Take home exam - IBT

Deadline: June 10th (the sooner you answer the sooner we will send you the results)

Email to: [email protected] and [email protected]

Facts

A Czech buyer contacts an American seller for the purchase of replacement parts for heavy
industrial production equipment in the buyer‘s factory. As part of the negotiations, the seller
sent a team of engineers and business officials to the Czech Republic for several weeks to get
an understanding of the intended uses of the parts by the buyer. They visited the buyer‘s
headquarters, examined the buyer‘s factory, and reviewed the buyer‘s business operations.
After several more weeks of negotiations, the buyer sends the seller a purchase order for the
arts for a total price of $1 million with delivery in the Czech Republic by October 10 and
payment against documents by confirmed irrevocable letter of credit. The
purchase order is a single one-page printed form. On the page in large bold letters is a printed
clause stating, Seller will be responsible for damages caused by any defects in the
replacement parts, including consequential damages.“
The seller replies with a standard order acknowledgment form confirming the quantity of
engines, price, delivery, and payment terms. The seller‘s form is also a short one page form
On the front of the seller´s order acknowledgment form is a handwritten clause in large bold
letters stating, Seller will repair or replace any defective parts, but Seiler is in no event liable
for any other damages including consequential damages.“
The seller ships the parts, which arrive in the Czech Republic by October 10. The buyer pays
the price against documents while the parts are en route to the Czech Republic. By November
1, the parts have been installed in the buyer‘s
but a malfunction in the parts causes serious damage to the buyer‘s production facilities
requiring total replacement of all of the production equipment The buyer also misses several
big production orders, is facing several irate customers who are threatening to sue, and now
faces bankruptcy The buyer brings an action against the seller in the Czech Republic for
recovery of the purchase price of $1 million plus $10 million in damages. Assume that, under
Czech law, consequential damages are an available remedy. The seller argues that the buyer is
limited to replacement costs. What is the result under the CISG?

Suppose that the seller´s counsel, an experienced U.S. commercial lawyer was able to
convince the Czech buyer to opt out of the CISG and have the dispute governed by U.S. law.
How would the issues be resolved using the UCC (hint 2-207)? Is the seller better off under
the CISG or the UCC?

Note: this case is not about consequential damages but for those who want to go deeper, see
UCC article 2-715 here:

http://www.law.cornell.edu/ucc/2/article2.htm#s2-715
Sample take home exam question (you know this one from the last lesson) with answers
(use it as a pattern for the way you argue for the solution in your case, it does not have
to be long, think of the possible solutions and argue, link the facts with the law, use
IRAC structure etc.)

Sample Question

Industra-Sharp Corporation, an Illinois corporation doing business in Illinois, sells power

tools, such as power drills and power saws. The president of Industra-Sharp recently met the
president of Reyes Tools, a company based in Nuevo Leon, Mexico. The two had met in
Chicago at a trade fair, where they began negotiations for the sale of power tools. After
returning to Mexico, the president of Reyes Tools continued discussions by phone and by
email.

During one phone call, the president of Reyes Tools asked, “Can you send me 450 power
drills and 500 power saws CIF Monterrey, Mexico for $19,600?” The president of Industra-
Sharp answered, “I can do it for $22,000.” The Reyes president said, “You sure drive a hard
bargain. If you throw in extra parts for the drills we will have a deal.”

The president of Industra-Sharp then sent this message by email: “As you requested, we have
included extra spare drill parts and will ship via truck tomorrow morning.” The president of
Reyes Tools then telephoned and left the following message on the answering machine: “I got
your email and that sounds great.”

Industra-Sharp sent the tools to Monterrey, but Reyes Tools refused to accept delivery, stating
that it never entered into a written contract to buy the tools. Industra-Sharp, recognizing that
there was in fact no written document that contained an arbitration clause, found itself forced
into litigation and filed suit for breach of contract. Reyes Tools filed an appearance in the
case and moved to dismiss the suit on the basis of the Illinois statute of frauds, which Reyes
Tools says requires a writing for any sale of goods valued at more than $500. They say that
the contract is governed by this Illinois statute because the contract negotiations began in
Chicago at a trade fair. The full text of the statute they are citing provides as follows:

Formal Requirements; Statute of Frauds.

