KS ZA - 15Cb/14/2005sk en

Regional Court in Zilina

27 June 2007 [15 Cb/14/2005]

JUDGMENT

IN THE NAME OF THE SLOVAK REPUBLIC
[slovenske znenie]

The Regional Court in Zilina, deciding by a single judge, JUDr. Maria Dubcova, in the case of Plaintiff Ing. R.K.-R. [Seller], with its place of business in V., S. ___, Czech Republic … versus Defendant M., spol. s r.o in dissolution [Buyer], with its registered office in S., ___, C. [Slovak Republic] …, regarding payment of 56,328.30 Czech koruna [Kc] and appurtenances, at the hearing held 27 June 2007

h a s   d e c i d e d   a s   f o l l o w s:

The [Seller] is obliged to pay to the [Buyer] a sum in amount of 60,649.50 Slovak Koruna [Sk] and interest of 18 % annually:

 On the sum of 7,545.10 Sk for the period from 11 June 1996 until payment

 On the sum of 3,843.10 Sk for the period from 17 July 1996 until payment

 On the sum of 1,226.90 Sk for the period from 14 August 1996 until payment

 On the sum of 2,588.- Sk for the period from 18 September 1996 until payment

 On the sum of 2,487.20 Sk for the period from 17 October 1996 until payment

 On the sum of 2,482.90 Sk for the period from 16 November 1996 until payment 
 On the sum of 2,572.30 Sk for the period from 21 December 1996 until payment
 On the sum of 2,614.70 Sk for the period from 23 January 1997 until payment
 On the sum of 1,893.20 Sk for the period from 19 March 1997 until payment
 On the sum of 414.60 Sk for the period from 3 April 1997 until payment
 On the sum of 2,237.80 Sk for the period from 17 April 1997 until payment
 On the sum of 2,187.40 Sk for the period from 21 April 1997 until payment 
 On the sum of 2,309.10 Sk for the period from 17 June 1997 until payment
 On the sum of 2,233.20 Sk for the period from 15 July 1997 until payment 
 On the sum of 2,668.80 Sk for the period from 19 August 1997 until payment 
 On the sum of 2,676.60 Sk for the period from 16 September 1997 until payment
 On the sum of 2,695.- Sk for the period from 15 October 1997 until payment
 On the sum of 2,663.50 Sk for the period from 15 November 1997 until payment
 On the sum of 2,611.10 Sk for the period from 16 December 1997 until payment 
 On the sum of 2,629.80 Sk for the period from 1 January 1998 until payment
 On the sum of 2,660.90 Sk for the period from 17 February 1998 until payment
 On the sum of 2,710.70 Sk for the period from 17 March 1998 until payment
 On the sum of 2,697.60 Sk for the period from 15 April 1998 until payment

Everything within three days after the judgment comes into force.

The court dismisses the action in part of payment of interest of 18 % annually on the sum of 2,695.- Sk for the period from 1 October 1997 to 14 October 1997.

The [Seller] is obliged to pay to the [Buyer] a sum in the amount of 2,644.- Sk as a reimbursement of costs of the proceedings within three days after the judgment comes into force.

REASONING

The initial plaintiff, JUDr. Jan Z., receiver in bankruptcy of corporation Z.V., a.s. claimed in the proceedings its right to payment of 56,328.30 Sk with appurtenances based on a providing of accommodation of [Buyer]’s employees, subsequent to [Buyer]’s orders no. 1/95 and 2/95.

The price for these services was billed in invoices no. 1170100679, no. 1180100984, no. 1180101127, no. 1180101304, no. 1180101504, no. 1180101752, no. 1180102065, no. 1180102266, no. 1180100367, no. 1180100451, no. 1180100537, no. 1180100804, no. 1180100919, no. 1180101093, no. 1180101175, no. 1180101230, no. 1180101314, no. 1180101414, no. 1180101480, no. 1180101542, no. 1180100032, no. 1180100065, no. 1180100134, with interest of 14.25% annually on this sum for the period from 18 September 2001 until payment.

[Seller]’s claim was based on the delivery of textile goods to the [Buyer] upon [Buyer]’s purchase order, as was evidenced in the specifications of the goods delivered which consisted of twelve sheets and was attached to Invoice No. FV00543/01. The [Buyer] took delivery of the goods directly at the customs office in B. on 25 July 2001, as was evidenced by [Buyer]’s signature. The [Seller] provided to the Court the declaration of export of the goods as they were billed in Invoice No. FV 00543/01 consisting of four sheets. The [Seller] drew to the [Buyer]’s Invoice No. FV 00543/01 for 199,969.56 Czech koruna [Kc] on 19 July 2001. The sum in currency Kc wa

s converted to currency Sk according to the published currency rate of the National Bank of Slovakia 1.- Kc = 1.273 Sk. The [Seller] claimed also its right to payment of interest of 14.25% annually on this sum for the period from 18 September 2001 until payment, i.e., from the day after maturity of the invoice, as is prescribed in sec. 369 part 1 and sec. 502 part 1 of the Commercial Code of the Slovak Republic (hereinafter referred to as “CC”).

