Data

Date:: 31-08-1999
Country:: Canada
Number:: 98-CV-142493CM
Court:: Ontario Superior Court of Justice
Parties:: La San Giuseppe v. Forti Moulding Ltd.

Keywords

NOTICE OF LACK OF CONFORMITY - WITHIN A REASONABLE TIME AFTER DISCOVERY (ART. 39CISG) -NO EVIDENCE OF SELLER'S KNOWLEDGE OF LACK OF CONFORMITY (ART.40 CISG)

BUYER'S ACCEPTANCE AND PAYMENT OF EXCESS QUANTITY (ART.52(2) CISG)- NO LATER CLAIM FOR OVERSHIPMENT

INTEREST - APPLICATION OF LEX FORI

Abstract

From 1989 to 1996 an Italian seller and a Canadian buyer were in a business relationship concerning the sale of picture frame mouldings. When the buyer came into financial difficulties the seller first granted delays in payment, then commenced an action to recover the unpaid balance of the price for goods previously sold and delivered. The buyer counterclaimed alleging, inter alia, lack of conformity of some of the goods and over-shipment.

The Court held that CISG was applicable under its Art. 1(1)(a), since the disputed sale contracts were concluded after entry into force of CISG in both Italy and Canada.

In dealing with the merits of the dispute, the Court held that the buyer had lost the right to rely on lack of conformity, having failed to give notice to the seller within a reasonable time after it ought to have discovered the defects (Art. 39(1) CISG). Furthermore, the Court rejected reliance on Art. 40 CISG, as there was no evidence that the seller was aware or should have been aware of the defects before delivery.

Moreover, the Court rejected the claim as to delivery of excess quantity, since the buyer had always accepted and paid for higher quantities of goods (Art. 52(2) CISG), and the contract provided for a range of variation in the quantity up to 10%.

Finally, the Court awarded the seller payment of the price plus interest, determined according to the lex fori.

Fulltext

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(1) La San Giuseppe ("LSG") brought an action claiming damages for breach of contract against the defendant, Forti Moulding Ltd. LSG is a company situated in Venice, Italy, which manufactures picture frame mouldings. It supplied mouldings to the defendant, a distributor of mouldings and picture frames located in Toronto, from 1989 to 1996.

(2) Generally, Forti Moulding placed orders by fax, specifying whether shipments were to be by sea or air. The mouldings were sold according to code numbers assigned to a particular profile, colour and wood finish. Samples corresponding to the code numbers were kept by the factory to ensure that new orders matched earlier production. Some products had been created to meet Forti's specifications.

(3) Nelson Forti, the principal of Forti Moulding Ltd., first began dealing with LSG in 1989 when he was involved in a company called First Place Mouldings with a partner, Derek Guerini. It was Mr. Guerini who facilitated Mr. Forti's introduction to the principals of LSG sometime in 1988 or 1989. When that business ceased a short time after dealings began with LSG, Mr. Forti continued a similar business under the name of Forti Moulding Ltd.

(4) The parties never had a written agreement. When they began dealing in 1989, there was no commitment as to the volume of product to be supplied by LSG or prices. While Mr. Forti claimed that LSG promised an "exclusive" contract, it was not clear what he meant by that term. Representatives of LSG denied that they promised to make Forti the exclusive Canadian distributor. I find, on the evidence, that there was no agreement that LSG would make Forti Moulding its exclusive Canadian distributor, meaning that LSG would supply only to Forti Moulding for the Canadian Market.

(5) At first, shipments were sent on a C.O.D. basis, followed by a requirement that payment be made within 30 days. Over the years, payments were not necessarily made within the 30 day period, but were made more or less currently until 1995. When an order was placed, it was understood by both parties that the amount shipped might vary above or below the ordered amount by up to 10%. There was no requirement that a specified quantity need by purchased at any time, except with respect to certain items made specially for Forti Moulding, where there were some minimum amounts that had to be ordered at one time.

