Source: http://cisgw3.law.pace.edu/cases/070830s1.html
Timestamp: 2017-07-22 06:39:51
Document Index: 573136970

Matched Legal Cases: ['art. 49', 'Art. 2', 'Art. 2', 'Art. 1', 'Art. 1', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 35', 'Art.\n35', 'Art.\n74', 'Art. 45', 'Art. 39', 'Art. 39', 'Art.\n39', 'Art. 39', 'Art. 49', 'Art. 25', 'Art. 49', 'Art. 26', 'Art. 49', 'Art. 49', 'Art. 49', 'Art. 49', 'Art. 50', 'Art. 78', 'Art. 78', 'Art. 78', 'Art. 118', 'Art. 3', 'Art. 78', 'Art. 79']

Switzerland 30 August 2007 District Court Zug (GMS modules case) [translation available] Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography Search the entire CISG Database (case data + other data) CISG CASE PRESENTATION
Switzerland 30 August 2007 District Court Zug (GMS modules case) [translation available] [Cite as: http://cisgw3.law.pace.edu/cases/070830s1.html] Primary source(s) of information for case presentation: Case text Case Table of Contents
DATE OF DECISION: 20070830 (30 August 2007) JURISDICTION: Switzerland TRIBUNAL: Kantonsgericht [District Court] Zug JUDGE(S): Dr. Meyer (Präsident); lic. iur. Scherer und Furrer CASE NUMBER/DOCKET NUMBER: A3 2006 79 CASE NAME: Unavailable CASE HISTORY: Unavailable SELLER'S COUNTRY: France BUYER'S COUNTRY: Switzerland GOODS INVOLVED: GMS Modules UNCITRAL case abstract
SWITZERLAND: Cantonal Court of the Canton of Zug, 30 August 2007 (GMS modules case) Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/93],
CLOUT abstract no. 938
The case under consideration concerned proceedings brought by a French firm in the electronics sector
against a firm, based in Zug, operating in the same sector. The subject of the dispute was the plaintiff's
claim for payment of the sale price in respect of an order for 5,000 GSM modules and other items. For
its part, the defendant alleged defects in the modules, namely that they produced echoes and their
sound volume was not adjustable.
The court deliberated at length on the contents of notice of a lack of conformity, in accordance with
article 39 (1) CISG, and the admissible period for giving such notice, but concluded that the defendant
had in any event failed to demonstrate that the defects had been reported and thus it could not rely on
the lack of conformity of the goods.
As further justification, the court affirmed that the defendant could declare the contract avoided only if
there was a fundamental breach of contract within the meaning of article 25 CISG. For such a breach
to exist, it was not sufficient that the defect could not be remedied. Avoidance of the contract was
admissible only insofar as any other use of the goods, which was consistent with normal business
practice and linked to a reduction of the price, proved impossible or could not reasonably be
demanded. That was not so in the present case, since the defendant could incorporate the modules in a
simpler item of equipment without any adjustment of the sound volume. Also, the defendant was unable to prove that it had made a declaration of avoidance within the meaning
of article 26 CISG. The facts did not reveal any declaration by the defendant to the effect that it was no
longer willing to perform the contract owing to a breach of contract.
Finally, the defendant had to pay the full sale price still outstanding. The defendant was not allowed any
deduction of damages by way of set-off, since the defendant had not sufficiently detailed the alleged
The court granted the plaintiff interest on arrears, computed from the due date of payment of the
amount claimed, pursuant to article 78 CISG. In line with the prevailing opinion of the Swiss courts, the
rate of interest was fixed pursuant to national law as determined by Swiss private international law, in
the present case French law.
APPLICATION OF CISG: Yes APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issue: Articles 25 ; 26 ; 35 ; 39 ; 49 ; 50 ; 78 [Also cited: Articles 45 ; 53 ; 74 ] Classification of issues using UNCITRAL classification code
39A11 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller in reasonable time; Degree of specificity required];
49A ; 49B [Buyer's right to avoid contract; Buyer's loss of right to declare avoidance after delivery: failure to avoid within period specified in art. 49(1)(a) and (b)];
Descriptors: Avoidance ; Fundamental breach ; Conformity of goods ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity ; Reduction of price, remedy of ; Interest Go to Case Table of Contents Editorial remarks
CITATIONS TO TEXT OF DECISION Original language (German): CISG-online.ch website <http://www.globalsaleslaw.com/content/api/cisg/urteile/1722.pdf>; SZIER (2008) 187-192 Translation (English): Text presented below CITATIONS TO COMMENTS ON DECISION Unavailable Go to Case Table of Contents Case text (English translation)
30 August 2007 [A3.2006.79]
LEGAL MOTION OF [SELLER]
The Court should order [Buyer] to pay [Seller] Euros [EUR] 200,000 plus 5% interest since
The objection filed before the Debt Enforcement Office in Cham (objection no. 2052050) on
5 October 2005 over Swiss francs [Sfr.] 311,720 (= EUR 200,000) plus 5% interest since
22 October 2004 should be revoked. [Seller] should be allowed to continue enforcement of
this claim and the corresponding costs.