The [Buyer] initially argued in its protest filed on 28 June 2004, recorded as no. 22 - 24, that more than 40% of the goods were defective. [Buyer] also claimed that the goods were delivered two months after the date for delivery and therefore the [Buyer] was not able to resell the goods and they were of no use to [Buyer]. The [Buyer] referred to its letter of 14 May 2002, rec. no. 25, in which [Buyer] noted that more than 40% of the goods delivered contained manufacturing defects, were of various size, had defects of joints, etc. Subsequently, after the judgment of the Regional Court in Zilina, proceeding no. 15Cb 10/2004-64 of 20 April 2005, the [Buyer] extended its arguments concerning the defectiveness of the goods and alleged that [Buyer] notified the [Seller] of the lack of conformity of the goods at the end of August or at the beginning of September 2001. In [Buyer]’s appeal of 6 June 2005, the [Buyer] alleged that in the presence of the witness Mr. O.S., [Buyer] declared to the [Seller] that the contract was avoided and proposed that [Buyer] return the entire delivery of the goods which lacked conformity in 40% of the cases. The [Buyer] also repeated this in [Buyer]’s letter of 14 May 2002 and asked the [Seller] to take the delivery back. In their previous course of business, the [Buyer] used to inform the [Seller] about lack of conformity of goods in oral form and the [Seller] accepted this form and replaced the defective goods. The [Buyer] insisted on the fact that the contract was avoided and claimed that the [Seller] is only entitled to request that the goods be returned because of the avoidance of the contract. The [Buyer] declared that [Buyer] has always been prepared to return the goods to the [Seller], but the [Seller] refuses to accept this.

As a result of the appellate proceedings held by the Supreme Court of the Slovak Republic, this judgment was cancelled by Resolution no. 3 Obo 247/2005-91 of 26 October 2006 and the case was remanded for additional proceedings. The Supreme Court of the Slovak Republic expressed its opinio iuris, which is legally binding on the lower court, that the [Seller]’s claim was derived from the UN Convention on Contracts for the International Sale of Goods published in Collection of Acts as no. 160/1991 and that this claim has to be qualified under this Convention. The Court should also take into account the arguments of the [Buyer] that the goods lacked conformity, that another person was present at the time of the declaration of avoidance, and that the contract was fundamentally breached by delivery of defective goods.

In the subsequent course of proceedings, the evidence was gathered by oral examination of the [Buyer], the witness Mr. O.S., where the [Buyer] specified and extended its arguments against the action by alleging that [Buyer] declared the contract avoided in its entirety, i.e., concerning the entire delivery of goods. The [Buyer] also presented its specification of lack of conformity of the goods, recorded as no. 123, provided written evidence rec. 124 -126, and documents proving the lack of conformity of the goods by notices made by third parties who bought the goods from the [Buyer]. [Buyer] also delivered to the Court a sample of the goods delivered. 

The Regional Court gathered evidence by oral examination of the [Seller], of the witness Mr. O.S., the Court examined the written action, briefs made by the [Buyer], documents provided by the [Seller] – Invoice No. FV 00543/01, list of goods attached to the invoice recorded as no. 7, customs declarations, the protest of the [Buyer], letter of 14 May 2002 recorded as no. 25, documents recorded as no. 26 – 30, record of the Companies Register, resolution of the Supreme Court of the Slovak Repubic no. 3 Obo 247/2005-91, specification of defects of the goods recorded as no. 123, Invoices No. 0000322, No. 0000308 and No. 0000325, documents in an envelope recorded as no. 127 consisting of the notice of the lack of conformity of 14 September 2001, bill of delivery of 2 September 2001, acknowledgement of return of the goods of 2 September 2001 and of 15 September 2001, and sample of the goods delivered. The Regional Court thereby determined the factual and legal situation described hereinafter.

From the procedural point of view, the Court tried the case in the absence of the parties and the legal counsel of the [Buyer] according to sec. 101 part 2 of the Code of the Civil Procedure (hereinafter referred to as “CPC”). The [Seller] has been summoned by a letter delivered to the address of its registered seat as stated in the Companies Register and the Court thereby accomplished the condition prescribed by sec. 48 part 2 CPC. The defendant [Buyer] and its legal counsel had been duly summoned. The Court did not accept the [Buyer]’s counsel’s  motion for adjournment of the proceedings recorded as no. 145, that has been justified by an immediate official journey abroad lasting from 22 to 27 October 2007, because the given reason has not been proved in any way and the Regional Court did not find this reason sufficient for an adjournment, as the defendant [Buyer] and its legal counsel were duly summoned by the letters delivered on 20 and 27 July 2007, as is evidenced by the affidavit of service recorded as no. 138. Because of this reasonable advance of summons for the hearing held on 25 October 2007, the [Buyer] and its legal counsel had had enough time to arrange their professional commitments in order to attend the hearing. If the parties to the case did not use their right to appear before the Court without a justified reason, the Court had a right to try the case in their absence, as it is prescribed in CPC.