(1) Except as otherwise provided in this Section a contract for the sale of goods for
the price of $500 or more is not enforceable by way of action or defense 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
or by his authorized agent or broker. A writing is not insufficient because it omits
or incorrectly states a term agreed upon but the contract is not enforceable under
this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of the

contract and sufficient against the sender is received and the party receiving it has
reason to know its contents, it satisfies the requirements of subsection (1) against
such party unless written notice of objection to its contents is given within 10
days after it is received.
 (3) A contract which does not satisfy the requirements of subsection (1) but which is
valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not
suitable for sale to others in the ordinary course of the seller's business and the
seller, before notice of repudiation is received and under circumstances which
reasonably indicate that the goods are for the buyer, has made either a
substantial beginning of their manufacture or commitments for their
procurement; or

(b) if the party against whom enforcement is sought admits in his pleading,
testimony or otherwise in court that a contract for sale was made, but the
contract is not enforceable under this provision beyond the quantity of goods
admitted; or

(c) with respect to goods for which payment has been made and accepted or
which have been received and accepted (Section 2-606).

How will the court rule on the motion to dismiss filed by Reyes Tools?

Question 2 answer:

The issue is whether a contract for sale of goods exists and is enforceable where two parties,
merchants, from different states negotiate (starting in Illinois) a sale of goods valued at more
than 500$ by means of electronic and telephone communication.

1. Law applicable to the transaction (RULE)

The parties negotiated a sale of power tools valued at 22,000$. Parties did not choose any
law to govern their contract. Reyes Tools claim the parties started the negotiation in
Chicago at a trade fair and therefore the contract is governed by the Illinois state law.
Under Illinois statue of frauds a writing for any sale of goods valued at more then 500$ is
needed to be enforceable. Power tools are considered goods under UCC. Reyner Tools`
place of business is in Mexico and Industra-Sharp Corporation place of business is in
Illinois, the U.S. Their contract on the sale of goods is therefore a contract for the
international sale of goods.
The key criterion for determination of law applicable to such contract is the place of
business of the respective parties. Mexico and the U.S. are both parties to the United
Nations Convention on Contracts for the International Sale of Goods (1980, hereinafter
CISG). Under the article 1 (1)(a), the CISG applies to contracts of sale of goods between
parties whose places of business are in different states when the states are contracting
states. Article 6 of CISG states that the parties may exclude the application of the
convention or derogate from or vary the effect of any of its provisions. CISG as a self-
executing treaty ratified by both states applies directly within its contracting states
without the need for domestic implementing legislation. Any contracts for international
sale of goods concluded between parties from contracting states thus fall under CISG`s
scope unless the parties expressly exclude its application. The convention does not apply
to sales of goods bought for personal, family or household use (article 2 (a)). The present
contract does not fall under this exception, neither the parties expressly excluded the
application of CISG. Consequently, the CISG and not the Illinois law will govern the
disputed contract as well as its formation.

2. Contract formation under CISG (RULE + ANALYSIS)

A) Writing requirement
Under article 11 a contract of sale need not be concluded in or evidenced by writing and is
not subject to any other requirement as to form. It may be proved by any means, including
witnesses. The contracting states may however limit application of this provision pursuant
article 12 by declaration under article 96. Neither Mexico nor the U.S. limited the
application by such declaration.
B) Offer and acceptance
An offer must be sufficiently definite and indicate the intention to be bound. When it
indicates the goods and expressly or implicitly fixes the quantity and the price it is
sufficiently definite (article 14). This requirement was fulfilled by the parties as they
agreed on both quantity and price and indicated the goods. An oral offer must be accepted
immediately unless the circumstances indicate otherwise. The telephone conversation
between seller and buyer finished by “throw in extra part for drills and we have a deal”.
The sellers response by email can be considered as immediate. Even if in doubt, the
circumstances indicate that the seller actually was given a little time to think it over and
by responding quickly via email he effectively accepted. Moreover, the message from the
buyer confirming the email also shows his intent to be bound by the contract. Similarly,
under article 8, statements or conduct made by a party are to be interpreted according to
his intent where the other party knew or could not have been unaware what the intent was.
From the previous negotiation it must have been obvious to the buyer that the seller
considered the contract made after he accepted the buyers` condition as to extra drill parts.
 The buyer`s voice message clearly represented a final confirmation of what was
previously negotiated.
A contract is concluded when acceptance of an offer becomes effective, that is when it
reaches the offeror. An offer, declaration of acceptance or any other indication of
intention reaches the addressee when it is made orally to him or delivered by any other
means to him personally, to his place of business or mailing address (articles 18, 23, 24).
All communications in this case reached its addressee in accordance with above
mentioned provisions and thus became effective.

There is a valid contract and, absent a derogation under article 96 by Mexico or the U.S., the
contract is enforceable even if not concluded in writing. The motion to dismiss should be
denied.(Conclusion)