All costs incurred in relation to the present legal proceedings should be borne by [Buyer].
REQUESTS OF [BUYER] IN DEFENSE
[Seller]'s action should be dismissed in its entirety.
[Seller] should be ordered to take back the 5,000 modules in question.
All costs incurred in relation to the present legal proceedings should be borne by [Seller].
By e-mail of 30 August 2004 ([Seller]'s exhibit 4), the former subsidiary of [Buyer]
(domiciled in Neuhausen am Rheinfall, Switzerland; cf. [Seller]'s exhibit 22) ordered from
[Seller] (domiciled in Paris) 7,000 GSM modules "MO110d" at a price of EUR 41 per
- 2,000 modules were to be delivered by 3 September 2004 and the remaining 5,000 modules
were to be delivered by 17 September 2004. - According to [Seller]'s undisputed submission, these modules constitute electronic cards which contain certain components and software applications and which are used as an integrated part in devices for the transmission and reception of data by wireless communication.
On 15 September 2004, [Buyer]'s subsidiary once again contacted [Seller] concerning another
order of 4,000 "Pin Female MO110d" at a price of EUR 0.80 per item ([Seller]'s exhibit 7). 2,000
modules were delivered directly to [Buyer]'s subsidiary. Upon [Buyer]'s request, the remaining
5,000 modules were shipped by air freight to Mobiltech Ltd. in Hong Kong on 25 September 2004
([Seller]'s exhibit 8). By letter dated 22 September 2004, [Seller] invoiced against [Buyer]'s subsidiary the sum of EUR
205,000 with respect to the 5,000 modules which had been shipped to Hong Kong as well as EUR
3,200 for 4,000 items "Pin Female MO110d", thus constituting a total sum of EUR 208,200
([Seller]'s exhibit 9). After [Seller] had reminded [Buyer]'s subsidiary by e-mail of 28 September 2004 to pay EUR
82,000 for the delivery of the first consignment of 2,000 modules by 30 September 2004, [Buyer]'s
subsidiary informed [Seller] on the same day that it would not be able to comply with this time limit
due to the fact that some of its more important customers were in arrears, as well ([Seller]'s exhibit
10). In its subsequent e-mail of 14 October 2004, [Seller] reminded [Buyer]'s subsidiary again to pay the
first installment of EUR 82,000, especially with reference to the fact that the second installment of
EUR 208,200 would become mature by 22 October 2004 ([Seller]'s exhibit 13). In its response of 15 October 2004, [Buyer]'s subsidiary declared that it would be able to perform
the respective payments only as soon as it was able to deliver its mobile phones to Vodafone, which
-- in turn -- depended on [Seller]'s assistance concerning the selection of the correct hardware and
on [Seller]'s offer of a software for "audi-tuning" ([Seller]'s exhibit 14). In the course of further
correspondence, [Seller] continued to urge [Buyer]'s subsidiary to settle its claims. Thereupon, the latter presented a payment schedule, which provided for payment of all unsettled
claims by 15 February 2005 ([Seller]'s exhibit 14 and 15). [Buyer] failed to comply with this
payment schedule. [Seller] requested enforcement of its claim for Sfr. 317,331, whereupon [Buyer]
filed an objection on 6 October 2005 ([Seller]'s exhibit 17). By letter dated 10 October 2005,
[Buyer] justified its objection and alleged that the modules delivered by [Seller] could not be
(properly) used with the newly produced software applications ([Seller]'s exhibit 19).
[Seller] filed an action before the District Court (Kantonsgericht) Zug on 26 September 2006 and
made the legal applications mentioned above. It initially claimed the sum of EUR 203,600, which
corresponded to Sfr. 317,331 and thus to the amount in which respect the objection had been filed
before the Office for the Enforcement of Payment Claims in Cham (objection no. 2052050). [Seller]
justifies its claim as follows:
- [Buyer] -- represented by its CEO and Administrative President Mr. Gerhard Pütter and by Mr. Petzold of the Development Department -- had signed an "Acceptance Document
Customer" with respect to the former version of module MO110d on 26 November 2003
and another one with respect to the current version of the module on 25 June 2004. These
documents confirmed that the customer would accept the product (device and software)
after testing procedures in the current configuration. - Subsequently, [Seller] had solely delivered such modules to [Buyer]'s subsidiary which had undergone the testing procedures according to the abovementioned declaration and which it
had apparently considered appropriate for its purposes. [Seller] had therefore been
surprised by [Buyer]'s demand for an implementation of certain modifications with respect to
the modules in its e-mail of 15 October 2004 and by [Buyer]'s further demand for assistance
in implementing such modifications. Apparently, [Buyer] had merely sought to use its
inconsistent conduct in order to prevent the legal enforcement of the payment by [Seller]. - The modules in question would be distributed by a large number of different customers
without any problems. It was for each individual buyer to adapt the code of its software
application to the module and not vice versa. [Buyer] -- who had initially used a different
module -- had been aware of the fact that it would have to adapt the code of its application
in order to use the module which it purchased from [Seller].
