Spain 14 July 2009 Appellate Court Madrid (Banderas de Portugal case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/090714s4.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Recurso de Apelación No. 61/2009
CASE HISTORY: 1st instance Juzgado de Primera Instancia e instrucción No. 1 de Colmenar Viejo 23 July 2008
SELLER'S COUNTRY: China
BUYER'S COUNTRY: Spain
GOODS INVOLVED: Banderas de Portugal
SPAIN: Madrid Provincial High Court  14 July 2009
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/147],
CLOUT abstract no. 1383
Reproduced with permission of UNCITRAL
A Spanish buyer and a Chinese seller concluded a contract for the manufacture of 198,000 flags of Portugal with specific characteristics (e.g. measurements, cutting system, inclusion of the signatures of the players from the Portuguese national football team), intended for a Portuguese end customer who had commissioned them for the occasion of the Football World Cup due to be held in Germany in June and July 2006, and for use as a promotional gift to accompany a publication. The price was paid in full by the purchaser. Subsequently, the buyer complained to the seller that the flags did not comply with the order.
Both parties filed expert reports on the condition of the goods. Both of the analyses conducted by the two experts on samples of the flags concluded that the flags presented defects such as marks on the fabric, frayed edges, fabric cut in a serrated and non-uniform manner, defective printing of players’ signatures, unsatisfactory designs of hearts and coat-of-arms of Portugal, and colour bleeding. The differences in the expert reports stemmed mainly from the fact that the seller’s expert had assessed the fitness for purpose of the goods, since the goods had been commissioned to serve as promotional gifts to accompany a publication and were of very low cost. The buyer’s expert, on the other hand, concluded that the flags were not fit for sale, although it was recalled that they had not been intended for sale to the public but for free distribution (although this did not imply admissibility of defective goods).
The Court examined whether there had been a fundamental breach on the part of the seller in the light both of article 25 of the Convention and of the doctrine established in the Supreme Court’s Judgement of 17 January 2008. The Court took the view that the assessed defects in the flags produced and delivered by the seller, taking into consideration the purely promotional purpose of those goods, which were intended as promotional gifts to accompany a publication for general retail, as well as their low cost (acknowledged by both experts), did not allow a finding of fundamental or absolute breach of the obligation to deliver under article 25 of the Convention, but did allow a finding of partial breach which, while not exempting the buyer from meeting his obligation to pay, would entail a reduction in the agreed price.
As to whether the buyer had considered and reported the lack of conformity in accordance with articles 38 and 39 of the Convention, the Court considered the circumstances of the case and the doctrine established in the judgement of Pontevedra Provincial Court of 19 December 2007 (CLOUT 849).
First, the goods were delivered in three phases starting from 15 April 2006, and the first written complaint by the buyer was made on 23 June 2006, approximately two months after the first delivery.
Second, pursuant to articles 38 and 39 of the Convention, the Court considered that, although the goods were non-perishable, other circumstances were present which, while less urgent, prompted expedited distribution, and therefore examination, of the goods, as the Portuguese flags, bearing the printed signatures of the Portuguese national football team players, had been manufactured to celebrate the Football World Cup in Germany in June and July 2006.
Third, the goods were intended to be examined not by the buyer directly but by the end customer in Portugal; and, as is clear from the correspondence between the parties from that day, 23 June, onwards, the buyer managed the shipment of goods to the customer without being able adequately to examine the condition of the goods, limiting itself initially to receiving complaints from the end customer and to examining the condition of the flags for itself only upon the return thereof.
Fourth, even had the buyer been able to examine the goods itself upon receipt, the conclusion would have been the same: as the goods had been received in three phases (in the second half of April and in May 2006) and a little over two months had elapsed between the first shipment and the complaint to the seller on 23 June 2006 (following examination of the goods), it must be concluded that the buyer complied with the duty to report any defects within a reasonable time after examining the goods within as short a period as was practicable.
1. Previously heard by Colmenar Viejo Court of First Instance and Investigation No. 1, 23 July 2008.
2. Judgement available at: <http://www.cisgspanish.com/jurisprudencia/espana/tribunal-supremo-17-enero-2008/>, English translation at: <http://cisgw3.law.pace.edu/cases/080117s4.html>.
