Spain 20 February 2007 Appellate Court Madrid (Sunprojuice DK, Als v. San Sebastian, S.c.A.)
[Cite as: http://cisgw3.law.pace.edu/cases/070220s4.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Recurso No. 683/2006
CASE HISTORY: 1st instance Juzgado de Primera Instancia No. 9 de Madrid 1 February 2006 [reversed]
SELLER'S COUNTRY: Spain (defendant)
BUYER'S COUNTRY: Denmark (plaintiff)
GOODS INVOLVED: 5,000 tons of Almazara crushed olive stones for energy production
SPAIN: Provincial High Court of Madrid, 20 February 2007
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/83],
CLOUT abstract no. 851
Reproduced with permission of UNCITRAL
The Danish buyer brought an action for damages and loss against the Spanish seller for failure to comply with the quality specified in the contract. It maintained that the goods - olive stones - were of a humidity higher than the agreed 14 per cent and that some still had pulp attached. It also claimed compensation for the replacements that it had been forced to purchase as a substitute for the defective goods and, in addition, for dead freight, that is, the shortfall in the quantity contracted for in the first shipment, for which it had had to pay, having insufficient merchandise to fill the chartered vessel.
The contract signed between the parties, in English, contained a clause 4 setting out the specifications of the merchandise: "The merchandise shall consist of clean olive stones from an olive mill, approximately 2-5 millimetres in size. A separation procedure shall be carried out in order to remove pieces of pulp and remnants of fruit. The merchandise shall not contain olive flesh, pulp or other impurities". This clause referred to an annex specifying that the level of humidity should not exceed 14 per cent. Clause 8 stated that, if the humidity exceeded 14 per cent, the price would be reduced, while clause 13 stated that "if the quality achieved is not in accordance with that stipulated by the contract, the buyer shall be entitled to cancel the agreement". Deliveries of merchandise were to be made in the quantities stipulated by the parties, the buyer having an obligation to notify the seller of the quantity required for loading on the vessel not less than nine days before delivery at the port, where the seller was to deliver it in a quantity of not less than 400 tons per day.
When the first delivery was made, it was found both that the quantity sent was less than that requested and that the merchandise was of a higher humidity than specified. In respect of the quantity, the buyer was unable to load the vessel in accordance with the terms of the contract of affreightment and therefore had to pay dead freight, which was why it was claiming damages to cover reimbursement of this cost. As for the quality, the excessive humidity gave rise to a reduction in the price. The second consignment again exhibited excess humidity, and the buyer again reduced the price.
When this second consignment arrived, the buyer sent the seller a fax expressing its dissatisfaction with the level of humidity, and pointed out that the seller had the capacity to dry the merchandise in a professional drying plant, thus enabling it to comply with the maximum humidity of 14 per cent allowed for under the contract. The buyer stated that, if that was not done, it would need to charge for the costs resulting from the delivery of merchandise of higher humidity. After this, the parties held a meeting to resolve the question of humidity. On the basis of a guarantee by the seller, the buyer put in a new order; but an examination of the merchandise revealed that the olive stones were of a humidity higher than 14 per cent, as well as containing pulp. Following unsuccessful efforts by the seller to make good the merchandise, the buyer avoided the contract and purchased replacement goods, for which reason it sought to recover the extra cost as part of the damages that it claimed.
