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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

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A. UNITED NATION’S CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG)

1. In effect since January 1, 1988

2. Current state parties: 58, including

Canada China

France Germany

Mexico Russia

United States

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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.

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B. TRANSACTIONS COVERED IN CISG

1. CISG applies to contracts for the international sale of goods

a. The sale must be international. (continued)1) 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. i. Exception: A ratifying state may declare that it

will apply the CISG only when the buyer and seller are both from contracting states.

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B. TRANSACTIONS COVERED IN CISG

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.

JUDGE JUDY READY TO RULE--

Case: Asante Technologies v. PMC-Sierra, Inc.: +Court +Facts +Legal Significance +Parties +Rational+Issue +Result

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C. TO WHOM THE CISG APPLIES

1. CISG is meant to apply only to commercial sales transactions between merchants

a. CISG Art.1 states that buyers and sellers must both have “places of business.”

b. CISG Art. 2(a) states that the Convention does not apply to sales of goods “bought for personal, family, or household use.”

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D. TO WHAT THE CISG APPLIES

1.The CISG only deals with:

a. The formation of contracts.

b. The remedies available to buyers and sellers.

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D. TO WHAT THE CISG APPLIES

2.The CISG does not deal with:

a. The validity of contracts.

b. The competency of the parties.

c. The rights of third parties.

d. Liability for death or personal injury.

e. Sales to consumers.

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D. TO WHAT THE CISG APPLIES

2. The CISG does not deal with: (continued)f. Sales of servicesg. Sales commonly subject to special regulation –

1) Auction sales,2) Sales on execution or otherwise by authority of

law, 3) Sales of stocks, shares, investment securities,

negotiable instruments, or money4) Sales of ships, vessels, hovercraft, or aircraft,

and 5) Sales of electricity.

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E. COMPARISON OF THE CISG TO THE UCC AND THE FRENCH CIVIL AND COMMERCIAL CODES

1. The CISG, in general, is modeled on the provisions of the French Civil Code, the French Code of Commerce, and similar civil law codes.

2. 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:

a. Interpretationb. Firm offersc. Time of acceptance

JUDGE JUDY READY TO RULE--

Case: United Technologies Intn’l v. Magyar Legi Kozelkedesi Vallalat: +Court +Facts +Legal Significance +Parties +Rational+Issue +Result

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E. COMPARISON OF THE CISG TO THE UCC AND THE FRENCH CIVIL AND COMMERCIAL CODES

2.The most important features of the CISG (continued)

d. Acceptance with additional terms

e. Definitenessf. Formalitiesg. Remedies

JUDGE JUDY READY TO RULE--

Case: Filanto, Spa v. Chilewich International Corp.: +Court +Facts +Legal Significance +Parties +Rational+Issue +Result

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F. INTERPRETATION

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

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F. INTERPRETATION

2. Statements and conduct of the parties a. Use the subjective intent of a speaker if “the

other party knew or could not have been unaware” of the speaker’s intent.

1) When a speaker’s intent is not clear, the his intent is to be determined “objectively”

a) 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.”

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F. INTERPRETATION

3. Negotiations a. The CISG 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.

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F. INTERPRETATION

3. Negotiations (continued)b. Reason: 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.

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G. FIRM OFFERS

1. The CISG (like the French Code of Commerce) provides that an offer will be irrevocable if:

a. the offeror indicates, whether by stating a fixed time or otherwise, that it is irrevocable, or

b. the offeree acts in reliance on the reasonable belief that it is irrevocable.

2. A firm offer does not have to be: a. in writing (as required by the UCC), or

supported by consideration or cause.

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H. TIME OF ACCEPTANCE

1. The CISG provides that an acceptance is effective and a contract formed only when “the indication of assent” reaches the offeror.

a. This is modeled on the French Civil Code’s “receipt rule.”

b. The UCC provides that an acceptance is effective upon its dispatch.

2. Caveat: The CISG states that an offeror may not revoke an offer once it has been dispatched.

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I. ACCEPTANCE WITH ADDITIONAL TERMS

1. The CISG treats an acceptance with “additions, limitations, or other modifications” as a counteroffer

a. This is similar to the French mirror image rule

2. Caveat: a. This is so only if

1) the additional or different terms “materially alter” the terms of the offer, and

2) the offeror fails to promptly object to the change.

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I. ACCEPTANCE WITH ADDITIONAL TERMS

2. Caveat: (continued)b. Changes to the following are considered to

materially alter the offer: 1) Price

2) Payment

3) quality and quantity of the goods

4) place and time of delivery

5) extent of one party’s liability to the other

6) settlement of disputes

c. This is similar to UCC § 2-207.

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J. DEFINITENESS

1. A contract must be sufficiently define so that a court can enforce it

2. The CISG states that a contract is sufficiently definite if it:

a. indicates the goods, and

b. expressly or impliedly fixes or makes provision for determining the quantity.

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J. DEFINITENESS

3. A proposal should also state or provide a means for determining the price

a. 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

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K. FORMALITIES

1. The CISG does not require a contract to be in any particular form

a. A contract may be proven by oral testimony regardless of the price involved.

1) This is similar to the French Code of Commerce, which also governs commercial transactions between merchants

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L. REMEDIES

1. Buyer’s Right of 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.

JUDGE JUDY READY TO RULE--

Case: Downs Investments Pty. Ltd. v. Perwaja Steel SDN BHD: +Court +Facts +Legal Significance +Parties +Rational+Issue +Result

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L. REMEDIES

b. A buyer may avoid a contract if either: (continued)

2) The buyer gives the seller a Nachfrist (continued)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

i. The period must be definite and the obligation to perform within that period must be clear.

ii. 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.

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L. REMEDIES

1. Buyer’s Right of Avoidance c. 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.

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L. REMEDIES

2. Seller’s Right of Avoidance a. Analogous to that of the buyer’s avoidance

remedy

3. Buyer’s Right to a 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

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L. REMEDIES

3. Buyer’s Right to a Reduction in Price a. Prerequisites: (continued)

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.

JUDGE JUDY READY TO RULE--

Case: Nuova Fucinati v. Fondmetall International, A.B.: +Court +Facts +Legal Significance +Parties +Rational+Issue +Result

Escalation Clause