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CISG CASE PRESENTATION

Hungary 5 December 2008 Judicial Board of Szeged [Appellate Court] (Wine case) translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/081205h1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20081205 (5 December 2008)

JURISDICTION: Hungary

TRIBUNAL: Judicial Board of Szeged [Appellate Court]

JUDGE(S): Dr. Zsolt Mányoki (Chair), Dr. Attila Hámori, Dr. Gabriella Kiss

CASE NUMBER/DOCKET NUMBER: Gf.I.30.379.2008/4szám

CASE NAME: Unavailable

CASE HISTORY: 1st instance Bács-Kiskun County Court (9.G.40332/2007/11) 25 April 2008 [affirmed] [No reference to CISG in original judgment; Court of First Instance made its decision based on the Hungarian Civil Code]

SELLER'S COUNTRY: Hungary (plaintiff)

BUYER'S COUNTRY: Bulgaria (defendant)

GOODS INVOLVED: Wine


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

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

Descriptors: Examination of goods ; Lack of conformity notice, timeliness

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Editorial remarks

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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 (Hungarian): <http://www.birosag.hu/engine.aspx?page=anonim>

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

Judicial Board of Szeged

5 December 2008 [Gf.I.30.379/2008/4.szám]

Translation [*] by Andrea Vincze [**]


IN THE NAME OF
THE REPUBLIC OF HUNGARY

In the lawsuit between Plaintiff [of Hungary] (hereinafter: "[Seller]"), represented by dr. László Varga, Attorney (6000 Kecskemét, Kõhd u. 10.), and Defendant 1 [of Bulgaria] (hereinafter: "[Buyer]") and Defendant 2 (hereinafter: "[Guarantor of payment by Buyer]"), represented by dr. Gabriella Juhsz (1054 Budapest, Szemere u. 19. II/2), relating to payment of purchase price for a sale of goods, in the appeals by the [Buyer] and the[Guarantor of payment by Buyer] (exhibit no. 12) against the first-instance judgment of the Bács-Kiskun County Court dated 25 April 2008 under no. 9..40.332/2007/11.

In the second-instance proceedings taking place as a result of the appeals, the Judicial Board of Szeged made the following

JUDGMENT

The first-instance judgment is confirmed.

   -    The Judicial Board orders [Buyer] and the [Guarantor of payment by Buyer] to pay to [Seller] the costs of the second-instance proceedings in the amount of HUF 200,000 (two-hundred thousand Hungarian forints) as a joint and several obligation.
 
   -    The Judicial Board orders [Buyer] and the [Guarantor of payment by Buyer] to pay the Hungarian State, upon an individual demand, the unpaid appeal fees in the amount of HUF 554,000 (five-hundred and fifty-four thousand Hungarian forints).

This judgment may not be appealed.

REASONING

On 6 April 2005, [Seller] concluded a contract with [Buyer] for delivery of wine. The contract concluded in the English language was subsequently translated to Hungarian as well, upon request by [Seller]. Under the contract, [Buyer] purchased 3,000 hectoliters of white wine in table wine quality from [Seller] for a purchase price of EUR 21.50 per hectoliter. The parties agreed that following arrival of the goods at the destination, [Buyer] must support all complaints regarding quality or quantity of the goods with an official report of an internationally accredited quality inspection institution in Bulgaria. Pursuant to the contract in English, the buyer had eight days to make any complaint regarding the goods delivered. The parties agreed in the contract that Hungarian law applies to the resolution of any dispute.

The [Buyer] and [Seller] and Defendant 2 concluded a guarantee contract, under which Defendant 2 became a guarantor regarding the sales contract and agreed to pay the [Seller] the purchase price without delay if the [Buyer] fails to pay within 60 days (under Art. 272 (1) of the Hungarian Civil Code).

