VI – Sales 货物买卖

CISG

(United Nation’s Convention On Contracts For the International Sale Of Goods)

Web site:

http://www.uncitral.org/http://cisgw3.law.pace.edu/

• A. United Nation’s Convention On Contracts For the International Sale Of Goods (CISG)（联合国国际货物销售合同公约）

• B. Transactions Covered In CISG （公约调整的交易）• C. Contractual Issues Excluded From the Coverage O

f the Convention （公约排除适用的合同问题）• D. Interpreting the Convention（公约的解释）• E. Interpreting the Sales Contract（买卖合同的解释）• F. Formation of the Contract （合同的订立）• G. General Standards For Performance （履行标准）• H. Seller’s Obligations （卖方义务）• I. Buyer’s Obligations （买方义务）• J. The Passing of Risk （风险转移）• K. Remedies （救济） • L. Excuses For Nonperformance （免责）

A. CISG

United Nations Convention on Contracts for the International Sale of Goods

In effect since January 1, 1988 Current state parties: 65, including Canada Mexico

China Russia

France United States

Germany return

B. Transactions Covered In CISG

1. CISG Applies to Contracts for the International Sale of Goods

a. The sale must be international. 1)The buyer and seller must

have their places of business in different states.

2) Additionally, either:

• a) Both of the states must be contracting parties to the convention, or

• b) The rules of private international law must lead to the application of the law of a Contracting State.

• 1] Note: CISG may apply even if the buyer’s and seller’s places of business are not in a contracting state.

• 2] Exception: The final provisions of the Convention allow a ratifying state, if it wishes, to declare that it will apply the CISG only when the buyer and seller are both from contracting states.

• 2. Opting In and Out

• a. The parties to a contract may exclude or modify the CISG’s application by a “choice of law” clause.

• b. Whether parties can exclude a domestic law and adopt the CISG in its place depends on the rules of the state where the case is heard.

• Case 10-1. Asante Technologies, Inc. v. PMC-Sierra, Inc.

• Case 10-1. ASANTE TECHONOLOGIES, INC. v. PMC-SIERRA, INC.

• United States District Court, Northern District of California, 2001

• FACTS: Asante, a Delaware corporation with its headquarters in California, ordered component parts for the switchers it manufactures from PMC-Sierra, a Delaware corporation with its headquarters in British Columbia. Four of the five orders were placed through Unique Tech., one of PMC-Sierra’s authorized distributors in California, but the fifth was sent by fax directly to PMC-Sierra in BC. Asante sued PMC-Sierra in a California court. PMC-Sierra had the suit removed to a US federal court. Asante now challenges the removal.

• Note: Both the US and Canada are parties to the CISG.

• ISSUES:

• (1) Does federal jurisdiction attach to claims governed by CISG?

• (2) Were the parties from two different CISG states?

• (3) Did the parties’ choice of law clause exclude the CISG?

• (4) Does the well-pleaded complaint rule prevent the assumption of federal jurisdiction?

• HOLDINGS:

• (1) Yes. (2) Yes. (3) No. (4) No.

• LAW: (1) 28 USC §1331(a) gives US district courts jurisdiction over claims that arise under “treaties of the US.” (2) CISG applies when the parties are from two different CISG states. A distributor is ordinarily not an agent. (3) CISG is the law of both California and BC (because of federal supremacy rules). (4) The well-pleaded complaint rule says that a federal cause of action arises only when the plaintiff’s well-pleaded complaint raises issues of federal law. The introductory text of CISG says that it is meant to establish uniform rules to promote international trade.

• EXPLANATION: (1) CISG is a US treaty and therefore US district courts may hear complaints that arise under it. (2) Unique Tech. is a distributor and Asante is not bound by its actions. The transaction was thus between Asante and PMC-Sierra, both from different CISG contracting states, so the CISG applies. (3) The parties’ choice of law clause adopted “California law.” California law, however, includes the CISG; so the CISG is not excluded. (4) While Asante’s complaint only refers to California law, the CISG is actually that law. This is because the CISG is a federal treaty that is meant to preempt all state laws. This can be seen from the CISG statement that it is meant to establish uniform international trade rules. To hold otherwise would defeat this purpose.

• ORDER: Asante’s motion to remand the case to the state court is denied.

• 3. Sale Defined

• a. CISG does not directly define a sale.

• b. Implied definition: The delivery of the goods and their supporting documentation by the seller and the payment of their price by the buyer.

• [ the US UCC’s definition: the passing of title from the seller to the buyer for a price. ]

• 4. Goods Defined• a. CISG does not directly define goods.• 1) The drafters assumed that the CISG only

applies to goods that are movable and tangible. [This is in accord with international usage.]

• b. CISG list the sales and goods that are excluded from its coverage.

• 1) Sales transactions that are excluded:• a) Goods bought for personal, family

or household use.• 1] This exclusion does not apply

unless the seller knew or ought to have known that the goods were bought for personal use or consumption.

• b) Auction sales.

• c) Sales on execution or otherwise by authority of law.

• 2) Goods that are excluded:

• a) Stocks, shares, investment securities, negotiable instruments or money.

• b) Ships, vessels, hovercraft or aircraft.

• c) Electricity.

• Why be excluded?

• 5. Mixed Sales• a. Mixed sales and services contracts are treated

by the CISG as sales of goods, unless “the preponderant part of the obligations” of the seller “consists in the supply of labor or other services.”