In the course of the new proceedings held after the decision of the Regional Court had been overruled, the Court was obliged, with reference to sec. 226 CPC, to observe the opinio iuris expressed by the Supreme Court of the Slovak Republic in resolution no. 3 Obo 247/2005-91 (rec. no. 92, 93) of 26 October 2006, whereby it was necessary to qualify the [Seller]’s claim under the UN Convention on Contracts for the International Sale of Goods published in Collection of Acts as no. 160/1991 and the Court was obliged to examine the avoidance of the contract alleged by the [Buyer] because of the lack of conformity of the goods delivered, and that this constituted a fundamental breach of the contract.

It was clear that the [Seller] asserted its claim for payment of the purchase price for the goods delivered together with a claim for interest on delay of the [Buyer] in payment of the purchase price based on the argument that [Seller] delivered the goods to the [Buyer] who received them on 25 July 2001. There was no doubt about concluding of the agreement, since the [Buyer] also admitted that it concluded a contract with the [Seller] under which the goods were delivered on 25 July 2001, as was evidenced by the documents recorded as no. 7, i.e., customs declaration and by the statement of the [Buyer] at the hearing held on 25 April 2007 (rec. no.  114), who admitted the delivery was made on this day.

There was no doubt that the goods delivered consisted of women’s sport fitness elastic clothing that was packed in boxes of 20x20 cm and that these boxes were packed to cartons. Around 500 to 700 pieces of this clothing were delivered. This manner of packing was evidenced also by a sample of these goods. With reference to the amount of the goods and their manner of packing, it was not possible for the [Buyer] to examine all the goods immediately after their receipt and to detect their defects. Although the personal control of the sample goods has been performed, it was not practically possible to detect the defects. The Court therefore concluded that the defects constituted hidden defects, since they were detectable only at the time of the clothing was first worn.

According to Article 11 of the UN Convention on Contracts for the International Sale of Goods, published as no. 160/1991 Coll. (hereinafter referred to as the “Convention”):

“A contract of sale does need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.“

With reference to the abovementioned article of the Convention and the assenting declarations of both parties, conclusion of the contract of sale was deemed to be proved. Its subject matter was delivery of the elastic fitness clothing.

According to Article 35(1) of the Convention:

“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.“

Under Article 36(1) of the Convention:

“The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.“

Under Article 38(1) of the Convention:

“The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.“

Under Article 39(1) of the Convention:

“The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.“

Under article 39(2) of the Convention:

“In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.“

Under Article 40 of the Convention:

“The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.“

The [Seller], represented by its legal counsel at the hearing held by the Regional Court in Zilina on 3 November, alleged that the [Buyer] took the delivery of the goods on 25 July 2001 and that the [Buyer] first started to claim the lack of conformity of the goods in July 2002, so [Buyer] did not give notice of the lack of conformity in a reasonable period of time. With reference to the evidence gathered, the Regional Court found this argument to be legally irrelevant. This finding was made by taking into account the abovementioned articles of the Convention and the character of the goods delivered – elastic fitness clothing which was packed in boxes of size 20x20 cm, arranged in cartons. Around 500 to 700 pieces of this clothing were delivered. Considering this amount, it would not be reasonable to expect the [Buyer] to examine all the goods at the time of its receiving the goods on 25 July 2001. Another reason for this consideration is the nature of the defects in question that were only detectable when the clothing was worn for the first time. If the [Buyer] had been able to examine all the goods at the time of receiving the goods, i.e., on 25 July 2001, these defects would not have been detected by this mere examination.

It was proved that the [Buyer] bought the goods from the [Seller] in the course of its business activities, as the [Buyer] subsequently distributed the goods to other parties – merchants and sold them in its shops. With reference to the examination of the [Seller] and Invoices No. 0000322, No. 0000308, No. 0000325 and the documents proving notification specifying the nature of the lack of conformity, which were in the envelope recorded as no. 127, it was clear that the goods delivered were distributed to the shops at the beginning of August and subsequently, during August and September 2001, and that the [Buyer] received complaints from customers and other buyers – merchants who bought the goods from [Buyer]. Since the [Buyer] evidenced by the witness Mr. O.S. its argument that [Buyer] notified of the nature of the lack of conformity of the goods in October 2001 in the presence of the witness and that the [Buyer] also declared the contract of sale avoided, the court considered that the [Buyer] notified the [Seller] of the nature of the lack of conformity of the goods within a reasonable time after [Buyer] could have detected the lack of conformity by complaints from its customers. With reference to this evidence, the argument of the [Seller] concerning delayed notice of lack of conformity was found to be unacceptable. The Regional Court concludes that the declaration of avoidance of the contract was made after the notice of the lack of conformity was provided in a reasonable time.