Under the supply contract, on 13 April 2005, [Seller] sold to [Buyer] 606.64 hectoliters of white wine, in a value of EUR 13,042, concerning which the Hungarian Wine Qualification Institute [Orszgos Borminõstõ Intézet, hereinafter: "OBI"] issued a quality certificate on 4 April 2005. In another certification prepared concerning a new sample on 18 May 2005, OBI permitted the distribution of 1,213.28 hectoliters of dry white table wine in EU Member States as well as delivery of the latter to third countries. Thereupon, on 1 May 2005, [Seller] dispatched a further 606.64 hectoliters of wine to [Buyer] in a value of EUR 13,042. Then, the last shipment of 504.62 hectoliters, in a value of EUR 10,849.33 was sent on 7 June 2005. According to the OBI inspection report, the alcohol content of the first shipment was 11.34% while the alcohol content of the second sample (second and third shipments) was 10.41%.

[Buyer] failed to pay the sums indicated in the three invoices issued by [Seller]. The representative of [Buyer] requested an extension of the payment deadline and agreed to pay EUR 8,000 within a short period. Subsequently, in its letter dated 27 August 2005, [Buyer] complained about the alcohol content of the second and third shipments and refused to pay the invoiced sums.

In its claim, [Seller] referred to Art. 379 and 272 (2) of the Hungarian Civil Code, and requested the court to order [Buyer] and the [Guarantor of payment by Buyer] to pay, jointly and severally, EUR 36,934.85 and a default interest on the latter sum at the international financial market rate, from the due date of the respective invoices until payment. [Seller] argued that, prior to shipment, the wine delivered by [Seller] was always inspected by OBI whose inspections confirmed in all cases that the alcohol content of the samples was appropriate. [Seller] alleged that the complaint by [Buyer] regarding the quality of the second and third shipments was unfounded and late. [Seller] stated that because the [Guarantor of payment by Buyer] had agreed to pay the purchase price to the [Seller] without delay if the [Buyer] fails to do so within 60 days, the [Guarantor of payment by Buyer] is jointly and severally liable for the debt of [Buyer].

The [Buyer] and the [Guarantor of payment by Buyer] requested the court to reject the [Seller]'s claim. They argued that [Seller]'s delivery was non-conforming because the alcohol content of the wine delivered by [Seller] did not reach the 10.5% minimal alcohol level. [Buyer] presented that it had had the shipments inspected upon receipt. The shipment was conforming, but, in its inspection report dated 5 May 2005, the Regional Bulgarian Public Health Protection and Control Authority determined that the alcohol level of the second sample is only 9.51%. The inspection found that the alcohol content of the sample regarding the third shipment and received on 17 June 2005 was 9.3%. In addition, the [Guarantor of payment by Buyer] contested that it had agreed to provide joint and several guarantee with [Buyer], and argued that the reference in their agreement regarding Art. 2727 (1) of the Hungarian Civil Code supports that a simple guarantee was agreed upon.

The [Buyer] and the [Guarantor of payment by Buyer] raised their claim regarding defective performance in the form of a complaint, and requested a price reduction of EUR 12,650 regarding the second and third shipments. They argued that:

   -    The goods delivered do not qualify as wine in Bulgaria;
 
   -    [Buyer] used the wine but it was forced to mix it with better quality wine in the amount of EUR 30,126.25 in order to achieve the appropriate quality, therefore, [Buyer] requested compensation of the latter damages setting it off against [Seller]'s purchase price claim.

The first-instance judgment ordered the [Buyer] and the [Guarantor of payment by Buyer] to pay [Seller], jointly and severally, EUR 36,934.85 and to pay interest at the international financial market rate on the latter sum, as follows:

   -    2.22343% regarding EUR 13,042.76 from 13 June 2005 until 30 December 2005;
   -    2.24677% regarding EUR 13,042.76 from 18 July 2005 until 30 December 2005,
   -    2.26395% regarding EUR 10,849.33 from 8 August 2005 until 30 December 2005; and

   on the entire capital amount:
 
   -    3.07893% from 2 January 2006 until 29 December 2006;
   -    4.27691% from 2 January 2007 until 31 December 2007; and
   -    4.42907% from 2 January 2008 until the date of payment.