[Buyer] would be liable to pay the purchase price for the goods which had been delivered by
[Seller] in accordance with the contract.
In its statement of defense of 30 November 2006, [Buyer] requested the Court to dismiss
[Seller]'s action and to order [Seller] to pay all costs of the proceedings. At the same time,
[Buyer] requested the Court to order [Seller] to take back the 5,000 modules which had
been delivered to Hong Kong. In eventu, namely if the Court should allow [Seller]'s action
(in part), [Buyer] has requested the Court to be granted an appropriate time limit in order to
specify the exact damage which it incurred as a consequence of [Seller]'s deliveries. In the
alternative, [Buyer] has also requested the Court to dismiss [Seller]'s action concerning any
claim in excess of EUR 195,400. [Buyer] justifies its requests as follows:
- [Seller] would conceal the fact that it had already delivered 5,000 modules to [Buyer] from 2003 until June 2004. These modules had contained a number of different defects, e.g., they
had not allowed stable audio playback. [Seller] had remedied the perceptible defects until
June 2004, which was the reason why [Buyer] signed the "Acceptance Document
Customer". It would be absurd to argue that the signing of this declaration constituted an
anticipated confirmation that future deliveries would be without any lack of conformity. - The first 2,000 of all modules delivered on 30 August 2004 had been immediately tested by
[Buyer]. As these modules had as well been defective, [Buyer] had immediately notified
[Seller] of the defects. After a series of telephone calls, [Buyer] had confirmed this
notification in writing on 22 September 2004. On 4 October 2004, Mr. Gerhard Pütter and
Mr. Pysniak had visited the [Seller] in order to remedy the defects by way of a joint testing
procedure. [Buyer] would have been burdened with additional costs of Sfr. 43,000 for the
purchase of a testing device. Hence, it refrained from purchasing it. - Thereupon, [Buyer] had also tested some of the modules which had been delivered to Hong
Kong and determined that they were defective as well. The software installed onto the
modules did not work in a stable manner. Moreover, the modules would not allow the user
to adjust the volume, which -- instead -- was preset by the software, despite [Seller]'s
express statement that the speaker volume could in fact be adjusted. Although the modules
were useless for [Buyer], [Seller] had firmly denied the possibility to return the modules. - [Buyer] had installed 2,000 of the modules into another device without volume adjustment.
However, this had forced [Buyer] to apply a price reduction of EUR 34 per device. With
respect to the modules delivered before June 2004, [Buyer] had been forced to offer its
customers a recall and to install the modules of a competing manufacturer. - Furthermore, [Seller] had claimed an excessive amount, because it had failed to consider two payments by [Buyer] of EUR 4,100 each.
Additional submissions and case history
By letter of 6 December 2006, the officer of the District Court (Kantonsgericht) Zug asked
[Buyer] whether it wanted to file a counterclaim. In that case, the value of the dispute would
have to be determined in order to allow the Court to determine the advance on costs. By
submission of 15 December 2006, [Buyer] refrained from the filing of a counterclaim.
In its counterplea of 5 March 2007, [Seller] declared to stick to its requests and made
additional submissions as follows:
- [Seller] distributed its modules exclusively among professional customers. Among all
available products, these customers chose a certain module in accordance with their technical
and functional specifications. In this context, [Seller] offered an "evaluation kit", which
contained all devices necessary in order to evaluate the functionality. After this evaluation of
functionality, the customer would decide whether it intended to commence development on
the basis of the module so chosen and, if applicable, confirm its acceptance of the module
using the "Software Acceptance" contained in the "Acceptance Document Customer". This
procedure corresponded to an official acceptance. - With respect to the integration of the ordered module into the respective final product, each customer would have to develop its own software and hardware. The development process
led to the production of an operational prototype. [Buyer]'s argument that its acceptance
would not be relevant for future deliveries was absolutely incorrect. There was no instability
of the software installed onto the modules. Contrary to [Buyer]'s argument, the e-mail of 22
September 2004 did not constitute any confirmation of a previous notification of a lack of
conformity. - This e-mail merely indicated [Seller]'s willingness to assist [Buyer] in the course of the
development of hardware and software for the integration of the module into the final
product, which however was [Buyer]'s own responsibility. The module itself was not
responsible for the problems set out by [Buyer]. Therefore, [Seller] had not offered [Buyer]
a device for the testing of the modules for Sfr. 43,000, but rather a testing device which
could be used to test mobile phones after production in respect to their conformity with the
GSM standard in terms of audio. - Moreover, audio problems might be caused by a number of factors. [Buyer] had not relied
on any lack of conformity of the delivered modules before [Seller] had authorized a debt
collecting agency. [Buyer] had merely submitted commercial reasons for its non-payment of
[Buyer] let the time limit for the submission of another rejoinder elapse. Its request for a time
extension of 10 April 2007 was submitted too late.