The court held that the parties had agreed on a specific quality for the merchandise (a fact that the seller could not, under CISG, article 8, have been unaware of) and that clause 8 of the contract, relating to the maximum humidity level and the price reduction if the humidity exceeded 14 per cent, "is no more than a precaution in the event that the humidity exceeds 14 per cent within admissible limits in one or several consignments or in the event that the buyer accepts goods with excessive humidity for the purpose of maintaining the contract. Obviously, if the goods have a minimum excess of humidity above 14 per cent, the clause makes sense, but a disproportionate excess of humidity does not make sense in terms of the ultimate purpose of the contract, which is energy production, since ... it affects the balance of contract, producing an over costly result for the buyer, because the merchandise that is the subject of the contract has become unfit for its purpose ..., and the cost of transport makes it uneconomic." The court also held that the fact that the first two consignments were accepted with a higher level of humidity and a consequent reduction in price did not imply estoppel on the part of the buyer, since the seller's obligation was crucial, particularly as the buyer emphasized the importance of this factor after the first two consignments. On the basis of this interpretation, the court held that the parties had agreed on an essential obligation such that non-compliance led to the avoidance of the contract. It therefore granted all the damages claimed both on the basis of the contract and by application of CISG, articles 45, 49, 74 and 75, both Denmark and Spain being contracting parties.Go to Case Table of Contents
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
7A33 [Application of good faith standards]; 8B [Intent of party making statement or engaging in conduct: interpretation based on objective standards]; 25B [Definition of fundamental breach]; 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 after avoidance: repurchase by aggrieved buyer]; 78A [Interest on delay in receiving price or any other sum in arrears]
7A33 [Application of good faith standards];
8B [Intent of party making statement or engaging in conduct: interpretation based on objective standards];
25B [Definition of fundamental breach];
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 after avoidance: repurchase by aggrieved buyer];
78A [Interest on delay in receiving price or any other sum in arrears]
CITATIONS TO OTHER ABSTRACTS OF DECISION
Spanish: CISG-Spain and Latin America website <http://www.uc3m.es/cisg/respan60.htm>
CITATIONS TO TEXT OF DECISION
Original language (Spanish): CISG-Spain and Latin America website <http://www.uc3m.es/cisg/sespan60.htm>; see also Fuente: Aranzadi Westlaw JUR 2007\152319
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation)
Queen Mary Case Translation Programme
20 February 2007
Translation [*] by Juan Manuel Falabella [**]
Edited by Guillermo Coronado Aguilar [***]
Jurisdiction on civil matters
Appeal No. 535/2006
ORDINARY PROCEEDINGS No. 952/2004, "claim for differences in the quantity and quality of the goods ordered," from Madrid Court of Original Jurisdiction No. 9 (Record No. 535/2006) is hereby heard by Division 14 of this Madrid Court of Appeals. Parties to this case are:
Petitioner, SUNPROJUICE DK, A/S [Buyer], appearing by counsel GRACIA LÓPEZ FERNÁNDEZ,
Respondent, SAN SEBASTIÁN, S.C.A. [Seller], who challenged the appeal, appearing by counsel MARIA DEL CARMEN PALOMARES QUESADA.
Honorable Judge Amparo Camazón Linacero delivered the opinion of the Court.
FINDINGS OF FACT
ONE. On 1 February 2006, the Judge of Madrid Court of Original Jurisdiction No. 9 rendered a decision which states: "Rejecting the claim brought by [Buyer] against [Seller], I hereby dismiss the claims filed by [Buyer], who shall be held liable for costs."
TWO. Upon service of the aforementioned decision, [Buyer] lodged an appeal, which was challenged by [Seller] and, pursuant to Sections 457 et seq of LECiv [*] (RCL [*] 2000, 34, 962 and RCL 2001, 1892), the records of the case were sent to this Division and the appeal was heard according to its legal procedures.
THREE. Pursuant to a ruling pronounced by this Division, 13 February 2007 was the date set for discussing, voting and deciding the case.
FOUR. During this proceeding, the legal statute of limitations was observed.
The legal grounds stated in the appealed decision are hereby dismissed.
[POSITION OF THE PARTIES]
ONE. The Danish Buyer brought an action for damages against the Spanish Seller, arguing a breach by the [Seller] of the contract entered into by both parties in 2003, avoided on 9 March 2004 as a consequence of such breach. The subject matter of the contract was the sale of a total of 5,000 tons of Almazara crushed olive stones for energy production, with an option of 1,000 tons more or less, in favor of the Buyer.
The action is brought for damages caused by:
(a) The non-fulfillment of the quality specified in the contract and further specified in the 4 February 2004 Granada meeting (humidity above the 14% and stones with pulp) with respect to the goods of the third shipment (difference in the existing price between the goods rejected for the defective quality and the goods purchased to substitute for them, which comply with the agreed humidity (€ 13,781); and
(b) The shortage of goods in relation to the quantity agreed upon for the first shipment: the dead freight that could not be amortized since there were not enough goods to load the chartered vessel, the merchant ship "Rosita" (€ 2,269.80).
