Contract Law: Cases Interpreting the CISG
Please note, this is the last article in my five-part series on contract law.
To view the fourth post, “Contract Law: How the CISG Affects Your International Transactions,” please click here.
To view the third post, “Contract Law: Wisconsin Court Decisions,” please click here.
To view the second post, “Contract Law: The Battle of the Forms,” please click here.
To view the first post, “Contracts for the Sale of Goods,” please click here.
If you have any questions, feel free to contact me at [email protected].
A July 2013 case from a U.S. District Court in Pennsylvania was brought by a Pennsylvania corporation, Seller, against a German company, Buyer, alleging that the Buyer had breached its sales contract by refusing to pay for goods that Seller shipped and Buyer received. During negotiations, Seller e-mailed a document titled “Conditions of Sale,” which was “a proposed agreement purporting to govern various collateral aspects of the parties’ developing relationship,” that stated:
This agreement will be governed by and construed in accordance with the laws of the state of Pennsylvania, United States of America. The parties hereto hereby consent to the exclusive jurisdiction and venue of the United States District Court for Luzerne County for any action that may be brought in connection with this agreement …
The German Buyer sought dismissal of Seller’s breach of contract claim under Pennsylvania’s UCC statute of frauds, arguing, “an oral contract for the sale of goods in excess of $500 cannot be enforced unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought.” The Court rejected the German company’s argument for two reasons.
First, a choice of law provision is not effective unless it expressly rejects the application of the CISG. In this case, although the clause expressly selected the law, jurisdiction and venue of Pennsylvania, that does not mean the contract was governed by the UCC; “the parties did not affirmatively state that the CISG does not apply to this contract, so international law applies.” Second, unlike Pennsylvania’s UCC, “the CISG contains no statute of frauds requirement;” therefore, the motion to dismiss was denied and the case was tried in Pennsylvania under the CISG.
A German business association that manufactured monofilament yarn sold to a North Carolina LLC for use in artificial turf. Through a series of purchase orders, confirmations, and email correspondences – Seller and Buyer agreed upon various specifications for the yarn, and Seller expressly warranted the yarn it supplied would be of good quality and would meet the agreed upon specifications. In 2012, Buyer discovered the yarn had latent defects that exposed Buyer to breach of contract claims from its Customers. Buyer notified Seller in writing of the problems and demanded the Seller remedy the problem. Seller refused to correct the defects in the yarn, replace the yarn, take back the yarn, give refunds, or give Buyer any credit against outstanding invoices. Buyer sued the German company in North Carolina state court, alleging breach of contract and breach of express warranties. Seller removed the case to NC Federal Court, and moved to dismiss for improper venue and lack of personal jurisdiction. Seller contended that Terms and Conditions in the sales agreement included:
The place of performance for all obligations arising from this contractual relationship, i.e. also for delivery and payment, shall be our registered place of business (Melsungen [Germany]). …
And the Limited Warranty provided:
This limited warranty and the rights and obligations of the parties under this warranty are governed only by laws of the Federal Republic of Germany, without regard to its conflicts of laws principles. Sales of the Products by [Plaintiff] to the Purchaser are not subject to the United Nations Convention on the International Sale of Goods. The Purchaser agrees that exclusive jurisdiction and venue for any claims arising out of this limited warranty shall be the [sic] with the judicial authorities in Kassel, Germany and will be held in the German language.
Buyer argued for a long time it did not know the documents sent by Seller contained language in fine, inconspicuous print at the bottom, stating, “Our Standard Terms and Conditions apply to all offers and sale contracts and are available for examination in the Internet at the following address: [URL]”
Under federal law, forum-selection clauses are presumptively valid and should be enforced unless the opposing part clearly shows enforcement is unreasonable under the circumstances.
Buyer also contended “[t]he grave unfairness and inconvenience of the forum selection clauses in the [Terms and Conditions] and Limited Warranty would effectively deprive Plaintiff of its right to seek relief.” Buyer argued enforcing the forum-selection clauses would require Buyer to travel to Germany and submit to jurisdiction of two courts there; none of Buyer’s representatives spoke German; all the contract documents were in English (and were negotiated in English in Greensboro, North Carolina); Buyer’s witnesses were located in the United States; and the defective yarn was located in Kernersville, North Carolina. The Court was not persuaded:
However, “the expense of litigation is insufficient to invalidate a forum-selection clause, especially in a diversity case[,] . . . . not only because one side or the other will necessarily be burdened, but also because the parties presumably included that burden when they calculated the proper consideration to be paid under the contract.”
The Court enforced the forum-selection clauses and dismissed the case. Any relief would have to come from German courts.
In a 2010 Third Circuit decision – Seller, an Argentina-based manufacturer of lumber products, and Buyer, a New Jersey-based import-export corporation, entered into an oral agreement whereby Buyer agreed to market Seller’s wooden products to third parties in the United States. Seller filed suit in New Jersey state court, asserting a breach-of-contract claim based on Buyer’s refusal to pay the $400,000 balance due on $1.8 million in sales. Buyer removed the case to federal court. The parties agreed the contract was governed by CISG. However, although the United States has not made an Article 96 declaration, Argentina has. The District Court held that, because Argentinian law requires a written contract, Argentinian law trumps Art. 11. The Circuit Court disagreed and sent the case back to the District court to “determine, based on New Jersey’s choice-of-law rules, whether New Jersey or Argentine law governs and then apply that forum’s law to this case.”
