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CISG CASE PRESENTATION

Switzerland 20 December 2006 Federal Supreme Court (Machines case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061220s1.html]

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

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Case identification

DATE OF DECISION: 20061220 (20 December 2006)

JURISDICTION: Switzerland

TRIBUNAL: Bundesgericht [ = BGer = Federal Supreme Court]

JUDGE(S): Corboz (president), Klett, Rottenberg Liatowitsch, Kiss, Mathys

CASE NUMBER/DOCKET NUMBER: 4C.314/2006

CASE NAME: Unavailable

CASE HISTORY: 1st instance Bezirksgericht Höfe 21 June 2004; 2d instance Kantonsgerichts des Kantons Schwyz 7 February 2006 [reversed in part]

SELLER'S COUNTRY: Contracting State (plaintiff)

BUYER'S COUNTRY: Contracting State (defendant)

GOODS INVOLVED: Machines


IHR headnote

Reproduced from Internationales Handelsrecht (3/2007) 127-128

"1. The seller does not fulfill his obligation in the additional period of time, if he offers delivery of the goods in a timely fashion but makes it subject to a counter performance to which he is not entitled.

"2. The prerequisites of a set-off are ruled -- at least in those cases in which the claims result from different contracts -- not by the CISG, but by the applicable national law."

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UNCITRAL case abstract

SWITZERLAND: Federal Court, 20 December 2006 (Machines case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/93],
CLOUT abstract no. 933

Reproduced with permission of UNCITRAL

Abstract prepared by Thomas M. Mayer

X AG, whose principal place of business was in Switzerland, concluded with Y Sàrl two contracts of sale relating to sanding machines and other machinery. The first contract was executed. With regard to the second, X AG, as seller, had instituted proceedings seeking performance of the contract with regard to the outstanding items and payment of the balance of the sale price, since the buyer, Y Sàrl, had rescinded the contract with regard to the non-executed part. Both the lower and appeal courts having dismissed the action brought by the plaintiff (the seller), the latter referred the case to the Federal Court.

[The] Federal Court held that, in accordance with article 49 (1) (b) CISG, the buyer could declare the contract avoided if the seller made delivery of the goods subject to a consideration to which it was not entitled.

The court observed that the defendant had proposed to the plaintiff that it would pay that part of the sale price which, in its opinion, was in fact due following set-off against outstanding debts under the first contract. The plaintiff did not accept that proposal and continued to demand payment of the full sale price still owed to it under the contract. If the defendant's right of set-off in fact existed and the plaintiff's claim for payment of the sale price was consequently extinguished through set-off for a corresponding amount, that implied that the plaintiff was demanding a consideration to which it was not entitled in such a form. Thus the defendant had rightly declared the contract avoided.

The court held that the right of set-off pleaded by the defendant in respect of the costs of remedying defects under the first contract of sale was, in principle, well founded. The question of compliance with article 39 CISG was not examined since the plaintiff had acknowledged the defects.

With regard to the set-off claim, the court acknowledged that the debt in payment of the sale price under a contract could be wholly or partly extinguished by set-off against a counter-claim insofar as the applicable law recognized that effect of set-off. The question of set-off was not dealt with in the CISG, at least where, as in the present case, the reciprocal debts arose under different contracts.

The court, pursuant to applicable Swiss law, as determined by the private international law of the forum, observed that the set-off requirements had been met. However, it referred the case to the lower court, since that court had omitted to specify the amount of the set-off claim.

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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 4 ; 40 ; 47(1) ; 49(1)(b) [Also cited: Articles 6 ; 53 ; 54 ; 58(1) ; 63(2) ; 64(2) ; 71 ; 81 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): set-off];

40B [Seller's knowledge of non-conformity: seller loses right to rely on articles 38 and 39];

47A [Buyer's right to fix additional final period for performance];

49A21 [Buyer's right to avoid contract (grounds for avoidance): seller does not deliver or refuses to deliver within additional period set under art. 47]

Descriptors: Scope of Convention ; Set-off ; Lack of conformity notice, timeliness ; Lack of conformity known to seller ; Nachfrist ; Avoidance

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/1426.pdf>; Internet website of the Swiss Supreme Court <http://www.bger.ch>; Internationales Handelsrecht (3/2007) 127-129

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

French: Claude Witz, Recueil Dalloz (23 October 2008) 2624

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Case text (English translation)

