Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography
Search the entire CISG Database (case data + other data)

CISG CASE PRESENTATION

China 22 June 1998 Second Intermediate People's Court [District Court] of Shanghai (China Yituo Group Company v. Germany Gerhard Freyso LTD GmbH & Co.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980622c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19980622 (22 June 1998)

JURISDICTION: People's Republic of China

TRIBUNAL: Second Intermediate People's Court [District Court] of Shanghai

JUDGE(S): Geng, Peiyu (Chief judge); Jiang, Nan and Li, Wei (Agent judges)

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: China Yituo Group Company v. Germany Gerhard Freyso LTD GmbH & Co. KG

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China (plaintiff

BUYER'S COUNTRY: Germany (defendant)

GOODS INVOLVED: Agricultural rakes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 71 ; 73 ; 74 ; 77 , 78 ; 85 ; 88

Classification of issues using UNCITRAL classification code numbers:

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

71A [Suspension of performance (grounds for suspension): apparent that other party will not perform];

73B [Avoidance in installment contracts (fundamental breach): refusal of future installments];

74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss];

77A [Obligation to take reasonable measures to mitigate damages];

78A [Interest on delay in receiving price or any other sum in arrears];

85B [Seller in possession or controlling disposition of goods: must take reasonable steps to preserve goods];

88A ; 88C [Party obliged to preserve goods may sell them; Right to retain reasonable expenses from proceeds of sale]

Descriptors: Price ; Suspension of performance ; Avoidance ; Damages ; Foreseeability of damages ; Mitigation of loss ; Interest ; Preservation of goods ; Resale of goods

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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 (Chinese): CISG-China Case [IPC/14]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=64>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

Go to Case Table of Contents

Case text (English translation)

Queen Mary Case Translation Programme

The Second Intermediate People's Court of Shanghai [22 June 1998]

(China Yituo Group Company v. Germany Gerhard Freyso LTD GmbH & Co. KG)

Translation [*] by Xu Meihua [**]

Edited by John Zhu [***]

[PROCEEDINGS]

PARTIES AND COUNSEL. Plaintiff (formerly known as China First Truck Engineering and Machinery Company, hereafter, [Seller]) of 154 Jianshe Road, Luoyang City, Henan Province, China; Legal Representative: Yin Jiaxi, President of the Board; Attorney: Wang, Lanjun, legal adviser of the [Seller]; Agent: Shi, Jianguang, employee of the [Seller]. Defendant: Germany Gerhard Freyso LTD GmbH & Co.KG, (hereafter, [Buyer]) of Tiefer 5, 28195 Bremen, Federal Republic of Germany; Legal Representative: Gerhard B Nemann; Attorney: Xu, Jie, Lawyer of Duanheduan Law Firm.

TRIAL PARTICULARS. The [Seller] filed a lawsuit against the [Buyer] with this court. The court established the tribunal and held an open hearing. Wang, Lanjun and Shi, Jianguang for the [Seller] and Xu, Jie, for the [Buyer] attended the court session. The case has been concluded.

POSITION OF THE PARTIES

[Seller]'s position

[Seller] alleged that:

      Being entrusted by the [Seller], China First Truck Engineering and Machinery Company Import & Export Company (hereafter, "Yituo Import & Export Company") signed an Import & Export contract with the [Buyer] on behalf of the [Seller]. On 2 August 1995, mistakenly using its own name, Yituo Import & Export Company signed a contract with the [Buyer] for the sale of agricultural rakes. After the conclusion of the contract, the [Seller] manufactured samples of the rakes within a short period of time. After contacting, the [Buyer] asked to modify the plan. On 25 December, the [Seller] asked to modify the contract price and the payment term. The [Buyer] agreed to the modifications on the same day and signed the supplementary agreement.

