Brazil 20 May 2009 Tribunal de Justiça Rio Grande do Sul [Appellate Court] (Electro-erosion machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/090520b5.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Apelação Cível no. 70025609579
CASE HISTORY: 1st instance, Ação Indenizatória (no.1.06.0111362-8)13ª Vara Cível do Foro Central da Comarca de Porto Alegre, 5 June 2008
SELLER'S COUNTRY: Brazil
BUYER'S COUNTRY: Brazil
GOODS INVOLVED: Electro-erosion machine
BRAZIL: Tribunal de Justiça Rio Grande do Sul [Appellate Court] 20 May 2009
(Prakasa Indústria e Comércio de Utilidades do Lar Ltda. v. Mercomáquinas Indústria, Comércio e Representações Ltda)
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/122]
CLOUT abstract no. 1179
Reproduced with permission of UNCITRAL
Abstract prepared by Marcelo Boff Lorenzen
This is a case between two parties from Brazil which contains dicta references to Articles 8(3) and 77 CISG. The case deals primarily with the duty of a party who relies on a breach of contract to mitigate losses arising out of the breach and the principles of fairness and good faith in performance and enforcement of contracts.
The buyer entered into a contract with the seller for purchase of an electrical discharge machine. Due to an alleged malfunction, which amounted to a lack of conformity of the machine, the buyer brought suit in the District Court of Porto Alegre claiming the recovery of costs incurred to repair the equipment to no avail and to arrange for the acquisition of another machine, as well as loss of profits resulting from the breach of contract. The seller claimed that the contract was duly performed and imputed the malfunction to the buyer, who purportedly failed to operate the equipment properly. The District Court granted judgment partially in favour of the buyer, ordaining that the seller pay for the repairing costs.
On appeal, the Appellate Court of the State of Rio Grande do Sul noted that the buyer [i.e. the plaintiff] was at fault, since it did not undertake measures to substitute the defective machine in order to be able to continue its business. The Court invoked Article 77 CISG — and its corresponding provision, enshrined in section 169 of the Brazilian Restatement of Law — to state that the party who relies on a breach of contract must take measures to mitigate the loss resulting from the breach. The Court held that the plaintiff failed to mitigate its own losses, thus having not acted as a reasonable businessman would have done in similar circumstances, as required under Article 8(3) CISG. On the substance, the Court further observed that the plaintiff failed to prove the claimed losses of profit. The Court also pointed out that, under Articles 187 and 422 of the Brazilian Civil Code, the parties are to act as required by fairness and good faith when entering a contractual relationship. The judgment was partially reversed in order to exempt the buyer from the payment of any fines.Go to Case Table of Contents
APPLICATION OF CISG: No. Dicta reference to CISG (Arts. 8(3), 77)
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (Portuguese): Click here for text of case
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
Translation [*] by Luiz Gustavo Meira Moser [**]
FACTS OF THE CASE
Plaintiff [Buyer] requested from the Defendant [Seller] the recovery of the amount paid for the machine repairs, as well as loss of profits as a result of the breach of a contract for the sale of an electro-erosion machine.
[Buyer] alleged the breach of contract due to the lack of conformity of the goods since the machine failed to work. Furthermore, [Buyer] claimed for loss of profits and damages with respect to the repair of the machine
On its turn, [Seller] ascertained that the contract with [Buyer] was performed and that the [Buyer] lacked due care in handling the equipment and thereby produced the machinery failure.
ON THE ABOVE
The Court of First Instance rendered a decision partially favorable to the [Buyer], compelling the [Seller] to pay of the repairs of the machine.
[Buyer] appealed the decision, requesting compensation for the loss of profits.
The Appellate Court decided that the inaction of the [Buyer] to acquire or lease a similar machine to continue its activities shows that the Buyer disregarded its duty to mitigate the loss.
In this line of thought, the Court invoked art. 77 of the CISG and its reception in Brazilian Restatement of Law no. 169 (Enunciado do Conselho da Justiça Federal, proposed by Profa. Véra Jacob de Fradera), ascertaining that the party who relies on a breach must take measures to reduce the loss. In the case at hand, the [Seller] failed to mitigate its own loss.
Also, the Court held that the [Buyer] did not act as a reasonable businessman in the same circumstances, in reference to art. 8 (3) of the CISG.
Finally, the Court reinforced the doctrine that the confidence and expectations generated between the parties are guided by the contractual principle of good faith. The principle of good faith provides a basis for the expectation that contractual duties will be duly performed. It requires a model of conduct socially accepted by the parties at the time of the conclusion of the contract. It imposes a code of behavior on both parties, calling each to consider the interests of the other contracting party. These codes represent a collaborative component within the contractual relationship.
ON THIS GROUND
The Court partially reverses the judgment of the lower Court, in order to exempt the [Buyer] from payment of any fine and to redistribute the special costs.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff is referred to as [Buyer]; Defendant is referred to as [Seller].
** Luiz Gustavo Meira Moser is a member of the Brazilian Arbitration Committee, YIAG, Association Suisse d'Arbitrage (ASA), ICDR, International Law Association - Brazilian Committee and Queen Mary Translation Programme participant. Global Sales Law Project.Go to Case Table of Contents