Source: http://cisgw3.law.pace.edu/cases/031029s1.html
Timestamp: 2019-04-19 22:23:56+00:00

Document:
The dispute in question involved the sale of movable partitions by an Italian supplier to a company whose head office was in Switzerland. The seller sued for payment of the outstanding balance on the sale price before the lower court, which ruled in its favour on the principle. The buyer lodged an appeal against that decision.
The Court of Appeal of the Canton of Ticino, ruling on the dispute as the higher court, held the CISG to be applicable in accordance with its article 1(1)(a), since the two parties had their places of business in different contracting States. The court observed, however, that the defects cited by the buyer were due not to the quality of the partitions but to their installation. In accordance with article 79(2) CISG, the seller was liable only if the two persons in charge of the installation were acting at its request. According to the court, the burden of proof lay with the buyer. The court concluded that no such proof had been provided and ordered the buyer to pay the price.
Pursuant to article 57(1)(a) CISG, the seller's place of business was taken as the place of performance of the payment. The indication of a bank account by the seller did not change the place of performance but merely entitled the buyer to discharge its debt by effecting settlement to that account. Payments made to the aforementioned two persons, whom, according to the principles set forth in article 8 CISG, the buyer had the right to regard as representatives of the seller, had to be allocated to the latter against the sale price before the indication of the aforesaid account.
In the name of the Republic and the Canton of Ticino, the Second Civil Chamber of the Court of Appeals comprising as judges: Cocchi, president, Chiesa and Rampini (substitute judge) and secretary Bettelini, vice chancellor, seated to decide Case No. OA.97.5 of N... P... (Italy) [Seller], represented by Attorney Carlo Luigi Caimi, Lugano (Switzerland) v. H... of Lodrino [Switzerland] [Buyer], represented by Attorney Sara Gianoni Pedroni, Bellinzona [Switzerland].
The [Buyer], with submissions of 16 January 2003, asks the court to reject this joining appeal.
A. Between the end of the month of July and the beginning of the month of August, 1995, [Seller] proceeded with the supply and installation of Extra standard model pareti mobili [modular wall partitions] to [Buyer] for the price of Sfr 54,830. They were placed in the workshop of the heliport of Lodrino [Switzerland]. Subsequently, in the months of September and October, 1995 [Seller] proceeded with a second supply of Model D... modular wall partitions, which were to be installed in the offices of this plant. For this last supply, [Seller] issued two invoices: one for Italian lira [It�] 27,790,000 (doc. B) and the other for It� 37,495,500. (doc. F), for a total of It� 65,285,500 (doc. G). According to an account statement of 10 January 1996 it turns out that [Buyer] had deposited two payments of Sfr 15,000 each and that the outstanding balance was of It� 23,793,500 (doc. G).
B. With its petition of 4 February 1997, [Seller] had brought an action against [Buyer] to have [Buyer] be ordered to pay the sum of It� 23,793,500, equivalent to Sfr 19,748.65, referring to the second work order and shipment, also with interest at a rate of 14 percent, accruing from 30 November 1995, along with incidentals.
The [Buyer] opposed this claim, alleging that the price of the Extra standard and D... modular wall partitions came to a total sum of Sfr 102,000 and that payments were made to the [Seller] for a total amount of Sfr 90,000 (Sfr 20,000 on 3 August 1995; Sfr 40,000 on 25 September 1995; Sfr 15,000 on 11 October 1995; Sfr 15,000 on 7 November 1995), and that the outstanding balance is, therefore, Sfr 12,000 and not Sfr 19,748.65. It was replied that the installation of the D... modular wall partitions was done through R..., which represented the [Seller] in Ticino. The compensation had been set at Sfr 22,000 and was invoiced separately and was reconciled on 19 December 1995. [Buyer] refused to pay the balance and withheld Sfr 12,000 as a set-off for the little value the work had as the D... modular wall partitions were not sufficiently soundproof: sounds could be heard from one place to the other. The [Buyer] complained further that the [Seller] had not provided a guarantee equivalent to 10 percent of the cost of the work that had been undertaken.
C. With the judgment of 11 September 2002, the district judge partially accepted [Seller]'s request to hold the [Buyer] liable for Sfr 14,578.65, with interest of 14 percent accruing from 10 January 1996, rejecting definitively, meanwhile, the appeal to the executive writ, which was limited to this sum. According to the district judge, the D... modular wall partitions were not installed by the [Seller], but by Messrs. G and D, who had acted on their own and not as representatives of the [Seller]. The defect revealed by the [Buyer] came down to the installation of the wall partitions, which should have reached the height of the tiles of the ceiling in order to avoid the transmission of sounds from one place to another. With that, the [Seller] could not be charged any responsibility for the defect in supplying the D... modular wall partitions, which qualitatively conformed to the order. Concerning the payment of the price, the district judge observed that in order to determine the sum, it would be necessary to take account of both of the supply shipments, which equaled Sfr 104,578.65 total. As the [Buyer] had tendered Sfr 90,000, the outstanding balance amounted to Sfr 14,578.65.
