Defective Goods Case Study

Prof. Avv. Bruno TassoneDocente di Principles of Civil Law

LUISS Guido Carli

The Case

Company A is a manufacturer of motorcycles and all related components and spare-parts thereto.

Company B is a retailer of motorcycles and all related components and spare-parts.

Company B also offers to its costumers all services connected with the installation of the said components and spare-parts, as well as the services connected with the reparation and maintenance of motorcycles.

The Negotiation Company B places an order with Company A for a set

of 10 new generations brakes, to be installed on the motorcycles of her customers willing to experience more powerful tools.

In particular, Company B sends a letter asking for the said set and offering 5.000 Euros, also stating that the contracts is regulated by her general conditions attached thereto.

These GC establish - among other clauses - that “if the items provided are defective, Seller will be liable for all direct and indirect damages suffered by Buyer’s customers, also being obliged to indemnify and hold harmless Buyer for any action and/or claim addressed to him by third-parties”.

Company A replies with a letter stating that the offer is accepted and, therefore, that the set of brakes will be dispatched 7 days after payment of the price, adding that the contract will be regulated by her general conditions attached thereto.

Company A’s General Conditions are perfectly equivalent to the ones of B, except for a clause which states that “In no case Seller will be liable for losses and damages suffered by Buyer and/or third-parties as a consequence of non-performance of the contract”.

Those GC also state that “In case the items are defective, if Buyer proves or Seller aknowledges the defect, the defective items will be repaired and/or changed at Seller expences”.

The Damages Company B pays the price, receives the brakes and sell

them to her customers. After installing the brakes on the customers motorcycles,

they result to be seriously defective, as they do not work properly when worming up too much.

Some customers also have accidents and suffer personal injuries when using their motorcycles.

Therefore, almost all customers address claims to Company B for economic and non-economic damages.

Company B, on her count, writes a letter to Company A asking to be fully compensated for all consequences stemming from the defective goods sold.

The Questions1. Is there a contract between the parties (Company A and B) according

to Italian Law (and other legal systems and/or international conventions as CISG and/or “soft laws” as PECL [*])?

2. If so, which GC are applicable to the case and why?3. If Company A’s GC are applicable, is the said limitation of liability

valid (under Italian and/or Community Law [**])?4. If so, is B liable towards her customers?5. Is there any action that customers can directly bring against

Company A and, if so, on which basis (under Italian and/or Community Law [**])?

[*] See, at your choice, the Principles of European Contract Law and/or the CISG – United Nations Convention on Contracts for the International Sale of Goods (Vienna 1980).

[**] See Directives on Liability for Defective Products and Unfair Clauses.