Source: http://cisgw3.law.pace.edu/cases/980921s1.html
Timestamp: 2019-04-18 10:32:48+00:00

Document:
An Italian printer, plaintiff, produced books and an art exhibition catalogue for a Swiss publisher, defendant. The buyer refused to pay the purchase price, claiming lack of conformity.
The court held that the buyer had failed to comply with its duty to notify the seller of the lack of conformity with sufficient specificity. Fulfillment of the requirement of specificity, the court explained, should put the seller in the position of having been adequately informed as to the lack of conformity. Notification in general terms is therefore not enough, although this requirement should not be exaggerated. A more precise description can be expected from a specialist than from a lay person (article 39(1) CISG). Moreover, the court rejected the buyer's argument as to the lack of conformity; of several alleged defects, the proven defect amounted to one line being out of place in the catalogue, which did not in any way impede the legibility of the text. The court stated that, although a seller can be held liable even for a non-essential lack of conformity, this is only if the defect lowers the value of the goods (article 35 CISG).
1. Plaintiff [Seller], an Italian company, runs a printing business. Defendant [Buyer] is a limited company (Aktiengesellschaft) seated in K [Switzerland]. [Buyer] publishes and distributes books, and also holds shares in other enterprises engaging in this business (act. 4/1).
2.1. Concerning [Seller]'s printing of works of Sam Francis, [Buyer] submits the following: Immediately after the printings had been published, it transpired that in the eyes of many art experts as prospective customers, the prints suffered substantial defects, i.e., a print error as well as several discolorations. The defects made the products very difficult to sell. They further led to withdrawals of orders that had been proposed to [Buyer] by some of its other customers.
A further problem arose within the printing of the English version of a book on the pottery works of E.S. The items which had been directly delivered to [Buyer]'s customer "C.B." suffered from several defects. Consequently "C.B." has so far refused to make any payment to [Buyer] and [Buyer]'s business relations with "C.B." had considerably deteriorated.
Eventually, [Buyer] refused to continue with the agreement which had been concluded orally --according to common usage -- between [Buyer] and C. acting on behalf of [Seller]. In this agreement it had been stipulated that [Seller] would print the Italian version of the book on E.S.'s pottery and the marketing for Italy would be arranged either by [Seller] directly or through a chosen licensee. [Buyer] alleged that [Seller]'s proper printing and marketing of the Italian version had been an essential condition ("conditio sine qua non") for further orders by [Buyer] concerning the printing of the book's other editions. However, [Seller] had failed to comply with its contractual duties ever since. [Seller] was to provide for the organization of an art fair for the exhibition of E.S. However, [Seller]'s befriended contractor C did not set out such event, although this also had been an essential condition for [Buyer] choosing [Seller] as its business partner. Consequently, [Buyer] found another Italian publisher to realize its projects. And [Buyer] alleges losses through this substitute transaction. The damages resulting from the named problems have yet to be substantiated and quantified. [Buyer] proposes that they be substantiated and quantified through the taking of evidence by the Court. To the extent yet to be quantified, [Buyer] declares a set-off against [Seller]'s claim of the damages that [Buyer] suffered (act. 7).
The catalogue of Sam Francis's exhibition did indeed contain a print error. It was on page 115. This, however, did not amount to a devaluation of the product, as the true meaning of the text was still comprehensible. Concerning the discoloration of the cover motive, comparison with page 83 shows that the variance in color ranges within the usual scale. It is due to the paper that had been selected as well as the gloss foil which had been used for the cover. The value of the catalogue could not have possibly have been decreased by that.
The alleged defects of the book "E S - C" cannot be substantiated. [Buyer]'s presumptions are based on the fact that "C. B." so far refuses payment for the items. [Buyer] as well as its customer "C. B." had the opportunity to examine the delivered books, irrespective of whether they had been in possession of so-called "m"'s which meanwhile had been given back to [Buyer] anyway.
It had not been agreed between the parties whether [Seller] should publish the books in Italy. [Buyer] is therefore not entitled to damages which could be set-off against [Seller]'s claim.
As the case concerns relations between an Italian [seller] and a Swiss [buyer] the question of applicable law has to be addressed. The CISG in general (with the exception mentioned in Art. 1(1)(b) CISG) applies unconditioned by the norms of private international law (Keller/Siehr, Kaufrecht, 3rd ed., Zürich 1995, page 156).