[Seller] challenged the [Buyer]'s appeal, arguing that section 8, the quality control provision of the contract, concluded by the parties, states, "Delivered weight and humidity shall be set by SGS in the Port. If humidity exceeds 14%, the price shall be reduced." It is [Seller]'s position that the correct construction of this clause highlights the fact that:
|a)||No breach by the Seller justifies or protects [Buyer]'s avoidance of the contract
or the [Buyer]'s action for damages.
|b)||The quantities to be successively delivered are not specified in the contract, since
the scheme of delivery is to be set in accordance with the olive harvest, and that is
the reason why Buyer requested, through a document called "order of delivery",
the delivery of the quantity of goods in view of its needs. But, pursuant to what had
been agreed by the parties, it would all depend on the evolution of the olive
harvest. This would determine the number of tons available in each period and the
quality of the stones. Such is the grounds for clause 8, which provides for a
reduction of the price in proportion to the excess of humidity percentage. That is
the reason why the price was reduced pursuant to exhibit 3 attached to the
complaint; that evidences the humidity discount, since the exact quality and
quantity cannot be agreed in advance because it depends on a natural event which
has nothing to do with the parties' intent, and a forecast can only be made
according to the agricultural year.
|c)||The degree of humidity depends on the weather conditions of the agricultural year
and is reduced by the use of drying techniques.
|d)||Seller is not liable for the vessel's dead freight of the first shipment since the Buyer
is liable for the transportation.
|e)||There is no information whatsoever to determine that the price of the dead freight,
in the established proportion, amounts to the quantity detailed in the invoice that
was filed by the [Buyer] as exhibit 8 attached to the complaint.
|f)||Goods were to be placed in the port, place of delivery, during a term and until a
set date and time in which the final quantity of goods that had been delivered was
determined, as well as their level of humidity and the moment when the level of
humidity could be reduced in a certain percentage though drying techniques.
|g)||Seller never committed to such humidity percentage (14%), nor warranted such
humidity since the agreement revolves around the price, i.e., if the degree of
humidity is above 14%, the price will be reduced and that agreement has not been
breached since the price has been reduced in all the invoices which [Seller] had
|h)||At the Granada meeting, Seller only explained the mechanisms used to reduce the
percentage of humidity, but if such percentage is too high, it can only be reduced in
a certain percentage.
|i)||Clause 8 of the contract does not fix a certain humidity percentage as a
requirement but as a quantity and quality control mechanism and a commitment to
reduce the price in the event that percentage of humidity was exceeded.
|j)||Buyer is the breaching party who, without any breach on the part of the Seller, has
unilaterally avoided the contract, forcing Seller to look for another buyer for the
goods of the third shipment, demanding a quality which had not been agreed in the
|k)||Seller accepted the avoidance so as to avoid problems.|
The decision of the Court of Original Jurisdiction considered that:
|a)||In the contract, a certain quality was contemplated and it makes reference to an
exhibit pursuant to clause 4 (14% humidity degree). However, clause 8 provides a
solution for quality defects. So, weight and humidity are to be checked at the port
by a SGS inspection company and, if the humidity exceeds 14%, the price will be
reduced. Then, if the humidity exceeds 14% and does not meet the quality control
described in such exhibit -- which existence [Buyer] acknowledges in spite of it
being denied by [Seller] -- the avoidance of the contract caused by Seller's breach
in the quality of the delivered goods is not contemplated as a sanction, but as a
ground for reducing the price, and such was the course of action followed by the
parties in the first two shipments (December 2003 and January 2004), without any
written objection having ever been submitted by the Buyer of the goods clearly
destined to produce energy. Furthermore, such reduction of the price does not
agree with clause 13 of the contract which states, as a ground for the termination
of the contract (to cancel the agreement), the lack of consistency of the quality of
the goods with what had been agreed in the contract, except related to quality
issues other than humidity.
|b)||The parties did not fully understand each other's language (English and Spanish)
and they hired an uncertified translator which could lead to confusion regarding
what [Buyer] really wanted and how important the humidity of the goods was for
[Buyer] and that it was a cause for the rescission by breach, facts which were not
understood as such by [Seller], who never agreed to put the goods through a grain
thrower with the resulting increase of costs and decrease of benefits.
|c)||At the Granada meeting, [Seller] only agreed to reduce the humidity as much as
possible, showing a grain thrower which could reduce the humidity of the stones
but which was not an industrial dryer, and that was obvious for those who were
present at the meeting.
|d)||The new order and delivery of March 2004 reproduces the humidity and causes the final claim for damages; nevertheless, the construction of the contract leads to deem it as a cause for reducing the price in the final invoice, whereas other quality defects, referred to in clause 13, were, in fact, the determining factors of the breach.|
Therefore, [Buyer]'s claim should be dismissed and discharged.
