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CISG CASE PRESENTATION

Spain 17 January 2008 Supreme Court (Used automobiles case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080117s4.html]

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

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Case identification

DATE OF DECISION: 20080117 (17 January 2008)

JURISDICTION: Spain

TRIBUNAL: Tribunal Supremo, sección 1ª sala de lo Civil

JUDGE(S): Francisco Marin Castán

CASE NUMBER/DOCKET NUMBER: Recurso de Casación No. 81/2001

CASE NAME: Improgess GmbH v. Canary Islands Car., SL and Autos Cabrera Medina, SL

CASE HISTORY: 1st instance Juzgado de Primera Instancia No. 1 de Arrecife 31 May 1999; 2d instance Audiencia Provincial de Las Palmas 24 October 2000 [affirmed]

SELLER'S COUNTRY: Spain (defendant)

BUYER'S COUNTRY: Germany (plaintiff)

GOODS INVOLVED: 300 second-hand automobiles


Case abstract

SPAIN: Tribunal Supremo 17 January 2008 (Used automobiles case)

Case law on UNCITRAL texts (CLOUT) abstract no. 802

Reproduced with permission of UNCITRAL

Abstract prepared by Maria del Pilar Perales Viscasillas, National Correspondent

The German buyer claimed that CISG articles 35, 36, 38 and 39 had been violated. The Supreme Court reviewed the most important provisions of the Convention to be found in parts I and III thereof, and dwelt especially on article 25, recognizing that that article implied a system of contractual liability based on a criterion of objective imputation, attenuated, however, by exceptions -- corresponding to the hypotheses of fortuitous events and force majeure under domestic law -- and by a parameter of reasonableness. The Supreme Court then focused on the German party's arguments based on a lack of conformity of the vehicles, which exhibited a certain amount of damage in the form of scratches, chafes and the deterioration of various components. The Supreme Court concentrated its analysis on determining the object of the sales contract in the light of its clauses. It was indicated in the contract that the vehicles had previously been hired out, hence the stipulated price, and that the seller undertook to ship the vehicles in good condition taking into account normal use and free of accidents. The Supreme Court, evaluating the evidence considered by the Provincial High Court, agreed with its conclusion that the defects detected in the vehicles resulted from normal wear in view of the use to which they had been put earlier, which had been known to the buyer and had been taken into account by the contracting parties, and that the imperfections of the vehicles resulting from their earlier use had been expected, whereas no signs of accidents had been detected. The Supreme Court therefore concluded that there had been no lack of conformity with the contract provisions or violation of CISG article 35 and no breach of contract by the two Spanish seller companies. In addition, the Supreme Court found that the German buyer had not complained of the defects in time as required by CISG article 39(1).

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 25 ; 35 ; 39 ; 44 [Also cited: Articles 2 ; 3 ; 4 ; 7 ; 30 ; 36 ; 38 ; 45 ; 51 ; 53 ; 54 ; 66 ]

Classification of issues using UNCITRAL classification code numbers:

8C [Intent of party making statement or engaging in conduct: interpretation in light of surrounding circumstances];

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

35A ; 35B ; 35C1 ; 35C2 [Conformity of goods to contract: quality, quantify and description required by contract; Requirements implied by law; Exceptions to seller's liability for non-conformity: parties knowledge of non-conformity at time of contracting; Parties have agreed otherwise];

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time]

44A [Excuse for failure to notify pursuant to art. 39(1) & 43(1)]

Descriptors: Intent ; Fundamental breach ; Conformity of goods ; Lack of conformity notice, timeliness ; Excuse

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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=1249&step=Abstract>

Spanish: CISG-Spain and Latin America website <http://www.cisgspanish.com/seccion/jurisprudencia/espana/?anio=2008>