In the oral hearing of 3 May 2007, [Seller] modified its legal motion (see above for the
modified motion). [Buyer] has reiterated its requests for dismissal of the action and for an
order against [Seller] to take back the 5,000 modules. Where necessary, the following
reasoning makes reference to the arguments submitted by the parties before the Court.
1. The parties have their places of business in different Contracting States of the Lugano
Convention (SR [*] 0.275.11). The territorial jurisdiction of the petitioned Court must be
determined primarily according to this international treaty. However, Art. 2(1) Lugano
Convention solely provides for an international jurisdiction of the courts of Switzerland. The
application of Art. 2 IPRG [*] establishes territorial jurisdiction of the District Court
(Kantonsgericht) Zug. Since this dispute has an international dimension, the Swiss Federal Statute on the Conflict of
Laws (IPRG, SR 291) would in general be the relevant body of law to determine the
applicable substantive law. Art. 1(2) IPRG, however, contains a reservation with respect to
international treaties. According to Art. 1(1)(a) United Nations Convention on Contracts for
the International Sale of Goods of 11 April 1980 (CISG, SR 0.221.211.1), this Convention
applies to contracts of sale of goods between parties whose places of business are in
different Contracting States. Both Switzerland and France are Contracting States, to the
effect that the present action must be assessed according to the CISG.
[Purchase price claim]
2. The present action deals with a purchase price claim asserted by [Seller] arising out of an
order of 30 August 2004 concerning 5,000 GSM modules "MO110d" at a price of EUR 41
per module ([Seller]'s exhibit 4). Furthermore, the action deals with another order of 15
September 2004 of 4,000 items "Pin Female MO110d" at a price of EUR 0.80 each
([Seller]'s exhibit 7). [Buyer] does not contest that these deliveries have been performed in
their entirety. However, [Buyer] does allege in its defense that the delivered modules had
been defective. In particular, that there had been echoing sounds and that the volume could
3. Pursuant to Art. 35(1) CISG, the seller must deliver goods which are of the quantity,
quality and description required by the contract and which are contained or packaged in the
manner required by the contract. The goods are not in conformity if they lack the
characteristics agreed upon by the parties or -- in the absence of a particular agreement
between the parties -- if they do not comply with the relevant objective minimum standard
(Magnus, Kommentar zum UN-Kaufrecht, Berlin/Heidelberg/New York 1997, Art. 35
margin numbers 10 et seq.). The goods must be fit for all purposes for which goods of the
same description would ordinarily be used by an average user (cf. Art. 35(2)(a) CISG).
Moreover, the goods must be fit for any particular purpose expressly or impliedly made
known to the seller at the time of the conclusion of the contract, except where the
circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on
the seller's skill and judgment (cf. Art. 35(2)(b) CISG). Goods must also possess the
qualities of goods which the seller has held out to the buyer as a sample or model (Art.
35(2)(c) CISG). [Notice requirement]
If the seller delivers goods which are not in conformity with the contract, the buyer may (a)
exercise the rights provided in Arts. 46-52 CISG and (b) claim damages as provided in Art.
74-77 CISG (cf. Art. 45(1) and (2) CISG). In order to exercise the rights provided in Arts.
46-52 CISG (avoidance of contract, reduction of the purchase price, et cetera), the buyer
must examine the goods within as short a period as is possible and notify the seller of any
lack of conformity within a reasonable time. The buyer loses the right to rely on a lack of
conformity of the goods if he fails to give notice thereof or if he does not specify the nature of
the lack of conformity (cf. Art. 39(1) CISG). The buyer remains obliged to perform all
obligations under the contract, namely, to accept the goods with any defects and to pay the
purchase price as a consequence therto (cf. Magnus, Art. 39 margin number 27). In the following, the specific requirements of a sufficient notice of non-conformity must be
determined and it must be assessed whether [Buyer] has properly notified the alleged defects
of the modules delivered by [Seller].
