The Nature and Applicability of CISG Laws Discussion

“The CISG was not only ‘about the law’ but also about what was politically acceptable”.  Critically discuss with reference to at least 3 articles of the CISG.

Learning outcomes assessed in this assessment

1.Determine those aspects of the law that are likely to impact on their day-to-day job as a manager in a company operating internationally;

2.Evaluate: i) potential legal implications of operational and functional management and; ii) the need for and sources of specialist legal advice

3.Analyse the legal consequences of various traditional and emerging forms of business structure

4.Analyse the distinctions between the legal systems of the UK, the European Union and elsewhere

5.Determine the legal principles that relate to e-business, particularly in appropriate B2B areas and assess the impact of information technology on legal obligations

6.Relate legal issues to conventional and virtual enterprises

CISG: Rights, Obligations and Remedies
Lecture 7
Dr Hassan Nizami
Article 38- Time of Examination
(1) The buyer must examine the goods, or cause them to be examined,
within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be
deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer
without a reasonable opportunity for examination by him and at the
time of the conclusion of the contract the seller knew or ought to have
known of the possibility of such redirection or redispatch, examination
may be deferred until after the goods have arrived at the new
destination.
Article 38 and 39
Article 38 imposes a duty on the buyer to inspect the goods “within
as short a period as is practicable in the circumstances.”
Article 39 on the other hand states, “The buyer loses the right to rely
on a lack of conformity of the goods if he does not give notice to the
seller specifying the nature of the lack of conformity within a
reasonable time after he has discovered it or ought to have
discovered it.”
Article 38 can play an instrumental role in determining when the
reasonable time period is to commence.
Reasonable according to whose perspective? The seller or buyer?
Article 39 A Compromise
ULIS, required buyers to provide a notice of non-conformity
promptly upon the discovery of the defect or after it ought to
have been discovered. A very exacting standard in practice.
Developed states: rule needed to secure evidence, repair
goods or to deliver substitute goods.
Developing states: saw the requirement as a trap. Worried
about consequences.
As a compromise promptly was replaced with the term
“within a reasonable time” to allow for flexibility.
Article 44: reasonable excuse.
What is the timeframe within which the buyer should have provided
notice of non-conformity
Considerations
1) Practices established between the parties:
2) Trade usage
3) Special nature of the goods: Perishable,
seasonal, durable goods.
4) The nature of the remedy chosen.
Specifying the Nature of the Lack of
Conformity
What degree of specificity is required for the fulfillment of
the notice requirement?
A majority of judgments on the issue favor an interpretation
that requires a precise and detailed notice.
A notice that merely specifies that the goods are defective
would not allow for the achievement of the objectives of the
notice requirement. BUT
A stringent requirement on specificity is out of touch with
commercial reality.
Opinion Number 2 delivered by the Advisory Council:
The requirement of specificity has to be interpreted in
light of the circumstances of each case, and as such,
simple statement of the symptoms of a defect may well
satisfy the requirements of Article 39 in appropriate
circumstances.
Degree of specificity and nature of goods: for example
uncomplicated goods vs complicated machinery.
Level of skill of the buyer.
The Compromise Of Article 40
The seller is not entitled to rely on the provisions of Articles 38 and 39 if the lack
of conformity relates to facts of which he knew or could not have been unaware
and which he did not disclose to the buyer.
The seller’s obligation under Article 40 to disclose known non-conformities on
pain of losing its protections under articles 38 and 39.
WHY:
A) In such a case, the information gathering rationale is not relevant.
B) the provision of a notice in such an instance will not provide any extra advantage
that would enable the seller to cure the defect.
C) Limits opportunism on sellers part.
When must disclosure be made
A) The time the seller hands the goods
over to the buyer?
B) At the time the goods were
delivered?
C) At the time the contract was
concluded?
The compromise of Article 44
Notwithstanding the provisions of paragraph (1) of
Article 39 .. the buyer may reduce the price in
accordance with article 50 or claim damages, except for
loss of profit, if he has a reasonable excuse for his
failure to give the required notice.
Article 44 does not by its terms grant a buyer relief from
the two-year cut-off of notice of lack of conformity
imposed by article 39 (2).
The utility of this article is questionable.
Article 39 (2) In any event, the buyer loses
the right to rely on a lack of conformity of
the goods if he does not give the seller
notice thereof at the latest within a period
of two years from the date on which the
goods were actually handed over to the
buyer, unless this time-limit is inconsistent
with a contractual period of guarantee.
Open Price Terms
Article 14: A proposal for concluding a contract addressed to one or
more specific persons constitutes an offer if it is sufficiently definite
and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the goods
and expressly or implicitly fixes or makes provision for determining
the quantity and the price.
Article 55: Where a contract has been validly concluded but does
not expressly or implicitly fix or make provision for determining the
price, the parties are considered, in the absence of any indication to
the contrary, to have impliedly made reference to the price generally
charged at the time of the conclusion of the contract for such goods
sold under comparable circumstances in the trade concerned.
Remedies
Seller (Article 61)
1. Avoidance
2. Specific relief
3. Price reduction
4. Damages:
General rule
Substitute transaction
Market Price Measure
5. Restitution
Buyer (Article 45)
Article 64(1)
Article 62
Inapplicable
Article 49(1)
Article 46
Article 50
Article 74
Article 75
Article 76
Article 81(2)
Article 74
Article 75
Article 76
Article 81(2)
Note: Suspension of performance, avoidance of the contract, and reduction of the contract price do not require a
judicial order.
Damages: General Rule
Damages “consist of a sum equal to the loss, including loss of
profit, suffered by the other party as a consequence of the breach”
(Article 74).
Application:
(a) Article 45 (1) (b) allows the buyer to recover damages under
Article 74 if the seller “fails to perform any of his obligations.”
(b) Article 61 (1) (a) does the same for the seller if the buyer “fails to
perform any of his obligations”.
An injured party who has not avoided the contract can recover
damages only under Article 74.
Calculation of loss under Article 74
General rule: put the victim in the position it would be had
the contract been performed.
Question: Buyer enters into a contract with a Seller for the
purchase of grade A apples at a price of £10,000, with
delivery to occur in 6 months. Assume that at the time of
delivery, grade A apples have a market value of £11,000.
Finally, assume that the Seller instead delivered the same
quantity of grade B apples valued at delivery at £9000. What
is the loss suffered by Buyer?
Loss measured by the difference by the value of what it
expected to receive and what it did receive . i.e. £2,000.
Consequential and Incidental
Damages.
Article 74 speaks in unqualified terms: “loss…as a consequence of
breach.”
Therefore the Article covers both sorts of loss.
Incidental loss is out of pocket expenses incurred as a result of
breach e.g. Storage and transportation costs that would not have
been incurred had the contract been properly performed.
Consequential damages include liability to third parties
Standard for Recovery.
Buyer contracted to purchase bales of hay for a
total price of £5million. Buyer then contracted to
sell the hay to a downstream buyer for £6
million. This contract required Buyer to post a
forfeitable performance bond of £4 hundred
thousand. When the seller failed to deliver the
hay to Buyer, Buyer avoided the contract with the
seller and canalled its contract with the
downstream buyer who called on Buyer’s bond.
Litigation Costs
Divergence on whether attorney’s fees and
other litigation costs are recoverable as
damages.
Expectancy measure vs literal interpretation
of “loss…as consequence of breach”.
