KS KE - 2Cob/187/2006sk en
Regional Court in Kosice
28 May 2007 [2 Cob/187/2006]
JUDGMENT
IN THE NAME OF THE SLOVAK REPUBLIC
[slovenske znenie]
The Regional Court in Kosice, deciding by a three-judge panel consisting of Chairman JUDr. Vladimir Hrib, PhD. and members JUDr. Janka Kocisova and JUDr. Katarina Pramukova, in the case of Plaintiff MVDr. J. B. [Buyer], with his residence in V___ [Slovak Republic], represented by JUDr. M.B., attorney, versus Defendant A. M. s.r.o. [Seller] with its registered office in M___ [Slovak Republic], on validity of declaration of avoidance of the [Buyer] of 22 November 2000 regarding a contract of sale of an automobile, a Mitsubishi Pajero Wagon, on appeal of the [Buyer] against the judgment of the District Court Michalovce of 20 September 2006, rec. no. 17 Cb/200/2004-88
h a s d e c i d e d a s f o l l o w s:
The court affirms the judgment of the Court of First Instance.
The [Buyer], is obliged to pay to the [Seller] reimbursement of costs of the proceedings amounting to 4,543.- Slovak koruna [Sk] within three days after the judgment comes into force.
REASONING
The District Court Michalovce dismissed the action of the [Buyer] by which he asked the Court to rule on validity of the declaration of avoidance made by the [Buyer] on 18 February 2002 with respect to the contract of sale concluded by the parties on 22 November 2000 regarding the sale of an automobile, a Mitsubishi Pajero Wagon.
As justified by the Court of First Instance, the [Buyer] asked the Court in his action to rule that his avoidance of the contract was valid with reference to sec. 80 c) of the Slovak Civil Procedure Code (hereinafter referred to as “CPC”). Under sec. 80 c) CPC, the court can decide about validity of the legal act only if the [Buyer] can prove urgent legal interest in such decision.
The Court therefore initially examined whether the [Buyer] had urgent legal interest in a decision on validity of the avoidance of contract. The [Buyer] justified his urgent legal interest by stating that it is necessary to determine which subject is actual owner of the automobile, as this issue is a matter of uncertainty and as the [Buyer] made several declarations of avoidance, it is necessary to determine which one was valid. The [Buyer] initially claimed in the proceedings not only validity of the avoidance but also mutual restitution of performance under the contract and damages. The other two claims (besides the claim for decision on validity) were stayed, as the [Buyer] did not pay the court fee for these actions.
The court found that the [Buyer] did not present and did not justify his urgent legal interest in a decision on validity of the avoidance of contract made on 18 February 2002. As the [Buyer] argued that he repeatedly declared the contract of sale avoided, the Court stresses that the [Buyer] should primarily claim restitution of performance provided under the contract, i.e., the purchase price paid by the [Buyer]. In such proceedings the Court would, as a preliminary question, decide about the validity of the avoidance.
The Court determined that under the relevant provisions of the Slovak Commercial Code (as the Court determined that the relationship in question shall be qualified under the Commercial Code, since the [Buyer] purchased the automobile as an entrepreneur in the course of his business activities), a party can avoid a contract only if a contract or statute provides such right. As there was no written contract concluded in this case, the Court examined only statutory possibilities for avoidance of contract. The [Buyer] justified his avoidance of contract by the defective performance of the [Seller] which caused that the [Buyer] was not able to use the goods in the expected manner. Under sec. 349 part 1 of the Commercial Code, once the declaration of avoidance reaches the other party to a contract, it can be changed or withdrawn only with consent of the other party.
In the course of proceedings under rec. no. 17 Cb/86/2003 which was referred to by both parties to the proceedings, the investigation was gathered about notifying of lack of conformity of the goods and the remedies provided by the [Seller], i.e., that the [Seller] controlled the goods in its service and documented the claimed lack of conformity and modes of its repairing. No evidence, however was provided in the abovementioned proceedings about the fact that the [Buyer] declared the contract avoided. The [Buyer] did not prove that he ever asked the [Seller] to return the purchase price or provide a substitute automobile; on the contrary, it was evidenced that the [Buyer] repeatedly brought the automobile to the service of the [Seller] and the [Seller] repaired all lacks of conformity detected by the [Buyer] or by the [Seller]. The Court had no doubts about this behavior, as it was proved that the [Buyer] repeatedly brought the car to the service where the [Seller] repaired the defects and subsequently the [Buyer] took the car from the service. This procedure was repeated several times until June 2004 when the [Buyer] failed to take the car back from service. The parties to the proceedings provided different justification of such behavior and therefore further investigation would be needed. The Court, nevertheless, found that such investigation would exceed the scope of these proceedings and dismissed the action.
