Legal Principles of Sales in the Legal Principles of Sales in the International MarketInternational Market

The CISG Came into Force January 1, 1988 Over Fifty Years of Negotiations Went into

the Making of this Convention This Supersedes Two Previous Conventions

Convention Relating to a Uniform Law on the International Sale of Goods (ULIS); and

The Convention Relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF)

This is the Work of More This is the Work of More than 62 Countriesthan 62 Countries

8 International Organizations8 International Organizations Adopted at a Conference at Adopted at a Conference at

Vienna in 1980Vienna in 1980 Incorporates Rules from all Incorporates Rules from all

Major Legal Systems of the Major Legal Systems of the WorldWorld

Contracts for International Sales of Contracts for International Sales of GoodsGoods Buyer and Seller Must Have Their Buyer and Seller Must Have Their

Places of Business in Different Places of Business in Different Countries (States) andCountries (States) and

Either Both Countries Must Be Either Both Countries Must Be Contracting Parties to the Contracting Parties to the Convention (CISG) ORConvention (CISG) OR

The Rules of Private International The Rules of Private International Law Must “Lead to the Application of Law Must “Lead to the Application of the Law of a Contracting State”the Law of a Contracting State”

Seller has a Place of Business in State A (a Seller has a Place of Business in State A (a Non-Contracting State) and Buyer has a Non-Contracting State) and Buyer has a Place of Business in State B (Also a Non-Place of Business in State B (Also a Non-Contracting State)Contracting State)

These Two Parties Enter into a Contract in These Two Parties Enter into a Contract in State C (a Contracting State)State C (a Contracting State)

Seller Breaches the Contract in State CSeller Breaches the Contract in State C Buyer Brings an Action in State B (Whose Buyer Brings an Action in State B (Whose

Choice of Law Rules Point to State C as Choice of Law Rules Point to State C as Applying to this Contract)Applying to this Contract)

Because State C is a Contracting State and Because State C is a Contracting State and Because the Transaction is International, Because the Transaction is International, CISG AppliesCISG Applies

While Either the Contracting States While Either the Contracting States or the Choice of Law Rules May or the Choice of Law Rules May Direct that CISG Apply, The Parties Direct that CISG Apply, The Parties to the Contract May Exclude (to the Contract May Exclude (that is that is may opt outmay opt out) or Modify its ) or Modify its Application By a Application By a Choice of Law Choice of Law ClauseClause

Whether they can Use that Same Whether they can Use that Same Clause to Exclude a Domestic Law Clause to Exclude a Domestic Law and Adopt CISG in its Place (and Adopt CISG in its Place (i.e., opt i.e., opt inin) Depends on the Rules of the State ) Depends on the Rules of the State Where the Case is HeardWhere the Case is Heard

Plaintiff is a Delaware Corporation that Produces Plaintiff is a Delaware Corporation that Produces Network Switchers, a Type of Electronic Component Network Switchers, a Type of Electronic Component Used to Connect Multiple Computers to each other and Used to Connect Multiple Computers to each other and to the Internetto the Internet

Defendant is Also a Delaware Corporation but Asserts Defendant is Also a Delaware Corporation but Asserts that at All Times Its Corporate HQ, Sales and Marketing that at All Times Its Corporate HQ, Sales and Marketing Office, Public Relations, Warehouse and Engineering Office, Public Relations, Warehouse and Engineering Departments were in Barnaby, British Columbia, Departments were in Barnaby, British Columbia, CanadaCanada

Defendant Also Maintains an Office in Portland, OregonDefendant Also Maintains an Office in Portland, Oregon Defendant’s Products are Sold in California Through Defendant’s Products are Sold in California Through

Unique Technologies (Authorized Distributor in North Unique Technologies (Authorized Distributor in North America)America)

Defendant Directed Plaintiff to Purchase its Products Defendant Directed Plaintiff to Purchase its Products Through UniqueThrough Unique

Plaintiff Filed Suit in California Plaintiff Filed Suit in California Superior CourtSuperior Court