Problem: If allowed only claimant can
recover.
The Foreseeability Default
Such damages may not exceed the loss which the party
in breach foresaw or ought to have foreseen at the
time of the conclusion of the contract.
The foreseeability principle is based upon the general
principle of allocation of risk in a reasonable manner.
Enables the parties to a contract to calculate their
potential liability at the time of conclusion of the
contract.
Incentivizes sharing of information.
Article 78 Interest
Under the Convention, the right to recover interest on sums that are in arrears
is contained in Article 78.
Unfortunately the article is silent as to the methodology that is to be adopted in
the ascertainment of the rate at which interest is to be charged.
The issue of ROI was extensively debated during the drafting stages of the
Convention.
While most courts, particularly German and Swiss tribunals have applied the
dictates of domestic law; others, though a minority, have found the dictates of
the Convention concrete enough in formulating the appropriate ROI.
CISG AC Opinion No 14: ROI is the rate which the court at the creditor’s place of
business would grant in a similar contract of sale not governed by the CISG.
Reduction of the price
Article 50- form of substitutional relief that has no
counterpart in common law systems. Its measurement
of recovery is however familiar in civil law systems.
It gives money allowance by way of a reduction in the
contract price owed to the Seller.
Limits on recoverable damages do not apply to article
50s remedy e.g. mitigation (Article 77 ), exemption from
liability (Article 79).
Calculation of price reduction
Article 50 allows the Buyer to reduce the contract price where non-conforming
goods are delivered.
The reduction in price is stated in terms of a proportion rather than the difference
between the monetary value of expected performance and actual performance.
Reduce price= (value of nonconforming goods delivered/value of conforming
goods) x contract price.
Seller and Buyer agree to a sale of goods at a price of £60. At the time of delivery,
the market price of the goods has decreased, so that conforming goods would only
be worth £40. The Seller delivers goods that are non-conforming. As a result, at
the time of delivery, they are only worth £30. By what value can the Buyer reduce
the price?
Specific Relief
Article 46 (1) provides that, the buyer may require performance by
the seller of his obligations unless the buyer has resorted to a
remedy which is inconsistent with this requirement. (Article 30:
delivery of goods, documents and title as required).
Article 62 gives the Seller the same right to the Buyers performance
of the contract. (Article 53 pay the and take delivery as required).
Restriction: unless the aggrieved party must not have resorted to a
remedy which is inconsistent with specific performance e.g. price
reduction, avoidance).
A request for damages is consistent with a request for specific relief.
Limitation Under Article 28
Common law vs Civil law divide.
Compromise solution: “A court is not
bound to enter a judgement for
specific performance unless the court
would do so under its own law”.
Does not apply to arbitration.
Avoidance
A remedy of last resort, only granted if the other
party has committed “fundamental” breach.
Main requirements of avoidance:
(1) a fundamental breach of contract;
(2) notice;
Additional time limit and fundamental breach.
Notice of Avoidance
The CISG does not permit automatic termination of a contract.
Article 26 requires that the party who is entitled to terminate the
contract give notice of avoidance.
Notice of avoidance must be communicated to the other party by
appropriate means of communication.
The notice requires no specific form. Can be made orally.
Time Limit: (1) If the seller has already delivered the goods, the
buyer can exercise right of avoidance only within a reasonable time
thereafter (Article 49(2)). (2) if the buyer has already paid the price
the Seller must exercise its right within a reasonable time.
Consequences of Avoidance
Four different consequences of a valid avoidance:
release from obligations, restitution of what has already
been performed, the right to calculate damages in an
abstract way, and the duty to preserve the goods.
Injured party injured party can recover damages Under
Article 74, or it can obtain substitute performance and
recover under Article 75. The third option is to recover
damages under Article 76.
Substitute Performance Article 75
Substitute performance for the buyer is the purchase of
replacement goods and for the seller the resale of the breached
goods.
Article 75 requires that the substitute performance be obtained in “a
reasonable manner” and “within a reasonable time”.
In principle goods can be resold in a reasonable manner at a low
price or replacement goods can be purchased in a reasonable
manner at a high price.
The reasonable time requirement limits opportunistic behaviour.
In calculating damages under Articles 74-76, the injured parties duty
to mitigate must be taken into account (Article 77).
Assume that Buyer breaches a sales contract with
a contract price of £80 before Seller delivers the
goods. After Seller affectively avoids the contract
it waits an unreasonably long period of time to
resell them. When it eventually resells the goods,
it receives £60 for them. Had Seller resold in a
reasonable and timely manner, it would have
gotten £75 for the goods. How much does B owe
S in damages?
Market Price Measure (Article 76)
An injured party who has avoided and has not obtained a substitute
transaction may measure its damages by Article 76.
Under Article 76, damages are equal to the difference between the
‘current (market) price for the goods and the contract price.
Article 76 (2): reference to the price prevailing at the place where
delivery of the goods should have been made.
The price is current as of the time of avoidance if avoidance occurs
before the goods have been delivered. If, on the other hand the
injured party avoids the contract after taking over the goods, the
current price is as of the time of such taking over.
Restitution Following Avoidance
After the contract has been avoided, the CISG gives a party the right
to restitution of the goods supplied or payment made under the
contract (Articles 81-84).
The second sentence of Article 81(2) requires that the restitution be
concurrent.
The right to restitution provides no right against third parties.
The CISG does not expressly provide for the place and cost of
restitution.
Article 84 (2) (b) goes further and obligates the buyer to account to
for all benefits which it derived from the goods if it is impossible for
the buyer to make restitution of them.
Buyer contract with Seller for goods at a price of £100.
Which Seller delivers. Payment is due a month after
delivery. 2 weeks later Buyer resells the goods for £175
at no additional costs to itself. Seller could not have sold
the goods for more than £100. When Buyer later
refuses to pay the purchase price Seller avoids the
contract. How much can Seller recover?
Article 84(2) enables the Seller to sometimes recover
more in restitution than it could in damages.
CISG: Coverage & Interpretation
Lecture 4
Dr Hassan Nizami
CISG-History
Primary Aim- Harmonization
Foundation stone of the Convention laid at the Hague
Conference on Private International Law held in 1928interrupted by WW2.
Project resumed in the early part of the 1950s, with delegates
representing 20 states
ULIS and the ULF were adopted in 1964.
Even after 4 years ULIS did not have 5 ratifications. Why?
In 1969, the UNCITRAL restarted the process of unification
with delegates of fourteen countries
Convention was adopted at the UN Diplomatic Conference
1980, representatives of sixty-two states participated.
Provisions of the Convention, in various instances, represent
a diplomatic compromise.
Future success of the Convention dependent upon how it is
viewed by its end users – i.e. the mercantile community.
Parties must be provided clarity vis-à-vis their respective
rights and obligations.
An American company and a German company enter into a
contract for the international sale of goods. In case of dispute,
which law applies (German or US)?
Answer depends upon conflict of law rules of the forum.
Problem: conflict of law rules are almost always vague.
Example: Section188 of the Restatement (Second) of Conflicts of
Laws:
The law applicable to contract is the law of the jurisdiction that has
the “most significant relationship” to the transaction and the parties.
Such vague standards make it very difficult to predict in advance,
the applicable law.
The approach of the CISG:
The Convention operates to limit the circumstances in which general conflict of
law rules operate.
Article 1: The Convention applies to contracts of sale of goods between parties
whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a
Contracting State.