[Buyer] files a petition to obtain a clarification of the decision, arguing that it had claimed damages for a dead freight caused by [Seller]'s breach in relation to the quantity of goods the [Seller] should have delivered in the first shipment and that such breach caused [Buyer] an economic loss of € 2,269.80. However, the decision does not address that issue.
Through a judicial order dated 13 February, 2006, the Court dismissed the petition since the judge of original jurisdiction considers that is a matter to be decided in the court of appellate jurisdiction.
[Buyer] files an appeal arguing the following reasons:
|a)||Mistake in the construction of the contract, since the quality of the goods is not
agreed in clause 8, which the decision finds contradictory to clause 13, but in
clause 4, which makes reference to an exhibit attached to the contract, in which
the limit of humidity not above the 14% is stated.
|b)||Clause 8 makes reference to the quantity and quality control providing for a
reduction of the price if humidity exceeds 14%, which shall be construed bearing in
mind the final purpose of the contract (energy production) and in connection with
clause 13 -- which provides for the termination of the contract in the event of a
breach in the quality of goods -- it is necessary to apply section 1285 of the Civil
Code (LEG 1889, 27) and, energy production being the purpose of the contract,
humidity limits above 20% are disproportionate and alter the balance of the
contract, causing an excessive detriment to Buyer, because the goods that are the
subject matter of the contract prove to be useless for the purpose for which they
were bought and the cost of transportation turns them uneconomic.
|c)||Exhibits 12 and 12 bis attached to the complaint evidence the existence of a
written communication regarding the humidity problem and the non-acceptance of
a humidity degree above 14%. [Seller] did not answer in this regard, well aware
that such was, in fact, what had been agreed upon.
|d)||[Seller] breached the contract and is liable for acting with bad faith and for abuse
|e)||[Seller] has never before made any reference to its problems understanding the
language and, if it indeed had such problems, it should have not executed the
contract and, further, all subsequent communications were written in English and,
as such, were understood, requiring [Seller] to perform the contract pursuant to
the signed clause on the order for delivery.
|f)||The agreement should be construed under article 8 of United Nations Convention
1980 (RCL 1991, 229 and RCL 1996, 2896), which governs international sales
|g)||The correct avoidance of the contract caused by [Seller]'s breach since the
parties did not agree that the drying mechanism would be with an industrial dryer.
What was agreed in Granada was [Seller]'s obligation to warrant that the next
deliveries would have a maximum 14% of humidity, warning [Seller] about the
consequences of not doing so and, upon the reception of the letter and telefax
served on 11 February 2004, [Seller] neither answered nor denied that such was
|h)||In the March 2004 delivery, [Seller] breached the contract delivering goods with
levels of humidity above 20%, thus breaching clause 4, which states, in subsection
2, that goods shall not contain fruit flesh, pulp or other impurities In this delivery,
the humidity was of 21.4% and there was a pulp content of 5.2%;
|i)||Lack of exhaustive treatment in the decision challenged in connection with the claim arising from the dead freight of the first shipment.|
[ASSESSMENT BY THE APPELLATE COURT]
TWO. In 2003, the parties entered into a sales contract for a total of 5,000 tons of Almazara crushed olive stones for energy production, with an option of 1,000 tons more or less, in favor of the Buyer. The contract contained, pursuant to clause 4, an exhibit of conditions or technical specifications for the agreed goods and an effective period from 15 October 2003 to 30 December 2004.
|-||Clause 4 (quality), pursuant to the translation from English into Spanish, states that: "goods consist
of pure Almazara olive stones of an approximate size of 2 to 5 millimeters. The separation process
is done with the aim of separating dust particles and flesh from the fruit. The goods shall not contain
fruit flesh, pulp or other impurities.
|-||Values and analysis methods for Almazara olive stones are described in exhibit No. 1." This exhibit sets the maximum level of humidity at 14%.|
The deliveries of goods were to be made, after the first shipment, in the quantities agreed by the parties and the Buyer was to notify the Seller of the quantity required to load in the ship at least nine days before the delivery to the Port of Motril (Spain), where Seller was to be delivering the goods in a minimum quantity of 400 tons a day, six or seven days before the ship would arrive at the Port (clauses 5, 6 and 7 of the contract) depending on the total quantity. Specifically, clause 7 states: "Scheme of delivery. A vessel loaded with 2,700 tons (500 tons more or less at Buyer's option), week fifty-two 2003 or, alternatively, week one 2004, then shipments shall be carried out by separate agreements within the period from January to March/April 2004."
