Reproduced with permission of the author
Alejandro Osuna González [*]
|-||The facts of the case|
|-||The Sixth Civil Court issues its judgment|
|-||Defendant's appeal to the Baja California Superior Court|
|-||Application of the Convention via Article 1(1)(a)|
|-||The CISG displaces the application of the Mexican Commerce and Civil Codes|
On August, 30, 2005, the Sixth Civil Court of Tijuana, Baja California, Mexico issued a judgment in the case Banks Hardwoods California, LLP vs. Kyriakides (1594/2004), thus becoming the first court of first instance ever to issue two CISG judgments in Mexico. Because of an appeal filed in the same case (appeal No. 1824/2005), the Superior Court of Baja California handed down its first CISG decision. Surprisingly, the CISG is hardly being applied by Mexican Courts, even by those courts along the US-Mexican border. The same can be said about their US Counterparts.
The facts of the case
The case involved a US seller of wood and a Mexican buyer. Because the countries of the seller and buyer are "Contracting States", and the transaction was for the sale of "goods", the contract clearly fell within the scope of the CISG. According to the facts as described in the judgment, the US seller began selling goods to the Mexican purchaser in 2003. The way they would conduct business would be as follows: Seller would place the goods at buyer's disposal in San Diego, California in seller's own warehouse. The Mexican buyer would pick up the goods and import them into Tijuana, Mexico. Payment would be due within ten days after the buyer took the goods from the warehouse. The parties had also agreed to a two percent interest. During November and December of 2003, the Mexican buyer made various requests for wood. With each shipment, the seller would issue an invoice indicating the quantity and price; the Mexican buyer would make checks out to the seller as a form of security. Within a month, the buyer accumulated a debt of $9,287.10 dollars, which he refused to pay, hence seller filed suit in the courts in Tijuana, Mexico.
In his response to the lawsuit, the Mexican buyer acknowledged having received the goods, and also acknowledged the amount owed, but claimed that he had never been served with a formal demand for payment as provided for under Article 2080 of the Federal Civil Code. Under that provision, if a period of time to effect payment has not been fixed, a creditor may not demand payment until thirty days after a formal demand for payment has been made; therefore, Buyer argued, payment was not yet due because this formality had not been complied with.
The buyer had also raised a second defense based on the fact that seller had made no formal "protest" of the checks. A "protest" is a formal demand for payment made by a notary public, attesting that a commercial instrument (bill of exchange, check, promissory note) has not been accepted or paid. Concerning this defense, the judge noted that the documents that were the basis of the action where not the checks, but rather the unpaid invoices that were submitted by the seller as evidence.
The Sixth Civil Court issues its judgment
Basing its decision on CISG Article 58(1), the Court found for the US seller. The court reasoned that absent a fixed period of time to effect payment, payment is due when the goods are placed at buyer's disposal. Though the reasoning of the Sixth Civil Court is not wrong, it was somewhat incomplete. The Sixth Civil Court did not mention that the CISG´s Article 59 provides that the buyer must pay the price without the need for any request or compliance with any formality on the part of the seller, a provision that makes a clear departure from Article 2080 of the Federal Civil Code of Mexico, which provides that if the parties fail to specify a payment date, payment is not due until there has been a formal demand for payment. The judge ordered the defendant to make payment of the amount due, plus legal fees and costs. The judge also ordered payment at the rate of interest provided in the Mexican Commercial Code, but did not discuss why it did not grant the 2% rate of interest that had been requested by the U.S. seller.
Generally speaking, the judgment hit the mark by applying the CISG. However, the Sixth Civil Court could have made an important contribution to international case law had it noted the effect of Article 59, on how it allows a seller to proceed without a formal demand for payment. In its decision, the Sixth Civil Court says that:
"[t]he documents justifying the cause of action are within those contemplated in Articles 371, 372 and 373 of the Commerce Code, since these are invoices with which the [Buyer] purchased the wood."
It is worth noting that because of the CISG, these provisions of the Mexican Commerce Code did not apply to the case, and it would seem that the judge merely copied a template from another judgment that was governed by Mexican law. However, neither the Commerce Code, much less the CISG mention that there is any need for a document to serve as "the basis for the action", since both of these statutes provide for informality as a general rule of contract formation, and in fact, pursuant to Article 11 of the CISG, the existence of a contract may be proven by witnesses.
Defendant's Appeal to the Baja California Superior Court
The defendant buyer appealed the Sixth Civil Courts decision to the Baja California Superior Court (appeal No. 1824/2005). The buyer raised as his core argument that the seller never made a formal demand for payment pursuant to Article 2080 of the Federal Civil Code, and alleged that thus, seller could not demand payment from the buyer. The Superior Court dismissed this argument, and seized the opportunity to discuss the policies underlying the CISG in a manner not seen in any previous Mexican decision. In addressing the issue, the Court relied on the CISG's preamble to state that:
"[T]he United Nations Convention on Contracts for the International Sale of Goods, made in Vienna, Austria on April eleven nineteen eighty, has as its primary objective the establishing of common rules to govern said legal act, based on the idea that international economic development must be based on the principles of equality and mutual benefit, which constitutes an important element to the improvement of friendly relations amongst the Member States (sic), therefore, taking into account the New International Economic Order, the participating States, by means of this Convention, adopted uniform rules, applicable to the international sale of goods, taking into account the different social, economic, and legal systems, thus contributing to the removal of legal obstacles to international trade."