(2) The fact that the parties have their places of business in different States is to be
disregarded whenever this fact does not appear either from the contract or from any
dealings between, or from information disclosed by, the parties at any time before or
at the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the
parties or of the contract is to be taken into consideration in determining the
application of this Convention.
Shared requirements of Art. 1 (1) (a)
and (b):
Two obvious requirements for the application of Article 1 are:
(1) the contract must be one of sale of goods and
(2) the place of business of the parties must be in different countries.
Place of business is where “the centre of the business activity directed to the
participation is located“.
Autonomous power is essential- location of an agent, representative or
distributor, liaison office, conference centre or exhibition or a rented office(s) at an
exhibition usually do not have autonomous power.
What about branch of company (as opposed to headquarters)?
Permanent, stable, and where sales decisions can be made independently.
Questions for discussion
If a US national and a German national enter into a sale of
goods contract when the place of business of both is in the
US, will the Convention apply?
A French seller located in Paris is owned by a US citizens. A
concern located in NY purchases goods form the seller. Does
the Convention apply?
A Turkish seller located in Istanbul and a Japanese buyer
located in Tokyo enter into a sales contract (applying the
conflict of laws rules of Turkey) the contract is governed by
the law of State A, which is not a Contracting State. Does the
Convention apply?
A French company enters into a contract with
a company in the US to act as its agent. The
US Company then enters into a contract for
the sale of goods with a company based in NY
on behalf of the French company. No
disclosure is made about the agency in the
contract or otherwise. Does the Convention
apply?
Article 1 (1) (b)
When the rules of private international law lead to the
application of the law of a Contracting State.
Rules of private international law here refer to the rules of
conflict of laws of the forum.
Instances:
1) Where parties have incorporated/ specified the governing law
of the contract.
2) Where the parties/contract are silent as to the governing law.
Article 95 Reservation
While contracting states had no issues to the convention applying
where both states were contracting states, they did have a problem
when the other was not a contracting state.
To ensure that potential contracting states would not shy away from
ratifying the Convention, Article 95 was added.
“Any State may declare at the time of the deposit of its instrument
of ratification, acceptance, approval or accession that it will not be
bound by subparagraph (1)(b) of article 1 of this Convention.”
US and china are the major trading nations that have entered into
the reservation.
Questions for discussion:
You are a judge of the High Court of State X, a state which has
ratified the CISG. You are hearing an action relating to a contract of
sale of goods made between Seller having its place of business in
State Y and Buyer having its place of business in State Z. The contract
is of a kind covered by the CISG. To what extent do you consider
yourself bound to apply the CISG in each of the following situations:
1) State Y is a Contracting State but State Z is not. The contract contains
the following provision: ‘This contract shall be governed by the law
of State Y‘
2) State Y is a Contracting State, State Z is not. Under the rules of
private international law of State X, the contract is governed by the
law of State Y which has made a declaration under Article 95.
Article 2 (Exclusions)
Article 2 (a): This Convention does not apply to sales of goods
bought for personal, family or household use, unless the seller, at
any time before or at the conclusion of the contract, neither knew
nor ought to have known that the goods were bought for any such
use.
What if the goods are bought for consumer use but are later used
for business purpose? Example: buyer buys freezer for home but
later installs it in business.
What about dual purpose goods: Buyer buys a car used half of the
week at home at the other half for business purpose?
“Ought to have known”: usually becomes apparent from nature of
goods.
Article 2 continued.
(b) by auction;
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities, negotiable
instruments or money; (these semi-tangible assets are
not considered as ‘goods’ under most domestic laws)
(e) of ships, vessels, hovercraft or aircraft (subject to a
verity of domestic statutes that would have impeded
harmonization)
(f) of electricity.
Article 3 (1)
“Contracts for the supply of goods to be manufactured or produced are to be
considered sales unless the party who orders the goods undertakes to supply a
substantial part of the materials necessary for such manufacture or production.”
substantial part of what?
a) Of weight/volume?
b) Of value?
c) Of what percentage constitutes a substantial part?
Note: does not need to be majority of the value of the finished product.
Should it be more than the value of the materials that are bought/supplied by the
seller?
Article 3 (2)
“This Convention does not apply to contracts in which the
preponderant part of the obligations of the party who furnishes
the goods consists in the supply of labour or other services.”
What constitutes preponderant part ?
Services in manufacturing, packaging and arranging for carriage are
not services to which the article refers.
Ancillary to contract vs required by contract.
Example: turkey contracts.
What about sale of complicated machinery that requires time
consuming installation and assembly at the buyer’s premises?
Issue of sale of software
3 types of sale of software need to be
distinguished:
a)Sale of a physical copy.
b)Online transaction of software.
c) License of software.
Question for discussion.
Do franchise agreements fall in the
exception?
Variation of default rules
Allowed under article 6 (Convention a set of default rules that can
be varies by express agreement).
Only limitation- article 12 which applies where a party belongs to a
contracting state that has made an Article 96 declaration.
Article 96: “A Contracting State whose legislation requires contracts
of sale to be concluded in or evidenced by writing may at any time
make a declaration in accordance with article 12 that any provision
… that allows a contract of sale or its modification or termination
by agreement or any offer, acceptance, or other indication of
intention to be made in any form other than in writing, does not
apply where any party has his place of business in that State.”
Opting out
Simply stating that the law of NY will apply is not good
enough as the US is a contracting state
Need to go a step further and state that “the CISG will
not apply to this contract”.
Question what if parties do not use the proper name of
the Convention when attempting to opt out?
Example: “Australian law to the exclusion of UNCITRAL
law” .
Opting in:
The convention is silent as to whether the parties can
opt into the convention when it does not otherwise
apply.
Can a party in the UK and another in South Africa select
the CISG as the rules applicable to their contract? (Note
neither of the two are contracting states).
Article 4 excluded issues:
The CISG does not govern all aspects of an international sales
contract. These limitations (of addressed issues) are found in Article
4 and Article 5.
Article 4 reads: “This Convention governs only the formation of the
contract of sale and the rights and obligations of the seller and the
buyer arising from such a contract. In particular, except as
otherwise expressly provided in this Convention, it is not
concerned with:
(a) the validity of the contract or of any of its provisions or of any
usage;
(b) the effect which the contract may have on the property in the
goods sold.”
The first sentence of article 4 lists matters to which the Convention’s
provisions prevail over those of domestic law.
The second sentence contains a non-exhaustive list of issues with
which the Convention is not concerned.
Convention merely governs the objective requirements for
concluding the contract. The issue of whether a contract is validly
formed, however, is subject to the applicable national rules.
The validity of usages is not dealt with by the Convention, but is left
to the applicable domestic law. This must be distinguished from the
question of how usages are defined, under what circumstances they
bind the parties, and what their relationship is with the rules set
forth in the Convention. The latter issues are dealt with in article 9.
Effect on the property in the goods
sold
None of the CISG’s articles determine whether or when
ownership in the goods passes form the seller to the
buyer.
During the drafting process, it was deemed impossible
to unify the rules on this point.
Example. Seller delivers goods. Buyer does not pay and
goes bankrupt/insolvent. Seller claims the goods and so
does Buyer’s trustee in bankruptcy. Issue: who has title
of the goods?
Article 5 Liability for personal injury:
Seller’s liability for death or personal injury
caused by the goods is excluded from the scope
of the CISG.
