Commercial Sales.docx

COMMERCIAL SALES This is a course about risk allocation Commercial enter into deals because they trust their partners The law in this area does two things Creates a background allocation of risks so it tells us who bears the risk Law becomes important when trust breaks down Parties enter into commercial contracts in order to predict things when normal mechanisms turn out to be insufficient Hypothetical A seller is going to sell carloads of coffee beans every month for years and the buyer says that he would pay x amount of dollars subject to a consumer price index so if the index goes up the price paid goes up for the coffee beans Let s say the beans are different type than what expected but the same value does the buyer has to pay for those coffee beans Same value but different type what should we do The lawyer s job is to anticipate the problems The role model for this course is the planner and the adviser that can avoid the problems and takes care of the problem before they arise Uniform Commercial Code It has to be interpreted in a holistic way Article is state law it s not federal law This survived intact from the s to the s but later there were technological things that needed to be added Finally a few years ago there was a revision and states have adopted the provision United Nations Convention the United Nations Convention was drafted by representatives of a lot of countries drafted it and as of today states have adopted it However England Japan and Brazil have not adopted These statutes are intended to govern a wide range of transactions Interpretation A lot of this course is about interpretation The CISG doesn t become the law of the nation unless it s adopted it Non-uniformity This is enforced by national courts there s no international tribunal for this disputes As a result some level of non-uniformity is inevitable There are authoritative versions of CISG in different languages Therefore there s some non-uniformity because the courts are going to interpret it in different ways Also non-uniformity will arise from political issues because courts from other countries will be reluctant to follow interpretation from other courts Article of UCC The contract not the property title dominates article The rights and duties of the parties under the Code are determined by their contract so as to capture the intention of the parties the Factual Bargaining of the buyer and seller Applies to transactions in goods Goods are defined in - Goods all things including manufactured goods which are moveable at the time of identification to the contract for sale It also includes other identified things attached to realty So a house is not a good because it s not moveable An interest in goods can only be passed if the goods are both existing and identified If they are not then they are future goods Natural goods Goods attached to realty such as minerals oil gas etc These are goods if they are to be severed by the seller but as realty if they are to severed by the purchaser Growing crops are goods Fixtures this are other goods that may become attached to the realty such as air conditioning water heater etc However article avoids the use of the term fixtures Sales Most of the substantive provisions of article apply to sales or contract for sales or to buyers or sellers Sale passing of title from the seller to the buyer for a price Scope of Article First assignment problem You have entered into a binding contract with a cabinet maker to construct custom-made cabinets that are designed to hold stereo equipment in your home The day after you enter into the contract the cabinetmaker repudiates prior to completing manufacture of the cabinets In order to answer those questions please be thoroughly familiar with sections - - - - and - of the UCC and with Articles - and of the CISG Are the rights of the parties under the contract governed by Article of the Uniform Commercial Code UCC are their rights governed under article This are future goods under - so they are goods and this is a transaction goods under - if the cabinets are moveable at the time of identification of the contract for sale not now Now let s see if there s a sale under - there s a sale if there s passing of title if the title doesn t pass then there isn t a sale Under - the title passes when the goods are delivered but the title hasn t passed but - says a contract could be for the present or future sale of goods But the goods have to be moveable at the time of identification under - b the identification takes place when the goods are shipped marked or designated by the seller as goods for the contract for sale So for purposes for article this are goods they will become goods at the time of the cabinets are made But in this case the cabinets weren t build so does article apply or not It seems this was but article deals with issues of repudiation - talks about repudiation and deals with performance not yet due so the cabinets are taken as goods for purposes of article - doesn t really govern all transactions in goods because goods are defined as in sales then leases and other things are not governed by article Hybrid contracts Hypothetical Seller will sell books to buyer at and the buyer is going resale the same goods back to the seller for Is this governed by article It look like a secured loan There might be non-sale non-commercial reasons to do this so if it really is a secured loan then it s governed by article but not by article even though the parties made it look like it Let s say a lessor and a lessee entered into a transaction for a computer lease for years and if the lessee is up to date with payments at the end of the years the lessee can purchase the computer for dollar so the good has no value at the end of the years But if the buyers intended an installment sale why is it a lease It could be for tax reasons But the fact that we treat the transaction as a lease for tax purposes it doesn t mean it s a lease for purposes of article if the parties enter into a transaction that has all the characteristics of a sale and then we treat it as a sale Possible solutions Bonebrake Test Princess cruise article We could ask what the predominant purpose of the transaction is We could also separate the transactions So we have different tests to deal with the transactions so why favor one test over the other The majority of courts use the predominant purpose test Loughridge v Goodyear Tire Rubber Issue is it a good or a fixture Facts Heatway sells parts for hydronic radiant heating systems Goodyear manufactured and sold a hose used in Heatway s radiant system Plaintiffs bring claims for breach of express warranty breach of implied warranty of merchantability and breach of implied warranty of fitness for a particular purpose against Goodyear Goodyear s argument the claims should be dismissed because the transaction didn t involve a sale of goods but rather a fixture or realty Rule The hose was moveable at the time of the identification of the contract for sale making it a good Separate units of goods which are later incorporated into a home or building are still goods at the time that they are procured for installation The fact that materials sold might later be installed and would assume the character of fixtures doesn t undermine the primary purpose of the contract as one for a sale of goods Princess Cruises v General Electric Company Issue - Is it services or goods Facts GE the original manufacturer of the ship s turbines provided a Princess s ship with routine inspection services and parts incidental to the ship s inspection and repair Princess canceled two cruises due to the delayed in the repairs Princess allegued breach of contract breach of express warranty breach of implied maritime warranty and negligence Rule This transaction concerned the rendering of services The UCC also applies to certain mixed contracts for goods and services but it depends on the purpose of the transaction whether the contract primarily concerns the furnishings of goods or the rendering services Bonebrake Test Granted that goods and service are mix it should be looked at its predominant factor their thrust their purpose reasonably stated is the rendition of service with goods incidentally involved artist doing a painting or is a transaction of sale with labor incidentally involved installation of water heater Other issues to note First a court must decided whether the