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CISG CASE PRESENTATION

Chile 22 September 2008 Supreme Court (Jorge Plaza Oviedo v. Sociedad Agricola Sacor Limitada) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080922ch.html]

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

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Case identification

DATE OF DECISION: 20080922 (22 September 2008)

JURISDICTION: Chile

TRIBUNAL: Corte Suprema

JUDGE(S): Sr. Milton Juica A., Sra. Margarita Herreros M, Sr. Pedro Pierry A

CASE NUMBER/DOCKET NUMBER: 1782-2007

CASE NAME: Jorge Plaza Oviedo v. Sociedad Agricola Sacor Limitada

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Chile (defendant)

BUYER'S COUNTRY: Argentina (plaintiff)

GOODS INVOLVED: Wool hides


Classification of issues present

APPLICATION OF CISG: No. Court held the parties implicitly excluded the Convention by pleading domestic law.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 6 [Also cited: Articles 45 ; 46 ; 52 ]

Classification of issues using UNCITRAL classification code numbers:

6A1 [Choice of law: implied exclusion of Convention]

Descriptors: Choice of law ; Autonomy of parties

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Editorial remarks

EDITOR: Jorge Oviedo-Albán [*]

Supreme Court of Chile [22 September 2008]
Industrias Magromer Cueros y Pieles S.A. v. Sociedad Agrícola Sacor Ltda.

I. THE FACTS

In September 2008, the Chilean Supreme Court handed down a decision related to a contract for the international sales of goods. The facts of this case are:

   -    In December 2001, Industrias Magromer Cueros y Pieles S.A. -- an Argentinean company -- and Sociedad Agrícola Sacor Ltda. -- a Chilean company -- concluded a contract for the sale of 150,000 hides. The agreed price was two dollars and fifty five cents (US $2.55) per unit. This price was to be paid in installments with a documentary letter of credit.[1]
 
   -    The parties also agreed that the seller would deliver the goods in installments between December 2001 and May 2002. However, at the end of May 2002, the seller had delivered only 89,000 hides.

The buyer sued the seller for failing to perform the contract. The buyer claimed damages for breach of contract.

II. THE DECISION

The Chilean judges and the Supreme Court decided that the buyer could not claim damages. The argument was that Article 1489 of Chilean Civil Code grants the contractor the possibility of seeking a declaratory judgment of enforcement of the obligation or the cancellation of the contract in conjunction with an action for damages. In contrast, a party cannot claim an action for damages independently.

III. COMMENTARY

I think that decision is wrong for the following reasons:

The contract that was concluded between Industrias Magromer and Sociedad Agrícola Sacor was governed by the United Nations Convention on Contracts of International Sales of Goods (CISG) and not by the Chilean Civil Code. The reason for this is that the Convention applies to contracts for the sale of goods between parties whose places of business are in different States if the States have adopted this Convention.[2]

In this case, we know that Industrias Magromer and Sociedad Agrícola Sacor have their places of business in different Contracting States at the time of the formation of the contract. Argentina has been a Contracting State of the CISG since 1989 and Chile since 1991.[3]

Article 45 of the Convention permits the buyer to claim damages as an independent action.[4]

Although the CISG was not pleaded by the parties in either the Complaint or the Answer, it was the buyer's position that the CISG was not tacitly abandoned because the parties never expressed their will to unequivocally denounce it. The Tribunals ruled that if the parties did not mention the CISG in their pleadings that means that they have implicitly opted out of the Convention based on Article 6.[5]

We should remember, however, that exclusion of the Convention, implicit or otherwise, only occurs where the two parties affirmatively indicate that this is their intent and it is questionable whether merely not pleading the CISG in the Complaint or the Answer is a sufficient indication of such an intent.

IV. CONCLUSION

The decision of the Chilean judges misapplies the Sphere of application of CISG and the concept of "implied exclusion."

The issues involved in the case of Industrias Magromer Cueros y Pieles S.A. vs. Sociedad Agrícola Sacor Ltda. should not be governed by the Chilean Civil Code but by the CISG. If the seller´s and the buyer´s places of business are in different States and the States are Contracting States, the CISG displaces the national law.

Implied exclusion of the CISG does not occur without a more affirmative demonstration of the parties' intent than merely failing to plead the CISG in the Complaint and Answer.


FOOTNOTES

* Director, Department of Private Law and Business. Faculty of Law University of La Sabana - Bogotá - Colombia.

1. <http://cisgw3.law.pace.edu/cases/080922ch.html>.

2. CISG art. 1(1)(a).

"(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States".

3. The Convention was signed by Argentina through Law 22.765, ratified on 19 July 1983 and became effective as of 1 January 1988. In Chile, the Convention entered into force on 1 March 1991. <http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>

4. Art. 45.

"(1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies.
(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract."

5. Art. 6. "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions."

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Spanish): CISG-Spain and Latin America website <http://turan.uc3m.es/uc3m/dpto/PR/dppr03/cisg/chile1.htm>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Supreme Court (Tribunal Supremo)

22 September 2008 [1782-2007]

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

LEGAL ANALYSIS

I.       Having deduced from the record that the performance being demanded relates to goods, this court finds that the first section of Article 1672 of the Civil Code does not apply. That section compels a debtor whose fault or delay caused the destruction of an association to perform an equivalent of the original obligation.

Under these circumstances, we find that the judges have not erred because the aforementioned Article is inapplicable to this case. However, prior to the breach of an obligation with respect to goods, Article 1489 of the Civil Code grants the diligent contractor the possibility of seeking a declaratory judgment or enforcement of the contract. In both cases, the contractor may receive compensation for damages. However, an independent action for damages may not be brought by itself; it must be in conjunction with the forced compliance or cancellation of the contract.
 