• 1) Preponderant probably means more than half.• 2) Whether this is measured by the cost, the

sale price, or by some other basis is not clear.• • b. Contracts for goods to be manufactured are

sales unless the buyer undertakes to supply a substantial part of the materials.

• 1) Substantial is probably less than half.•

return

C. Contractual Issues Excluded From The Coverage Of The Convention

1. The CISG Only Deals With: a. The formation of contracts. b. The remedies available to the buyer

and seller. 2. The CISG Specifically Excludes

Questions About: a. The legality of the contract. b. The competency of the parties. c. The rights of third parties. d. Liability for death or personal injury.

• 3. Preemption: When the CISG applies, domestic law is preempted.

• a. Reason: the CISG’s basic function is to establish uniform rules for international sales contracts.

• b. Scope of the CISG.• 1) CISG applies to contractual issues.• a) CISG preempts the local law even if

the local law gives a different name to a particular remedy.

• b) CISG preempts the local law even if the local law adds additional elements to a matter that is contractual in nature.

•

return

D. Interpreting the Convention

1. Interpreting the Provisions of the CISG a. Apply the following basic principle: The

goal of the CISG is the creation of a uniform body of international commercial sales law.

b. Consider the following sources, in the following order:

1) The Convention. 2) The general principles on which the

Convention is based. 3) The rules of private international law.

• 2. Interpreting the CISG• a. To interpret the words of the CISG itself, consi

der:• 1) The international character of the Convention.• 2) The need to promote uniformity in the Conve

ntion’s application.• 3) The obligation to observe good faith.• b. Rules of interpretation.• 1) “Plain meaning”: Look at the words of Conve

ntion itself.• 2) Travaux preparatoires: Look to the CISG’s leg

islative history to determine its intent.• 3) Precedent: Use case law to interpret the CISG.

• 3. General Principles• a. The CISG calls for courts to look to the

general principles on which the Convention is based when interpreting its provisions.

• 1) The CISG gives no list of general principles.

• a) Suggested principles (that appear, in varying forms, throughout the convention):

• 1] Each party must communicate information needed by the other party.

• 2] Parties have the obligation to mitigate damages resulting from a breach.

• 2) The CISG requires that general principles be derived only from rules given within the Convention itself.

• 4. Rules of Private International Law• a. Rules of private international law may be used

only when:• 1) The Convention itself does not directly settle

a matter.• 2) The matter cannot be resolved by the

application of a general principle derived from the Convention itself.

• b. Private international law rules vary from country to country.

• 1) Some states have enacted private international law codes.

• 2) Some states rely on case law.• c. The reason for allowing courts to turn to the

rules of private international law: the Convention avoids the possibility that courts will adopt interpretive aids on an entirely ad hoc basis. return

E. Interpreting the Sales Contract

1. Statements and Conduct of the Parties a. Varying approaches in domestic law. 1) The subjective approach: Look at what

was in the minds of the contracting parties at the time they made their contract.

a) Rule in many civil law countries. 2) The objective approach: Look only at

the circumstances as they would seem to an impartial bystander.

a) Rule in the common law countries.

• b. The CISG’s approach:

• 1) Use the subjective intent of a speaker.

• a) Only do so if “the other party knew or could not have been unaware” of the speaker’s intent.

• 2) When a speaker’s intent is not clear look at “objective” intent.

• a) The party’s statements and other conduct “are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.”

• 2. Negotiations

• a. CISG Art. 8(3) directs courts interpreting contracts to give “due consideration … to all relevant circumstances,” including:

• 1) The negotiations leading up to the contract.

• 2) The practices the parties have established between themselves.

• 3) The parties’ conduct after they agree to the contract.

• b. Purpose of Art. 8(3): to do away with the technical rules that domestic courts sometimes use to interpret contracts.

• 1) Example: the common law’s parol evidence rule.

• 2) Caveat: The CISG allows parties to “derogate from or vary the effect of” any of the provisions of the Convention.

• a) If the parties include a contract term (often called an “integration clause”) directing a court to ignore all prior or contemporaneous agreements, the court will have to give effect to that term.

• Case 10-2. MCC Marble Ceramic v. Ceramica

• Case 10-2. MCC-MARBLE CERAMIC, INC. v. CERAMICA NUOVA D’AGOSTINO SpA

• United States Eleventh Circuit Court of Appeals, 1998• FACTS: MCC’s president (who did not speak Italian) s

igned a pre-printed contract form in Italian in Italy with Ceramica for the purchase of tiles. The contract specified price, quality, quantity, delivery, and payment. On its reverse side it specified the procedure to follow if the tiles delivered by Ceramica were non-conforming. Under the signature line on the front was a statement in Italian that said that the buyer was aware of all of the conditions of the reverse of the form. Later, when Ceramica sent non-conforming tiles, MCC did not follow the procedure specified on the reverse of the signed form. Instead, it reduced the amount of its

• payment to Ceramica (as it is entitled to do under the UN CISG). Later yet, when Ceramica did not satisfy several orders, MCC sued for breach of contract. Ceramica responded that it was under no obligation to deliver the order because MCC had not fully paid for previous shipments and had not followed the procedure for complaining of non-conforming shipments. MCC sought to introduce evidence to show that the terms on the reverse of printed contract form were not intended to be part of the contract. The trial court rejected MCC’s offered evidence and relied solely on the terms of the contract. It granted Ceramica’s motion for summary judgment.