(6) By January, 1996, Giovanni Moschini, the individual then in charge of foreign sales for LSG, had become concerned about the long delay in payment by Forti Moulding. Therefore, he wrote on January 18, 1996, complaining that the delays had reached six months and requesting that the defendant pay the outstanding balance within 60 days. Mr. Moschini testified that while Nelson Forti promised to do his best to shorten the time for payment, there was no immediate payment. Nevertheless, LSG filled a further order dated March 5, 1996 in April of that year. These goods, the last shipped by LSG to Forti Moulding arrived by June, according to Mr. Forti.

(7) After a further request for payment, LSG received a letter from Carolina Forti, Mr. Forti's wife, dated May 6, 1996. The evidence is clear that she wrote this letter with Mr. Forti's authority. In it, she indicated that the defendant was about to send a payment, stating that they had been unable to send the money earlier as a few of their customers had been late with their payments. Forti Moulding then sent 15 million Italian Lira. Mr. Moschini wrote in reply, indicating that he had been expecting 20 million Lira.

(8) There was a further fax from Mrs. Forti on June 18, 1996 promising a payment of 10 million Lira. In this letter, she indicated that Forti Moulding was having financial problems because business was always slower in the summer season, and there was increasing competition from cheaper Brazilian mouldings. She also indicated that the company was cutting back on expenses and trying to collect from customers. No mention was made of any concerns about the quality of the LSG product.

(9) Negotiations continued on the terms of payment of the outstanding account, which had reached 64,216,671 Lira by the end of June, 1966. On July 15, for example, Mr. Forti's letter proposed the following: to pay 5 million Lira a month for 13 months, to sell the product at 40% off his cost, or to return the merchandise to Italy at LSG's cost. Again, no mention was made of defects in the product supplied.

(10) The plaintiff replied on July 29, asking for 10 million Lira a month for six months. Subsequently, in a further reminder about payment dated October 3, 1966, LSG agreed to accept 5 million Lira a month. On October 31, LSG wrote again, reminding the defendant of the promised payment of 5 million Lira, but there was no written response. Three payments were made: September 19, 1996; November 20, 1996; and January 20, 1997. After further unsuccessful demands for payment, the plaintiff commenced this action, seeking the outstanding balance of 48,707,460 Lira plus interest.

(11) There is no dispute that the defendant received product priced at this amount for which it did not pay, and so it owes the plaintiff that amount. However, the defendant has counterclaimed for damages and setoff, alleging that some of the mouldings received from LSG over the years were defective. The defendant claimed damages for defective LSG stock which it claims to have in storage in the amount of $32,251.38, damages for repairs to mouldings ($13,117.90), storage costs of $7,864.50, labour and travel costs, and credits for overshipments of $13,906.50. As well, LSG sold Forti Moulding a double mitre saw in 1994, which Forti Moulding claimed was deficient. Therefore, the defendant has asked for the difference between the purchase price and sale price, plus the cost of a replacement saw. Overall, the defendant counterclaimed for $94,341.12 plus the return of the 15 million Lira paid, to be credited against the plaintiff's claim.

The complaints
(12) Evidence about quality problems was given by Mr. Forti; his wife, Carolina; his mother-in-law, Dorothy Camero; his employee, Alex Urrutia; his customer, William Snyder; and Patrick Mancino and Sarel Van Zyl, who repaired mouldings for him. Mr. Van Zyl also prepared an expert's report dated July 29, 1998 on the extent of defects in goods stored in the company warehouse, which Mr. Forti claimed were from LSG.

(13) Essentially, the complaints were about poor quality in production, as allegedly demonstrated by the presence of cross-grain and curly grain in some mouldings, dents under the finish, improper colour that did not match the sample or varied within a shipment, warping and twisting, and defects in the finish, especially in the application of gold leaf. As well, there were complaints that the mouldings were often improperly wrapped, with the finished sides together, rather than rabbet to rabbet to prevent rubbing and scratching of the finish. Numerous sample of moulding were made exhibits, generally in the form of pieces under a metre in length, which were identified by Mr. Forti as having come from LSG. He then linked them to shipments recorded in invoices from 1993, 1994, 1995, and January and April, 1996.