The parties are seated in different Contracting States to the Convention. The relevant business transactions were concluded at a time when the Convention had been validly incorporated into the law of both countries. Hence, the case falls into the spatial and temporal scope of the Convention (see Keller/Siehr, ibidem, pp. 168, 171 et seq.). The CISG primarily applies to cases concerning the international sale of goods. However, according to Art. 3(1) CISG, it also applies to contracts for the supply of goods to be manufactured or produced, which are to be considered sales unless the party who orders the goods undertakes it to supply a substantial part of the materials necessary for such manufacture or production. In contrast to Art. 365(1) of the Swiss Law of Obligations (Obligationenrecht; OR), such a contract in its entirety will be considered a sales contract.
[Seller] has acknowledged that it supplied the materials necessary for the production of the books that [Buyer] ordered (protocol p. 3). Hence, the transactions at issue are governed by the CISG as far as they qualify under Art. 3(1) CISG and as far as the matters in question fall within the scope of CISG regulations (Keller/Siehr, ibidem, p. 163; von Caemerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht, 2nd ed, Muenchen 1995, Art. 3 note 3). Otherwise, Italian national law applies (Art 118 of the Swiss Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG), Art 1(3) of the Hague Convention, concerning international sales of goods).
3. [Buyer]'s declared set-off concerns -- at least in part -- claimed compensation for deficient deliveries. [Buyer] alleges that it received deficient and hence devaluated goods. [Buyer] further appears to claim damages due to lost profits (see act. 7 page 4 et seq. No. 9, 10).
3.1.a. In the pleading of 11 December 1996, [Seller] alleged that [Buyer] had failed to give notice under Art. 39 CISG concerning the presumed print error in the catalogue of Sam Francis's works (act 1 page 9 et seq.). In subsequent proceedings, this point remained undisputed (act. 7). The Court therefore has to assume that no notice about the print error had been given.
It might be considered whether the Court was under a duty to independently inquire into this questions as stated in Par. 55 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO). However, this would require that the pleadings of one party had been incomprehensible, inconclusive or unclear. This has not been the case. [Buyer] did not make any submission at all with respect to notice on the print error (see act. 7 pp. 4, 5), despite the fact that the incompleteness of [Buyer]'s submissions on this point had been hinted at by [Seller] in its counter reply (act. 16 p. 2, see judicial practice as confirmed in ZR 84 No. 52 E. 3a). As [Buyer] did not submit a rejoinder, the Court -- as explained to the party within the proceedings -- has to regard [Buyer]'s submissions made to this point as final (protocol page 6). It does not fall within the responsibility of the Court to reverse [Buyer]'s preclusion from amending submissions of facts, which is due to the party's own negligence (see Part. 132 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO). For these reasons, a judicial duty to inquire into the facts at issue cannot be assumed. It also has to be noted that, under the principle of adversarial proceedings, the Court is barred from assuming facts in favor of a party, which this party is not relying upon -- no matter whether these facts may be inferred from other documentary evidence (see Frank/Straeuli/Messmer, Kommentar zur Zuercherischen Zivilprozessordnung, 3rd ed., Zuerich 1997, Par. 54(2) ZPO note 1; ZR 95 No. 12).
As [Buyer] failed to give notice of the presumed print error in the Sam Francis catalogues as required under Art. 39 CISG, [Buyer] is deprived of the right to claim damages or a price reduction on that account. [Buyer] cannot rely on the exception as provided under Art. 44 CISG.
3.1.b. [Buyer] would not have been entitled to a price reduction or to damages due to the print error in any event: According to Art. 35(1) CISG, the seller must deliver goods which are of the quantity, quality and the description required by the contract and which are contained or packaged in the manner required by the contract. The seller is liable for any lack of conformity. However, only in case of a fundamental breach of contract may the buyer declare the contract avoided (Art. 49(1) CISG) or require substitute deliveries (Art. 46(2) CISG). Otherwise, buyer is left with a claim for damages provided under Art. 74 CISG and a reduction of the price as stated in Art. 50 CISG. In the latter case, Art. 50 requires that the goods actually delivered had been devaluated at the time of the delivery. When pursuing damages, the buyer has to prove that he suffered loss due to the breach of contract (von Caemerer/Schlechtriem, ibidem, Art. 35 note 32).
The claimed print error is located on page 115, left column, line three of the catalogue. According to [Seller]'s submissions which remained unquestioned by [Buyer], the error emerged when due to an electro-static effect a five letter particle stuck on the printing prototype (act. 1 page 9), thus removing five letters from their proper position. The text "M B", however, is undisputedly readable. [Buyer] thus cannot seriously claim that, due to this minor flaw, the products had been devaluated. [Buyer]'s further submissions that due to this one error the catalogues, comprising more than a hundred pages, could not have been sold easily, nor that due to this error [Buyer] lost orders which had already been proposed by other customers (act. 7 page 4). [Buyer] itself did not try to further substantiate these claims before the Court.
