Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/001222s1.html
Timestamp: 2019-04-19 12:49:05+00:00

Document:
The subject of the dispute related to the sale of a used textile machine by a seller having its headquarters in Switzerland to a buyer having its place of business in Germany for resale to Iran. The buyer discovered defects in the goods sold and demanded the refitting of the machine, setting a time limit. The time limit having expired without result, the buyer thereupon repudiated the contract. The seller then terminated the contract, retaining the down payment by way of a penalty, as stipulated in the contract. The buyer brought an action before the cantonal commercial court, claiming reimbursement of that amount. The court dismissed the claim.
The Federal Court had first to consider whether a possible fundamental mistake arising at the time of conclusion of the contract, as alleged by the plaintiff, had been remedied by decisive action (i.e., requesting performance of the contract and subsequently damages for delayed performance). Pursuant to Swiss law, the court found in the affirmative. It considered that the CISG was not applicable to the matter (which was concerned with the validity of the contract), citing article 4(a).
The court then examined article 35 of the Convention. It considered that that article did not contain any specific rule on promised qualities. However, the seller was required to guarantee all the qualities, as stipulated in the contract, which the buyer was entitled to expect in the goods sold. Pursuant to article 8 CISG, the court concluded that, in the present case, the plaintiff had professional knowledge in the matter and was aware that the offer related, not to a new machine, but to a used machine which had been built some 14 years earlier and consequently did not incorporate the latest technical developments. It therefore lay with the plaintiff to make enquiries as to the machine's functioning and fittings. The lower court had therefore correctly acknowledged the defendant's right to accept that the plaintiff had entered into the contract with full knowledge of the machine's technical capacity and fittings. In line with the lower court ruling, it had to be accepted that the sold machine had been supplied in conformity with the contractual requirements within the meaning of article 35(1) CISG. The claimant had therefore wrongly invoked the defect warranty. In view of that fact, the defendant was, in accordance with the provisions of the contract, entitled to terminate the contract. The dismissal of the claim had therefore been correct.
"[T]he Swiss Federal Supreme Court rejected 'homeward trend' attempts by the parties to impose concepts of local law in a dispute over whether a rotary printing machine met contract specifications. Under Swiss law, issues associated with the impressions of the buyer with respect to the quality of the goods would have been significant, or even dispositive. The Supreme Court overturned the Court of First Instance, applied CISG Article 35(1), and relied upon authoritative commentary for its application."
German: [1/2002] Swiss Review of International and European Law (SRIEL) 140 et seq.
COURT COMPOSITION. Federal judges Walter (President), Corboz, Klett, Rottenberg Liatowitsch, Nyffeler and clerk of the Supreme Court Huguenin.
PARTIES: COUNSEL. In the matter of Plaintiff-Appellant Roland Schmidt GmbH, Kindberg 15, 87490 Haldenwang, Germany, [Buyer], represented by attorney Dr. Jörg Schoch, Marktplatz 4, 9004 St. Gallen, Switzerland, versus Defendant-Respondent Textil-Werke Blumenegg AG, Blumenegg, 9403 Goldach, Switzerland, [Seller], represented by attorney Dr. Hans Henzen, Eisenbahnstrasse 41, Postal Box 228, 9401 Rorschach, Switzerland, regarding a sales contract.
A. The [Buyer], whose place of business is in Haldenwang [Germany], trades in textile machinery. The [Seller], with seat in Goldach [Canton St. Gallen, Switzerland] tried to sell its used textile machines in the year 1998. Following an initial contact in December of 1998, the [Seller] sent to the [Buyer, a list of the machinery offered for sale including a "price offer"], in the beginning of January 1999. On 12 January 1999, the [Buyer]'s manager and two prospective customers from Iran viewed various machines. On the following day, [Buyer]'s manager declared that he would be interested in certain machines, but disagreed with the prices.
By letter of 24 February 1999, the [Buyer] again contacted the [Seller] and, referring to the machinery list, expressed an interest in a rotary printing machine "Stork" RDIV Airflow A 640.000 plus equipment. This letter, as well as a confirmation of the order by the [Seller] dated 1 March 1999, reveals that the machine was supposed to be sold to the Iranian customers. After the [Seller] had confirmed in writing its willingness to sell the machine on 26 February 1999, the [Buyer] faxed a "purchase confirmation" with a detailed description of the furnishings of the machine and the equipment on 9 March 1999. It was further noted that the machine contained a "rapport equipment 641 mm - 1018 mm" and that the machine was "complete and operating as viewed."
1. The price is ex works excluding dismantling, loading, transport, insurance etc. These obligations are to be performed by the buyer or a company commissioned by buyer. The costs accrued have to be borne by the buyer in their entirety.
2. The collection has to be effected -- following a prior agreement on the exact date -- by 30 June 1999 at the latest.
70% final payment = DM 163,100.00 - before dismantling.
If the machine is not collected until the date named under clause 2., the seller is entitled to avoid the contract without meeting any further requirements. In this case, the seller is entitled to keep the down payment as a stipulated penalty.
5. The goods for sale are taken over by the buyer in the present conditions, any guarantee or rights to remedy are waived."
"Alternative 1: You accept that the delivery does not correspond to the sales contract, you withdraw from the contract and reimburse the down payment in the amount of DM 69,900.00.
"Alternative 2: You accept a reduction in price in the amount of DM 60,000.00, as a contribution to the purchase of new stencil holders. This means that you bear roughly 60% of the additional costs, while the [Buyer] bears approx. 40%."