Though the preamble was added to the Convention as an afterthought, and did not go through much deliberation, it may have some use, at the least, as a restatement of the economic and legal policies underlying the CISG, amongst them, that the Convention seeks to eliminate formalities as to formation, or even regarding the demand of payment, that exists in many Civil Code jurisdictions, such as Mexico.
Application of the Convention via Article 1(1)(a)
Contrary to previous decisions, the Baja California Superior Court's ruling explains why the CISG applies, by stating that the buyer, BHC is a company duly organized pursuant to the laws of the State of California, United States of America, and that it has its place of business in the City of San Diego, California, United States, a country that has been party to the Convention, since August 1988. It then goes on to add that the defendant, "has his domicile … in Tijuana, Baja California Mexico, thus materializing the conditions set forth under the first article of the Convention, hence, it results in the applicability of the Convention." These statements by the Baja California Superior Court clearly represent an improvement on previous Mexican decisions that have omitted any discussion on why the CISG is applicable. It is worth noting however that the Court used the expression "domicile" when referring to the "place of business" of the buyer, when in fact the drafters of the Convention intentionally left out expressions such as "domicile", since these could have different interpretations in different legal systems.
The CISG displaces the application of the Mexican Commerce and Civil Codes
The Superior Court of Baja California rightfully stated that because of the Supremacy Clause contained in Article 133 of the Mexican Constitution, the argument advanced by the appellant buyer, that a formal requirement was a condition precedent to demand payment, had no merit. Neither the Commerce Code, nor the Federal Civil Code's Article 2080 were applicable because of the CISG, which is an international treaty that has hierarchy over domestic law and thus displaces the application of the Federal Civil Code. The Superior Court also explained that the purpose of creating a uniform law was the elimination of legal obstacles that could arise when contracts are made between parties from different countries. The Baja California Superior Court also cited CISG Article 59 as the provision that derogates from the formal demand rule provided for under the Federal Civil Code, and explained that this provision, (CISG Art. 59), was intended to eliminate unnecessary formalities that are not required in international sales. The Superior Court then went on to state that payment will be due once the goods have been placed at an agreed upon place, or when the buyer has been advised that the goods are at his disposal, or when buyer has been advised that the goods have been shipped by a certain means of transportation to an agreed upon destination, but that this notice was not a formality per se, but merely the means to determine the time for payment, and that in any event, seller may demand payment when buyer receives the goods, which would eliminate all doubt as to the time at which payment is due. In our opinion, the Superior Court of Baja California's reasoning is a bit confusing, since it seems to imply that seller must give notice of delivery or shipment as a prerequisite to obtaining payment from a buyer which is not the case, though it is worth noting that according to Professor Honnold, communication is a principle underlying the CISG. Finally, the Superior Court stated that the buyer had the burden of proving that he had in effect made payment to the seller, but did not base this part of its decision on the Convention.
* Alejandro Osuna González, Licenciatura en Derecho, Universidad Iberoamericana, Tijuana (1995); LLM, University of Pittsburgh, (1998). He practices and teaches law in Tijuana, Baja California, Mexico, specializing in international commercial contracts and litigation. He may be contacted at <email@example.com>.
1. The first case was Peterman Lumber, Inc. vs. Encinos Rossy, S.A. de C.V. 868/99, Judgment of 14 July 2000. The case is available at Pace's CISG website at <http://cisgw3.law.pace.edu/cases/000714m1.html>.
2. There is however another CISG case that went all the way up to the First Circuit in Mexico City. In Kolmar Petrochemicals v. Idesa Petroquimica, the issue was whether a contract had been formed during a phone conversation followed by a series of e-mails discussing delivery terms. The case is available at Pace's CISG website at <http://cisgw3.law.pace.edu/cases/050310m1.html>.
3. See CISG Art. 1.
4. See Jahn, Uwe, Bills of Exchange, A guide to Legislation in European Countries, Asia & Oceania. "Protest of a bill of exchange or a promissory note is the formal statement by an official, most often a notary public, that the instrument has not been accepted or paid at the due date." ICC Publishing, S.A., Paris, France, 1999.
5. CISG Article 58(1) reads:
"If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents."
6. CISG Article 59 reads:
"The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller."
7. This omission would be remedied by the Baja California Superior Court's decision in the appeal to this case.
8. Article 78 of the Mexican Commerce Code provides:
"In commercial agreements each party is bound in the manner and to the terms that it is evident that such person wished to be bound to. The validity of the commercial act does not require the observance of any formalities or requirements."
9. Article 11 of the CISG provides that:
"A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses."
10. This does not mean that that seller does not have to provide any communications to a buyer. Pursuant to Article 32(1):
"If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods."
11. See Honnold, John, UNIFORM Law for International Sales, Third Edition, Kluwer Law International, (1999), p. 107. "A theme that underlies numerous articles of the Convention is the duty to communicate information needed by the other party -- a recognition that the consummation of a sales transaction involves interrelated steps that depend on cooperation."