Transcript Contract Formation

What Every Attorney Should Know About the
Convention on Contracts for the International
Sale of Goods (CISG)
March 6, 2008
Los Angeles, USA
International Law Section
Los Angeles County Bar Association
Presenters
Bryan D. Hull, Professor of Law, Loyola Law School
Edwin M. Smith, Leon Benwell Professor of Law, USC Gould
School of Law
Moderator
Jeffery J. Daar, Daar & Newman
1
Background of the CISG
• Promulgated by UNCITRAL in Vienna,
Austria in 1980 (thus often called the
Vienna sales convention)
• Ratified by the U.S. in 1986
• Adopted by 70 nations
• For a complete listing of nations that have
adopted the CISG, see www.uncitral.org
2
The CISG Is The Law Of
California
• Under the Supremacy Clause of the U.S.
Constitution, California is obligated to apply the
terms of the CISG as a U.S. treaty.
“This Constitution, and the laws of the United States
which shall be made in pursuance thereof;
and all treaties made, or which shall be made,
under the authority of the United States, shall be the supreme
law of the land." (U.S. Const. art. VI, cl. 2.)
3
Is the Transaction w/i the scope
of the CISG?
• Under U.S. version of CISG, it applies to
sales of goods where each party is in a
different nation that has adopted the CISG,
unless excluded
• For example, if Buyer is located in U.S.
and Seller is located in China, the CISG
applies unless excluded
4
Exclusions From the CISG
• Consumer purchases - for "personal, family or household use”
unless the Seller had no reason to know they for personal/ family use
• Auctions
• Execution or other sales under legal process
• Sales of commercial paper, securities or currency, investment
securities, or negotiable instruments
• Sales of vessels, hovercraft or aircraft & electricity
• Sales of specially fabricated goods for which a substantial part of the
input materials are supplied by the buyer.
• Contracts under which the preponderant part of the obligations of the
supplier of goods consists in the supply of labor or other services.
• Seller's liability for death/personal injury caused by the goods
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The CISG Does Not Cover All
Issues
• Does not cover issues of validity (e.g.
mistake or unconscionability)
• Does not cover questions of title
• Such questions are resolved by domestic
law determined under choice of law
principles
6
Courts Have Applied The CISG As
The Law Of California
• In Asante Techs. v. Pmc-Sierra, Inc. (N.D. Cal 2001) 164 F. Supp. 2d
1142 (hereafter Asante), the court applied the CISG to a sales contract
holding that the CISG applies to a contract governed by California law
unless the parties affirmatively opt out of the CISG. The court stated
as follows:
• “Thus, under general California law, the CISG is applicable to
contracts where the contracting parties are from different countries
that have adopted the CISG. In the absence of clear language
indicating that both contracting parties intended to opt out of the CISG,
. . . , the Court rejects Plaintiff's contention that the choice of law
provisions preclude the applicability of the CISG.” [Emphasis added.]
(Id. at p. 1150.)
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Parties May Opt Out of CISG in
Whole or In Part
•
U.S. courts have held that an exclusion of the CISG under Article 6 must be express
and that a choice-of-law clause selecting the law of a CISG contracting state is not
sufficient to exclude the CISG. In Asante, the court specifically held that a choice-oflaw clause selecting the laws of the State of California did not exclude the CISG:
–
•
“California is bound by the Supremacy Clause to the treaties of the United States . . . . Thus,
under general California law, the CISG is applicable to contracts where the contracting parties
are from different countries that have adopted the CISG. In the absence of clear language
indicating that both contracting parties intended to opt out of the CISG . . . the Court rejects
Plaintiff’s contention that the choice of law provisions preclude the applicability of the
CISG.” [Emphasis added.] (Id. at p. 1150.)
(See also BP Oil, 332 F.3d at 337 (“Given that the CISG is Ecuadorian law, a choice of
law provision designating Ecuadorian law merely confirms that the treaty governs the
transaction.”); Ajax Tool Works, Inc. v. Can-Eng Manu. Ltd., , (N.D. Ill. 2003) WL
223187 at *3 (“[A]lthough the parties have designated Ontario law as controlling, it is
not the provincial law of Ontario that applies; rather, because the CISG is the law of
Ontario, the CISG governs the parties’ agreement.”).)
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Contract Formation - The Offer
• Do we have an offer? Article 14
• Is the offer revocable? Article 16
– “We expect to hear from you by 10 June”
9
Contract Formation - The
Acceptance
• Effective upon receipt by offeror (no
“Mailbox rule”)
• Must be no “material variation” between
offer & acceptance
– Assume acceptance contains arbitration clause
and offer is silent on the issue
– Arbitration is a material term under Article 19
• Contract may be formed by performance
under Article 18
10
Writing Requirements
• Generally, no statute of frauds under CISG.
Article 11
• Parties may provide for no oral
modifications. Article 29
• Contracting states may make a declaration
under Article 96 that Article 11 does not
apply (e.g. Argentina, Chile, China).
11
No parol evidence rule in the
CISG
• Article 8 of the CISG provides that
evidence of prior negotiations is relevant to
show the meaning of a contract
• Parties can by contract derogate from the
CISG, so could include a clause saying no
evidence of any prior agreement is
admissible
12
Parties may disclaim warranty
liability under CISG
• No specific rules for disclaimers under
Article 35 relating to warranties or Article
74 relating to remedies
• CISG does not pass on questions of validity
according to Article 4
• Applicable domestic sales law may permit
an argument of unconscionability in some
cases
13
Concept of “Fundamental
Breach”
• injured party may avoid contract if breach
fundamental (no “perfect tender rule”)
• defined in Article 25: substantial
deprivation of expectation that was
reasonably foreseeable as a result of breach
• parties may wish to define situations of
fundamental breach
14
Nachfrist Notice
• injured party may give other party an
extended period of time to perform
• if breaching party does not perform during
that time, contract may be avoided
• nachfrist period must be reasonable
15
Specific Performance Under the
CISG
• buyer's general rights to specific performance,
• "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.” Art 46(1)
• seller's specific relief
• "The seller may require the buyer to pay the price, take delivery or
perform his other obligations, unless the seller has resorted to a remedy
which is inconsistent with this requirement." Article 62
• Court may apply domestic law standards under Article 28
and refuse specific performance
16
CISG Remedies
• Article 74 provides rule awarding expectation
damages
• Consequential damages awarded if foreseeable as
possible consequence of breach
• Buyer may reduce price under Article 50 if goods
non-conforming
• Parties may craft their own remedies
• Interest may be awarded under Article 48
17
Research Tools
• Regard must be had for CISG’s
international character. See Article 7
• Non-U.S. sources are thus important
• Many materials are contained at
www.cisg.law.pace.edu.
18