adequate, nonetheless, that did not affect the function of the [Seller]'s printer (its failures were due to other causes), it was relevant to the production capacity of the new factory as a whole.

We also recognize that the second-hand printing machine purchased in Holland was acquired in July 1999 and the installation and that the proper functioning of the [Buyer]s new machine bought from [Seller] was not at issue at that time. However, the beginning of the [Buyer]s productive process, which commenced in March of each year, was suffering a great delay (more than three months). At that moment, the [Buyer]s CEO took a risky decision to acquire a second-hand printer, which used a system sheet-to-sheet, for a high price (more than 50 million old Pesetas). This turned out to be a correct decision, due to the fact that the new printer could not be used and the [Buyer] needed to go to other printing companies, also the [Buyer] was at the limit of its production capacity to be able to produce all the printed paper needed to attend to its clients' demands. The decision of the [Buyer]'s CEO was not capricious. It was preventive and finally successful, and the evidence establishes that is not fair that the expense for the acquisition must be borne by [Buyer], when if the printer had functioned properly these expenses would not have been necessary. We rule that, by consequence, the said expense for damages should be included, with the price obtained for the sale of the second-hand printer to the Argentinean entity subtracted from this claim for added damages. The appeal lodged by the [Buyer] is thus sustained.

ON THIS GROUND

FOURTH.- The Court sustains [Buyer]'s claim in its entirety and compels the [Seller] to pay the amount of 1,529,197.83, as a result of the breach of the contract.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Spain is referred to as [Buyer]; Defendant of the United States is referred to as [Seller]. Amounts in European currency (Euros) are indicated as [].

** Luiz Gustavo Meira Moser is a member of the Brazilian Arbitration Committee, YIAG, Association Suisse d'Arbitrage (ASA), ICDR, International Law Association - Brazilian Committee and Queen Mary Case Translation Programme participant. Moser is the Brazilian Correspondent in the Global Sales Law Project.

*** Guillermo Coronado Aguilar was a participant in the 15th Annual Willem C. Vis International Commercial Arbitration Moot representing Universidad Panamericana, campus Guadalajara. He is now correspondent of the Global Law Project directed by Ingeborg Schwenzer and adaptor from English to Spanish of articles of the book "Commentary on the UN Convention on the International Sale of Goods", directed by Ingeborg Schwenzer and Edgardo Muñoz. He is Legal Advisor for the law firm Coronado Figueroa y Associados, S.C.

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