Slovenia 14 December 2005 Higher Court [Appellate Court] in Ljubljana (Door and door jamb case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051214sv.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: VSL sodba I Cpg 1305/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Slovenia (defendant)
BUYER'S COUNTRY: Germany (plaintiff)
GOODS INVOLVED: Doors and door jambs
SLOVENIA: Višje sodišče v Ljubljani [Ljubljana High Court] 14 December 2005
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/118],
CLOUT abstract no. 1153
Reproduced with permission of UNCITRAL
A German buyer (plaintiff) and a Slovenian seller (defendant) were in a long-term contractual relationship for the sale of doors and door frames, which were being produced by the seller for the buyer and then sold upon individual orders by the buyer. The buyer was paying the price for the individual shipments in advance.
The dispute arose after the buyer paid 18.000,00 Deutsche Marks in advance on 4 June 2001. On 8 June 2001, the seller issued a pro-forma invoice from which an offer for the sale of 119 doors and 123 door frames was evident, although at a higher price. The seller thereupon delivered a consignment of 22 doors and 174 door frames, although the buyer had made it known that it always needed approximately the same number of doors and door frames so that it could deliver kits consisting of a door and a door frame to its buyer.
The court of first instance stated that the seller was aware that it was supposed to deliver approximately the same number of doors and door frames in order for the buyer to make kits. It added that the seller knew of the buyer’s contractual relation with the end buyer under which it was under an obligation to deliver kits consisting of a door and a doorframe. It rejected the seller’s assertion that the buyer failed to specify the goods to which the advance payment referred and, therefore, the seller had chosen the goods itself from a consignment, previously prepared for the buyer. The court ruled that, considering that the goods had indeed been specified in the pro-forma invoice and that the seller knew that the buyer needed the same number of doors and door frames, the seller had failed to comply with its contractual obligation to deliver goods in conformity with the contract.
The court of appeal applied the CISG under article 1(1)(a), because both of the parties had their places of business in contracting States. It ruled that the seller had indeed breached the contract by delivering 22 doors and 174 door frames. In the court’s opinion, this constituted a fundamental breach under article 25 CISG as the buyer had been deprived of what it was entitled to expect under the contract, namely that it was unable to assemble kits for resale. The buyer was therefore entitled to declare the contract avoided under article 49(1)(a). Because the seller new about the facts relating to the lack of conformity of the goods, the court further ruled that under article 40, the seller was not entitled to rely on the buyer’s delay in giving notice thereof.
The court stated that, although the court of first instance ruled on the consequences of the breach applying the Slovenian Obligation code, it contains the same provisions as CISG in article 81(2), namely that a party who has performed the contract may claim restitution from the other party of whatever the first party has supplied or paid under the contract. Therefore, it upheld the decision of the court of first instance ordering the seller to make restitution of the received part of the price for the goods. After having avoided the contract, the buyer also attempted to return the delivered goods to the seller, who refused to take them. Therefore, the buyer old them according to article 88 to minimize the storage costs. The court found that the buyer had done so in an appropriate manner and that it had received an appropriate price. It further ruled that the seller is liable to the buyer for reimbursement of the costs it had suffered by storing the goods.
The court additionally found that, under article 78 CISG, the buyer is entitled to interest on the sum in arrears. After consulting article 7(2) CISG and applying the conflict-of-law rules of the forum, it found that Slovenian law is applicable to determining the interest rate.
