CHAPTER10SALES10-1CHAPTER10

SALESTopicsforthischapter:UNConventiononContractsfortheInternationalSaleofGoods(CISG)TransactionsCoveredinCISGContractualIssuesExcludedfromCoverageofCISGInterpretingCISGInterpretingSalesContractsFormationoftheContractGeneralStandardsforPerformanceSeller’sObligationsThePassingofRiskRemediesExcusesforNonperformance10-2UNConventiononContractsfortheInternationalSaleofGoodsTheCISG,adoptedin1980,incorporatesrulesfromallthemajorlegalsystems.Itprovidesacceptedsubstantiverulesonwhichcontractingparties,courts,andarbitratorsmayrely.Ithasbeenratifiedby72countries,buthasnotbeenratifiedbyBrazil,Japan,India,andtheUK.Japanisexpectedtoratifyitin2008.

10-3TransactionsCoveredinCISGCISGappliestocontractsforinternationalsaleofgoods.Thebuyerandsellermusthavetheirplaceofbusinessindifferentstates.Either:Bothofthestatesmustbecontractingpartiestotheconvention,orTherulesofprivateinternationallawmustleadtotheapplicationofthelawofacontractingstate.AratifyingstatemaydeclarethatitwillapplyCISGonlywhenthebuyerandsellerarebothfromcontractingstates.10-4OptingInandOutPartiestoacontractmayexcludeormodifyCISG’sapplicationbyachoice-of-lawclause.Achoice-of-lawclauseisacontractualprovisionthatidentifiesthelawtobeappliedintheeventofadisputeoverthetermsortheperformanceofthecontract.10-5Case10-1:AsanteTechnologies,Inc.v.PMC-Sierra,Inc.Issue:DoestheU.S.federalcourthavejurisdictionanddoesCISGapplytothiscontract?ThecourtdeterminedthepartieswerefromdifferentstatesandCISGappliestocontractsbetweensuchparties.ThepartiesdidnotoptoutoftheCISGanditwasthecontrollinglaw.10-6SalesDefinedAsaleistheexchangeofgoodsforanamountofmoneyoritsequivalent.TheCISGdoesnotdefinesales,butvarioussectionspresentthesamedefinitionasmanydomesticlaws,suchastheU.S.UCC,whichdefinesasaleasthe“passingoftitlefromthesellertothebuyerforaprice.”ThegoodsprocessedthroughthePortofVancouver,B.C.arelikelybeingshippedundercontractscontrolledbytheCISG.Photo:Publicdomain/wiki/Image:PortOVan.jpg10-7GoodsDefinedAgoodisamoveable,tangibleobject.ForthepurposesoftheCISG,goodsdonotincludethingsboughtforpersonaluseoratanauctionorforeclosuresale,normaytheybeocean-goingvesselsoraircrafts.ThesecandlesmayormaynotbeagoodunderCISGdependinguponwhethertheyaresoldtoindividualconsumersorsoldinbulktoaretailerforresale.Photo:Usedwithpermissionoftheauthorfrompersonalarchive.10-8MixedSalesSellerofgoodsoftenfurnishesserviceswhendeliveringaproduct.CISGlooksuponmixedsalesandservicecontractsassalesofgoods,unlessthepreponderantpartoftheobligation”oftheseller“consistsinthesupplyoflabororotherservices.”

10-9ContractualIssuesExcludedFromtheCoverageofCISGCISGonlydealswith:Theformationofthecontract,andTheremediesavailabletothebuyerandseller.CISGexcludesquestionsabout:thelegalityofthecontract,thecompetencyoftheparties,therightsofthirdparties,andliabilityfordeathorpersonalinjury.10-10PreemptionIfCISGappliestoaparticularcontractualissue,domesticlawispreempted.RemediesprovidedinCISGaretheonlyremediesavailable.Preemptionhelpstofulfillthegoaloftheconventiontoestablishuniformrulesforinternationalsalescontracts.TheonlypermissibleremedyforadefectivesawistheoneprovidedbyCISGwhenthereisaninternationalsale.Photo:publicdomainSource:/SLTC/etools/woodworking/radial.html10-11InterpretingCISGTointerpretCISG,acourtistoconsider:theinternationalcharacteroftheconvention,theneedtopromoteuniformityintheconvention’sapplication,andtheobservanceofgoodfaith.TheCISGimpliesthatacourtmayonlyusetheplainmeaningofthelanguageoftheconvention.Courtsmayalsolookthetravauxpreparatoriesorlegislativehistorytodetermineintent.10-12InterpretingCISG:

GeneralPrinciplesCISGcallsforcourtstolooktothegeneralprinciplesonwhichtheconventionisbasedwheninterpretingitsprovisions.Twoofthesuggestedprinciplesare:Apartytoacontracthasthedutytocommunicateinformationneededbytheotherparty,andPartieshavetheobligationtomitigatedamagesresultingfromabreach.