During the performance of the contract, the [Seller] delivered 62,650 rakes in six installments. The [Buyer] paid part of the price. However, for the last four shipments, the [Buyer] deceived the [Seller] in connection with shipments of goods to Rotterdam, Netherland, asserting that the payment had been made with a so-called "bank payment certificate". Before sending the B/L, the [Seller] contacted the bank and learned that the [Buyer]'s so-called bank payment certificate was just a payment application, and that the payment had not yet been made. The [Seller] negotiated with the [Buyer], however, the [Buyer] first alleged that it had made the payment, then refused to make payment raising quality objections. In order to mitigate the loss, the [Seller] had to ask a third party to take charge of the goods delivered to Rotterdam, perform inspection, and resell the goods on behalf of the [Seller]. Since the [Buyer] has fundamentally breached the contract which caused direct economic loss to the [Seller], the [Seller] asks the court to order that:

   -    [Buyer] pay the price for the goods of 85,334.10 Deutsche Mark [DM], loss of refund on export tax of 7,050.24 DM, and loss of interest on the price of the goods of 11,086.12 DM;
   -    [Buyer] continue to perform the contract;
   -    [Buyer] take the delivery of the 3,000 rakes stored in the [Seller]'s warehouse.

[Buyer]'s position

[Buyer] defends that it was Yituo Import & Export Company, not the [Seller], that signed the contract. [Buyer] alleges that the [Seller] has no direct connection with this case and has no right to ask for compensation from the [Buyer]. Moreover, Yituo Import & Export Company did not legally register at the Bureau for the Administration of Industry and Commerce and has no right to enter into foreign trade; therefore, the sales contract it entered into with the [Buyer] was void because Yituo lacked qualification to contract. A void contract is not protected by law and Yituo Import & Export Company shall be liable for this; therefore, it should bear the losses by itself. In addition, Yituo Import & Export Company violated the contract by changing the departure port and delivering defective goods, and the goods were also damaged by unsound packaging. Therefore, the [Buyer] had the right to refuse to make payment. Furthermore, since Yituo Import & Export Company failed to dispose of the goods in time, it should bear the damages that were thereby enlarged on its own.

[FACTS DETERMINED BY THE COURT]

It was found that the [Seller], formerly known as China First Truck Engineering and Machinery Company has the right to conduct foreign trade. On 6 May 1997, it was renamed the China Yituo Group Company. Yituo Import & Export Company was a subordinate internal department of the [Seller], which was not registered at the Bureau for the Administration of Industry and Commerce and had no business license. On 2 August 1995, Yituo Import & Export Company, nevertheless, signed a sales contract with the [Buyer] with the following terms:

   -    Goods: The [Buyer] was to purchase 200,000 rakes made with No. 07060 GGG60 nodular cast iron, based on DIN1693 standard, weight 1.7kg/piece; the weight of the cast iron was to be decided after confirming the sample goods;
   -    Price: 900 DM/ton, FOB Qingdao;
   -    Payment: 30% of the price shall be paid in advance, and 70% shall be paid ten days prior to shipment;
   -    Shipment: The first 10,000 pieces shall be loaded within eight weeks after confirming the sample goods; the first 40,000 pieces shall be loaded before the end of November 1995; 50,000 pieces shall be loaded by the end of January 1996; each shipment shall be no less than 10,000 pieces; after delivering 100,000 pieces smoothly, the second 100,000 pieces shall be loaded from July 1996 and finished before the end of December.

After the conclusion of the contract, the [Buyer] inspected the sample goods, concluding that basically the samples were conforming, with some parts to be modified and informed Yituo Import & Export Company that the goods could be manufactured right after modification. On 28 September 1995, Yituo Import & Export Company received from the [Buyer] 30% of the contract price, i.e., 5,400 DM, for the first delivery. On 7 December, the [Buyer] faxed Yituo Import & Export Company, asking it to deliver the goods as follows:

   -    Deliver 9,000 pieces through Nanyang Factory on 16 December 1995;
   -    Deliver 9,000 pieces before 31 December 1995;
   -    Deliver the other 3,000 pieces within 1995;
   -    Deliver at least 50,000 pieces before the end of January 1996.

On 16 December 1995, Yituo Import & Export Company delivered the first 9,600 pieces of goods from Zhengzhou, Henan Province, to Rotterdam, Netherland, and delivered 9,600 pieces and 2,650 pieces of goods on 30 December with the same method. The aforesaid goods were received by the [Buyer].