Queen Mary Case Translation Programme

Federal Supreme Court (Bundesgericht, BGer) of Switzerland

20 December 2006 [4C.314/2006  /len]

Translation [*] by Veit Konrad [**]

Edited by Jan Henning Berg [***]

FACTS OF THE CASE

A.  a. On 15 December 1994, Plaintiff [Seller] sold to Defendant [Buyer] the following machines for a total amount of SFR (Swiss Francs) 250,000.00:

1 CNC-Univ.-Circular Grinding Machine (Rundschleifmaschine) "Tachella" No. 5319

1 CNC-Univ.-Surface Grinding Machine (Flachschleifmachine) "Fafretto" No. 3339

"Special offer: Sale as seen"

[Buyer] paid the price and took the machines.

      b. On 4 May 1995, the parties concluded another sales contract. The following items were sold for the purchase price of SFR 1,100,000.00:

1 OKK-Zenter PCH 500, 80 WZ Palettenbahnhof

1 OKK-Zenter PCH 600, 60 WZ

1 OKK-Zenter PCV 630, 40 WZ Langbett

1 Posten Aufnahmen BT 35/40/50 app. 4,000 pieces

1 Vertikal-Zenter Heckler+Koch

Accessories: all items incl. breadboards

At the date the contract was concluded, [Buyer] paid SFR 200,000.00. The remaining money was to be paid when the goods were delivered. Delivery was to take place "at the latest in Sept. 1995."

      c. The following two items were delivered prior to that date:

OKK-PCH 500, 80 WZ, inc. accessories

Vertikal-Zenter Heckler+Koch

These goods were handed over on 31 May 1995. [Buyer] then paid an amount of SFR 400,000.00 to [Seller]. However, when [Buyer] requested the delivery of the machine OKK-Zenter PCH 600, 60 EZ, [Seller] demanded payment of another SFR 400,000.00 in advance. Otherwise, [Seller] threatened to retain the machines.

Thereafter, on 31 June 1995, [Buyer] filed a provisional injunction for the delivery of the machine OKK-Zenter PCH 600, 60 WZ.

      d. By letter of 4 October 1995, [Seller] demanded that [Buyer] take delivery of the remaining items in exchange for payment of the outstanding SFR 500,000.00. In [Buyer]'s response of 13 October 1995, [Buyer] declared a set-off up to an amount of SFR 131,730.30 with regard to several positions stemming from the sales transaction of 15 December 1994. [Buyer] also offered to take the rest of the delivery, to pay SFR 218,269.70 and to authorize payment of another SFR 150,000.00, which had been deposited as security at the District Court (Bezirksgericht) of Höfe until 23 October 1995.

By letter of 17 October 1995, [Seller] refused the offer. [Seller] alleged that [Buyer] was not entitled to declare a set-off against [Seller]'s claim. [Seller] insisted that [Buyer] take the remaining goods and pay the full amount of SFR 500,000.00.

On 30 October 1995, [Buyer] then declared the contract avoided as concerns the outstanding delivery of the remaining machines.

B. On 16 November 1998, [Seller] brought a claim against [Buyer] before the District Court of Höfe:

  1. [Seller] requested that [Buyer] be ordered to disclose all relevant details from the resale of the OKK-Zenter PCH 600, 60 WZ and of other items, and to relinquish all to [Seller] profits gained in these transactions.

  2. [Seller] also requested payment of SFR 572,923.20 plus interest of 5 % on SFR 596,923.20 since 30 September 1995. As to a part of this amount, which is to be determined by a judgment that will follow a pending trial against A., [Seller] alleged that [Buyer] and A were jointly liable. In addition, [Seller] demanded that [Buyer] take delivery of 1 OKK-Zenter 630, 40 WZ Langbett and 1 lot (4,000 pieces) of tool holders Aufnahmen BT 35/40/50, minus 120 tool holders that had already been delivered.

By its communication of 9 July 1999, [Seller] modified its claim, acknowledging that the amount under 1. was already included in its claim under 2.

In its judgment of 21 June 2004, the District Court (Bezirksgericht) of Höfe dismissed the [Seller]'s claim.

C. In its first appeal (Berufung), brought before the Court of Appeal (Kantonsgericht) of Schwyz on 14 July 2004:

  1. [Seller] had demanded that the ruling of the Court of First Instance be set aside.

  2. [Seller] also maintained its claim concerning the disclosure of all relevant details from the resale of the OKK-Zenter PCH 600, 60 WZ and of other items (2.a.), and the relinquishment of all profits gained through these transactions (2.b.).

