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D E F E C T I V E G OO D S C A S E S T UD Y

D E F E C T I V E G OO D S C A S E S T UD Y. T H E C ASE. - Co m pan y. A. is. a. m a n u f a c t u rer. o f m o t o rc y cles. and. a ll. r e lat e d co m ponen ts an d sp a r e - pa r ts t h e r e t o . - Co m pan y. B is. a. r e t a i ler. of. m o t o r c y cles. and. a ll.

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D E F E C T I V E G OO D S C A S E S T UD Y

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  1. DEFECTIVEGOODSCASESTUDY

  2. THECASE -Company A is a manufacturer of motorcycles and all related componentsandspare-partsthereto. -Company Bis a retailer of motorcycles and all related componentsandspare-parts. -Company B also offers to its customers all services connected with theinstallationof the said components andspare-parts,aswellastheservicesconnectedwith the reparationandmaintenanceofmotorcycles.

  3. THENEGOTIATION(I) CompanyBplacesanorderwithCompanyAforasetof10 newgenerationsbrakes,tobeinstalledonthemotorcyclesof her customerswillingtoexperiencemore powerfultools. - Inparticular,CompanyBsendsaletteraskingforthesaidset - and offering 5.000 Euros, also stating that the contracts is regulatedbyher general conditionsattachedthereto. TheseGCestablish-amongotherclauses-that“iftheitems - providedaredefective,Seller indirectdamagessufferedby obligedtoindemnifyandhold willbeliableforall Buyer’scustomers, harmlessBuyerfor directand alsobeing any action and/or claimaddressedtohim bythird-parties”.

  4. THENEGOTIATION(II) Company A replies with a letter stating that the offer is - accepted and, therefore, that the set of brakes will be dispatched7daysafter paymentofthe price,addingthat the contractwillberegulatedby hergeneralconditionsattached thereto. CompanyA’sGeneralConditionsareperfectly equivalenttothe onesofB,exceptfora clausewhichstatesthat“In nocase Sellerwill beliableforlossesanddamagessufferedbyBuyer and/orthird-partiesasaconsequenceofnon-performanceof thecontract”. - ThoseGCalsostatethat“Incase theitemsaredefective,if Buyerproves orSelleracknowledges thedefect,thedefective items willberepairedand/orchangedat Sellerexpenses”. -

  5. THEDAMAGES CompanyBpaystheprice,receivesthebrakesandsellthem toher customers. - Afterinstallingthebrakesonthe customersmotorcycles,they resultto beseriouslydefective,astheydonotworkproperly whenwormingup toomuch. - Some customers also have accidents and suffer personal - injurieswhenusing their motorcycles. Therefore,almostallcustomersaddressclaimstoCompanyB foreconomic andnon-economic damages. - CompanyB,onhercount,writesalettertoCompanyA asking tobefullycompensatedforallconsequencesstemmingfrom thedefectivegoodssold. -

  6. THEQUESTIONS Isthereacontractbetweentheparties(CompanyA andB) accordingtoItalianLaw (andotherlegal systemsand/or internationalconventionsas CISGand/or“softlaws”as PECL)? 1. Ifso,whichgeneralconditionsareapplicableto thecaseand why? 2. IfCompanyA’sGCareapplicable,isthesaidlimitationof liabilityvalid(under Italianand/or Community Law)? 3. If so,isB liabletowardsher customers? 4. Isthereanyactionthatcustomerscan directlybringagainst CompanyA and,ifso,onwhichbasis(underItalianand/or Community Law)? 5.

  7. Q1:ISTHEREACONTRACTBETWEENTHE PARTIES? AccordingtoItalianLaw: -Contract,article 1324CC:anagreementoftwo or more partiesto establish,regulateor extinguishan economiclegalrelationshipamong themselves. -Art.1372CC:privityofcontract (onlybetween the parties) and freedomofthepartiesto setbindingrules. -Requisitesofacontract,art.1325CC:agreement, subject-matter,form. causa, -Art.1321CC, meaningofanagreement:‘meetingof wills’.