CITATIONS TO TEXT OF DECISION

Original language (Spanish): CISG-Spain and Latin America website <http://www.cisgspanish.com/jurisprudencia/espana/tribunal-supremo-17-enero-2008/>; see also Aranzadi/Westlaw (RA 2008/38038); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1249&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Supreme Court (Tribunal Supremo)

17 January 2008 [81/2001]

Translation [*] by Lindsey J. Ramistella [**]

Edited by Juan Manuel Falabella [***]

This appeal is brought by the company Imporgess GmbH [Buyer] before the First Chamber of the Supreme Court. The [Buyer] is represented by María del Mar Martínez Bueno, appealing the 24 October 2000 judgment of the Appellate Level Provincial Court of Las Palmas (Third District.) The suit commenced at the Lower Court of First Instance No. 1 de Arrecife. The entities against whom [Buyer] has filed its claims are "Canary Islands Car., SL" and "Autos Cabrera Medina, SL" [Sellers], represented by Jorge Deleito García.

BACKGROUND

First. The [Buyer]'s complaint, which led to judgment of the lower court No. 214/97b, was presented to the Court of First Instance.

This complaint alleged particular facts and fundamentals of law. It concluded with a request that the court grant a judgment in accordance with those claims. The prayer expressly requests that the [Sellers] bear the obligation of costs.

After the filing of the [Buyer]'s complaint, the [Sellers] requested that the court, after reviewing the facts and foundations of law, declare a judgment upholding their objections, rejecting all of the terms of the complaint, and expressly imposing the costs on the [Buyer].

On 31 May 1999, the judge on behalf of the Court issued a judgment stating:

"I dismiss the suit brought on behalf of the [Buyer]. I acquit and absolve the [Sellers] of the claim brought against them, and expressly impose the costs on the [Buyer]."

Second. On appeal of the Court of the First Instance's finding of law, the Third Division of the Appellate Level Provincial Court of Las Palmas issued a judgment dated 24 October 2000, the operative part which states:

"HOLDING: We dismiss this appeal of the judgment of the Court of First Instance brought by [Buyer] against the 31 May 1999 judgment of the Court of the First Instance [...]. We CONFIRM that judgment in its entirety, expressly imposing the costs of this appeal on the [Buyer]."

Third. The [Buyer], submitted a formal written appeal to the Supreme Court, on the following grounds:

First - Violation of Articles 707 and 862.2 of the Code of Civil Procedure, based on Article 1692-3 of the Civil Procedure Act of 1881 (LEG 1881,1); Violation of Article 24 of the Constitution (RCL1978, 2836).

Second - Violation of Articles 35, 36, 38 and 39 of the Vienna Convention on the International Sale of Goods of 11 April 1980 (RCL 1991, 229 and RCL 1996, 2896), based on Article 1692-4 of the Civil Procedure Act of 1881.

Fourth. By Order of the Chamber dated 23 January 2004, the filing of the appeal was granted [...]. The [Sellers] filed a written rebuttal.

Fifth. The Court agreed to vote and announce the judgment for the present appeal on the 10th day of January within the year of filing.

Reported by Judge H. Ignacio Sierra Gil de la Cuesta.

LEGAL REASONING

First. The present appeal arises from an action brought in the lower court by the [Buyer].
[Buyer]'s position:

   -    [Buyer] has demanded a claimed amount as compensation for the damages caused by the breach of a contract for the international sale of goods, regulated by the Vienna Convention of 11 April 1980 (RCL 1991, 229 and RCL 1996, 2896). Buyer based its claim on a sales contract formed in October of 1996 with the [Sellers]. The goods subject to the contract were "300 second hand motor vehicles." Before the goods were transported to their final destination, a representative of the [Buyer]'s company did a superficial preliminary inspection of the vehicles. The inspector brought to [Buyer]'s attention substantial damage to the cars, including blows and scratches, as well as the absence of several components. The damage amounted to a breach of the contract under its ninth clause, which specified that the vehicles should be in perfect mobile condition, having suffered no prior accidents.
 