Question: Seller sells a machine, which
malfunctions causing injury to one of the Buyer’s
employees and forcing production in Buyer’s
factory to shut down- Buyer will loose sales as a
result. To what extent is this situation governed
by the CISG?
Interpretative Philosophy of the
Convention.
Debate during drafting stages reading the extent to which
Convention would displace national law.
Article 7 a compromise solution:
(1) In the interpretation of this Convention, regard is to be had to its
international character and to the need to promote uniformity in its
application and the observance of good faith in international trade.
(2) Questions concerning matters governed by this Convention which
are not expressly settled in it are to be settled in conformity with the
general principles on which it is based or, in the absence of such
principles, in conformity with the law applicable by virtue of the
rules of private international law.
International Character and
Uniformity.
Homeward trend:
Temptation for judges and the parties settling
disputes to look at what is familiar especially as it
appears to be so at first glance.
Uniformity in application: addresses the
interpreters of the Convention.
Use of the word need rather than want.
How is uniformity in application achieved?
Observance of Good Faith
Convention does not define what good faith entails- fairness,
justice?
The inclusion of the concept of good faith in the Convention
represented a compromise between delegates.
In the academic community two schools of thought have emerged.
The first school: the function of the concept is simply to aid in the
interpretation of the Convention by judges.
The other school of thought asserts that the duty to act in good faith
is directed at the parties to a contract of international sale of goods
as well.
General Principles:
Pre-empts application of domestic law.
What type of gap lead to the application of general principles:
a) Unintentionally not settled in the Convention or
b) Not settled in the Convention regardless of intention?
Answer: Depends on whether the issue falls within the scope of
the Convention.
Use of domestic law for resolution of issues that fall within
the scope of the Convention is allowed only as a last resort.
Why is recourse to domestic law even allowed?
Is good faith a general principle upon which the
Convention is based?
To answer this question the distinction between
Article 7(1) and 7(2) must be recognized.
7(1)- interpretative methodology: does not limit
the interpretation of the principle to the confines
of the Convention.
7(2)- Gap filling: introspective approach.
Approaches To Good Faith In Case
Law:
1) Good faith viewed solely as a guide to interpretation: principle not
capable of imposing any substantive obligations on the parties, since
its scope is limited to the interpretation of the Convention. W v. R
2) Good faith as imposing substantive requirements on the parties:
good faith indirectly imposes obligations upon the parties. Iron
Molybdenum case
3) Good faith as a gap-filler: Clout case no. 133.
4) Good faith used to impose further obligations upon a party: good
faith requirement is imposed upon the interpretation and
performance of contractual terms agreed between the parties. BRI
Production “Bonaventure” v. Pan African Export
Do the Rules of the Convention Benefit
the Parties?
Convention provides a default set of rules. Parties free
to derogate under Article 6.
Exception: Article 12- declaration under Article 96.
Default rules, from the perspective of the parties, must
operate to achieve the ends of efficiency.
Contracts are seldom, if ever, complete.
Concerns surrounding incompleteness of contract are
remedied if default rules operate to keep the efficiency
of the bargain intact.
Implied terms
The CISG supplies implied terms, including trade usage,
course of dealing and course of performance.
Implied terms apply to the contract only if it contains gaps.
Implied terms reduce transaction costs because their
existence avoids the need to supply an express term covering
the same matter.
For example requesting an explicit damage limitation term
may indicate to the counter part that the requesting party
expects to breach.
Article 9(1)
“The parties are bound by any usage to which they have
agreed and by any practices which they have established
between themselves.”
As “agreed” requires an express agreement- agreed usages
constitute express terms of the contract.
Established practises between the parties however, need not
be an explicit party of the agreement.
Established practises: the parties are bound by regularities in
their behaviours with respect to each other.
Are parties bound by all behavioural regularities with respect to
each other?
What if party A to an international sales contract has waived
breaches by the counter party a few times with the view of
preserving business relations?
How is a relevant practise established? In other words, do repeated
contracts of the same sort alone count as establishing the relevant
practise or whether repeated performance within a single contract
suffices to establish the practise?
A Swiss court held that two previous contracts do not establish a
practise between the parties (civil court Basel Switzerland 3
December 1997).
Article 9 (2)
“The parties are considered, unless
otherwise agreed, to have impliedly made
applicable to their contract or its formation
a usage of which the parties knew or ought
to have known and which in international
trade is widely known to, and regularly
observed by, parties to contracts of the type
involved in the particular trade concerned.”
According to Article 9(2), certain trade usages are
applicable to the parties’ contract, even without explicit
agreement unless their agreement provides otherwise.
During the drafting stages, socialist countries and postcolonial states raised concerns.
A trade usage qualifies for inclusion in the contract as a
default term only if the parties knew or ought to have
known of it, and if, in international trade, it is widely
known to and regularly observed by parties contracts of
the type involved in the relevant trade.
‘Regularly observed in the particular
trade’ requirement
Two questions must be answered:
1) What is the relevant usage that is widely
known and regularly observed in
international trade? And
2) Is the relevant usage widely known and
regularly observed in contracts of the type
involved in the particular trade concerned?
Incoterms as trade usages
Example 1: A contract of international sale contains
delivery terms such as CFR or CIF that are not defined
and do not explicitly incorporate INCOTERMS rules by
reference.
Example 2:. A contract makes no reference to trade
terms but INCOTERMS are frequently observed in
international trade.
Example 3: A contract makes no reference to trade
terms but CIF is regularly observed in the particular
trade in which the contracting parties are engaged.
The Relationship Between Trade Usage, Course Of Performance
And Course Of Dealing
Article 9(1) refers to terms that parties have adopted
themselves, while Article 9(2) refers to terms that are
incorporated from other sources such as industrial use. What
happens when these terms conflict?
Usages established by agreement, recognized by Article 9(1),
are express terms.
Express terms prevail over course of performance or course
of dealing.
They also prevail over conflicting trade usage by the same
article.
Course Of Dealing/Performance vs
Trade Usage
Corse of performance and course of dealing are practices that
allocate obligations between the parties according to their
transactions with each other (implicit bargain).
Note: Trade usages are not practises established by parties,
they apply as they are widely known in international trade
and regularly observed in the particular trade.
Inference: Parties prefer the allocations made by their own
practices to the allocation of obligations made by others
through trade usage.
CISGs Default Terms vs Practises And
Usages.
The Austrian supreme court has concluded that usages
prevail (Supreme court Austria 21st march 2000).
Example: a relevant trade usage requires the buyer to
give notice to the seller of non-conformities in the
goods within 14days after it examined or ought to have
examined them. According to article 39(1), the buyer
looses the right to rely on a non-conformity in the goods
if he fails to give proper notice within a reasonable time.
The buyer gives notice of non-conformity 20 days after
it examined the goods.
Parole Evidence Rule.
Common law rule.
The parole evidence rule, provides that where the parties
intend a writing to represent the final statement of their
agreement evidence of prior negotiations or understanding is
inadmissible to contradict the terms of the writing.
Article 8(3) states that in determining the intent of a party..
Due consideration is to be given to all relevant circumstances
of the case including the negotiations, any practises which
the parties have established between themselves.
CISG- Contract Formation
Lecture 5
Dr Hassan Nizami
Formalities for the creation of a
contract
Article 11
A contract of sale need not be concluded in or evidenced
by writing and is not subject to any other requirement as
to form. It may be proved by any means, including
witnesses.