The appellate court therefore rejected the appeal and confirmed the decision of the court of first instance.Go to Case Table of Contents
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
1B [Relation to Contracting State]; 7 [Interpretation of Convention]; 25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 40B [Seller's knowledge of non-conformity (seller fails to disclose known non-conformity): seller loses right to rely on articles 38 and 39]; 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]; 78A [Interest on delay in receiving price or any other sum in arrears]; 81C [Effect of avoidance on obligations: restitution by each party of benefits received]; 88B3 [Party obliged to preserve goods may sell them: reasonable measures of sale]
1B [Relation to Contracting State];
7 [Interpretation of Convention];
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];
40B [Seller's knowledge of non-conformity (seller fails to disclose known non-conformity): seller loses right to rely on articles 38 and 39];
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];
78A [Interest on delay in receiving price or any other sum in arrears];
81C [Effect of avoidance on obligations: restitution by each party of benefits received];
88B3 [Party obliged to preserve goods may sell them: reasonable measures of sale]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Slovene): Slovenian court website <http://www.sodisce.si/znanje/sodna_praksa/visja_sodisca/36787/>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
14 December 2005 [1 Cpg 1305/2003]
Translation [*] by Marko Ketler [**]
The provisions of United Nations Convention on Contracts for the International Sale of Goods as of 11 April 1980 (hereinafter "the CISG") shall be applied as substantive law for the judgment of the sales and purchase relationship in this case. Pursuant to Article 1(1)(a) of this Convention, the CISG applies to contracts for the sale of goods concluded between parties with their seats in different countries that are parties to the CISG. Plaintiff [Buyer] has its seat in Germany, whereas Defendant [Seller] has its seat in Slovenia and both countries are parties to the CISG.
OPERATIVE PART OF THE JUDGMENT
The [Seller]'s appeal is overruled and the judgment of the Court of First Instance (hereinafter "CFI") is affirmed. The [Seller] shall bear its own costs of the appeal procedure.
REASONING OF THE COURT
The CFI" has ruled that [Seller] has to pay to the [Buyer] 9,542.43 EUR with default interest. CFI has overruled [Buyer]'s claim for 51.54 EUR with default interest and for 10 % default interest from the amount of 13,625.37 Deutsche Mark [DM] from 25 November 2001 to 31 December 2001. It has also ruled that [Seller] has to bear its own costs of procedure and that [Seller] has to repay to the [Buyer] its costs of procedure amounting to 451,360.00 SIT with default interest.
The [Seller] has filed an appeal in due course on the basis of all appealable grounds from Article 338, paragraph 1 of the Slovenian Civil Procedure Act. It has requested the Higher Court to comply with the appeal and alter the judgment of the CFI so as to overrule the [Buyer]'s claim in its entirety and subordinately to annul the decision of the CFI and return the matter to the CFI for a new proceeding.
The appeal has been served to the [Buyer]. The [Buyer] answered alleging that the [Seller]'s appeal is unfounded and requested that the Higher Court should overrule it and affirm the judgment of the CFI.
The Higher Court rules that [Seller]'s appeal is unfounded.
CFI has established that the parties have had a long-term business relationship. The [Buyer] has claimed payment of three invoices arising out of this relationship. The Higher Court ascertains that CFI has correctly ruled that [Buyer]'s claimed receivables towards [Seller] exist in the ascertained scope.
With invoice dated 15 November 2001, [Buyer] has claimed the return of advance payment and payment of costs in the amount of 16,375.37 DM (9,542.43 EUR) because of avoidance of the contract. [Seller] has opposed this claim, alleging that it had correctly fulfilled its contractual obligation and that, consequently, [Buyer] did not have a right to avoid the contract.
From the findings of the CFI, it derives that parties have had a sales and purchase business relationship. Namely, [Buyer] has been ordering doors and door jambs from [Seller], which the latter has produced and supplied to the [Buyer] upon its orders. There was no dispute between the parties regarding the agreement that [Buyer] will pay for the goods in advance, for what, [Seller] recognizes as a 3 % discount off the price of supplied products. It is also not disputed that [Buyer] has made advance payments amounting to 18,000.00 SIT on 4 June 2001. CFI has correctly ascertained that, with the payment of this amount, [Buyer] has made an advance payment for the goods specified in pro forma invoice dated 8 June 2001. CFI has stated in its findings that the advance payment refers to the goods specified in invoice dated 8 June 2001 (119 doors, 123 door jambs) in logical and clear grounds in the explanatory note of its judgment. The Higher Court agrees with this.