Clause 8 of the contract (quantity and quality control) states that, "the delivered weight and humidity shall be established by SGS in the Port. If humidity exceeds 14%, the price shall be reduced." And clause 13 states:
"If the quality does not agree with what is set forth in this agreement, Buyer shall be entitled to avoid this contract. Each party is entitled to avoid this contract with an immediate effect if the other party does not pay, goes bankrupt or becomes insolvent. The right to avoid the contract with an immediate effect shall be recognized to a party when the other would have breached any of its essential obligations and would not have repaired such breach within a term of 30 days as from it being requested in writing."
The order for the first shipment was served upon by Buyer to Seller on 5 December 2003, by which Buyer requested the delivery of 600 tons (50 tons more or less at Buyer's option), to be delivered to the Port of Motril on 16 December 2006 by 2 p.m. at the latest. When the vessel "Rosita" that was chartered by the [Buyer] arrived at the Port of Motril, it was confirmed that the quantity delivered by [Seller] was less than the quantity requested, only 457,050 kilograms (€ 21,992.51 invoice attached to the complaint) and that the goods had an humidity of 22.50%, i.e., remarkably above the 14%.
Buyer had chartered the vessel "Rosita" with a freight capacity of 2,450,000 kilograms (2,450 tons) and it did not have enough goods to load the vessel pursuant to what had been agreed in the charter party. As a consequence, the ship-master raised an objection on 23 December 2003 as a result of the shortage of goods. The master of the vessel stated that a total of 108,000 kilograms (108 tons) had not been loaded, which he informed in Motril to the Garvayo maritime entity, forwarding agent, holding Buyer liable for this. The invoice for the 108 tons of dead freight amounted to Swedish Crowns $19,224. From the quantity of goods delivered by [Seller], 457,050 kilograms, to the enforceable contractual minimum, 550,000 kilograms, the vessel remained with a dead freight of 93,000 kilograms of load, which, in due proportion, produced an amount of € 2,269.80.
The quality of goods, under clause 8, caused the reduction of the price and upon such reduction, Seller issued its invoice.
[Buyer] placed a new shipping order for a quantity of 950,000 kilograms (950 tons), with an option of 50 tons more or less at Buyer's option; delivery had to be made to the Port of Motril on January 20 at 2 p.m. at the latest. [Seller] delivered 1,013,990 kilograms; the goods had a humidity of 23.9%, pursuant to SGS control. Once again, under clause 8, this gave rise to a reduction of the price and upon such reduction, Seller issued an invoice for the amount of € 48,898.36.
[Buyer] informed Seller by telefax, on 30 January 2004 (exhibits 12 and 12 bis attached to the complaint) of the lack of conformity with the humidity of the olive stones, as well as Seller's faculty of drying such goods, but warranting that the maximum humidity level would be of 14%, since the specifications state "a maximum of 14%", and advised that Buyer's client would file a claim if the humidity delivered by Seller was not the agreed one, recommending the latter to dry the olive stones in a professional drying plant so as to get a humidity level of maximum, 14% and warning that, otherwise, [Buyer] would have to claim the expenses arising from the delivery of goods with a higher level of humidity.
On 4 February 2004, the contracting parties met in "Benalúa de las Villas" (Granada) so as to address the humidity issue, and Seller showed a grain thrower, as a method of obtaining the reduction of humidity.
