Sales Contracts & CISG

contract

agreement between two or more competent parties, for valuable consideration, to perform or to refrain from performing some act now or in the future

a contract is a:

• promise or set of promises,

• for the breach of which the law provides a remedy, or

• the performance of which the law in some way recognizes as a duty

sources of contract law

conflicts of law (Finnish Fur Sales case)

choice of law is important because it is the clause where a particular (country) law will be designated as the law governing the entire contract

choice of forum is important because it determines which court will have jurisdiction over disputes arising out of the contract

sources of contract law in the US

common Law of Contract

• general rules about contract formation

• context for contract interpretation

• employment, service, insurance, real property, sale and licensing if intangibles

Uniform Commercial Code – Article 2

• specialized rules for sales of goods

CISG

• specialized rules for international sale of goods

role of UCC in the US

only applies to domestic transactions

Art. 2 applies to transaction in goods

• sale transfer of title to goods from B to S for a price.

• goods : tangible personal property

• personal property (not real property, services, intangibles, IP)

standardized sales law in 50 states with some individual state variation

the UCC is NOT a Federal statute

sale of services is a common law of contracts

international need for standardized sales law

response

• CISG (Convention for the International Sale of Goods) negotiated in 1980 became effective in 1988 (US)

• country differences in approach to contract law

• CISG is a compromise

  • tries to keep parties in bargain (compare with perfect tender)

UN convention on contracts for the international sale of goods

94 countries have signed this year

if a company in the US enters into a sales contract with a business in one of the countries that ratified the CISG, then unless the parties decide otherwise, the CISG will apply

applicability of CISG

applies to…

• commercial sale of goods (between merchants)

• between parties whose places of business are in different countries

• the places of business are in countries that have ratified the CISG

• 95 countries have adopted it

sales excluded from CISG

Article 2

• (a) consumer goods bought for personal, family or household use;

• (b) by auction;

• (c) on execution or otherwise by authority of law;

• (d) of stocks, shares, investment securities, negotiable instruments or money;

• (e) of ships, vessels, hovercraft or aircraft;

• (f) of electricity

Article 3

• (g) certain assembly contracts;

• (h) mixed contracts: preponderant part of the obligations is the supply of labour or other services

Article 6

• the parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions

sample choice of law clauses

this agreement shall be governed and construed according to the Laws of the State of California, excluding the 1980 United Nations Convention on the International Sale of Goods

this agreement shall be governed and construed according to the French language version of the 1980 United Nations Convention on Contracts for the International Sale of Goods, and, to the extent that the Convention does not settle the rights and obligations of the parties, by the laws of France

choice of law

question 1: is this a valid contract?

• CISG doesn’t care (“not concerned”) if the agreement is valid or not

decided under the national law, applying the choice of law rules of the forum state

• Principles of European Contract Law

• National Contract Law

• lex mercatoria

• US common law of contract

pre-contract liability

duty of Good Faith in negotiating a contract

• US law - no duty of good faith in “mere” negotiations (reliance theory)

• European Systems - Duty of Good Faith

  • liability during the negotiation stage if break off negotiations in bad faith

formalities: writing

UCC Statute of Frauds: contract for the sale of goods $500 or more must be in writing to be enforceable

• there are some exceptions to this (ex. consumer retail purchases)

CISG: need not be in writing (Article 11)

• Article 96 - Russia has elected this option

contract interpretation: external evidence of intent

the parole evidence rule

• UCC: if contract is final written expression, then evidence of prior or contemporaneous parole evidence (oral) is not admissible to contradict the writing

use parole evidence to…

• clarify ambiguity

• correct a typo

• if oral modifications are allowed, to prove additional K term

• to prove fraud, mistake, etc.

CISG contract interpretation - external evidence of intent

Article 8 - 2 key provisions

8.1 - only applies when the subjective intent of the parties is different from each other

• gives effect to A’s intent over B’s where B knew or could not have been unaware of A’s intent (and vice versa)

• this is an exception

8.2 - gives effect to the communication of each party as objectively viewed by a reasonable person in position of the recipient

• what would a reasonable person understand the intent of the party to be

8.3 - broad scope: all the relevant circumstances including…

• contract negotiations

• any practices which the parties have established between themselves (Art. 9.1)

• usages (Art 9.1 & 9.2) and..

• any subsequent conduct of the parties

  • rule: Art. 8.3 does not preclude any evidence concerning intent

contract interpretation

Under UCC & CISG – law will try to enforce the contract the parties made

ex. US Fresh Frozen Chicken, Grade A, Government Inspected, Eviscerated 2 ½ - 3 lbs. & 1 ½ - 2 lbs. each all chicken individually wrapped in cryovac, packed in secure fiber cartons or wooden boxes suitable for export. (Frigaliment v. BNS)

• “what is a chicken?”

contract validity; US common law and CISG

1. mutual assent

2. consideration

3. legality

4. capacity

when is the contract formed?

validity and enforcement of international sales contracts

illegal contract

• ex. Tarbert Trading v. Cometals

  • a contract calling for the delivery of a fraudulent certificate of origin is illegal and contrary to public policy

obligations of the seller

contract provisions trump default rules

• gap-fillers

Articles 30-44

Article 30: seller has the obligation to

• (a) deliver goods

• (b) hand over documents

• (c) transfer property in goods

remedies - Articles 61-65

obligations of the buyer

Articles 53-60

Article 53: buyer has the obligation to

• (a) pay the price

• (b) take delivery

remedies - Articles 45-52

warranties: UCC Article 2

express warranties

implied warranties

• merchantability

• fitness for a particular purpose

Article 35 CISG

conformity of the goods

paragraph 1 - express warranties

paragraph 2 - implied warranties

• 2(a) ordinary purposes

• 2(b) particular purposes

• 2(c) sample/model

• 2(d) packaging

how do you disclaim warranties under the CISG

think about this when you are negotiating your contract

• what are the warranties the seller is making?

• what are the warranties the buyer needs/wants?

• is the seller disclaiming warranties?

• if you don’t have a warranty clause what will the warranties be?

notice of nonconformity

Article 39

timely - reasonable time

sufficiently specific

• poor workmanship and improper fitting of goods

• the goods are rancid

• five rolls of acrylic blankets missing