Source: http://cisgw3.law.pace.edu/cases/050221s1.html
Timestamp: 2019-04-19 14:29:51+00:00

Document:
"On the circumstances under which the avoidance of a contract may be declared approx. one month after the notice of unconformity was given.
"The avoidance of the contract creates an obligation of restitution which is to be fulfilled at the seat of the seller with regard to the returning of the goods."
The judgement in question, given by default, dealt with the sale of a production plant by a German company (the defendant) to a limited company from Valais (the plaintiff). On delivery of the plant in October 203, the plaintiff realized that the ordered goods were totally rusted. The defects were immediately reported to the defendant, even prior to assembly. After laying out the equipment and commencing assembly, the erectors discovered that that the plant was not in operating condition. The defendant was offered the possibility of carrying out the assembly itself, against the provision of a security. It did not take up that offer and thereafter gave no further news. In a letter dated 25 November 2003, the plaintiff invited the defendant to take back the plant by mid-December 2003.
The court held that the plaintiff, by its letter of 25 November, had declared the contract avoided within the meaning of article 49 CISG. It deemed the requirements for such avoidance to have been met. The fact that the plant was unfit for operation and the defendant, in violation of its obligations, had failed to put the plant into service constituted, in the court's view, a fundamental breach of contract within the meaning of articles 49(1)(a) and 25 CISG. The court deemed the declaration of avoidance to have been made in timely fashion with the meaning of article 49(2)(b)(i) CISG. It was admittedly difficult to determine the exact day in October when delivery had actually taken place but, given that the defendant had had the possibility of carrying out itself the assembly of the plant following discovery of the defects and that the plaintiff had had survey reports prepared by different persons prior to avoidance of the contract, that time limit had in any event been observed. By giving notice immediately following delivery, the plaintiff had also observed the time limit provided for in article 39(1) CISG.
Since the defendant, despite a further invitation, had never taken back the plant, the plaintiff requested, in addition to the court's cancellation of a bank guarantee in favour of the defendant, authorization to discard the plant. That second request was rejected by the court on the basis of article 81(2) CISG. The plaintiff had a duty to make restitution of the plant to the defendant but the defendant had an obligation to take back the plant at the principal place of business of the plaintiff.
A claim for damages by the plaintiff was also rejected since the plaintiff had not sufficiently detailed the loss.
German: Swiss Review of International and European Law (SRIEL) 1/2006, 208 et seq.
1. The contract between [Buyer] and [Seller] concerning the CNC-machine is declared to be non-binding and is avoided.
2. Within the scope of the restitution of the contract, the [Buyer] is authorized to destroy the machine.
3. The irrevocable payment promise of the [Buyer] at the Raiffeisenbank Naters is cancelled and the blocked amount of EUR 29,040.00 is released.
4. The [Seller] is to pay the [Buyer] CHF 5,000.00 for storage of the facility and for sales.
5. The [Buyer] is to be awarded a reasonable amount of party compensation.
6. The costs of the proceedings and the judgment are to be borne by the [Seller].
Essentially, the [Buyer] bases these pleadings on its allegation that the CNC-machine (Strahlhausmaschine) with a turntable that it bought from the [Seller], which was delivered in October 2003, was not functional.
B. On 7 April 2004, the District Court judge served the [Seller] with the claim and set a time limit in which to submit a response to [Buyer]'s claim and to state a place for service in Switzerland. As the [Seller] did not comply with this request, by letter dated 4 June 2004 referring to the consequences of default of Art. 100 and 102 of the Valais Civil Procedure Regulations of 24 March 1998 (ZPO [*]), the Court set a second and final time limit of 10 days and again requested the [Seller] to state a place for service in Switzerland. The orders of the District Court judge were all served in a proper legal manner.
As the [Seller] did not provide a response within the second time limit either, the District Court judge sent the files to the Cantonal Court on 2 September 2004 for examination of the default and for the eventual rendering of a default judgment.