On 11 February 2004, Buyer sent a telefax to Seller (exhibits 13 and 13 bis attached to the complaint) stating that:
|-||"During the meeting, you informed us that you would warrant that, in the next two deliveries, the humidity would be, at the most, 14%;
|-||"We are satisfied with your warranty, that is the reason why we ask you to prepare the following shipment to be delivered in the Port of Motril at the end of week 11/04, beginning of week 12/04;
|-||"The quantity to be delivered shall be of 1,000 tons with a maximum humidity level of 14%; an additional minimum quantity of 1,000 tons with a maximum humidity level of 14% shall be delivered in the Port of Motril last week of 16/04, first week of 17/04;
|-||"If you do not deliver such quality and quantities, you shall pay any expense accrued, i.e., port expenses, return shipment, extra price, difference of the purchase price of the substitute goods" and asking for a communication confirmation and forwarding.|
On 3 March 2003, SGS informed Buyer that Seller had deposited to Buyer's name 1,000 tons of goods in the Port of Motril. On 4 March, Buyer asked SGS to check whether the goods met the maximum humidity level of 14% and were clean. When the goods at the Port of Motril had been checked, it was evidenced that they had humidity higher than the 14% and had pulp content.
On 5 March 2003, Buyer requested the SGS controlling/certifying entity to require Seller to check and to inform whether the goods met the maximum 14% humidity quality standards once the separator shown in Granada had been used, and, if it had not, to replace the goods with other goods with a maximum humidity of 14%, stating that, otherwise, [Buyer] would purchase substitute goods and, if the matter was not settled, legal actions would be taken, apart from showing disagreement with the delivery since such date had not been specified.
SGS communicated to Buyer that it had informed Mr. Trino of [Seller]'s organization.
On 9 March, Buyer informed Seller that:
|(a)||SGS had informed that the olive stones contained pulp and a humidity level of 21.4% and that, after taking samples and once the separation equipment had been used, the result was a humidity of 19.2%;
|(b)||As warned at the Granada meeting, that there was nothing to be done but to avoid the contract upon the breach of the promised humidity and absence of pulp and its persistent attitude; and that
|(c)||The [Buyer] would proceed to purchase substitute goods from "El Tejar," holding Seller liable for damages.|
On 19 March 2004, SGS informed that, upon the results, once the goods were processed, the reduction of the pulp is significant, i.e., 4%, while the humidity was reduced by no more than 2%, and, as a result, the humidity would never be of a maximum of 14% since the initial humidity is of 20% and the humidity is of 18% and the pulp of 1.4%, the use of an industrial dryer being the only way for the goods to obtain a 14% of humidity, apart from the fact that the level of pulp content, initially of 5.2%, is determined by the drying of the samples, serving such value as guidance, since there is not a standard analytic system for its determination.
On 26 March 2004, Buyer informed Seller that:
|(a)||Seller could pick up the olive stones which had been downloaded in the Port of Motril;
|(b)|| The goods had been taken to the Port without the previous consent of [Buyer];
|(c)||Buyer could not accept the goods as part of the contract delivery since the quality does not agree
with the contractual specifications; and
|(d)||Buyer holds Seller liable for any actual or future damages and expenses related to the matter.|
Buyer obtained substitute goods from the company "El Tejar" for a difference in price of € 12.61 per ton and claimed from [Seller] the difference in the price, i.e., € 13,871.
THREE. The technical specifications of the goods are detailed in the exhibit attached to the contract and it was agreed, through the reference made to this exhibit in clause 4 of the contract, that the maximum level of humidity shall be of 14%; furthermore, that the olive stones shall be free of fruit flesh, pulp and other impurities since the goods would be used for energy production. Therefore, the price was fixed in accordance with a specified quality of the goods which shall be of the agreed quality; and, of course, there is no evidence whatsoever showing that the price was inferior to other market prices.
The contract, written in English, was signed by [Seller] and it is not admissible that, upon a party's ignorance of the language of the other contracting party, such contract shall be construed against its literal sense and final purpose. If the persons acting on behalf of the [Seller] did not understand English, they should have hired a sworn translator before concluding it; the same in connection with the Granada meeting, they should have hired a sworn interpreter.
The provision of clause 8 (quantity and quality control by the controlling/certifying SGS entity in the Port and the reduction of the price if humidity was above the 14%) is nothing more than a precaution for the event that the humidity would exceed 14% within the admissible limits in one or many deliveries or in the event that Buyer accepts, with the aim of continuing with the contract, the goods with an excess humidity. Clearly, if the goods have humidity in excess of the 14%, the clause makes sense, but it does not, taking into account the final purpose of the contract, i.e., energy production. If the excess of humidity is disproportionate -- as affirmed by [Buyer], humidity levels above 20% (21.4% in the last delivery and, after certain actions by [Seller], 18%) -- the balance of the contract is altered, causing excessive detriment to the Buyer, because the goods that are the subject matter of the contract proved to be useless for the purpose they were bought (burning for energy production) expressly stated in the contract, and the cost of transportation makes their purchase uneconomic. The importance of the agreement limiting the level of humidity arises from the fact that the energy produced by the burning of olive stones is less since the level of humidity is higher and the cost of transportation is also higher since the ship-master charges the freight according the loaded tonnage and the capacity of the ship; and since the goods are very humid and have pulp, they weight more and, in turn, produce less energy.
