Sales Contracts and Excuses
for Nonperformance
Chapter 4
© 2002 West/Thomson Learning
1
The Role of the UCC in the US


Art. 2 applies to transaction in
goods
Standardized sales law in 50 states
with some individual state
variation
2
International need for
standardized sales law



Response- CISG (UN Convention
on Contracts for the International
Sale of Goods) negotiated in 1980
became effective in 1988
Country differences in approach to
contract law
CISG a compromise; tries to keep
parties in bargain
3
Choice of Laws



Which law applies to the
transaction?
Parties may insert their choice of
law in the contract to try to avoid
the conflict of laws problem
CISG allows parties to opt out
4
Applicability of CISG




Commercial sale of goods
Between parties whose places of
business are in different countries
The places of business are in
countries that have ratified the
CISG
74 countries have ratified
5
Asante Tech. Inc v. PMC Sierra
(ND Cal 2000)




Facts: A bought electronic parts from PMC – PMC office & factory in
Canada

A placed order through UT, distributor

A’s contract forms said governed by state shown on buyers
address

PMC invoice said governed by law of Canada

A claimed goods not up to specs – sued in Cal state court

PMC removed case to federal court, A sought to send back to state
court
Issue: Does CISG apply? Does federal court have jurisdiction?
Decision: CISG applies, federal court has concurrent jurisdiction
Reasons: UT not agent, doesn’t establish PMC place of business

Look to place of business with closest connection to contract –
Canada

Contracting parties from different countries that signed CISG

PMC choice of law –Canadian law

A choice of law – Cal – but federal CISG pre-empts state law

Both Cal and Canada (BC) adopt CISG

Federal and state courts both have jurisdiction – no need to
remand to state court
6
Sales excluded from CISG







Consumer goods
Auction
Stocks
Vessels, aircraft, ships
Contracts predominantly for labor or
services
No product liability for death or
personal injury
Parties to contract may opt out
7
Digital Signatures in
e-Commerce


U.S., Japan, China and the EU have
statutes
UN preparing a model electronic
signature law
8
Comparison of UCC and CISG








Writing
Parole evidence
Custom practice and trade usage
Battle of the forms
Disclaiming implied warranties
Remedies for breach
Specific performance
This is only a partial list...
9
Must Contract be in
Writing?

UCC: contracts for
the sale of goods
$500 or more
must be in writing
to be enforceable

However, there
are many
exceptions


CISG: need not be
in writing ( but
Russia has
elected writing
requirement)
China: UCL: need
not be in writing
10
Parole Evidence

UCC: If contract is
final written
expression, then
parole evidence is
not admissible to
contradict

Only resort to
parole evidence if
contract terms
ambiguous


CISG: Court may
consider all
relevant
circumstances.
Mcc Marble
Ceramic v.
Ceramica Nuova
(p. 127)
11
Custom Practice and Trade
Usage

UCC: Allow past
practice and
industry practice
to fill in the gaps.

CISG: limited to
those which parties
agree to or past
dealings or those
usages that the
parties ought to have
known are observed
in trade or industry
12
Battle of the Forms


UCC: written
confirmation is
acceptance even though
additional terms unless
acceptance is
conditional on assent
Special rules for
merchants: new terms
become part of contract
unless



materially alter terms, or
notifies of objection
within reasonable time, or
purchase order expressly
limited to terms in order


CISG:Acceptance
containing new
terms that do not
materially alter
becomes part of the
contract unless there
is a prompt objection
If the terms
materially alter then
it is rejection of the
offer and a
counteroffer (not a
contract without the
new terms)
13
Solae, LLC v. Hershey Canada, Inc.
(D.Del. 2008)




Facts: S sold soy lecithin to H - negotiated annual contract for
purchases for coming year
 Jan. 2006 – agreed H would order up to 250K lbs. @
$1.2526 per lb.
 June 06 – H faxed p.o. to S for 40K lbs. ; S sent order
confirmation
 Sept. 06 – S ships to H, includes invoice setting
conditions of sale, forum selection clause for Delaware
courts
 Oct. 06 – H discovers goods contaminated – triggers
recall, plant shutdown, govt. investigation
 H notifies S that it would hold S responsible; refused to
accept or pay for further shipments
 S filed suit, H moves to dismiss – no personal
jurisdiction
Issue: Did contract include choice of forum clause?
Decision: No – under CISG, choice of forum clause not part of
contract
Reasons: Art. 23 –contract concluded when acceptance of
offer becomes effective – agt. Reached in Jan. 06 set goods,
quantity and price – no forum selection clause
14
Solae, LLC v. Hershey Canada, Inc.(#2)






Reasons: Art. 23 –contract concluded when acceptance of
offer becomes effective – agt. reached in Jan. 06 set goods,
quantity and price – no forum selection clause
Art. 29 (1)– parties can modify contract
Art. 19 – attempt to include additional terms for settlement of
disputes is material alteration of terms of offer
Failure to object to unilateral attempt to alter terms is not
agreement to those terms
No evidence that H agreed to modification of terms of 2006
contract
Multiple invoices and pre-shipment confirmations do not
modify contract to include forum selection clause
15
Disclaiming implied warranties

UCC: seller may
disclaim only by
conspicuous
words such as “as
is”

CISG: no
limitations on
ability to disclaim
implied
warranties
16
TeeVee Toons, Inc. v. Gerhard
Schubert GMBH (S.D.N.Y. 2006)