Defendant Removed the Suite to Defendant Removed the Suite to Federal Court for Northern District of Federal Court for Northern District of CA Asserting Federal Question CA Asserting Federal Question Jurisdiction under 28 U.S.C. §1331Jurisdiction under 28 U.S.C. §1331

Determining Defendant’s Place of Determining Defendant’s Place of Business with Respect to its Contract Business with Respect to its Contract with Plaintiff is Critical as to Whether with Plaintiff is Critical as to Whether this Court Has Jurisdiction in the Casethis Court Has Jurisdiction in the Case

The Complaint of Plaintiff Focuses on The Complaint of Plaintiff Focuses on Five Purchase Orders Submitted to Five Purchase Orders Submitted to Defendant Through UniqueDefendant Through Unique

One Purchase Order was Sent to One Purchase Order was Sent to Defendant in British Columbia (By FAX) Defendant in British Columbia (By FAX) and Defendant Processed this Order in and Defendant Processed this Order in British ColumbiaBritish Columbia

Defendant Shipped All Orders to Defendant Shipped All Orders to Plaintiff in CaliforniaPlaintiff in California

Unique Sent Invoices to Plaintiff at Unique Sent Invoices to Plaintiff at Which Time Plaintiff Tendered Payment Which Time Plaintiff Tendered Payment to Unique either in CA or NVto Unique either in CA or NV

Plaintiff Makes Plaintiff Makes Motion for Remand Motion for Remand to the Superior Court to the Superior Court of California of California Pursuant to 28 U.S.C. Pursuant to 28 U.S.C. §;1447(c)§;1447(c)

In cases where Federal Law Completely Preempts In cases where Federal Law Completely Preempts State Law , Even Where Claims are Purportedly State Law , Even Where Claims are Purportedly Based on State Law, the Claims are Considered as Based on State Law, the Claims are Considered as Arising Under Federal LawArising Under Federal Law

CISG is an International Treaty Signed and Ratified CISG is an International Treaty Signed and Ratified by the U.S. and Canada, and other Countriesby the U.S. and Canada, and other Countries

Although the Rules Give U.S. District Court Although the Rules Give U.S. District Court Jurisdiction Over Treaties of the U.S., an Individual Jurisdiction Over Treaties of the U.S., an Individual may only Enforce a Treaty’s Provisions when the may only Enforce a Treaty’s Provisions when the Treaty is Self-Executing, which the Parties Treaty is Self-Executing, which the Parties acknowledge CISG isacknowledge CISG is

Therefore, if CISG applies to this Action, Federal Therefore, if CISG applies to this Action, Federal Jurisdiction ExistsJurisdiction Exists

CISG Only Applies When a Contract is CISG Only Applies When a Contract is “Between Parties Whose Places of “Between Parties Whose Places of Business are in Different States Business are in Different States (Countries)” If this Requirement is not (Countries)” If this Requirement is not satisfied, Defendant Cannot Claim satisfied, Defendant Cannot Claim Jurisdiction Under CSIGJurisdiction Under CSIG

Even though Plaintiff is in CA (USA) and Even though Plaintiff is in CA (USA) and Defendant has its principal Place of Defendant has its principal Place of Business in Canada, Plaintiff Contends Business in Canada, Plaintiff Contends that CISG Article 10 prescribes that that CISG Article 10 prescribes that “Defendant’s Place of Business Having “Defendant’s Place of Business Having Closest Relationship to the Contract at Closest Relationship to the Contract at Issue is in the United States – The Court Issue is in the United States – The Court Finds Def. Place of Business is in CanadaFinds Def. Place of Business is in Canada

Plaintiff Argues that Even if the Parties are Plaintiff Argues that Even if the Parties are from two different nations that have adopted from two different nations that have adopted CSIG, The Choice of Law Provisions in the CSIG, The Choice of Law Provisions in the “Terms and Conditions” set forth by both “Terms and Conditions” set forth by both Parties reflects that “both parties intend to Parties reflects that “both parties intend to opt out” of the Application of the Treatyopt out” of the Application of the Treaty

Defendant argues merely choosing the law of Defendant argues merely choosing the law of a jurisdiction to apply is insufficient to “opt a jurisdiction to apply is insufficient to “opt out” of Treaty Provisionsout” of Treaty Provisions

