Contracts for the International Sale of Goods

Purpose of Contracting Contracts: bargain for performance. What are each parties’ responsibilities? Bargain to allocate risk and price accordingly. Contract needs to reflect agreement. Contracts fix price and help to manage risk. Must be sensitive to cultural needs.

Introduction to Contracts for the International Sale of Goods Sales contracts are the uniform method of conducting commercial transactions: Set out parties’ rights and duties. Terms and Conditions. Quantity and Price. Choice of Law and Forum.

Introduction to Contracts for the International Sale of Goods Law of Sales: body of law which governs contracts for the present or future sale of goods. National Differences in Sales Law and Contractual Uncertainty. Unification of Sales Law: Convention on Contracts for the International Sale of Goods (CISG).

Introduction to Contracts for the International Sale of Goods U.S. Uniform Commercial Code. UCC Art. 2 applies to transaction in goods: goods are personal property that is tangible and movable. (Does not apply to intangibles (patents) or real property.) UCC has perfect tender rule.

Introduction to Contracts for the International Sale of Goods Contract Law in China. In 1999, China enacted a single comprehensive Contract Law for The People’s Republic of China. Applies to sales, but also electricity, water, loans, construction, transfer of technology, agency, and brokerage agreements.

Convention on Contracts for International Sale of Goods CISG became effective in 1988. Compromise: tries to keep parties in the bargain. Incorporates national differences in approach to contract law. Over 70 countries have ratified CISG. See Appendix for CISG.

Convention on Contracts for International Sale of Goods CISG applies if the transaction: Involves a commercial sale of goods. Is between parties whose places of business are in different countries. And the places of business are in countries that have ratified the CISG.

Convention on Contracts for International Sale of Goods Applicability of the CISG (cont’d). Place of Business Requirement. Choice of Law Provisions: parties negotiate for choice of law to govern the contract. Case Asante Technologies, Inc. v. PMC-Sierra, Inc. (2001). U.S. federal court had jurisdiction in case involving parties from different countries who did not ‘opt-out’ of CISG provisions.

Convention on Contracts for International Sale of Goods Sales Excluded from the CISG. Consumer goods. Auction. Stocks/shares. Vessels, aircraft, ships. Employment contracts. Death or personal injury. Parties agree to “opt out.” Commercial goods – barrels of oil, bales of wheat, sacks of sugar (raw materials).

Validity and Enforcement of International Sales Contracts CISG does not provide rules for: Determining a contract’s validity, or Whether a party has legal capacity, or Whether fraud or misrepresentation has occurred. Also, consideration is not mentioned and is not required under the CISG.

Validity and Enforcement of International Sales Contracts Enforcement of Illegal Contracts. Agreements that violate the laws of a nation are void and unenforceable. UCC requires contracts for the sale of goods $500 ($5,000 new proposed limit) to be in writing

Validity and Enforcement of International Sales Contracts The Writing Requirement. Many countries do not have this writing requirement for large amounts. Digital Signatures in Electronic Commerce. U.S., Japan, China and the EU have statutes. UN preparing a model electronic signature law.

Validity and Enforcement of International Sales Contracts Problems of Contract Interpretation. Parol Evidence and Common Law: under UCC, if contract is final written expression, then parole evidence is not admissible to contradict. Parol Evidence under CISG: court may consider all relevant circumstances.

Validity and Enforcement of International Sales Contracts Customs, Practices, and Trade Usages. UCC: Allow past practice and industry practice to fill in the gaps. CISG: limited –to those which parties agree to or past dealings or those usages that the parties ought to have known are observed in trade or industry. UCC - express/implied terms. CISG – only express terms. See Mazzacano article.

Validity and Enforcement of International Sales Contracts Mutual Assent: The Offer. Intention to Be Bound: “sufficiently definite.” Public Offers: presumption that an advertisement is not an offer unless there is clear evidence of the contrary.

Validity and Enforcement of International Sales Contracts Mutual Assent: The Offer (cont’d). Article 16 (CISG) (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Validity and Enforcement of International Sales Contracts Mutual Assent: The Acceptance. Under CISG, party may accept by sending goods or payment (article 18), if this is accepted in the trade or was a practice with the parties. Silence Not Acceptance: unless there is an established practice or if that was the terms of the acceptance. Recurring goods/deliveries. Pre-agreement of silence as acceptance.

Validity and Enforcement of International Sales Contracts Mutual Assent: Acceptance (cont’d). When Silence is Effective. Common law: acceptance effective upon dispatch. CISG: acceptance is effective when it reaches offeror (Article 16).

Validity and Enforcement of International Sales Contracts Mutual Assent: Acceptance (cont’d). Mirror Image Rule: no contract if changes or additions. Prevents conflicts. Counter-offers.

Performance of Contracts Performance of Seller. Conformance to Laws and Regulation in Buyer’s Country: each country sets technical standards for product design and performance. Performance of Buyer, Inspection, and Notice of Nonconformity. Buyer must inspect goods within as short as period as possible under the circumstances. 

Performance of Contracts Performance of Seller (cont’d). Performance of Buyer, Inspection, and Notice of Nonconformity (cont’d). Buyer must give notice of nonconformity as soon as practicable.

Remedies for Breach of Contract CISG remedies include: Avoidance of the contract. Seller’s right to remedy or cure. Seller’s additional time to perform. Price reduction. Money damages. Specific performance.

Remedies for Breach of Contract Seller’s Right to Remedy. Seller has the right to cure or remedy, and the buyer cannot avoid until the time for performance expires. Nachfrist Period. Gives parties additional time to perform, as long as there is no “unreasonable delay” or “unreasonable inconvenience.”

Remedies for Breach of Contract Seller’s Right to Remedy (cont’d). Nachfrist Period. If seller asks for additional time and the buyer does not respond, the seller may have the additional time. CISG tries to keep parties in their contract.

Remedies for Breach of Contract Seller’s Right to Remedy (cont’d). Buyer’s Right to Avoidance. When one party fails to perform, the contract is not automatically terminated, the contract or certain provisions, must be “avoided” by one of the parties. Seller’s Avoidance: can avoid if buyer fails to take delivery or pay.

Remedies for Breach of Contract Price Reduction. If there is only a partial shipment or goods are nonconforming, buyer may adjust price. Can be used whether or not breach is fundamental.

Remedies for Breach of Contract Money Damages. May include consequential damages ( lost profits) if foreseeable. See the Delchi Carrier, SpA v. Rotorex Corp case (1994). Plaintiff was awarded compensatory damages and lost profits that can be established by reasonable certainty. The Court will not award lost profits which are purely speculative.

Remedies for Breach of Contract Specific Performance. Under CISG, is available if: (1) buyer has not resorted to another remedy, (2) seller failed to deliver conforming goods, (3) buyer gave timely notice to the seller, (4) buyer made a timely request that the seller provide substitute goods. Court may grant SP without regard to whether money damages are inadequate.

Events Beyond the Control of the Parties: Nonperformance Impossibility of Performance. Supervening illegality. Commercial Impracticability. Extreme hardship, Difficulty or Unreasonable Expense. Unforeseen Events. Shortages and Market Price Fluctuations. Force majeure (a “superior force”).

Events Beyond the Control of the Parties: Nonperformance CISG Exemptions for Impediments Beyond Control: (1) due to an impediment beyond control, (2) impediment was not reasonably foreseeable at the time of contract signing, (3) the impediment was unavoidable and could not be overcome, and (4) notice was given to the other party of the impediment and its effect.