3. Judgement available in Spanish at: <http://www.cisgspanish.com/jurisprudencia/espana/audiencia-provincial-de-pontevedra-19-diciembre-2007/> and in English translation at: <http://cisgw3.law.pace.edu/cases/071219s4.html>.
APPLICATION OF CISG: [-]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
CITATIONS TO OTHER ABSTRACTS OF DECISION
Spanish: CISG-Spain and Latin America website <http://www.cisgspanish.com/seccion/jurisprudencia/espana/?provincia=Madrid>
CITATIONS TO TEXT OF DECISION
Original language (Spanish): CISG-Spain and Latin America website <http://www.cisgspanish.com/jurisprudencia/espana/audiencia-provincial-madrid-14-julio-2009/>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
PORTUGESE FLAGS: A COMMENTARY 
FACTS AND PROCEDURAL HISTORY
Portuguese Flags  arose from a dispute between a Spanish buyer (Sosa Dias, S.A.) and a Chinese seller-manufacturer of specialty flags (Changzhou Quality Flag Industry Co. Ltd). The two parties had concluded an agreement valued at nearly EUR 42,000 for the sale of 198,000 Portuguese flags, which were specifically produced for the 2006 FIFA World Cup in Germany and intended to be gifted to the public. The buyer made a subsequent arrangement to re-sell the flags to its Portuguese client for almost EUR 90,000, which the Portuguese entity paid promptly and in full. However, upon receiving the flags, the buyer’s customer discovered what both parties later agreed to be defects in the goods, which ranged from poor knitting to defective prints of the Portuguese coat of arms. The Portuguese client reportedly kept 40,800 of the flags and rejected 118,000; it never received the remaining presumably defective flags, and Sosa Dias was thus left with 157,000 flags in its warehouse. By that point, the Sosa Dias had yet to pay EUR 27,600 of the contract price, taking the position that the goods lacked conformity under the CISG.
The parties disagreed that the flags’ defects justified the buyer’s non-payment, and Changzhou filed suit with the Court of First Instance (no. 1-Colmenar Viejo) in pursuit of the stated sum. The trial court decided in favor of the claimant Changzhou, basing its decision on interpretations of articles 25, and 38 and 39 of the CISG. It reasoned that because the flags were low-cost and items to be gifted, Changzhou’s provision of albeit defective goods did not cause a fundamental breach under article 25 of the CISG. Accordingly, the buyer had no right to avoid the contract on the basis of its lack of conformity claim. Moreover, the lower court added, Sosa Dias forfeited its lack of conformity claim by neglecting to examine the flags as soon as was practicable under article 38 and by failing to notify Changzhou of their defects "within a reasonable time", as required by article 39 of the CISG. On appeal, the Provincial Court of Madrid addressed the questions of fundamental breach and the buyer’s duties of examination and notice.
DID THE SELLER COMMIT A FUNDAMENTAL BREACH UNDER ARTICLE 25 OF THE CISG?
The Provincial Court of Madrid essentially affirmed the trial court’s intent-focused inquiry, determining that Changzhou did not commit a fundamental breach under article 25 of the CISG by supplying Sosa Dias with defective flags in advance of the 2006 FIFA World Cup. The Court was apparently persuaded by the seller’s expert testimony, which emphasized that the goods served their purpose as mere gifts rather than items to be re-sold in a market setting. The Court inferred that the buyer expected low-quality merchandise, having knowingly ordered goods produced at a price of around 21 Euro cents per flag. In clarifying the applicable legal standard, the Provincial Court quoted a 2008 Spanish Supreme Court decision  that distinguished a fundamental from a non-fundamental breach. Having found that the present lack of conformity was capable of being remedied through a reduction in the contract price, the Provincial Court classified the breach as non-fundamental.
While the seller’s breach was not fundamental, Sosa Dias nevertheless had a remedy claim under the CISG. When addressing this issue, the Court interestingly deferred to a cash settlement proposal made by Changzhou (and rejected by Sosa Dias) in the course of the parties’ private negotiations, and characterized that sum as a remedy "reasonable under the law." In so holding, the Court did not cite to any CISG article or doctrine, though it was likely alluding to article 50’s price reduction mechanism. Although it is well established that "parties are free to agree on a specific way to calculate the reduction in value" under the article 50 framework, it is not clear why the Court would defer to a failed settlement offer, however much such an amount promoted the Spanish court’s conceptions of justice or fairness.
DID THE BUYER SATISFY ITS DUTIES OF EXAMINATION AND NOTICE UNDER ARTICLES 38 AND 39 OF THE CISG?
Having affirmed the lower court’s interpretation of article 25, the Provincial Court reached an opposite conclusion with respect to articles 38 and 39, finding that Sosa Dias did fulfill its duties of examination and notice given the circumstances. The Provincial Court examined the Appellate Court of Pontevedra’s decision of 19 December 2007, which set forth a stringent presumptive time period for complying with articles 38 and 39 in the case of highly perishable goods (frozen crabs in plastic containers). The Pontevedran court’s limit of "a several days to a few weeks at most" was found inapplicable to the facts presented by Portuguese Flags, which involved non-perishable items. The Court found it reasonable under the circumstances that 2 months elapsed between Changzhou’s first shipment and Sosa Dias’s first notice. Here, Sosa Dias was aided by the facts that it did not open the goods but immediately forwarded them to its purchaser, and that the flags were delivered in multiple shipments, thus expanding the parameters of reasonableness.
In this decision the Court did not clearly address the relationship between articles 38 and 39 for the purpose of determining when time for the buyer’s notice requirement began to run. It is a prevailing view within CISG jurisprudence that the buyer’s time limit for examination under article 38 and its reasonable period for giving notice under article 39 represent two distinct standards, with the latter period commencing after the former has run. The Madrid Court, however, appears to conflate the two standards by finding that the lapse of two months between the first shipment to the buyer and the first shipment to seller did not preclude the buyer from satisfying both the duties of examination and notice. While the Court justifiably refused to apply the restrictive presumptive period set forth by the Pontevedra court, it provided no guidance for future litigants as to its methodology, nor did it cite to any legal authority to support its finding that the aforementioned two-month period was timely.
THE ROLE OF AUTONOMOUS INTERPRETATION
For the CISG to acquire a greater foothold in Spain, the country’s judiciary must play a greater role in establishing clear jurisprudence that is consistent with international standards of interpretation. This is not least because as interpreters of the CISG, Spanish judicial decision-makers are duty-bound to give effect to the treaty’s "international character and to the need to promote uniformity in its application". In this regard, Dr. Martínez Cañellas of the University of the Balearic Islands writes of the imperative to consider the doctrine and jurisprudence of foreign courts and international arbitration tribunals as a means of ensuring the CISG’s fundamental objectives of uniformity and predictability in global sales law.
When addressing questions necessitating the interpretation of CISG articles, the Provincial Court of Madrid at no point cited to a foreign or international arbitral judgment or decision. In determining the buyer’s damages under the contract, the Court could have examined relevant foreign jurisprudence on the calculation of price reduction under article 50 of the CISG; instead the Court cryptically referred to the parties’ private negotiation efforts in determining an appropriate remedy. When addressing the buyer’s duties of examination and notice, the Court had at its disposal an array of foreign judgments providing guidance on the respective time limits set forth by articles 38(1) and 39(1) with respect to non-perishable merchandise; instead, the decision cited to a Spanish sister court which addressed an entirely inapplicable set of facts and considerations.
A potentially deeper concern is that the Portuguese Flags case appears to reflect a systemic Spanish disregard for foreign doctrine and jurisprudence. Of the 15 Spanish Supreme Court decisions interpreting the CISG that are publicly available at Pace Law’s CISG Database, in no case does the highest court of Spain go beyond a cursory acknowledgement of article 7’s international character language. Dr. Martínez notes that foreign judgment consideration is not an impossible task for Spanish courts, given the wealth of free and readily available information and jurisprudence  provided through, inter alia, the University of Carlos III’s electronic database, and the Spanish language CLOUT  and UNILEX  services. A shift towards the use of foreign and international judgments and decisions would not only enhance the legitimacy and Spanish CISG jurisprudence, but it would also align the country’s judiciary with the core global objective of realizing a uniform international sales law.
1. This commentary was drafted by Yuriy S. Vilner, a J.D. graduate of the University of Pittsburgh School of Law and LL.M. graduate of the Universidade Católica Portuguesa Global School of Law. Any views or opinions expressed herein are those of the author and do not necessarily reflect those of any other individual or institution.
2. Spain, 14 July 2009, Provincial Court of Madrid (Portuguese Flags case), original text at: <http://cisgw3.law.pace.edu/cases/090714s4.html>.
3. Spain, 17 January 2008, Supreme Court (Used automobiles case, English language translation at: <http://cisgw3.law.pace.edu/cases/080117s4.html.
4. Spain, 19 December 2007, Appellate Court of Pontevedra (Frozen and cooked seafood case), English language translation available at: <http://cisgw3.law.pace.edu/cases/071219s4.html>.
5. See, UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sales of Goods (Special Issue 2012), at 180-81 n.191, citing inter alia CLOUT case No. 1057 [Oberster Gerichstof, Austria, 2 April 2009], English translation at: <http://cisgw3.law.pace.edu/cases/090402a3.html>; Tribunale di Forli, Italy, 16 February 2009, English translation at: <http://cisgw3.law.pace.edu/cases/090216i3.html>; Handelsgericht Aargau, 26 November 2008, English translation at: <http://cisgw3.law.pace.edu/cases/081126s1.html>.
6. See, CISG Article 7(1); Secretariat Commentary Guide to CISG Article 7, available at: <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-07.html>
7. Anselmo M. Martinez Canellas, Spanish and International Judicial Interpretation of CISG (La Interpretación Jurisprudencial De La Convención De Viena Sobre Compraventa Internacional De Mercaderías - Especial Consideración a La Jurisprudencia Española) (October 31, 2008). Global Jurist, Vol. 8, No. 3, 2008 at 3-4. Available at SSRN: <http://ssrn.com/abstract=1147388>.
8. See, UNCITRAL Digest, at 243-44 n.17, 22, citing inter alia CLOUT case No. 56 [Canton of Ticino Pretore de Locarno Campagna, Switzerland, 27 April 1992]; CLOUT case No. 175 [Oberlandesgericht Graz, Austria, 9 November 1995]; CLOUT case No. 825 [Oberlandesgericht Koln, Germany, 14 August 2006].
9. See, id., at 180-81 n. 178, 189, 191, citing inter alia Landgericht Berlin, Germany, 13 September 2006, English translation at: <http://cisgw3.law.pace.edu/cases/060913g1.html>; CLOUT case No. 1057 [Oberster Gerichstof, Austria, 2 April 2009], English translation at <http://cisgw3.law.pace.edu/cases/090402a3.html>; CLOUT case No. 867 [Tribunale di Forli, Italy, 11 December 2008], English translation at <http://cisgw3.law.pace.edu/cases/081211i3.html>.
10. As listed at
11. Martinez at 3-4 n. 11.
12. Available at <http://turan.uc3m.es/uc3m/dpto/PR/dppr03/cisg/>.
13. Available at <http://www.uncitral.org/uncitral/es/case_law.html>.
14. Available at <http://www.unilex.info/dynasite.cfm?dssid=2376&dsmid=13354&x=1>.Go to Case Table of Contents
Case text (English translation) [second draft]
The CISG Translation Network
Date of Decision: 14 July 2009
Translation [*] by Yuriy S. Vilner [**]
Appeal initiated before Section 14 of the Provincial Court of Madrid from ordinary proceedings 506/2007 in the Court of First Instance of Colmenar Viejo, related to roll 61/2009. The appellant, [Buyer], is represented by attorney Ms. IRENE ARANDA VARELA, and the respondent, [Seller], which disputes the claim in relation to this proceeding, is represented by attorney Ms. CAYETANA DE ZULUETA LUCHSINGER. The magistrate in this case is the honorable PALOMA GARCÍA DE CECA BENITO.
FIRST: The Court of 1st Instance of No. 1 Colmenar Viejo on 23 July 2008 handed down its decision, part of which is worded as follows: "Having adjudicated the claim filed by Mr. Pomares Ayala as attorney and representative of [Seller] against [Buyer] represented by attorney Mr. Largo Lopez, I shall and do indeed order the [Buyer] to pay to the [Seller] the sum of €27,136.07 plus costs from the date of the claim’s filing, including interest and legal fees.
That by dismissing the counterclaim filed by attorney Mr. Largo Lopez court on behalf of the [Buyer] against the [Seller], represented by attorney Mr. Pomares Ayala, I shall and do indeed absolve the [Seller] on the terms most favorable to it, and hereby expressly order the [Buyer] to assume costs".