Court Found the Choice of Law Provision Court Found the Choice of Law Provision Ineffective to “Opt Out.” – Federal Law Ineffective to “Opt Out.” – Federal Law Trumps CA Law and Even though Plaintiff’s Trumps CA Law and Even though Plaintiff’s choice is CA Law this is Not Sufficient for choice is CA Law this is Not Sufficient for “Opting Out”“Opting Out”

CISG Does Not Directly Define SalesCISG Does Not Directly Define Sales It Does Speak of Seller’s and Buyer’s It Does Speak of Seller’s and Buyer’s

ObligationsObligations Seller is Required to Deliver the Seller is Required to Deliver the

Goods and Hand Over any Documents Goods and Hand Over any Documents Relating to them and Transfer the Relating to them and Transfer the Property in the Goods as Required by Property in the Goods as Required by the Contract and this Conventionthe Contract and this Convention

The Buyer is required to “Pay the The Buyer is required to “Pay the Price” This is the same as the UCCPrice” This is the same as the UCC

CISG Gives No Direct Definition of CISG Gives No Direct Definition of GoodsGoods

It Defines Those types of Sales NOT It Defines Those types of Sales NOT Governed by CSIG:Governed by CSIG: Goods bought for personal, family or Goods bought for personal, family or

household usehousehold use Auction SalesAuction Sales Sales on Execution or Otherwise by Authority Sales on Execution or Otherwise by Authority

of Lawof Law Sales Relating to Stocks, shares, Investment Sales Relating to Stocks, shares, Investment

Securities, Negotiable Instruments or MoneySecurities, Negotiable Instruments or Money Ships, vessels, hovercraft or aircraftShips, vessels, hovercraft or aircraft ElectricityElectricity

Real Estate is Considered Real Estate is Considered Domestic and NOT Domestic and NOT InternationalInternational

The List of Exclusions only The List of Exclusions only Includes Goods that the Includes Goods that the Drafters Felt Were Not Drafters Felt Were Not Already Obviously Already Obviously ExcludedExcluded

CISG Looks Upon “Mixed” Sales (Goods CISG Looks Upon “Mixed” Sales (Goods Combined with Services) as Sales of Combined with Services) as Sales of Goods UNLESS Goods UNLESS the Preponderant Part of the Preponderant Part of the Obligations of the Seller” Consists in the Obligations of the Seller” Consists in the Supply of Labor or other Servicesthe Supply of Labor or other Services

One May Assume “Preponderant” to have One May Assume “Preponderant” to have the normal meaning of the normal meaning of more than one-more than one-halfhalf

Contracts for Goods Contracts for Goods to be manufacturedto be manufactured are Treated as are Treated as Sales of GoodsSales of Goods unless unless Buyer Undertakes to Supply a Buyer Undertakes to Supply a substantial substantial Part of the MaterialsPart of the Materials

CISG Deals Only WithCISG Deals Only With(1) Formation of the (1) Formation of the ContractContract

(2) Remedies (2) Remedies Available to Buyer and Available to Buyer and SellerSeller

Questions about the Legality of Questions about the Legality of the Contractthe Contract

Questions About The Questions About The Competency of the PartiesCompetency of the Parties

Questions About the Rights of Questions About the Rights of Third PartiesThird Parties

Liability for Death or Personal Liability for Death or Personal InjuryInjury

To Determine if CISG To Determine if CISG Applies to a Particular Applies to a Particular Contractual Issue, One Must Contractual Issue, One Must Look to the Convention Look to the Convention Itself, Not to Domestic LawItself, Not to Domestic Law

If the Convention DOES If the Convention DOES Apply, Domestic Law is Apply, Domestic Law is PreemptedPreempted

CISG Calls for Courts to Look to the CISG Calls for Courts to Look to the General PrinciplesGeneral Principles on which the on which the Convention is based When Interpreting Convention is based When Interpreting its Provisions, but gives no List of its Provisions, but gives no List of General Principles. It is for the Courts to General Principles. It is for the Courts to Divine those Principles (Plain Meaning)Divine those Principles (Plain Meaning)