By letter of 13 April 1999, the [Seller] turned down these proposals. [Seller] pointed out that the [Buyer] had declared on 9 March 1999 that it would buy the machine "complete and operating as viewed." [Seller] alleged that the remark regarding the rapport equipment in the sales contract only referred to the technical bounds and did not allow for any conclusions as to the measurements of the existing stencil holders.
On 26 April 1999, the [Buyer] wrote to the [Seller] that it would refuse to accept the machine and, under OR [*] Art. 107, refuse the belated performance unless the [Seller] assured [Buyer] by 10 May 1999 that "a machine was sold conforming to the contract, which contained an operating rapport equipment between 641 mm and 1018 mm." When the [Seller] insisted on its position, the [Buyer], in accordance with OR Art. 107(2), on 4 June 1999 declared that it renounced any further performance. On 1 July 1999, the [Seller] declared the avoidance of the contract of 9 March 1999 in writing referring to contract clause 3 and that it would keep the down payment as the stipulated penalty.
B. In September 1999, the [Buyer] brought an action against the [Seller] before the Commercial Court of the Canton St. Gallen [Court of First Instance]. The [Buyer] requested that the [Seller] be ordered to pay the amount of Sf [Swiss francs] 87,920.00 with 5% interest since 4 June 1999. In its decision of 21 August 2000, the Court of First Instance dismissed the [Buyer]'s claim.
C. With this appeal, the [Buyer] requests the Supreme Court to reverse the decision of the Court of First Instance and to order the [Seller] to pay the amount of Sf 87,920.00 with 5% interest since 4 June 1999; in the alternative to refer the matter back to the previous instance for a new decision.
The [Seller] requests the Supreme Court to dismiss the [Buyer]'s appeal.
1. The Court of First Instance held that while the parties had a different understanding of the wording of the contract "rapport equipment 641 mm - 1018 mm", a normative consensus had been reached. In view of the [Buyer]'s purchase confirmation of 9 March 1999, in which [Buyer] had declared that it would take over the machine "complete and operating as viewed", the [Seller] was entitled to believe that the [Buyer] also supposed that the machine was not equipped for a rapport length of 1018 mm. Based on the provisions of the United Nations Convention on Contracts for the International Sale of Goods (CISG), in particular CISG Art. 8(2), which governs the sales contract, the contract had to be viewed as normatively formed with this meaning. (The Convention entered into force in Switzerland on 1 March 1991 and in Germany on 1 January 1991).
The Court of First Instance then took into account that the [Buyer]'s manager possibly did not inspect the machine closely enough during the first visit on 12 January 1999 and that, therefore, his perception had not been in accord with the reality. The Court of First Instance left open whether the [Buyer] was in mistake in the meaning of OR [*] Art. 24(1) no. 3 when [Buyer] declared its intent, because the [Buyer] never declared that it would not perform the contract, according to OR Art. 31(1). Furthermore, the [Buyer] had failed to show that the [Seller] knew or should have been aware of the fact that the [Buyer] was under a misapprehension. Thus, it had to be assumed that the [Seller] could not have realized the [Buyer]'s mistake. Consequently, the contract had been validly concluded in the version submitted by the [Seller].
3. The [Buyer] further challenges the findings of the Court of First Instance that [Buyer] had never declared that it did not wish to be bound by the contract because of mistake. [Buyer] submits that the Court of First Instance violated OR Art. 31 by disregarding that [Buyer]'s request for reimbursement of performances constituted an implicit contestation, respectively refraining from an approval of the contract. In the [Buyer]'s opinion, the Court of First Instance should have realized that [Buyer] repeatedly demanded the reimbursement of the down payment within the period of one year. From this, the Court of First Instance should have concluded that the contract was invalid due to the [Buyer]'s mistake and the implicit contestation of [Buyer]'s declaration of intent.
a) Based on Art. 3 of the Hague Convention on the Law Applicable to International Sale of Goods (1955), the Court of First Instance held that Swiss domestic law was superseded by the rules of the CISG. According to CISG Art. 4(a), the Convention is not concerned with the validity of the contract nor of any of its provisions, which is why the provisions of the Swiss Civil Code apply. The Court of First Instance left open whether the [Buyer] was in mistake regarding the declaration of its intent in the meaning of OR Art. 23(1) no. 3. As the following considerations show, the Court of First Instance correctly held that this question need not be decided.
4. The [Buyer] further submits that the Court of First Instance failed to understand the matter in regard to the remedy for breach of contract, in particular the fact that the [Seller] assured a "rapport equipment 641 mm - 1018 mm" and, therefore, [Seller] was liable under OR Art. 197. [Buyer] asserts that the Court of First Instance erred in failing to clarify how things stood with the assured characteristics of the machine. The Court of First Instance did not allow the [Buyer] to prove via an expert opinion that the description of the rapport length of a "Stork" machine conformed to the [Buyer]'s comprehension of that term.
6. For these reasons, the [Buyer]'s appeal is dismissed and the appealed decision is affirmed. The [Buyer] bears the cost of the proceedings and has to reimburse the [Seller] for its costs.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellant of Germany is referred to as [Buyer]; the Defendant-Respondent of Switzerland is referred to as [Seller]. Also, monetary amounts in Deutsche Mark are indicated by [DM]; amounts in Swiss francs are indicated by [Sf]. The abbreviation OR refers to Das Obligationenrecht [Swiss Civil Code].

References: Art. 107
 Art. 107
 Art. 8
 Art. 24
 Art. 31
 Art. 31
 Art. 3
 Art. 4
 Art. 23
 Art. 197