Lecture 10

1. Lecture 10 • SALES • Topics covered: • Introduction to the UN Convention on Contracts for the International Sale of Goods • Transactions, persons, and subject matter covered by the CISG • Comparison on the CISG and US and French commercial law

2. A. UNITED NATION’S CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG) • In effect since January 1, 1988 • Current state parties: 58, including Canada China France Germany Mexico Russia United States

3. B. TRANSACTIONS COVERED IN CISG • CISG applies to contracts for the international sale of goods • The sale must be international. • The buyer and seller must have their places of business in different states.

4. B. TRANSACTIONS COVERED IN CISG • CISG applies to contracts for the international sale of goods • The sale must be international. (continued) • Additionally, either: • Both of the states must be contracting parties to the convention, or • The rules of private international law must lead to the application of the law of a Contracting State. • Exception: A ratifying state may declare that it will apply the CISG only when the buyer and seller are both from contracting states.

5. B. TRANSACTIONS COVERED IN CISG • Opting in and out • The parties to a contract may exclude or modify the CISG’s application by a “choice of law” clause. • 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.

6. JUDGE JUDY READY TO RULE-- Case: Asante Technologies v. PMC-Sierra, Inc.: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

7. C. TO WHOM THE CISG APPLIES • CISG is meant to apply only to commercial sales transactions between merchants • CISG Art.1 states that buyers and sellers must both have “places of business.” • CISG Art. 2(a) states that the Convention does not apply to sales of goods “bought for personal, family, or household use.”

8. D. TO WHAT THE CISG APPLIES • The CISG only deals with: • The formation of contracts. • The remedies available to buyers and sellers.

9. D. TO WHAT THE CISG APPLIES • The CISG does not deal with: • The validity of contracts. • The competency of the parties. • The rights of third parties. • Liability for death or personal injury. • Sales to consumers.

10. D. TO WHAT THE CISG APPLIES • The CISG does not deal with: (continued) • Sales of services • Sales commonly subject to special regulation – • Auction sales, • Sales on execution or otherwise by authority of law, • Sales of stocks, shares, investment securities, negotiable instruments, or money • Sales of ships, vessels, hovercraft, or aircraft, and • Sales of electricity.

11. E. COMPARISON OF THE CISG TO THE UCC AND THE FRENCH CIVIL AND COMMERCIAL CODES • The CISG, in general, is modeled on the provisions of the French Civil Code, the French Code of Commerce, and similar civil law codes. • The most important features of the CISG distinguishing it from both the common law sales codes and the civil law codes are its provisions dealing with: • Interpretation • Firm offers • Time of acceptance

12. JUDGE JUDY READY TO RULE-- Case: United Technologies Intn’l v. Magyar Legi Kozelkedesi Vallalat: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

13. E. COMPARISON OF THE CISG TO THE UCC AND THE FRENCH CIVIL AND COMMERCIAL CODES • The most important features of the CISG (continued) • Acceptance with additional terms • Definiteness • Formalities • Remedies

14. JUDGE JUDY READY TO RULE-- Case: Filanto, Spa v. Chilewich International Corp.: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

15. F. INTERPRETATION • The CISG allows the statements of the parties as well as all relevant circumstances to be used in interpreting the meaning of a contract

16. F. INTERPRETATION • Statements and conduct of the parties • Use the subjective intent of a speaker if “the other party knew or could not have been unaware” of the speaker’s intent. • When a speaker’s intent is not clear, the his intent is to be determined “objectively” • Objective intent is determined “according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.”

17. F. INTERPRETATION • Negotiations • The CISG directs courts interpreting contracts to give “due consideration … to all relevant circumstances,” including: • The negotiations leading up to the contract. • The practices the parties have established between themselves. • The parties’ conduct after they agree to the contract.

18. F. INTERPRETATION • Negotiations (continued) • Reason: to do away with the technical rules that domestic courts sometimes use to interpret contracts. • Example: the common law’s parol evidence rule. • Caveat: The CISG allows parties to “derogate from or vary the effect of” any of the provisions of the Convention. • 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.

19. G. FIRM OFFERS • The CISG (like the French Code of Commerce) provides that an offer will be irrevocable if: • the offeror indicates, whether by stating a fixed time or otherwise, that it is irrevocable, or • the offeree acts in reliance on the reasonable belief that it is irrevocable. • A firm offer does not have to be: • in writing (as required by the UCC), or supported by consideration or cause.

20. H. TIME OF ACCEPTANCE • The CISG provides that an acceptance is effective and a contract formed only when “the indication of assent” reaches the offeror. • This is modeled on the French Civil Code’s “receipt rule.” • The UCC provides that an acceptance is effective upon its dispatch. • Caveat: The CISG states that an offeror may not revoke an offer once it has been dispatched.

21. I. ACCEPTANCE WITH ADDITIONAL TERMS • The CISG treats an acceptance with “additions, limitations, or other modifications” as a counteroffer • This is similar to the French mirror image rule • Caveat: • This is so only if • the additional or different terms “materially alter” the terms of the offer, and • the offeror fails to promptly object to the change.

22. I. ACCEPTANCE WITH ADDITIONAL TERMS • Caveat: (continued) • Changes to the following are considered to materially alter the offer: • Price • Payment • quality and quantity of the goods • place and time of delivery • extent of one party’s liability to the other • settlement of disputes • This is similar to UCC § 2-207.

23. J. DEFINITENESS • A contract must be sufficiently define so that a court can enforce it • The CISG states that a contract is sufficiently definite if it: • indicates the goods, and • expressly or impliedly fixes or makes provision for determining the quantity.

24. J. DEFINITENESS • A proposal should also state or provide a means for determining the price • If it does not, 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

25. K. FORMALITIES • The CISG does not require a contract to be in any particular form • A contract may be proven by oral testimony regardless of the price involved. • This is similar to the French Code of Commerce, which also governs commercial transactions between merchants

26. L. REMEDIES • Buyer’s Right of Avoidance • 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. • A buyer may avoid a contract if either: • The seller commits a fundamental breach, or • The buyer gives the seller a Nachfrist notice and the seller rejects it or does not perform within the period it specifies.

27. JUDGE JUDY READY TO RULE-- Case: Downs Investments Pty. Ltd. v. Perwaja Steel SDN BHD: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

28. L. REMEDIES • A buyer may avoid a contract if either: (continued) • The buyer gives the seller a Nachfrist (continued) • 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 • The period must be definite and the obligation to perform within that period must be clear. • 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.

29. L. REMEDIES • Buyer’s Right of Avoidance • 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.

30. L. REMEDIES • Seller’s Right of Avoidance • Analogous to that of the buyer’s avoidance remedy • Buyer’s Right to a Reduction in Price • Prerequisites: • The seller must have delivered non-conforming goods • The buyer must have accepted them • The seller must not be responsible for the non-conformity

31. L. REMEDIES • Buyer’s Right to a Reduction in Price • Prerequisites: (continued) • The buyer must not be entitled to damages • Formula for determining the price reduction: The price is to be reduced by that ratio of: • The value at the time of delivery of the goods actually delivered, to • The value that conforming goods would have had at the time of delivery.

32. JUDGE JUDY READY TO RULE-- Case: Nuova Fucinati v. Fondmetall International, A.B.: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

33. Clause of the Week Escalation Clause