CFI has correctly estimated that it was [Buyer]'s intention to buy from the [Seller] with the stated advance payment covering approximately the same number of doors and door jambs needed to enable [Buyer] to fulfill its contractual obligation to deliver to its customer Q. "commissions" that would be composed of the doors and door jambs that [Buyer] ordered from the [Seller]. CFI has also ascertained that [Seller] was acquainted with the business relationship between [Buyer] and its customer Q. Therefore, CFI has correctly concluded that [Seller] knew that [Buyer] had to deliver "commissions", i.e., composed doors and door jambs to its customer in due time.
With these conclusions, CFI has correctly overruled the assertions of the [Seller] that [Buyer] did not concretize the goods to which the advance payment referred to and that, consequently, [Seller] had a right to choose the goods that were delivered to the [Buyer] in the value of the advance payment from stocks that [Seller] has already produced. Contrary assertions in the appeal are not taken into account. [Seller]'s position that it should be deemed that with the payment of the amount 18,000 DM, [Buyer] has given a completely different than the one accepted with confirmation of the above stated pro forma invoice dated 8 June 2001 only because the amount was lower from the amount in the pro forma invoice, is incorrect. Considering the goods specified in pro forma invoice and the fact that [Seller] knew that [Buyer] needed the same number of doors and door jambs, the CFI has correctly estimated that the goods delivered by the [Seller] on 13 June 2001 do not represent a correct fulfillment of the contract, since the consignment contained 22 doors and 174 door jambs. The Higher Court regards this as grounds for the avoidance of the contract.
The CISG applies as substantive law for the judgment of the contractual relationship in this case. Pursuant to Article 1(1)(a) of the CISG, the CISG applies to contracts for the sale of goods concluded between the parties with their seats in different countries that are parties to the CISG. [Buyer] has its seat in Germany, whereas [Seller] has its seat in Slovenia and both countries are parties to the CISG. Therefore, the CFI has erroneously referred to the provision of Slovenian Obligations Act.
The Higher Court regards the breach of the sales contract in this case as a fundamental breach of contract in the meaning of Article 25 of the CISG. [Buyer] has proved that it needed the goods paid for with the advance payment for the composition of "commissions" that would be resold to the [Buyer]'s customer and that this could not have been done from the goods that were actually delivered. [Buyer] did not get what it was entitled to expect under its contract. with the [Seller]. Therefore, the [Buyer] had a right to avoid the contract in accordance with Article 49(1)(a) of the CISG. Since it was ascertained that [Seller] was acquainted with the needs for which [Buyer] has purchased the goods, [Seller] is not entitled to rely on [Buyer]'s duty to notify the [Seller] of lack of conformity (Article 40 of the CISG). Therefore, assertions in the [Seller]'s appeal along these lines cannot be taken into account. [Seller] was aware that the delivered goods were not in conformity with the contractual determined goods. [Seller]'s position that timely fulfillment was not a material part of the contract is correct. However, [Seller]'s assertions in that direction are not significant, since the Higher Court has ascertained that other grounds for the avoidance of the contract exist.
The CISG determines in Article 81 the same consequences in connection with the avoidance of the contract as does the Slovenian Obligations Act in Article 132 for cancellation of a contract. Therefore, the CFI has correctly ruled that [Seller] has to return the claimed remainder of the purchase price to the [Buyer]. [Buyer] has by avoidance of the contract returned the goods to the [Seller] with a statement that it gives [Seller] the goods for disposal. Thus, the [Seller]'s assertions that [Buyer] did not return the goods are incorrect. It is undisputable, however, that [Seller] after the avoidance of the contract did not want to take over the goods given by [Buyer] for disposal and, therefore, [Buyer] took steps to sell the goods in order to reduce the costs of the storage of the goods (Article 88(1) of the CISG). The CFI has correctly ascertained that by the sale of these goods [Buyer] has acted with the diligence of good manager and got a reasonable purchase price. For such conclusion, CFI has stated clear grounds that are based on the contract between the [Buyer] and its customer A.B., dated 5 November 2001 and offer dated 25 October 2001. [Seller] in its appeal repeats assertions already stated in the procedure at the first instance, on which the CFI has answered with clear grounds in an explanatory note. The Higher Court concurs with these grounds and refers to them to avoid repetition. The CFI has also correctly ruled that [Seller] has to repay to the [Buyer] storage costs for [Seller]'s goods and as well the default interest from both claims, repayment of the remainder of the purchase price and of the storage costs (Article 78 of the CISG). The Higher Court estimates that CFI has correctly ascertained the amount of default interest pursuant to Article 78 in connection with Article 7(2) of the CISG.