1. a) The [Buyer] has its seat in [Switzerland]; the [Seller] his place of residence in Germany. Thereby, an international relationship exists (cf. Volken, Zürcher Kommentar, 2nd ed., Zurich 2004, para. 17 on Art. 1 IPRG [*]; Gerhard Walter, Internationales Zivilprozessrecht der Schweiz, Berne/Stuttgart/Vienna 1995, p. 43; see also Kellerhals/von Werdt/Güngerich, Kommentar zum Bundesgesetz über den Gerichtsstand in Zivilsachen, para. 16 on Art. 1 GestG [*]). The Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Lugano Convention; SR [*] 0.275.11) entered into force in Switzerland on 1 January 2002 and in Germany on 1 March 1995. The present claim was brought on 29 March 2004, thereby subsequently, with the consequence that the Convention is applicable in casu (Art. 54(1) Lugano Convention).
If a contract or claims arising from a contract constitute the subject of the dispute, Art. 5 No. 1 Lugano Convention enables the [Buyer], as an alternative to the general jurisdiction at the place of residence under Art. 2 Lugano Convention, to bring a claim against the [Seller] at the court of the place where the obligation was performed or ought to have been performed. The place of performance is thereby determined by the law to be applied to the contract or to the performance (lex causae; BGE [*] 122 III 43 reason 3b with further references). The admissibility of an agreement on a place of performance is also to be determined under the applicable law. In any case, a private agreement on a place of performance -- without complying with the formal requirements of Art. 17 Lugano Convention -- is only effective to establish jurisdiction if it determines an actual place of performance (BGE 122 III 249 reason 3b/aa, with further references). If the [Buyer] asserts claims for damages or applies for the dissolution of the contract due to the fault of the other party, then attention must be paid to that contractual obligation, the non-performance of which is alleged to form the basis of such claims (BGE 124 III 188 reason 4a, with further references).
In the case at hand, the [Buyer] requests, first and foremost, that the contract concluded between the parties be declared to be non-binding and be avoided (cf. No. 1 of the pleadings), because the [Seller] failed to sell a functional machine. Thereby, the avoidance of the contract constitutes the main subject-matter of the proceedings, whereby, in determining the place of performance, emphasis is placed on the contractual obligation, the non-performance of which is alleged to form the basis of such claim. The contract comprised the sale (incl. delivery and assembly) of a CNC-machine with a turntable (cf. facts 1, 6 and 8). According to the [Seller]'s order confirmation dated 20 January 2003, the delivery term was "freight to [...]" (in the Canton of Valais) (p. 10 et seq.) and the machine was, in fact, delivered to this named place (fact 6). Thereby, that named place was agreed as the place of performance for the delivery of the subject-matter of the sale. As the United Nations Convention on Contracts for the International Sale of Goods (CISG; SR [*] 221.211.1), which is applicable here (cf. c) below and Art. 1(2) IPRG [*]), does not contradict any agreement on a place of performance (cf. Art. 31 CISG), [...] (in the Canton of Valais) constituted the place of performance with respect to the delivered goods within the meaning of Art. 5 No. 1 Lugano Convention. As, in the present case, no exclusive place of jurisdiction within the meaning of Art. 16 Lugano Convention needs to be observed either, the international jurisdiction of the Swiss courts and the territorial jurisdiction of the Valais Courts to judge the present dispute is established.
b) As the [Buyer] would have had to pay EUR 28,740.00 for the purchase, delivery and assembly (cf. p. 10 et seq.), which converts to approximately Swiss francs [CHF] 44,500.00, and it additionally claims CHF 5,000.00 for storage of the machine and sales, resulting in a total dispute value of approximately CHF 49,500.00, thus more than CHF 8,000.00 (cf. Art. 46 OG [*]), the subject-matter jurisdiction of the Cantonal Court can be derived from Art. 23(1)(b) ZPO [*].