   -    Although [Seller] assured the [Buyer]'s representative that the vehicles would be in perfect condition by the time they were to be transported to their final destination, the damage was never repaired. When the vehicles arrived in Germany, the [Buyer] discovered further defects during the mandatory technical inspection, including a series of irregularities in the brakes and tires as well as various defects not visible to the naked eye, such as damage to the underside of vehicles, damage in the door, blows, cracks in pipes for transmission of gasoline, malfunctions in the seats, mirrors and lack of spare tires, etc.. The damage, estimated at approximately 64 million pesetas, is the basis of this action for breach of contract.

The entire complaint was dismissed by the Court of the First Instance. The [Buyer] then appealed to the Provincial Court, which upheld the lower court's judgment.

Second. The first issue raised on this appeal is based on Article 1692-3 of the Code of Civil Procedure (LEG 1881, 1), which denounces the violation of procedural methods that leave a party remediless.

The [Buyer] sought the admission of an expert report which was issued in the course of the inspections in Germany. [Buyer] contends that this document would have manifested the existence of the damage to the vehicles and was relevant to its claim that gave rise to this action. The Court of First Instance denied [Buyer]'s request on 4 December 1998.

[Buyer] believes that the evidence in this report was essential to establish the facts underlying its claim. [Buyer] petitioned to the Court of Appeals for the discovery of the report, but its petition was denied, as it had been denied at the preliminary hearing. [Buyer] concludes that, because the evidence in the report was not admitted, [Buyer] was unable to prove the damage of the vehicles that resulted in the breach of contract and, therefore, [Buyer] was left remediless.

This claim of the [Buyer] is rejected.

It ought to be noted that, at the conclusion of the discovery phase and after the parties had presented their respective written reports of evidence, the [Buyer] communicated to the Court that it had had access to an export report prepared on behalf of the [Buyer] from a continuing transaction in Germany. The report was prepared due to certain incidents that arose in the resale of the vehicles which are the subject of the [Buyer]'s current plea for compensation. It provides exhaustive detail of the defects in the cars and the cost of their repair. The [Buyer] placed the report at the disposal of the judge, for, if the judge determined that the report would contribute to the Court's finding, the report could be admitted under Article 340 of the Law of Civil Procedure (LEG 1881, 1).

The Judge decided to dismiss the petition based on the fact that the proceedings to obtain additional evidence are the exclusive power of a court.. Having received an unfavorable judgment in the Court of the First Instance, the [Buyer] requested that the Appellate Division receive the evidence, claiming that [Buyer] had not had access to the expert report until the discovery period had concluded. [Buyer] further claimed that the report was essential to support the facts of its complaint, citing Article 862, Number 2 and Number 3 of the Law of Civil Procedure.

At the pretrial hearing, the Appellate Division denied the requested evidence, and dismissed the [Buyer]'s appeal of the lower court's decree. The Court of Appeals found that the evidence did not corroborate any of the [Buyer's] claims, and was not within the scope of authorized evidence under Article 862 of the Law of Civil Procedure.

None of the exceptional circumstances are present before the Court of Appeals which would have permitted the admission of the evidence, exceptional circumstances which this Court has clearly defined in the recent judgments of 29 December 2006 (RJ 2007, 1714) and of 4 June 2007 (RJ 2007, 5554). The [Buyer], although it was aware of the existence of the export report in question, did not conform to the evidentiary procedure in claiming that it corroborated its claim. Instead, after the conclusion of the discovery period, the [Buyer] placed the extemporaneous knowledge of the expert report within the Judge's discretion, asserting that [Buyer] had no prior access to the report. If the Court of Appeals had found the evidence relevant (which it did not), its decision is still subject to the order of the Judge in the First Instance, who initially determined the admissibility of the evidence at the initiation of the proceedings. The Court of Appeals does not rule on the initial evidentiary proceedings. Such rulings by the Court of First Instance are irreversible unless a procedural norm has been broken that is of sufficient severity to allow for annulment pursuant to Numeral 3 of Article 1692 of the Law of Civil Procedure (LEG 1881, 1), see Judgments of December 13, 1999 (RJ 1999, 9020, December 3, 2001 (RJ 2001, 9924) and May 10, 2005 (RJ 2005, 4671), among others.