predominant purpose of the transaction is the sale of goods Once this has been performed the court may decide whether to apply common law the UCC or other statutory law Factors to determine the nature of contract Coakley factors The language of the contract the language of the contract indicated that although GE planned to supply certain parts the parts were incidental to the contract s predominant purpose The nature of the business of the supplier GE s correspondence and quotation came from GE s installation and Service Engineering Department The intrinsic worth of the materials the value of the items weren t itemized separately Whether courts should draw on UCC principles or on common law doctrines when assessing the formation of a maritime services contract is undecided Restatement of contracts section - a reply to an offer which purports to accept it but is conditional on the offeror s assent to terms additional to or different from those offered is not an acceptance but is a counter offer Section an acceptance which reqests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the chaged or added terms Scope of CISG If the parties are in different countries are their rights governed by the United Nations Convention on Contracts for the Sale of International Goods The CISG doesn t defined sale or goods Article doesn t apply to sales of goods for personal use auctions execution sales of securities ships vessels hovercraft or aircrafts and sales of electricity Article So article and gives us some ideas of the scope of the CISG but it doesn t really say where the CISG applies Convention applies Problem pg German shavers Does the contract involve an international sale to which the CISG applies It applies Article a - it is an international contract since the place of business are in different states States Nations Contracting States Nations that have adopted the CISG Things to note The nationality is irrelevant If the business are in the same nation but the fact that one of the business is operated by a company from another country it doesn t matter Is irrelevant where the negotiations occur and where the contract was signed The only thing that matter is the Place of Business and where the parties are located Hypothetical the goods never crossed an international bounderie but the one partie s place of business was abroad then CISG applies Unawareness of buyer that seller is from different country Neither knew the manufacturer was foreign The answer would have changed and the convention wouldn t have applied According to article the CISG doesn t apply if the parties didn t know the other one was foreign Business with multiple offices German manufacturer negotiated through an office in the country of the buyer The CISG applies since the manufacturing takes place in Germany Article a The business with the closest connection to the contract and performance would be the one that is taken into account b Providing specifications A software constitutes a good Article - Then CISG applies the convention would apply since it s not supplying materials necessary for such goods What happens if the buyer provides material The convention would apply depending on the interpretation of the word substantial Article - the convention wouldn t apply if the buyer supplied a substantial part of the materials necessary Substantial interpretation - Quantity - Functionality ii Sale and maintain computers for years The convention would apply since the main purpose of the contract is the sale of computers and the service is incidental Article The CISG doesn t apply to where the contracts have a preponderant part consist of service contracts Preponderant in makes you think that substantial in is not a quantitative interpretation Because preponderant makes you think of majority c i Suit is filed in NY does the CISG apply the convention applies NY court applies but NY includes federal law the CISG is federal law so CISG apply Or the court could say German law apply and since Germany has ratified the CISG the CISG applies ii Suit is filed in Germany the convention applies Same answer as above iii Suit filed in England - the convention is applied Even if England has not adopted the CISG doesn t mean the CISG won t apply because they ll look at conflict of laws and if the law of NY or the law of Germany apply then CISG will apply Buyer s country is Brazil Brazil hadn t ratified the CISG at the time of the contract The application of conflict of laws leads to the application of German law So a doesn t apply because Brazil wasn t a contracting States But b might apply which refers to the conflict of law rule so if German law applies then the CISG applies even though Brazil is not a contracting State Article This is an argued rule because why would the residents of a country that didn t adopt the convention should be governed by the CISG So article allows to opt out of b January e buyer s country is US The convention doesn t apply Even though we have an international transaction even if one country adopted CISG and even the law governing is CISG that country wouldn t apply the CISG because there s a reservation of article and this case the US would apply the UCC This reveals a certain political element so the CISG is written by diplomats and law professor and their objective is different from commercial parties So how effective is the CISG for purposes of commercial law This is a good thing to think about Questions of page no according to article doesn t apply to liability of the seller for injury caused by the goods to any person the convention doesn t apply under section a because this is a question of validity Article Party Autonomy The CISG is open to the party autonomy The parties can opt out of the CISG so how do we know if they opt out The Asante case tells us something about this Asante Technologies Inc v PMC In the absence of clear language indicating that both contracting parties intended to opt out of the Convention and in views of Defendant s terms and conditions which would apply the convention the court rejects plaintiff s contention that he choice of law provisions preclude the applicability of the convention What do the parties mean The court says that they can t tell So if the assumption is California law and that means CISG what does it mean The court says that the language has to be clear that they are opting out of the CISG such as law of California not including CISG Parties can opt out of CISG or from a part of it but they have to be clear In the absence of clear language indicating that both parties intended to opt out of the Convention the convention applies Party autonomy in commercial law UCC and CISG both embrace the party autonomy what does this tell you We need a way of filling gaps So commercial law is a gap-filler in a particular way Then the parties don t have to agree anyway they don t have to negotiate because they know that the law will cover what they didn t negotiate they can reach a deal with a handshake and if it doesn t work there are laws that cover it There are background rules of law that govern the negotiation if the parties didn t negotiate it but the parties can opt out if they want to Therefore the law minimizes the cost of transactions so there are more transactions taken place This reduces transactions cost The background rules are what a majority wants but is it really like this If there are political motivations then it might not be true Assign The contract law of the UCC Electronic contracts Contract for UCC total legal obligation that results from the parties agreement as determined by the UCC as supplemented by any other applicable law Agreement the bargain of the parties in fact as found in their language or inferred form other circumstances including course of performance course of dealing or usage of trade The focus is on the agreement and the purpose is to discover the actual agreement A contract is formed as long as it is sufficient to show agreement - even though it can t be determined when exactly when the contract was made - and even though numerous terms are missing from the agreement Acceptance article allows offers to be accepted in any reasonable manner and by any reasonable medium An offeror can dictated the manner of the acceptance only by unambiguously demanding it or where reasonable parties would contemplate it - a The mirror image rule is modified to allow the bargaining to dominate the fine