D. On appeal, the [Seller] only worsened its situation against this judicial finding, assuming that the D... modular wall partitions were not actually installed by Messrs. B and G themselves, as the district judge has held, but by the [Seller]. G and B, directly or through R..., were the representatives of [Seller] in Ticino. The contract foresaw not only the provision of the wall partitions, but also their erection or installation. The fact that the installation was invoiced separately is an irrelevant circumstance, because from the testimony amassed in the course of the preliminary investigation and in the recorded documentation it appears that B and G were acting on behalf of the [Seller]. The [Seller] is therefore responsible for the defective installation of the wall partitions, which were not installed up to the unfinished structural ceiling. Notification of the defect was made in a timely manner on 21 March 1996, or, in other words, several weeks after the [Buyer] took possession of the premises. The [Buyer] adds that, in a case in which the notification of the defect is late, a seller is not freed of its responsibility, because in this case [the Seller] knew that the D... modular wall partitions, in contrast to the Extra standard ones, were sound-absorbent and were ordered to guarantee an optimal isolation between the warehouse and the administrative offices. As the expert has quantified the costs for the repair of the defects at Sfr 16,000 and as the price for both of the supply shipments was equivalent to Sfr 124,614 (including the installation of the D... modular wall partitions for Sfr 22,000) and the [Buyer] made payments for a total of Sfr 112,000, the outstanding balance is Sfr 12,284 that could be paid in compensation of [Buyer]'s claim of Sfr 16,000.
In timely filings, the [Seller] specified that the subject of this dispute refers to the second supply shipment and not to the first; that was settled. Concerning the supply of the D... modular wall partitions, it was observed from the confirmation of the order that Mr. E G (who ran the management of the works on behalf of the [Buyer]) separated the costs pertaining to the installation. The invoice, issued the day after the delivery of the goods, indicated "only the supply" and not also the installation. [Buyer] accepted the goods and made two installment payments of Sfr 15,000 each, for a total of Sfr 30,000, therefore leaving one remaining payment of It� 23,793,550, equivalent to Sfr 19,748.65. The installation of the wall partitions took place through the work of G and B, who were acting on their own and not as representatives of the [Seller]. G and B did in fact submit an invoice in the amount of Sfr 22,000 and personally deposited said sum of money from the [Buyer]. The [Seller] then proceeded with the delivery of non-defective modular wall partitions, which corresponded to the promised quality. Notification of the defects would have, however, been late according to the rules of the Convention of the United Nations [on Contracts for the International Sale of Goods], as well as under either Italian or Swiss law.
In addition, with the appello adesivo [joining appeal], the [Seller] declares that it received [installment] payments amounting to only Sfr 85,000 and not Sfr 90,000 as the district judge held. An amount equaling Sfr 5,000 was withheld by G, who had no power to deposit any sum of money on behalf of the [Seller]. G and B were only sales agents.
In response to [Seller]'s appello adesivo [joining appeal], the [Buyer] alleges that B and G were representatives of the [Seller] authorized to receive payments.
1. There is a dispute between the parties as to whether Italian law or the United Nations Convention on Contracts for the International Sale of Goods - hereinafter CISG -, signed in Vienna on 11 April 1980 (S.R. 0.221.221.1), is applicable to the matter of this controversy. Italy, where the [Seller] has its offices, ratified the treaty on 1 January 1998. In Switzerland, where the [Buyer] has its offices, the international convention has been in force since 1 March 1991. In the presence of an international sales contract, concluded between two companies having their places of business in [different] States that have adopted the CISG, the treaty is applicable to the controversy, according to CISG Art. 1(1)(a) (decision of 28 November 2002 4C.296/2002 comment 2a and 15 September 2000, 4C.105/2000 comment 2a; Neumayer/Ming, Convention de Vienne sur les contrats de vente internationale de marchandise: commentaire, No. 3 to Art. 2; Tercier, Le contrats spéciaux, 3a ed. No. 1366; CR CO I, Venturi, Intro. art. 184-215 No. 10). The CISG not only applies to cases in which the seller undertakes to deliver the goods, but also in the case in which he undertakes to install the goods; this all being true, the installation must be an optional service (CISG Art. 3(2), conversely; Gauch, Der Wekvertrag, 4a ed. No. 371; Tercier, op. cit. No. 1362). In the case under review, the matter turns essentially on the issue of knowing whether the installation of the D... modular walls was an integral part of the obligation assumed by the seller. In one of the theses put forth by the parties to this suit, the CISG is applicable, since the delivery of the modular wall partitions constitutes the preponderant part of the contract and is of a greater value in the performance of the entirety of the contract in dispute (CR CO I, Chaix, Intro. art. 363-379 No. 6; Gauch, op. cit. No. 372). The CISG is applicable in a comprehensive manner, since it governs the entirety of the contract, or rather the formation of it and also the rights and obligations assumed by the parties as well as the consequences of a breach. In principle, the additional application of national law is excluded (sentence 15 September 2000, 4 C. 105/2000 comment 2a). In the case being examined, there are issues to be resolved: the amount of the sales price that must still be paid (CISG Art. 53 et seq.), as well as the presence of defects in the supply of the D... modular wall partitions (CISG Art. 36 et seq. and Art. 79).