It is evident that none of the evidence properly presented at the Court of the First Instance was denied, except for the admission of the document in question which petitions to introduce additional evidence. The duty to abide by evidentiary procedure belongs to the [Buyer] who, having knowledge of the existence of the report in question, failed to present duly and opportunely the documentary evidence that would have permitted its incorporation into the proceedings. These documents presented no new facts that would have influenced the outcome of the lawsuit. Having been presented after the conclusion of the discovery phase, this evidence contained no information of great importance or consequence that was previously unknown to the Court.

The Court cannot simply overlook procedural errors, therefore it may not recognize the [Buyer]'s claim of defenselessness that inevitably results from the error. The [Buyer] must bear the consequences. Citing judgments of 4 June 2007 (RJ 2007, 5554) and 6 June 2007 (RJ 2007, 3423) as well as other judgments of this Court cited therein. The "ex novo" incorporation of extemporaneous evidence is not admissible to prove the issue defined by this Court, given that it relates entirely to a foreign proceeding.

Third. The second issue on appeal is governed by Article 1692-4 of the Law of Civil Procedure (LEG 1881, 1). The [Buyer] alleges that [Seller] breached the contract under the principles of the Vienna Convention of 11 April, 1990 (RCL 1991, 229 and RCL 1996, 2896), in particular, articles 35, 36, 38 and 39.

The basis of the lower's court's decision was the compliance of the [Buyer] after having examined the goods. [Buyer] argues that:

   -    This holding violates the conventional principles cited in the third paragraph of Article 35 of the Convention, which relieves the seller from liability where the buyer knew or may have been aware of the goods' lack of conformity at the time of the conclusion of the contract. The buyer at this point still has an opportunity to conduct a more thorough examination of the goods to detect those defects not visible to the naked eye, and to express its dissatisfaction subsequent to that examination. The above cited principle must be interpreted in relation to Article 36 of the Convention, which states that the seller shall bear the consequences for any lack of conformity even after the removal of uncertainty, and in relation to Article 39, which allows the buyer to claim lack of conformity within a reasonable period not exceeding two years after buyer's possession of the goods, unless the contract contains a guarantee period.
 
   -    In addition, the fact that buyer paid the contract price may not be interpreted as a sign of the conformity of the goods. In accordance with Articles 53 and 54 of the Vienna Convention, the payment must conform to the terms of the contract, and this contract clearly stated that buyer must pay prior to the shipping of the vehicles.

In conclusion, [Buyer] alleges that:

   -    Under the proper interpretation and the application of the Convention, it is evident that the [Buyer] did not accept conformity of the goods purchased under the contract, conserving the actions arising out from a breach of contract against [Sellers].
 
   -    Evidence of the breach is shown by the physical damage and damaged value of the vehicles, for which claims the [Buyer] first made after full consideration at home and then in the place of their destination.
 
   -    It is irrelevant that the initial use for the vehicles is leasing, because the damage to the vehicles was greater than the common deficiencies related to the use for which they would be destined.

This claim must also be rejected.

The United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG) concluded at Vienna on April 11, 1980 provides the legal framework under which this dispute must be resolved (RCL 1991, 229 and RCL 1996, 2896). The applicable provisions are Articles 1, 2, 3, and 4, as well as Article 99.

Article 7 should also be highlighted in resolving the present appeal. This provision addresses the international character of the Convention and the need to insure the observance of good faith in international trade. Article 7 Paragraph (2) establishes the method for filling the normative gaps that are left between the general principles of the Convention, as well as the gaps formed when there is a lack of applicable law under the rules of private international law.