3.1 The requirement that the nature of the lack of conformity be specified is intended to
put the seller in a position to understand the asserted lack of conformity and to take the
necessary steps to gather any required evidence for possible future legal proceedings about
the question of conformity, to initiate either a substitute delivery or a repair of the goods, and
finally to take recourse against its own supplier. On the other hand, the required standard for
the specification of the lack of conformity must not be set too high. In order to describe the
duty of the buyer, a standard of both objective and subjective elements must be applied. This
standard takes the positions of both the buyer and the seller in their commercial transaction
into account, any possible cultural differences as well as, in particular, the nature of the
goods. Possibly, an expert can be expected to give a more specific account of a lack of
conformity than a layman. Under the CISG, any general complaints ("not alright",
"inadequate characteristics", "wrong delivery", "poor quality", "bad construction") as well as
any general statements of dissatisfaction ("not according to our expectations") are clearly
insufficient notices. The buyer will be expected to identify whether and to which extent he
relies on an insufficient delivery, which specific deviations in terms of quality are complained
about, and in what respect the delivered goods form a mere aliud compared with the goods
owed under the contract. If the buyer has carried out an examination of the goods, he will
have to inform the seller about the main results. However, in case of machinery and technical
equipment, the buyer can only be expected to give an account of the symptoms but not of
their respective causes. The notification does not require any specific form, so that a
notification over the telephone may be appropriate. With regard to the applicable time limit,
the circumstances of the individual case must be considered, including any trade usages and
established practices between the parties. If the buyer wants to keep the goods and merely
claim damages or claim a reduction of the purchase price, the time limit may be longer
compared with a case where the buyer seeks to reject the goods. Since a variety of different
opinions exists with respect to the question of a "reasonable time" throughout the Contracting
States of the CISG, a rough average duration of one month should be assumed. The period
commences as soon as the buyer has become aware of the lack of conformity of the goods
(cf. Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, 3rd ed., Munich 2000, Art.
39 margin number 6 et seq.).
3.2 According to [Buyer]'s own account, it immediately tested the first consignment of
2,000 out of 7,000 modules after the delivery had been performed on 31 August 2004. It
should be noted that the payment of the purchase price for these modules is not a subject of
the present action. [Buyer] stated that it had identified the lack of conformity of these
modules prior to 22 September 2004 and that it had notified [Seller] of the defect over the
telephone. Allegedly, the notification had been confirmed in writing on 22 September 2004.
However, the e-mail submitted by [Buyer] of 22 September 2004 (defendant's exhibit 1) is
not sufficient to prove such confirmation. Mr. Bruno Letellier (employee of [Seller]) only
stated in this e-mail that he would make the relevant documents for the revision of the
software available and that he would also furnish basic information for audio testing. It
follows from the overall context that the "software to be revised" apparently does not refer to
the software which was installed on [Seller]'s modules, but to software which was to be
developed by [Buyer] itself for the purpose of integration of the module into its final product
(mobile phones). For instance, this could be derived from [Buyer]'s e-mail of 15 October
2004 ([Seller]'s exhibit 14), where [Buyer] requested [Seller] to supply the necessary
information for the selection of the correct hardware and to make an offer for an "audio-tuning software". This was even more apparent on the basis of [Buyer]'s letters of 22 and 25
April 2005 ([Seller]'s exhibit 24), where [Buyer] justified its non-payment with reference to
the fact that there had been delays with the initial development of its software. In any event,
[Seller]'s willingness to supply [Buyer] with information for a revision of its software could
not constitute an admission of the defectiveness of [Seller]'s software. Even fully functional
software needed to be revised from time to time, especially if it did not conform to the user's
needs. However, it was obviously for [Buyer] to identify this. [Buyer] was allowed to test the
modules and, subsequently, it signed a declaration according to which it accepted the
software in its current configuration ([Seller]'s exhibit 6). [Seller]'s e-mail of 14 June 2004
([Seller]'s exhibit 6) originates from the time prior to the respective evaluation phase. Despite
the fact that it had not been fully resolved at the time whether the audio problems of
[Buyer]'s final product had been caused by the software, [Seller]'s "audio settings" or by
[Buyer]'s hardware or software, [Buyer] -- which decided to purchase the modules at a later
point in time-- was not relieved from its duty to track any possible audio problems as soon as
possible and to give [Seller] an account of all, including solely assumed defects.