The [Buyer] filed an appeal against this judgment.
The [Buyer] argued that the Court of First Instance made several mistakes in the proceedings. The [Buyer] claimed that because of unjustified and repeated calls of the Court for specification of the claim, the proceedings were unreasonably lengthened and with reference to urgent legal interest of the [Buyer] on the decision, the damage was increasing each day (contrary to the position of the [Seller] which is not affected by prolongation of the proceedings).
The [Buyer] repeatedly notified of lack of conformity of the automobile’s defective starting mechanism. This defect was not repaired despite several efforts of the [Seller]. The [Buyer] therefore asked the [Seller] to return the purchase price or to replace the car also at the hearing in the course of proceedings rec. no. 17 Cb/86/2003. These demands of the [Buyer] were not accepted by the [Seller].
The [Buyer] confirmed his will to avoid the contract also at hearing in the course of these proceedings.
The [Buyer] argued that in 2004 he returned the automobile to the [Seller] as a performance gained under the contract, as a consequence of avoidance of the contract. The [Seller] repeatedly stated that no oral declaration of avoidance of the contract was made by the [Buyer] and it failed to hand over several declarations of avoidance made by the [Buyer] in a written form. The declaration of avoidance of the contract was finally delivered to the [Seller] on 4 August 2004, where the [Buyer] confirmed his will to avoid the contract and asked the [Seller] to return the purchase price as a restitution of performance under the avoided contract. The notice of avoidance of contract was delivered to the [Seller] on 9 August 2004 when it was handed over by Mrs. A., employee of the [Seller]. With reference to this situation, the Court stresses that receipt of this letter was confirmed also by the legal counsel of the [Seller].
The [Buyer] therefore argued that it avoided the contract of sale in accordance with the law, as is this conduct approved also by jurisprudence of the Supreme Court of the Slovak Republic which, in its precedent NS SR R 22/1983, states: In order to terminate the contract by its avoidanve, no activity of the other party to the contract or decision of a court is needed. The court can only decide, if requirements under sec. 80 c) CPC are met, that the declaration of avoidance is valid or not. Under sec. 80 c) CPC, a court can determine whether or not a legal relationship or right exists in case of urgent legal interest.
The [Buyer] argued that it evidenced urgent legal interest in such a determination, as the [Buyer] had serious problems with the [Seller] when trying to restitute the performance received under the avoided contract. It was proved that in June 2004 the [Buyer] returned the automobile to the [Seller]. A written declaration of avoidance of the contract from 4 August 2004 was delivered to the [Seller] on 9 August 2004. From this moment, the [Buyer] did not use the car. The [Buyer] asked the [Seller] to restitute the performance under the contract although the [Seller] claimed that it did not receive any such call for restitution. As the title to the automobile is a matter of dispute, the [Buyer] did not yet buy any substitute car, as in case of failure of hes action in these proceedings he would have two cars and therefore rents a car when needed for his business activities. Thereby, new expenses emerge to the [Buyer] from this situation. Also, the performance under the contract consists of a considerable amount of money which could have been used for purchase of a new vehicle by the [Buyer]. Thus the legal position of the [Buyer] is in absence of judicial determination of validity of the avoidance very uncertain.
The [Buyer] therefore asked the Appellate Court to change the judgment of the Court of First Instance in accordance with the action and to decide that the avoidance of the contract of sale of 22 November 2000 is valid and to bind both parties to the proceedings to a mutual restitution of performance received under the avoided contract.
The Regional Court in Kosice as the appellate court (sec. 10 part 1 CPC) tried the appeal under sec. 212 part 1 CPC in connection with sec. 214 part 1 CPC and concluded that the appeal is dismissed.
The [Buyer] asked the Court to decide about the validity of its avoidance of contract of sale under sec. 80 c) CPC. This type of action is of a preventive nature and is admissible only in case it is possible to eliminate the future violation of rights and no other form of remedy is possible at the moment. Such type of action is not possible when the plaintiff can sue for fulfilment of obligations arising from law, from legal relationships or the breach of law.