The reasoning of the judgment included that [Seller] agreed to deliver wine with a 10.5% alcohol content. At the time of dispatching the second and third shipments, no samples were taken; therefore, it cannot be proved whether the quality of the wine sent by [Seller] was identical to those of the samples examined by OBI. [Buyer] had the second shipment inspected but the date indicated on the inspection report is earlier than the date when the shipment was dispatched; therefore, it cannot be associated with the shipment sent by [Seller] on 19 May 2006 without any doubt. Regarding the third shipment and based on the Bulgarian inspection results, [the first-instance judgment] established defective performance by [Seller]. The judgment also stated, however, that [Buyer] had the burden of proof regarding the price reduction and damages submitted by [Buyer], but despite several demands, [Buyer] clarified its claim only relating to the sum requested and failed to specify any evidence for such claims. The evidence request by [Buyer] was solely aimed at appointment of an expert regarding defective performance, although the fact that performance was defective could be established without resorting to an expert opinion. With regard to the latter, the legal consequences of defective performance by [Seller] could not be drawn and, therefore, the Court of First Instance ordered [Buyer] to pay the purchase price due for all wine shipments, as well as default interest at the international financial market rate regarding the respective installments. The liability of the [Guarantor of payment by Buyer] was established under the guarantee contract, the text of which established a guarantee liability.

The [Buyer] and the [Guarantor of payment by Buyer] appealed the first-instance judgment and requested modification, or alternatively, reversal of the first-instance judgment. They argued that the inspection reports submitted by them support without a doubt that defective performance had taken place. They argued that by their request for appointing an expert, they offered evidence necessary for adjudicating whether the set-off claim is founded. They argued that an expert can prove the loss of alcohol content regarding both shipments, as well as the fact that wine of the quality and quantity specified in the set-off claim was indeed necessary for improving the wine with low alcohol content and that processing and delivery costs were incurred.

The [Buyer] and the [Guarantor of payment by Buyer] also contested the first-instance judgment regarding the guarantee obligation by [Guarantor of payment by Buyer], stating that, by citing Art. 277 (1) of the Hungarian Civil Code, the agreement specifically referred to a simple guarantee [rather than a joint and several guarantee]. They argued that the text of the agreement does not allow a contrary conclusion either because after the 60 days passed, the payment delays did not occur at the same time regarding the two defendants but only one after the other.

[Seller]'s counterclaim on appeal requested confirmation of the first-instance judgment.

The appeal is unfounded.

[Seller] and [Buyer] concluded an international sales contract under which [Seller] agreed to deliver white table wine to [Buyer] having its place of business in Bulgaria. Delivery dates, quantity and value of the wine were not disputed in the litigation, and [Buyer] requested rejection of the claim by stating that the supplier performed partially defectively.

Pursuant to Art. 305 of the Hungarian Civil Code, on the basis of a contract in which the parties owe mutual services to one another, defective performance occurs on the part of the obligor if the item provided does not, at the time of performance, correspond to the characteristics stipulated by law or by the contract.

In case of quality complaints, it is in all cases expected of the obligee to notify the obligor about the defect immediately after discovering or detecting it, thereby allowing the latter to check the contents of the complaints, cure the defect or exchange the goods if possible. As the parties concluded the contract in the English language following explanation of the text and the Hungarian version was signed only at a later point of time, the English language contract prevails regarding the quality complaint, taking into consideration that the English version contains an express provision on the issue. Pursuant to paragraph 8 of the contract, if buyer makes a complaint regarding quality of the goods, buyer shall notify seller in writing, within eight days after receipt of the goods. In this case, i.e., only if notification or information was sent within eight days, the parties shall accept the findings of an independent quality inspection institution (contract under exhibit no. 31 in the file).

Hungary implemented the Vienna Sales Convention on International Sale of Goods, promulgated by Law Decree No. 20 of 1987 [hereinafter: CISG]. In the contract, the parties agreed upon the application of Hungarian law. The [Seller] and [Buyer] have their respective places of business in different countries, therefore, the CISG was applicable to the legal dispute involved in this litigation (Art. 1(1)b)).