Article 8 contains the rules governing contractual interpretation, which revolve around the intention of the parties. The intention of the parties is determined by statements and other acts by a party, where the other party had notice of the intention. Declarations and other acts of the parties are interpreted in the sense that each party has equal status as a reasonable person as that in Article 8(2), viewed in light of what a reasonable person would duly take into account in the given circumstances, in the course of negotiations, or any other transactions or exchanges between the parties. (Article 8(3)).

Article 25 of the CISG governs the obligatory elements of contracts. The declaration in the first chapter defines a fundamental breach as one that substantially deprives a party of what was expected under the contract. An exception lies where the breaching party would not have expected such a result, and a reasonable person in the same situation would not have expected the same result.

The system of the Convention, which embodies the inspiring principles of common law, distinguishes a fundamental breach from a failure that might be described as incidental. An incidental breach either does not produce significant damage, or results in injury that can be remedied with an award of damages or a reduction in the original contract price (articles 25, 45, 46, 47, 48, 49, 50 and 51).

The concept of fundamental breach has no exact translation in the law of Continental Europe. Originally derived from Anglo-Saxon law, it evolved from a contractual responsibility system that emphasizes a criterion for an objective form of imputation, while mitigated by exceptions rooted in domestic law recognizing the cases of fortuitous events and force majeure, within a parameter of reasonableness. (Article 25).

The conventional system incorporates the obligations of the seller in delivering the goods (Articles 31, etc.), warranty (Article 46), and the buyer's obligation to pay the price upon receipt of the goods (Articles 53, etc.). Additionally, the respective rights and obligations in the event of non-compliance by the opposing party are governed by Articles 45 and 51, supplemented by the rules governing the transmission of risk (Articles 66, etc.) and the provisions governing the common obligations of buyer and seller contained in Chapter V.

Under this legal framework, the following points may be noted:

A) As it is evident from a reading of the complaint, the [Buyer] brought an action for damages for breach of contract based on the existence of a fundamental breach, that is, the goods supposed lack of conformity to the contract. Even if it were possible to differentiate between actions for breach of contract and actions for warranty against hidden defects, as some national scholars and courts have done, the Vienna Convention embodies a unitary treatment of these two actions for the delivery of a diverse pro-aliud-alio. The absence of quantity, or a defect in quality fall under the general notion of non-conformity, of which the seller must be notified within a limited period of time.

B) The obligation to deliver the goods under Article 30 is detailed more specifically in Article 35, which states, in the first paragraph, that the seller must deliver goods whose quantity, quality, and type correspond to the stipulations in the contract, and the goods must be packaged in the manner specified by the contract. The second paragraph of the same Article states that, except where the parties have agreed otherwise, the goods conform to the contract when:

      (a) They may be used for the purposes which ordinarily such goods of the same type are used;

      (b) They may be used for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except for those circumstances in which the buyer's reliance on the seller's judgment is not reasonable;

      (c) They possess the same qualities as the sample or model that the seller has submitted to the buyer; and

      (d) They are packaged and delivered in the usual manner for such goods, or, if the usual manner is not possible, in a suitable way to preserve and protect them.

The final clause of Article 35 states that the seller will not be liable, under paragraphs (a) to (d) above, for any lack of conformity of the goods that the buyer knew or should have been aware of at the conclusion of the contract.

C) The delivery obligation in accordance with Article 35(2) of the Convention is accompanied by the buyer's duty to express agreement or disagreement with the goods. The seller possesses the correlative right to require an earlier manifestation of agreement by the buyer. Article 38 stipulates that the buyer must examine the goods or have the goods examined as soon as practicable under the circumstances. In the case of transport, such examination may be postponed until the goods reach their destination. Article 39(1) states that the buyer loses the right to invoke lack of conformity of the goods unless buyer notifies the seller of the specific nature of the lack of conformity within a reasonable time after the defects have or should have been discovered. Even if the buyer fails to do so, the buyer may pay a reduced price in accordance with Article 50, or demand compensation for damages that are unrelated to lost profits, if buyer can show a reasonable excuse for having failed to communicate with the seller (Article 44). In any event, lack of conformity must be invoked within two years from the date on which the goods were actually received by the buyer, unless the period is inconsistent with a contractual guarantee period (Article 39(2)).