c) According to Art. 1(1)(a), the CISG is applicable to contracts for the sale of goods between parties which have their places of business in different States, if these States are Contracting States. As in the present case, the parties did not make a choice of law (cf. p. 29), they concluded the disputed contract in February 2003, and it is neither alleged nor apparent from the files that they excluded the application of the CISG (cf. Art. 6 CISG), the CISG is the applicable substantive law (entry into force for Switzerland on 1 March 1991 and for Germany on 1 January 1991; Art. 100(2) CISG; cf. also Keller/Siehr, Kaufrecht: Kaufrecht des OR und Wiener Kaufrecht, 3rd ed., Zurich 1995, p. 168; Conrad, Die Lieferung mangelhafter Ware als Grund für eine Vertragsaufhebung im einheitlichen UN-Kaufrecht (CISG), Zurich 1999, p. 5). If, as in the present case, the requirements of Art. 1(1)(a) are satisfied, then the CISG applies directly or autonomously, namely without recourse to Swiss conflict of laws rules. The CISG governs the substantive sales law for contracts for the international sale of goods. Its provisions apply in the place of the domestic substantive law. In contrast, the CISG itself does not regulate any procedural law questions (cf. Federal Court Judgment 4C.100/2000 dated 11 July 2000 reason 3, with further references). Consequently, from a procedural law perspective, the provisions of the ZPO are applicable.
2. a) According to Art. 99 ZPO, a party is in default if it does not undertake a legal act or does not fulfill another procedural obligation within both time limits set in conformity with the law. Such a legal act, the omission of which gives rise to the consequences under Arts. 100 and 102 ZPO, is to submit a response to a claim (ZWR [*] 2003 p. 232 reason 3a; 1999 p. 18 reason 2; 1990 p. 108 reason 2a). In the present proceedings, the District Court judge set the [Seller] the time limits to respond to the claim in conformity with the law, in a proper legal manner, and with a notice as to the consequences of default. Despite this, the [Seller] failed to submit a response to claim. In addition, [Seller] has not stated any excuse within the meaning of Art. 96(1) ZPO, with the consequence that [Seller] is to be regarded as in default and a default judgment is to be handed down against him (Art. 101(5) ZPO).
b) In the case of default, the facts and pleadings put forward by the non-defaulting party are allowed, to the extent that the claim is not obviously inadmissible or unfounded on the files and the law (Art. 102(1) ZPO). The authoritative facts of the case are to be taken from the factual allegations of the non-defaulting party, to the extent that evidence to the contrary is not apparent from the files. However, the pleadings of the non-defaulting party are only to be allowed to the extent that they can be established under the applicable law on the basis of the determined facts of the case (ZWR 1992 p. 205 reason 1c with references).
The [Buyer] bought from the [Seller] a second-hand CNC-machine with a turntable, which had previously been offered to it, on the basis of digital pictures, as a "good-as-new" machine which had only been in partial operation in England for four years. As security for the purchase price, the [Buyer] obtained an irrevocable payment promise from the Raiffeisenbank Naters on 3 December 2002, payable to the [Seller]. The parties had only met once in Basel for the purpose of contractual negotiations. The [Buyer] did not visit the [Seller]'s factory to view the machine. Although the [Seller] demanded monthly rent for storage in a warehouse, he had stored the machine unprotected out in the open for more than a year.
When the machine was delivered in October 2003, it turned out that it was completely rusty. The lack of conformity was immediately communicated to the [Seller] before assembly commenced. After the material had been dispersed and the assemblers had begun their work, it was determined that the machine was not functional. Although the [Seller] was given the opportunity to assemble the machine if it offered security, [Seller] did not make use of this offer and, subsequently, nothing was heard from him. By the [Buyer]�s letter dated 25 November 2003, the [Seller] was therefore requested to collect the machine by mid-December. As this deadline passed without the [Seller] collecting the machine, by letter dated 22 December 2003, [Seller] was again asked to collect the machine -- by mid-January 2004. Subsequently, the [Seller] neither collected the machine nor did he attempt to cash in the irrevocable payment promise from the Raiffeisenbank Naters.
