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CISG CASE PRESENTATION

Slovak Republic 17 December 2008 District Court in Trnava (Milk Products Case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/081217k1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20081217 (17 December 2008)

JURISDICTION: Slovak Republic

TRIBUNAL: District Court in Trnava

JUDGE(S): Martina Valentova

CASE NUMBER/DOCKET NUMBER: 9 Cb/120/2007

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Czech Republic [Plaintiff]

BUYER'S COUNTRY: Slovak Republic [Defendant]

GOODS INVOLVED: Milk products


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 53

Classification of issues using UNCITRAL classification code numbers:

30A [Summary of seller’s obligations];

53A [Buyer’s obligation to pay price of goods]

Descriptors: Unavailable

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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 (Slovak): Unavailable

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

District Court Trnava

17 December 2008 [9 Cb/120/2007]

Translation [*] by Juraj Kotrusz [**]


JUDGMENT
IN THE NAME OF THE SLOVAK REPUBLIC

The District Court of Trnava, decided by a single judge, JUDr. Martina Valentova, in the case of Plaintiff M.K., a.s. [Seller], with its registered office in K., ___, Czech Republic, …, , versus Defendant B., spol. s.r.o. [Buyer], with its registered office in T. ___, [Slovak Republic], regarding payment of 194,868.20 Czech koruna [Kc] and contractual penalty

has decided as follows:

The [Buyer] is obliged to pay to the [Buyer] the sum of 194,868.20 Kc and a contractual penalty of 0.1% daily on the sum of 194,868.20 Kc for the period from 22 December 2006 until payment and the reimbursement of costs of the proceedings amounting to 20,886.- Slovak koruna [Sk], within three days after the judgment comes into force.

REASONING

The [Seller] asserted, by its action filed with the Bratislava District Court I. on 7 November 2007, its right to payment of 194,868.20 Kc with appurtenances, claiming the right to payment of the purchase price for delivered goods (milk products) under the contract of sale from 1 March 2006 and the agreed contractual penalty for breach of the contract of 0.1% daily for the period from 22 December 2006 until payment.

The [Buyer] disagreed with the action, claiming by a written unilateral set-off from 31 January 2007, addressed to the [Seller], setting off its claim for damages amounting to 243,000.- Sk against the [Seller]'s claim.

The Court gathered evidence by interrogating the parties and witness R. N. and reading the submitted documents. The court thereby determined the following factual and legal circumstances of the case:

The [Seller] claims the right to payment of the sum and a contractual penalty from the contract of sale concluded on 1 March 2006. Under the contract, upon [Buyer]'s written purchase orders sent by telefax, the [Seller] delivered milk products. The [Buyer] acknowledged the asserted claim in written form and agreed to pay the debt in installments, where several installments were duly paid. Subsequently, the [Buyer] breached the schedule of installments and therefore the [Seller] claimed a partial sum from the purchase price for the goods delivered. With respect to the [Buyer]'s arguments, the [Seller] argued that it did not cause the [Buyer] any loss because it did not act contrary to any provision of the contract of sale. The [Seller] is not aware of the alleged non-performed purchase order for the 43rd and 44th week, i.e. order for delivery on 23 October 2006 and 27 October 2006 and this order is not recorded in the [Seller]'s accounting books. The [Seller] was also not notified of any breach of the contract and subsequent loss sustained by the [Buyer] which should correspond to the penalties imposed by the [Buyer]'s subcontractor to the [Buyer]. The [Seller] stated that he knew of this subcontractor from Hungary, but it had no knowledge of the conditions of their mutual relationship. With respect to the [Buyer]'s argument referring to trade usages, the [Seller] referred to the contract which expressly required a written purchase order to be made via telefax. If some orders were made only by telefax, this means that there was a disorder in mutual relationships. The [Seller] is not aware of any such purchase order, performed neither by telefax nor by telephone. The [Seller] notified the [Buyer] of the end of production a month before its occurrence in oral form but this fact is also irrelevant since the [Seller] claims it did not receive the abovementioned purchase order. The [Seller] ended its production on 31 October 2006.