   -    On 9 December 1995, Yituo Import & Export Company received 30% of the contract price for the second delivery, i.e., 5,400 DM, as stipulated in the payment application of 8 December;
   -    Received the remaining 11,707.20 DM for the first delivery on 30 December as stipulated in the payment application of 15 December; and
   -    Received the remaining 11,707 DM for the second delivery and 30% of the price for the third delivery, i.e., 5,529.60, on 10 January 1996, as stipulated in the payment application of 21 December.

On 25 December 1995, Yituo Import & Export Company sent a letter to the [Buyer], asking to modify the unit price to 1.92DM/piece FOB and the payment term to payment of 30% of the price forty days prior to shipment and the remaining 70% fourteen days prior to the shipment. The [Buyer] confirmed this by signing and sealing this letter.

On 12 January 1996, the [Buyer] faxed to Yituo Import & Export Company, stating that "we agree that you choose the fastest and efficient way to load the goods, such as from Qingdao or any major port in China."

On 22 January 1996, the [Buyer] faxed to the [Seller], stating that "it is understandable if the delay was caused by your attempt to deliver the goods in bulk. Since these goods are in Tianjin now, they should be loaded onto Tiantong Ship on 27 January as you stated in the fax sent on 18 January 1996. If it is more convenient for you, we agree that you send the remaining containers by railway transportation from Zhengzhou to Hong Kong to Rotterdam."

The [Buyer] sent a payment application issued on 22 January 1996 to Yituo Import & Export Company, indicating that it had made payment for 70% of the price for the third delivery of 13,670.40 DM and 100% of the price for the fourth delivery, i.e., 19,200 DM. On 27 January, Yituo Import & Export Company delivered 9,200 pieces of goods from Tianjin. Later, Yituo Import & Export Company suggested use of a 2.167 DM/piece CIF term since the goods were transported from Zhengzhou to Hong Kong to Rotterdam, and the [Buyer] issued the payment application on 30 January 1996 for the 10,800 pieces of goods for the fifth delivery, i.e., 23,403.60 DM, based on the unit price of 2.167DM/piece.

On 3 February and 10 February, Yituo Import & Export Company sent 20,800 pieces and 10,800 pieces of goods from Zhengzhou to Rotterdam, respectively. After investigation, the payments noted in the payment applications issued on 22 January and 30 January 1996 were not made. Therefore, Yituo Import & Export Company asked for payment from the [Buyer]. However, the [Buyer] alleged in a fax sent on 8 March that it had made payment. After failure to receive payment from the [Buyer], Yituo Import & Export Company stopped providing the B/Ls for the aforesaid 40,800 pieces of goods and informed the [Buyer] that it would resell the goods to another client. The [Buyer] did not make payment afterwards, but had a dispute with Yituo Import & Export Company raising quality problems with the goods. On 24 April, the [Buyer] faxed to Yituo Import & Export Company, asserting that "we accept your suggestion to look for a new buyer in Rotterdam as mentioned in Point 3 of your fax." Therefore, Yituo Import & Export Company entrusted a third party, Kulenkampef & Konitzky Import and Export Company in Bremen, Germany (hereafter "KK Company") to inspect, take care of and resell the aforesaid goods. Since no agreement was reached with the [Buyer], the [Seller] filed a lawsuit with the court.

A letter that KK Company sent to Yituo Import & Export Company on 5 May 1997 indicated that 40,800 pieces of goods were resold for 40,000 DM. After deducting the cost of shipment from Rotterdam to Bremen, 19,148 DM, as mentioned in No. 25542 notice of debt by Kulkoni, BKW inspection fee of 1,400 DM, storage fee of 18,802.50 DM, CN25713 Janben's commission of 3,500 DM, transportation fee for four vehicle's goods paid to Hellmann, i.e., 1,850 DM, and the necessary cost paid to Kulkoni including a 10-month procedure fee, sales promotion fee, and traveling fee, the balance is zero.

The above facts are evidenced by sales contract, fax of 25 December 1995, [Buyer]'s payment application, B/L, corresponding faxes, [Seller]'s list of damages, and the parties' related statements.