  3. [Seller] further demanded payment of SFR 572,923.20 plus interest of 5 % on the amount of SFR 525,923.20 since 30 September 1995, plus 5 % interest on the remainder since 31 May 1998. The latter position, according to [Seller], was due in joint liability with A. up to an amount to be determined by a pending judgment in proceedings against A. Furthermore [Seller] has demanded the taking of the delivery of 1 OKK-Zenter 630, 40 WZ Langbett and 1 lot (4,000 pieces) of tool holders, Aufnahmen BT 35/40/50, minus 120 tool holders that had already been delivered.

  4. Finally, [Seller] requested that the sum of the claimed positions under 2. and 3. should be determined at SFR 572,923.20.

In its ruling of 7 February 2006 the Court of Appeal of Schwyz dismissed the [Seller]'s appeal.

D. In its second appeal (Berufung) that [Seller] has brought before the Federal Supreme Court (Bundesgericht; BGer) on 14 September 2006:

  1. [Seller] seeks to have the ruling of the Court of Appeal of Schwyz (judgment of 7 February 2006) set aside.

  2. [Seller] retains its claim for payment of SFR 500,000.00 plus 5% interest since 30 September 1995. [Seller] demands the taking of the delivery of 1 OKK-Zenter 630, 40 WZ Langbett and 1 lot (4,000 pieces) of tool holders, Aufnahmen BT 35/40/50, minus 120 tool holders that had already been delivered (2.a.). Concerning the amount of SFR 48,000.00 plus 5% interest since 31 May 1998 [Seller] wants the case to be referred back to the previous instance (2.b.).

    In eventu, the [Seller] requests that:

  3. The whole case be referred back to the Court of Appeal of Schwyz so that new evidence concerning the claim for SFR 300,000.00 plus intererst of 5 % since 30 September 1995 can be taken into account by the Court.

  4. The claim for an amount of SFR 34,000.00 plus 5% interest since 30 September 1995 should then be dismissed.

[Buyer] seeks the dismissal of the [Seller]'s appeal.

REASONING OF THE FEDERAL SUPREME COURT

1.  1.1. The decision of the previous instance conflicts with Swiss Federal Law, including international Conventions that have been adopted by Switzerland (Art. 43(1) of the Swiss Federal Rules of Procedure [OG]. The CISG is such an adopted convention, whose correct application falls under the jurisdiction of the Swiss Federal Supreme Court (Bundesgericht; BGer). The transaction at issue between the parties is governed by the CISG, because both parties are seated in Contracting States as stipulated under Art. 1(1)(a) CISG. The parties have not validly excluded the application of the Convention, as provided under Art 6 CISG.

      1.2. In its appeal, [Seller] needs to specify which Swiss Federal regulations [Seller] deems violated by the ruling of the lower instance and how specifically the ruling infringes the relevant legal provisions. An appeal cannot be merely directed against the presumably wrongfully conducted taking and evaluation of evidence, except in the case of an obvious mistake by the Court, or if Federal provisions regulating the taking of evidence have been violated, or if the judgment suffers from incomplete findings of facts (Art. 55(1)(c), Art. 63(2), and Art. 64 OG, see also ruling of BGE 130 III 102 E. 2.2. p. 106 with reference).

As far as [Seller]'s appeal concerns factual presuppositions which are not in accord with the findings of the Appellate Court, but do not fall within the mentioned exceptions above, it will not be considered.

An obvious mistake in the sense of Art. 63(2) OG cannot be assumed if a submitted document has simply not been referred to by the Court in its ruling. It must be clear that the Court has failed to - implicitly or explicitly - take account of that document in its findings on the facts of the case overseeing the piece as a whole. It is further necessary that this failure had an impact on the material decision of the Court (see rulings of BGE 132 III 545 E. 3.3.2. p. 548; 101 Ib 220 E. 1 p. 222; 95 II 503 E. 2a p. 507; Jean-François Poudret / Suzette Sandoz-Monod, Commentaire de la loi fédérale d'organization judiciaire, vol. II, N. 5.1. Art. 63 OG). As far as these requirements are not met, [Seller]'s appeal will not be considered by the Court.

2. In its second appeal, [Seller] has dropped the claim for [Buyer] to disclose all relevant details of the resale of several items, of which [Seller] has alleged to have property, and for relinquishment of all profits achieved in these transactions. [Seller] now mainly claims for taking of the delivery of the remaining goods as stipulated in the contract of 4 May 1995 in exchange for payment of the outstanding purchase price plus interest, and damages for default. Therefore, the Court has to investigate whether [Buyer] could rightfully discharge itself from the duty to take delivery by declaring the contract avoided.

