Case 8.

1 CISG
Wombat, Inc., is a Florida corporation engaged in the rental and sale of tiles, while
Pinochet, Inc., is an Italian corporation engaged in the manufacture of ceramic tiles.
Representatives of Wombat negotiated an agreement with Pinochet to purchase tiles based on
samples examined at a trade show in Bologna, Italy. After finalizing an oral agreement on
important terms of the contract such as price, quality, delivery, and payment, the parties recorded
these terms on one of Pinochet’s preprinted order forms, and the president of Wombat signed the
contract. The agreement provided for the sale of high-grade ceramic tiles at specific discounts as
long as Wombat purchased sufficient quantities.
Wombat delayed payments for some of the shipments since it was not satisfied with the
quality of the tiles. Pinochet stopped shipments and canceled the contract with Wombat, claiming
that the provisions on the printed form gave him the right to cancel or suspend the contract if the
buyer defaulted or delayed payment. Pinochet was not informed of the defects in writing. The
contract provided for notification of any defects in writing by means of a certified letter no later
than ten days after receipt of the merchandise. Wombat argues that the parties never intended the
terms printed on the reverse of the order form to apply to the agreement. It also submitted
affidavits from translators and Pinochet’s representatives that the parties subjectively intended
not to be bound by the terms on the reverse of the order form.
Questions
1. Is the contract governed by CISG?
The contract between Wombat, Inc. and Pinochet, Inc. may potentially be governed by the
United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG
applies to contracts for the sale of goods between parties located in different countries that have
ratified the convention. Both Wombat, Inc. (a Florida corporation) and Pinochet, Inc. (an Italian
corporation) indicate an international dimension to their business activities. However, it is
important to note that the specific details regarding the incorporation of the CISG into the
contract would require a thorough examination of the circumstances and relevant laws, including
any choice-of-law provisions or exclusions in the agreement.
2. Are the parties bound by the terms on the reverse side of the print form?
Whether the parties are bound by the terms on the reverse side of the printed form depends on
the specific circumstances and applicable laws. Generally, the terms on the reverse side of a
preprinted order form are considered part of the contract if they are reasonably communicated to
the other party and both parties had an opportunity to review and understand them before
entering into the contract. However, if Wombat can establish that the parties never intended for
the terms on the reverse side to apply or if there was a clear expression of intent to exclude those
terms, it may be possible for Wombat to argue that they are not bound by those terms. The
submitted affidavits from translators and Pinochet's representatives expressing the parties'
subjective intent not to be bound by the terms on the reverse side could be relevant in
determining the parties' intentions. Ultimately, the interpretation and enforceability of the
contract would depend on the specific laws and legal principles applicable in the jurisdiction
where any potential dispute is being adjudicated. The jurisdiction here is Italy, one of the
countries has ratified the CISG Convention.
Case 8.2 China National Products versus Apex Digital, Inc.
China National is a Beijing-based corporation organized under the laws of China with
specific foreign trading rights. It facilitates the import and export of goods between Chinese and
foreign companies. Apex is a company incorporated in Ontario, California, which engaged in the
import and distribution of consumer electronic goods. In 2000, China National entered into a
purchase agreement with Apex for the export of DVD players. The purchase agreement was
formalized with the conclusion of several substantially identical written contracts for the
different types of players. Each contract contained two significant provisions:
1. In the event of non-conformity of the goods with the contract, Apex should claim for
quality discrepancy within thirty days after the arrival of the goods at the port of destination.
2. All disputes arising from the contract shall be submitted to certain arbitration tribunals
specified in the contract and the award is final and binding on both parties.
Apex imported and sold the products to major retailers such as Best Buy, and K-Mart.
Soon after the distribution of the imported goods, Apex began receiving reports from its retailers
that consumers were dissatisfied with the quality of the DVD players: disk loaders did not open;
they did not load after the disk was inserted and did not recognize certain music files; the front
panel of the loader fell off, and so on. Some were returned. In spite of these problems, Apex
continued
to place more orders with China National. It did, however, express its concerns to China
National. Apex declined to pay China National, claiming “financial troubles” and citing China
National’s refusal to correct the defects. In an effort to obtain payment, China National wrote
several letters to Apex threatening legal action. It eventually filed suit in California.
The central issue to be decided by the court was whether Apex rejected the goods or, if it
did not, whether it later would be relieved of liability. The court stated that if buyers accept
nonconforming goods and do nothing, the law deems them to have accepted those goods. Apex’s
actions in continuing to order and sell goods known to be defective constituted an acceptance of
those goods. Such conduct of ordering and selling of defective goods was inconsistent with the
seller’s ownership and acceptance. It ordered Apex to pay for all unpaid invoices.
(141 F. Supp. 2nd 1013. 2001 U.S. Dist.)
Questions
1. Is the contract governed by CISG?
The contract between China National and Apex may potentially be governed by the United
Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG applies
to contracts for the sale of goods between parties located in different countries that have ratified
the convention. While the specific details regarding the incorporation of the CISG into the
contract would require a thorough examination of the circumstances and relevant laws, the fact
that China National is based in Beijing, China, and Apex is incorporated in Ontario, California,
suggests an international dimension to their business activities, which could potentially trigger
the application of the CISG. It is important to note that the CISG may be excluded or modified
by the parties' agreement or by applicable domestic laws, so a careful analysis of the contract and
relevant provisions would be necessary to determine its applicability.
2. Do you agree with the decision of the court? Why or why not?
I agree with the court decision. The principle of acceptance of products under the relevant law
appears to be the foundation for the court's ruling. The court ruled that Apex had accepted the
goods by continuing to order and sell them despite knowing they were substandard, absolving
Apex of all responsibility claims against China National. Apex's actions were viewed as
contradictory with the goods being rejected because it kept placing orders and selling goods. On
the basis of the information presented, the court's ruling might be seen as reasonable. Despite
being aware of the flaws, Apex continued to make orders and sell goods, which might be viewed
as acceptance of the non-conforming goods.