2. According to CISG Art. 36(1) the seller is responsible for any defect in the conformity existing at the moment of the transfer of risk to the buyer, even if such defect becomes apparent only after that moment. The district judge, relying correctly on the expert report, revealed that the spread of sounds through the dividing walls of the administrative offices was greater than the amount usually tolerated and the cause could have been identified specifically in missing connections between some parts of the dividing walls and the raw concrete floor slab, as well as with the flooring. Whereas the connection of the dividing wall partitions with the raw concrete slab had been done, it was found that the passage of sounds was greater than that usually tolerated, (probably) because of some holes (appraisal pp. 8-9). The responsibility of the [Seller] has nevertheless been ruled out, since these defects do not relate to the material that has already been supplied, which is in compliance with technical standard ISO R717 and has a sound absorbing power of 47dB (expert's supplementary report p. 5); instead, it relates to the installation, which has been executed by the [Seller], though in actuality by B and G. The [Buyer] declares that G and B together with R... were the representatives in Ticino of [Seller] and that the performance anticipated from the contract included not only the delivery of the ordered goods, but also the installation.
2.1 According to CISG Art. 79, if a party's breach is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability (Art. 79(2)(a)) mainly if he shows that such failure was due to an independent failure beyond its control and that it could not reasonably have been expected to take into consideration at the moment of the conclusion of the contract, to have avoided it or overcome it, or to have avoided or overcome the consequences of it (Art. 79(1)).
CISG Article 79(2) has as its scope maintaining the responsibility of the seller if he relies on third parties for the total or partial execution of the contract. The seller's employees and suppliers are not considered third parties according to the CISG, though they are subjects who, autonomously or as independent parties, fulfill a part or the whole of the contract (Magnus, Kommentar zum UN-Kaufrecht, No. 17 and 19 to Art. 79; Herbots/Dessemontet, La responsabilité du fait des auxiliaries et la garantie des vices cachés in: Les ventes internationales, CEDIDAC No. 36 pg. 45; Neumayer/Ming, op. cit. 8 and 9 to Art. 79). More generally, the individuals that are charged - by the seller and after the conclusion of the contract - with the fulfillment of the existing obligations toward the buyer are considered third parties according to the CISG (Ming/Neumayer, op. cit. No. 9 to Art. 79). They are, in particular, the carriers that deliver the merchandise to the seller and the subcontractors that are assigned by the seller to carry out the finish work (Magnus, op. cit., No. 15 to Art. 79).