Having made the above determinations, the question is whether, as argued by the [Buyer], the ruling has violated the principles of the Vienna Convention (RCL 1991, 229 and RCL 1996, 2896). The Court recognizes the undisputed fact that the goods to be sold constituted a specific number of vehicles for the previously established purpose as rental vehicles. This supports the Court's interpretation of the ninth stipulation in the contract, which states that the seller must deliver the vehicles in good condition. Thus the duty of delivering goods conditioned on the limitations of that prior use explains the price of the contract.

In light of the content of the contract and the evidence at trial, the Court finds that the defects in the vehicles are those from normal use in their previous destination that were known by the [Buyer] and referred to by the parties in the contract. Furthermore, the particular damages known to the Buyer did not indicate any signs that the vehicles had been involved in accidents.

The principal reason behind the original decision is that there is no lack of conformity with the contract that gives merit to the [Buyer]'s claim. That determination has not been effectively challenged by the [Buyer], rather the [Buyer] eludes this issue by emphasizing the timely communication of the lack of conformity of the goods; thus the argument of knowledge of the defects on the part of the [Buyer] may be used by the Court as a reinforcing argument. Therefore, there has been no breach under Article 35 and no failure of the obligation of delivery, because there is no normative logical basis for finding a lack of conformity. Nor has there been a violation of Article 36, to the extent that it is aimed at establishing the framework of the seller's liability arising from the lack of conformity of the goods, in relation to the transmission of risk established in Articles 66 as well as other Articles in the Convention.

Apart from the above considerations, the argument of the [Buyer] which emphasizes the lack of conformity of the goods cannot be accepted because of the uncontested fact that an examination of the vehicles took place by a representative of the [Buyer] at the place of the vehicles' origin. Since no expression of disconformity was ever made, the first paragraph of Article 39 of the Convention fully applies, followed by the subsequent loss of the [Buyer's] right to invoke the lack of conformity of the goods by not having notified the seller in reasonable time. Given the nature of the defects, such notice should not be placed beyond the inspection carried out at the vehicles' origin. When this does occur, it shifts the implementation of the second paragraph of Article 38, allowing a postponement of the examination of the goods until they arrive at their destination to when they are transported. Article 44 therefore cannot be cited as a reason to excuse the [Buyer] from the duty to communicate in a timely manner with the seller regarding a lack of conformity of the goods.

Fourth. In terms of costs and resources, this class of appeals will follow the theory of expiration as stipulated in Article 1715-3 of the Code of Civil Procedure (LEG 1881, 1), so in this case such costs shall be borne by [Buyer], who will not recover the down payment.

Therefore, on behalf of the King and by the authority vested by the Spanish people:

JUDGMENT

We must agree as follows:

      1) The appeal brought by the [Buyer] against the ruling of the Provisional Court of Las Palmas dated October 24, 2000 is dismissed.

      2) The [Buyer] shall not recover the deposit and shall bear the legal costs of this appeal.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation Plaintiff-Appellant of Germany is referred to as [Buyer] and Defendants-Appellees of Spain are referred to as [Sellers].

** Lindsey J. Ramistella is a second year student at Pace Law School and a member of the Pace Willem C. Vis Moot Court team. She earned a Bachelor of Arts in Spanish from the University of Connecticut in 2006.

*** Juan Manuel Falabella has also participated in the Willem C. Vis International Commercial Arbitration Moot, in his case representing the School of 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.

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