Formalities: writing, notarization or other formalities.
Article 11 was quite controversial during the drafting of
the CISG.
Recall compromise: Article 96.
Operation of the Reservation
ARTICLE 12
Any provision of article 11, article 29 or Part II of this Convention
that allows a contract of sale or its modification or termination by
agreement or any offer, acceptance or other indication of intention
to be made in any form other than in writing does not apply where
any party has his place of business in a Contracting State which has
made a declaration under article 96 of this Convention. The parties
may not derogate from or vary the effect or this article.
To date Argentina, Armenia, Belarus, Paraguay, Russian Federation
and Ukraine have made a declaration under Article 96.
Neither Article 12 or 96 say that writing requirements will apply
or, if so, whose requirements will apply where a state has made a
declaration under Article 96. They say only that the relevant CISG
article (11, 29 and part 2) do not apply.
Does making an Article 96 declaration lead to the conclusion that
the domestic legal writing requirements of the declaring state
apply?
Question: Assume that the S is located in Russia and B is in
Mexico. Their sales contract is not evidenced by writing. Is their
contract valid? Answer with reference to both the application of
Russian and the forums conflict of laws rules.
Question: Assume a contract between a party
located in Russia and another located in
Argentina, each of which has made article 96
declarations. Certainly Art. 11 does not apply
in such a situation. But if Russia and
Argentina have different writing
requirements, which one’s control?
Effectiveness of the offer and
acceptance
Contract formation under the CISG
largely reflects the formal process of
offer and acceptance.
Article 23 recites that a contract is
concluded at the moment when an
acceptance of an offer becomes effective
under the rules of the CISG.
Offer
Article 14
A proposal for concluding a contract addressed to one or more specific persons
constitutes an offer if it is sufficiently definite and indicates the intention of the
offeror to be bound in case of acceptance. A proposal is sufficiently definite if it
indicates the goods and expressly or implicitly fixes or makes provision for
determining the quantity and the price.
Assume that on June 1, Buyer sends a purchase order to seller that indicates its
willingness to buy “1000 pairs of PJs, style #12345 at $10 per pair.” Would this
purchase order would qualify as an order under Article 14?
The order above, in the section on price states that price is to be fixed “as the
market price in sellers place of business on date of shipment” would it still
constitute an offer?
Article 14 (2) A proposal other than one addressed to one or
more specific persons is to be considered merely as an invitation
to make offers, unless the contrary is clearly indicated by the
person making the proposal.
Even proposals that are relatively specific may fail to qualify as
offers.
Mass mailings or advertisements that include price and quantity
will likely not constitute offers.
The economic logic of this restriction.
Question: what if an otherwise specific mass mailing contains
terms like “first come, first server” or “ limited supply”?
Withdrawal of an offer.
Article 15
An offer becomes effective when it reaches the offeree. An offer, even if it is
irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the
same time as the offer.
Thus the offer may be withdrawn if the withdrawal reaches the offeree before or
at the same time as the offer.
Article 24
For the purposes of this Part of the Convention, an offer, declaration of acceptance or
any other indication of intention “reaches” the addressee when it is made orally to
him or delivered by any other means to him personally, to his place of business or
mailing address or, if he does not have a place of business or mailing address, to his
habitual residence.
Assume in the preceding hypothetical, the
Buyer has sent the offer on June 1 and it
arrives at the Seller’s place of business on
June 3, when the Seller’s place of business is
closed. On June 4th, buyer faxes a withdrawal
of the offer. On 5th, Seller first becomes aware
of both the offer and its withdrawal. Is the
offer effective or has it been withdrawn?
Revocation of offer
Even if not withdrawn, however, an effective offer may
be revoked if the revocation reaches the offeree before
dispatch of an acceptance.
Article 16
(1) Until a contract is concluded an offer may be revoked
if the revocation reaches the offeree before he has
dispatched an acceptance.
It is the dispatch of the acceptance, not its receipt, that
precludes revocation of the offer.
Question: Assume that Buyer sends its offer by email
on June 1. The seller reads the email on the same
date. On June 2, buyer sends a second email that
revokes the offer. At the same time, the sellers email
server is not functioning properly, so that the seller is
unable to access and read the email until June 3rd.
Between the time that the June 2 email was sent and
the time the seller is able to read it, the Seller
dispatches an acceptance. Is there a contract
between the parties?
It is the dispatch of the acceptance, not its receipt, that precludes
revocation of the offer.
Question: Assume that the B in our example
sends its offer on June 1, which S receives on
June 3. On that same date, S mails an
acceptance of the offer. Now assume that on
June 4th, B faxes S a revocation of the offer
before he has received the acceptance. Is there
a contract between the parties?
Does this suggest the common law mailbox
rule?
Article 18 (2) (2) An acceptance of an offer becomes effective at the
moment the indication of assent reaches the offeror. An acceptance
is not effective if the indication of assent does not reach the offeror
within the time he has fixed or, if no time is fixed, within a
reasonable time…
In effect the CISG rejects the common law mail box rule in favour of
a receipt rule
Seller dispatches an acceptance of Buyer’s offer on June 4th. One
June 5 Seller faxes a purported withdrawal of its acceptance to B.
The acceptance sent on June 4 arrives at Buyer’s place of Business
on June 6. Is there a contract between the parties?
Absurdity of compromise.
Thus, although the offeree can bind the offeror by
dispatching an acceptance under article 16 (1), the
offeree is not itself bound until acceptance reaches the
offeror.
Strategic behaviour by offerees: Assume that the price
of oranges is sufficiently volatile that seller would like
some flexibility to decide whether to accept between
the time it receives the offer from buyer and the time
that a binding contract is concluded.
Acceptance
An acceptance consists of a statement made by the offeree or some
conduct of the offeree that indicates assent to the offer.
No acceptance can be inferred from silence or inactivity alone.
Although conduct can constitute acceptance, no acceptance is
effective until its indication reaches the offeror. That indication must
reach the offeror within the time fixed in the offer or, in absence of a
fixed time, within a reasonable time. These rules are subject to
variation if the offer or the practises of the parties so allow.
Question: Seller receives Buyer’s offer to purchase a table and Seller
immediately begins to manufacture the table. Buyer does not know
of the action on the part of Seller. Is there a contract between the
parties?
Late acceptance
Article 21
(1) A late acceptance is nevertheless effective as an
acceptance if without delay the offeror orally so informs the
offeree or dispatches a notice to that effect.
(2) If a letter or other writing containing a late acceptance
shows that it has been sent in such circumstances that if its
transmission had been normal it would have reached the
offeror in due time, the late acceptance is effective as an
acceptance unless, without delay, the offeror orally informs
the offeree that he considers his offer as having lapsed or
dispatches a notice to that effect.
Assume that an offer requires a signed acceptance by June 10. On
June 9, the offeree dispatches a signed acceptance by overnight
service to the offeror’s proper address. Due to unexpected
weather problems, the carrier cannot deliver the letter until June
11. The offeror purchased substitute goods early on June 11, prior
to delivery of the acceptance, on the understanding that no
acceptance had arrived on June 10, Is he bound by the contract?
Is there a way for the offeror to get out of such a situation?
What if the offeror attempts to avoid conclusion of the contract
several days later because it has discovered that it can purchase
fungible goods elsewhere at a lower price?
Revocation of an offer stating a time
for acceptance.
Article 16
(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.