A 2003 decision from the Ninth Circuit involved a transaction with Canadian wine company, and a French company and its California subsidiary. The Canadian company “agreed by telephone with [the US subsidiary] to purchase a certain number of corks at a specific price. The parties agreed on payment and shipping terms.” The French company shipped the corks to Canada and sent an invoice on the face of which was a paragraph in French that specified, “Any dispute arising under the present contract is under the sole jurisdiction of the Court of Commerce of the City of Perpignan [France].” The corks were subpar and the Canadian company commenced suit against the French and US companies in a federal district court in California. The question before the Court was whether the forum selection clause in the French company’s invoice was part of any agreement between the parties. The court determined the CISG governed and that, because the contract was formed under the CISG before the invoice was sent, the forum selection clause was not part of the agreement of the parties. The case was permitted to proceed in California federal court.
In a 2014 decision from the Seventh Circuit, a Canadian supplier of frozen potatoes contracted with an Illinois reseller of agricultural produce. Buyer experienced financial problems and Seller sued on its accounts receivable. The question was whether certain attorney’s fees and interest provisions in Seller’s invoices became an enforceable part of the parties’ contract. The exchange of documents was undisputed: Buyer issued purchase orders specifying the item, quantity, price, and place of delivery of the produce to be shipped. Seller sent emails confirming the terms of the order. Seller then shipped the produce and, thereafter, sent invoices containing the attorney’s fees and interest provisions.
The district court determined the issue was a battle of the forms under UCC Sec 2 207 and, because the attorney’s fee provision was not material, it was part of the contract. On appeal, the Court observed the CISG “battle-of-the-forms provision, Article 19, is significantly different from § 2-207.3” Specifically, Art. 19 “does not address additional terms in a written confirmation, but only those in ‘a reply to an offer which purports to be an acceptance.’” Accordingly, if the contract was formed before the invoices issued, “then the attorney’s fees and interest provisions would be proposed modifications to the contracts and Article 19 may not even apply.” Additionally, “Article 19 defaults to the old common-law ‘mirror image’ rule.” The court continued: “Article 19 provides that nonmaterial additional terms in a purported acceptance become a part of the contract … but defines ‘materiality’ in a broad way that would appear to cover attorney’s fees and interest provisions.” Under the UCC, the additional terms were not material, and under the CISG, they were material. The Court remanded for a determination on whether the CISG applied.
A 2014 decision from a New York district court involved the purchase of turbine parts by a New York company from an Italian Seller. There were numerous documents:
- Buyer presented a Request for Quotation;
- Seller issued Quotations that included its T&Cs, including payment and shipping terms;
- Buyer issued POs;
- Seller issued Order Confirmations that included its General Terms and Conditions of Supply “printed in Italian on the reverse side of each page of the order confirmation.” “On the bottom left of the front page of the confirmation, Seller wrote (in Italian and English): ‘Please send back copy of the present document signed for acceptance of our sale’s terms and conditions printed overleaf. After 15 days from receipt of the present we consider our conditions accepted.'” Additionally, the GTCs provided “that the parties ‘agree that any legal claim or any other controversy will be subject to the exclusive jurisdiction of the Court of Milan.’”
The Court agreed the CISG governed whether and when a forum selection clause becomes a part of the parties’ agreement. The Court identified three scenarios:
- The clause is part of an accepted offer (or an accepted counter-offer);
- The clause is part of the agreement if “interposed subsequent to contract formation” “in cases where the other party assented to the clause’s inclusion;”’ and
- The clause is not part of the agreement if a party unilaterally attempts to add the clause “after the parties already formed their agreement.”
The issue: What was the “offer” and the “acceptance?” None of Seller’s Quotations specified the quantities that Buyer would order. “Therefore, at most, the quotes ‘create[d] a framework for the future sale of goods but fail[ed] to establish specific terms for quantity and price.’” Accordingly, the Purchase Order was the offer. However, the Order Confirmations were not acceptances, “but instead were rejections and counteroffers” because they included material additional terms. Finally, the Court determined that Buyer’s acceptance followed as a matter of law from its failure to object to inclusion of the material additional terms. The Court explained:
The order confirmations included the GTCs in Italian on the reverse side, and the front side of the confirmations explicitly provided in English that the GTCs would be accepted if no objection was received within fifteen days. It is irrelevant that the GTCs were in Italian, especially given plaintiff’s sophistication.
Because Buyer did not object to the GTCs “within fifteen days of receiving the confirmations,” the Motion to dismiss was granted. The Court commented: “This case must be brought in Milan, Italy.”
If your company’s sales documents do not contain choice of law and choice of forum provisions, perhaps they should. If your company’s international sales documents contain choice of law and choice of forum provisions, but do not affirmatively state the CISG will not apply to the contract, perhaps they should. The UCC is not always the best option, but the CISG should not always be avoided. One size does not fit all.
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