The [Buyer] stated that it does not oppose the part of the claim regarding the unpaid principal and the contractual penalty. The [Seller] actually delivered the goods, but the [Buyer] did not actually pay part of the price and therefore the contractual penalty was imposed. On the other hand, the [Buyer] referred to its set-off of the claim which emerged from non-performance of the contract by the [Seller] - non-delivery of the goods upon the purchase order for the 43rd and 44th week of year 2006. Despite the fact that the [Buyer] was in default with payment of installments under the installment contract of 23 October 2006, the [Seller] was obliged to perform the contract, i.e. to deliver goods upon the purchase orders. The parties had established between themselves trade practices where the [Buyer] was regularly ordering goods once a week and with respect to the 43rd and 44th weeks, this order was made in written form and delivered to the [Seller] via telefax, although the [Buyer] has no evidence for sending such order. According to the trade practices, when the orders were placed also by telephone and written purchase orders were not regular, there was no such rule established that the [Seller] shall confirm the orders. After sending the order via telefax, the order was also made by phone and consulted with Mr. D., the employee of the [Seller], immediately accepted the order and promised delivery of the ordered goods. Subsequently, he referred to technical problems preventing the [Seller] from delivering the goods, but promised to perform the delivery next week. Therefore, the following purchase order also contained an order for delivery of the goods, which were not yet delivered, and was sent via telefax and in accordance with the trade practices, followed by a phone call. In this relevant period of time, the [Buyer] was not in default with payment installments, therefore the [Seller] had no right to refuse delivery upon purchase orders. The [Seller]'s employee, Mr. D. later referred to instruction from management of the company stating that no deliveries shall be performed until the entire purchase price would be paid. The [Buyer] therefore argued that the [Seller] thereby breached the contract of sale in a substantial manner and the [Seller]'s employee was strongly warned that such non-performance of deliveries will cause the [Buyer] to be penalized by its subcontractor and ending of its own production which would incur further loss. The [Seller] did not pay attention to these warnings and did not deliver the ordered goods. This situation lasted for 2 weeks and the [Buyer] was able to find a new supplier four weeks after the non-performance. Since the [Buyer]'s obligation to deliver goods to its subcontractor was secured by a contractual penalty, the [Buyer] sustained loss in connection with the [Seller]'s non-performance. The [Seller] was not previously informed about this contractual penalty but upon non-performance the [Buyer] warned the [Seller] about the threat of such sanctions. By occurring a loss, the [Buyer] has a claim for damages amounting to 243,000.- Sk against the [Seller], where the [Buyer] paid the contractual penalty in this sum to its subcontractor by a mutual set-off. The abovementioned trade practices were established in long-lasting mutual business relationships between the parties and also in the [Seller]'s relationships with the legal predecessor of the [Buyer], where purchase orders were mostly made by telephone and goods were delivered upon such orders. The court should observe such established practices. The [Buyer] also referred to the fact that the non-delivery of goods was not caused by non-existence of the order, but by the [Seller]'s cessation of production which should have been done with reasonable advance noticed to the [Buyer], as it was prescribed by the framework of the contract of sale.

The witness, Mr. R. N. stated that he is an employee of the [Buyer] working for five years as a manager of production. The witness knows the [Seller] as a business partner of his employer and also as a merchant from the milk industry. The witness in his position as the manager of production was responsible for the entire production, including ordering of raw materials and management of production, therefore he was the only person empowered to order raw materials and other people were only entitled to perform such orders subject to his approval. His direct superior was Mr. B., who did not personally make purchase orders. The orders were made in written or oral form, some 100 trades have been made. The written form was observed only if the [Seller] insisted on them for the purpose of his internal evidence and only if the [Seller] expressly demanded such form. But mostly the orders were made by a phone call with the [Seller]'s employees. The witness has no knowledge of any written agreement between the parties relating to a specific form of purchase orders and these orders were made repeatedly and routinely either via telephone or in a written form via telefax. Dealings between the parties ended in September or October of 2006 because the [Seller] ceased production, but this fact was not relayed to the [Buyer] in a specific way. The last purchase order was made in written form, sent via telefax and the delivery was not performed upon this order because of the abovementioned cessation of production. The witness did not remember any further communication. The purchase order was made, no delivery was performed and subsequently Mr. F. notified the [Buyer] that the [Seller] ceased production. After waiting for delivery by the [Seller] for more than a week, the witness started to search for new suppliers and found the new one after 10 days which meant that the [Buyer] was not able to produce goods for more than a week. Therefore several shipments, primarily the ones to Hungary, were not performed. With respect to the non-performed delivery, the witness communicated with Mr. F., but did not notify him that problems occurred and the loss was sustained by the [Buyer] because of the non-delivery of the raw materials. He was concentrating on searching for a new supplier. As to Mr. F., he was the [Seller]'s manager of production, which is not the same person as the [Seller]'s executive manager.

From the written contract of sale concluded by the parties on 1 March 2006, the court determined that the parties had agreed that the [Seller] shall deliver goods - milk products to the [Buyer] - upon separate purchase orders where the orders and handing over of the goods shall be confirmed by the [Seller] via telefax, stating the amount of goods handed over and the vehicle identification number and name of the driver. The parties have also agreed on notification duty in case of any changes relevant to the contract (dissolving of company, change of registered office) the [Buyer] is obliged to notify the [Seller] of such change at least one week before its occurrence.