“I offer to purchase a 1000 pairs of PJs style no 12 @ $10 a pair for
delivery by June 30. Let me know by June 15 whether you can fulfil
the offer”. On June 5, B faxes a revocation of that offer. On June 6, S
sends a letter to B that recites, “we accept all the terms of your
offer”. Is there a contract?
This was not an unintentional ambiguity in the drifting of the CISG.
Contract Modification
A contract “may be modified or terminated by the mere agreement of the
parties.” As with the original contract no consideration is required. (Article 29).
No consideration is required.
Question: An oral contract is followed by a shipment that includes an invoice with
a term additional to those previsosly agreed to by the parties. If the B says nothing
about the new term (probably because its inclusion in the invoice was not noticed)
but uses the goods and pays for them, is that conduct evidence of “agreement” to
the modification, just as conduct of an offeree can constitute assent to an offer
under article 18 (1)? Or is the buyers silence as ineffective to create an agreement,
as silience or inactivity is to create an acceptance under article 18 (1)?
The Battle of Forms
Introduction
The BOF scenario gives rise to three questions:
(A) Has a contract come into existence where there is a
conflict in the standard terms contained in the forms of
the parties?
(B) If (A) is answered in the affirmative, then what are
the terms of
the contract?
C) If (A) is answered in the negative, does performance
create a
contract? If so, on what terms?
LSR and efficiency.
It operates in certain instances, to motivate parties to act
opportunistically- favors the standard terms of the party last to make
an offer.
Transaction costs- courts only need to identify the form last sent
before the commencement of performance in order to ascertain the
terms.
But: LSR motivates parties to have an extensive exchange simply
because they know that the terms of the party which fired the last
shot will control the transaction-Ping pong effect.
Gives greater importance to matters of form than to business
realities.
KOR and Efficiency
Negotiation is encouraged- one party’s terms do not control.
KOR replaces conflicting terms with the default rules of law, there is
no incentive for parties to engage in a prolonged exchange of
standard terms.
But: Off the rack terms are rarely in the best interest of the parties,
since they do not take into account the circumstances of each case.
Example: where the parties exchanged forms both i.e. one requires
notice to be provided within one month whereas the other requires
the notice to be provided within two months. The default rules of
law require notice to be provided within three months.
Goldberg’s Best Shot Rule
Neither the LRS nor the KOR are capable of motivating parties to
draft their standard terms in a manner that does not solely aim at
maximizing their own interests.
The BSR is capable of motivating parties to draft terms that take the
interests of the other party into account.
BSR: when faced with diverging terms, the court should choose the
one which it perceives to be fairer of the two.
Fairness here is to be judged on the basis of the “golden rule,”
namely, “Do unto others as you would have them do unto you.”
Dramatically increases transaction costs.
Article 19
Diverging opinions held by delegates belonging to common law and socialist countries on the
one hand and civil law regimes and the United States on the other, vis-à-vis the method of
contract formation.
Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or
other modifications is a rejection of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or
different terms which do not materially alter the terms of the offer constitutes an acceptance,
unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to
that effect. If he does not so object, the terms of the contract are the terms of the offer with the
modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and
quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the
settlement of disputes are considered to alter the terms of the offer materially.
Since the rules on contract formation as contained in
the Convention are largely similar to those recognized
under English law, it is unsurprising that that the LSR has
found its way into its text. Art 19 (1)
The remaining sub-parts of the article, however, qualify
this requirement. See 19 (2)
19 (3): The impact of this article is to view virtually all
terms that are modified in practice as material
modifications.
AC Opinion No. 13
Literature on the BOF issue proposes a number of solutions,
ranging from the adoption of the KOR; limitation of Article 19
to cases where the contract has not been performed; viewing
inconsistent terms as a declaration by the parties of
derogation from Article 19; resolution through the application
of the general principles upon which the Convention is based;
and even recourse to the dictates of domestic law on the
issue.
On the 20th of January 2013, the Advisory Council (AC)
delivered an opinion on the issue.
The Council referred to the dictates of Article 19 and concluded that
the most appropriate methodology for the resolution of issues
raised by BOF scenarios is the application of the KOR.
Quote form opinion: “Where both parties seek to incorporate
standard terms and reach agreement except on those terms, a
contract is concluded on the basis of the negotiated terms and of
any standard terms which are common in substance unless one
party clearly indicates in advance, or later on but without undue
delay objects to the conclusion of the contract on that basis.”
Does this not contradict the express wording of the convention?
CISG: Rights and Obligations
Lecture 7
Dr Hassan Nizami
Obligations Of The Seller
(Articles 30-52)
Article 30
The seller must deliver the goods, hand over any documents
relating to them and transfer the property in the goods, as required
by the contract and this Convention.
Obligation to transfer property:
Article 4 (b): the Convention “is not concerned with the effect which
the contract may have on the property in the goods sold”
Whether the property in the goods has in fact been transferred must
be determined by reference to the law designated by the rules of
private international law of the forum.
Article 31- Where And How To Deliver
If the seller is not bound to deliver the goods at any other particular place, his
obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods – in handing the goods
over to the first carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to
specific goods, or unidentified goods to be drawn from a specific stock or to be
manufactured or produced, and at the time of the conclusion of the contract the
parties knew that the goods were at, or were to be manufactured or produced
at, a particular place – in placing the goods at the buyer’s disposal at that place;
(c) in other cases – in placing the goods at the buyer’s disposal at the place where
the seller had his place of business at the time of the conclusion of the contract.
SALES INVOLVING CARRIAGE (Article
31 (a))
The first alternative of Article 31 applies only if the contract
involves carriage of the goods i.e. when goods are to be
transported by independent carrier(s).
Handing over, as the phrase is used in Article 31 (a), means
that the carrier is given possession of the goods.
In such a case- the seller has duly performed its duty of
delivery under Article 31 (a) when the goods are handed over
to the carrier.
Question: What if the contract requires transportation of
goods to country X and the seller decides to deliver them
onboard one of its own trucks. Does 31 (a) apply?
Sale Of Goods Located At A Particular
Place (Article 31 (b))
If the seller is not bound to deliver the goods at any other particular
place, his obligation to deliver consists:
(b) If, in cases not within the preceding subparagraph the contract
relates to specific goods, or unidentified goods to be drawn from a
specific stock or to be manufactured or produced, and at the time of
the conclusion of the contract the parties knew that the goods were at,
or were to be manufactured or produced at, a particular place—in
placing the goods at the buyer’s disposal at that place.
Placing the goods at the buyer’s disposal means that the seller has
done that which is necessary for the buyer to be able to take
possession. Access to goods kept at an independent third party
warehouse when both parties knew the goods were stored there.
On the presentation of the correct
documents the warehouse-keeper is
willing to make delivery but requires
storage cost (which buyer is not
obliged to pay). Has the seller
performed its delivery obligation?
Article 31 (c) The Residuary Rule.
Article 31 (c) If the seller is not bound to deliver the goods at
any other particular place, his obligation to deliver consists:
(c) In other cases—in placing the goods at the buyer’s
disposal at the place where the seller had his place of
business at the time of the conclusion of the contract.
Question S enters into a sales contract with B that sated
“delivery to be made by 31st July DDP (INCOTERMS 2010) 31
Willwood Street”, London, UK SW5 IXY”. Provided that the
CISG applies, what is the place of delivery?