II. Additionally, the diligent contractor may be entitled to compensation for breach of contract or late performance, as well as a respective moratorium. In the case of performance, if one party delays the fulfillment of an obligation, the other contracting party is not obligated to perform his share and may seek compensatory damages while under a moratorium, as stated in Article 1553 of the Civil Code. When the breached obligation is related to delivery, it is not remedied by compensation unless the thing to be delivered is lost and fulfillment of the obligation is not possible. This is not the case here because, as already established, the obligation in question here relates to goods.
 
III.     The judges' finding does not violate Article 6 of the Vienna Convention on the International Sale of Goods (hereinafter "the CISG"), since that Article establishes that the contract is regulated by the will of the parties, who may choose to form an agreement pursuant to the standards of the CISG. Pursuant to Article 254 of the Code of Civil Procedure, the Plaintiff in presenting the legal grounds on which the claim is based, is limited to domestic law provisions. It may be established that the parties have implicitly expressed their will to have the contract not governed by the CISG. Therefore, the judges' findings do not violate the international standard because such legislation does not apply in this case.

FULL OPINION

Punta Arenas, thirteen of April two thousand and six. Noting that this ruling is issued after having made use of medical leave and statutory holidays.

Plaza Oviedo Jorge Carvallo and Don Manuel Pardo appear as attorneys on behalf of Magromer Hides and Skins Industries SA, a manufacturer of hides and furs, residing at No. 2763 Avenida Corrientes, fourth floor, room 13 Buenos Aires, Argentina, as well as José Noguiera No. 1496. Magromer [Buyer] alleges breach of contract and requests damages in the form of compensation from Agricultural Society Sacor Ltd. [Seller], represented by Don Arturo Inda Saavedra, both domiciled at Avenida Colón No. 498, Punta Arenas, Chile, and whose main source of export income derives from wool hides of a special characteristic found in Chile. The [Buyer]'s complaint is derived from a history of contractual relations with [Seller], in which the [Buyer]'s production of its various products depends on the delivery of wool hides from the [Seller].

On 6 December 2001, the [Seller] agreed to a contract for the sale of 150,000 wool hides at the price of US $2.05 (two dollars and five cents) per unit. [Seller] also agreed to process the hides at a price of US $0.05 (fifty cents) per unit. That amount would be paid by the [Buyer] in conjunction with the sale, for a lump sum of US $2.55 (two dollars and fifty-five cents) per unit. The transaction would be previously secured by the opening a line of credit for US $100,000 (one-hundred thousand dollars) from a bank either in the United States or in Europe. The parties also agreed that the [Seller] would deliver the goods in installments between the months of December 2001 and May 2002.

Pursuant to the contract, the [Buyer] obtained a line of credit in the United States and sought the delivery of the first shipment. Around 8 or 9 of January 2002, the [Seller] commenced the performance of the contract by delivering the first 16,000 hides. Within days, the [Buyer]'s disbursement was paid requiring more shipments, all of which appears in the customs records and commercial invoices which document the traveling of the goods to Argentina. The [Buyer] claims that this documentation undeniably establishes the existence of the contract, its terms, and implementation.

Upon receiving the line of credit, the [Buyer] promptly sent a copy to the [Seller]. Prior to the receipt of credit, in order to remove any doubt as to its compliance, the [Seller] initiated an advance payment system for the goods by issuing invoices when the shipments were ready and the Plaintiff's paid in cash prior to the shipments' departure. [Seller] later sent the actual bill once the goods were shipped.

By the end of January 2002, the [Buyer] realized that the [Seller] had delivered only 26,000 hides, a very small figure compared to what would typically be delivered at the end of the wool harvest (usually in May). [Seller] duly notified [Buyer] of its concerns, nonetheless expressing its wish that the [Seller] continue delivery. [Seller] then notified the [Buyer] that it could not complete the delivery within the agreed upon period of time, but that it would be able to deliver the remaining goods at the end of the harvest. During this period the [Seller] was evasive and delayed responses and ultimately failed (partially) to comply with the contract, having delivered only 89,000 of the 150,000 hides. Rather than ensure that the product was available for delivery to the [Buyer], [Seller] had sold the remaining 61,000 hides to other buyers, supposedly at a better price and at a number exceeding that which was owed to [Buyer].

It is important to note that once the wool harvest is over, it is very difficult to acquire replacement wool hides. Since the products have already been assigned a destination, the task of selling the goods is considered complete. Nevertheless, [Seller] attempted to compensate for the lack of materials by obtaining them from other sources. This attempt was unsuccessful for reasons not discussed here.

Such a failure generates a loss in profits for the [Buyer], considering what the reasonable profit would have been from the sales of those items which were not delivered due to the partial failure of the [Seller]. In appraising the value of the goods at the margin utility (which the [Seller] has failed to recognize), the [Buyer] was unable to produce approximately 140 bags, 50 leather jackets and 3,660 overcoats, equaling a total price of US $1,179,260. This figure should be added to the total gross income reimbursement that is forgone by not selling these goods, equaling $1,250,015. This would have been the remainder in theory had the cost not been incurred to seek an end product amounting to $845,898.20 from which $345,154.40 constitute lost profits. These amounts were calculated based on the unit values resulting from the sale of each product and were reviewed by [Buyer's] experts, as well as external and independent auditors.

Additionally, the breach of contract by the [Seller] has caused damage to [Buyer]'s Magromer image and brand. This constitutes moral economic damage, because the usual needs of the customers could not be met by the [Buyer]'s stock due to the lack of raw materials. There was a loss of the [Buyer]'s market since other providers took over the purchase orders of [Seller]. There were operational losses and an increase in the margin of fixed costs, since there was idle capacity. All of these operating costs now have to be absorbed by fewer product lines, financial problems and loss of cash flow resulting from lower sales. These costs valued are valued at US $250,000, the total amount of damages now equaling US $595,154.40.

The [Buyer] bases its legal claim on the fact that the [Seller] partially breached the contract by failing to deliver the 61,000 hides pursuant to the contractual arrangement. [Buyer] claims that having breached the contract, the [Seller] has a responsibility to provide compensation for the damages and [Buyer] only has to prove the existence of the contract, breach and causation of damages.