printing - Good faith modifications are enforced without consideration - The battle of the forms - It permits an expression of acceptance to operate as an acceptance even if it contains additional or different terms - Coastal Native Plant v Engineered Textile Facts Coastal purchased PVC liners from Engineered Textile which had purchased the material to make the liners from Occidental Chemical Coastal allegedly suffered damages because the liners shrank and leaked chemicals and it sued Textile Textile ordered the material by sending purchase orders to Occidental which responded with invoices expressly conditioning its acceptance of the order on the buyer s assent to the terms on Occidental s invoice Issue battle of the forms the court must determine the manner in which the parties formed the contracts Is it a contract or not What kind is it Ruling Occidental invoices made its acceptance subject to and expressly condition upon Engineered assent to the terms and conditions printed on the reverse side of the invoices Thus under UCC each invoice did not operate as an acceptance however this doesn t mean that the parties failed to form a contract Section - governs because the parties acknowledged the existence of a contract every time they conducted business with each other - conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writing of the parties do not otherwise establish a contract The terms of the particular contract consist of those terms on which the writings of the parties agree together with any supplementary terms incorporated under any other provisions of this Act Other issues to note Can a party utilize section - to provide additional terms to a contract formed pursuant to section - NO - - the additional terms are to be construed as proposals for addition to the contact Between merchants such terms become part of the contract unless a The offer expressly limits acceptance to the terms of the offer b They materially alter it c Notification of objection to them has already been given or is given within a reasonable time after notice of them is received Terms of a contract created by conduct under section - are The terms on which the writing of the parties agree Supplementary terms Limited to the standard gap-filler provisions of the UCC This do not include the terms on which the writings of the parties do not agree Section cannot be used So if additional terms are given and not agreed upon the seller must accept the potential risk when he elects to perform without first obtaining buyer s assent Since the seller injected ambiguity into the transaction by including the expressly conditional clause he most bear the consequences Subsection only becomes operative when a contract is formed under subsection When a contract formed under subsection the contract terms consist of the standard gap-filler provisions of the UCC The acceptance in common law must match exactly the offer in a mirror image so if the acceptance has new terms this would be a counter offer which would except an acceptance this goes back and forth until somebody finally performs This led to some level of dissatisfaction because this formal procedure is inconsistent with reality So what did the UCC did See problem in pg Problem pg The seller contains a provision that wasn t in the initial negotiation it provides a clause that warranty is in defects for days and that s it and there are no consequential damages Take that the UCC has a default rule of warranty so this clause is disclaiming that warranty suppose that the default rule has no consequential damages Performance by the seller acceptance by the buyer and the cash registers don t function after the days the buyer says give me my money back and pay for the consecuential damages How would this work The buyer order would be an offer but it wouldn t be a contract because the seller gave new terms therefero it would have been a counter offer but the buyer accepted the goods so that makes a formation of a contract and the terms of the contract are the last terms given before the acceptance of the goods This is for the UCC This is common law How do we analyze this in UCC - if you show any manner sufficient to show agreement you have a contract - reacts to commercial reality rather to formalities in legal principles It says that you can have a contract if you act as having a contract Under - in problem we have a contract under - you can have an acceptance even though the acceptance deviates from the original terms So if there s a contract what are the terms How do we figure it out under - So - tells us that you have a contract even though you have additional or different terms and - tells us how to deal with the additional terms which are to be construed as proposals But are these additional or different terms Since there s a default warranty in the UCC this might be a different term and - applies to additional terms so what happens IT MATTERS WHETHER IT S ADDITIONAL OR DIFFERENT TERMS What would happen to the terms if we conclude that - only apply to additional terms what happens if the terms are actually different One argument is that they disappear and the terms of the contracts are the offeror terms Another argument is that the different terms from both parties cancel each other So comment would come in and then the terms of the contract are the default rule of the UCC which is the default warranty because the terms knock each other out How do we know if there s a material alter under - b In comment it says that a warranty disclaimers would be a material alter but only if a warranty normally attaches so if a term that disclaims the warranty then it s a material alteration and in that case it doesn t become part of the contract under - You have to know the normal trade of those kinds of goods Reilly Foam Corp v Rubbermaid - - A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon - the additional terms are to be construed as proposals for addition to the contract Issue If the offer is accepted on different terms should the terms of the offer control or should the acceptance be followed or should the conflicting terms cancel each other out to be replaced by gap fillers provided by the UCC Rule The approach held by a majority of courts is known as the Knockout rule That is that the conflicting terms do not become a part of the contract Comment there would a cancellation of terms in both parties documents that conflict with one another whether the terms are in confirmation notices or in the offer and acceptance themselves One should not be able to dictate the terms of the contract merely because one sent the offer Merchants are frequently willing to proceed with a transaction even though all terms have not been assented to Problem There is a contract because we have an offer and a price and quantity Offer in Article What does article require in order to be an offer It has to be definite intention to be bound in case of acceptance indicates the goods and determines price and quantity Acceptance in article What about acceptance A statement or conduct will do it under article The acceptance becomes effective at the moment the indication of assent reaches the offeror under article If the letter got lost then there s no acceptance by article sending the documents doesn t do it Notice that the swiss case is a principal of contract formation to offer and acceptance It seems that the CISG gives more certainty What is the connection between this bodies of law Article Revocation of the offer - The offer can be revoked before the offeree has dispatched an acceptance Irrevocable when An offer cannot be revocable if there s a fixed time for acceptance or that it is irrevocable If it is reasonable for the offeree to think the offer is irrevocable and the offeree has acted - An offer is generally revocable in common law countries until the acceptance Hypothetical the offer has the following legend this offer may be accepted any time within the next days is this revocable In most common law countries this statement would not prevent the revocability In Civil countries this legend would not allow revocation within this time This clause would be interpreted differently in different countries this clause would be January e Article if there are different terms it s treated as a counteroffer However - seems to be written to seize on commercial reality and article assumes that the commercial actors read the terms So under