[REASONING OF THE COURT]

The court notes that Yituo Import & Export Company is a department belonging to the [Seller]. It was improper for Yituo Import & Export Company to sign contracts with other parties in its name. However, the contract in this case and the modification agreement reflected the [Seller]'s true mind; therefore, it should be considered that the sales contract was established. As to the misuse of the name, it did not interfere with the formation and performance of the contract, therefore, it should not be the reason for the two parties' non-performance of the contract. And, even though the [Seller] delivered the goods later than 22 August 1995 as stipulated in the contract, the four delivery dates from December 1995 to January 1996 had been confirmed and accepted by the [Buyer], and the [Buyer] had never raised objections on the departure port. Therefore, the two parties modified the contract during the performance of the contract, and the [Seller] did not violate the contract.

Regarding the 20,800 pieces of goods for the fifth delivery and the 10,800 pieces of goods for the sixth delivery, according to the stipulations in the supplementary agreement signed by the [Buyer] and the [Seller], the [Buyer] should have paid 30% of the price forty days prior to the shipment. However, the [Buyer]'s payment applications were issued on 22 January and 30 January1996, respectively; therefore, delivery of the goods by the [Seller] at the beginning of February 1996 was not improper; it should be deemed that the [Seller] performed its contract obligations properly.

There was no contractual basis for the [Buyer] to refuse to make payment raising quality objections. [Buyer]'s refusal to make payment was obviously a contract violation, and [Seller] had a legal basis for stopping delivery of the goods, and taking measures to mitigate the loss by reselling the goods after the [Buyer] clearly indicated that it refused to take delivery of the goods. The [Buyer] shall bear the price for the goods and the interest on it due to its contract violation.

As to the [Seller]'s losses, except for the inspection fee, which was not a necessary cost and should be deleted, the other losses were reasonable and completely documented. The [Buyer] did not raise objections on this, not did it provide any opposite evidence; therefore, this claim of the [Seller] is accepted.

However, since it was not foreseeable by the [Buyer] that the [Seller] was to receive a refund for export tax, therefore, this loss of the [Seller] is not accepted.

The [Seller] also asks the court to rule that the [Buyer] continue the performance of the contract, and pick up the 3,000 pieces of goods remaining at the [Seller]'s factory. Since there is no need to perform the contact, the [Buyer] shall compensate the losses of the [Seller].

[AWARD]

According to Article 142 of the General Principles of the Civil Law of the PRC and Articles 53, 74, 78, 85, and 88(1) and (2) of the CISG, the court rules after deliberation that:

  1. The [Buyer] shall pay the [Seller]'s loss of price for the goods of 83,934.10 DM within ten days of this award;

  2. [Buyer] shall pay the [Seller]'s loss of interest on the price of 10,072 DM within ten days of this award;

  3. [Buyer] shall pay other losses of the [Seller] of 576 DM within ten days of this award;

  4. [Seller]'s other claims are dismissed.

The court cost for this case is renminbi [RMB] 11,253. The [Seller] shall bear RMB 1,125.30 and the [Buyer] shall bear RMB 10,127.70.

For any objection on this award, the [Seller] may appeal to the Higher People's Court of Shanghai within fifteen days of receipt of this award, and the [Buyer] may appeal within thirty days of receipt of this award by filing application to this court and preparing copies for the number of the other party. The appellant shall pay the cost for appeal the same amount as the cost for the first trial to this court within seven days after filing the application, otherwise, it would be deemed that the application is withdrawn automatically.

Chief Judge: Geng, Peiyu
Agent Judge: Jiang, Nan
Agent Judge: Li, Wei

22 June 1998

Clerk: Zhou, Qing


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of the People's Republic of China is referred to as [Seller] and Defendant of Germany is referred to as [Buyer]. Amounts in the currency of Germany (Deutsche Mark) are indicated as [DM]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

*** John Zhu, LL.M. China University of Political Science and Law on a national graduate scholarship. He received his Bachelor of Law degree from Southwest University of Political Science and Law and Double Degree of English Literature from Sichuan International Studies University in Chongqing, China. His focus is on International Economic Law.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated May 11, 2010
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography