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CISG CASE PRESENTATION

Austria 9 November 1995 Appellate Court Graz (Marble slabs case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/951109a3.html]

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

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Case identification

DATE OF DECISIONS: 19951109 (9 November 1995)

JURISDICTION: Austria

TRIBUNAL: OLG Graz [OLG = Oberlandesgericht = Provincial Court of Appeal]

JUDGES(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 6 R 194/95

CASE NAME: Austrian case citations do not generally identify parties to proceedings

CASE HISTORY: 1st instance LGZ Graz 28 June 1995 [reversed]

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Marble slabs


Case abstract

AUSTRIA: Court of Appeal Graz 9 November 1995

Case law on UNCITRAL texts (CLOUT) abstract no. 175

Reproduced with permission from UNCITRAL

The plaintiff, an Italian seller, sold marble slabs labelled "Giallo Veneziano" to the Austrian [buyer]. The [buyer] alleged that the marble slabs delivered did not conform to the contract and refused to pay the purchase price (article 35 CISG).

In remanding the case to the court of first instance, the Court of Appeal held that article 9(2) CISG, save a limited number of exceptions, could not be interpreted as barring the application of national or local usage in interpreting a contract even though no mention of such usage was made in the contract itself. Accordingly, a seller who has been engaging in business in a county for many years and has repeatedly concluded contracts of the type involved in the particular trade concerned is obliged to take national usage into consideration.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 9(2) ; 35 ; 50 ; 76

Classification of issues using UNCITRAL classification code numbers:

9B [Implied agreement on international usage: national or local usage not barred in interpretation of contract];

35A ; 35B3 [Quality, quantity and description required by contract; Quality of goods held out as sample or model];

50A [Buyer's right to reduce price for non-conforming goods];

76B [Damages based on current price: determined at time of delivery according to the market price at the place of delivery]

Descriptors: Usages and practices ; Conformity of goods ; Reduction of price, remedy of ; Damages

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Editorial remarks

Usages and practices. "[The] court held that Article 9(2) ‘could not be interpreted as barring the application of national or local usage in interpreting a contract.’ This is a contradiction of Article9(2)’s requirement that any such usage be widely known in international trade. The court’s decision is reconcilable with the express mandate in Article 9(2) given the court’s emphasis on the fact that the seller had done business in the country of the local usage for many years and, thus, could not have been unaware of the usage. Instead of declaring national and local usages to be generally applicable, the court should have crafted an exception based upon the facts of the case. In short, a more specific default rule would have made local usage available to the court if the adverse party knew of its existence and knew there was no conflicting international usage." Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at 434-435

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Citations to other case abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=370&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=370&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Honnold, Uniform Law for International Sales (1999) 126 [Art. 9 (practices established between parties)], 129 [Art. 9 (standards for usage)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 4-4 n.53; §: 6-13 n.121; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 9 para. 18 Art. 50 paras. 8, 9, 15; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 250 et seq.

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court (Oberlandesgericht) Graz
9 November 1995 [6 R 194/95]

Translation [*] by Ruth M. Janal [**]

Translation edited by Todd Fox [**]

The Oberlandesgericht of Graz is acting in its capacity as a Court of Appeals and is represented by the President of the Chamber, Dr. Schweighofer, and the Judges of the Court Dr. Schmeid and Dr. Koczett.

In the case of Plaintiff [seller], 37O20 Volargne di Dolce Verona, Italy, represented by [...], attorneys in Salzburg against the Defendant [buyer], Petersgasse 73, 8010 Graz, represented by [...], attorneys in Graz, regarding an amount of Italian Lira [ItŁ] 5,050,241.70 and secondary claims, following the [seller]'s appeal against the decision of the Landesgericht [District Court (Court of First Instance)] of Graz of 28 June 1995, 13 Cg 321/93a-55,

The Court has conducted an oral hearing and has come to the following decision:

The appeal is justified. The appealed decision will remain standing with respect to:

The remainder of the decision - that is, the part regarding the claim for ItŁ 5,050,241.70 plus 5% interest from 20 January 1992 and the decision on costs - is repealed. To that extent, the case is remanded to the Court of First Instance for a new hearing and decision.

The cost of the appellate proceeding is to be treated as further costs of the proceedings.