Consequences Of Delivery
Seller no longer responsible for the goods: Courts regularly conclude
that the risk of subsequent damage to or loss of the goods passes to
the buyer, unless such damage or loss is intentionally or negligently
caused by the seller.
Question: the seller handed over the goods to the first carrier within
the contractually stipulated period. Due to unexpected weather
there was a delay in the transmission of the goods. Is the seller liable
for the delay?
Would your answer change if the in question if the buyer does not
have a claim against the carrier.
Article 32
(1) If the seller, in accordance with the contract or this Convention, hands the
goods over to a carrier and if the goods are not clearly identified to the contract
by markings on the goods, by shipping documents or otherwise, the seller must
give the buyer notice of the consignment specifying the goods.
(2) If the seller is bound to arrange for carriage of the goods, he must make such
contracts as are necessary for carriage to the place fixed by means of
transportation appropriate in the circumstances and according to the usual
terms for such transportation.
(3) If the seller is not bound to effect insurance in respect of the carriage of the
goods, he must, at the buyer’s request, provide him with all available
information necessary to enable him to effect such insurance.
General
When the contract involves carriage of the goods article 32 sets
forth obligations of the seller beyond those specified in article 31.
Article 32 states 3 rules:
1) If goods are not clearly identified when they are handed over to
a carrier, the seller must specify the goods in a notice to the buyer
of the consignment.
2) When the seller is bound to arrange for carriage of the goods, it
must make reasonable arrangements.
3) If the seller is not bound to arrange for insurance it must at the
buyer’s request, provide the buyer “all available information”
needed for the buyer to procure insurance.
Article 33- Time of Delivery
The seller must deliver the goods:
(a) if a date is fixed by or determinable from the
contract, on that date;
(b) If a period of time is fixed by or determinable from
the contract, at any time within that period unless
circumstances indicate that the buyer is to choose a
date; or
(c) In any other case, within a reasonable time after
the conclusion of the contract.
Party Autonomy
Article 33 specifies the time at or within which the seller must
deliver the goods.
Articles 33 (a) presupposes that the parties have fixed a date for
delivery, or that such a date can be inferred from the contract (e.g.
15 days after Easter 2011).
Article 33 (b) applies where either the parties have fixed a period
of time during which the seller can deliver the goods, or such a
period can be inferred from the contract.
Under article 33 (b) the right to choose the specific date of
delivery generally rests with the seller. What if buyer wishes to
choose the specific date?
Delivery Within A Reasonable Time
Article 33 (c) applies where a specific time or period for
delivery cannot be derived from the contract or from
usages or practices between the parties.
Article 33 (c) requires the seller to deliver “within a
reasonable time after the conclusion of the contract”.
Question: Seller hands over the truck to the first carrier
2 weeks after the formation of the contract for sale and
the payment of the first instalment. Is the seller in
breach of its delivery obligation?
Consequences of late delivery
Late delivery is a breach of contract to which the
Convention’s rules on remedies apply.
If timely delivery was of the essence of the contract,
late delivery amounts to a fundamental breach, and the
contract can be avoided as provided in Article 49.
Question: The contract clearly states that time of
delivery is of the essence. Would, a one day delay in the
delivery of a small portion of the goods constitute a
fundamental breach?
Conformity of the goods
Article 35 (1) requires a seller to deliver goods
that meet the specifications of the contract in
terms of description, quality, quantity and
packaging.
Question: A used car sold stating that the
genuine odometer of the car read 52000
miles. The car had done 92000 miles. Does
the car conform?
Implied terms relating to conformity of
goods
Article 35 (2) (a) requires the seller to deliver goods “fit for the
purposes for which goods of the same description would ordinarily
be used.”
Example: “pocket ash trays” that were delivered came equipped
with excessively sharp and dangerous blades.
Do the good need to be flawless?
Issue: conformity of quality standards prevailing in whose
jurisdiction?
Question: the seller is to deliver goods to a particular jurisdiction
and can infer that they will be marketed there. Do the standards of
the importing jurisdiction apply?
Would you change your answer if : The seller
maintained a branch in the importing country,
or frequently exported into the buyer’s
country, or promoted its products in the
importing country?
Best way around problem for the B: make it
clear to the S that he is responsible for
assuring regulatory compliance.
Article 35 (2) (b) requires that goods be fit for “any particular
purpose expressly or impliedly made known to the seller at the time
of the conclusion of the contract.”
It sufficient for the buyer to prove that the goods failed to perform
the particular purpose or does he also have to prove the cause of
such failure?
The requirements of article 35 (2) (b) do not apply if “the
circumstances show that the buyer did not rely, or that it was
unreasonable for him to rely, on the seller’s skill and judgement.”
Example: Buyer is an experienced importer or possesses skill
concerning and knowledge of the goods equal to or greater than
that of the seller.
Sale by Sample And Packaging
Article 35 (2) (c) states that, in order to conform to the contract,
goods must “possess the qualities of goods which the seller has
held out to the buyer as a sample or model.”
Article 35 (2) (d) states that good do not conform unless they ”are
contained or packaged in the manner usual for such goods or,
where there is no such manner, in a manner adequate to preserve
and protect the goods.”
The provision refers to the packaging standards prevailing in
whose country? A seller sold cheese that it knew would be resold
in the buyer’s country, and the cheese was delivered in packaging
that did not comply with that country’s food labelling regulations.
Question: A clause in the contract
explicitly states that “the buyer bares risk
of loss while bottles are being
transported by truck”. Goods are
damaged during transport due to
improper packaging. Is the seller liable?
Article 35 (3)
Article 35 (3) relieves the seller of responsibility for a lack of
conformity under article 35 (2) to the extent that the buyer
“knew or could not have been unaware” of the
nonconformity at the time the contract was concluded
Only relieves the seller of responsibility for non-conformity
under article 35 (2) (a)-(d). Does not displace article 35 (1).
Question: The buyer an experienced used car dealer just
bought a car. The seller knew that the car had been licensed
two years earlier than indicated in the car’s book but did not
disclose these facts to the buyer. Is the seller liable?
time at which a lack of conformity
in the goods must have arisen
Article 36 (1) states a general rule that the seller is liable for a
lack of conformity that exists at the time risk of loss for the
goods passes to the buyer, even though the lack of
conformity becomes apparent only after that time.
It is the time that the lack of conformity comes into existence,
not the time it is discovered that is critical.
Question: A flower shop that purchased daisy plants refused
to pay the price when the buyer’s own customers complained
that the plants did not bloom throughout the summer as
expected. Is the buyer liable to pay the price?
Question: The contract provided that risk would shift to the
buyer when the goods (cocoa beans) were handed over to
the first carrier. It also required the seller to supply, before
the goods were shipped, a certificate from an independent
testing agency confirming that the beans met certain quality
specifications. The independent agency tested the goods
some three weeks before they were packed for shipment and
issued the required certificate. When the goods arrived,
however, the buyer’s own testing revealed that the cocoa
beans were below contract-quality. Is the seller liable?
Answer: the seller would be in two situations:
(1) if the pre-shipment certificate of quality
from the independent agency were simply
mistaken and the goods thus lacked conformity
at the time they were inspected;
(2) if the deterioration in the quality of the
goods occurred in the three week gap between
inspection and shipment.
Repair And Replacement
Article 37
If the seller has delivered goods before the date for delivery, he
may, up to that date, deliver any missing part or make up any
deficiency in the quantity of the goods delivered, or deliver
goods in replacement of any non-conforming goods delivered
or remedy any lack of conformity in the goods delivered,
provided that the exercise of this right does not cause the buyer
unreasonable inconvenience or unreasonable expense.
