Chapter 4

Sales Contracts and Excuses for Non-Performance

 

I. Development of International Sales Law

          A. UCC and CISG

          B. Conflicts of Law

                   1. Choice of law clauses

          C. Development of the CISG

          D. Contract Law in Developing Countries

          E. Contract Law in Socialist Countries

          F. Contract Law in PRC: An Illustration

 

II. Convention on Contracts for the International Sale of Goods (CISG)

          A. Applicability of CISG to Int’l Transactions

                   1. Place of Business Requirement

Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F.Supp2d 1142 (N.D. Cal. 2001)

Facts: P (American) purchased electronic parts from D (Canadian), through its Californian distributor (California)

          P’s order said: “laws of buyer’s address control”

          D’s response said: “Canadian law governs”

          Dispute over quality arose.

Issue: What law controls? What forum is proper?

Holding: CISG controls, and preempts state law

Reasoning:    CISG allows forum selection opt out, but not clearly expressed in this case.  Forms conflicted, and even if both apply, Canadian and Cal. Law would require CISG to be applied.  

                   2. Sales Excluded from CISG

 

III. Validity and Formation of International Sales Contracts

          A. Enforcement of Illegal Contracts

Tarbert Trading, LTD v. Cometals, Inc., 663 F.Supp 561 (SDNY 1987)

Facts: C bought Kenyan beans from TT (English).  Beans held in Rotterdam. C bought the beans to resell in Colombia.  Colombia requires EEC certificate of origin, which is impossible since beans came from Kenya. C asked for certificate, TT agreed. C refused the beans, due to lack of quality, and asked that K be voided as illegal.

          Issue: Can court give effect to contract that requires fraud to be performed?

          Holding: No. Contract requires illegal action, and therefore is void.

          B. Writing Requirement

                   1. Digital Signatures

          C. Problems of Interpretation

                   1. Parol Evidence Rule

                   2. Customs, Practices, and Trade Usages

                   3. Trade Usages under CISG

          D. Entering the Agreement:  Offer

                   1. Intention to be bound

                   2. Public offers

                   3. Open price terms

                   4. Firm offers

          E. Entering the Agreement: Acceptance

                   1. Silence as acceptance

                   2. Time of acceptance

                   3. Mirror image rule

Chateau des Charmes Wines Ltd v. Sabate’, 2004 WL 2012551 (9th Cir. 2003)

Facts: SF (France) sold wine corks to C (Canada). Sale went through SF’s California subsidiary. Dispute arose over whether corks affected wine’s flavor. Parties agreed over phone to q, p, payment and shipping terms. Other orders followed. Seller’s invoice called for litigation in France.

Issue: Is forum selection clause part of the contract?

Holding: No. Under CISG, oral contract was a contract. Invoice sought to vary terms after the fact, and therefore was not part of the contract.

          F. Manner of Offer and Acceptance: Buyer’s and Seller’s Forms

                   1. Pro Forma Invoice

          G. Contract Terms and Conditions and the “Battle of the Forms”

                   1. BotF: Civil v. Common Law

                   2. Mirror image rule under UCC

                   3. Confirmation notices: German law and CISG

                   4. BotF under CISG

                   5. Validity of standard contract terms: a comparison

 

IV. Express and Implied Warranties

          A. Implied warranties

                   1. Disclaiming implied warranties

          B. Notice of non-conforming goods

Schmitz-Werke GmbH & Co v. Rockland Industries, Inc., 37 Fed.Appx. 687 (not for publication)

Facts: S (American) sold fabric to B (German). S said fabric was good for printing base for transfer printing. B found problems with printing. S said go ahead. Another German company inspected, found lower grade and seconds.

Issue: Is this a breach of warranty under CISG?

Holding: Yes. B need only prove that S said it was good for transfer printing, and that it did not work. Need not prove the actual problem.

 

V. Remedies for Breach of Contract

          A. Avoidance and the fundamental breach

                   1. Fundamental breach

MMI v. IMS, 1999 WL 11945 (EDLa 1999)

Facts: MMI entered into licensing agreement with IMS (Italy) for distribution of mammography units. FDA seized for failure to comply with regs. Case went to binding arbitration, MMI won $357k award.

Issue: Did arbitrator abuse discretion?

Holding: No. Under CISG, there was a fundamental breach and there was no applicable exception.

Note: Court relied on German case setting out four exceptions, none of which applied. Arbitrator looked at case, and found that it did not let IMS off the hook.

                   2. Buyer’s right to avoidance

                   3. Notice of avoidance

          B. Seller’s right to remedy

          C. Seller’s additional time to perform

                   1. Seller’s avoidance

          D. Price reduction

          E. Money damages

                   1. Foreign money judgments

Delchi Carrier SpA v. Rotorex Corp., 1994 WL 495787 (NDNY 1994)

Involves breach of contract for sale of air compressors.  See case for what damages are recoverable under CSGI.

Note: It appears Hadley foreseeable principle and certainty of damages principles are very similar under CISG.

          F. Specific performance in common law and civil law systems

                   1. Specific performance under CISG

          G. Anticipatory breach

                   1. Right to suspend performance

                   2. Right to avoidance

                   3. Avoidance of installment contracts

 

VI. Events beyond control of the parties: excuses for non-performance

          A. Impossibility

                   1. Supervening illegality

          B. Frustration of Purpose

          C. Commercial Impractability

                   1. Extreme hardship, difficulty, or unreasonable expense

                   2. Unforeseen events

                   3. Shortages and market price fluctuations

          D. CISG exemptions for impediments beyond control

          E. Force majeure clauses

Harriscom Svenska AB v. Harris Corp., 3 F.3d 576 (2^nd Cir. 1993)

Facts: RF makes radio communications products in NY. RF is division of Harris. Harriscom is Swedish, and is exclusive distributor to Iran. In 1985, customs seized radio equipment as military equipment, banned going to Iran. Harriscom brought action against RF.
Issue: Does force majeure clause get RF off the hook?

Holding: Yes. Government action is a force majeure, and contract forgives performance in case of “governmental interference.”

VII. Cultural Influences on Contract Negotiations

          A. Negotiating contracts in Japan