article if we don t have an acceptance to those new terms we don t have a contract Article a statement made or other conduct of the offeree indicating assent to an offer is an acceptance Therefore acceptance of the goods means acceptance of the counteroffer Therefore the arbitration clause is valid and enforceable So it seems that article is a continuation of the practice of - Is there any argument that can be made that even before the acceptance of the good a contract came into existence Under article if the acceptance contains additional or different terms which don t materially alter the terms of the offer constitutes an acceptance So is the arbitration clause material Under there s a list and since it mentions settlement of disputes then the arbitration clause is material Immaterial category it seems to be a narrow category after the list of article Although it seemed that article is a continuation of - after the list of article it s clear that it s very different CISG notes - applied to writings that purpoted to be acceptance in confirmation that is we might have a contract under the UCC through a phone call and the party sends a confirmation that would be a contract CISG talks about offer and acceptance and the new terms different or additional if those new terms were provided not in the reply but in the confirmation of a contract that is already concluded article wouldn t apply unlike - which would apply Political background of CISG some countries wanted the operation of UCC but others didn t CONTRACT FORMATION UCITA and the battle of the forms Non-matching terms in an acceptance which are not material do not preclude formation of a contract under the UCITA provision Such additional terms are treated as proposals but between merchants the proposed nonmaterial additional terms become part of the contract unless the offeror gives notice of objection before or within a reasonable time after receiving the proposed terms The operative effect of post-purchase terms Rolling or layered contracts ProCD v Zeidenberg rolling formation process or layering contracting theory inside the box terms are enforceable Post-Purchase terms were enforced enforcing the terms inside the box when an inconspicuous notice appears outside the box Facts Software bought and was used to create a new commercial venture violating a single user restriction in the license Issue when was the contract formed Holding - The terms of ProCD s license were enforceable even though Zeidenber saw then for the first time only after he had purchased the software Rule Notice of the outside terms on the inside and a right to return the software for a refund if the terms are unacceptable may be means of doing business valuable to buyer and sellers alike It is a rolling formation process The contract is formed until the buyer has an opportunity to learn of the terms inside the box and decide whether to accept them The use of the product or the silence of the buyer constitutes an acceptance of the offer made by the seller and the final layer of the formation process has been laid down Hill v Gateway the contract is formed until the buyer has an opportunity to learn the terms inside the box and decide whether to accept them Facts The Hills ordered a computer that came in a box and the terms of the contract are in the box They are unhappy with the computer They don t return it on time They want to sue but Gateway says that they can t because the terms in the box said that for a dispute they had to arbitrate it there was an arbitration clause However over the phone they never said anything Hills argument is that the contract was formed before they opened the box Gateway says that there were other terms of the contract that came in the box Issue when was the contract formed Rule The contract is formed until the buyer has an opportunity to learn of the terms inside the box and decided whether to accept them In this case the buyer didn t object to terms inside the box for the stated period of time therefore the use of the product or the silence of the buyer constitutes an acceptance of the offer made by the seller Even if there wasn t a notice on the box since in this case the box was not in a retail store but was shipped Is this a - issue We have an offer phone an acceptance performance confirmation additional terms The additional terms under - are proposals but since the Hills are not merchants they would have had to accept them to become part of the contract However Easterbrook says there s something wrong with this assumption the contract was not formed when there was performance because this is a rolling contract So - doesn t apply because there aren t additional terms Formation of the contract The offer was performance and the acceptance was keeping the goods some of the terms were through the phone call but not all of them the others were in the box When keeping the goods the Hills accepted the terms Easterbrook is saying that it doesn t matter whether the terms are presented over the phone or in the box Why would the Hills be allowed to avoid the terms They shouldn t just because no one reads the terms Arbitration clause this is a way to get rid of class actions What is the evidence of whether arbitration clauses are priced into the contract There s nothing there aren t studies that show how much the arbitration clause is However the value of the warranty clause is incorporated into the contract so consumers pay more for a contract with a warranty than without one The question is whether we are going to allow the market practices to survive or to use the law to restrict the market practices Easterbrook knew this and decided to let the market work The risk is that the sellers would get advantage of consumers like having days to return an item but in practice there aren t UCITA layered contracts and mass market licenses The UCITA drafters adopted the ProCD analysis The layered contracting theory UCITA Adopting the terms of Records a party may adopt the terms of a record by agreeing to such terms through a manifestation of assent which requires an opportunity to review It rejects the idea that a contract and all terms must be formed at a single point in time Mass-Market License It allows a party to assent to terms after the initial agreement but it must occur no later than during the initial use of the information The terms of the agreement must be such that a reasonable person ought to have noticed them e and Return if the party doesn t agree with the license terms that it receives after acquiring computer information his allowed for a return of the purchase price as well as any other reasonable expenses or foreseeable costs associated with attempts to use the info This is a contract of adhesion The reasonable expectations doctrine Section of Restatement of Contracts suggests that were the provider of a standardized form has reason to believe that the other party would not assent to certain boilerplate terms they are not binding Doctrine of reasonable expectations the test would bind a party to boilerplate terms that are reasonable expected but not to those that are not reasonable expected Electronic Contracts Electronic signature no specific technology is required to create a valid signature A voice on an answering machine may suffice if the requisite intention is present Inserting one s name into an electronic mail communication may also suffice as may including a firm s name on a facsimile Both statutes emphasize that no one is required to use or accept electronic record or signatures and UETA insists that parties must agree to conduct their transactions by electronic means E-Sign does not mention attribution but UETA provides that where a signature appear on an electronic record the named party is not bound unless she produced the signature ratified it or is responsible for the agent who produced the signature Both statutes recognize contracts between electronic agents or between an individual and an electronic agent Where an individual and an electronic agent interact the contract will be formed when the individual perform actions that she is free to refuse to perform and which she knows will cause the electronic agent to complete the transaction or performance The clicking action will create an enforceable agreement Assign Statute of Frauds Confirmations Problem Why have statute of frauds Is to provide evidence of the party s agreement but not to provide