With regard to the first issue, the existence of the contract, [Buyer] states that as a consequence of forming the contract the [Seller] acquired the obligations contained in Title XXIII of the Civil Code. [Buyer] states that in relation to Article 1437 and the articles following that section, Articles 1545 to 1556, [Seller]'s principal obligation was to deliver the hides to the [Buyer] and it only did so in part. Based on the commercial documentation exchanged between the parties, the [Seller]'s obligation to pay compensation under Articles 1824, 1548 and 1556 of the Civil Code arises from the fact that [Seller] did not comply fully with the terms of the agreement. Such a breach, however, does not correspond to poor performance.

The [Buyer], who had since the beginning fulfilled all of the obligations under the contract as agreed by the parties, was prepared to bear the cost of the 61,000 hides that were missing.

The [Seller]'s breach may be attributed to a negligent attitude and possibly to bad faith. Finding itself bound by the terms of the contract, it simply ceased to deliver the goods which it had agreed to deliver, despite requests and warnings by the [Buyer]. As of this moment, [Seller] still has not fulfilled its obligations under the contract nor has it given any explanation for its failure despite the commencement of these proceedings.

[Buyer] argues that in light of the [Seller]'s failure, having proven the existence of the contract and the lack of delivery of the goods under the contract, a breach may be presumed pursuant to Article 1547 of the Civil Code.

[Buyer] further argues that the causal link between the breach of contract by the [Seller] and the subsequent injury to [Buyer] is clearly shown. Had the seller delivered the goods, the [Buyer] would have been able to create the garments for which it had already promised in supply contracts, and would not have suffered the damage to its image due to the lack of these garments. Given the special character and complexity of these goods, the breach made it impossible for the [Buyer] to replenish its stock.

For all of these reasons it is appropriate that the [Seller] bear the costs of the damages sought by the [Buyer], and the [Seller] is hereby obligated to pay to [Buyer] the sum of $ US 345,154.40 (three hundred and forty thousand five hundred and fifty-four dollars and forty cents) or its equivalent in Chilean pesos, taking into account lost profits in the amount of U.S. $250,000 (two hundred and fifty thousand dollars) or its equivalent in Chilean pesos, and for other damages already mentioned.

[Translator's note: En subsidio, se la condene a una suma inferior que el Tribunal estime en derecho, todo ello con intereses máximos convencionales o, en subsidio, los corrientes o, en subsidio, los que el Tribunal fije y reajustes en su caso, calculados desde la fecha en que ocurrieron los hechos materia de la demanda hasta la del pago efectivo, con costas. The above amount is lower than what the Court would find, accounting for all of the maximum conventional interests, and current trends. The Court sets the amount and adjusts it as appropriate, calculating from the date of the incident up until the payment, with costs.]

At page 56 in the answer to the complaint, the [Seller] argued that the [Buyer]'s claim should be dismissed with costs, based on the improper demand of indemnification. The cause of action has been sustained on the basis of the existence of a contract for the sale of hides on 6 December 2001. The remedy granted emanates from contractual responsibility, which, in isolation, is not an appropriate basis for a lawsuit. The [Buyer] should have sought earlier the resolution or the completion of the contract because the [Buyer]'s options under Article 1489 of the Civil Code include indemnification for damages. Therefore this remedy cannot be ordered by the Court for a simple breach, because the action is not autonomous. It is directly linked, the [Seller] argues, to the compliance or termination of the contract which was never documented. [Buyer] only demands compensation for damages, and the central idea of Article 1489 of the Civil Code is reproduced in the second paragraph of Article 1826 of the Civil Code, concluding that an action for compensation is an incidental and auxiliary remedy to a judgment for the forced compliance of a contract. [Que reconoce como única excepción el caso de las obligaciones de no hacer] Therefore, it may inferred that the [Buyer]'s action for only damages does not comply with the above prescribed rule of law.

[Seller] also argues that the [Buyer]'s claim is based on the existence of a single contract for sale on 6 December 2001, and that the text of the contract was never executed. The [Buyer] claims that the contract consisted of the letter issued by its representative to the [Seller] on that date; however, [Seller] claims that document does not have the quality of a contract. Also paragraph number 6 of the document states the condition that the [Buyer] would establish a line of credit in the amount of $100,000 from a European bank that would be transferred to the [Buyer] at the time of delivery; however the [Buyer] did not comply with the specified manner and timing. Therefore, even if the letter is considered to be the terms of the contract, the [Buyer] was required to comply, which it failed to do. Also, according to [Seller], this letter from the [Buyer] was received just before the commencement of the harvest labor for 2001-2002.

Therefore, the [Seller] claims, it had not effectively entered into the contract upon which [Buyer] bases its claim and [Seller] has not delayed in delivering said goods. [Seller] points out that before the [Buyer] became unable to comply with the said condition which derived from a pure and simple agreement, it could have acquired the hides by paying the price calculated in accordance with each shipment [el que se hizo conforme ya indicó en el cuaderno de medida prejudicial que señala, dándolo por reproducido].

[Seller] argues that the absence of the contract is established by the letter sent by the [Seller] to the [Buyer] on 28 December 2001, in which it recognized that the required guarantee had not been met and potentially would not be met before 31 January 2002. This placed the [Seller] in a position to terminate any commercial agreement to work with the [Buyer] and, subsequently, the [Buyer] could not invoke the existence of a trade agreement between the parties, much less a contract.

In short, the [Buyer] failed to comply with the requirement that it imposed in the letter and the [Seller] had left open an offer to allow payment in cash for each shipment so that it could still negotiate with other customers; specifically, it would deliver half of the harvest to [Buyer] and the rest to other clients. This fact is contained in the documentary evidence, and because the [Buyer]'s allegation is not based on the facts it should be dismissed in its entirety.