• ISSUES:

• (1) Must the subjective intent of the parties be considered in determining the term of a CISG contract?

• (2) Does the parol evidence rule apply to CISG contracts?

• HOLDINGS: (1) Yes. (2) No.

• LAW: (1) CISG Art. 8(1) requires courts to consider “a party’s subjective intent as long as the other party to the contract was aware of that intent.” (2) CISG Art. 8(3) directs courts to give “due consideration to … negotiations.”

• EXPLANATION: (1) MCC’s offered evidence attempted to show that the seller did not intend to be bound by the terms on the reverse of the form and that the buyer knew of this. This is exactly the evidence that Art. 8(1) requires a court to consider. (2) Art. 8(3) is a clear rejection of the US parol evidence rule.

• ORDER: Summary judgment is reversed and the case is remanded.

• 3. Practices and Usages

• a. CISG states that parties are bound by “any practices which they have established between themselves” including:

• 1) Usages the parties agree to.

• 2) Usages the parties knew or ought to have known and which, in international trade, are widely known to, and regularly observed by, parties of contracts of the type involved in the particular trade concerned.

• 4. Form• a. Most delegates at the CISG Convention

felt that a writing requirement is inconsistent with modern commercial practice.

• 1) The Soviet delegates insisted that a writing requirement is important for protecting their country’s longtime pattern of making foreign trade contracts.

• b. The CISG compromise.• 1) Art.11: No writing is required.• 2)Art.96: Unless the contracting state of

one of the parties to a contract made a declaration at the time of ratification requiring that the contract be in writing. return

F. Formation Of the Contract

1. A Contract is Formed when an offer to buy or sell a good is accepted

• 2. The Offer• a. Defined: A proposal addressed to specif

ic persons indicating an intention by the offeror to be bound to the sale or purchase of particular goods for a price.

• 1) For a communication to be an offer:• a) The offeror must communicate an in

tention to be bound.• b) The proposal must be definite.• 1]A proposal is sufficiently definite if

it:• a] Describes the goods, and• b] States or provides a means for d

etermining the quantity.

• 2] A proposal should also state or provide a means for determining the price.

• a] Otherwise the price will be: The price generally charged at the time of the contract for like goods sold under comparable circumstances in the trade concerned.

• c) The proposal must be addressed to one or more specific persons.

• 1] Proposals made to the public are invitations to negotiate, unless the contrary is clearly indicated.

• b. Effectiveness of an Offer.• 1) An offer becomes effective only after it reach

es the offeree.• a) Offers may be withdrawn any time before they

reach the offeree.• 1] Offers that promise that they are irrevocable

can be withdrawn prior to their reaching the offeree.

• 2) Revocation.• a) Offers that do not state that they are irrevoca

ble.• 1] Can be revoked anytime before the offeree di

spatches an acceptance. a] Similar to the English common law’s “post box” rule.

• b)Firm Offers.

• 1] The CISG rule: An offeror’s promise to keep an offer open for a fixed period is enforceable.

• a] Requirements:

• (1) The offeror must expressly state the offer is irrevocable, or

• (2) The offeror’s conduct must imply that the offer is firm.

• b] The promise of irrevocability:

• (1) Does not have to be signed.

• (2) Does not have to be in writing.

• c] There is no time limitation.

• 3. The Acceptance

• a. A contract comes into existence at the point in time when an offer is accepted.

• b. Acceptance is a statement or conduct by the offeree indicating assent that is communicated to the offeror.

• 1) The form or mode in which an offeree must express assent: Any form or mode is allowed.

• 2) The offeree must communicate his assent to the offeror.

• c. Silence.• 1) Generally, silence or inactivity does not,

in and of itself, constitute acceptance.• 2) Exception: Where a party voluntarily as

sumes the duty to respond, silence will constitute acceptance.

• d. Time of Acceptance: Acceptance must be received by the offeror within the time period specified in the offer.

• 1) If no time period is given: Acceptance must be received within a “reasonable” time.

• a) If the offer is oral, acceptance must be made immediately unless the circumstances indicate otherwise.

• Case 10-3. UNITED TECHNOLO GIES INTERNATIONAL, INC. v. MAGYAR LÉGI KÖZLEKEDÉSI VÁLLALAT

• Hungary, Metropolitan Court of Budapest, 1992• FACTS: Pratt and Whitney (P&W) offered to sell Má

lev Hungarian Airlines (MHA) either two or three PW4000 series engines for installation in a Boeing aircraft or two or three PW4100 series engines for installation in an Airbus aircraft. The offer stated different prices for the different series engines. It also said that it was subject to Hungarian and US government approval. One week later, MHA sent a letter accepting the offer for the PW4000 series engines. When MHA reneged on going forward with the purchase, P&W sued to obtain a declaratory judgment that a contract existed.

• ISSUES: (1) Was there an offer? (2) Was there an acceptance? (3) Was the requirement of governmental approval meant to be a condition precedent or condition subsequent?