The [Buyer] already filed an action for fulfilment of obligations from the contract of sale which is being tried by the District Court Michalovce under rec. no. 17 Cb/86/2003 and therefore the action on determination of validity of avoidance of the contract filed in these proceedings is unreasonable, as it was already concluded by the Court of First Instance.
The Appellate Court therefore affirms the judgment of the Court of First Instance with reference to sec. 219 CPC, as it finds this judgment substantially correct.
With respect to the avoidance of the contract made by the [Buyer], the Court has to mention the following:
Under sec. 345 of the Commercial Code, a party can avoid the contract only in case the default with fulfilment of the other party’s obligations constitutes a fundamental breach of the contract, and section 345 part 2 of the Commercial Code stipulates that the avoidance of contract shall be declared to the other party without unreasonable delay after the avoiding party became aware of the reason for avoidance. No special form is prescribed for declaration of avoidance (sec. 40 part 4 of the Slovak Civil Code) but the other party must be informed about the declaration of avoidance. Therefore, in order to facilitate proving of such information, it is practical to perform the declaration in a written form with registered delivery. Judges may find it difficult to interpret the notion “without unreasonable delay”. Neither the Commercial Code, nor the Civil Code provides any legal definition of this term. Such definition can, however be derived from a decision of the International Court of Arbitration of the International Chamber of Commerce in Paris which ascertained the period of time constituting acting without unreasonable delay as eight days, but without providing detailed justification for such determination (this period referred to in this case is the period for avoidance of the contract under the UN Convention on Contracts for the International Sale of Goods). It will actually depend on circumstances of each case, i.e., when the avoiding party became aware of breach of obligation, which circumstances prevented the party from immediate avoidance of the contract (e.g., investigation of factual circumstances of the case, analysis of possible remedies, decision-making process in collective statutory body, negotiations with other party to the contract, etc.) and therefore no generally ascertained period of time for avoidance of contract can be treated as “reasonable”.
What constitutes a fundamental breach of a contract is defined in sec. 345 part 2 of the Commercial Code which is derived from article 25 of the UN Convention on Contracts for the International Sale of Goods where 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.
Under the Vienna Convention, the breach of contract deprives the other party of a gain reasonably expected under the contract, while under the Slovak Commercial Code, a fundamental breach causes the party to lose interest in performance of the contract. It can be easily identified what is again reasonably expected under the contract but it is more complicated to determine what loss of interest in performance of contract means.
Evidencing a fundamental breach of a contract can be complicated in a particular case and the legislator therefore enacted in sec. 345 part 2 a rebuttable presumption under which in case of doubt, the breach is not fundamental.
The avoidance of contract constitutes a right of a party, not its obligation. This perspective is observed also by the legislator which enacted in sec. 345 part 3 that if party cannot avoid the contract under sec. 345 part 1 (as the breach of the contract was not fundamental), it does not lose the right to avoid the contract but such avoidance must be in conformity with section 346 which regulates avoidance of contract in case of non-fundamental breach of the contract. In such case, the party can grant to the other party an additional period for performance and after its expiration, the party can avoid the contract. However, no requirement of declaring such avoidance of contract in a reasonable time is prescribed in sec. 346 ods. 1.
Section 346 of the Commercial Code enables a party to avoid the contract in case of non-fundamental breach of a contract but this notion is not defined in the Commercial Code. It can be said that every breach of contract which is not fundamental, is a non-fundamental breach of contract. Such procedure, however, requires an additional period for performance to be fixed. If the breaching party does not fulfil its obligation in this additional period, the party has the right to avoid the contract by declaring this avoidance to the breaching party or can even express its will to avoid the contract in case of non-performance in the additional period in the same document where it prescribes the additional period for performance, as it is prescribed in sec. 350 part 2 of the Commercial Code. The qualification of the period as reasonable will depend on the circumstances of each case, i.e., complexity of performance and length of time of default.
The Court decided about the reimbursement of costs of the appellate proceedings under sec. 142 part 1 CPC in connection with sec. 224 part 1 CPC.
Instruction: An appeal against this judgment is not admissible.
Regional Court in Kosice, 28 May 2007
JUDr. Vladimir Hrib, PhD.
Chairman