evidence between the parties the true benefit is that it provides to third parties to the court not to help the parties out the reason is that we would be imposing costs on the courts because they would have more difficult time without the evidentiary in writing So this is for the courts not the parties a The Pizza Inc is a restaurant owned by Haber who had lunch with Bill Armstrong the sales manger of Dairyland Cheese The parties discussed PFI purchase of pounds of cheese per months for the next months at per pound At the conclusion of the discussion Armstrong thought that a deal had been made Haber didn t think so days later PFI received a confirmation form from DC describing a contract to supply the a forth mentioned Haber ignored it Two weeks later Haber signed a contract with another supplier DC contends it has an enforceable contract with PFI Quick Answer There is a contract under - Answer by professor Firs of all what requirements have to be satisfied Under - of UCC the requirements are that If amount of more than is involved then it has to be written It has to be signed by the party against whom enforcement is sought Are these requirements satisfied here No Is there an alternative means to enforce the contract Yes under - Requirement of - A contract is enforceable against a non-signing party as long as it is between merchants and there isn t a written notice of objection from the non-signing party within days after receiving the confirmation This satisfies subsection - satisfies subsection - is effective against the sender and the non-signing party What s the reason of - It prevents the other party to renegotiate the deal just because it wasn t written and it was an oral agreement So if the confirmation is sufficient and the buyer tries to walk away if the sender is committed then he has the capacity to force the buyer as well in the absence of a respond It seems that we have an assumed relation between merchants Underlying assumption of - were not going to have a lot of discrupolous or dishonest merchants sending confirmations therefore this will return more benefits to the courts to interpret the terms of the contracts and this will outweigh the cots of the occasional dishonest confirmation In this case Haber is going to end up with contracts January What constitutes a confirmation under - - a writing in confirmation of the contract and sufficient against the sender so we have to go to - to see this Signature - comment 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 It has to be signed by the party sending the confirmation Intent You have an order saying lbs of cheese at a piece in a letterhead So is this sign It just needs the intent to authenticate the agreement between the parties Even though there s no signature in the common way it s valid since signature in UCC it s a broader definition So the absence of an actual signature is not a problem Reasonable Time of - if within a reasonable time a writing in confirmation of the contract In this case the confirmation was sent two days later this is reasonable To determine the reasonable time we have to look at the facts and especially check the volatility b DC immediately sent a notice of objection stating that no contract had been formed But it wasn t received What happens - there is no enforceable contract since the steps were reasonably to inform the other in ordinary course whether or not such other actually comes to know of it Not discussed in class c on the facts of b would it matter if Hber s notice were addressed to DC s corporate offices rather than to the particular agent with whom Haber dealt It wouldn t matter Under - b it could be delivered to the place of business through which the contract was made or any other place held out by him as the place for receipt of such communications Not discussed in class d Pastor McNulty bargained with various food distributors Food Inc concluded that it had an exclusive contract and sent to the Pastor sent a memo confirming the assumption Pastor ignored the confirmation weeks later FI claimed it had a contract Class - doesn t apply because the pastor is not a merchant so - applies There isn t a contract under - because it s not signed by the pastor There isn t a contract under - because it s not signed by the pastor However Food Inc can depose the Pastor under - b in court by pleading stipulation or oral statement agreeing that there is a contract e Pastor left meeting concluding he had a contract with FI He sent a confirmation to FI which didn t object - it s not a contract because the transaction is not between merchants Let s say Haber gets a confirmation but he wants out is he bound What could you do But keep in mind that the rules of professionally responsibility are Forbids a lawyer of using a frivolous defense Forbids a lawyer of a false statement f Haber is a merchant and Pastor is not If no confirmations had been sent then there wasn t an enforceable contract against Haber Pastor case would have been the same - b contract is enforceable if defendant admits that a contract was made but since the defendant in this case didn t admit a contract then there isn t one not discussed in class Hypothetical Let s assume the contract is between a US buyer and a French seller cheese and the action is brought by the French seller The US buyer says there s no writing What happens if there s no written contract between different countries that have adopted the CISG Article Under article of CISG there are no formal requirements in order to have an enforceable contract It may be proved by any means if you can prove an oral offer and an oral acceptance Article Article However if a state uses article to make a reservation under article then article doesn t apply So the statute of frauds would apply for the country that made the reservation where the party has the place of business in the country of the reservation If the lawsuit is brought in Russia it made a reservation under then the Russian courts would say that their own statute of frauds would apply since article doesn t apply But what if the law suit is brought in the USA what happens Since USA has adopted the CISG then it accepts article and and accepts that other countries might adopt reservations under article and therefore is bound by the reservation adopted by Russia and written contract would be needed Some people say that if the lawsuit is brought in USA and it adopts article even though the other country made a reservation under article article continues to apply THERE S NO EASY ANSWER A good advice for a client is to tell them that if you make a contract with a nation that has a reservation then it should comply with the statute of frauds of that country But the problem is if the client comes to you after he made the contract Amended section - Record Reliance Admissions and the one-year provision Proposed amended The amount was raised from to An electronic record would suffice as writing and an electronic signature would suffice as signed Dispute whether promissory estoppel can be used to avoid the UCC article statute of frauds Courts admitting promissory estoppel point to - which permits the applicability of general principles of law Courts against it say that a writing is required except as otherwise required in the section Proposed amended - eliminates the phrase except as otherwise provided in this section this allows for judicially crafted exceptions such as the estoppel It would also include under - b admissions in court and under oath but not in court This allows for admissions made through testimony in a deposition or by an affidavit Proposed amended - new subsection that insulates contracts from provisions of a general statute of frauds imposing writing requirements on contracts not performable within one year Parol Evidence Trade Usage Course of Dealing Course of Performance Parol Evidence The common-law principle that a writing intended by the parties to be a final embodiment of their agreement cannot be modified by evidence of earlier or contemporaneous agreements that might add to vary or contradict the writing Black s dictionary C-Thru Container Corporation V Midland Manufacturing Company Iowa UCC says that trade usage is admissibly as parol evidence to supplement a fully integrated agreement governed by the UCC To opt-out of trade usage it has to be done clearly Facts C-thru container entered into a contract with Midland Midland agreed to