International Business Law

Lecture 10 Sales

A. CISG

United Nations Convention on Contracts for the International Sale of Goods

In effect since January 1, 1988 Current state parties: 62, including
Canada China France Germany
2 Web site: http://www.uncitral.org/

Mexico Russia United States

B. COVERAGE OF CISG

International contracts: buyer and seller must have their places of business in different states.
Both states must be contracting parties to the convention, or The rules of private international law must lead to the application of the law of a contracting state.

Exception: A contracting state may declare that it will apply the CISG only when the buyer and seller are both from contracting states. 3

B. COVERAGE OF CISG

Opting in and out

The parties to a contract may exclude or modify the CISGs application by a choice of law clause. Whether parties can exclude a domestic law and adopt the CISG in its place depends on the rules of the state where the case is heard.

B. COVERAGE OF CISG

Merchants: CISG applies only to commercial sales transactions between merchants

CISG Art.1: buyers and sellers must both have places of business. CISG Art. 2(a): the Convention does not apply to sales of goods bought for personal, family, or household use.
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B. COVERAGE OF CISG

Subject Matter of CISG:

The formation of contracts. The remedies available to buyers and sellers.

B. COVERAGE OF CISG

Subject Matter Not Covered:

The validity of contracts. The competency of the parties. The rights of third parties. Liability for death or personal injury. Sales to consumers. Sales of services

B. COVERAGE OF CISG
Sales commonly subject to special regulation:
Auction sales, Sales on execution or otherwise by authority of law, Sales of stocks, shares, investment securities, negotiable instruments, or money Sales of ships, vessels, hovercraft, or aircraft, and Sales of electricity.

C. CISG COMPARED

General sources of CISG rules: French Civil Code, the French Commercial Code, and similar civil law codes.

C. CISG COMPARED

Distinctive CISG provisions:

Interpretation Firm offers Time of acceptance Acceptance with additional terms Definiteness Formalities Remedies
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D. INTERPRETATION

Interpretation of a CISG Contract is based on

the parties intent, and all relevant circumstances.

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D. INTERPRETATION

Parties Intent
Subjective Intent of a speaker is admissible if the other party knew or could not have been unaware of the speakers intent.

Objective Intent is used when a speakers intent is not clear to the other party.
Objective intent is determined according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
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D. INTERPRETATION

Relevant Circumstances: courts are

to give due consideration to all relevant circumstances, including: negotiations leading up to the contract. practices the parties have established between themselves. conduct of the parties after they agree to the contract.

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D. INTERPRETATION
Rationale for using all relevant circumstances: to do away with the technical rules that domestic courts sometimes use to interpret contracts.

Example: CISG does not use the common laws parol evidence rule. Caveat: The CISG allows parties to derogate from or vary the effect of any of the provisions of the Convention.
If the parties include a contract term (often called an integration clause) directing a court to ignore all prior or contemporaneous agreements, the court will have to give effect to that term.
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E. FIRM OFFERS

Firm Offer is Irrevocable if:

the offeror indicates, whether by stating a fixed time or otherwise, that it is irrevocable, or the offeree acts in reliance on the reasonable belief that it is irrevocable.

Firm Offer Does Not Have to be:

in writing (as required by the UCC), or supported by consideration or cause.
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F. TIME OF ACCEPTANCE

Acceptance is Effective and a contract formed only when the indication of assent reaches the offeror.
Caveat: An offeror may not revoke an offer once it has been dispatched. Basis: French Civil Code's receipt rule.

Compare: UCC provides that an acceptance is effective upon dispatch.

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G. ADDITIONAL TERMS

Additions, limitations, or other modifications constitute a counteroffer.

Caveat: This is so only if
the additional or different terms materially alter the terms of the offer, or the offeror fails to promptly object to changes that are not material.

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G. ADDITIONAL TERMS
Material alterations are changes to the following:
Price Payment quality and quantity of the goods place and time of delivery extent of one partys liability to the other settlement of disputes

Basis: French mirror image

rule and UCC 2-207.
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H. DEFINITENESS

A contract must be sufficiently definite so that a court can enforce it.

A contract is sufficiently definite if it:
describes the goods, and expressly or impliedly fixes or makes provision for determining the quantity.

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H. DEFINITENESS

Price should be stated or a means provided for determining it.

Price not stated: courts imply will the price generally charged at the time of the contract for like goods sold under comparable circumstances in the trade concerned

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I. FORMALITIES

No Formalities: The CISG does not require a contract to be in any particular form
A contract may be proven by oral testimony regardless of the price involved.

Basis: French Commercial Code.

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J. REMEDIES

Buyers Right of Avoidance

Requirements for avoiding a contract:
The seller commits a fundamental breach, or The seller commits a lesser breach and the buyer gives the seller a Nachfrist notice that the seller rejects or does not comply with during the period it specifies.

Basis: German Civil Code.

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J. REMEDIES
Nachfrist Notice: the fixing of an additional period of time of reasonable length for performance by the seller of his obligations.
The period must be definite and the obligation to perform within that period must be clear. During the Nachfrist period the seller is entitled to correct (i.e., cure) the nonconformity at his own expense.

A cure may not be made if the breach is fundamental and the buyer chooses to avoid the contract.

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J. REMEDIES
Time for Avoidance: Once the Nachfrist period has run, or once the fundamental breach becomes clear, the buyer has a reasonable time in which to avoid the contract.

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J. REMEDIES

Sellers Right of Avoidance

Analogous to that of the buyers avoidance remedy

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J. REMEDIES

Buyers Right to a Reduction in Price

Applicable when:
the seller delivers non-conforming goods the buyer accepts them, and the seller is not responsible for the nonconformity

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J. REMEDIES

Formula for determining the price reduction: The price is to be reduced by that ratio of:
The value at the time of delivery of the goods actually delivered, to The value that conforming goods would have had at the time of delivery.

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J. REMEDIES
Example

Idaho potatoes sold at $3.50/bushel for delivery in Djakarta Damaged in transit by act of nature Undamaged potatoes are worth $4.00/bushel if purchased in Djakarta Damages potatoes are worth $2.80/bushel $2.80 $4.00 = 7 10

The price reduction ratio is:

Applying this ratio, the reduced price the buyer pays is: $3.50 x 7/10 = $2.45
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