However, the buyer retains any right to claim damages as
provided for in this Convention.
Insufficient quantity: the seller can cure by “delivering any missing
part” or by “making up any deficiency in the quantity of the goods
delivered.”
Deficiency in quality: the seller can cure by delivering replacement
goods or by “remedying any lack of conformity in the goods
delivered.”
Question: A seller had made a delivery of confectionary products
before the buyer had furnished a banker’s guarantee required by the
contract. The buyer refused to pay for the goods, arguing that the
seller had breached the contract by delivering before the guarantee
was in place and that this default should be considered a
fundamental breach of contract justifying the buyer’s non-payment.
Article 38- Time of Examination
(1) The buyer must examine the goods, or cause them to be examined,
within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be
deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer
without a reasonable opportunity for examination by him and at the
time of the conclusion of the contract the seller knew or ought to have
known of the possibility of such redirection or redispatch, examination
may be deferred until after the goods have arrived at the new
destination.
The text of Article 38 (1) does not expressly specify the type or
method of examination required.
By stating that the buyer must either examine the goods or “cause
them to be examined,” Article 38 (1) implies that the buyer need not
personally carry out the examination.
Article 38 (1) states that the buyer must examine the goods “within
as short a period as is practicable in the circumstances”—the
standard has been described as a “factual” one that “depends on
the circumstances of the case.”
Under article 38 (1) the time for the buyer’s examination begins to
run upon delivery of the good- this is when risk passes.
Upon which date should the non-conformity ought to have been
discovered
Considerations
1) Contractual stipulations (agreed usage)
2) Practise established between the parties:
3) The presence of a Trade Usage on inspection: widely known to,
and
regularly observed in the trade.
4) Awareness on behalf of the seller of ‘special’ circumstances that
delayed inspection by the buyer
5) Type of goods.
6) Nature of the buyer.
Question: When does time for examination commence when if the seller is obligated
to install delivered goods?
Where The Contract Involves Carriage Of The
Goods
In such cases, it will often not be convenient or even possible
for the buyer to examine the goods at the point of delivery.
Article 38 (2) permits the buyer to defer the examination
“until after the goods have arrived at their destination.”
Question: In a transaction involving goods to be transported
from Tallinn, Estonia to Abu Dhabi in the United Arab
Emirates, the contract provided for delivery on FOB terms i.e.
risk passes when the goods are placed on board the ship.
When does time of inspection begin?
Article 38 (3) permits a buyer in certain circumstances
to defer examination of the goods “until after the goods
have arrived at the new destination.”
Specifically, where the goods are “redirected in transit”
or “redispatched by the buyer without a reasonable
opportunity for examination by him.”
Limitation: The seller knew or ought to have known of
the possibility of such redirection or redispatch when
the contract was concluded.
Question: In a contract for sale governed by the CISG,
the seller knew that the buyer was a mere trading
company, lacking facilities of its own to receive, store, or
transport the goods. Does the article apply?
S knows B has entered in the contract with the intention
of resale. However after the goods are shipped B
reasonably could have examined the goods while they
were in its possession after carriage (before being
redispatched to its customer). When should inspection
occur?
Article 38 and 39
Article 38 imposes a duty on the buyer to inspect the goods “within
as short a period as is practicable in the circumstances.”
Article 39 on the other hand states, “The buyer loses the right to rely
on a lack of conformity of the goods if he does not give notice to the
seller specifying the nature of the lack of conformity within a
reasonable time after he has discovered it or ought to have
discovered it.”
Article 38 can play an instrumental role in determining when the
reasonable time period is to commence.
Reasonable according to whose perspective? The seller or buyer?
Article 39 A Compromise
ULIS, required buyers to provide a notice of non-conformity
promptly upon the discovery of the defect or after it ought to
have been discovered. A very exacting standard in practice.
Developed states: rule needed to secure evidence, repair
goods or to deliver substitute goods.
Developing states: saw the requirement as a trap. Worried
about consequences.
promptly however was replaced with the term “within a
reasonable time” to allow for flexibility.
Article 44: reasonable excuse.
What is the timeframe within which the buyer should have provided
notice of non-conformity
Considerations
1) Practices established between the parties:
2) Trade usage
3) Special nature of the goods: Perishable,
seasonal, durable goods.
4) The nature of the remedy chosen.
Specifying the Nature of the Lack of
Conformity
What degree of specificity is required for the fulfillment of
the notice requirement?
A majority of judgments on the issue favor an interpretation
that requires a precise and detailed notice.
A notice that merely specifies that the goods are defective
would not allow for the achievement of the objectives of the
notice requirement. BUT
A stringent requirement on specificity is out of touch with
commercial reality
Opinion Number 2 delivered by the Advisory Council:
The requirement of specificity has to be interpreted in
light of the circumstances of each case, and as such,
simple statement of the symptoms of a defect may well
satisfy the requirements of Article 39 in appropriate
circumstances.
Degree of specificity and nature of goods: for example
uncomplicated goods vs complicated machinery.
Level of skill of the buyer.
The compromise of Article 40
The seller is not entitled to rely on the provisions of Articles 38 and 39 if the lack
of conformity relates to facts of which he knew or could not have been unaware
and which he did not disclose to the buyer.
The seller’s obligation under article 40 to disclose known non-conformities on pain
of losing its protections under articles 38 and 39.
WHY:
A) In such a case, the information gathering rationale is not relevant.
B) the provision of a notice in such an instance will not provide any extra advantage
that would enable the seller to cure the defect.
C) Limits opportunism on sellers part.
Interpretation of ‘could not have been unaware’
Seller’s ignorance is due to ordinary negligence, or is
something more required, approaching deliberate
negligence/ fraud?
Question: What if seller overlooked obvious defects in
the goods that could have been detected through the
exercise of ordinary care?
“Could not have been unaware” was chosen instead of
terms more flexible in favor of the buyer such as
“should have known.”
When must disclosure be made
A) The time the seller hands the goods
over to the buyer?
B) At the time the goods were
delivered?
C) At the time the contract was
concluded?
The compromise of Article 44
Notwithstanding the provisions of paragraph (1) of
article 39 .. the buyer may reduce the price in
accordance with Article 50 or claim damages, except for
loss of profit, if he has a reasonable excuse for his
failure to give the required notice.
Article 44 does not by its terms grant a buyer relief from
the two-year cut-off of notice of lack of conformity
imposed by article 39 (2).
The utility of this article. Is questionable.
Argument 1: The utility of this provision is found
in instances where the buyer provides a notice
but does not specify the nature of the nonconformity with sufficient detail, or where the
notice is provided slightly after the lapse of
reasonable time.
Argument 2: The utility of this provision is found
in instances where the buyer has not provided a
notice.
Open Price Terms
Article 14: A proposal for concluding a contract addressed to one or
more specific persons constitutes an offer if it is sufficiently definite
and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the goods
and expressly or implicitly fixes or makes provision for determining
the quantity and the price.
Article 55: Where a contract has been validly concluded but does
not expressly or implicitly fix or make provision for determining the
price, the parties are considered, in the absence of any indication to
the contrary, to have impliedly made reference to the price generally
charged at the time of the conclusion of the contract for such goods
sold under comparable circumstances in the trade concerned.