SECOND: Having been notified of the abovementioned decision the [Buyer], filed an appeal, which was opposed by the [Seller]. The proceeding was ultimately referred to this Court pursuant to Art. 457 of the LEC.
THIRD: Pursuant to its authority, this Section deliberated, voted and decided on 19 May 2009.
FOURTH: All rules of procedure have been duly followed in relation to the present proceedings, except for the time limit to render a decision, due to the backlog of pending matters that burden this Section.
FIRST: The lawsuit filed by [Seller] against [Buyer] consisted in a claim of € 27,602.87, which arises from the parties’ commercial relationship, whereby the respondent, between May 24 and July 10 of 2006, placed with the [Seller] a total of eighteen orders for the production of a number of flags, which were duly received by the [Buyer] in exchange for the total sum of € 41,951.07, towards which [Buyer] has made partial payments with the remaining sum being the amount herein claimed.
The [Buyer] contested the claim and filed a counterclaim, first requesting that the amount of € 766.80 be discounted from the total claim on the basis of two credit payments then pending and an unaccounted payment. It adds that the [Seller]owes an amount greater than the [Buyer], due to the credit arrangement described in the initial claim. This arises from its order on April 1, 2006 for the production of 198,000 Portuguese flags having unique characteristics (dimensions, styles, autographs of Portuguese football players, etc.) and bound for a final Portuguese client for the price of € 89,542.64, which the latter paid in full. It was subsequently determined that the flags supplied were defective and did not comply with the agreed upon terms, as noted in the expert report of industrial engineer Mr. Cesar, who concluded that each of 1,572 randomly examined flags had one or several defects. Given that the [Buyer] stored at the [Seller‘s] disposition a total of 157,200 flags, the latter is requested to provide compensation in the amount of € 91,176 (including the negotiated price and customs duties), plus € 3,700 for the cost of the expert report, resulting in a total of € 94,876, which should be subtracted from the [Seller’s] claim, resulting in a positive balance for the [Buyer] of € 68,039.93, as set forth in its counterclaim.
SECOND: The decision handed down in the first instance weighed the evidence before it, notably the expert reports prepared at the request of the parties, who agree that the Portuguese flags ordered were defective, and noted that according to the [Seller’s] report, the flags served their intended purpose despite their defects, given that the flags were low cost and were to be used as promotional gifts by a publication. It declared undisputed that The [Buyer] first gave notice of the flags’ defective character on 23 June 2006, claiming that its end Portuguese client rejected 118,000 of the flags; there exists no evidence of previous claims of a lack of conformity. It was also declared undisputed that The [Buyer] had retained 157,200 flags in its warehouse, although it was not established that the Portuguese client indeed rejected the goods, or if the latter had initiated legal proceedings against The [Buyer] on the basis of the defective flags. The court applied the United Nations Convention on Contracts for the International Sale of Goods [CISG], executed in Vienna on 11 April 1980, and cited as jurisprudence the Supreme Court’s (Tribunal Supremo) decision of 17 January 2008, which analyzes the buyer’s duties to examine the goods as soon as practicable, and where appropriate give notice of their defects within a reasonable time, which is within days or at most a few weeks. This is unlike what has occurred in this case, as the goods were not examined and their defects were not reported until after more than two months, leading to legal unpredictability and inconsistency with serious consequences for economic operators, given time’s transformative effects on a claim. In this case, the passage of time has created a doubt as to whether the 118,000 flags were indeed rejected for their defects, or whether the commercial operation was abandoned altogether, given that the flags were ordered for the purpose of the World Cup taking place in Germany from June to July of 2006. For the foregoing reasons, and in applying the CISG, the Court dismissed the counterclaim filed by The [Buyer], and granted the original claim in the amount of € 27,137.07, with costs to be assumed by the [Buyer].
THIRD: Against this record The [Buyer] initiates an appeal based on the arguments considered below, though not in the order in which the appellant submitted them. Beginning with the [Seller’s] obligation to deliver the flags which were properly produced in accordance with the agreement. The [Buyer] argues that the flags had relevant defects as demonstrated by the expert evidence, which was allegedly erroneously undervalued in the decision. After addressing whether the duty to deliver the goods was satisfied, we will analyze whether The [Buyer] fulfilled its corresponding obligations to examine the goods and to give notice of their defects in the manner prescribed by Arts. 38 and 39 of the CISG.