4. a) Initially, the [Buyer] requested that the contracts concluded between the parties be declared to be non-binding and avoided (legal pleadings No. 1).
aa) According to Art. 35(1) CISG, the seller is to deliver goods that correspond to the amount, quality and type as well as packaging or form of transport agreed upon in the contract. In the absence of agreement of the parties, the goods are then in conformity with the contract, among other factors, only if they are suitable for the ordinary purpose of goods of the same type (Art. 35(2)(a) CISG). The buyer is to examine the goods or have them examined within the shortest period possible under the circumstances (Art. 38(1) CISG). If the contract requires transport of the goods, the examination of the goods can then be postponed until the goods have arrived at their final destination (Art. 38(2) CISG). If the buyer is relying on a non-conformity in the goods, he must give the seller notice of such non-conformity within a reasonable period of time after he becomes aware of the non-conformity, and must thereby precisely describe the type of non-conformity (Art. 39(1) CISG). For the purpose of describing the nature or type of the non-conformity within the meaning of Art. 39(1) CISG, it is sufficient if the buyer communicates that the machine is not functional. He is not required to also describe the causes of the functional disturbances (BGE [*] 130 III 258 reason 4.3 in fine).
If the seller fails to fulfill one of its obligations under the contract or this Convention, the buyer can exercise the rights provided for in Articles 46-52 CISG and claim damages under Articles 74-77 CISG (Art. 45(1)(a) and (b) CISG). According to Art. 49(1)(a) CISG, the buyer can declare the contract avoided if the non-performance by the seller of one of its obligations under the contract or this convention constitutes a fundamental breach of contract. A breach of contract is fundamental if it results in such detriment for the other party so as to substantially deprive it of what it was entitled to expect under the contract unless the breaching party did not foresee, or a reasonable person in the position of the breaching party could not have foreseen such detriment under the same circumstances (Art. 25 CISG; cf. also Keller/Siehr, ibid, p. 199; Conrad, ibid, pp. 39 and 74). However, if the seller has delivered the goods, the buyer loses its right to declare the contract avoided if it, in a case other than that of later delivery, does not declare the contract avoided within a reasonable period of time after it becomes aware of the breach of contract or ought to have become aware of it (Art. 49(2)(b)(i) CISG). Thereby, the avoidance of contract does not take place ex lege, but rather, requires an unambiguous declaration of the buyer free from particular formal requirements (cf. Art. 26 CISG; Conrad, ibid, p. 76 et seq.). The buyer loses the right to avoid the contract if it is impossible for him to return the goods in the same state in which he received them (Art. 82(1) CISG).
The buyer who alleges a fundamental breach of contract bears the burden of satisfying the elements of the claim. Therefore, it must allege and prove those facts that allow the conclusion that, due to the breach of contract, it has been fundamentally deprived of what it was entitled to expect under the contract. The buyer also bears the burden of demonstrating that it satisfied the formal requirements for avoidance of contract. In this way, the buyer must, for example, show and prove that it communicated the declaration of avoidance within a reasonable period of time after discovering the breach of contract (Conrad, ibid, p. 91; cf. also Keller/Siehr, ibid, p. 161).
bb) In the case at hand, the parties agreed on the purchase of a "good-as-new" machine. This is undisputed in the present default proceedings, but can, in any case, be seen explicitly from the confirmation of order of the [Seller] dated 20 January 2003, in which the [Seller] expressly describes the machine as "good-as-new" (p. 10). In this way, it goes without saying that a "good-as-new" machine must also be understood as implying the ability to function. In any case, the [Seller]'s confirmation of order expressly provided for the "commencement of operation [of the assembled machine] (...) by [the [Seller]'s] personnel" (p. 11), which, in turn, clearly indicates that both parties had assumed that the machine was able to function and that this, thereby, constituted a term of the contract. Therefore, based on the concluded sales contract, the [Buyer] could expect that the machine functioned and would be put into operation by the [Seller]'s personnel. Thereby, the machine's inability to function and the fact that it was never put into operation, without a doubt, constitute a fundamental breach of contract within the meaning of Art. 25 CISG.