Clause 13 is clear:
"If the delivered quantity does not agree with what it is set forth in this agreement, Buyer shall be entitled to avoid this contract with an immediate effect when the other breaches any of its essential obligations and does not repair such breach within a term of 30 days as from it being requested in writing."
In view of the subject matter of the contract and its purpose (delivery / sale of Almazara olive stones for energy production), Seller's delivery of the agreed quality, pursuant to the technical specifications of the exhibit attached to the contract, was an essential obligation and the delivered goods should have had a maximum humidity level of 14%, and, furthermore, pursuant to the same clause 4, it could not contain fruit flesh, pulp or other impurities and, not only did the goods of the third shipment have a disproportionate level of humidity but also pulp, so that [Buyer] was entitled to avoid the contract and claim from [Seller] damages for the substitute goods, under what had been agreed in the contract (clauses 13 and 12) as well as under articles 45, 49, 74 and 75 of the UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, made in Vienna on 11 April 1980 (RCL 1991, 229 and RCL 1996, 2896), since Denmark and Spain are signatory States.
It is worth noting that article 8 of the 1980 United Nations Convention provides that "for the purposes of this Convention, statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware of what that intent was" and [Seller] could not ignore [Buyer]'s intention since it signed the contract in which quality conditions were established and which expressly identified the purpose of such conditions.
FOUR. It is true that the delivered goods in the first and second shipments had a high humidity level and that they were both accepted by Buyer with the reduction of the price agreed in clause 8, but it is also true that such acceptance does not entail a Buyer's characteristic act of recognition of the fact that [Seller]'s obligation to deliver the goods with a maximum limit of humidity of the 14% was not essential and such was what Buyer expressed immediately after the second shipment, informing Seller of its lack of conformity with the humidity of the olive stones, as well as Seller's capacity to dry them, demanding the warranty that the humidity shall be of a maximum of 14%, since the specification of the contract stated "a maximum of 14%," and warning that, otherwise, Buyer would have to claim the expenses arising from the delivery of goods with a higher level of humidity, coming from Granada on 4 February 2004, with the purpose of addressing such problem.
[Buyer]'s communication to [Seller] after the Granada meeting expresses what was discussed in that meeting, whatever the device shown was; although witnesses examined in the trial, sworn on the part of [Seller], affirmed that, in such meeting, Seller only agreed to reduce the level of humidity, without warranting the maximum level of 14%. In that meeting, [Seller] was induced, through a friend of Mr. Sánchez acting as an uncertified translator, to believe that it was possible to reduce the humidity level to 14% since, otherwise, [Buyer]'s communication via telefax on 11 February 2004 would not make any sense, and even less would have the order of a new supply, when [Buyer]'s Danish final client had already warned [Buyer] about the possible legal claims if the goods kept on containing high levels of humidity. If [Buyer] was induced to such possibility, [Seller] had the obligation, under the principle of good faith in contract law, to supply the goods with a maximum level of humidity of 14% or, otherwise, to clearly explain, upon [Buyer]'s communication on 11 February 2004, and, of course, before the first shipment, that it could not perform the agreed technical specification. It is absolutely contrary to good faith to remain silent upon the receipt of the communication on 11 February 2004 and to proceed to deliver goods which do not meet the agreed requirements.
FIVE. [Buyer] has proved, with an invoice issued to the Seller on the substitute goods, the difference in the amount it had to pay for the higher price in connection with the price agreed with [Seller]; therefore, [Seller] has to pay [Buyer] the sum of € 13,781 for damages arising from the breach in the agreed quality of the goods in the third shipment.