While [Buyer] maintains that it had given an oral notice of non-conformity, it fails to provide
any evidence in this regard. [Buyer] does not even submit the content of the telephone
conversation with [Seller] and of the talks which had taken place in Paris. Therefore, it
cannot be determined whether [Buyer] would have sufficiently substantiated any possible
notice of non-conformity. In its e-mail of 15 October 2004 ([Seller]'s exhibit 14), (a timely
notice was still possible by that date), [Buyer] did not even impliedly accuse [Seller] that the
delivered modules did not comply with the contractual specification or that they could not be
put to use. Any conceivable charge against [Seller] deals with the fact that -- contrary to its
promise -- it had not furnished the required information for the enhancement of its hardware
as well as the "audi-tuning software", which would be the reason why the 5,000 modules
delivered to Hong Kong could not be used in the meantime. Moreover, the subsequent
correspondence between the parties does not indicate that [Buyer] has held [Seller]
responsible for the audio problems which occurred in its final product. Instead, the content of
the e-mails dated 15 October 2004 ([Seller]'s exhibit 14) and 22 and 25 April 2005
([Seller]'s exhibit 24) leads to the conclusion that [Buyer] had identified its own old software
as the source of any problems. It is incomprehensible why [Buyer] should have kept the
[Seller] waiting with its payment of the purchase price and why it should have even presented
a payment schedule ([Seller]'s exhibit 15 and 23-25) if it had actually been convinced that
the goods lacked conformity with the contract. Under normal circumstances, a buyer who is
confronted with non-conforming goods will exercise his rights, i.e., he will reject the goods,
demand rectification of the defects, rely on a price reduction or claim damages. For a long
time, [Buyer] has failed to act in that manner. While in its e-mail of 15 October 2004
([Seller]'s exhibit 14), [Buyer] proposed that [Seller] took back the 5,000 modules which
had been delivered to Hong Kong, it did not refer to any alleged lack of conformity but to the
fact that they could not have been put to any use because [Seller] did not offer its assistance
to enhance the hardware and to deliver the audi-tuning software. [Buyer]'s assertion that
[Seller]'s modules would not function in the supposed manner was first raised in [Buyer]'s
letter of 10 October 2005 ([Seller]'s exhibit 19), which is more than one year after delivery.
Given these circumstances, it cannot be argued that any notification on the part of [Buyer]
would have complied with the requirements of Art. 39 CISG in terms of time and content.
This means that [Buyer] may not rely on the alleged lack of conformity of the 5,000 modules
in question. It is thus obliged to pay the purchase price of EUR 205,000 in total which has
arisen out of the order dated 30 August 2004 ([Seller]'s exhibit 4), irrespective of the fact
whether a lack of conformity could actually be proven.
[Avoidance issues]
4. Even in case that -- contrary to the above reasoning -- [Buyer] had properly notified
[Seller] of the alleged lack of conformity within the required time, [Buyer] would nevertheless
not be able to succeed with its defense against [Seller]'s claim for payment.
4.1 Art. 49(1)(a) CISG provides that the buyer may declare the contract avoided only if
the failure by the seller to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract. A breach of contract committed by one of the
parties is fundamental if it results in such detriment to the other party as substantially to
deprive him of what he is entitled to expect under the contract, unless the party in breach did
not foresee and a reasonable person of the same kind in the same circumstances would not
have foreseen such a result. A defect which cannot be rectified will not always amount to a
fundamental breach of contract, because the term "fundamental" also includes an assessment
of the fact whether the expectations of the buyer can be fully satisfied by means of a damages
claim or a reduction in price, or the fact whether the buyer is in a position to make limited use
of the defective goods in combination with a price reduction or damages claim. In these
cases, it may be appropriate not to grant the buyer those remedies which are dependent on
the existence of a fundamental breach (Schlechtriem, Art. 25 para. 20). Thus, there will be
no objective and grave non-conformity if the goods can be put to a different use in the course
of normal business without causing any unreasonable commercial detriment upon the buyer
(Schlechtriem, Art. 49 para. 8).
4.2 [Buyer] itself has declared in its statement of defense that it had actually installed part
of the modules into another device which did not contain a volume adjustment feature, which,
however, led to a price reduction of EUR 34 per item. Hence, it can be assumed that
[Buyer] did not suffer a fundamental breach of contract and is thus not entitled to avoid the
contract of sale, to return the modules and to refuse payment of the purchase price in its
entirety. In any event, [Buyer] has never declared the avoidance of the contract, at least not
within due time. Under Art. 26 CISG, a declaration of avoidance of the contract is effective
only if made by notice to the other party. The mere existence of a fundamental breach of
contract will as such never cause the avoidance of the contract by itself. This principle has
been adopted by the CISG without any room for exceptions. In this context, Art. 49(2)(b)(i)
CISG states that in cases where the seller has delivered the goods, the buyer loses the right
to declare the contract avoided unless he does so in respect of any breach other than late
delivery, within a reasonable time after he knew or ought to have known of the breach. The
declaration of avoidance is not bound to any form requirement. Avoidance may be declared
orally and even impliedly through the buyer's conduct, where such conduct is sufficiently
clear. The wording ("cancellation", "avoidance", "rescission", "annulment", "revocation") is
irrelevant. The buyer only needs to express unambiguously that he is no longer willing to
perform the contract as a consequence of the breach of contract. It is not appropriate to
demand any specific terms to be used for this declaration. The crucial factor is that the seller
be in a position to understand that he can no longer expect the buyer to perform the contract.