And with respect to the [Buyer]'s claim for damages, the [Buyer] has not made any reference to damage that could have been caused by the [Seller]'s lack of delivery. The [Seller] did not delay delivery, and delivered the quantity that the [Buyer] paid for. The [Buyer]'s claim for lost profits is based on an alleged profit which was never collected by the [Buyer]. In effect, the [Buyer] has produced evidence from its own records to show that the value of the hides not delivered was $125,050, which the [Seller] regards as a hefty sum.

With respect to liability for damages, [Seller] argues that [Buyer]'s claim violates the foundation of the damages system in Articles 1556 and 1558 of the Civil Code because [Buyer] demands damages that could not have been foreseen by the [Seller] nor could they have been foreseen at the time of the conclusion of the contract. Fault may be attributed only with respect to the damages that are foreseeable at the time of the conclusion of the contract and not those damages that later result as a consequence of the breach. The latter damages do not meet the standard of foreseeability. Finally, [Seller] argues that if the [Buyer] so urgently needed the hides in dispute, he should have tried to prevent or mitigate the damage, pursuant to the principle of good faith. Otherwise, the quantum of compensation should be reduced to the proportion of actual loss, noting that according to the jurisprudence, the [Buyer]'s lost profit from the failure of the goods to reach their ultimate and lucrative destination for these goods is not foreseeable.

On pages 71 and 92, the procedures for reply and rejoinder were vacated. At page 527 the parties were called to compromise, which did not occur. At page 137 the evidence was received to set forth the substantial facts, both relevant and controversial. One offer of evidence was eliminated at page 176. At page 523 the parties were summoned to hear the ruling, and at page 524 the best method of resolution was ordered, referring to the decree at page 546.

CONSIDERING THE WITNESS CHALLENGES

First: At page 409 of the offered testimony, the [Seller] challenges witnesses Forgione Adrian Paul and Mary Cecilia Rivera Espinoza, the first of them on the grounds provided for in Article 358 No. 5 of the Code of Civil Procedure. [Seller] argues that the working and dependant relationship the witness has with the [Buyer] undermines the witness' impartiality. [Seller] challenges the second witness on the grounds provided in numbers 5 and 6 of the same provision, based on the fact that the witness will testify about the work provided on behalf of the [Buyer] in the form of legal advice, which also in [Seller]'s view undermines the witness' impartiality.

Second: Regarding the first witness, the [Buyer] argues that the challenge is not invoked on appropriate grounds because the witness was never bound by contract to work for the company. [Buyer] argues that the witness merely provided services for it, and that a dependency relationship cannot be deduced from that fact alone.

Regarding the second witness, the [Buyer] argues that her impartiality is not undermined by the mere fact of having issued a report on accounting matters which are unrelated to the present cause of action. With respect to Paragraph No. 5 of Article 358 of the Code of Civil Procedure, the witness never indicated that her testimony was demanded as a dependant employee of the [Buyer]. Under this provision, an employment contract is required. Furthermore, her answers do not indicate that she has a direct or indirect interest in the outcome of this litigation.

Third, the challenges should be rejected because the [Seller] has not thoroughly proven the dependency of the workers on the [Buyer]. Even if such were the case, labor legislation contains a series of provisions that protect, among other things, the rights and impartiality of workers, free from pressure from the employer.

Applying the same rationale, the second ground based upon Article 6 of Article 258 of the Code of Civil Procedure should be rejected, given that the interest required by the rule is one of pecuniary nature, estimable and material, which is not the case.

Fourth: At page 442 of the testimony, the [Buyer] challenges witness Banados Morande and Jose Ramon Jara Huequemán Daniel Alberto. [Buyer] challenges the first on the grounds of article 357 No. 4 of the Code of Civil Procedure, for the lack of perception required to perceive the events stated at the time of verification and lack of impartiality by having direct and indirect interest in the party that introduced him. [Buyer] challenges the second on the ground provided for in Article 5 of 358 of the Code of Civil Procedure because he was an employee of the defendant at the time and such working relationship compromised his impartiality.

Fifth: The [Seller] objects to the challenges. With respect to the first one's ability to perceive the events, [Seller] claims that the standard refers to the intellectual ability to discern and perceive the circumstances, and that the response of the witness showed that the witness had knowledge of the points and submissions from the parties rather than actual facts. With respect to the witness' interests, it must be of pecuniary nature, furthermore, the trade relations that the witness has with [Seller] reaffirms the witness' competence to testify.

Regarding the second challenge, [Seller] objects on the ground that Article 5 of 558 requires that the witness is currently on the record an employee of one of the parties. [Seller] claims that the witness is no longer employed with Sacor.

Sixth: The first challenge was founded exclusively on the responses given by the witness when asked to explain the basis for the witness' knowledge of the facts. The witness failed to answer the question. Clearly, however, given the stage at which the question was posed, it is unrelated to the challenge invoked by the [Buyer]. Accordingly this Court agrees with the [Seller]'s argument in concluding that the necessary perception literally means, according to the Dictionary of the Spanish Royal Academy, the ability to "reason and understand the circumstances." Such lack of perception does not appear in this case, therefore the argument is dismissed. Additionally the argument that the witness lacks impartiality by having an interest in the trial is dismissed because the opposing party has not identified a basis in the witness' answers to give support to that challenge.

Furthermore, following the reasoning of the rejection of the second argument based on No. 5 of Article 358 of the Code of the Civil Procedure, [Buyer]'s argument that the witness is an employee of the party for whom the witness testifies is also rejected. Even if this were the case, as has previously been stated, labor law provides the necessary safeguards to ensure the independence and impartiality of the statements of employees.

ON THE MERITS

Seventh: The [Buyer] claims that the Court should order the [Seller], Sacor Ltd, to pay as compensation the sum of the contract amounting to $345,154.40 or its equivalent in Chilean pesos for lost profit. The [Buyer] also asks for the amount of $250,000 or its equivalent in Chilean pesos for additional damages which have already been detailed, caused by the failure of the [Seller] to deliver the 150,000 hides within a specified time.