REASONS FOR THE DECISION

The parties entered into a contract for the sale of marble slabs (correctly: granite slabs) with the description "Giallo Veneziano" (also called "Giallo Venezia"). The [buyer] subtracted an amount of ItŁ 11,278,874.- from the overall purchase price of ItŁ 33,668,278.- for alleged defects of the goods. The [seller] demands payment of the remaining purchase price plus 15% interest from 20 January 1992 "in Austrian Shillings at the exchange rate of the Vienna stock market (exchange) Milan on the day payment was due."

[Buyer's submissions]

The [buyer] requests that the claim be dismissed. [Buyer] submits that it was entitled to subtract the sum that is the issue of the claim because the delivered goods were of inferior quality. The goods were supposed to have a yellow ground color, as is indicated by the description "giallo" (= yellow). [Buyer] alleges that the order was made in reference to the marble blocks shown to the [buyer]'s manager, which possessed the desired yellow ground. However, the delivered slabs were not golden-yellow, but of a pink color. This marble (what is meant is: these granite slabs) is of inferior quality and is being sold at a lower price, generally cheaper by a third to one half. [Buyer], however, had ordered "yellow Giallo Venziano" of prime quality. A notice of the said lack of conformity had been given. The difference in quality entitled the [buyer] to the price reduction.

In the course of the proceedings, the [buyer] no longer based its price reduction on the contention that slabs of inferior quality had been delivered. Instead, the [buyer] solely relied on the fact that at the time the order was effected, the [buyer] had been given a sample of the desired color and that while the [seller] had promised to deliver stones of this yellow color, the delivered stones had not corresponded to the explicitly agreed color.

[Seller's submissions]

The [seller] disputes that an order according to a sample had been made. [Seller] submits that it was not until a month after [buyer]'s complaint that [buyer]'s manager had appeared with a photograph and a slab and had declared that the delivered goods did not correspond to the color therein. [Seller] claims that it did deliver the ordered quality.

[Considerations of the Court of First Instance]

The Court of First Instance has, in the appealed decision, ordered the [buyer] to pay ItŁ 6,228,232.03 (correctly: ItŁ 6,228,632.30) in Austrian Shillings, and dismissed the [seller]'s further claim for ItŁ 5,050,241.70. The Court held that the [buyer] ordered granite stone of the description "Giallo Venziano" according to the color sample presented by the [buyer] at the [seller]'s place of business in Volargne di Dolce [Italy]. The desired golden-yellow color was clearly visible on the color sample. The goods delivered possessed a pink color and did not correspond to the color sample. There was no difference in quality. The considerable difference in color entitled the [buyer] to a price reduction ranging from 5 to 25%. The [buyer] was able to sell stone slabs with a golden-yellow shade at a price which was 20% higher.

In legal terms, the Court of First Instance held that the United Nations Convention on Contracts for the International Sale of Goods (CISG) [BGBl.[*\*] 1988/96] was to be applied. The [seller] had committed a breach of contract by delivering goods that did not correspond to the agreed sample. The [buyer] was therefore entitled to a price reduction of 15%. The interest claimed by the [seller] was only granted at a rate of 5%, as the [seller] had not proven that it took credit at a higher interest rate. The [buyer] was not entitled to a cash discount.

[Parties' petitions]

The [seller] appeals that part of the Court of First Instance's decision which dismisses its claim and [seller] requests that the decision be reversed and that its claim be granted in its entirety. In the alternative, [seller] requests that the decision be repealed and remanded to the Court of First Instance. The appeal is based on the "incorrect and incomplete establishment of facts and consideration of evidence" and the incorrect legal assessment of the claim. [Seller] does not appeal the part of the decision which dismisses its claim for a higher interest rate (10% above the rate granted) on the entire sum claimed.

The [buyer] disputes that there is ground for the appeal and requests that the appeal be dismissed.

[CONSIDERATIONS OF THE COURT OF APPEALS]

The appeal is granted.

The [seller] contests the conclusion reached by the Court of First Instance that the sales contract was based on the color sample. [Seller] refers to the contrary testimony of twitnesses F.M. and A.C., as well as the fact that the Court of First Instance did not explain why it found the testimony of witness R.U. and the statement of the [buyer]'s manager more credible.