purchase bottle-making equipment from C-Thru and to make bottles for C-thru Midland was to pay by giving C-Thru a credit against the bottle purchases If Midland failed to manufacture the bottles it would have to pay the price plus interests C-thru never ordered bottles and purchased them form another supplier at a lower price C-thru argues that they never got samples from Midland and that s why they never ordered bottles Midland indicated that it was unable to produce commercially acceptable bottles for C-thru C-thru seeks payment Midland failed to pay C-thru filed a petition Issue under what circumstances can usage of trade be admissible as parol evidence That is an interpretative aid in face of writings Holding the usage-of trade does not contradict an explicit contractual term therefore it s admissible Article - governs this case Ruling Iowa UCC says that parol evidence may be used to supplement a fully integrated agreement governed by the UCC if the evidence falls within the definition of usage of trade Supplement to add The trade usage evidence is admissible even though it adds a new term to the contract Usage of Trade Any practice or method of dealing having such regularity of observance in a place vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question The existence and scope of such a usage are to be proves as facts Article - UCC The court says that trade usage is admissible but they could have opt-out of trade usage by clearly stating it There was an integration clause that limited the obligations to the writings of the contract this would mean that you can t look at trade usage but - says that trade usage can even be used to supplement final expression so this is even for integration clauses In this case the court rejects this possibility and says that if a party wanted to opt-out it has to do it clearly saying that is opting-out of trade usage specifically This is a clear rule Class notes In this case the defendant gives away his defense when he admits that there is a costume but that the costume is not applicable here In this case we are told that the contract is required to order more than to bottles at a set price but the buyer orders bottles at a set price The seller says you are in breach but the buyer says that there s a trade usage where he can order or of that set amount Let s assume there is a trade costume like that why would this costume exist Because the set amount is an estimate and sometimes we underestimate our needs or overestimate them The seller wouldn t loose anything because sometimes some buyer order less and sometimes they order more Let s say that the price of the bottles drop and the c-thru order of bottles and gets the rest out in the market what s happening The buyer is taking advantage of the price Does the costume apply here When does it make sense to apply the costume When the situation of the bargain is constant when the risk allocation are based on constant circumstances or stable markets But when the circumstances changes then the risk allocation is not the same as when the agreement was made So including trade usages is when we know how parties are going to allocate the risk so it makes sense to say that no costume exists for this particular situation because the trade usages arise in contexts which is gone in this case Article - Parol Evidence Under article - you could have a final expression of their agreement which could be added by evidence of course of performance course of dealing or usage of trade But under - b you could also have a complete and exclusive statement that could be complemented by evidence of consistent additional terms which would be oral evidence For what purposes can you introduce usage of trade as parol evidence You can introduce evidence to supplement add a new term You can introduce it for ambiguity You can t introduce if it contradicts the terms of the contract Ambiguity in a contract is NOT a requirement for the admission of trade-usage evidence Even a complete contract may be explained or complemented by practices in the industry that don t contradict express terms of the contract parol evidence of trade usage If you introduce trade of usage to a complete contract you might convert it in an ambiguous contract and therefore change the terms of the written contract to the trade of usage introduced as evidence But why is the usage of trade admissible The official comment to - explains this commercial sales contracts are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased The truth is that the parties assume the trade usages The assumption is that most parties would like trade usages to apply If article - wouldn t exist then the parties would write it But wouldn t this increase litigations costs Yes because courts will have to get expert testimony on trade usage Can you opt-out of trade usage Yes you can opt-out by clearly stating it You can have a trade costume clause that provides a different usage but this might be a contradiction Therefore - trade costume cannot come in because it cannot contradict the final expression How did costume evolved By people doing business The parties intended that they needed to comply with certain aspects If costume is an act of generosity then the parties could always change it Often seller may provide goods and buyer might say that is kind of defective but not worth to say anything about it at the fourth time the buyer complaints and the seller says that the buyer waived the right to complaint about this defect because that s the way they had been acting But we could say that the buyer didn t wave anything So all regularities are not necessary trade costumes The parties can say that they are not bound by trade usage Yazoo v Lowe s companies Under Mississippi law the absence of ambiguous terms the intention of the parties should be taken from the wording of the contract However an agreement that falls within UCC doesn t require that the agreement in question first be found to be incomplete or ambiguous before evidence of course of dealing and usage of trade may be considered Puget Sound Financial v Unisearch Rule A course of dealing can be established when there is a common basis of understanding Authorities involved Restatement of contracts Course of dealing sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct a course of dealing between the parties gives meaning to or supplements or qualifies their agreement Course of dealing may become part of an agreement either by explicit provision or by tacit recognition Trade usage and course of dealing are relevant to interpreting a contract and determining the contract s terms Facts Puget Sound Financial L L C Factors routinely contacted Unisearch Inc Unisearch by telephone to request that Unisearch search for specified Uniform Commercial Code U C C filings in Washington Unisearch conduct the requested searches and then send the search results in a report to Factors All of the reports included the statement The responsibility for maintaining public records rests with the filing officer and Unisearch Inc will accept no liability beyond the exercise of reasonable care Unisearch charged for each search and every invoice contained the statement Liability Limited to Amount of Fee Unisearch completed such searches prior to the present dispute Factors contacted Unisearch requesting a search for The Benefit Group Inc and Unisearch produced a search report for The Benefit Group Inc indicating that no U C C filings were found Unisearch charged Factors for this service Upon receiving the report Factors loaned The Benefit Group secured by existing and future accounts receivable and other business assets A year later The Benefit Group defaulted on the loan When Factors attempted to realize on the collateral it discovered that Travelers Insurance Co Travelers had a preexisting priority lien Travelers' lien was filed under the name The Benefits Group Inc Unisearch had failed to locate this plural spelling of Factors' requested search Factors filed a lawsuit against Unisearch Unisearch claimed that if found liable Factors' recovery for damages would be limited to Procedural Posture Factors and Unisearch entered into an oral contract which terms are not in dispute The parties do dispute whether the language in the search report and the invoices modified this oral contract or were part of the contract itself Factors asserts that it never accepted the liability limitation