The Following Two Have Been Suggested:The Following Two Have Been Suggested: (1) (1) A Party to a Contract has the Duty to A Party to a Contract has the Duty to

Communicate information Needed by the Communicate information Needed by the Other PartyOther Party

(2) (2) Parties have the obligation to mitigate Parties have the obligation to mitigate damages resulting from a breachdamages resulting from a breach

Principles must be derived from the Principles must be derived from the particular sections of the convention particular sections of the convention and then extended to the case at and then extended to the case at handhand

In choosing this particular In choosing this particular mechanism, the drafters rejected the mechanism, the drafters rejected the adoption of general principles adoption of general principles derived from public or private derived from public or private International Law as well as from International Law as well as from Domestic Law CodesDomestic Law Codes

The Rules of The Rules of Private International Private International LawLaw are the third and final source are the third and final source for interpreting the Conventionfor interpreting the Convention

They may be used They may be used Only When the Only When the CISG itself does not directly CISG itself does not directly settle a mattersettle a matter or when the or when the matter cannot be resolved by matter cannot be resolved by application of a general principle application of a general principle derived from the Convention derived from the Convention itselfitself

Private International Law Rules Private International Law Rules Vary from Country to CountryVary from Country to Country

Some states – Notably those in Some states – Notably those in Central and Eastern Europe – Central and Eastern Europe – have enacted Private have enacted Private International Law CodesInternational Law Codes

Others – such as English Others – such as English Common Law Countries – Rely Common Law Countries – Rely on case lawon case law

Subjective ApproachSubjective Approach: A contract is said to : A contract is said to be formed only when there is a “be formed only when there is a “meeting of meeting of the mindsthe minds” or “” or “common intentcommon intent” – The CISG ” – The CISG allows courts to turn to this method first allows courts to turn to this method first and Courts are to Use the subjective intent and Courts are to Use the subjective intent of the speaker but only if of the speaker but only if “the other party “the other party knew or could not have been unaware”knew or could not have been unaware” of of the speaker’s intentthe speaker’s intent

Objective Approach:Objective Approach: When a speaker’s When a speaker’s intent is not clear – reasonable person of intent is not clear – reasonable person of the same kind as the other party would the same kind as the other party would interpret the wordsinterpret the words

When a court is to determine When a court is to determine intentintent whether subjectively or objectively whether subjectively or objectively “due “due consideration must be given to all relevant consideration must be given to all relevant circumstances”circumstances” including: including: (1) Negotiations leading up to the (1) Negotiations leading up to the

contractcontract (2) The practices that the parties have (2) The practices that the parties have

established between themselves; andestablished between themselves; and (3) The parties’ conduct after they agree (3) The parties’ conduct after they agree

to the contractto the contract

An Example of “An Example of “Usage”Usage” would be a would be a provision that trade terms such as: provision that trade terms such as: ““FOB,” “CIFFOB,” “CIF,” and the like must ,” and the like must comply with the International comply with the International Chamber of Commerce IncotermsChamber of Commerce Incoterms FOB - Freight on Board - pertains to FOB - Freight on Board - pertains to

whom pays the shipping expenses (Seller whom pays the shipping expenses (Seller pays shipping costs to port of shipmentpays shipping costs to port of shipment

CIF – Cost, Insurance and Freight - Seller CIF – Cost, Insurance and Freight - Seller must pay the costs and freight and must pay the costs and freight and Insurance to the Port of Shipment Insurance to the Port of Shipment (destination)(destination)

Traditionally, Many countries have required Traditionally, Many countries have required that a contract be in writingthat a contract be in writing

The English The English Statute of Frauds of 1677Statute of Frauds of 1677 Required a Signed Writing to enforce a wide Required a Signed Writing to enforce a wide variety of contracts including variety of contracts including contracts for contracts for the sale of goodsthe sale of goods – – this provision is still in this provision is still in the UCC but not in British Lawthe UCC but not in British Law

In Civil Law Countries the In Civil Law Countries the writingwriting is not is not requiredrequired

This has been required in Socialist countriesThis has been required in Socialist countries CISG does not require a contract in written CISG does not require a contract in written

formform