2.2 One can therefore hypothesize a responsibility on the part of the [Seller] for the defects related to the installation of the D... modular wall partitions only if B and G, and R..., were charged by the [Seller] to carry out this service. The [Seller] has defended the theory that the sales contract only concerned the delivery of the ordered goods, while the installation, unlike with the Extra standard wall partitions, was excluded. [Seller] limited itself to invoicing the supply of the D... wall partitions (doc. F), even if the order confirmation also foresaw, from the outset, the installation (doc. A). From the proceedings, it appears that the installation of the wall partitions was done by B and G for Sfr 22,110 (doc. 10); it is not in question that it was they who did it. In dispute is the whether they received the task directly from the [Seller] or from the [Buyer]. From the documents that were acquired in the proceedings, it is not possible to presume that this task had been entrusted to B and G. Witness G, who took care of the planning and design and the general management of the construction of the Lodrino heliport testified that the supply and the installation of the D... wall partitions was dealt with by the [Seller]. In the first part of his testimony, he related that the material should have been furnished directly from the [Seller], while the installation was entrusted to the care of B and G. The witness had not known how to respond when asked why the installation of the modular wall partitions was invoiced separately (record of the hearing of 15 January 1998, p. 1). He has, however, specified and added that it was he who removed the installation from the confirmation order (p. 3), while witness V (record of the hearing of 21 April 1998, p. 3) related that the section with the entries referring to installation had come during the negotiations, confirming that the [Seller] was not given the task of proceeding with the installation. B has admitted that the installation of the D... wall partitions was assumed by them (G and B) for practical purposes, as much as for economic reasons, since this work "would have cost Sfr 10,000 more" [emphasis in original text] (record of the hearing of 15 January 1998, p. 5) if it had been done by the [Seller]. The witnesses for the [Seller], V (record of the hearing of 21 April 1998, p. 3) and C (record p. 5), also confirmed that the installation of the D... wall partitions had been entrusted to G and B. The testimony of G (record of the hearing of 6 July 1998, p. 8 et seq.) and of P (record of the hearing of 21 April 1998, pp. 7-8) appear, based on this circumstance, confusing and conflicting with the other issues of this suit, for which they are unusable for the purposes of rendering a decision. Meanwhile, F (record of the hearing of 6 July 1998, p. 3) has declared that B and G comported themselves at the construction site and in the negotiations as representatives of [Seller]. It cannot be clearly deduced with sufficient certainty, nor does it emerge from either of these testimonies, that it was the [Seller] who granted the duty to B and G to go ahead with the installation of the D... modular wall partitions. If anything, there are some indications that can tend toward a different solution having regard to the circumstances. Indeed it would seem that the [Seller] had himself offered to proceed with the installation of the wall partitions (cf. order confirmation; doc. A) and that the initiative to split it up happened at the command the director of the workers E and G in order to directly entrust this task to G and B, at least tacitly. From these records it cannot, however, be concluded that B and G assumed this role upon the grant of the [Seller]. In the absence of certain evidence, the burden of proof to this end falls on the [Buyer]. The decision of the district judge is therefore upheld, without the need to examine if there was a timely notification of the defects or if the withheld amount of Sfr 12,000 was legitimate.
3. According to Art. 53 CISG, the buyer is obligated, according to the conditions anticipated by the contract and the CISG, to pay the sales price and to accept the delivery. As per CISG Art. 57, if the buyer is not required to pay the price in another particular place, he must pay the seller at the seller's permanent place of business (Art. 57(1)(a)) or, if the payment is to be against the delivery of goods of documents, then in the place in which the delivery is made.
3.1 As for the place of payment, the [Seller] had communicated to the [Buyer] on 19 September 1995 through R..., that the deposits were to have been posted to the account of [Seller] with the Banca Commerciale Italiana, industrial zone branch, Padova [Italy] (doc. 9). The mention of a bank account is not equivalent to the choice of the place of payment, but must be understood as an agreed-upon authorization to the buyer to pay a third party with a redeeming effect (Tercier, op. cit. No. 1511). It follows, in principle, that all the payments, in the absence of an agreement to the contrary, could have had a redeeming effect if they had been made to the offices of the [Seller] in Piove di Sacco [Italy] or with the Banca Commerciale Italiana in Padova. In this case, not all payments were made through bank deposits. The district judge assumed that B and G were not only sales agents of [Seller] in Ticino as the [Seller] claimed, but were real and true representatives authorized to receive payments.