The buyer bears the burden to prove that he has transferred the declaration of avoidance
with the necessary content. There is no reason to apply an unreasonably short period of time
for the declaration of avoidance. On the other hand, the buyer may not be allowed to
unreasonably postpone his decision on a declaration of avoidance. Therefore, the time period
referred to in Art. 49(2)(b)(i) CISG should be interpreted in a way that the buyer may
declare the contract avoided within a reasonable time after he has notified the seller of the
lack of conformity (cf. Schlechtriem, Art. 49 margin numbers 28 et seq.).
It is also applicable in this regard that [Buyer]'s e-mail of 15 October 2004 ([Seller]'s exhibit
14) does not constitute a declaration of avoidance in terms of Art. 49 CISG because the
proposal for restitution of the 5,000 modules which had been delivered to Hong Kong has
not been based on any purported lack of conformity, but on the fact that [Buyer] was not
able at the time to put the modules to any use, as long as the required information was not
provided by [Seller] (cf. above at 3.2 with reference to the notice of non-conformity). In its
e-mail of 22 April 2005 ([Seller]'s exhibit 24), [Buyer] reiterated its proposal for restitution
by saying that it was not able to pay the purchase price for the modules within the following
four months due to a lack of financial assets. After these four months, it would be in a
position to purchase the 5,000 modules from [Seller]. Until 10 October 2005 ([Seller]'s
exhibit 19), [Buyer] had never mentioned anything about an avoidance of the contract based
on a failure on the part of [Seller] to perform the contract. The proposal which has been
made by [Buyer] in this letter - namely, that it had requested [Seller] to take back the goods
because they did not operate properly -- is not supported by any previous correspondence.
Moreover, [Buyer] has neither sufficiently substantiated nor proven that there had been any
deviating oral agreement between the parties. On 10 October 2005, it would in any event no
longer be possible to declare the contract avoided, even in case there had been a
fundamental breach of contract. [Buyer] is not entitled to wait for more than one year
following the identification of the alleged lack of conformity and, only then, inform the seller
that it did not want to adhere to the contract. [Price reduction issues]
In a case where a lack of conformity has been notified within the required time but avoidance
has been declared too late, [Buyer] would only be able to exercise its right to a reduction of
the purchase price (Art. 50 CISG) and claim damages. The calculation of damages includes
all losses which have been incurred as a consequence of the breach of contract. However,
the purchase price (if already paid) cannot constitute a loss in this respect when there is no
right to avoid the contract. On the other hand, the right to a reduction of the purchase price
may in extreme cases lead to a "reduction to zero" if the goods have become completely
useless. A claim for damages on the part of the buyer is a counterclaim and may thus be put
to a set-off against the seller's claim for the purchase price. It is true that [Buyer] alleges that
it had suffered damages as a result of [Seller]'s delivery of deficient goods, however, it has
not provided any calculation or estimation of a specific amount of the losses and has failed to
indicate the precise nature of the losses. In the same manner, [Buyer] has failed to make any
submission concerning the amount of a possible purchase price reduction. Instead, it is
evident that the modules are not completely useless as [Buyer] has put them to an alternative
use. Thus, [Buyer] may not rely on a reduction of the purchase price.
5. Therefore, it may be concluded that [Buyer] is still bound by the contract which is based
on its order of 30 August 2004 ([Seller]'s exhibit 4). [Buyer] is obliged to pay the purchase
price of both this order and the other order of 4,000 items "Pin Female MO110d" of
September 2004 ([Seller]'s exhibit 7), as it has failed to notify any alleged lacks of
conformity within the required time and as -- in case it had done so, it has failed to declare
the contract avoided in due time. In addition, [Buyer] has neither given any account of a
possible reduction of the value of the goods, nor of any possible damages which it had
suffered as a consequence of the breach of contract. [Ruling on Seller's claim for purchase price plus interest]
After a deduction of three payments of EUR 8,700 in total (EUR 500 + 2 x EUR 4,100, cf.
defendant's exhibit 7), the remaining purchase price claim amounts to EUR 199,500 (EUR
205,000 + EUR 3,200 EUR 8,700). It is true that [Seller] has argued during the oral
hearing that it received only payments of EUR 8,200 (2 x EUR 4,100), nevertheless, it has to
be taken into account that its initial claim amounted to EUR 203,600. This means that EUR
4,600 (EUR 4,100 + EUR 500) had been subtracted. On these grounds, it may be assumed
that the payment of EUR 500 has in fact been made as argued by [Buyer] and that [Seller]
erroneously did not consider in its statement of claim the second payment of EUR 4,100 of
31 May 2005. Thus, [Seller]'s action will be allowed in the amount of EUR 199,500.
[Seller]'s interest claim will be allowed for the time since 22 October 2004, due to the fact
that the obligation to pay interest arises pursuant to Art. 78 CISG as soon as the respective
claim for payment has become mature. There are no further requirements. In general, a claim
becomes mature at the point in time which has been designated by contract or by the CISG.