The [Buyer] notified the [Seller] of the machine's (general) inability to function immediately after delivery in October 2003, and before assembly commenced (cf. facts 8, 9 and 10). The notification of the lack of conformity thereby took place within a reasonable period of time (Art. 39(1) CISG; cf. also Art. 38(2) CISG) and suffices, as already seen, as a description of the type of lack of conformity within the meaning of Art. 39(1) CISG. With its letter dated 25 November 2003, the [Buyer] then declared the contract avoided (p. 12). As delivery took place sometime in October 2003 -- there is no need to determine the precise date -- and the [Seller] was offered the possibility of assembling the machine upon giving a guarantee, which, however, it did not do, and subsequently failed to contact the [Buyer] (facts 11 and 12), and the goods were not perishable, the Cantonal Court regarded the declaration of avoidance as being made within a reasonable period of time (Art. 49(2)(b)(i) CISG). Here, on the basis of the files, it has to be taken into account that the [Buyer] initially had various people (electronic mechanic, civil engineer, a metal construction tradesman, pressurized air technician) make reports on the machine (p. 13), which was also time-consuming. On the basis of the foregoing, the formal requirements for the declaration of avoidance have been met. Thus, as it is not apparent from the files that the [Seller]'s performance can no longer be restituted in the same condition in which it was originally made (Art. 82(2) CISG), nothing is standing in the way of an avoidance of contract. Accordingly, the sales contract concluded between the parties is avoided.
b) The [Buyer] then makes the pleading that it should be authorized to destroy the machine within the scope of the avoidance of the contract (legal plea point 2).
The avoidance of the contract releases both parties from their primary contractual obligations (Art. 81(1), first sentence, CISG). Accordingly, in particular, the obligations to pay the purchase price - which in casu is not open to debate as payment was never made -, to deliver the goods and documents (Herber/Czerwenka, Internationales Kaufrecht, UN-Übereinkommen über Verträge über den internationalen Warenkauf, Munich 1991, para 2 on Art. 81 CISG) cease to exist. If the goods have already been delivered, they are to be returned (Art. 81(2), sentence 1, CISG). Thereby, through the avoidance of contract, an obligation to make restitution (Rückgewährschuldverhältnis) arises (Herber/Czerwenka, ibid, para 7 on Art. 81 CISG; cf. also Keller/Siehr, ibid, p. 223). Here, the place of performance for the restitution of the goods is the place of residence of the buyer (Herber/Czerwenka, ibid, para 12 on Art. 81 CISG, with further references).
Owing to the above reasons, the [Buyer] is to return the delivered machine to the [Seller], whereby restitution can take place at the [Buyer]'s seat in [...], notice of which is hereby expressly made to the [Seller]. Therefore, an authorization to destroy the machine is out of the question. Point 2 of the legal plea is therefore dismissed.
c) The [Buyer] further applies for the cancellation of the irrevocable payment promise of the Raiffeisenbank Naters, as well as the release of the blocked amount of EUR 29,040.-(legal plea point 3). However, this application fails to acknowledge that, in this regard, there was no legal relationship between the parties at all, as although the bank had given the payment promise on behalf of the [Buyer] (under its previous company name), it had actually been given to the [Seller]. In any case, the Raiffeisenbank Naters regards the payment promise in question as redundant (p. 23), with the consequence that the requested cancellation of the payment promise appears to be doubtful per se. In any case, it is neither alleged by the [Buyer], nor apparent from the files, that the amount in question was actually blocked by the bank to the [Buyer]'s detriment. Therefore, a discussion on point 3 of the Claim shall not be entered into.
d) Finally, the [Buyer] requests that the [Seller] pay CHF 5,000.- for the storage of the machine and the loss of sales (legal plea point 4).