The Appellate Court has concluded that [Buyer] had indeed been entitled to avoid the contract under Art. 49(1)(b) CISG. According to the Court, [Seller] unrightfully demanded a higher purchase price for the delivery than had originally been agreed by the parties. This was to be interpreted as a non-delivery within an additional period of time in the sense of Art. 49(1)(b) CISG.

In its second appeal, [Seller] submits that the Appellate Court has not taken into account that [Seller] instead of direct payment of the remaining purchase price had offered the escrow of the money. If the Court had acknowledged this, it would never have concluded that [Seller] had asked too much of [Buyer]. According to [Seller], this mistake must be straightened with resort to Art. 63(2) and Art. 64(2) CISG. [Seller] further claims that the decision of the Appellate Court violates Arts. 49, 53, 54 and 71 CISG and Arts. 82 and 120 of the Swiss Code of Obligations [OR].

      2.1. If not stipulated otherwise the buyer must pay the price when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract or the Convention. The seller may make such payment a condition for handing over the goods or documents (Art. 58(1) CISG). If the buyer offers payment of the due price the seller must accept it and hand over the goods. If the seller does not comply with this duty the buyer may fix an additional period of time for the delivery. The buyer may declare the contract avoided, if the seller does not deliver the goods within the additional period of time fixed in accordance with Art. 47(1) CISG or declares that he will not deliver within the period so fixed (Art. 49(1)(b) CISG). The seller does not satisfy his duty to deliver within the additional period of time, if he offers the delivery within that time, but only in return for consideration he cannot rightfully claim under the Contract or the applicable law (Markus Müller-Chen in: Peter Schlechtriem / Ingeborg Schwenzer (ed.), Kommentar zum Einheitlichen UN-Kaufrecht, 4th ed. 2004, Art. 49 CISG note 20; Wilhelm-Albrecht Achilles, Kommentar zum UN-Kaufrechtsübereinkommen (CISG), Art. 49 CISG note 3).

      2.2. [Buyer] has offered to pay the amount remaining after the declared set-off with [Buyer]'s claims from the first transaction. [Seller] has refused this offer insisting that [Buyer] owes the entire purchase price due under the contract. If [Buyer] had rightfully declared the set-off, [Seller]'s claim for the full purchase price would not be justified, irrespective of the fact that [Seller] had offered to escrow the money as an alternative to direct payment. As far as [Seller]'s second appeal seeks the correction of the Appellate Court's findings on the facts under Art. 63(2) of the Swiss Federal Rules of Procedure [OG], it will not be considered.

            2.2.1. Subject to provisions of the applicable law, the duty to pay the purchase price may be diminished by a validly declared set-off with claims of the other party. Following a widespread legal opinion, the Court presumes that questions concerning set-offs are not regulated by the CISG (see Judgment 4C.144/2004 (7 July 2004) E. 4.3.; Franco Ferrari in: Schlechtriem / Schwenzer, ibidem, Art. 4 CISG note 39; Manuel Lorenz in: Wolfgang Witz / Hanns-Christian Salger / Manuel Lorenz, International Einheitliches Kaufrecht, Art. 4 CISG note 29 with further references). This principle in particular applies in cases where claim and counterclaim do not stem from the same contract (see Ulrich Markus in: J. von Staudingers Kommentar zum Bürgerlichen Gesetzbuch, Wiener UN-Kaufrecht (CISG), 2005, Art. 81 CISG note 15). The question of set-off then depends on the applicable national law, that regulates the conditions, the effect and the modes of enforcement of a set-off (Max Keller / Daniel Girsberger in: Zürcher Kommentar zum IPRG, 2nd ed. 2004, Art. 148 IPRG note 43 et seq.). Art. 148(2) of the Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG) stipulates that a set-off is regulated by the law administering the position subject to the set-off. Art 118(1) of the Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG) and Art. 3(1) of the Hague Convention of 15 June 1955 on the Law Applicable to International Sales of Goods (SR 0.2212114) point to Swiss law to govern the position subject to the set-off. Art. 124(2) of the Swiss Code of Obligations [OR] stipulates that, subject to a declared set-off, matching claims become extinct.