SIX. There is documentary evidence showing that [Buyer] ordered from [Seller], for the first shipment, the delivery of 600 tons (50 tons more or less at Buyer's option), and that, when the vessel "Rosita" that was chartered by [Buyer] arrived at Motril Port, with a freight capacity of 2,450,000 kilograms (2,450 tons), the quantity delivered by [Seller] was less than the quantity that had been ordered, i.e., only 457,050 kilograms.
Since there were not enough goods to load the vessel, pursuant to what had been agreed in the charter party, the ship-master raised an objection as a consequence of the shortage of goods, stating that a total of 108,000 kilograms (108 tons) had not been loaded, which he informed in Motril to the Garvayo maritime entity, forwarding agent, holding Buyer liable for such act. Likewise, it is evidenced that the invoice for the 108 tons of dead freight amounted to Sweden Crowns $19,224. Therefore, the vessel had a dead freight, caused by [Seller]'s breach, of 93,000 kilograms of load (the quantity of goods delivered by [Seller] was of 457,050 kilograms and it should have delivered, under what had been agreed, 550,000 kilograms). The vessel remained with a dead freight of 93,000 kilograms of load, which, in the due proportion, produced damages in the amount of € 2,269.80. If [Seller] considered that the proportion was not correct, it should have set the proportion it considered adequate; however, [Seller] just expressed that [Buyer] was liable for the transportation and that the invoice issued by [Buyer] did not have any element that could determine the amount of the dead freight in the set proportion, when it had all the necessary elements to arrive to such conclusion (tonnage not loaded that caused the dead freight, amount of such freight and the difference between the kilograms requested by [Buyer], under the agreement, and the kilograms delivered by [Seller].)
Therefore, [Seller] shall pay to [Buyer], for damages arising out from the goods shortage of the quantity agreed in the first shipment, the sum of € 2,269.80, since they are the result of [Seller]'s breach of contract.
SEVEN. The [Buyer]'s appeal shall be sustained, the decision shall be overturned and the [Buyer]'s complaint shall be fully sustained.
For entertaining the complaint, the cost arising from the proceeding in the Court of Original Jurisdiction shall be borne by [Seller] (section 394 of the "Ley de Enjuiciamiento Civil [*]" [RCL 2000, 34, 396 and RCL 2001, 1892].
For allowing the appeal to proceed, cost shall not be charged in this Court of Appeal (section 398 of the "Ley de Enjuiciamiento Civil").
Wherefore, under such sections and those general and appropriate governing sections,
IT IS ORDERED, AJUDGED AND DECREED:
The Court allows the appeal filed by Mrs. Gracia Lopez Fernández, lawyer, on behalf of [Buyer] against the decision rendered on 1 February 2006 by the Court of Original Jurisdiction No. 9 of Madrid (ordinary proceedings No. 952/04),
|-||That decision is overturned, sustaining the complaint filed by the [Buyer] against the [Seller];
|-||[Seller] shall pay [Buyer] the sum of € 16,050, plus legal interest from the date in which the complaint was filed and costs incurred in the Court of Original Jurisdiction, which shall be borne expressly by [Seller], without charging any cost in this Court of Appeal.|
Be it notified, when serving this decision, the provisions of sections 248.4 of the LOPJ [*] (RCL 1985, 1578, 2635).
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant of Denmark is referred to as [Buyer] and Defendant-Appellee of Spain is referred to as [Seller].
Translator's note on other abbreviations: LECiv = Ley de Enjuiciamiento Civil [Spanish Civil Proceedings Act]; LOPJ = Ley Orgánica del Poder Judicial [Judicial Branch Organization Act]; RCL = Reportorio Cronológico de Legislation. Editorial Aranzadi [Spanish Law Report].
** Juan Manuel Falabella was a participant in the 16th annual Willem C. Vis International Commercial Arbitration Moot representing the School of Law, Universidad de Buenos Aires. He has attended the Summer Institute in International and Comparative Law, Stetson University, and has Sworn Legal Translation credentials, School of Modern Languages, Pontifica Universidad Catolica Argentina. He is currently a Legal Assistant at the Buenos Aires law firm of Hope, Duggan & Silva.
*** 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 Sales Law Project directed by Ingebor Schwenzer and adaptor from English to Spanish of articles of the book "Commentary of the UN Convention on the International Sales of Goods", directed by Ingebor Schwenzer and Edgardo Muñoz. He is Legal Advisor for the law firm Coronado Figueroa y Associados, S.C.Go to Case Table of Contents