• HOLDINGS: (1) Yes. (2) Yes. (3) No.• LAW: CISG Art. 14(1) provides that “a proposal addr

essed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.” And “a proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provisions for determining the quantity and the price.” Art. 18(1) defines an acceptance as “a statement … indicating assent to an offer.” Art. 32: “a contract is concluded at the moment when an acceptance of an offer becomes effective,”

• EXPLANATION: (1) The offer described the goods, and the fact the buyer had the right to choose between the listed engines does not affect the description of the engines. The offer stated a quantity, even though the buyer could choose between two or three engines. The offer stated a price and the offer stated a time for delivery. Thus, there was a valid offer. (2) MHA’s letter unambiguously stated its acceptance. A contract was therefore concluded at the time of acceptance. (3) The offeror did not mean for the proposed government approval to function as either a condition precedent or subsequent, but as only the need to obtain appropriate licenses, etc.

• ORDER: The parties entered into a contract.

• e. Responsibility for Delays in Communicating Acceptance.

• 1) CISG uses the “receipt rule”: The offeree is responsible for insuring that the acceptance gets to the offeror.

• a) Reason for using this rule: Because it is the offeree who chooses the medium through which to send a response, it is the offeree who is better able to avoid the risk of loss or delay.

• f. Assent by Performance of an Act: If the offeror asks for performance of an act rather than the indication of acceptance, the acceptance is effective at the moment the act is performed.

• 1) Caveat: An act does not constitute acceptance if the offeree is required to notify the offeror first.

• a) The notification requirement may be:

• 1] In the offer.

• 2] A trade usage.

• g. Withdrawal: An offeree may withdraw his acceptance any time before or simultaneous with its receipt.

•

• h. Rejection.

• 1) A rejection becomes effective when it reaches the offeror.

• a) If an offeree dispatches both a rejection and an acceptance at the same time, the one which reaches the offeror first will be the one given effect.

• 4. Acceptance with Modifications• a. A would-be acceptance that contains material d

ifferences from the offer is a counter-offer.• 1)Terms relating to the following constitute mater

ial differences: • a) Price. • b) Payment. • c) Quality of the goods.• d) Place or time of delivery.• e) The extent of one party’s liability to the other.• f) The manner of settling disputes.• b. Additions that are not material are proposals fo

r addition that will become part of the contract unless the offeror promptly objects.

• Case 10-4.Filanto, SpA v. Chilewich International Corp.

• Case 10-4. FILANTO, SPA v. CHILEWICH INTERNATIONAL CORP.

• United States District Court, Southern District of New York, 1992.

• FACTS: Chilewich (a US export-import firm) had a contract to deliver footwear to Russia. This contract contained an arbitration provision that called for all disputes to be arbitrated in Moscow. Chilewich then engaged Filanto (an Italian corporation) to supply it with footwear that Chilewich had contracted to deliver to Russia. Chilewich’s correspondence to Filanto said that the arbitration provision in the Russian contract was to be part of their contract as well. Filanto supposedly sent Chilewich a counteroffer rejecting the arbitration provision.

• Chilewich meanwhile proceeded to obtain a letter of credit benefiting Filanto and proceeded as if there was a contract. Filanto, however, signed a contract on August 7 that contained this provision, although it said in its cover letter that it was not bound by the provision. When a dispute arose and Filanto sued in a US court, Chilewich invoked the arbitration provision and asked the court to dismiss Filanto’s suit.

• ISSUE: (1) Was the August 7 reply a counteroffer? (2) If it was, was there a contract anyway based on unobjected-to performance?

• HOLDING: (1) Yes. (2) Yes.

• LAW: A reply that purports to be an acceptance but contains material (such as the rejection of an arbitration provision) additions, limitations, or modifications are a rejection of the offer and a counteroffer. If the offeree knows that the offeror has begun performance and fails to notify the offeror within a reasonable time that it objects to the terms of the contract, it will be deemed to have assented to those terms.

• EXPLANATION: (1) The objections to the arbitration provision in the August 7 cover letter were a material modification amounting to a rejection of the offer. (2) Because Chilewich went ahead with the contract (getting the letter of credit) and Filanto did not timely object, Filanto accepted the terms of the Chilewich’s proposed contract.

• ORDER: Case dismissed; the matter must be arbitrated in Moscow. return

G. General Standards For Performance

1. Fundamental Breach a. Defined: When one party

substantially fails to deliver what the other reasonably anticipated receiving.

• 2. Avoidance

• a. Defined: The right to be excused from having to perform any obligation required by the contract.

• 1) Requirements:

• a) The other party must have committed a fundamental breach.

• b) The injured party must notify the other party.

• 2) Effect of avoidance:

• a) Only the obligation to perform is set aside.

• b) Avoidance does not affect any provision in the contract concerning:

• 1] The settlement of disputes (such as arbitration, choice of law, or choice of forum clauses), or

• 2] Any other provisions governing the rights and duties of the parties “consequent upon the avoidance of the contract.”

• 3. Requests for Specific Performance

• a. An injured party may ask a court “to require performance” if the other party fails to carry out its obligations.

• b. A court is not obliged to order specific performance unless the court can do so under its own domestic rules. return

H. Seller’s Obligations

1. The Seller’s Basic Obligations are: a. To deliver the goods. b. To hand over any documents

relating to the goods. c. To insure that the goods conform

to the contract.2. If the Contract Fails to Specify

How the Seller is to Perform the CISG provides rules to fill in the gaps.

• 3. Place for Delivery

• a. The place agreed in the contract, otherwise:

• 1) The first carrier’s place of business if the contract involves the carriage of goods, or

• 2) The place where the parties knew the goods were:

• a) Located, or

• b) Were to be manufactured or produced.