In the absence of a particular agreement, the claim for the purchase price becomes mature
when the goods are being put at the buyer's disposal (Magnus, Art. 78 margin numbers 8 et
seq.). In its invoice dated 22 September 2004, [Seller] granted [Buyer] a period of thirty
days to make payment. Since the modules had already been at [Buyer]'s disposal before that
date, it may be assumed that the claim for the purchase price became mature by 22 October
2004 at the latest. Interest must be paid as of that date. According to the leading dioctrine,
the interest rate as such must be determined with recourse to the domestic law which is
applicable to the contract by virtue of private international law (Magnus, Art. 78 margin
number 12). In the present case, this leads to an application of French law (cf. Art. 118
IPRG [*] in conjunction with Art. 3(1) Convention on the Law Applicable to International
Sales of Goods of 15 June 1955 (SR [*] 0.221.211.4)). In France, the interest rate is
annually determined by official decree (cf. Schlechtriem, Art. 78 margin number 37 and
footnote 48). The interest rate was set at 7.27% for 2004, at 7.05% for 2005 and at 7.11%
for 2006. With effect as of 1 January 2007, the interest rate is set at 7.95%. The average
interest rate for the time since 22 October 2004 therefore clearly exceeds the interest rate of
5% which has been claimed by [Seller]. Thus, interest may be awarded on the basis of an
interest rate of 5%. [Buyer] is obliged to pay [Seller] EUR 199,500 plus 5% interest since
22 October 2004. Moreover, the Court orders that [Seller] may continue the debt
enforcement proceedings (no. 2052050) before the Debt Enforcement Office in Cham over
Sfr. 310,940.70 (= EUR 199,500 on the basis of an exchange rate of 1.5586, cf. [Seller]'s
exhibit 18) and may claim interest of 5% since 22 October 2004 (cf. Art. 79 SchKG [*]).
6. [Buyer]'s request, according to which [Seller] should be ordered to take back the 5,000
modules which had been delivered to Hong Kong, cannot be allowed, because any
counterclaim must be submitted before the Court together with the statement of defense at
the latest (cf. � 84(4) ZPO [*]). Upon inquiry by the Court Officer of 6 December 2006,
[Buyer] expressly declared in its statement of 15 December 2006 that it did not want to file a
counterclaim. [Buyer] is bound by this statement. In any event, a hypothetical counterclaim
would not be justified. [Buyer] has neither proven that it had ever had a right to avoid the
contract nor that it had declared avoidance of the contract within the time required (cf. 4.2
[Misc. expenses]
7. Given this outcome of the legal proceedings on the merits, [Buyer] is obliged to bear the
costs and to compensate [Seller] for any expenses incurred (cf. �� 38(1) and 40(1) ZPO).
The basic honorarium of an attorney, which is subject to an increase of 20% pursuant to �
5(1) No. 2 AnwT [*], amounts to Sfr. 19,876.80 on the basis of a value of the dispute of
about Sfr. 328,200 (EUR 200,000 according to the current exchange rate of 1.64104).
After another increase of 3% as a lump sum for expenses, a reasonable compensation of Sfr.
20,473.10 must be paid by [Buyer]. Since [Seller] is domiciled abroad, this sum is not
subject to value-added tax.
[Buyer] has to pay EUR 199,500 plus 5% interest since 22 October 2004. The
enforcement proceedings (no. 2052050) before the Debt Enforcement Office in Cham may
be continued in the amount of Sfr. 310,940.70 plus 5% interest since 22 October 2004.
The court fees for the present dispute are set at Sfr. 7,130 in total.
[Buyer] has to compensate [Seller]'s legal expenses in the amount of Sfr. 20,473.10.
An appeal against this judgment may be lodged within 30 days after it has been served (�
201 ZPO). The reasoned statement of appeal must be submitted before the Appellate Court
(Obergericht) of the Canton Zug.
A complaint may be lodged against the decision on costs and legal expenses within 10 days
before the Judicial Commission of the Appellate Court (Obergericht) of the Canton Zug,
provided that no appeal is being lodged on the merits and that the costs exceed Sfr. 500.
of this translation, Plaintiff of France is referred to as [Seller] and the Defendant of
Switzerland is referred to as [Buyer]. Amounts in the uniform European currency (Euro) are
indicated as [EUR]. Amounts in the currency of Switzerland (Swiss francs) are indicated as
[Sfr].
Translator's note on other abbreviations: AnwT = Anwaltstarif [Swiss Statute on
Attorney's Fees]; IPRG = Bundesgesetz über das Internationale Privatrecht [Swiss
Code on the Conflict of Laws]; SchKG = Bundesgesetz über Schuldbetreibung und
Konkurs [Swiss Law on Debt Enforcement and Insolvency]; SR = Systematische
Sammlung des Bundesrechts [Official database of Swiss federal legislation]; ZPO =
Zivilprozessordnung des Kantons Zug [Code on Civil Procedure of the Canton Zug].