  8. Q1:ISTHEREACONTRACTBETWEENTHE PARTIES? Theformationofacontractis basedonthe anofferandanacceptance. Offer:themanifestationofwillbywhichthe the offeror,offersto theotherpartytoenter contract. exchange of - firstmover, into a - Acceptance:themanifestationofwillbywhichtheofferee communicatestheirconsentto thetermsoftheoffer received. Bindingforceofcontract:Assoonastheofferorreceivesnoticeofthe acceptancebytheotherparty(art. 1326CC)thecontract is enteredinto andtheofferoris boundedby thetermsof theiroffer. - -

  9. Q1:ISTHEREACONTRACTBETWEEN PARTIES? Accordingtoother legal systems: THE Dutch legalsystem: -Agreement:twomanifestationsofwill. -Article6:217BW (BW=Burgerlijk Wetboek): offerandanacceptanceforanagreement. you needan -Article3:33BW:Tohave anofferyouneedthewilland declarationoftheofferer,fortheacceptanceyou needthe willanddeclarationofthe offeree. -Conclusion:thereis acontract.

  10. Q1:ISTHEREACONTRACTBETWEENTHE PARTIES? PECL(PrinciplesofEuropeanContractLaw): Softlaw 2:101PECL: thereisacontract ifthepartiesintendtobelegallybound(1) andiftheyreachasufficientagreementwithoutanyfurtherrequirement(2). 2:102PECL:theintentioncanbedeterminedfromtheparty’sstatementand bothpartieshavetobeclearandunderstandablethattheybothwant an agreement. 2:103PECL:Sufficientagreement. Offer,2:201PECL:aproposalamountstoanofferifitisintendedtoresultin acontractiftheotherpartyacceptsitanditcontainssufficientlydefiniteterms toformacontract. Acceptance,2:204PECL:Anyformofstatementor conductbytheoffereeifit indicatesassenttotheoffer. Conclusion:ThereisanofferandacceptancebecauseCompanyB sendsa lettertoAwhereheasksfortheproducts+immediatelyofferingapriceandA acceptsthisintherepliedletter. • • • • • • •

  11. Q1:ISTHEREACONTRACTBETWEENTHE PARTIES? CISG(Contracts for theInternationalSaleofGoods): Differentstates. Proposalandacceptancerequired. Article14CISG:Aproposalforconcludinga contract addressedto oneor morespecificpersonsconstitutesan offerifit is sufficientlydefiniteandindicatestheintention ofthe offerorto beboundincaseofacceptance. Article19CISG:Areplytoanofferwhichis an acceptancebutcontainsadditions,limitationsor other modificationsis arejection oftheofferandconstitutesa counter-offer. - - - -

  12. Q2:(IFSO…)WHICHGCARE APPLICABLETO THECASE ANDWHY? InternationalConventions -AccordingtotheCISG(UNConvention onContractsforthe InternationalSaleofGoods)thisis averycontroversial issue; somescholars believethelast-shotrule applies --a rulewhichhasbeenrejectedbysection2-207(3)UCC,for whichitapplies theknock-out rule. TheEuropean Principles(in article 2:209PECL,whichfollows article2.22UNIDROITPrinciples) have adoptedavariation oftheUCCapproach.

  13. Q2:(IFSO…)WHICHGCARE APPLICABLETOTHECASE ANDWHY? AccordingtoDutchLaw: TheDutch Case:Hardstaal/Bovry AccordingtotheArt. 6:225lid 3BW,in Hardstaal/Bovry theycameupwiththe theDutchcase first-shotrule.Applyingthis rule toour case, firstreferencetothegeneralconditionshad been donebyCompanyB,and CompanyAdidnotexplicitlyrejectedthe generalconditionsfromCompanyB.Theyonlysaidin thereplying (second) letter thatthecontractwouldberegulatedbyitsgeneral conditionsattachedthereto.But thisdoesn’tcount asexplicitly rejectingthegeneralconditionsfromB. Generalconditionsfrom CompanyB willapplyin this legalagreement/contract.

  14. Q2: THE (IFSO…)WHICHGCAREAPPLICABLETO CASEANDWHY? AccordingtoArticle1341, Para. 1,oftheItalianCivilCode General[Standard]Conditions Generalconditions,preparedbyoneoftheparties,are binding on by he theotherparty[areincorporatedintothecontract]ifknown thelatteratthetimewhenthecontract wasconcludedorif mighthaveknownthereofbyusingordinary diligence.