Facts that establish a right -- in the same way as facts that revoke a right -- must be alleged by the parties in the form and within the time limit required by the Cantonal procedural provisions, to the extent that the negotiation norm applies (Vogel/Spühler, Grundriss des Zivilprozessrechts, 7th ed., Berne 2001, 10th chapter para 54 et seq.). According to the Civil Procedure Regulations of the Canton of Valais, the parties must generally present the facts that are, in their opinion, fundamental to the outcome of the proceedings in their legal documents in a substantiated form (Art. 126(1)(d), Art. 130(1)(c) and (d) ZPO [*]). In this way, according to Art. 126(1)(d) ZPO, the plaintiff must allege the facts upon which it bases its plea in the claim itself (ZWR [*] 2003 p. 148 reason 3a, with further references). If a party claims damages under Art. 74 et seq. CISG, then it must show the scope and causality of the damage (Herber/Czerwenka, ibid, para 13 on Art. 74 CISG).
In the present case, although the [Buyer] demands damages of CHF 5,000.- for the storage of the machine and the loss of sales in its legal plea, in its allegations of fact, it does not make any reference to why it had expenses for the storage of the machine or what losses of sales it suffered. Thereby, the [Buyer] has failed to satisfy its duty to claim and substantiate with respect to the damages asserted, even within the scope of default proceedings. In any case, in this regard, the files are not helpful either. Therefore, point 4 of the legal plea is dismissed.
5. a) The process costs are usually borne by the losing party. If neither party is entirely victorious, then they are distributed proportionally (Art. 252(1) ZPO). In the present case, the [Buyer], in its plea, demands the avoidance of the contract with a converted purchase price of approximately CHF 44,500.-, but, however, fails on points 2 to 4 of its plea. The latter comprises a claim for damages in the amount of CHF 5,000.-. However, it was the claiming party itself. In contrast, the [Seller] was in default and is to be viewed as the main losing party. On a complete view, it is justifiable to allocate 1/10 of the costs to the [Buyer] and 9/10 to the [Seller]. Such allocation applies (regarding the [Buyer]; cf. b)/bb) below) to the party compensation (Art. 260(1) ZPO).
1. The sales contract concluded on 3 February 2003 between [Buyer] and [Seller] regarding the CNC-machine with turntable is avoided.
In the remainder, the [Buyer]'s claim is dismissed, or was not further discussed.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Switzerland is referred to as [Buyer] and the Defendant of Germany is referred to as [Seller]. Amounts in the currency of Switzerland (Swiss francs) are indicated as [CHF]; amounts in European currency are indicated as [EUR].
Translator's notes on other abbreviations: AG = Aktiengesellschaft [Swiss limited liability company]; BGE = Entscheidungen des Bundesgerichts [Official Reporter of Cases of the Swiss Supreme Court]; GestG = Bundesgesetz vom 24. März 2000 über den Gerichtsstand in Zivilsachen [Federal Law on Jurisdiction in Civil Matters]; IPRG = Bundesgesetz über das internationale Privatrecht [Swiss Code on the Conflict of Laws]; OG = Bundesgesetz über die Organisation der Bundesrechtspflege [Swiss Federal Code on Court Organization]; SR = Swiss systematic collection of Federal law; ZPO = Valais Civil Procedure Regulations; ZWR = Zeitschrift für Walliser Rechtsprechung. [Valais case law reports].

References: Art. 100
 Art. 1
 Art. 1
in casu
 Art. 5
 Art. 2
 Art. 17
 Art. 1
 Art. 31
 Art. 5
 Art. 16
 Art. 46
 Art. 23
 Art. 1
 Art. 6
 Art. 100
 Art. 1
 Art. 99
 Art. 96
 Art. 35
 Art. 39
in fine
 Art. 49
 Art. 26
 Art. 25
 Art. 38
 Art. 39
in casu
 Art. 81
 Art. 81
 Art. 81
 Art. 130
 Art. 126
 Art. 74
 Art. 74