Under § 272(3) ZPO [*], the judge must state in his reasons for the decision the circumstances and considerations which are decisive for the Court's conclusion. By considering the evidence, the judge examines all of the evidence presented to the Court as to whether it enables the Court to form a full assurance on the existence or the non-existence of the alleged facts. The judge is obliged to weigh all of the evidence on which his finding of facts is based.

The Court of First Instance was therefore obliged to attend to all of the evidence regarding the decisive question: whether the parties' agreement on the kind of stone was based on the color sample - as was alleged by the [buyer] and disputed by the [seller].

In its decision, the Court of First Instance explains that its conclusion on the facts relies on "the attachments included in the file, as well as both the [seller]'s and the [buyer]'s declarations and the testimony of the witnesses during the oral hearing, in particular the conclusive expert report." This is too vague to comprehend the Court's considerations as to the free weighing of evidence. Consequently, the reasons cannot be scrutinized by the Court of Appeals. A violation of the duty to set forth the reasons for the decision as required by § 273(3) ZPO constitutes a procedural error, if the decision does not reveal which particular considerations were made to reach the Court's determination of facts from the result of the hearing of evidence. Since the Court of First Instance did not explicitly comment on the testimony of witnesses M. and C. - which supports the [seller]'s submissions and contradicts those of the [buyer] - it has not examined the testimony in a way that could be scrutinized. Therefore, a fundamental procedural error exists. This error stands in the way of a thorough discussion and careful assessment of the case (§ 496(1) ZPO).

In its new decision, the Court of First Instance will have to comprehensively attend to the presented evidence - this includes the witnesses named by the [seller] - and consider it in detail.

It is economical in the meaning of § 496(3) ZPO [*] to repeal the decision and to remand it to the Court of First Instance for a new decision after a possible supplementation of the proceedings. The Court of First Instance can make direct use of the results of the proceedings that have been produced so far, whereas the Court of Appeals would have to repeat the hearing of evidence.

Regarding matters of law, the following needs to be said:

As has already been explained, the [buyer] bases its right to a reduction of the purchase price solely on the fact that the delivered goods did not correspond to the presented color sample. The application of the CISG is undisputed. Art. 35(1) CISG provides that the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. Under Art. 35(2)(c) the goods do not conform with the contract unless they possess the qualities of goods which the seller has held out to the buyer as a sample or model.

Decisive is therefore the question as to what the parties agreed with respect to the (disputed) qualities of the goods and whether the sale was based on a sample or model.

It is insignificant that Art. 35(2) CISG presupposes that the seller has held out the sample or model to the buyer, whereas in the present case the [buyer] has presented the color sample taken from a brochure (if one follows the [buyer]'s submissions and the appealed findings of the Court of First Instance). Even if one assumed that Art. 35(2)(c) CISG was not applicable to such a case, an agreement of the parties that the stone was to correspond to the color sample would constitute an agreement on a specific quality under Art. 35(1) CISG. The agreed color of the stone, that is, its quality, is of decisive significance for the assessment of this case. Even witness F.M. conceded that the desired stone "Giallo Veneziano" (also "Giallo Venezia") was to be of a golden-yellow color; however, it was of the opinion that the stone delivered was of a golden-yellow color anyway. This stands against the Court's finding that the stone delivered possessed a pink color - admittedly, this determination was made in comparison to the color sample.

It therefore needs to be ascertained whether the parties agreed on the shade resulting from the color sample or whether they solely agreed on a granite stone "Giallo Veneziano" with golden-yellow color. That a golden-yellow color of the stone may vary from the color of the sample is obvious and warrants no further discussion. The shade resulting from the color sample cannot claim to be representative for the color golden-yellow.

Art. 50 CISG stipulates that the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.

This provision corresponds to the so-called relative method of calculation under Austrian law. In contrast to Austrian law, the CISG places importance on the value of the goods at the time of delivery, not at the time of the conclusion of the contract. By virtue of an analogous application of Art. 76 CISG, the value of the goods at the place of delivery is decisive (Martin Karollus, UN-Kaufrecht, p. 157; MGA, Internationales Kaufrecht, Art. 50 CISG; Wirtschaftsverlag Orac, Das einheitliche Wiener Kaufrecht, p. 83, 105).

The Court of First Instance determined the price reduction, which in its opinion the [buyer] was entitled to, according to § 273(1) ZPO [*].