The fact that the [Buyer] declared the contract avoided in its entirety, although [Buyer] initially claimed the goods to be defective only in 40% of the delivery, was proved by the actual situation where, after some time, the rest of the goods also turned out to be defective as it was proved by complaints. This fact was evidenced by examination of the [Buyer] and of the witness Mr. O. S. who said that sometime in the autumn of 2000 or 2001 he was present at the [Buyer]’s notification of the lack of conformity of the goods, where the [Buyer] also expressed its desire to return all the goods to the [Seller]. Since the witness Mr. O. S. confirmed the declaration of the [Buyer]’s will to return the entire delivery to the [Seller], it was made in conformity with Article 26 of the Convention, according to which a declaration of avoidance of the contract is effective only if made by notice to the other party.

The [Buyer] specified the lack of conformity of the goods in its brief recorded as no. 123 and alleged that these defects were only detectable when the clothing was first worn. The Court verified the validity of this allegation by direct examination of the sample of the goods delivered. These samples provided by the [Buyer] to the Court proved that the goods delivered lacked conformity and for this reason they were not merchantable (page 3 of record from the examination of the [Buyer], no. 115 - minutes of the hearing of the Regional Court of 25 April 2007).

 
It was proved by evidence of the [Buyer] and testimony of witness Mr. O. S. that the [Seller] did not intend to deliver substitute goods which would be in conformity with the contract. With reference to the abovementioned and to the nature of the defects, it is necessary to apply Article 49(1)(a) of the Convention, pursuant to which the buyer may declare the contract avoided 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. By delivering defective goods, the [Seller] fundamentally breached the contract in its obligation to deliver goods without defects and under Article 35(1) to 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 act of avoidance of the contract in its entirety was notified to the other party when it reached Mr. K., the executive head of the [Seller]’s firm (examination of the [Buyer] on avoidance of the contract in presence of Mr. K. and the witness Mr. S.). The Court had no doubts about the credibility of the witness Mr. S., although the witness admitted having a close relationship with the [Buyer], since the [Buyer] is his cousin, due to the fact that he reported the situation that he perceived with his senses.

Under Article 82(1) of the Convention:

“The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.“

The effects of avoidance of the contract are prescribed in Section V of the Convention, Articles 81 - 84. Since the [Buyer] provided to the court samples of the goods delivered, it was proved that the goods still exist and are in detention of the [Buyer], who is ready to return them and therefore the effect of avoidance came into force.

With reference to the abovementioned, the [Buyer] proved that the declaration of the avoidance of the contract of sale together with the notice of lack of conformity of the goods was made to the [Seller] in a reasonable time. The [Buyer] therefore has no obligation, either statutory or contractual, to pay the purchase price, as was claimed by the [Seller]. Since the [Seller] did not change the legal grounds of its claim in these proceedings, although it was proved that the [Buyer] validly declared the contract avoided, the court had to dismiss the [Seller]’s action in its entirety. It is important to note, that in an adversary proceeding, parties to the dispute are solely responsible for presenting arguments and evidence. The avoidance of the contract caused a change in the legal grounds of the parties’ mutual rights and duties. The [Seller] did not modify its claim and insisted on payment of the purchase price for the goods delivered, which claim turned out to be irrelevant after the avoidance of the contract. Since the [Seller] did not change its claim in the action, the court found the [Seller]’s action to be groundless.

When closing the gathering of evidence, the Regional Court fulfilled its duty of instruction under sec. 120 part 4 CPC, as the instructions were stated in the summons delivered to the [Seller] and the [Buyer], and are recorded as no. 99, 100, 139 and 140.

The Court decided about the reimbursement of the costs of judicial proceedings under sec. 142 part 1 CPC in connection with sec. 151 part 1, 2 CPC. The [Buyer] as a successful party to the dispute did not enumerate its costs of the proceedings within three working days from the publication of the judgment. The court therefore granted [Buyer] only the reimbursement of the costs up to the publication of the judgment, as they were recorded, which consist of the court fee for the protest in amount of 12,725.- Sk (rec. no. 35), court fee for the appeal in amount of  12,710.- Sk (rec. no. 78), and clearly legitimate costs in amount of 25 435.- Sk.

Instruction: An appeal against this judgment must be filed with the Supreme Court of the Slovak Republic via the Regional Court in Zilina within fifteen days from its receipt in two versions.

Regional Court in Zilina, 27 June 2007

JUDr. Maria Dubcova
Chairman of the Panel