• 4. Time for Delivery• a. The date fixed in the contract,

otherwise:• 1) Within a reasonable time after the

making of the contract.• b. If a time period is provided, the seller

may deliver at any time within that period, unless the contract expressly says that the buyer is to choose the time.

• 5. The Turning over of Documents• a.At the time and place for delivery, a

seller must turn over any documents relating to the goods that the contract requires.

• 6. Conformity of Goods• a. A seller must deliver goods that are:• 1) Of the quantity, quality, and description

required by the contract, and• 2) Which are contained or packaged in the

manner required by the contract.• b .To determine conformity: • 1) Use rules agreed to by the parties.• 2) Otherwise, the goods do not conform

to the contract unless they are: • a) Fit for the ordinary purposes of such

goods.• b) Fit for the particular purposes that:

• 1] Were expressly or impliedly made known to the seller at the time of the conclusion of the contract, and

• 2] The buyer reasonably relied upon the seller’s skill and judgment.

• • c) Of the same quality as a sample or

model provided by the seller.• • d) Contained or packaged in a same

manner that is:• 1] Usual for such goods, or• 2] Adequate to preserve and protect

the goods.

• 3) Goods also do not conform if they are subject to third party claims.

• a) Third party claims include:

• 1] Assertions of ownership.

• 2] Rights in intellectual property.

• 4) Waiver: A buyer may waiver a seller’s obligation to conform:

• a) Expressly.

• b) Impliedly, if the buyer knew or “could not have been unaware” that the goods were non-conforming.

•

•

• c. Time for Examining Goods: The buyer must examine the goods for defects within as short a period as is practicable after delivery.

• 1) If the goods are shipped, the examination may be deferred until after the goods have arrived at their destination.

• 2) If the goods have to be redirected or redispatched, examination may be deferred until after the goods have arrived at their new destination.

• d. Notice of Defect: The buyer must notify the seller of any defects he discovers within a reasonable time after delivery or within a reasonable time after discovering the defect.

• 1) If the buyer fails to do so he waives his right to require performance.

• 2) The seller will not be responsible for a defect that arises more than two years after delivery, unless:

• a) He knew or ought to have known of a non-conformity and did not disclose it to the buyer, or

• b) The contract establishes a longer period of guarantee.

• 3) What constitutes notice is not described in the CISG.

• a) It probably must be sufficient to inform the seller of the problem.

• e. Curing Defects: A seller who delivers goods early may correct or “cure” any defect up to the agreed date for delivery.

• 1) The cure may not cause the buyer any unreasonable inconvenience or expense.

• 2) Even if the seller does make a cure, the buyer retains the right to claim any damages that are provided for in the CISG. return

I. Buyer’s Obligations

1. Paying the Price a. The buyer must: 1) Take whatever preliminary steps

are necessary under the contract or any laws or regulations to enable payment to be made.

• 2) Pay the price at the time and place designated in the contract.

• a) If no time is specified, the buyer is to pay when the goods or the documents controlling their disposition are delivered.

• 1] The buyer must pay even if the seller makes no formal request.

• 2] The buyer may delay payment until he has had time to examine the goods.

• b) If no place for payment is specified, the buyer is to pay at:

• 1] The agreed place for the delivery of either the goods or their controlling documents, or

• 2] The seller’s place of business.• Case 10-5. The Natural Gas Case

• Case 10-5. THE NATURAL GAS CASE

• Austria, Supreme Court, 1996

• FACTS: Buyer agreed to buy natural gas for itself and a third party. Seller agreed to ship gas from the US. Buyer agreed to obtain a letter of credit, but told seller that its bank needed to know the place of loading in order to issue the letter. Seller agreed to provide the place of loading, but never did so. Later, the seller told buyer that its US supplier would not agree to export the gas to buyer in Belgium. The third party bought gas from another source for an additional $141,131. Buyer then

• sued seller to recover the $141,131 for the third party plus $15,000 in loss profits for itself. Seller asserted: that it was not liable because the buyer had never obtained the letter of credit; if it was liable, that the buyer had avoided the contract and the damages should be calculated accordingly, that the buyer was not entitled to loss profits and that the buyer/third party failed to mitigate the damages.

• ISSUES: (1) Had the buyer breached by not obtaining the letter of credit? (2) Had the seller breached? (3) Was the contract avoided? (4) Was the buyer entitled to lost profits? (5) Had the buyer failed to mitigate?

• HOLDINGS: (1) No. (2) Yes. (3) No. (4) Yes. (5) No.

• LAW: (1) A defendant cannot complain that a plaintiff failed to fulfill its obligations when the defendant’s own failure to act caused the plaintiff’s inaction. CISG Art. 41 says that a seller must deliver goods free from any right or claim of third parties. (2) A non-breaching party’s intention to avoid must be clear to the breaching party for there to be an avoidance. (3) A plaintiff is entitled to loss of profits only if the defendant was aware of an intended resale. (4) The defendant has the burden of proving that the plaintiff failed to mitigate.

• EXPLANATION: • (1) The buyer did not breach, because the failure to

provide a letter of credit was caused by the seller’s failure to provide the place of loading.

• (2) The seller breached by failing to obtain clearance for the export of the gas and failing to deliver the gas.