clause Unisearch contends that the course of dealing between the parties established the liability limitation clause as part of the contract Unisearch sent search results and invoices to Factors prior to the transaction before this court Unisearch contends that after the first invoice was sent and Factors did not reject it a course of dealing was established Issues Whether limitation on consequential damages presented in regular invoices for the purchase of commercial services can be enforced against a business purchaser - whether the language in the search report and the invoices modified this oral contract whether these liability limitations are enforceable Holding We don t need to determine the impact of the first invoice to decide that after transactions a course of dealing was clearly established According to the Restatement a course of dealing can be established when there is a common basis of understanding the liability limitation clause in the contract for services between Factors and Unisearch is not unconscionable and is therefore enforceable We reverse the Court of Appeals decision and affirm the trial court's grant of summary judgment limiting Unisearch's liability if any to the amount of the fee charged for its service Rationale Course of Dealing Trade usage and course of dealing are relevant to interpreting a contract and determining the contract's terms Ambiguity is not required before evidence of trade usage or course of dealing can be used to ascertain the terms of a contract Unisearch presented numerous examples of liability exclusions on invoices from other states as evidence of trade usage examples of search firms who claimed that they would reimburse the search fees paid if they made a mistake produced an expert who declared that It is a standard practice in the UCC search industry to disclaim any liability resulting from the use of the information provided and to provide a limitation of damages equal to the fee paid for the service Furthermore amicus curiae the National Public Records Research Association NPRRA noted that the industry practice is to place liability limitations on the invoices accompanying search results We find this unrebutted evidence persuasive of trade usage Enforceability of Liability Limitation The liability limitations will not be enforceable if they are unconscionable Warranty disclaimers in a noncommercial entity According to the decision in Berg warranty disclaimers in a contract must be both explicitly negotiated and set forth with particularity In Schroeder we shifted the presumption from the party seeking to validate the disclaimer to the party seeking to invalidate the liability limitation by presuming that the limitation was prima facie conscionable in a commercial transaction The nonexclusive factors for assessing the totality of the circumstances include the conspicuousness of the clause in the agreement the presence or absence of negotiation regarding the clause the custom and usage of the trade and any policy developed between the parties during the course of dealing In American Nursery this court made another modification and extension of the Berg Schroeder analysis In that case we confirmed the use of the two-prong Berg analysis for consumer transactions involving warranty disclaimers and in commercial transactions for the sale of goods where there is sufficient evidence of unfair surprise Parties to a commercial contract generally have equal bargaining power and as a result commercial contracts are less subject to the type of unfair surprise which may be found in consumer sales transactions We find these distinctions applicable to the case presented and conclude that American Nursery governs our analysis We conclude that there were no indicia of unfair surprise under these circumstances The search reports and invoices in this case were brief the liability limitation clause printed on the invoice did not alter or change during any of the transactions the invoices were directed to the attention of Factors' principals and Factors' president testified that he contemporaneously examined the invoices We conclude that the liability limitation clause in the contract for services between Factors and Unisearch is not unconscionable and is therefore enforceable MCC-Marble Ceramic Center INC v Ceramica Nuova D'Agostino US Court of Appeals for the eleventh circuit Rule The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time article is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent Facts MCC is a Florida corporation engaged in the retail sale of tiles and D'Agostino is an Italian corporation engaged in the manufacture of ceramic tiles MCC's president Juan Carlos Mozon met representatives of D'Agostino at a trade fair in Italy and negotiated an agreement to purchase ceramic tiles from D'Agostino Monzon who spoke no Italian communicated with Gianni Silingardi then D'Agostino's commercial director through a translator The parties arrived at an oral agreement on the crucial terms of price quality quantity delivery and payment The parties then recorded these terms on one of D'Agostino's standard pre-printed order forms and Monzon signed the contract on MCC's behalf According to MCC the parties also entered into a requirements contract in February Procedural Posture MCC brought suit against D'Agostino claiming a breach of the February requirements contract when D'Agostino failed to satisfy orders in April May and August of D'Agostino responded that it was under no obligation to fill MCC's orders because MCC had defaulted on payment for previous shipments In support of its position D'Agostino relied on the pre-printed terms of the contracts that MCC had executed The executed forms contained the following language The buyer hereby states that he is aware of the sales conditions stated on the reverse and that he expressly approves of them with special reference to those numbered - - - - - - - Default or delay in payment within the time agreed upon gives D'Agostino the right to suspend or cancel the contract itself and to cancel possible other pending contracts and the buyer does not have the right to indemnification or damages MCC responded that the tile it had received was of a lower quality than contracted for and that pursuant to the CISG MCC was entitled to reduce payment in proportion to the defects D'Agostino noted that clause on the reverse of the contract states Possible complaints for defects of the merchandise must be made in writing by means of a certified letter within and not later than days after receipt of the merchandise MCC sought to rely on a number of affidavits that tended to show both that the parties had arrived at an oral contract before memorializing their agreement in writing and that they subjectively intended not to apply the terms on the reverse of the contract to their agreements The district court entered summary judgment in the defendant-appellee's favor Issue Whether a court must consider parol evidence in a contract dispute governed by the CISG Holding The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time Article allows to consider parol evidence If the finder of fact determines that the parties did not intend to rely on those provisions supported by the affidavits then the more general provisions of the CISG will govern the outcome of the dispute Accordingly we REVERSE the district court's grant of summary judgment and REMAND this case for further proceedings consistent with this opinion Authorities Article of the CISG governs the interpretation of international contracts for the sale of goods Contrary to what is familiar practice in United States courts the CISG appears to permit a substantial inquiry into the parties' subjective intent even if the parties did not engage in any objectively ascertainable means of registering this intent Article of the CISG instructs courts to interpret the statements and other conduct of a party according to his intent as long as the other party knew or could not have been unaware of that intent The plain language of the Convention therefore requires an inquiry into a party's subjective intent as long as the other party to the contract was aware of that intent Ruling The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time This is precisely the type of evidence that MCC has provided through the affidavits which discuss not only Monzon's intent as MCC's representative but also discuss the intent