            2.2.2. According to the findings of the Appellate Court, which are binding for the Court, it must be assumed that the Tachella-Machine and its control unit - contrary to [Seller]'s promises - were unfit for the usage in round edges. It was thus defective and had to be modified for this purpose. The question whether the machine suffered from further defects, or whether the delivery included a CNC-control panel is irrelevant. The Court of the lower instance did not need to enquire into these questions. A correction of its findings on facts as provided for under Art. 63(2) of the Swiss Federal Rules of Procedure [OG] is out of question. The Appellate Court has also concluded that [Seller] had been aware that it was impossible to produce sample parts with the existing control unit; [Seller] thus acknowledged the non-compliance of the machine with the contractually agreed standards. [Seller]'s argument that, in not acknowledging [Buyer]'s revocation of promises made after it had turned out that the machines had been delivered with CNC control units, the decision of the Appellate Court suffered from an overt mistake, cannot be followed. Even if such an obvious mistake has indeed been made, it did not affect the material outcome of the trial, because the question whether the Tarella Machine had a built-in CNC control unit was irrelevant. Taking all this into account, the Court of Second Instance has correctly presumed that [Buyer] was entitled to the counterclaims.

            2.2.3. The Court cannot follow [Seller]'s argument that [Buyer] could not rely on its counterclaims as [Buyer] had failed to give specified notice within reasonable time as required under the Convention. As [Seller] had acknowledged that the delivered goods had indeed been deficient, [Buyer]'s rights do not depend upon the correct notification about the defects. [Seller]'s further submissions against the set-off are also unjustified: Neither does the declared set-off constitute an abusive exercise of rights, nor has the set-off been declared under a fixed period of time or any other condition. In particular, [Seller] may not resort to Art. 287(1) No. 2 of the Swiss Act on Insolvency and the Collection of Debts (Bundesgesetz über Schuldenbetreibung und Konkurs; SchKG): The case at issue does not concern the ordinary repayment of a debt as provided for under this rule. Hence the lower instance has correctly concluded that the set-off has been validly declared.

            2.2.4. Considering the conclusions of the lower instance, which are binding for the Court, [Seller]'s claim is reduced by the amount [Buyer] has validly set-off. However, contrary to the Appellate Court, it did not suffice to acknowledge that [Buyer] had indeed been entitled to set-off [Seller]'s claim against its own claim for damages due to the delivery of deficient goods (see Ruling E. 2.1.). The Court had to quantify the amount up to which [Buyer]'s set-off is justified. Yet, the lower instance merely stated that the deficient goods caused costs of "at least" SFR 52,000.00. As [Buyer] had offered to pay SFR 368,269.00 instead of the original purchase price of SFR 500,000.00 (SFR 150,000.00 held in escrow at the District Court plus an additional SFR 218,269.70), the Appellate Court's statement did not clearly decide the question whether [Buyer] had offered payment of the full amount due. Such a conclusion would imply that [Buyer] had validly declared a set-off up to at least SFR 131,730.30. The judgment of the Appellate Court must therefore be set aside and the case must be referred back to the Appellate Court to clear further relevant questions on the facts of the case (Art. 64(1) of the Swiss Federal Rules of Procedure [OG]). To that extent, the [Seller]'s appeal is justified.

3. As far as [Seller] wants its claim to be granted, the appeal is unjustified. The case cannot be decided until further evidence has been taken and evaluated. Due to the partial success of the appeal, the costs of the appellate proceedings are equally split between the parties pursuant Art. 156(3) of the Swiss Federal Rules of Procedure [OG]. Moreover, each party bears the costs for its legal counsel (Art. 159(3) of the OG).

JUDGMENT

The appeal is partly justified.

   -    The judgment of the Appellate Court of Schwyz of 7 February 2006 is set aside and the case is referred back to the Appellate Court.
   -    The costs of the Court proceedings of SFR 8,000.00 will be split equally between the parties.
   -    Each party bears the costs for its legal counsel.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this presentation, the Plaintiff-Appellant is referred to as [Seller]; the Defendant-Appellee is referred to as [Buyer].

** Veit Konrad has studied law at Humboldt University, Berlin since 1999. During 2001-2002 he spent a year at Queen Mary College, University of London, as an Erasmus student.

*** Jan Henning Berg is also a law student at the University of Osnabrück, Germany and participated in the 13th Willem C. Vis Moot with the tem of the University of Osnabrück. He has coached the team of the University of Osnabrück for the 14th Willem C. Vis Moot and 4th Willem C. Vis (East) Moot.

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