10-13InterpretingSalesContractsAcontractissaidtobeformedonlywhenthepartieshaveameetingoftheminds.Thissubjectiveintentapproachsaysthatcontractsshouldbeinterpretedaccordingtotheactualintentandunderstandingofthepartiesatthetimetheymadetheiragreement.CISGsayscourtsaretousesubjectiveintentonlyiftheotherpartykneworcouldnothavebeenunawareofthespeaker’sintent.Ifintentisunclear,courtsuseobjectiveintent.10-14NegotiationsWhenacourtistodetermineintent,CISGdirectsthatdueconsiderationbegiventoallrelevantcircumstances,including:thenegotiationsleadinguptothecontract,thepracticesthatthepartieshaveestablishedbetweenthemselves,andtheparties’conductaftertheyagreetothecontract.CISGdoesnotapplythetechnicalrulesthatdomesticcourtsusetointerpretcontracts,suchastheparoleevidencerule.10-15PracticesandUsagesPartiesareboundbyanypracticeswhichtheyhaveestablishedbetweenthemselves.Acourtisallowedtoconsideranyusagesthatthepartiesagreedto.Ausageisthecustomarymethodofperformingoractingthatisfollowedbyaparticulargroupofpeople,suchaspeoplewithinaparticulartrade.CISGletsacourtconsider“ausageofwhichthepartieskneworoughttohaveknownwhichininternationaltradeiswidelyknownto,andregularlyobservedbypartiestocontractsofthetypeinvolvedintheparticulartradeconcerned.”10-16Case10-2:TreibacherIndustrie,A.G.v.AlleghenyTechnologies,Inc.DefendantTDYenteredintoconsignmentcontractswithTreibacher,thenrefusedshipmentwhenitfoundacheapersupplier.Courthadtointerpret,undertheCISG,thewordconsignment.Issueturnedonwhetherthatwordshouldbeinterpretedaccordingtoitsmeaningbasedonthe“courseofdealings”or“customaryusageintrade.”Courtappliedcourseofdealingsandawarded$5,327,042.10-17FormTheCISGstatesthatacontractforsaleneednotbeconcludedinorevidencedbywritingandisnotsubjecttoanyotherrequirementsastoform.Itmaybeprovedbyanymeans,includingwitnesses.However,CISGauthorizesacontractingstatewhoselegislationrequirescontractsofsaletobeconcludedinorevidencedbywritingtomakeadeclarationatthetimeofratificationtheCISGprovisiondoesnotapplywhereanypartyhashisorherplaceofbusinessinthatstate.10-18FormationoftheContract:

TheOfferAcontractisformedwhenanoffertobuyorsellagoodisaccepted.Anofferisaproposalbyonepersontoanotherindicatinganintentiontoenterintoacontractunderspecificterms.Tobeavalidoffer,theofferormustcommunicateanintentiontobebound.Aproposalissufficientlydefiniteifitindicatesthegoodsandexpresslyorimplicitlyfixesormakesprovisionfordeterminingthequantityandprice.10-19EffectivenessofanOfferAnofferbecomeseffectiveonlyafteritreachestheofferee,aspecificpersonaddressedintheoffer.Offerscanbewithdrawnbeforetheyreachtheofferee.Offerscanberevokedanytimebeforetheoffereedispatchesanacceptance.Afirmofferisanofferthattheofferorpromisestokeepopenforafixedperiodoftime.10-20AcceptanceAcontractcomesintoexistenceatthetimetheofferisaccepted.Anacceptanceisastatementofconductbytheoffereeindicatingassentthatiscommunicatedtotheofferor.