Eighth: [Seller] argues that the action for damages in the manner proposed by the [Buyer] is improper and inadmissible on the ground that the claim is exclusively for compensation of damages. Such claim is incidental to a claim for forced resolution or compliance of the contract, remedies set out in Article 1489 of the Civil Code and reproduced in Article 1826 of the Code. Therefore, [Seller] argues, [Buyer] has improperly requested the Court solely for compensation of damages.

Ninth: That given the nature of this claim, this Court will review and consider the findings of the lower court first.

To that end, it is clear from the [Buyer]'s complaint that that the [Buyer] had based its claim on a contractual responsibility undertaken by the [Seller] for not having completely and timely fulfilled its obligation to deliver 150,000 hides. Such agreement was expressly stated, which further developed into the assumptions on which the [Buyer]'s claims are alleged (cited at page 71 of the Reply). With respect to the partial breach of the [Seller]'s obligations, the fulfillment of the obligation with respect to the partial breach became impossible. Thus the demand for compensation by the invocation of Article 157 of the Commercial Code, in the Court's opinion, trumps the rules provided in Articles 1489 and 1826 of the Civil Code. The [Lower] Court concluded that it would be unnecessary and improper to request the resolution of the contract because, as previously mentioned, it has been partially fulfilled and it concerns a commercial sale.

Additionally, in the same document, [Buyer] clarified that the request was for the equivalent of partial fulfillment of the obligation rather than the actual fulfillment. In the event that the Court found that the request is unclear, it is also clarified in Articles 311 and 312 of the Code of Civil Procedure.

Tenth: The Court considered it essential for analyzing the merits of the action at this stage to clarify, first, that civil responsibility may be divided into two parts, the contractual and non-contractual. The parts are governed by different laws, and given that the [Buyer]'s claim is related to the latter, it should be specified as follows:

a)    Compliance is one of the effects of an obligation, and may be achieved by, among other methods, the compulsory or voluntary compliance and enforced legal protection of the creditor.
 
b)    Compliance is the purpose of such obligation [de donde ésta se extingue mediando aquél], as in the analysis by Professor Fernando Fueyo Laneri.

Under this analysis, the [Seller]'s failure was not related to the existence of an obligation. As a result, the debtor may comply with its obligation at any time. The establishment of the optional for the creditor by the legislature was meant to give a party a method to seek compensation for damages incurred by a breach.

Thus, as can be seen, the compensation of damages appears to be dependent and complementary to the action or forced compliance resolution, provided for in Articles 1489 and 1826 of the Civil Code. Such conclusion maybe explained by the compensatory character of the action, which necessarily required that the principal obligation has not been fulfilled, either in whole or in part.

To find otherwise would leave the validity and performance to be determined by one of the parties: claim otherwise would leave the validity and performance of the contract to one of the parties: the debtor, who, as noted above, could fulfill his obligation at any time and the creditor, in turn, could also demand compensation, which would be encouraged…

From the above reasoning, it was concluded that the action for damages is a consequence of an action for the resolution of a contract, and its legal precedent is that elective cause of action in which damages are incorporated.

Therefore, a party cannot be directly ordered to pay only damages because they are not incidental to the breach of contract. Without claiming the actions under Articles 1489 and 1826 of the Civil Code, the action for compensation would be deprived of any legal precedent that should underpin any action. This inevitably leads to a dismissal of the complaint for failure to comply with appropriate form.

This does not preclude the examination of the [Buyer]'s argument referred to in the preceding ninth section, that the sale of cars is a business and that the action raised is governed by Article 157 of the Commercial Code. This rule is complementary to its predecessor, Article 156 of the Commercial Code, which only addresses the effects of partial deliveries accepted by the buyer. Even if interpreted harmoniously they do not establish the requirements of the statutes already analyzed, namely the presentation of alternative actions for damages and compensation under the same reasoning already presented (citing the effect of the judgments given in pages 44 and 45 of the digest of the Commercial Code Vol. I, 1955).

Finally, the subsidiary motion on page 71 only confirms the position, as stated by the [Buyer], that compensation is nothing more than an equivalent to performance, as defined by the majority doctrine.

In accordance with the above reasoning, the foregoing issue was not addressed because it was considered in officious.

With respect to the considerations noted above and in accordance with the provisions of Articles 1437, 1489, 1545, 1826 et seq, 170, 254, 341 et seq, 356 et seq of the Code of Civil Procedure and Articles 156 and following the Commercial Code, it was declared that:

1)    The witness challenges at pages 409 and 442 are dismissed with costs; and
 
2) The complaint requesting indemnification for damages at page 1 is dismissed with costs.

Register, notify, and archive, if not appealed.

Dictated by Ms. Claudia Arenas Gonzalez, Judge

Authorized by Ms. Angélica Cárdenas Cárdenas, Secretary

No. 81085.

Punta Arenas, 9 January 2007

The lower court judgment is hereby reproduced and appealed, except the ninth paragraph of the tenth recital, which is extracted from the sentence beginning "even if interpreted harmoniously" and ends with the words Commercial Code Volume I, 1955."

The following is also now before this Court:

1) That, on page 535, Attorney Jorge Oviedo Plaza on behalf of the Appellant [Buyer] ["perjuicios caratulados"]. [Buyer] appeals the final judgment of the first instance, which has caused injury to his client and requests the judgment to be revoked completely or in part and to give recourse to [Buyer] in whole or in part. [Buyer]'s counsel asserts that the Court of First Instance has rejected the Complaint without going to the merits of the action on the grounds that the [Buyer] has requested compensation for damages incurred without seeking to terminate the contract or compel performance.

[Buyer] asserts that from the beginning it has requested the equivalent of forced compliance with the contract. Additionally, [Buyer] asserts that both Chile and Argentina are party to the United Nations Convention on the International Sale of Goods (CISG), and that this treaty, with its status as the law of the nation, presides over the rules of the Civil Code as a matter of law, which will be discussed later.