As a result, [Buyer] is not entitled to reduce the price or claim damages due to the print error in the Sam Francis catalogue.
3.1.c. [Buyer] also claims that the cover print of the Sam Francis catalogues suffered from discoloration. As to this defect, [Buyer] is also required to give specified notice within reasonable time under Art. 39 CISG in order to claim damages or a reduction of the price under the Convention. However, [Buyer] did not submit anything to sustain the notification of [Seller] concerning this defect. Therefore, following Par. 54 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO) it must be assumed that [Buyer] did not comply with its duty to notify, and hence may not rely on the lack of conformity of the catalogues due to the presumed discoloration of the cover. The Court, again, must not assume facts supporting the pleading of one party if this party does not submit these facts during trial (see Frank/Straeuli/Messmer, Kommentar zur Zuercherischen Zivilprozessordnung, 3rd ed., Zuerich 1997, Par. 54(2) ZPO note 1; ZR 95 No. 12).
Consequently, the Court is not bound to enquire into the facts under Par. 55 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO), as [Buyer]'s submissions on notice given to [Seller] about the presumed discoloration had been neither unclear nor inconclusive but were simply missing altogether. Again, [Buyer] did not submit a rejoinder after [Seller] in its pleadings had mentioned the incompleteness of [Buyer]'s submission on this point (see again ZR 84 No. 52 E. 3a). As explained above, the Court draws from Par. 132 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO) not to be responsible for a party's preclusion to submit amending facts which is due to its own shortcomings.
Therefore [Buyer] cannot rely on claims to damages or a reduction of the purchase price due to the presumed discoloration of the covers of the books that [Seller] delivered.
3.1.d. To summarize, [Buyer] does not derive any claims from the transaction concerning the printing and delivery of the Sam Francis catalogues that might be set off against [Seller]'s claim.
3.2.a. Concerning the book " E S - C", [Buyer] claims that neither [Buyer] nor its American customer had the opportunity to examine the goods, because [Seller] failed to return the "m" 's (act. 7 p. 5). Yet, in subsequent proceedings [Buyer] admitted having since been provided with the requested documents by [Seller] (act. 7 p. 5; see act. 1 p. 12). The disputed question of whether these documents indeed had been necessary in order to examine the delivered books is irrelevant. Unquestionably, [Buyer] had eventually got possession of the "m " at least at the time when [Buyer] submitted its reply to the Court. Yet, [Buyer]'s reply at no point mentions a postponed examination of the goods or a subsequent notification to [Seller] specifying defects that might have been found within this examination. In its reply, [Buyer] merely states that "the prints suffered from defects, which led "C.B." to so far withhold its payment to [Buyer]" (act. 7 p. 5 No. 10).
Even if this could be considered as notice within a reasonable time, the claimed defects were by no means specified. According to Art. 39 CISG, the buyer has to specify the nature of the lack of conformity of the sold goods if it wants to rely on it. This provision aims to provide the seller with necessary information about the lack of conformity of the goods the seller delivered. The standards concerning sufficient specification of the lack of conformity should not be overstated. However, the mere claim of the goods simply being deficient is not enough. Neither is [Buyer]'s statement that "the prints suffered from defects, which led "C.B." to so far withhold its payment to [Buyer]" (act. 7 p. 5 No. 10), nor do [Buyer]'s other submissions sufficiently specify the nature of the presumed defects. The requirements of Art. 39 CISG have not been met. In this respect, it must be noted that where the buyer is an expert in the relevant field, higher standards of specification under Art. 39 CISG may apply (see von Caemerer/Schlechtriem, ibidem, Art. 39 note 6 et seq.).
3.2.b. As [Buyer] failed to give specified notice within a reasonable time as required by Art. 39 CISG, [Buyer] loses its right to claim a reduction of the purchase price or damages due to these presumed defects of the "E S - C " books that [Seller] delivered.
3.3. In summary, [Buyer] cannot rely on damages nor on a price reduction; neither from the transaction concerning the Sam Francis catalogues nor concerning the "E S - C" books.