The court determined, from the written acknowledgement of debt of 23 October 2006, that the [Buyer] knew of its debt to the [Seller] arising from the contract of sale of 1 March 2006 amounting to 680,818.- Kc and from the written installment agreement of 23 October 2006, the [Buyer]'s promise to pay the price in installments on specified dates. The parties have also agreed on a contractual penalty of 0.1% daily on the sum in default in the case of default with the payment of any of the installments. The agreement also contains a choice of law clause naming the Czech Republic as the law applicable to this agreement.

The court determined from the written order of 23 October 2006 and 27 October 2006 addressed by the [Buyer] to the [Seller] that it contains a specification of milk products with respect to the date of delivery, date of production and amount of goods and that it includes Mr. R. N.'s signature, [Buyer]'s employee and [Buyer]'s office seal.

The court determined from the submitted documents - invoice no. 004/00011 and no. 004/00012 of 31 December 2006 that company S. M. K. with its registered office in Hungary, is asserting the right to contractual penalty for non-delivery of goods from the [Buyer] in the sum of 118,000.- Sk and 125,000.- Sk.

With reference to the foreign aspect in the relationship (parties to the proceedings having their places of business in different States), the Court had to decide on the law applicable to the claim asserted by the [Seller] and also to the [Buyer]'s claim for set-off. The parties to the proceedings, being also parties to the contract of sale of 1 March 2006, have performed choice of law in the installment contract and have chosen the Czech law to be applicable to their sales relationship. The court observed such choice with respect to the principles of private international law. As the parties to the proceedings have their places of business in Contracting States of the Vienna Convention, which is an integral part of the law of the Czech Republic, the Court must qualify their relationship under this Convention and, in case of a matter not governed thereby, e.g. [Buyer]'s claim for damages, under the law of the Czech Republic, particularly with reference to provisions of the Czech Civil Code and Commercial Code.

Under article 1 of the Convention, 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; or (b) when the rules of private international law lead to the application of the law of a Contracting State.

Under article 30 of the Convention, the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.

Under article 53 of the Convention, the buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Under section 1 part 1 and 2 of the Czech Commercial Code, this act governs status of entrepreneur, commercial contractual relationships, and other issues connected with conducting business. Issues enumerated in part 1 of section 1 are governed by this act. If any such issues cannot be resolved by this act, they shall be resolved under provisions of the Czech Civil Code.

Under section 323 part 1 of the Commercial Code, if a person recognizes its debt in a written form, it is considered to be existing and valid at the time of such recognition. This presumption is valid also in case the limitation period has passed with respect to this claim.

Under section 544 part 1 of the Czech Civil Code, if the parties agree on contractual penalty for breach of a contract, the party breaching the contract shall pay the penalty regardless of the fact whether the breach caused damage to the other party.

Under section 580 of the Civil Code, if creditor and debtor have mutual claims for the same type of performance, they expire in their corresponding part by a set-off performed by one of the parties which is addressed to the other party. The claims expire at the moment when the latter of them becomes eligible for set-off.

Under section 358 first sentence of the Commercial Code, the claim becomes eligible for set-off once it is possible to assert the claim before the court.

Under section 373 of the Commercial Code, the party which breaches its obligation arising from contract, shall compensate damage sustained in connection therewith by the other party, unless the breaching party proves that its liability shall be excluded.

Under section 379 of the Commercial Code, unless otherwise provided, the direct damage and lost profit shall be compensated. The loss exceeding the amount which should have been forseen by the latter party as a consequence of breach of its obligation shall not be compensated.

Under section 120 part 1 first sentence, part 3 of the Slovak Civil Procedure Code (hereinafter referred to as the "CPC"), the parties to proceedings are obliged to provide evidence to support their arguments. Except for issues enumerated in part 2, the Court can accept joint declarations and statements of both parties to the proceedings without investigation.

The object of the proceedings is the payment of the sum of 194,868.20 Kc as the unpaid purchase price for delivered goods under the contract of sale of 1 March 2006 and contractual penalty of 0.1% on this sum daily for the period from 22 December 2006 until payment emerging from default with payment.