The application of § 273(1) ZPO, that is, the exemption of proof regarding the amount of a particular sum, is permissible only if there are great difficulties in establishing the amount of the claim - in this instance, the right to a price reduction - so that that the amount cannot be proven at all or only with disproportionate difficulties. The application of § 273 ZPO despite a lack of one its prerequisites constitutes a procedural error. If the result of the judge's determination of damages is appealed, the appeal must be based on the incorrect legal assessment of the case.

The report of the expert H.H. does not show an application of the relative method of calculation. The expert solely made a general statement that color variations from the sample are not to be tolerated and warrant a price reduction of 25% typical in the stonemason industry. That the claim for price reduction under Art. 50 CISG cannot be calculated or can be calculated only with disproportionate difficulties does not follow from the expert's considerations.

In the course of the further proceedings, the Court of First Instance will firstly have to ascertain whether the color sample became part of the contract. If necessary, the note on the sample's back will have to be considered, that the natural working stone underlies variations in color and structure, and that the works executed from the natural stone do not necessarily have to be identical with the sample depicted on the reverse. In doing so, the Court of First Instance will not only have to consider the testimony of witness U. and the [buyer]'s manager, but also that of the witnesses M. and C. and weigh the [seller]'s contention that the [buyer] did not refer to the color sample when [buyer] gave notice of the lack of conformity.

If it has been determined which kind of stone was ordered (either according to the color sample or golden-yellow), the Court will have to ascertain a possible lower value of the goods at the time and place of delivery according to the relative method of calculation by calling in an expert. The sole reference to a certain quantified reduction is not sufficient. Instead, it is necessary to investigate and determine the color shade "Giallo Venziano," that is, the color yellow in various shades of yellow (including golden-yellow), and other appearances of the said stone (slightly pink to brownish). It is advisable to do so referring to color samples and catalogues, so that it can then be determined whether a price reduction - and if so, in which amount - can be taken into consideration for the stone delivered.

In this context, the following needs to be said:

Art. 9(2) CISG provides:

"The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."

It is a basic prerequisite for the application of usages under Art. 9(2) CISG that the parties knew or ought to have known of the usage. However, the "ought to have known" formula is not the sole requirement for a usage that - in the lack of an agreement of the parties - may find application to the process of contract formation as well as to the interpretation and supplementation of the contract concluded. In addition, the usage must be "widely known in international trade and [...] regularly observed by parties to contracts of the type involved in the trade concerned." This provision is supposed to prevent having usages, which so far have evolved only for internal sales, being applied in trade with foreign parties to a contract. However, the wording of Art. 9(2) CISG does not mean that, in the future, purely national or local usages can find no application for the interpretation and supplementation of contracts without an explicit reference by the parties. One can still presume an exception for usages which are in force at certain stock markets, trade fairs or deposit sites, as long as the usage is also regularly observed there in the trade with foreigners. Furthermore, the possibility does not seem to be excluded that a foreign tradesman, who is constantly active in another country and has already formed a number of transactions there, is bound by possible national usages. In other words, it cannot be excluded that the [buyer] - under the presumption that it was constantly active in Italy and has already concluded a number of similar contracts - is bound by possible Italian usages. In this regard, the Court refers to Art. 1340 and 1374 Cc [*] (cf. Bonell, Die Bedeutung der Handelsbräuche im Wiener Kaufrechtsübereinkommen von 1980, JBl [*] 1985, 385 et. seq.). During the further course of the proceedings, the Court of First Instance will therefore also have to consider any possible trade usages to determine the price reduction.

For the above reasons, the appeal is granted.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellant of Italy is referred to as [seller]; the Defendant-Appellee of Austria is referred to as [buyer]. Amounts in Italian currency (Italian Lira) are indicated as [ItŁ].

Translator's note on other abbreviations: BGBl. = Bundesgesetzblatt [Austrian Federal Law Gazette]; Cc = Codice civil [Italian Civil Code]; JBl = Juristische Blätter [Austrian Law Journal]; ZPO = Zivilprozessordung [Austrian Code of Civil Procedure].

** Ruth M. Janal, LL.M. (UNSW), a PhD candidate at Albert-Ludwigs-Universität Freiburg, has been an active participant in the CISG online website of the University of Freiburg. Todd Fox is an Associate of the Institute of International Commercial Law of the Pace University School of Law. He received his LL.M. summa cum laude from the University of Freiburg, Germany.

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