• (3) The buyer never notified the seller that it was avoiding the contract. Notification of the amount of losses incurred is not a notification of avoidance.

• (4) When merchantable goods are sold to a merchant, resale is presumed. Indeed, seller knew that this was the case. Lost profits, therefore, are an appropriate measure of damages.

• (5) The seller failed to show how the buyer could have mitigated.

• ORDER: Decision of the Court of Appeals was affirmed.

• 2. Taking Delivery

• a. The buyer must:

• 1) Cooperate with the seller to facilitate the transfer, and

• 2) Actually “take over the goods.”

• b. A buyer who fails to cooperate will be responsible for any resulting costs.

• c. A buyer who fails to take delivery assumes the risk for any damage to the goods after that time. return

J. The Passing Of Risk

1. Defined: The shifting of responsibility for loss or damage from the seller to the buyer

a. Once the risk passes: 1) The buyer must pay the agreed-upon

price for the goods involved. a) Only if the buyer can show that loss or

damage was due to an act or omission of the seller is he excused from paying the price.

2) The buyer must absorb the cost of any loss, or lodge a claim against his insurer.

• b. CISG allocates risk by considering the agreement of the parties and the means of delivery.

• 2. Agreement of the Parties

• a. The parties may agree to allocate risk among themselves and to specify when the risk will pass between them.

• 1) Commonly this is done through the use of trade terms.

• 3. Means of Delivery

• a. Goods Transported by Carrier.

• 1) Prerequisite for risk to pass: The goods must be clearly identified to the contract.

• 2) Kinds of contracts:

• a) Shipment contracts:• 1] Defined: The seller is to deliver the

goods to a carrier for shipment and does not require them to be delivered to a particular place.

• 2] Risk passes when the goods are handed over to the first carrier.

• • b) Transshipment contracts:• 1] Defined: The seller is to deliver the goods

to a carrier for shipment at a named place.• 2] Risk passes when the goods are handed

over to the carrier at that place.

• c) In transit contracts:

• 1] Defined: Contracts made after the goods are already aboard a carrier.

• 2] Risk passes at the time the contract is made.

• a] Exception: If the seller knew or ought to have known that the goods had been lost or damaged, and he did not disclose this to the buyer, the risk does not pass to the buyer.

• d) Destination contracts:

• 1] Defined: The seller is to arrange transportation to a named place of destination.

• 2] Risk passes when the goods are handed over or otherwise placed at the buyer’s disposal at the place of destination.

• b. Goods Delivered Without Being Transported.

• 1) Defined: the goods are not shipped but are handed over directly to the buyer.

• 2) Risk passes when the goods are handed over or otherwise placed at the buyer’s disposal. return

K. Remedies

1. Buyer’s Remedies a. The buyer’s remedies are cumulative. 1) “Cumulative” means that the right to rec

over damages is not lost if a buyer exercises any other available remedy.

b. The buyer’s remedies are immediate. 1)“Immediate” means that a court or arbitr

al tribunal may not grant the seller grace period (délai de grâce) in which to comply with a buyer’s demand for a remedy.

a) This is contrary to the practice in some civil law countries.

• c. Remedies unique to the buyer.• 1) Specific performance.• a) Specific performance is available only in

states where the local law provides for such a remedy.

• b) If it is available, the buyer may ask that the seller either:

• 1] Deliver substitute goods, or• 2] Make repairs. • c) Prerequisites:• 1] Buyer cannot have avoided the contract

or resorted to some other inconsistent remedy.• 2] Buyer must first notify the seller that the

goods are non-conforming.• 3] If the buyer asks for substitute goods, the

non-conformity must amount to a fundamental breach.

• 2) Avoidance.

• a) The CISG’s provisions for avoidance by a buyer are patterned after German law, especially in the Convention’s adoption of the German Nachfrist notice.

• b) A buyer may avoid a contract if either:

• 1] The seller commits a fundamental breach, or

• 2] The buyer gives the seller a Nachfrist notice and the seller rejects it or does not perform within the period it specifies.

• a] A buyer’s Nachfrist notice is the fixing of an additional period of time of reasonable length for performance by the seller of his obligations.

• (1) The period must be definite and the obligation to perform within that period must be clear.

• (2) During the Nachfrist period the seller is entitled to correct (i.e., “cure”) the non-conformity at his own expense.

• (a) A cure may not be made if the breach is fundamental and the buyer chooses to avoid the contract.

• 3] Once the Nachfrist period has run, or once the fundamental breach becomes clear, the buyer has a reasonable time in which to avoid the contract.

• Case 10-6. The Shoe Seller’s Case

• Case 10-6. THE SHOE SELLER’S CASE

• Germany, Court of Appeals, Frankfurt am Main, 1994

• FACTS: The plaintiff delivered shoes to the defendant. Delivery was late and the shoes did not completely conform to the sample the plaintiff-seller had originally shown to the defendant-buyer. When the defendant-buyer refused to pay on two invoices, the plaintiff-seller brought suit. On appeal, the defendant argued that she was entitled to invoke the remedy of avoidance because of the plaintiff’s late delivery and the nonconformity of the goods.

• ISSUE: Is the remedy of avoidance available to the defendant?

• HOLDING: No.• LAW: (1) Avoidance is only allowed after a b

uyer gives the seller a Nachfrist notice and defines an additional fixed period in which the seller is to make delivery. (2) There is no nonconformity in cases where a buyer is able to use some of the goods.