4.1. [Buyer] failed to substantiate and quantify its claims for compensation and reduction of the payment that was due: In insisting that its suffered losses were to be quantified within the course of the taking of evidence by the Court, [Buyer] appears to resort to Par. 61(2) of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO). This rule allows a plaintiff unable to substantiate its suffered losses at the time of commencement of action to do so later within the course of the taking of evidence. Hence, this provision constitutes an exception to the general principle that any monetary claim has to be quantified within the principal proceedings (Hauptverfahren), in cases in which the claimant would otherwise be impaired in its pursuit of a substantive federal action. The exception applies in cases of unquantifiable damages in the sense of Art. 42(2) of the Swiss Law of Obligations (Obligationenrecht; OR), where damages cannot be substantiated at all, but might reasonably be inferred from the circumstances of the case, or when the losses have not yet fully materialized. A further exception might be allowed in cases in which damages can only be substantiated by the testimony or the submission of other evidence by the other party (see Frank/Straeuli/Messmer, ibidem, Par. 61 ZPO notes 25 et seq.). However, it cannot be derived from these exceptions -- neither from Art. 42(2) of the Swiss Law of Obligations (Obligationenrecht; OR), nor from Par. 61(2) of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO) -- that a party like [Buyer] can be exempted from the burden of proof to provide the court with facts necessary to sustain and quantify the damages it claims (see Frank/Straeuli/Messmer, ibidem, Par. 61 ZPO note 25).
4.2.a. A devaluation of the goods occurs, when due to a lack of conformity with the contract, the value of the goods actually delivered at the time of delivery reaches below the value conforming goods would have had at that time. This relative way to assess the decreased value of goods is prescribed in Art. 50 CISG. The reduction of the price must be in the same proportion as the value of the defective goods bears to the value of conforming goods of the requested kind (see von Caemerer/Schlechtriem, ibidem, Art. 50 CISG note 2).
4.2.b. [Buyer] did not make the slightest attempt to quantify the devaluation of the presumably defective products -- neither the Sam Francis catalogues nor the " E S - C " books. [Buyer] further failed to submit anything on the price for the goods that had been agreed with [Seller]. These relevant facts must not be taken from the bills that had been submitted - which, in any event, concern the relevant transactions only in parts -- as [Buyer] had not even mention these bills. They had been submitted by [Seller] (see ZR 95 No. 12). Even in case the submitted bills would provide relevant details towards the agreed purchase price for the two goods, they do not indicate the quantity of goods that had actually been delivered within these transactions and how many of these had been deficient. Hence, due to lack of relevant information, the decreased value cannot be assessed in the way prescribed in Art. 50 CISG. The call of any amount as reimbursement for both deliveries would not have sufficed either, as under Art. 50 CISG for each particular transaction the price could be reduced to the proportion the value of delivered goods bore to the value conforming goods would have had at the time of delivery.
It must be assumed that [Buyer] should have been fully able to provide all the relevant information required under Art. 50 CISG. [Buyer] had been under the legal duty to keep books of these transactions according to Art. 957 of the Swiss Law of Obligations (Obligationenrecht; OR). [Buyer] further seems not to be aware that any taking of evidence relies upon the parties' prior substantiated submission of relevant facts which had been in dispute between them (Vogel, Grundriss des Zivilprozessrechts, 4th ed., Bern 1995, Note 79a page 253). As regards information supporting its claim which [Buyer] obviously would have been able to provide well within the principal proceedings (Hauptverfahren), [Buyer] could not rely upon its vague and undetailed statements that [Buyer] asked to be substantiated by the taking of evidence by the Court.
Again the Court does not assume a judicial duty to inquire into unsubstantiated facts: [Buyer] did not submit anything of relevance to sustain the devaluation of delivered products under Art. 50 CISG (see Par. 55 of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO). That the submissions had been entirely inconclusive -- and in fact completely missing -- on these points must have been obvious to [Buyer]'s legal counsel, who had to be aware of his client's responsibilities under the adversarial principle to submit (Behauptungslast) and substantiate all facts relevant to his pleadings. As repeatedly stated above, the Court is not willing to reverse a party's preclusion to submit further evidence, which is due to its own negligence.
Due to the lack of relevant sustained facts, the Court is unable to quantify or even estimate the price reduction claimed to be due to deficient deliveries. Concerning the Sam Francis catalogues, the Court further refers to its reasoning under 3.1.b.: the print error did not amount to any decrease in the value of the products. Concerning the other books, the Court is not surprised at the incompleteness of [Buyer]'s submissions, regarding the inconsiderable deviances the delivered goods bore that can be inferred from other evidence. Based on these minor flaws, a price reduction was hardly indicated.
4.2.c. The Court's considerations towards [Buyer]'s responsibility to provide (Behauptungslast) and sustain (Substantiierungslast) relevant facts for its pleadings hold also true for [Buyer]'s claim of lost profits.
