Data

Date:: 28-11-2013
Country:: Poland
Number:: IV CSK 215/13
Court:: Supreme Court of Poland
Parties:: --

Keywords

INTERPRETATION OF PARTY'S STATEMENT AND CONDUCT- ACCORDING TO PARTY'S OWN INTENT WHERE OTHER PARTY KNEW OF SUCH INTENT (ART. 8 CISG)

Abstract

[CLOUT Case n. 1598; abstract prepared by Maciej Zachariasiewicz, National Correspondent]

The parties entered into negotiations for the conclusion of two contracts for the sale of cod fish (contracts N. 505 and 506). During negotiations, the Polish seller requested that an outstanding debt in the amount of €8.842,35, owed by a German subsidiary of the UK buyer, would be satisfied by this latter before the delivery of cod under the new contracts would take place. It was, however, unclear whether this request effectively became a contractual obligation. The UK buyer made a bank transfer of €8.842,35, it nevertheless expressly stated that the transfer was a prepayment for contracts N. 505 and 506. The buyer also sent to the seller a document in which it was provided that 50 per cent of the price of the goods would be paid upfront and the other half would be paid 15 days after delivery. The seller signed and returned the contracts N. 505 and 506, with an amendment according to which the specification of goods should be provided the following day. The buyer did not react to this amendment, but correspondence on packaging and labelling was
exchanged between the parties. A few days later, however, the seller informed that it
would not perform the contracts because no prepayment was made and no specification of goods was provided. The buyer sued for damages resulting from the seller’s failure to deliver.

The District Court found that no contracts were concluded and dismissed the claim.
The Court of Appeals disagreed and found that under the principle of freedom of form (Article 11 CISG) there is no reason to treat the contracts as inexistent. The Court found, however, that the seller was entitled to avoid the contracts and dismissed the buyer’s claims. The buyer appealed to the Supreme Court that considered two issues: the deadline to make a prepayment of 50 per cent of the price in light of the standards of interpretation set forth in Article 8 CISG, and whether the seller was entitled to avoid the contract under Articles 25 and 64(1)(a) CISG.

With respect to the first issue, the Supreme Court noted that there are two standards of interpretation under Article 8 CISG and that priority should be given to the subjective standard, i.e. statements must be interpreted according to the intent of the party making the statement, if the other party knew or could not have been unaware what that intent was. Only if it is not possible to establish the meaning of such statement, the objective standard comes into play, so that statements are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

In the case at hand, the parties had not expressly provided in the contract the deadline for making the agreed prepayment of 50 per cent of the price. It was thus arguable whether the prepayment should have been made at the time the goods were made ready for shipping or before that time. The Court examined the correspondence between the parties and did not find anything to support the view that the parties intended to set the day when the goods were to be shipped as the date of prepayment. Rather, it resulted that the prepayment was to be made “in advance”, i.e. before the goods were made ready for shipping. The Court also noted that in commercial transactions, “prepayment” normally means payment of part of the price before the goods are dispatched to the buyer. However, regardless of this last finding, the Court stated that it was the subjective standard of interpretation that prevailed in this case, since the seller clearly meant that half of the price is paid before the goods are made ready for the shipping (and the buyer was aware of the
intent).

The second issue related to the fundamental breach of contract as a prerequisite for avoidance. The Supreme Court extensively discussed the nature of fundamental breach under Article 25 CISG stressing that in order to justify avoidance, the breach must relate to a contractual obligation. Therefore, since the lower courts did not establish whether the request to make a payment of €8.842,35 to satisfy the third party’s debt constituted a contractual obligation of the buyer, it was impossible to verify whether in the case at hand the failure to make such a payment could be classified as a fundamental breach of contract.

The Court further stated that the notion of a fundamental breach should be interpreted restrictively in order to preserve the existence of the contract. The parties must act in good faith and cannot take advantage of the other party’s failure of performance in order to terminate the contract, unless as a result of such failure, the party not in breach would be deprived of the possibility to achieve the economic aim of the contract. The breach of an obligation which can be remedied by the aggrieved party cannot, thus, be treated as fundamental. In the case at hand, the failure of the buyer to provide specification of the goods could not be treated as a fundamental breach of contract, because the seller could make the specification itself, in accordance with Article 65 CISG. Only if that was impossible, the seller could rely on Articles 25 and 64(1)(a) CISG and avoid the contract.

The Supreme Court also held that failure of payment of the goods does not usually constitute a fundamental breach. Only if the failure cannot be remedied, it can be treated as such. Therefore, failure of making a prepayment, if the buyer has not irrevocably declared that it refuses to pay, cannot be classified as a fundamental breach.

For these reasons, the judgment of the Court of Appeals was reversed and the case
was remanded for further consideration.

Fulltext

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Source

Case law on UNCITRAL texts (http://www.uncitral.org/uncitral/en/case_law.htmlA/CN.9/SER.C/ABSTRACTS/172)

Abstract prepared by Maciej Zachariasiewicz, National Correspondent}}