Referring to the evidence gathered and from the joint declarations of the parties to the proceedings: written contract of sale of 1 March 2006, written acknowledgement of debt of 23 October 2006, installment agreement, the court determined that the parties have established a commercial relationship based on the contract of sale, under which the [Seller] delivered the goods to the [Buyer] and the [Buyer] did not pay the price until the due date (agreed by a special agreement of 23 October 2006); the parties did not oppose these facts. The court therefore referred to these factual circumstances and investigated only the [Buyer]'s arguments concerning set-off. The [Buyer] claimed in the proceedings the existence of its claim amounting to 243,000.- Sk presenting damages for the loss corresponding to a contractual penalty from its subcontractor which was sustained in connection with the [Seller]'s breach of contract.

The set-off presents a fulfillment of pecuniary obligation by a clearance of mutual claims and thereby expiration of these claims. The expiration covers not only the primary claim but also secondary claims. The claims do not expire by their mere existence but it is necessary to express a will to settle mutual claims by one of the parties. Therefore, the consent of the latter party is not necessary. The conditions for such unilateral set-off are the existence of mutual claims, performance of the same character, validity of the claims and non-existence of legal restriction of set-off.

Referring the evidence gathered and considering the character of the set-off, the court determined that it could not accept the set-off argument. At first, the existence of the [Buyer]'s claim for damages arising from the [Seller]'s breach of contract, which resulted in the imposition of contractual penalty to the [Buyer] by its subcontractor, was not proved in the proceedings. The [Buyer] did not prove that the loss occurred in connection with the [Seller]'s breach of the contract. The damages governed by section 373 et seq of the Commercial Code presents an objective type of liability where it is not necessary to investigate the intention of the person who breaches the contract, i.e. not to deliver the goods upon the alleged written purchase order delivered via telefax on 23 October 2006 and 27 October 2006. The [Seller] argued that it had no knowledge about these orders, they are not kept in its accounting books and therefore could not deliver any goods and could not thereby breach the contract which could cause damage to the [Buyer].

A burden of proof presents a procedural duty to the party claiming facts in the proceedings to provide evidence and in the case of failure of providing such evidence, the decision of the court shall not be based on such facts. The scope of the burden of proof (determination of facts to be proved by a party) is regulated by the applicable substantive law. If the [Buyer] argues the existence of its claim, it is obliged to prove existence of such claim, i.e. delivery of the order to the [Seller] and subsequent failure to deliver goods upon such order.

With reference to the abovementioned reasoning the court determined from the gathered evidence that the [Buyer] did not prove to a sufficient level its argument about duly made purchase orders from 23 October 2006 and 27 October 2006. The mere submittance of written orders does not prove their delivery to the other party or receiving knowledge of the declaration of will of the former party. With respect to the interrogation of the witness R.N., who, being the [Buyer]'s employee was not entirely credible, the court found no sufficient evidence of this argument. Since the court had doubts about the [Buyer]'s arguments, they were not taken into consideration when deciding the case.

The court also stresses that with respect to the alleged trade practices (regardless of the fact that no oral or written ordering of goods was evidenced in the proceedings) according to which the orders were in major part performed via telephone, under sec. 264 part 1 of the Commercial Code when the contract does not expressly refer to trade practices, they can only be taken into account in such a scope as they do not contravene provisions of the contract.

The court did not qualify the [Buyer]'s argument that the [Seller] did not duly notify the [Buyer] of the cessation of its production, which also caused non-acceptance of the purchase orders, because it was not proved that the [Seller] actually received these orders and furthermore, no such notification duty is imposed on the [Seller] by the contract (article 6.3 of the contract refers only to the notification duty of the [Buyer]).

The court also refers to the abovementioned section 379 of the Commercial Code according to which the [Buyer] did not prove forseeability of the loss incurred, since the [Seller] was not notified by the [Buyer] about the threat of damage in connection with non-delivery of goods.

Referring to the gathered evidence and abovementioned legal qualification, the court upheld the [Seller]'s claim for 194,868.20 Kc and imposed the contractual penalty of 0.1% on this sum daily for the period from 22 December 2006 until payment.

The Court ruled on the reimbursement of the costs of the proceedings with reference to sec. 142 part 1 CPC and granted to the [Buyer] full reimbursement of its costs, as it was successful in its defense in its entirety.

Instruction: An appeal against this judgment must be filed via this Court within fifteen days from its receipt.

District Court Trnava, 17 December 2008.

JUDr. Martina Valentova, Judge


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of the Czech Republic is referred to as [Seller] and Defendant of the Slovak Republic is referred to as [Buyer]. Amounts in the currency of the Czech Republic (Czech koruna) are indicated as [Kc] and amounts in the currency of the Slovak Republic (Slovak koruna) are indicated as [Sk].

** Juraj Kotrusz is a Slovak lawyer who studied law at the University of Trnava, Slovakia, and at the Hague Academy of International Law. He is the Editor of the CISG Slovakia website.

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