   -    Pursuant to Art. 38 CISG, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
   -    Pursuant to Art. 39 CISG, the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

In accordance with the latter provisions, the parties allowed eight days for quality inspection and sending a written notice to [Seller]. As [Buyer] failed to perform its contractual obligation to send a notice within the stated deadline, pursuant to Art. 39 CISG, it lost the right to rely on lack of conformity of the goods.

The Judicial Board notes that even in the absence of a contractual provision requiring eight days for the notice, the written complaint by [Buyer], sent with a two-month delay, could not be considered as a notice within reasonable time (Exhibit No. 21 in claim no. G.40.364/2005/1) Such delay deprived the seller of the opportunity to check the factual basis of the complaint, and in case of a founded warranty claim, to arrange for repair incurring minimal costs or replacement of the goods if possible. In its judgment VB 99144 (published in Vol. 2001/6 of the Official Court Journal in Hungary), the Permanent Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry interpreted Art. 39 CISG in a similar way.

The Judicial Board notes that [Buyer] submitted its warranty claim only during the course of the lawsuit, during the trial on 29 June 2007, more than one year after the lawsuit was filed, and that it was at that time mentioned for the first time when [Buyer] then requested compensation for its costs incurred concerning cure of the defect in addition to a price reduction. It was only at this point of time that [Buyer] submitted the inspection reports proving that [Buyer] had built its complaints on the certifications issued on 27 April, 5 May and 23 June 2005.

The first-instance judgment regarding joint and several liability of the guarantor is correct. Under the contract, the [Guarantor of payment by Buyer] agreed to an unconditional payment obligation in case [Buyer] fails to pay within the 60-day payment deadline, which represents a guarantee with joint and several liability. It is a fact that the parties referred to Art. 272(1) of the Hungarian Civil Code in their contract; however, in the light of the contents of the contract, this meant that the [Guarantor of payment by Buyer] could refer to being a simple guarantor only during the 60-day payment deadline, and thereafter, its payment obligation became unconditional.

After consideration of the latter issues, in accordance with Art. 253(2) of the Hungarian Code of Civil Procedure, the Judicial Board confirms the first-instance judgment with a partially modified reasoning.

[TRANSLATOR'S NOTE. An illustration of the "partially modified reasoning" is: This opinion of the Appellate Court relies on the CISG. In its opinion, the Court of First Instance referred only to provisions of the Hungarian Civil Code. The Court of First Instance had ruled that Hungarian courts have exclusive jurisdiction under Law Decree No. 13 of 1879 because the seat of Defendant 1 is in Bulgaria, but failed to apply the CISG despite the fact that the parties have their places of business in different Contracting States.]

Pursuant to Art. 78(1) and Art. 82(1) of the Hungarian Code of Civil Procedure, the defendants, being unsuccessful with their appeal, are jointly and severally liable to pay the costs of the second-instance proceeding, and attorneys' fees were determined by the Judicial Board under Art. 3 (2) a), b) and Art. 3 (5) of Decree of the Minister of Justice No. 32/2003. (VIII.22.) IM. Pursuant to Art. 13 (2) of the Decree of the Minister of Justice No. 6/1986. (VI.26.), applied by reference in Act No. 93 of 1990, defendants must jointly and severally pay the outstanding procedural costs.

Szeged, 5 December 2008

Dr. Zsolt Mányoki Dr. Attila Hámori Dr. Gabriella Kiss
Chair of the Council Presenting Judge Judicial Board Judge


FOOTNOTES

* All translations should be cross-checked against the original text. For purposes of this translation, Plaintiff-Appellee of Hungary is referred to as [Seller], Defendant 1- Appellant of Bulgaria is referred to as [Buyer] and Defendant 2-Appellant is referred to as [Guarantor of payment by Buyer].

** Andrea Vincze is a Fellow of the Institute of International Commercial Law of the Pace University School of Law. She received her law degree from the University of Miskolc, Hungary, and her LL.M. at Pace Law School. She is working on her Ph.D. on ICSID arbitration and is researching international commercial law and arbitration.

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