(14) Mr. Moschini and Joachim Ganss, another employee of LSG, were cross-examined in detail about these exhibits. Neither would positively identify the exhibits as LSG products, noting that many other companies produce similar mouldings, and even if an LSG product label was found on the wrapping of a moulding produced as an exhibit, the label could have been applied by someone else.

(15) Various defects were noted by the witnesses, although they did not all agree on the presence of a defect in a particular piece of moulding. However, there was no disagreement that a small defect, such as a dent of some grain problems, can often be cut around, since the sticks shipped are several metres long. It was also clear, after hearing the witnesses, that there is a degree of subjectivity in determining what constitutes a defect, since some individuals are more particular than others about quality.

(16) When asked to assess the defects in various pieces of moulding shown to him, Mr. Moschini noted that while there were might be a defect in the particular piece of moulding handed to him -- for example, the presence of cross grain -- this would not reveal the extent to which the overall shipment of this type of moulding was flawed. Again, he noted that a small part with problems could be cut off, and the remainder of the shipment could fall within limits of tolerance with respect to quality. With respect to apparent colour changes, he noted that colours change over time, depending on the exposure of the moulding to light. Finally, he noted that dents and warping could occur after shipment, not just at the factory.

(17) Mr. Van Zyl, the defendant's expert, also agreed that grain problems or indentations can often be cut around. He also noted that colour can vary from one shipment to another, as a result of different dye lots.

(18) Mr. Moschini began work at LSG in November, 1995. He testified that Mr. Forti never complained to him about overshipments, nor did Mr. Forti ever ask him to take back defective merchandise. He testified that he never saw written complaints from the defendant in the files of LSG. However, the defendant introduced in evidence a letter of complaint about the quality of a shipment dated August 10, 1994. Mr. Moschini testified that he believed there had been a credit provided. There were also letters dated August 26, 1994 and October 12, 1994, the first complaining about a short shipment and the second that the wrong colour had been shipped by air. Mr. Moschini thought that there had been two shipments in response to complaints in 1994, and Mr. Forti himself testified that there had been a correction with respect to the shipment of the wrong colour.

(19) Mr. Ganss was Forti's main contact at LSG for several years. He testified that he remembered only a few phone calls over the years from the defendant raising minor complaints with respect to quality.

(20) Mr. Mancino of Frame Craft, a company in St. Catharines, gave evidence that he had done numerous repairs to the gold leaf on mouldings for Forti Moulding. Invoices from his company were filed in the amount of $9,502.39. The dates cover a period from 1993 to 1998, even though the last LSG shipment arrived around June, 1996. Mr. Forti also made a claim for his time and travel in taking the goods to have them repaired. Mr. Forti, in testimony, stated that some of the gold leaf had been provided by the supplier. Mr. Mancino was aware that the defendant changed suppliers two or three years ago, since the dies he used to make repairs had to be adjusted to fit the new profiles supplied. He noted that he continued to make repairs on the new supplier's products from time to time.

(21) Mr. Van Zyl, from C & B Guilders, also testified that he did repairs on mouldings that were defective in colour, and invoices from his company totalling $3,615,51 were filed. All of these invoices carried 1998 dates, again, Forti ceased receiving product from LSG around June, 1996.

(22) Mr. Van Zyl also gave evidence that he had inspected various boxes of moulding at the Forti Moulding warehouse in June, 1998 and he submitted an expert's report in July. He did not remember seeing a label on any box identifying the product as LSG's, and, therefore, he could not testify that the product came from LSG. In the four to five boxes he opened, he found major colour deficiencies, some grain problems (in about 20% of the contents), some indentations (causing about 10% wastage), some wrapping problems and some warpage. He concluded that the material he had studied did not meet the standards that should be expected from a supplier and could be rejected.

(23) Mr. Forti, his wife, mother-in-law, and employee, Mr. Urrutia, all stated that there were many customer complaints about defective products from LSG, although Mrs. Forti, in cross-examination, stated that only a few shipments from LSG were really bad. Mr. Forti made a claim for $32,251.38, the value of defective LSG product allegedly in the warehouse, as well as $7,864.50 for storage of the material, which he said had been there for four to five years. He also complained that there had been overshipments in 1994 and 1996 for which he should not have to pay in the amount of $13,906.50.