  15. Q2: ARE (IFSO…)WHICHGC APPLICABLETO THE CASEANDWHY? Thefollowingconditionshave noeffect specificallyapproved in writing (Para. 2): [arenot incorporated] unless 1. Conditionslimitingtheliabilityoftheparty whohaspreparedthe generalconditions, or giving said partyapowertowithdraw from thecontractortosuspendtheexecutionthereof. 2.Conditionsburdening theother party withtimelimitsforthe exercise of a rightor limitations tosuchparty'spowertoraise defences,orwith restrictionsonfreedomof contractwith third persons, or with tacit extensionorrenewalof thecontract. 3. Clauses providingforarbitrationorderogationsfromthenormal venueor jurisdictionof thecourts.

  16. Q2: THE (IFSO…)WHICHGCAREAPPLICABLETO CASEANDWHY? (II) • AccordingtoArticle1341, Para. 1, A’s GeneralConditionsshouldbeapplicableasknownby company B, apartfrom the specifictermlimitingliability, asnotspecificallyapproved in writingas Para 2. • Nevertheless, the twopartiesgeneralconditionshavepartiallydifferentterms (on limitationofliability), so that A letterofacceptanceis a counter-offerfor the purposesof Art. 1326 c.c. and, at thattime, the contractisnotmade. • But B pays the price kater on and thatamountsasanimplicitacceptance (see Art. 1327 C.C.). • Suchanacceptanceisnoteffectivefor the clausesprovidedby Art. 1341, Para. 2, C.C.

  17. Q3:(IFCOMPANYA’SGCAREAPPLICABLE…) ISTHESAIDLIMITATIONOFLIABILITYVALID? UnderItalianLaw: Assaidbefore,EuropeanlawboundsMStoimplement theregulationagainstunfairtermsforcustomersbutletMS freetodecidewhethertoimplementunfairtermsevenwithrespect tothetransactionsamongbusinesses. B: UnderItalianlawthereisn'tanexplicitlawaimedtothispurpose, thustheissuemustbefiguredoutthroughinterpretation.Inthe Consumers Code,wherealltheeurpoeandirectiveshavebeenimplementedin thisrespect,onlycostumersmayrelyon thoserules. As perart.3"consumatoreoutenteéla personafisicacheagisce perscopiestraneiall'attivita'imprenditoriale,commerciale,artigianale oprofessionaleeventualmentesvolta". Thereforeitisevident businessesdon'tlay underthisdefinitionofcostumer and, ifACGareapplicable,theywouldbevalidunderthe Italianlawconsidering the Consumer Code (butsee art. 1229 C.C). - - -

  18. Q3:(IFCOMPANYA’SGCAREAPPLICABLE…) ISTHESAIDLIMITATIONOFLIABILITYVALID? UnderCommunityLaw: Inanycase,in theEUcontractlaw,ifCompanyAGC'sare applicable,therulingon companyA'sorB'sfaultislefttonationalcontractlawsandjudges,andthereforeitmaydifferfromMStoMS. ThepossibilityoftheMSstodecidebythemselvestherulingofeach caseregardingb2b(businesstobusiness)casesand,in moredetail theUnfairClauses,isguaranteedandyieldedbyUnfairTerms Directive(UTD)of1993. Thisdirectiveonlyappliesaminimum harmonizationoftheEUonthisparticularaspectofCLandthereforeleavesthefinalrulingtotheNationalCourts. - - -

  19. Q4:(IFSO…)ISBLIABLETOWARDSHER CUSTOMERS? 4.1 DoestheGCregulatetheseller’sliability the customer? towards - TheGC is apartofthecontractbetweentheproducer andtheseller. - AccordingtoArt.1372“Il contrattohaforzadilegge tra leparti",inotherwordstheGC does noteffectthe relationshipbetweentheseller andtheconsumer - Hence,thequestionofliability is regulatedbythelaw.