Here again, [Buyer]'s submissions are scarce and vague. [Buyer] only claimed that, due to the lack of conformity of the Sam Francis catalogues, its customers withdrew proposed orders. Due to the alleged defects of the "E S - C" book, [Buyer] insists that it suffered additional damages as these led to a considerable deterioration of its relationship with its customer "C.B." (act. 7 p. 4 et seq., No. 9, 10). Yet, as usual, [Buyer] does not further specify the presumably withdrawn orders. Neither does [Buyer] provide the names of its customers, who had proposed such orders. Nor does [Buyer] specify the nature of these transactions. Information on the prospective volume of these businesses is equally missing. [Buyer] does not explain how a deterioration of its relationship to "C.B." had materialized into quantifiable damages. Moreover, [Buyer] does not give any reason to assume that it would have been unable to provide these relevant facts in support of its claim. Hence, no such reason can be inferred. The vague and unspecified statements made by [Buyer] are by no means sufficient to sustain [Buyer]'s claim of lost profits. Par. 61(2) of the Swiss Code of Civil Procedure (Zivilprozessordnung; ZPO) does not apply. As concerns a judicial duty to independent fact inquiry, the Court refers to its reasoning above (4.2.b.).
4.2.d. [Buyer] failed to provide concrete substantiated facts to support its claims for price reduction and damages due to the deliveries of Sam Francis catalogues and " S E - C" items. Therefore these claims are unjustified.
4.3. As far as [Buyer]'s claims are derived from presumed transactions with befriended companies of [Seller] (see act. 7 p. 5 et seq.), the submissions are unsubstantiated as well. [Buyer]'s claim for damages relying on a presumed non-compliance of its business partner could not be quantified. Besides, [Seller] disputes the very existence of such transactions. Based on [Buyer]'s inconclusive and vague submissions, the Court is unable to presume a quantifiable damage having occurred.
[Buyer] insistence that such transactions had been an essential condition, i.e., a "conditio sine qua non", for giving the order to [Seller] to print the "E S - C " books (act. 7 p. 5. et seq., No. 11) is entirely irrelevant.
5. From the above findings (3. to 4.), it must be concluded that [Buyer] may not declare any set-off against [Seller]'s claim. [Buyer]'s claims for damages and price reductions must be considered unjustified. Therefore, [Seller]'s claim is to be granted to the full extent.
6. [Seller] demands 15% interest on the claimed amounts from the date the payments became due as determined in the invoices.
According to Art. 78 CISG, if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest. The Convention grants interest simply if the other part fails to pay when payment is due -- without further requirements (see von Caemerer/Schlechtriem, ibidem, Art. 78 note 9 et seq.). The date of due payments from which interest may be claimed onwards is undisputed and well established by documentary evidence (see, e.g., act. 4/2 "Data di scadenza").
Art. 78 CISG does not determine the rate of interest. The national law applies as referred to by the conflicts of law rules of the lex forae. Art. 3(1) and Art. 1(3) of the Hague Convention state that a sales contract is governed by the law of the State of the seller's habitual residence (Art. 118(1) of the Swiss Act concerning Private International Law (Internationales Privatrechtsgesetz; IPRG)). [Seller] is seated in Italy. According to Art. 1284 of the Italian Civil Code (Codice civile), a party may claim 10% interest for money in arrears. Further irretrievable damages have not been claimed. Therefore, [Seller] is entitled to 10% interest on the amounts due since the day payment had become due according to the submitted invoices.
- 10,879,400.00 L (Italian lire) plus 10% interest since 29 February 1996.
As concerns claimed interest overreaching these amounts, the [Seller]'s claim is dismissed.
* All translations should be verified by cross-checking against the original text. For purposes of this presentation, the Plaintiff of Italy is referred to as [Seller]; the Swiss Defendant is referred to as [Buyer].

References: Art. 1
 Art. 3
 Art. 365
 Art. 3
 Art. 3
 Art 1
 Art. 39
 Art. 39
 Art. 44
 Art. 35
 Art. 74
 Art. 50
 Art. 50
 Art. 35
 Art. 39
 Art. 39
 Art. 39
 Art. 39
 Art. 39
 Art. 39
 Art. 42
 Art. 42
 Art. 50
 Art. 50
 Art. 50
 Art. 50
 Art. 50
 Art. 957
 Art. 50
 Art. 78
 Art. 78

Art. 78
 Art. 3
 Art. 1
 Art. 1284