As evidenced by the original decision, the two party-appointed experts agree that the flags under contract had manufacturing defects, and from a reading of both reports with their respective clarifications at trial, we conclude that the 157,200 flags that remain in The [Buyer]’s warehouse had defects such as stains on the fabric, frayed edges, irregular and asymmetrical knitting, smeared ink, defective prints of the players’ autographs, heart images, and the Portuguese coat of arms. The expert reports essentially differed in that the [Seller's] expert, Mr. Josep M. Miró i Rufa, emphasized the suitability of the goods in light of their purpose, given that they were the promotional gifts of a publication and were low cost products. On the other hand, the [Buyer’s] expert, Mr. Cesar, concluded that the flags were not of adequate quality for sale, although the merchandise was not intended to be sold, but was to be distributed to the public at no cost (which did not affect the goods’ acceptability).
FOURTH: In view of the expert findings, we must assess whether the [Seller] satisfied its obligation to deliver the goods under Art. 25 of the CISG, which provides that:
"A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."
An interpretation of this article in conjunction with related CISG provisions was the subject of the Supreme Court’s (Tribunal Supremo) decision of 17 January 2008, which distinguished a fundamental breach of contract from one that is non-fundamental for damages purposes. That decision establishes:
"The structure of the Convention, which embodies the inspiring principles of common law, distinguishes a fundamental breach from a failure that might be described as non-fundamental. A non-fundamental breach either does not produce significant injury, or results in injury that can be remedied with an award of damages or a reduction in the original contract price (Articles 25, 45, 46, 47, 48, 49, 50 and 51).
The concept of fundamental breach has no exact translation in the law of Continental Europe. Originally derived from Anglo-Saxon law, it evolved from a contractual responsibility system that emphasizes a criterion for an objective form of imputation, while mitigated by exceptions rooted in domestic law recognizing the cases of fortuitous events and force majeure, within a parameter of reasonableness. (Article 25). The conventional system incorporates the obligations of the seller in delivering the goods (Articles 31, etc.), warranty (Article 46)…"
The obligation to deliver the goods under Article 30 is detailed more specifically in Article 35, which states, in the first paragraph, that the seller must deliver goods whose quantity, quality, and type correspond to the stipulations in the contract, and the goods must be packaged in the manner specified by the contract.
FIFTH: In applying the abovementioned doctrine to this case, we find that the defects of the flags produced and supplied by the [Seller], considered in light of their intent to be used as promotional gifts attached to publications sold to the public, and further considering their low cost nature (conceded by both experts), do not support the finding that there was a fundamental or absolute breach of the obligation to deliver under Art. 25 of the CISG, but rather that the breach was non-fundamental and does not absolve the [Buyer] of its payment obligations, but rather necessitates a reduction in the contract price.
The partial or incomplete satisfaction of the duty to deliver is limited to 157,200 flags, since the remaining flags were retained by the final customer as according to the [Buyer], whose payment obligation is calculated based on the total price assigned to the order, or €89,542 for 198,000 flags; accordingly, the price of the defective flags amounts to €71,091.
To calculate the compensation to be received by the [Buyer],given the extent of noncompliance resulting from defects in the flags, we find it adequate to accept the solution provisionally reached by the parties during their negotiations deriving from this precise circumstance. In exchanges between the two parties between 26 June and 20 November 2006, the [Seller] made a final proposal, however unsuccessful, to pay the [Buyer]a total of € 43,000, adjusted for the impairment arising from the circumstances heretofore described, if the defects of the flags substantially diminished their acceptability as promotional gifts.
We find it reasonable under the law to order compensation in the same terms reached at negotiation as to the total price, without adding to it the import duties. For all these reasons, given that the [Buyer]has paid the full contract price for the delivery of 198,000 flags, the [Seller]must refund to the [Buyer] the said sum of € 43,000. The foregoing leads us in principle to partially accept the counterclaim, without prejudice to an assessment of whether the [Buyer], satisfied its duties to examine the goods and to report any defects harmful to it.
SIXTH: As already established, corresponding to the [Seller’s] assumed obligation to deliver the goods, the CISG imposes upon the [Buyer] the duties to examine the delivered goods and to report any possible defects observed thereupon, as according to Arts. 38 and 39 of said text. The decision on appeal dismissed the counterclaim raised by the [Buyer], finding that said entity disregarded its duties to examine the goods and give notice of their defects as required by Arts. 38 and 39. The [Buyer] submits that the decision reflects an erroneous interpretation of these requirements.