  20. Q4:(IFSO…)ISBLIABLETOWARDSHER CUSTOMERS? 4.2Whichconditions must bemet inorder attain compensationfordamages? - Thelaw drawsa clear distinction between civilwrongs (torts) and suchother unlawful acts as,underart.1218, pertain tonon- performanceof an obligation(breachof contract).Art. 1218,“Il debitore chenonesegueesattamentelaprestazionedovuta tenutoal risarcimentodel danno...” - Suchcontractualwrongspresupposethat: a) thereexistsbetween thepartiesabindinglegalrelation b) thereexistsa caseof non-performansbythedebitor c) whichnon-performingcausesa damagetothecreditor è

  21. Q4:(IFSO…)ISBLIABLETOWARDSHER CUSTOMERS? - Conclusion:Bisliable towardshercustomers 4.3What losses arecompensated? - Themainobject of liabilityisreparationof damage,to theinjuredpartytotheposition heenjoyed beforethe restore injury occurred.Losssustainedandlostprofitsarerecoverable and thisrestsonart. 1223CC -

  22. Q5: ISTHEREANYACTIONTHATCUSTOMERSCAN DIRECTLYBRINGAGAINSTA,ONWHICHBASIS? Situation; - Nocontractbetween customersandCompanyA(art.1497nonapplicable; contractvsnon-contract) - AssumingnonegligenceorintentonCompanyA´spart(Art.2043CC non applicable;tortiousliabilityvsstrictliability) Under CouncilDirective85/374/EECof25July1985on liability for defective productsandItalianLaw: • Article1(Correspondingto114 codicedelconsumo.) Theproducershallbeliablefordamagecausedbya defectin hisproduct • Article2(Correspondingto115codicedelconsumo) ForthepurposeofthisDirective'product'meansallmovables,…. • -Article3(Correspondingto1152.bis codicedelconsumo) 1”.'Producer'means…or the manufacturerofacomponentpart”

  23. Q5: ISTHEREANYACTIONTHATCUSTOMERSCAN DIRECTLYBRINGAGAINSTA,ONWHICHBASIS? •Article6(correspondingtoArt.117codicedelconsumo) •1.Aproductisdefectivewhenitdoesnotprovidethesafetywhicha personisentitledtoexpect,takingallcircumstancesintoaccount, including: …(b)theusetowhichit couldreasonablybeexpectedthattheproduct wouldbeput Article9(CorrespondingtoArt.123codicedelconsumo) ForthepurposeofArticle1,'damage'means: (a)damagecausedbydeathorbypersonalinjuries; (b)damageto,ordestructionof,anyitemofpropertyotherthanthe defectiveproductitself,withalowerthresholdof500ECU,providedthat theitemofproperty: (i)isofatypeordinarilyintendedforprivateuseorconsumption,and (ii)wasusedbytheinjuredpersonmainlyforhisownprivateuseor consumption. ThisArticleshallbewithoutprejudicetonationalprovisionsrelatingto non-materialdamage • • • • • • •

  24. Q5: ISTHEREANYACTIONTHAT CUSTOMERSCANDIRECTLYBRINGAGAINST A,ONWHICHBASIS? •Article4(correspondingtoArt.120 codice delconsumo) •Theinjuredperson shallberequiredtoprovethedamage, the defectandthe causalrelationshipbetween defectand damage.

  25. Q5: ISTHEREANYACTIONTHAT CUSTOMERSCANDIRECTLYBRINGAGAINST A,ONWHICHBASIS? Note; •Thereis adirect action thatconsumerscan bringagainst A (with first onebelowveryunlikely tosucceed) •on •on the thebasisofArt.2043CC(tort thebasisofArt.115following CouncilDirective85/374/EEC lawin thecaseofnegligence)or oftheCodicedelConsumoand of25July1985onliabilityfor defectiveproducts. •without theneedfor; •acontractualrelationship •Theneed fornegliegenceor intentof theproducer

  26. NAMES JorisSteenkamp CélineClaessen Floor Stijns Erminio Sergio LorenzoTesta Francesco Grosso Valerio Guastella Sarah Skaarer AndersVethe EmilSkjelland Noravon Bergen LorenzoColasanti - - - - - - - - - - - -

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