(24) Finally, Mr. Forti also complained about the purchase of a double mitre saw in 1994. Mr. Ganss gave evidence that LSG had purchased the saw in Italy at Nelson Forti's request for resale to Forti Moulding. LSG chose the saw in accordance with specifications as to manufacturer and product code provided by Nelson Forti. There was some evidence that the saw was used at a trade show before the sale. The arrangement was a favour to Forti because of the tax advantages that flowed to the company.

(25) Mr. Forti complained that the saw sent was not the one ordered, because it was not computerized. However, the saw was paid for without written complaint. Mr. Ganss remembered no complaints about its performance when he was dealing with Forti. Mr. Moschini testified that there were no complaints about the performance of the saw until these legal proceedings commenced.

(26) Alex Hurrutia, who works as a framer for Forti Moulding, testified that the saw did not work properly, because it did not clamp the wood tightly, with the result that corners were not properly cut and needed further hand finishing. While there were attempt to correct this problem, they were unsuccessful. This complaint appears to have nothing to do with the fact that the saw was not computerized.

(27) Forti Moulding used the saw for four years on a daily basis, and then sold it in 1998 for $5,350.00. The original price was 13,400,000 Lira or $11,751.80. The defendant purchased a new saw for $1,650.00, and claims the difference in value between the purchase and selling prices of the old saw, plus the value of the new saw.

The Law
(28) Counsel for the plaintiff relies on the International Sale of Goods Contracts Convention Act, S.C. 1991, c. 13, which has been in effect in Ontario since 1992 because of the International Sale of Goods Act, R.S.O. 1990, c.1.10. These two acts brought into effect in Canada the United Nations Convention on Contracts for the International Sale of Goods. While the plaintiff failed to provide documentation that Italy is a signatory, it is a matter of public record that Italy ratified the convention in 1986. Moreover, pursuant to Article 1, the Convention applies both because the contracting parties have places of business in contracting states, and because the rules of private international law lead to the application of the law of a contracting state -- namely, Ontario.

(29) The defendant argued that the Convention does not apply because the contract between the parties was made before the Convention came into effect in Ontario -- namely, in 1989. Having considered the evidence, I do not find that the parties made a contract in 1989, which continued through to 1996. In their 1989 dealings, the parties began to establish a business relationship that would last several years, but they did not make a contract that set out the terms of their relationship, since they did not set out the key terms of their agreement -- for example, price, volume, term, or payment arrangements. In effect, they had an agreement to agree, and each time an order was made by Forti Moulding and accepted by LSG, a contract was created for the shipment of goods. Therefore, the parties had a series of contracts for the supply of goods over the years. The complaints here all arise with respect to shipments in and after 1993, so the Convention does apply.

(30) Moreover, this is a contract for the sale of commercial goods, not a contract for the supply of personal or domestic goods. Therefore, Article 2(a), which provides that the Convention does not apply to goods bought for personal, family or household use, does not exclude these contracts between parties.

(31) Article 39(1) of the Convention requires that notice of a lack of conformity of the goods must be given to the seller within a reasonable time after the buyer discovers or ought to have discovered it, and not later than two years after actual delivery. The seller cannot rely on this limitation period if the seller knew or ought reasonably to have been aware of the lack of conformity and did not disclose it to the buyer (Article 40). At the outset of the trial, leave was given to the plaintiff to amend its Defense to Counterclaim to plead this limitation period, as I determined that there was no prejudice to the defendant. The trial was then adjourned briefly to allow discovery of Mr. Ganss.

(32) The plaintiff claimed that there were no complaints about quality or overshipment until the Statement of Defense and Counterclaim was issued in April, 1998, and so the claims are barred. However, Mr. Forti claimed to have raised his complaints orally with LSG on many occasions. Therefore, the defendant argued that the complaints are not barred, and the serious defects in the goods, as well as overshipments, entitle it to remedies in accordance with the Sale of Goods Act, R.S.O. 1990, c.S.1`.