Silencedoesnotconstituteacceptance.Acceptancemustbereceivedwithinthetimeperiodspecifiedintheoffer.Ifnotimeperiodisgiven,acceptancemustbereceivedwithinareasonabletime.Acceptanceiseffectivewhenreceivedbyofferor.10-21Case10-3:

UnitedTechnologiesInternational,Inc.v.MagyarLegiKozlekedesiVallalatPlaintiffofferedtosellaircraftenginestodefendantatspecifiedpricesinaquantitytobeselectedbythedefendantdependinguponhowmanyplanestheypurchased.Defendantssentacceptance.Termrequiringgovernmentapprovalwasnotaconditionprecedent.Anenforceablecontractwasformed.10-22AssentbyPerformanceofanAct,Withdrawal,andRejectionIftheofferorasksforperformanceofanactratherthantheindicationofacceptance,theacceptanceiseffectivewhentheactisperformed.Anoffereemaywithdrawhis/heracceptanceanytimebeforeorsimultaneouswithitsreceipt.Arejectionbecomeseffectivewhenitreachestheofferor.Iftheoffereesendsbothanacceptanceandarejection,theonethatreachedtheofferorfirstwouldbegiveneffect.10-23AcceptanceWithModificationsIftheacceptancemodifiessomeofthetermsoftheoffer,thereisacounterofferinsteadofanacceptanceiftheseinconsistenciesare“material.”UndertheCISG,additionaltermsordifferenttermsrelating,amongotherthings,totheprice,payment,qualityofthegoods,place,andtimeofdelivery,extentofoneparty’sliabilitytotheother,orthesettlementofdisputesareconsideredtoalterthetermsoftheoffermaterially.10-24Case10-4:Filanto,

SPAv.Chilewich

InternationalCorp.

ChilewichwassupplyingbootstoaRussiancompanythatwerebeingmadebyFilanto.ChilewichmadereferencetoanarbitrationclauseintheRussianContractwithChilewich.FilantofailedtoobjecttotheincorporationbyreferenceoftheRussianContractinatimelyfashion.Thearbitrationclausebecomepartofthecontract,requiringarbitrationinMoscow.10-25Fundamental

BreachWhenonepartybreaches,theotherpartymayavoidthecontractormakeademandforspecificperformance.Abreachofcontractcommittedbyoneofthepartiesisfundamentalifitresultsinsuchdetrimenttotheotherpartyassubstantiallytodeprivehimorherofwhatheorsheisentitledtoexpectunderthecontract.Theinjuredpartymayusetheremedyofavoidancebynotifyingtheotherpartyandreturninganygoodsalreadyreceived.InvoiceusedinTaiwanPhoto:CC-BY/wiki/Image:Invoice_TW_front.JPG10-26RequestsforSpecificPerformanceAninjuredpartymaybeabletorequestspecificperformanceiftheotherpartyisinbreach.Specificperformanceisacourtorderdirectingapartytocarryouttheobligationsheorshehadcontractuallypromisedtodo.Insomecivillawcountries,apartyisentitledtorequireperformance.IntheUS,specificperformanceisgrantedifthegoodsareuniqueandcannotbeobtainedelsewhere.10-27Seller’sObligationsAsellerisrequiredto:deliverthegoods,handoveranydocumentsrelatingtothem,ensurethatthegoodsconformtothecontract.Theplacefordeliveryistheplaceagreedtointhecontract.Otherwise,itis:thefirstcarrier’splaceofbusiness,ortheplacewherethepartiesknewthegoodswerelocatedorweretobemanufactured.

10-28TimeforDeliveryand

TurningOverDocumentsSelleristodelivergoodsonthedatefixedinthecontract.Ifnofixeddate,withinareasonabletimeaftertheconclusionofthecontract.Attimeandplaceofdelivery,sellermustturnoveranydocumentsrelatingtothegoodsthatthecontractrequires.Ifdocumentsaredeliveredearly,sellerhastherighttocureanydefectinthedocuments.10-29ConformityofGoods

Sellermustdelivergoodswhichareofthequantity,quality,anddescriptionrequiredbythecontractandarepackagedinthemannerrequired.Goodsdonotconformunlessthey:arefitforthepurposeofwhichgoodsofthesamedescriptionwouldordinarilybeused;arefitforanyparticularpurposeexpresslyorimpliedlymadeknowntotheseller;possessthequalitiesofgoodswhichthesellerhasheldoutforthebuyerasasample;arepackagedinthesamemannerusualforsuchgoods.

10-30Third-PartyClaims,Waiver,TimeforExaminingGoods,andCuringDefectsGoodsarenonconformingiftheyaresubjecttothird-partyclaimssuchasownershipandrightsinintellectualproperty.Thepartiesmaywaivetheconformityrequirement.Buyhasanobligationtoexaminethegoodsfordefectswithinasshortaperiodasispracticableafterdelivery.Buyerisobligatedtoinformthesellerofanydiscovereddefectwithinareasonabletime.Ifasellerdeliversearly,heorshemaycureanydefectuptotheagreedupondatefordelivery.10-31Buyer’s

