CISG ISSUES – 2014 VIS PROBLEM PROFESSOR HARRY FLECHTNER

Applicability of the CISG to the 2014 Vis Transaction  CISG Article 1 requirements:  Contract for the sale of goods.  International.  Either  Both parties located in Contracting States (Art. 1(1)(a)), or  PIL rules lead to application of the law of a Contracting State.  Statement of Claim para 18.  COL clause in Contract clause 20: “The contract... shall be governed by the law of Danubia.”  Danubia is CISG Contracting State.  Claimant located in Equatoriana; Respondent in Mediterraneo; Claimant’s parent located in Ruritania.  Problem only specifies Danubia is a Contracting State.

ISSUE ACCORDING TO PROCEDURAL ORDER NO. 1:  “Has Respondent rightfully avoided the contract of 28 March 2014 by it declarations of avoidance of  7 July 2014 [See Claimant’s Exhibit 6], or  9 July 2014?” [See Respondent’s Exhibit 4].  Questions:  Did Claimant breach the contract?  If yes, did the breach justify the remedy of avoidance?  If yes, did the Respondent properly follow the prescribed procedure to avoid the contract?  Note simplification of issue in para 2 of Procedural Order No. 1.

Did Claimant Breach the Contract?  What part or parts of the Contract of 28 March 2014 does Respondent allege that Claimant breached?  See Article 4 – the obligation to establish a letter of credit.  What is a “letter of credit,” which of the parties benefits from it, and why was it included in this contract?  In general, how does a letter of credit work in connection with a sales transaction?  “Applicant,” “issuing bank,” “beneficiary,” “drafts,” “presentation.”  What law governs Claimant’s obligation to establish a letter of credit?  What law governs the issuing bank’s obligations under the letter of credit contemplated by this contract?  What is the “Uniform Customs and Practice for Documentary Credits” (UCP 600) mentioned in Article 4 of the contract? [Google “UCP 600” and click on pdf for “UCP 600 – USU OCW” (the second link in my google search results).]  Basic legal principles for L/C’s: consider UCP 600 Articles 4, 5, 7, 14, 15 and 16.

Did Claimant Breach the Contract?  Did Claimant breach the contract when it provided the first L/C on June 4?  Answer paras – wrong quantity term of L/C. See CISG Art. 54  Also, “different delivery term”: Cl. Ex. 7. [See K Art. 5, Cl. Ex. 5. Compare Cl. Ex. 8]  RE “CIF” vs. CIP” see next slide.  See compliance standard in UCP Art. 14, esp. (d) & (e). [Is this relevant?]  If first L/C constituted a breach, did Claimant have right to “cure” up to the date that contract required the letter of credit?  Cf. CISG Art. 34 [Compare CISG Arts. 37 & 48.]  Consider CISG Art. 7(2).  Did Claimant have right to “cure” after the date that contract required the letter of credit?  If Respondent avoided the contract, did that cut off any right to cure?  See CISG Arts. 64, 25, and 26.  If Claimant had cure right, did it in fact cure? [See discussion of second L/C below.]

Delivery Terms: Contract Article 5 and the June 4 Letter of Credit  Article 5 of Contract: Shipment required to be “CIF (INCOTERMS 2010), Oceanside, Equatoriana, not later than 60 days after receipt of Letter of Credit”  What is “INCOTERMS 2010”?  L/C of 4 June (Cl. Ex.5) provides “CIP Vulcan Coltan, 21 Magma Street, Oceanside Equatoriana.” [Compare L/C of July 8, Cl. Ex. 8.  What is the difference between “CIF” and “CIP”?  Are there any problems with the CIP address in the L/C of 4 June? Consider UCP Article 14(j). [Is this relevant?]

Did Claimant Breach the Contract? (second theory)  Did Claimant breach the contract when it provided the second L/C on July 8?  Answer paras  CISG Art. 54.  Theories of breach:  Timing. [Answer paras 15, 23, 33-34; K clauses 4 & 15 (compare K clause 2); K clause 15 re Answer Art. 33; CISG Arts. 27 (compare Art. 18(2)).]  Was satisfaction of K requirements cut off by avoidance of contract?  Respondent’s Exhibit 4.  Answer paras 24 & 33.  Lack of Good Faith? [Answer para 22; Respondent’s Exhibits 1 & 2 (Witness Statements); CISG Art. 7(1) & (2).]  Requiring a commercial invoice [Answer paras. 24 & 35 & Resp.’s Exhibit 4. See UCP Art. 18 (is this relevant?).]

Assuming Claimant Breached, Did the Breach Justify Avoidance?  CISG Art. 64(1)(a).  Fundamental Breach. CISG Art. 25.  Answer paras 24, 30 & 35, Respondent’s Exhibit 4.

Assuming Claimant Fundamentally Breached, Did Respondent Properly Avoid Contract (procedure)?  CISG Article 26.  First Notice of avoidance, 7 July 2014 [Cl. Ex. 7.]  Avoidance based on July 4 L/C, so subject to “cure” defense (as well as argument that any breach was not fundamental.  Second Notice of Avoidance, 9 July 2014 [Resp. Ex. 4.]  Occurs after July 8 L/C; subject to argument that this cured any deficiency in July 4 L/C, and is itself adequate to satisfy to satisfy Contract Article 4 or that any breach was not fundamental breach.  Consider also Article 64(2)(a).

Additional CISG Provisions  Silence as Acceptance.  CISG Art. 18(2)  CISG Article 9.