3.2 According to CISG Art. 8, statements made by and other conduct of a party are to be interpreted according to the intention of the latter, if the other party knew or could not have been unaware of such intention (Art. 8(1)). Likewise, the behavior of one party must be interpreted according to the understanding a reasonable person of the same kind as the other party would have had in the same circumstances (8(2)). To ascertain the intention of one party or the understanding that a reasonable person would have had, it is necessary to take account of the relevant circumstances, in particular to the negotiations that may have occurred between the parties, to the practices that have been established between them and to any further conduct of the parties (8(3)). The CISG is governed by the principle of reliance (Melis, Kommentar zum UN-Kaufrecht, No. 2 to Art. 8) that is common to numerous legislation and is applied to the expressed declarations and to communications, but also to the persuasive conduct exhibited before or after the conclusion of a contract (Neumayer/Ming, op. cit. No. 1 to Art. 8; Melis, op. cit. 3 and 14 to Art. 8). In the case in question, it is not in controversy that the [Buyer] has effectuated payments of Sfr 90,000 for both of the supply shipments. The [Seller] has, however, only received Sfr 85,000 - as against a total price of Sfr 104,578.65, of which Sfr 54,830 for the first shipment and Sfr 49,748.65 for the second (cf. District Court sentence, comment 8). With respect to the circumstances, one must consider that after the communication of 19 September 1995 (doc. 9), no payment could have had a redeeming effect if it was not tendered to the office of the [Seller] or to the account that had been indicated by the [Seller] through R.... On the other hand, in light of the circumstances, one must reasonably admit that G and B acted in Switzerland as representatives of the [Seller], which, at least apparently, had given the [Buyer] the impression of carrying out a service that went beyond the simple identifying of the customer. It was for G and B to confirm the order of the Extra standard model modular wall partitions and to request payment (doc. 3), as well as to maintain close contacts with DL (E... G...) in view of the execution of the contract (for the payments and for the installation of the Extra standard wall partitions. In good faith, the [Seller] cannot reasonably place in discussion these close business dealings, since on 13 February 1996 it felt it must revoke the powers of representation of G and B (doc. 2). In August of 1995, the [Seller] had accepted a cash payment and had not alerted the [Buyer] that similar means of payment would no longer be accepted. If the facts are such, it must be acknowledged that all the payments that had been made into the hands of G before the communication of 19 September 1995 were going to be calculated at the price of the sale for both supply shipments, having regard to the climate of confidence that they, to the satisfaction of the [Seller], had created for the [Buyer] concerning payment of the sum in cash. The [Buyer] forwarded the two payments to the account of the [Seller]: one of Sfr 40,000 on 25 September 1995 (doc. 7) and the other of Sfr 15,000 on 7 November 1995 (doc. 13). In the hands of G, the [Seller] went ahead with two payments: the first through the delivery of a check with a face value of Sfr 20,000 dated 3 August 1995 (doc. 4) and the second, in cash, of Sfr 15,000 on 11 October 1995 (doc. 12). From the court proceedings it seems that G, in the month of August 1995, deposited an amount of money in cash to the [Seller], though it is unknown if that sum was deposited in its entirety or only partially (cf. witnesses V, record p. 3, and P p. 7). G, for certain, withheld Sfr 5,000 on one of these two payments. If we are examining the first payment, the [Buyer] would be freed of its obligation to pay, while if we are examining the second, then no. With a likelihood that verges on certainty, from the examination of the documentation it can be thought that the payment of Sfr 15,000 on 11 October 1995 was credited to the business accounts of the [Seller], because [Seller] entered it into its books shortly thereafter, that is, on 17 October of that year. Undoubtedly, it can therefore be thought that G withheld Sfr 5,000 from the first payment of Sfr 20,000, which he deposited for [Seller], or rather at a moment in which one could believe, in good faith, that he was authorized to receive payments from the [Buyer] on behalf of the [Seller]. That put, the decision of the district judge, also on this point that is the object of this joined appeal, deserves confirmation.
1. The appeal of 7 October 2002 of [Buyer] H... SA, Lodrino is rejected.
already paid in advance by the Appellant [Buyer], remaining at his duty with the obligation to refund to the Appellee [Seller] Sfr 800 for recurring costs.
3. The joining appeal of 3 December 2002 of [Seller] N..., Piove di Sacco (I) is rejected.
already paid in advance by the Joining Appellant [Seller], remaining at his duty with the obligation to refund to the opposing party Sfr 350 for recurring costs.
Communication to the district judge of the District of Riviera.
For the Second Civil Chamber of the Court of Appeals: The President; The Secretary.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee and Joining Appellant of Italy is referred to as [Seller] and the Defendant-Appellant of Switzerland is referred to as Buyer. Amounts in the currency of Switzerland (Swiss francs) are indicated as [Sfr]; amount in the currency of Italy (Italian lira) are indicated as [It�].
Translator's note on other abbreviations: CPC = Codice di procedura civile [Swiss Code of Civil Procedure]; LTG = Legge sulla Tariffa Giudiziaria [Swiss Law on Court Fees]; TOA = Tariffa dell'Ordine degli avvocati [Fee of the Bar Association]; UEF = Uffici di esecuzione e fallimento [Office of Execution and Bankruptcy (of the Canton of Ticino, Switzerland)].
** Joseph Gulino, Esq., graduate of Law and International Affairs, University of Pittsburgh School of Law and Graduate School of Public and International Affairs, alumnus Willem C. Vis International Commercial Arbitration Moot (2003).

References: v. 
 Art. 1
 Art. 2
 art. 184
 Art. 3
 art. 363
 Art. 53
 Art. 36
 Art. 79
 Art. 36
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 53
 Art. 57
 Art. 8
 Art. 8
 Art. 8
 Art. 8