Facts: TVT and GS sign agreement – GS will build production
system for Biobox

System had severe malfunctions; TVT sued S for breach of
warranty under CISG

Art. 35 – seller obligated to provide goods as described by
contract

TVT – GS system not fit for particular purpose – production
of Biobox

TVT notified GS of nonconformity

GS – terms of contract “T&C” disclaims Art. 35 warranties

TVT – express oral understanding that T&C would not apply
Issue: Are T&C excluded from contract?
Decision: Refuse summary judgment – must hold trial
Reasons: Art. 11 – contract need not be in writing; Art. 8 –
consider evidence of parties’ subjective intent

Statements by GS or TVT that contradict T&T or indicate
T&C not part of contract must be considered

Did parties intend that merger clause be effective

Genuine issue of material fact as to whether parties
intended to be bound by T&C

If no shared intent to be bound by T&C, TVT can rely on 17
Art. 35 warranty
Chicago Prime Packers v. Northam Food Trading Co. (N.D. Ill. 2004)




Facts: CPP sold frozen pork ribs to N for $178K

Ribs shipped to BPM – stored 3 times en route

Ribs ultimately discovered to be spoiled – USDA condemned them

NFT refused to pay, CPP sued for breach of contract
Issue: Is NFT liable for damages for cost of ribs? Did NFT satisfy
inspection and notification requirements of buyer under CISG?
Decision: Yes – NFT liable for damages, didn’t meet burden of
inspection
Reasons: NFT has burden of proving ribs were nonconforming at time
of receipt

No inspection provision in contract; Art. 38(1) applies – inspect
within as short a period as practicable

Art. 38(3) – may defer examination until goods arrive at new
destination – here, when ribs arrived at BPM

No evidence that NFT or BPM could not have inspected when
arrived at BPM

NFT also failed to prove that it gave notice to CPP within
reasonable time after it ought to have discovered nonconformity –
Art. 39

When defect easy to discover by prompt examination, time of
notice must be reduced

NFT failed to examine ribs in as short a time period as practicable;
therefore NFT also failed to give notice to CPP within reasonable
18
time
Remedies for Breach


Benefit of the bargain
Place in position would have been
had breach not occurred
19
Remedies for Breach





Avoidance (Art. 49)- give notice (Art. 39)
Seller’s right to cure if before performance due
(importance of arrival date as well as shipment
date) (Arts. 47 & 48)
Price reduction (Art. 50)
Money damages (Art. 74), Delchi Carrier case
 Cost of replacement goods (Art. 75)
 Duty to mitigate damages (Art. 77)
Specific Performance (Art. 46) - limited use in
U.S. (Art. 28), common under CISG
20
Remedies for Breach

UCC: perfect
tender rule
(performance
must match
specifics of
contract
perfectly)


CISG: buyer can
avoid only if
fundamental
breach
Buyer need not
take delivery avoid the contract
21
Specific Performance

UCC: available as
remedy only
under special
circumstances
(Goods unique
and monetary
damages not
adequate)



CISG: draws from
civil law tradition
Specific
performance
available
Exemption for
countries that do
not have such a
provision under
their own law
22
Excuses for Performance





Impossibility - supervening illegality
Frustration of purpose (rare)
Commercial impracticability
CISG - impediments beyond control
exemption
Force majeure: unforeseen events
beyond control of parties, act of God
23
Cases







Asante Tech. v. PMC – Sierra, Inc.
Solae, LLC v. Hershey Canada, Inc.
TeeVee Toons, Inc. v. Gerhard Schubert
GMBH
Chicago Prime Packers, Inc. v.
Northaqm Food Trading Co.
Medical Mktg. Int. v. Int. Medico
Scientifica
Delchi Carrier v. Rotorex Corp.
Harriscom Svenska v. Harris Corp.
24
Cultural Influence in
Contract Negotiation



Different styles of the pace of
negotiating
American style - immediately going
into the business matters
Asia: develop relationship first,
then work on deal
25
Summary





Contracts: bargain for performance
What are each parties responsibilities?
Bargain to allocate risk and price
accordingly
Contract needs to reflect agreement
Contracts fix price and help to manage
risk
26
Contract Law in China:
Uniform Contract Law (1999)




Individuals and foreigners can contract
– generally without state permission
UCL applies unless specific legislation or
regulations apply
Contracts valid when formed, even if
required registration with government
Contracts may be written or oral;
recognizes electronic media
27
China: UCL (#2)

Formation: contract requires offer and
acceptance





Offer: Shows intent to enter contract;
specific and definite terms
Acceptance: Shows intent to accept the
offer; must accept terms of offer
Consideration not required for valid contract
Terms: should contain names &
addresses, subject matter, quantity,
quality, price, payment, performance
deadline, liability for default, dispute
resolution methods
Contracts invalid if fraud, violates law,
illegal purpose, harmful to state or
28
public interest
China: UCL (#3)

Performance:



good faith performance required
suspension of performance justifiable
where: other party facing serious
deterioration of business operation,
has moved or withdrawn capital, has
suffered a loss of commercial credit,
or has experienced other
circumstances showing a loss of
ability to perform
Modification: parties may modify
by agreement
29
China: UCL (#4)




Remedies: specific performance, remedial
measures and compensation
 actual damages or liquidated damages
 consequential damages (lost profits) –
amount of loss likely resulting from breach
foreseen by breaching party at time contract
made
 non-breaching party can demand specific
performance unless would violate law
Remedial measures include: repair, exchange,
redo, return, and reduction of payment
Non-breaching party has general duty to
mitigate damages
UCL recognizes force majeure: “any objective
circumstance which is unforeseeable,
unavoidable and insurmountable”
30