Findings
Quality of the Goods
(33) There was a great deal of evidence led on the quality of the mouldings provided by LSG. There is no question that there were some dents, gold leaf defects and grain problems in some of the pieces of mouldings introduced as exhibits. Mr. Van Zyl also found defects when he investigated four to five boxes of unopened mouldings in the warehouse. I accept that some of the exhibits may have come from LSG. It is less clear, however, that all the mouldings seen by Mr. Zyl were from LSG, given that he saw no identifying marks on the boxes. But even accepting that there were some defective pieces of LSG moulding, I do not find that the quality problems with LSG products were as serious as Mr. Forti would have had me believe, not that he made frequent and timely complaints to LSG. Where his evidence is in conflict with that of Mr. Moschini or Mr. Ganss, I prefer their evidence. I reach those conclusions for the following reasons.

(34) Most important is the fact that Mr. Forti made no written complaints about the quality of the mouldings throughout his negotiations over payment with Mr. Moschini in the first half of 1996. The only written complaints in evidence respecting quality or amounts shipped were dated in August and October, 1994. The existence of his letter of August 10, 1994 dealing with damaged goods demonstrates that he had, in the past, made complaints about defects in writing. Moreover, he gave evidence that he visited the LSG factory several times between 1989 and 1992 to discuss quality problems. Mr. Van Zyl testified that he found Mr. Forti to be a demanding customer when he had done work for Forti Moulding. Yet in the letters written to LSG in 1996, the only message from Forti Moulding was that the company needed time to pay, because of financial problems. Nowhere was defective merchandise mentioned, even though the defendant now alleges that there was some $32,000.00 worth of defective product from years back sitting in the warehouse. Instead, payments were promised, and several were made.

(35) Mr. Forti testified that he did not mention the defects, as he needed time to calculate how much defective product was on hand, so that he could calculate the amount to be set off. Having heard his evidence, and that of his family members, I do not accept this version of events. Had there been serious quality problems over the years, one would have expected Mr. Forti to react -- for example, by complaining, or by withholding payments to LSG. There was a yearly inventory of the stock of the company each May, which would have alerted him to large amounts of unsold and defective LSG product, were there a real problem. The presence of a significant amount of defective stock would have been readily apparent even as he made his commitment to pay for the stock sent more recently. Moreover, he claimed to have incurred significant costs to credit his customers for defective merchandise from LSG, and he sought damages for some $12,000.00 credited to customers, especially to Mr. Snyder's company. He also claimed to have expended large amounts to repair the defective mouldings. If the goods of LSG were truly below market standards and costing him so much in aggravation and expense, one would have expected a reaction from him through the years of dealing. Indeed, if the goods were as bad as he said, one would have expected him to terminate the relationship and find other suppliers. Clearly, there were other suppliers available, with whom he dealt periodically over the years, and LSG was never Forti's exclusive supplier.

(36) Mr. Forti tried to portray his company as a victim, subject to pressure from LSG to accept defective products because of the lack of available credit from other suppliers. However, the evidence showed that Forti Moulding was able to obtain some credit from other suppliers several years before terminating the relationship with LSG. The fact that Mr. Forti chose not to change suppliers earlier because the financial arrangements were better with LSG demonstrates, again, that he found the arrangement with LSG a satisfactory one, and he was content with the general quality of the merchandise.

(37) I note that Mr. Forti conceded that there were defects in the products supplied by any supplier in the range of five to eight per cent, and his current supplier, Abitare, also supplies defective product at times. Therefore, some level of tolerance for defects is to be expected, and Mr. Van Zyl indicated this to be the case, as well. The exhibits filed were mostly small lengths of moulding, often with small defects. There was no way of knowing for certain that these were all from LSG, but even if they were, I do not know whether they came within a range of tolerance in a larger shipment without defects. Moreover, it was not clear, with respect to the exhibits with colour variations, whether these sticks were all from the same shipment. Mr. Van Zyl indicated that some colour variation over shipments was to be expected.