Then, in what he calls "Previous Aspects / Purchase Agreement between the Parties / Behavior of [Seller]", the [Buyer] reiterates the terms of the contract between the parties and the breach of the agreement by [Seller],which he describes as a mockery of the contractual obligation to deliver the goods to the [Buyer] and the subsequent delivery of goods to other buyers. Such subsequent delay resulted in delay of delivery to [Buyer], invoking the effect of Section 1551 No. 2 of the Civil Code and Article 1557.

[Buyer] adds that this delay led to a breach as to the rest of the contract because it became impossible to legally fulfill it, given that leather hide production, processing and sale is cyclical following the time of the harvest. Therefore having failed to deliver the goods to the [Buyer], the only existing remedy for the [Buyer] is the compensation of damages, consistent with Article 1489 of the Civil Code.

Paragraph 3, which [Buyer] titles "Unable to comply / Nature of the Obligation," details the failure of [Seller] and the terms of the contract. It indicates that the [Seller] failed to comply during the final part of the harvest. Therefore, nothing more could be done since there were no more suppliers that could cover the balance of production. This resulted in irreparable harm to the [Buyer].

In light of the above, and given that the parties have agreed on the question before this Court [Buyer] asserts that ... "es de las que la doctrina ha definido como de especie o cuerpo cierto"...thus incurring tremendous damages.

Buyer also asserts that an action for damages representing an equivalent of forced compliance is completely compliant and in accordance with Article 1489 of the Civil Code, and that the [Seller]'s obligation to make reparation remains.

Furthermore, since the dispute involves a commercial sale, the rules of the Commercial Code permit an action for damages under the Convention on Contracts for the International Sale of Goods. The contracting parties are establishments located within Contracting States of the Convention (Magromer [Buyer], Argentina, and Sacor [Seller], Chile).

Buyer adds that according to Article 45 of the Convention in question, there are two options: 1) seek enforcement of the contract, according to articles 46 to 52, or 2) exercise right to request compensation for damages. Buyer claims that this law should apply even though it has not been invoked by the parties, and requests the Court to repeal all or part of the sentence and grant compensation for all damages incurred, including the entire costs of the appeal.

2) The Court first finds that [Buyer] seeks compensation for damages caused by [Seller] as a result of the partial failure of its obligation to deliver 61,000 of the total number of good referred to in the contract pursuant to terms of Article 1489 of the Civil Code. Since the dispute involved the presence of a commercial sale, it is governed by our Commercial Code, Article Nos. 3, 1 and 5, covered by Article 157, paragraphs 2 and 3 of the same Act.

3) Mindful of what the [Buyer] has alleged, this Court will conduct its analysis in reference to the Civil and Commercial Code.

4) Section 1489 of the Civil Code provides:

"In bilateral contracts it is inevitable that one of the parties may not be able to fulfill its obligations.

"However, when this is the case, the other contracting party may elect at his discretion to demand a fulfillment of the contract, with compensation for damages."

5) Here the record shows that the [Buyer] has filed an action only for damages for the contractual breach of contract. The [Buyer] should have sought the actual performance or resolution of the contract in addition to the damages, which was not done. This has been addressed by the following precedent" C. La Serena, 18 May 1900, G. 1900, t. I, N 748, p. 693; C. Valparaso, 14 May 1910, G. 1910, t. I, N 322, p. 580; C. Supreme, 28 July 1933, G. 1933, Second sem., N 5, p. 15, R., t. 30, sec. 1 p. 495; and 16 October, en rol 14.893, (civil matters on appeal).

6) As far as stated by the [Buyer] in its reply that the action relates to a contract, the author Ricardo Sandoval Lopez, in his "Handbook of Business Law, Volume II, pp. 29, says:

"The execution of contracts

11. Preliminary issue. Under the provisions of Article 96 of the Commercial Code, the rules of the Civil Code concerning the obligations and contracts are generally applicable to commercial businesses, save the modifications that establish the commercial codification.

Pursuant to the above rule, the implementation of the obligations and commercial contracts is regulated by the Civil Code, so it is not necessary to include this text in all matters relating to the effects of obligations and contracts, performance forced the exception of the contract not satisfied, ancillary rights and so on."

7) This assessment supports the view sustained by the Judge in the first instance, where she found in the tenth basis that the implementation of Article 157 is complementary of the provisions of 156 of the Code, that it is essential to have appropriate compensation for damages and compliance or termination of the contract, which was not done.

8) In accordance with the above rationale, whether the impetrated act is regulated by the Civil Code or the Commercial Code, in any case the performance of the contract and its resolution should have been requested. Since this was not done, the appeal cannot succeed.

9) With respect to the implementation of the 1980 Vienna Convention on the International Sale of Goods, it must be remembered that in accordance with Article 6: "The parties may exclude the application of this Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions." If the Complaint and the Answer is not based on the legal dispositions of this Convention, it should be understood that the law is tacitly inapplicable as a result of the Commercial Code being invoked.

For these reasons, in accordance with the cited laws and provisions in Articles 186 and 227 of the Code of Civil Procedure, the judgment is affirmed on appeal, thirteenth of April two-thousand and six, without costs.

Drafting of the Ministry Ms. Bravo.

Sign up and returned, together with its aggregates.

Issued by the Ministers Titulares Maria Isabel San Martn Morales, Virginia Bravo Saavedra and Mr. Hugo Faúndez Lopez.

Authorized by Ms Iris Fernandez Soto, Secretary Subrogante.

Role Civil No. 173 2006.

Santiago, twenty-second day of September, two thousand eight.

HAVING SEEN:

En estos autos Rol N 81.085 03 del Primer Juzgado Civil First Civil Court of Punta Arenas for the Compensation for damages in contract, caratulados Plaza Oviedo, Jorge Alejandro SACOR Agricultural Society Ltd., a sentence of thirteen April two thousand and six 542 pages written, Judge Holder of that court rejected the claim in its entirety. The applicant appealed this ruling to the Chamber of the Court of Appeals in Punta Arenas, in the verdict of nine of January, two thousand and seven, which reads 611 pages, was confirmed.

