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Date: 23.08.2006
Country: USA
Number: 00 Civ. 5189 (RCC)
Court: U.S. District Court, Southern District of New York
Parties: TeeVee Toons, Inc. & Steve Gottlieb, Inc. v. Gerhard Schubert GmbH
Citation: http://www.unilex.info/case.cfm?id=1137
In early 1990, a US company (“the buyer”) invented and patented “Biobox”, an environmentally friendly box for packaging cassettes. The buyer then entered into a written contract with a German company (“the seller”) for it to build a production system for the box. The seller encountered delays that set the project back by two years. Moreover, once the system was finally finished, it often malfunctioned and the seller had little success trying to fix it. The buyer then commenced an action claiming damages and lost profits; the seller moved for summary judgment, which was granted in part.

First of all, the Court confirmed that the contract was governed by CISG as both U.S. and Germany are Contracting States (Art. 1(1)(a) CISG) and none of the exceptions set out in Arts. 2, 3, 5 or 6 CISG applied.

The Court then addressed whether the buyer’s arguments that the system was not fit for its ordinary and particular purpose (Art. 35(2)(a)-(b) CISG) were well-founded. In doing so, the Court first found the two-month time interval between the seller’s delivery of the system and the buyer’s notification of the system’s non-conformity to be reasonable as required by Art. 39(1) CISG.

In arguing for the dismissal of the claims, the seller relied on the standard terms and conditions attached to the parties' contract, which included both a disclaimer from warranties provided by Art. 35 CISG and a merger clause. On its part, the buyer claimed that there was an express oral understanding between the parties that these and other onerous provisions in the terms and conditions would not apply to the agreement. The Court pointed that, unlike US law, CISG contains neither a Statute of Frauds nor the parol-evidence rule, and that in assessing what is the content of the contract, Art. 8 CISG requires consideration of any statements or conduct by parties that might contradict the written documentation. The court also emphasised that the present case was made more complex due to the presence of a merger clause in the contract, aiming at extinguishing all prior oral agreements. The issue therefore became whether an oral agreement to disregard terms and conditions that include a merger clause supersede the written merger clause itself. After stating that US federal case-law applying relevant CISG matters is “scant”, the Court relied on the text of the Convention as construed by the CISG Advisory Council, namely Opinion no. 3 (Oct. 23, 2004), viz: “extrinsic evidence should not be excluded unless the parties actually intended the merger clause to have this effect”, and “Art. 8 requires an examination of all relevant facts and circumstances when deciding whether the merger clause represents the parties’ intent”.
Thus, the court found that, as there was a genuine issue of material fact as to whether the parties shared the intent to be bound by the terms and conditions attached to the contract or its merger clause, summary judgment could not be granted.

When examining the claims for damages under Art. 74 CISG, the Court noted that Art. 74's foreseeability requirement was identical to that provided by US law, thus US caselaw on the matter could be used as a guide. The court then granted summary judgment in favour of the seller with respect to the claims of damages for the loss of funds that the buyer spent on a facility for housing the machine (held to be a fixed cost, which would have been incurred regardless of whether the breach had occurred) and money that the buyer will have to spend to replace the facility (because the seller could not have foreseen at the time of contract conclusion that the buyer would have to look for an entirely new facility in the event of a seller’s system malfunction).

However, the Court denied summary judgment with respect to all other damages sought by the buyer, given that these other claims (including lost profits) were clearly foreseeable and capable of calculation.

As to the claims brought by the buyer under Arts. 35(2)(c) and 36(2) CISG, i.e. that the goods failed to conform to sample or model and the seller was liable for any lack of conformity resulting from a breach of any of his obligations, the Court stated that the facts showed that the system failed to produce boxes of the proper quality and that the reasonableness requirement of Art. 39(1) CISG was satisfied. Summary judgment with respect to both breach and damages was therefore granted and denied to the same extent that summary judgment on Art. 35(2)(a)-(b) was denied and granted, respectively.

As they fall out the scope of CISG (art. 4 CISG), negligence and fraud claims brought against the seller were assessed under the otherwise applicable law (i.e. the law of the State of New York).