Art. 38 states that:
"(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination."
And Article 39 provides that:
"(1) 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.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee."
In short, the buyer may only advance a claim of lack of conformity of the goods if it examines them "within as short a period as is practicable", and if it notifies the seller of the lack of conformity "within a reasonable time", in addition to satisfying the accompanying textual requirements. In interpreting these requirements, the Supreme Court declared in its 17 January 2008 decision that:
"The delivery obligation in accordance with Article 35(2) of the Convention is accompanied by the buyer's duty to express agreement or disagreement with the goods. The seller possesses the correlative right to require an earlier manifestation of agreement by the buyer. Article 38 stipulates that the buyer must examine the goods or have the goods examined as soon as practicable under the circumstances. In the case of transport, such examination may be postponed until the goods reach their destination. Article 39(1) states that the buyer loses the right to invoke lack of conformity of the goods unless buyer notifies the seller of the specific nature of the lack of conformity within a reasonable time after the defects have or should have been discovered. Even if the buyer fails to do so, the buyer may pay a reduced price in accordance with Article 50, or demand compensation for damages that are unrelated to lost profits, if buyer can show a reasonable excuse for having failed to communicate with the seller (Article 44). In any event, lack of conformity must be invoked within two years from the date on which the goods were actually received by the buyer, unless the period is inconsistent with a contractual guarantee period (Article 39(2))."
SEVENTH: This decision assesses whether the [Buyer]fulfilled its obligations to examine the goods and provide notice of any defects, with due reference to the Appellate Court of Pontevedra’s (S.A.P. Pontevedra) decision of19 December 2007, which does not automatically apply to this case. The Appellate Court of Pontevedra declares that:
"The Buyer is under a duty to examine the goods as soon as practicable, and where appropriate, complain of their effects within a reasonable time. In this case there was neither an examination nor a complaint within a reasonable time that took place within days or at most a few weeks. But never are time periods with the soonest being nearly two months, and the longest being in excess of five months acceptable, without accounting for written communication stating clearly the nature of the lack of conformity, adding another month to the above periods.
A fixed determination of reasonable time comports with principles of legal certainty, whereas commercial relations should not be conducted in the absence of such a definition, which leads to its questioning and imposition of enlarged time periods with serious consequences for economic operators. Fixing a maximum period of two years per paragraph two, Art. 39 of the Convention does not present doubts as to the extent the requirement is applicable to all types of goods, with the only exclusions contained at Art. 2 of the text; therefore all goods are included, from simple and perishable to durable and complex goods that may require extended periods, as may be the case with complex equipment. This does not mean that, based on the specific circumstances, the complaint must be assessed as to whether it was made within a reasonable time, which also aims at consolidating unreported claims and preventing the introduction of transformative elements into a claim due to the passage of time...
The norms of the Commercial Code may not be relied upon here, as jurisprudence clearly sets forth the primacy of the Convention application (as an extension of the principle of inviolability of Treaties, as reiterated by the Jurisprudence and declared at Art. 96.1, second sentence of the Spanish Constitution), and such law may only be referred to in questions not expressly settled (Article 7.2 of the United Nations Convention of 11 April 11 1980, made in Vienna).
Allowing ample time, with a limit of two years in cases such as this one, besides the mentioned drawbacks, could leave a party with the power of fulfilling the contract, creating a scenario prohibited by CC Art. 1256, whereby the goods are exclusively controlled by one party without any room for intervention from the other".
However, a complete reading of the Decision reveals that what is at issue is a highly perishable good: frozen crab in plastic containers, whose poor condition is simply detected by the smell arising from deterioration or putrefaction and verifiable by opening individually containers. There, the buyer did not examine the goods until after more than four months after the first shipment, more than two months since the second shipment and one month and twenty days after the third shipment, after which it took yet another month (more than five months since the first shipment) to communicate the defect to the seller.
EIGHTH: In this case, the goods were delivered in three phases starting from April 15, 2006, and the [Buyer]’sfirst written complaint occurred on June 23, 2006, or approximately two months after the first delivery.