Against this latest decision the [Buyer] has appealed.

CONSIDERING:

FIRST: The appeal concerns the violation of Articles 1489 and 1672 paragraph 1 of the Civil Code and 312 of the Code of Civil Procedure.

The [Buyer] argued that since the filing of the complaint the [Buyer] has requested the equivalent of forced compliance with the obligation undertaken by the [Seller] under the contract for the sale of hides of 6 December 2001, bearing in mind that the object of the contract has changed.

The original obligation, [Buyer] explained, was quite specific in terms of goods that should have been delivered pursuant to a certain quantity, quality and date of production and delivery. Moreover, [Buyer] adds, for various reasons, this obligation could never be fulfilled by the [Seller] once the delay had occurred, given the special nature of the goods.

[Buyer] argues that under the circumstances of this case it is entirely possible to order the forced compliance or its equivalent by requesting appropriate damages. If the debtor's failure in performance continues, the obligation is not extinguished, rather the object of the obligation changes. This was reflected in legislation, 1 of article 1672 of the Civil Code.

As noted, the [Buyer] concludes, if the original obligation was replaced, the only remedy available in this case is compensation for damages. This is the so-called compliance equivalence: if compliance is not possible in nature, it is clear that the [Buyer] cannot request the fulfillment of the obligation in the original terms.

The [Buyer] has duly called for the forced compliance equivalent, in accordance with article 1489 of the Civil Code.

The second issue on appeal involves a violation of Articles 1 and 45 of the Vienna Convention on the International Sale of Goods. Notwithstanding the above, the [Buyer] argues, the meeting between the parties is a commercial sale, and therefore, the rules of the Commercial Code provide legal remedies under these circumstances.

However, for further clarification, the action is regulated by the Convention and said action for the compensation of damages is independent of any other action that might emanate from the sale, according to Article 45. According to this provision, the Buyer has two options: demand the completion of the contract under articles 46 to 52, or directly request the compensation of damages.

The [Buyer] argues that the invocation of the Convention is not untimely, because the Court can apply it as it is relevant to the case. Its application was not tacitly abandoned because the parties never expressed their will to unequivocally renounce it.

SECOND: The subject of the appeal establishes that compliance is one of the effects of an obligation that aims to protect the creditor by whatever means, either voluntary or forced. [Buyer] also adds that compliance is the culmination of an obligation even where the failure has nothing to do with the existence of the obligation.

As a result, the debtor may comply with its obligation at any time, while not bound by the declaration of termination of the contract or by an order forcing compliance. Thus, the judges concluded, the compensation of damages appears to be dependent and complementary to the action or forced compliance resolution provided for in Articles 1489 and 1826 of the Civil Code, and that it necessarily means that the principal obligation has been finally unfulfilled in whole or in part.

To claim otherwise, the judges argued, would leave the performance of the contract solely in the hands of one party. The debtor, as noted above, could fulfill his obligation at any time and the creditor could claim compensation, lo que dara pábulo para que se demande lo subsidiario teniendo existencia aún lo principal.

The judges deduce that the indemnification of the damages pursuant to contractial responsibility, on the part of the [Buyer], is a consequence of the act to resolve the contract. Therefore, the judicial andecedent of that is, precisely, that choice of action that encompasses the indemntification of damages, for that which the [Buyer] may not ask directly given that they are ancilliary to the fulfillment of the contract. Given that this judicial antecedent is fundamental in any action, this complaint must be rejected for improper procedure.

This does not preclude the conclusion that this is a commercial sale within the scope of Article 157 of the Commerical Code, since that rule merely complements its precedent. Article 157 only affects those partial compliances accepted by the [Buyer] and thus this rule may be interpereted harmonously with the rule already analyzed, which establishes the existence of the choices of action for indemnification of damages.

The action for indemnification that has been presented by the [Buyer] is that which emanates from the failure to perform a contract and therefore, the [Buyer] should have sought the completion of said contract in addition to the indemnification, which the [Buyer] did not do in the pleadings. The [Buyer] simply sought indemnficiation independantly without asserting its other rights. Whether the action is regulared by the Civil Code or by the Commercial Code,the [Buyer] should have sought the completion of the contract.

Regarding the 1980 Vienna Convention on the International Sale of Goods, in accordance with Article 6, the parties may exclude the application of this agreement notwithstanding the provisions of article 12. The parties may choose to allow exceptions to any of the Convention's provisions or their effect. Given that the complaint and the answer were not based on the law of the Convention, it should be tacitly understood that the contract is governed by the provisions of the Civil Code and the Commercial Code.

THIRD: That the first issue of the appeal the [Buyer] presented was based on the violation of Articles 1489 and 1672 paragraph 1 of the Civil Code and 312 of the Code of Civil Procedure.

The first of these rules provides in Paragraph 1 that it is inherent in bilateral contracts is the possibility that one of the parties will not fulfill its obligation. Paragraph 2 says that the other contracting party may call at his discretion the performance of the contract, with compensation for damages.

The [Buyer] brought this case simply for compensation for damages, without establishing the foundations of law for support in conformity with No. 4 of Article 254 of the Code of Civil Procedure.

However, in its written answer, the [Buyer] alleged that the corresponding rules were paragraphs 2 and 3 of Article 157 of the Commerecial Code which "deviates from the normal rule for bilateral contracts established in Article 1489 of the Civil Code. Thus the [Buyer] seemed to invoke the right conferred by Article 312 of the Code of Civil Procedure, Article 1437, 1824 and other pertinenent parts of the Civil Code, given that what the [Buyer] demanded in the Complaint was partial completion of the contract by its equivalent. Articles 1489 and 1672 Paragraph 1 were only raised before the Court by the [Buyer] in writing when it appealed the judgment of the First Instance.