ObligationsAbuyerisrequiredto(1)paythepriceand(2)takedeliveryofthegoods.Unlessadifferenttimeisspecified,thebuyermustpaywhenthegoodsorthedocumentscontrollingtheirdispositionaredelivered.Ifplaceofdeliveryisspecified,paymentisalsomadethere.Ifnoplaceofdeliveryisspecified,thenbuyermustpayattheseller’splaceofbusiness.10-32Case10-5

TheNaturalGasCaseTheplaintiff,aGermanycompany,negotiatedtobuynaturalgasfromanAustrianpartnership.ThedefendantwastoshipthepropanefromtheUStotheplaintiffinBelgium.Theplaintiffwastoobtainaletterofcreditoncethedefendanttolditwherethepropanewastobeloaded.Issue:Hadthedefendantbreachedthecontractbyfailingtodeliverthepropaneorwasitsdutytoperformexcusedbytheplaintiffnotobtainingaletterofcredit?9-33Case10-5

TheNaturalGasCaseHeld:Thebuyerwasexcusedfromopeningaletterofcreditbecausethedefendantneverprovidedthenecessaryinformationfortheletter.Thebreachwasduetotheseller’sfailuretomakeproperarrangementstoshipthegas.10-34Passage

ofRiskThelegalconceptofpassageorriskisthepointintimewhenthebuyerbecomesresponsibleforlossestothegoods.Oncetheriskpasses,thebuyermustpayforthegoods.Eveniftheyaredamagedordestroyed.CISGallowsthepartiestoallocateriskandspecifywhenriskwillpass.Thepartiesusuallyshowpassageofriskthroughtheusageoftradeterms,suchasFreeonBoard(FOB)orCost,Insurance,andFreight(CIF).SinkingshipintheStraitofGibraltar.PhotoLic:CC-BY

http://commons./wiki/Image:MV_New_Flame_salvage.jpg10-35MeansofDeliveryGoodsmaybedeliveredbyacarrierorbytheseller.Inshipment,transshipment,in-transit,anddestinationcontracts,theriskoflosswillnotpassuntilthegoodsareclearlyidentifiedtothecontractbymarkingsonthegoods,shippingdocuments,ornoticegiventothebuyer.Inashipmentcontractwheretheselleristodeliverthegoodstoacarrieranddoesnotrequirethatthesellerdelivertoaparticularplace,theriskpasseswhenthegoodsarehandedovertothefirstcarrier.10-36MeansofDeliveryIfthegoodsaretobedelivered“FreeAlongsideShip”(FAS)BigOcean,NewYorkCity,NY,thesellerbearstheriskuntilthegoodsaredeliveredtoNYalongsidetheBigOcean.Whenacontractrequiresthesellertoarrangetransportationtoaspecificdestination,theriskoflossdoesnotpasstothebuyeruntilthegoodsarehandedoverorplacedathis/herdisposalatthatplace.WhenasellerinChinaagreestoacontractcontaininga“DeliveredDutyPaid(DDP)LosAngeles,California,thesellerbearstheriskoftransportingthegoodstoLA.10-37Buyer’sRemediesThebuyer’sremediesarecumulative,meaningtheyareabletobejoinedortakentogether.Theremediesuniquetothebuyerare:tocompelspecificperformance,toavoidthecontract,toreducetheprice,torefuseearlydelivery,andtorefuseexcessquantities.10-38Buyer’sRemedies

ThebuyermayavoidacontractifeitherThesellercommitsafundamentalbreachorThebuyergivestheselleraNachfristnoticeandthesellerrejectsitordoesnotperformwithintheperioditspecifies.Abuyer’sNachfristnoticeisthefixingofanadditionalperiodoftimeofreasonablelengthforperformancebythesellerofhisorherobligations.DuringtheNachfristperiod,thesellerisentitledtocorrectorcurethenonconformityathisorherownexpense.10-39Case10-6

TheShoeSeller’sCasePlaintiff,anItalianbusiness,contractedtosellshoestothedefendant,aGermanbusinesswoman.Theshoesweredeliveredlateandthedefendantcontendedtheywerenonconforming.DefendantdidnotgiveaNachfristnoticeorattempttouseotherremediessuchaspricereduction.Courtfoundnofundamentalbreachbytheplaintiff.10-40ReductioninPriceIfabuyerisnotentitledtodamageswhenasellerdeliversnonconforminggoods,thebuyerwillbeentitledtoareductioninprice.Thebuyermayreducethepriceinthesameproportionasthevaluethatthegoodsactuallydeliveredhadatthetimeofdeliverybearstothevaluethatconforminggoodswouldhavehadatthattime.Theformulais:10-41Seller’sRemedies

Theseller’sremediesmirrorthoseof