The time period for examining the goods must be calculated "[given] the circumstances" (Art. 38). Although this case did not involve perishable goods, other reasons of a less urgent character necessitated the goods’ prompt distribution, given that the Portuguese flags, which referenced the Portuguese national football team, were produced specifically for the World Cup held in Germany in June and July of 2006.
On the other hand, the goods were not due to be examined directly by the [Buyer], but were rather bound for its end Portuguese client. As is clear from the correspondence between the parties on June 23, the [Buyer] delivered the goods to said customer without being able to properly examine them, hence limiting itself to receiving complaints from the customer and not being aware of the defects until after the flags were returned.
In any event, and even if the [Buyer] could examine the goods at the time of receipt, the conclusion would be the same: the goods were received in three phases (in the second half of April and May 2006), and just over two months elapsed between the first shipment and the complaint to the [Seller] on June 23, 2006 (with prior examination of the goods). It must thus be concluded that the [Buyer] satisfied its duty to give notice of the defects within a reasonable time after having examined the goods as soon as was practicable. This conclusion is fully in line with the reasoning of the earlier mentioned decision of the Appellate Court of Pontevedra (although in that case the time period of more than five months for highly perishable goods proved excessive).
NINTH: The [Buyer’s] claim (i.e. the full claimed amount) expresses an entitlement to €3,700 for the cost of preparing an expert report. This request must be rejected because pursuant to Art. 241 L.E .C., rights to experts entail covered court costs, and are therefore subject to Art. 394 L.E .C.
TENTH: Finally, the [Buyer] challenges the order imposing upon it the payment of court costs.The costs accrued from the original claim must be imposed on the [Buyer], given that the award of € 27,602.87, a now ratified decision, ordered the [Seller] to pay € 27,136.07, which substantially satisfies the claim. The Supreme Court in its 9 June 2006 decision established with respect to the system of remedies then with reference to Act. 523 L.E.c. 1881, now at Art. LE 394. C.,:
"Court-based doctrine, evidently inspired by remedy and equity principles, as a rule of legal application supported by strong practical reasons, complements the system of the so-called "substantial satisfaction" doctrine, which in theory could be classified as the existence of a quasi-victory present only where there is a slight difference between the claimed and obtained."
Debt compensation to be applied to said amount (€ 27,136.07), on the basis of the findings of this decision (regarding the mutual order of the € 43,000 payment), does not impede the success of the original claim by virtue of a judicial determination, not because the offsetting amount is not liquid and therefore compensable. Accordingly, the payment obligation claimed by the [Seller] was expired, liquid and payable prior to the filing of the complaint. Moreover, considering that the partial satisfaction of the appeal results in the partial satisfaction of the counterclaim, it is not appropriate to order payment for the costs incurred from filing the counterclaim, nor from those incurred in this appeal (Arts . 394 and LE 398. c.). With reference to the cited articles and others of general and specific application.
This Court partially upholds the appeal made by Mr. Largo Lopez on behalf of The [Buyer] against the decision of the Court of First Instance 1 of Colmenar Viejo, under number 506 of 2007; we must and do reverse in part the decision, to the extent of granting the counterclaim filed by said entity against the [Seller] , then represented by attorney Mr. Pomares Ayala, and hereby order the [Seller] to pay forty-three thousand euros (€ 43,000), plus accrued statutory interest until full payment, without prejudice to the compensation appropriate to substantially satisfy the original claim. We affirm the remaining findings of the decision on appeal, and do not expressly order payment of the costs incurred neither from the counterclaim nor by those incurred in this appeal.
Be notified, when serving this decision, of the provisions of Article 248.4 of the LOPJ.
This is our Decision, which we declare, order and sign.
PUBLICATION. Once signed the above ruling is handed to this Secretariat for its due notification, publishing it as legally established, and a certified copy of the ruling shall be handed out to be adjoined to the docket. I hereby certify.
PUBLICATION: On the same day the previous decision was read and published by the Honorable. Mr / s. Magistrate who issued it in a public hearing. I attest.
PROCEEDING: Notice of this resolution shall be provided. I attest.
* All translations should be verified by cross-checking against the original text.
** Translation prepared by Yuriy S. Vilner, a J.D. graduate of the University of Pittsburgh School of Law and LL.M. graduate of the Universidade Católica Portuguesa Global School of Law.Go to Case Table of Contents