(38) The fact that Mr. Forti was able to provide replacement product to Mr. Snyder, his customer, when there were problems indicates that the LSG products were not all defective. Finally, I note that Mr. Forti has overreached in his claims for damages -- for example, by presenting invoices from C & B Guilders and Frame Craft that date from a period well after LSG product was being supplied. This is a further reason why I do not accept his version of events that there were extensive defects between 1993 and 1996, and why Forti's statement said that LSG's product was generally not that bad rings true.

(39) Therefore, I reject the claim that the defendant should receive damages for defective merchandise from LSG. I find that he failed to make timely complaints prior to the Statement of Defense, and this is a bar under Article 39 of the International Convention. The evidence does not support a conclusion that the seller was aware of the defects or should have been aware of the defects and, thus, is barred from relying on the limitation period because of Article 40. Moreover, the lack of complaint is also telling evidence that the material shipped was not defective. I find that there is no basis for the claims that the goods were not of merchantable quality nor in compliance with their description under ss. 14 through 16 of the Sale of Goods Act. Therefore, the claims for credits, storage costs, and value of goods in the warehouse, labour costs, and repair costs are dismissed. While I not that many of these claims were poorly documented, there is no need to examine in detail the overreaching nature of these claims.

The Saw
(40) There is no merit to this claim for damages. LSG gave no warranty in selling the saw to the defendant, and none should be implied. The model was Mr. Forti's choice, and I am not satisfied that the saw received was different from what he ordered in any significant way, especially given the fact that he paid for it and made no written complaints about it. There was no evidence that the lack of computerization affected performance.

(41) While Mr. Forti claimed that the saw did not work properly, his company used it for several years, and sold it for a significant amount. Given the facts, I find that LSG bears no responsibility for the saw's performance, and there is no basis for this claim for damages.

Overshipments
(42) Mr. Forti admitted that it was a term of the contract that he could be shipped 10% more or less of the product ordered. While he complained about overshipments in his testimony, he could point to a written complaint about a short shipment only once in 1994, for which he sought a credit of 54 metres. He claimed that there were overshipments in 1994, as well, pointing to a particular invoice, yet he did not make a written complaint. Given that he made a complaint in writing about the quality of some of the goods in the same shipment in which he claimed an overshipment, I do not believe his claim with respect to overshipments in 1994.

(43) In any event, even if there had been overshipments, I find that the defendant accepted those goods and, in fact, paid for them. In accordance with Article 52(2) of the Convention and s.29(2) of the Sale of Goods Act, there can be no complaint several years later.

(44) The only other overshipment alleged was in April, 1996, the last shipment. While there were complaints at trial about this, a careful reading of the invoice indicates that several of the items allegedly overshipped were within the 10% tolerance. As to the other items, given Mr. Forti's lack of forthrightness in his evidence generally and again, the lack of a complaint and a promise to pay, I do not accept that there was a problem of overshipment, and I find that the defendant accepted the quantity shipped. This claim is rejected as well.

Conclusion
(45) For these reasons, there shall be judgements for the plaintiff in the amount of Canadian dollars sufficient to purchase the sum owing of 48,707,460 Italian Lira, which shall be determined by the rate of exchange quoted by a bank in Ontario listed in Schedule I of the Bank Act (Can.) as of the day that this judgment is released, in accordance with s. 121(1) of the Courts of Justice Act. There shall be pre-judgment interest in accordance with s. 128 of the Courts of Justice Act from the date the cause of action arose, which I find to be from the date of the final invoice of April 16, 1996, as well as post-judgment interest.

[...]}}

Source

Source:
Prof. Albert Kritzer, Pace Law School

Published in English:
University of Pace Website (http://cisgw3.law.pace.edu/)
[1999] Quicklaw, O.J. No 3352; [1999]; ACWSJ LEXIS, 15059, [1999] ACWSJ 31350; 90 All Canada Weekly Summaries 3rd, 871

Commented on by:
J.S. Ziegel, in Canadian Business Law Journal, 1999, Vol. 32, 319.}}