• EXPLANATION: The buyer did not give the seller a Nachfrist notice. The buyer also was able to use some of the goods delivered.

• ORDER: Decision in favor of the plaintiff is affirmed.

• 3) Reduction in Price.

• a) Prerequisites:

• 1] The seller must have delivered non-conforming goods.

• a] The buyer must have accepted them.

• b] The seller must not be responsible for the non-conformity.

• 2] The buyer must not be entitled to damages.

•

• b) Formula for determining the price reduction: The price is to be reduced by that ratio of:

• 1] The value at the time of delivery of the goods actually delivered, to

• 2] The value that conforming goods would have had at the time of delivery.

• 4) Refusing Early Delivery.

• 5) Refusing Excess Quantity.

• ExampleExample Idaho potatoes sold at $3.50/bushel for Idaho potatoes sold at $3.50/bushel for

delivery in Djakarta delivery in Djakarta Damaged in transit by act of nature Damaged in transit by act of nature Undamaged potatoes are worth Undamaged potatoes are worth

$4.00/bushel if purchased in Djakarta $4.00/bushel if purchased in Djakarta Damages potatoes are worth $2.80/bushel Damages potatoes are worth $2.80/bushel

• The price reduction ratio is:The price reduction ratio is: $2.80 $2.80 = = 7 7 $4.00  10 $4.00  10Applying this ratio, the reduced price the Applying this ratio, the reduced price the buyer pays is:buyer pays is:

$3.50 x 7/10  =  $2.45 $3.50 x 7/10  =  $2.45

• 2. Seller’s Remedies

• a. Seller’s remedies mirror

those of the buyer.

• b. Seller’s remedies are both cumulative and immediate.

•

• c. Remedies unique to the seller:

• 1) Specific Performance:

• a) The availability of this remedy depends on the domestic rules applicable to the court hearing the suit.

• b) If the remedy is available, a seller may ask the buyer to either:

• 1] Take delivery and pay the contract price, or

• 2] Perform any other obligation required by the contract.

• 2) Avoidance

• a) A seller may only avoid a contract:

• 1] If there has been a fundamental breach, or

• 2] Following a Nachfrist notice, the buyer refuses to cure any defect in his performance.

• 3) To Obtain Missing Specifications.• a) If the buyer does not produce the meas

urements that the seller needs by the date specified in the contract, or within a reasonable time after the seller asks for them, the CISG allows the seller to ascertain them himself.

• b) The seller must:• 1] Inform the buyer of what he has do

ne,• 2] Set a reasonable time period for the

buyer to supply different specification.• a] If the buyer does not respond, the s

eller’s specifications become binding.

• 3. Remedies Available to Both Buyers and Sellers

• a. Suspension of performance.• 1) In response to threats of nonperformance: A

party may stop performing.• 2) In response to threats of nonperformance

after the goods have been shipped: A party may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them.

• a) Caveat: This relates only to the rights in the goods as between the buyer and the seller.

• 1] Should a third person acquire legal rights in the goods, the CISG will not apply ‑ instead domestic law applies.

• 3) Grounds for suspending performance.• a) It becomes apparent that the other party will

not perform a substantial part of his obligations as a result of:

• 1] A serious deficiency in his ability to perform.

• 2] A serious deficiency in his creditworthiness.• 3] A deficiency in his conduct in preparing to

perform.• 4] A deficiency in his conduct in performing.• 4) Notice: The suspending party must give notic

e.• 5) Suspending party must resume his obligation

s under the contract if the other party provides adequate assurances of his capability to perform.

• b. Avoidance in anticipation of a fundamental breach.

• 1) Distinguish this remedy from those that apply uniquely to the buyer and seller:

• a) Those remedies only apply after an offending party has committed a fundamental breach.

• b) This remedy applies as soon as “it is clear” that the other party “will commit a fundamental breach.”

• 2) Likely cases in which this remedy could be invoked:

• a) The specific goods promised to the buyer are wrongfully sold to a third party.

• b) The seller’s only employee capable of producing the goods dies or is fired.

• c) The seller’s manufacturing plant is sold off.

• 3) Notice requirement: The party opting to anticipatorily avoid must “if time allows” notify the other party so that the latter can “provide adequate assurance of his performance.”

• c. Avoidance of an installment contract.

• 1) Avoidance of a particular installment: Allowed when there has been a breach of that installment.

• 2) Avoidance of a subsequent installment: Allowed when the breach of a prior installment gives a party “good grounds” to believe that a fundamental breach of later installments will occur.

• 3) Avoidance of entire contract (including past and future installments): Allowed when the installments are interdependent.

• d. Damages.• 1) Foreseeable damages: The breaching

party is liable for the losses suffered by the other party that the breaching party foresaw or ought to have foreseen at the time of the making of the contract.

• a) Calculating damages: Two CISG rules ‑• 1] If an avoiding party has entered into a

good faith substitute transaction: The difference between the contract price and the price received (or paid) in the substitute transaction.

• 2] If the avoiding party did not enter into a substitute transaction: The difference between the contract price and the current price at the time of avoidance.

• a] Current price is either:

• (1) The price prevailing at the place where delivery of the goods should have been made, or

• (2) If there is not current price at that place, the price at such other places as serves as a reasonable substitute.

