A German Buyer purchased from an Italian textile supplier (Seller) woollen cloth. During the further processing of the cloth, irreparable creases appeared. The Buyer immediately notified it tothe Seller in writing. Nevertheless, the Buyer subsequently delivered the finished articles of clothing to its customers, who returned them because of the defects. As a consequence, the Buyer refused to pay the invoice for the delivery of cloth at hand as well as the invoice for another - unobjectionable - prior delivery. A long time afterwards, the Buyer claimed damages suffered as a result of lost sales due to seller’s defective delivery. The Seller, in its turn, denied the alleged defects, raised a statute of limitations defense (prescription period) and demanded the undisputed open amount of the prior delivery by way of counterclaim.
The First Instance Court, appliying Italian law, ruled against the Seller on the grounds that it did not sufficiently counter the Buyer’s allegations of defective performance and of damages for lost profits. Furthermore, the Court held that the statute of limitations did not bar Buyer’s claim, since a buyer who is sued for breach of contract can always raise warranty claims, provided it gave timely notice of the defect of the goods -- as was done by the Buyer in the present case. The Seller appealed.
The Appellate Court on the contrary accepted the Seller´claim, holding that the Buyer’s warranty claim was time-barred and that the Seller was entitled to recover the invoiced amount of the undisputed delivery. In the opinion of the Court, Italian law only applied secondarily; primarily, CISG applied to the contact as both parties had their place of business in different Contracting States (Art. 1(1)(a) CISG). Since CISG does not contain provisions regarding limitation period, the matter had to be settled by applying the Italian Codice Civile (i.e. Art. 1495(3)). As to the set-off (which was invoked by the Buyer as between payments for the prior undisputed delivery and for the one at issue), the Court found that it was another matter not covered by CISG, to be decided according to the applicable domestic law (i.e. Italian law), under which set-off was inadmissible. Finally, the Court awarded interest on the sums due (Art. 78 CISG), at a rate determined in accordance with the domestic law otherwise applicable to the contract (i.e. Italian law).
|