FOURTH: Que esta última disposición establece que si el cuerpo cierto perece por culpa o durante la mora del deudor, the obligation remains to compensate the creditor, in accordance to Title XIX of Book IV of the Civil Code, which governs the ways in which obligations may be terminated, such as, for example, the loss of the object of the obligation purususant to No. 7 of Article 1567 of the Code.

As is apparent from the wording of the quoted provision, the loss of something that should extinguish the obligation only when the object is of a certain type. Not all losses of objects result in a termination of an obligation in accordance with articles 1508 and 1510 of the Civil Code.

FIFTH: That, therefore, to establish whether the rule of paragraph 1 of Article 1672 is applicable to this case, it appears essential to determine if the object of the [Seller]'s obligation in the contract of 6 December 2001 was of a particular type or a general type.

The Complaint alleges that on the date indicated, [Buyer] agreed to purchase from [Seller] the quantity of 150,000 wool hides at a price of US $2.05 per unit, which was established unequivocally as the object of the contract, as a specified number but not a specified type pursuant to the classification under cited article 1508 of the Civil Code. Therefore, we must conclude that since the contract was general in nature, the loss of certain objects does not terminate the obligation, and Paragraph 1 of article 1672 is not applicable in the present litigation.

SIXTH: It necessarily follows that what was requested by the [Buyer] could not be the equivalent of forced partial compliance, as they tried to assert in the reply, but the legal action they demanded was the compensation for damages.

[Ahora bien, tratándose la compraventa de un contrato bilateral, los efectos del incumplimiento o cumplimiento parcial de las obligaciones que ella impone a una de las partes que es el hecho que, según la demandante, hara nacer el derecho a ser indemnizada de los perjuicios sufridos , se encuentran regulados en el artculo 1489 del Cdigo Civil.

Como se expuso más arriba, ese incumplimiento o cumplimiento imperfecto confiere al contratante diligente el derecho a pedir el cumplimiento ntegro del contrato o su resolucin, en ambos casos con indemnizacin de perjuicios. Como ha sostenido la jurisprudencia, la peticin de resarcimiento de perjuicios, sin el ejercicio conjunto de alguna de las acciones optativas antes indicadas, no resulta procedente en sede de responsabilidad contractual.]

SEVENTH: In effect, if the debtor is culpable in not performing its obligation, the creditor has the right to demand relief either at its whole discretion or under the resolution of the Convention, and in both cases with the indemnification of damages.

The resolution of the contract that the creditor can demand depends on whether there was present the tacit condition contained within the bilateral contract in accordance to Article 1489 and therefore the forced complaince completes all of the obligatoin. Both alternatives in the law confer on the diligent contractor the rights of indemntiiaciton of damages suffered, or indemnification for the damages that have been cause by the lack of partial or total performance, or by a simple delay in performance. In the first case, the indemnfication is called compensatory, in the second, moratorium.

Regarding the compensation, it cannot be requested unless it is in place of the original obligation. If the obligation is made in arrears, then the creditor can seek compensatory damages at the time of the delay. Article 1553 of the Civil Code epxressly provides that the creditor may request said compensatory indemnification in place of requiring peformance, and where the obligation is not to perform, article 1555 of the Code estasblishes that the obligation is transformed into the indemmnification of damages.

But when the incompleted obligation is of delivery, which is the case at bar, the creditor cannot request compensatory indemntifiaction unlesst the direct performance of the contract has become impossible due to the loss of the object or objects owed, a determination that has not occured here since the objects of the contract were generic.

The obligation to indemnify damages emerges as a consequence of the falure to peform or the late performance of that to which the debtor was obligated, pero slo se entiende si se ha declarado, a su vez, la resolucin del contrato o se ha dispuesto su cumplimiento.

Under these conditions, the conclusion that the challenged judgment that the isolated petition for the indemnification of damages is not in conformity with the law does not violate the legal concepts analyzed in this appeal.

EIGHTH: The second issue on appeal relates to Article 6 of the Vienna Convention on the International Sale of Goods which provides that parties may exclude the application of the Convention or, without prejudice to article 12, derogate any of its provisions or their effect.

From the aforementioned provision comes the notion that this international instrument is recognized as an instrument of free will, enabling the parties to establish the rules that they feel are appropriate to resolve their potential controversies and issues related to the peformance and execution of a contract for the international sale of goods.

As stated in the third basis of this opinion, Article 254 of the Code of Civil Procedure requires that the complaint set forth the legal basis on which the claim is based. Therefore, the performance of this requirement on the part of the Plaintiff [Buyer] is limited to the complaint, where it must cite the provisions contained in the Civil and Commercial Codes which are believed to be pertitnent to the soluction of the controversey.

However, the tribunals are free to apply to a given case the law that they feel is appropriate, and exclude the law of the Convention when there has been a mantifestation of this intention by the parties.

The judges of this Court have established that the invocation of the rules of domestic law has not been explicitly or tacitly waived. No pudo sino importar la renuncia tácita o implcita, pero de todas formas con identico valor que la expresa o explcita a regirse por las disposiciones de la Convencin de Viena, a que se refiere el citado artculo 6 de este pacto, de manera tal que tampoco se incurre en las infracciones de ley denunciadas en este segundo captulo del recurso.

NINTH: For these considerations and given also the provisions of the laws mentioned in Articles 764, 765, 767 and 805 of the Code of Civil Procedure, this Court rejects the appeal brought by the [Buyer] as principal submission of 615 pages, the sentence of nine of January, two thousand seven, written 611 pages.

Writing by the Minister Mrs Herreros.

Statement by the First Chamber of the Supreme Court by the Ministers Mr. Milton A. Juice, Ms. Margarita M. Herreros and Mr. Pedro A. Pierry Members of the Bar and Mr. Hernán Álvarez G. and Oscar A. Carrasco. The Minister Pierry has not signed but nevertheless has contributed to the appeal hearing and agreement.

Authorized by the Secretary Surrogate Carole A. Herrera Brummer.

No. 1782 2007.


FOOTNOTES

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

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

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