• b) Mitigation of damages: The party claiming damages must take reasonable measures to mitigate the loss.

• 1] Effect of failure to mitigate: The breaching party may seek a proportionate reduction in the damages.

• Case 10-7. DOWNS INVESTMENTS PTY. LTD. v. PERWAJA STEEL SDN BHD

• Australia, Supreme Court of Queensland, 2000• FACTS: Wanless, an Australian company, agreed t

o sell 30,000 tons of scrap metal to Perwaja, a Malaysia company. Their contract called for Perwaja to obtain a letter of credit (L/C) as soon as Wanless chartered a ship to transport the scrap. It also provided that the Brisbane, Queensland law would govern their relationship. Perwaja did not do so and Wanless treated the contract as breached. It arranged to sell the scrap to other buyers at a much lower price and it had to sub-charter the ship it had chartered, losing money on this. Wanless sued to recover damages.

• ISSUES: (1) What law governs?

• (2) Was there a fundamental breach?

• (3) Was Wanless entitled to end the contract?

• (4) Could Wanless have performed?

• (5) Was Wanless entitled to damages?

• (6) Had Wanless acted properly to mitigate damages?

• HOLDINGS: (1) CISG. (2) Yes. (3) Yes. (4) Yes. (5) Yes. (6) Yes.

• LAW: (1) Queensland has adopted the CISG as the law governing the international sales of goods.

• (2) A fundamental breach is one that results in a detriment that substantially deprives a party of what he was entitled to expect under the contract unless the breach party could not have reasonably foreseen that result.

• (3) The non-breaching party may terminate a contract if the breach is fundamental.

• (4) A non-breaching party must be ready, willing, and able to perform in order to sue for breach.

• (5) A non-breaching party that suffers loss may recover damages.

• (6) Damages are sum loss including loss of profits. The non-breaching party must attempt to mitigate the damages.

• EXPLANATION: (1) CISG governs. • (2) The failure to deliver the L/C was a fundamenta

l breach. It was an essential element of the contract necessary to protect Wanless from any effort by Perwaja to renegotiate the terms after Wanless had chartered the ship.

• (3) Wanless could terminate as the breach was fundamental. (4) Wanless had been ready, willing, and able to deliver the scrap as it had already chartered and loaded the ship.

• (5) Wanless is entitled to damages. • (6) Wanless had tried to mitigate damages in that it

promptly sub-chartered the ship. It is entitled to loss profits on the substitute sales plus the loss it suffered from sub-chartering the ship.

• ORDER: Wanless entitled to U.S. $1,280,347.80. retur

n

L. Excuses For Nonperformance

1. Force Majeure a. A party is not liable for damages resulting fro

m his failure to perform if he can show that: 1) His failure was due to an impediment beyond hi

s control. 2) The impediment was not something he could ha

ve reasonably taken into account at the time of contracting, and

3) He remains unable to overcome the impediment or its consequences.

b. Rationale for rule: Neither party is really at fault.

c. Typical situations: Natural disasters, war, embargoes, strikes, breakdowns, and the bankruptcy of a supplier.

• d. Limitations.• 1) Scope: Force majeure only excuses the breac

hing party from paying damages.• a) Nonbreaching party may obtain any other ap

propriate remedy (e.g. suspension of performance or avoidance).

• 2) Notice: Breaching party must promptly notify the other party of the impediment and its effect on his ability to perform.

• 3) Basis: If a breaching party’s claim is based on the failure of a third person to perform (such as a supplier), the third person must himself be able to claim the excuse of force majeure.

• 4) Duration: Force majeure may only be used as long as the underlying impediment continues in existence.

• Case 10-8. NUOVA FUCINATI, SpA v. FONDMETALL INTERNATIONAL AB

• Italy, Civil Court of Monza, 1993.• FACTS: A seller, in Italy, contracted in Sweden to d

eliver 1,000 tons of ore to a buyer, in Sweden. The seller’s costs increased by 43%, so the seller sought to use the excuse of “commercial impracticability” to avoid the contract. The buyer defended by arguing that the contract was governed by the CISG and the excuse of commercial impracticability is not available under the CSIG.

• ISSUES: (1) Does the CISG provide for the excuse of commercial impracticability? (2) Does the CISG apply to this case? (3) Is the seller excused because of commercial impracticability?

• HOLDINGS: (1) No. (2) No. (3) No.• LAW: (1) CISG provides for the excuse of

impossibility of performance (in Art. 79) but does not provide for the excuse of commercial impracticability.

• (2) The CISG applies if the parties are from states that are both signatories of the convention, or if the rules of private international law lead to its application.

• (3) The Italian code provides for the excuse of commercial impracticability. This requires the seller to show that performance is so economically burdensome that the seller does not have the resources to perform.

• EXPLANATION: (1) CISG does not provide for the excuse of commercial impracticability.

• (2) The CISG does not apply because (a) Sweden was not a party to the CISG when the contract was signed and (b) because Italy’s rules of private international law direct the court to use Swedish law (as the contract was signed in Sweden), and Swedish law at the time did not recognize the CISG.

• (3) An increase of 43% in costs to the seller is not so burdensome that the seller cannot perform.

• ORDER: The seller’s case was dismissed.

• 2. Dirty Hands: One party may not rely on a failure of the other party to perform to the extent that such failure was caused by the first party’s act or omission. return