On the basis of invoice No. 073/01 dated 26 September 2001, the [Buyer] has also claimed costs arising from the reclamation, because of an unsuitable door jamb that it bought from the [Seller] for 300.80 DM. CFI has ascertained that this claim is founded only up to 200.00 DM (102.26 EUR), since only in this scope was it referring to the costs arising from the reclamation. CFI has overruled [Seller]'s assertions that a defect in the door jamb was not proved. CFI has, on the basis of the procedure of taking evidence, ascertained that the door jamb did not have the ordered color and because of that the end-purchaser H. has refused to accept that door jamb. CFI has also noted that because of this non-acceptation, claimed costs have arisen to the [Buyer] and that it has correctly and in due course notified the [Seller] of the defect. [Seller] in its grounds for appeal did not succeed in overruling these correct conclusions; in its appeal, the [Seller] did not attack concrete reasons that CFI has used to substantiate these conclusion. The assertion that [Seller] has been solving the reclamations only on the basis of appropriate minutes of reclamation, which was not presented by the [Seller], was given by the [Seller] only in appeal. This represents a new argument that is not allowed in an appellate procedure (Article 337, paragraph 1 of Slovenian Civil Procedure Act). Therefore, the Higher Court did not consider these assertions. The Higher Court has correctly ruled that [Seller] has to pay the claimed costs connected to the incorrectly fulfilled sales contract (Article 74 of the CISG).
With its invoice ... dated ..., [Buyer] has in addition claimed payment of the costs for transport and storage of 2x2 palettes of [Seller]'s goods after its order in February 2001 amounting to 2,088.00 DM (1,067.58 EUR). The fact that [Buyer] has performed the service from this invoice is not in dispute between the parties. [Seller] has instead contradicted the claim with the assertion that it did not order this service. CFI has ascertained otherwise after taking evidence. Among other bases for this finding, CFI has relied on the deposition of witness P. that was in the opinion of the Higher Court more persuasive than the deposition of witness S. In its explanatory note, CFI has also stated other grounds and facts that have confirmed the deposition of witness P. and grounds why the deposition of witness S. was not persuasive. [Seller] did not explain in its assertions, why it had deemed that [Buyer] has performed the service free of charge. Since it was ascertained that the service was performed and that it was performed on the basis of [Seller]'s order and for its account, CFI has correctly ruled that [Seller] has to pay for this service with default interest. CFI has also correctly ruled that facts on what might have happened with [Seller]'s goods that were the subject of service are not important, since [Seller] did not specify any claims regarding the goods. Therefore, the assertions in [Seller]'s appeal that contradict this position of CFI are not sustained.
CFI has correctly established the amount of default interest that belongs to [Buyer] from procedure costs. This is receivable in Tolars for what Article 378 of Slovenian Obligations Act applies. Therefore, different grounds set forth in the appeal are not to be considered.
On the basis of the above and since the Higher Court has ascertained that in the procedure before CFI there was no material breach of civil procedure that should be reviewed ex officio (Article 350, paragraph 2 of the Slovenian Civil Procedure Act), the Higher Court has overruled the appeal and affirmed the judgment of CFI (Article 353 of Slovenian Civil Procedure Act). Since [Seller] did not succeed with the appeal, it shall bear its own costs for the appeal (Article 154, para. 1 in connection with Article 165, para. 1 of the Slovenian Civil Procedure Act).
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellee of Germany is referred to as [Buyer] and Defendant-Appellant of Slovenia is referred to as [Seller].
** Marko Ketler, Attorney-at-Law at Law Firm Rojs, Peljhan Pretesnik & Partnerns <http://www.rppp.si>Go to Case Table of Contents