of D'Agostino's representatives and their knowledge that Monzon did not intend to agree to the terms on the reverse of the form contract Article The CISG contains no express statement on the role of parol evidence It is clear however that the drafters of the CISG were comfortable with the concept of permitting parties to rely on oral contracts because they expressly provided for the enforcement of oral contracts Compare CISG art a contract of sale need not be concluded or evidenced in writing with U C C - precluding the enforcement of oral contracts for the sale of goods involving more than Article Moreover article of the CISG expressly directs courts to give due consideration to all relevant circumstances of the case including the negotiations to determine the intent of the parties Article Given article 's directive to use the subjective intent of the parties to interpret their statements and conduct article is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent Class notes There s nothing in the CISG that expressly allows the use of parol evidence but there s nothing that prohibits it In this case the court interprets other provisions of the CISG to conclude that there is evidence that permits external evidence to interpret the contract It does it through to interpret a contract you can look at any available evidence not just the wording of the contract so the court says that this is some evidence that parol evidence was not intended to be included Also article provides evidence that parol evidence is not included in CISG Also article because you have to look at the subjective intent of the parties as in means of forming the contract So parol evidence is going to be allowed The buyer is trying to contradict the writing with the subjective intent Therefore the courts is allowing parol evidence even to contradict the contract This case gave us a definite way to opt-out of parol evidence Article incorporates trade usage into the interpretation of the contract It has to be an international trade usage known internationally Problems with maybe we have costumes less desirable in international trade Some nations don s want to incorporate trade usage because they thought that trade usages would benefit the more capitalized and industrialized nations So article minimizes that risk by saying that the trade usage has to be known internationally If the countries have different trade usages then it wouldn t be an international trade So the international requirement is a stop for more industrialized nations to impose their terms in less industrialized nations CISG Advisory Council Opinion No SUPP --Parol Evidence Rule Plain Meaning Rule Contractual Merger Clause and the CISG The Parol Evidence Rule has not been incorporated into the CISG The CISG governs the role and weight to be ascribed to contractual writing In some common law jurisdictions the Plain Meaning Rule prevents a court from considering evidence outside a seemingly unambiguous writing for purposes of contractual interpretation The Plain Meaning Rule does not apply under the CISG A Merger Clause also referred to as an Entire Agreement Clause when in a contract governed by the CISG derogates from norms of interpretation and evidence contained in the CISG The effect may be to prevent a party from relying on evidence of statements or agreements not contained in the writing Moreover if the parties so intend a Merger Clause may bar evidence of trade usages However in determining the effect of such a Merger Clause the parties' statements and negotiations as well as all other relevant circumstances shall be taken into account INTRODUCTION Interpretation and Evidence under the CISG The CISG provides norms and principles for the interpretation and evidence of international sales transactions These include Article which generally permits all relevant circumstances to be considered in the course of contract interpretation Article which incorporates certain usages into the contract and Article which indicates that a contract and its terms may be proved by any means including by witnesses These rules prevail over domestic rules on interpretation and evidence of contractual agreements Since these are default rules Article permits the parties to derogate from them or vary their effect The Parol Evidence Rule The Parol Evidence Rule refers to the principles which common law courts have developed for the purpose of determining the role and weight to ascribe to contractual writings Basic purpose is to preserve the integrity of written contracts by refusing to allow the admission of prior oral statements or previous correspondence to contradict the written agreement The judge may exclude extrinsic or parol evidence The Parol Evidence Rule applies to the general law of contracts including the sale of goods law of common law jurisdictions The Parol Evidence Rule comes into play when two circumstances meet First the agreement has been reduced to writing Second one of the parties seeks to present extrinsic or parol evidence to the fact finder Extrinsic or parol evidence includes evidence of the negotiations or of agreements related to the contractual subject matter which was not incorporated into the written contract In US law the Parol Evidence Rule operates in two steps A US court asks first whether the writing was integrated meaning whether the writing was intended to represent the final expression of the terms it contains If the writing is integrated neither party may introduce parol evidence to contradict the terms of the writing If the writing is deemed to be integrated the second step is to determine whether it is completely integrated namely whether it was intended to represent the complete expression of the parties' agreement If the writing is completely integrated parol evidence may not be introduced either to contradict or to supplement the writing's terms Different methods are used in US law to determine whether a writing is completely integrated Some courts engage in a conclusive presumption that a writing fully incorporates the contract Perhaps the most liberal method is that proposed by the Restatement Second of Contracts--all extrinsic evidence including the negotiations may be considered when determining whether the parties intended the writing to be the complete and final statement of their obligations US sales law has adopted a similarly liberal approach The civil law generally does not have jury trials in civil cases and civilian jurisdictions usually do not place limits on the kind of evidence admissible to prove contracts between merchants Though the French Civil Code for example incorporates a version of the Parol Evidence Rule for ordinary contracts all forms of proof are generally available against merchants Statements agreements and conduct that arise after the conclusion of the writing are treated differently in the different common law systems In US law they are not considered parol evidence and are therefore not barred by the Parol Evidence Rule The Plain Meaning Rule Parol evidence is generally still admissible for the purpose of interpreting terms found in the writing Nonetheless a US law doctrine known as the Plain Meaning Rule where adopted bars extrinsic evidence particularly evidence of prior negotiations for the purposes of interpreting a contract unless the term in question has first been found to be ambiguous The Plain Meaning Rule is based on the proposition that when language is sufficiently clear its meaning can be conclusively determined without recourse to extrinsic evidence Only if the term is deemed ambiguous may evidence of prior negotiations be admitted for purposes of clarification Merger Clauses The parties may wish to assure themselves that reliance will not be placed on representations made prior to the execution of the writing The Merger or Entire Agreement Clause the Merger Clause has been developed to achieve certainty in this regard The Merger Clause which usually appears among the concluding terms of a written agreement provides that the writing contains the entire agreement of the parties and that neither party may rely on representations made outside the writing THE PAROL EVIDENCE RULE The Parol Evidence Rule has not been incorporated into the CISG The CISG governs the role and weight to be ascribed to contractual writing The CISG includes no version of the Parol Evidence Rule To the contrary several CISG provisions provide that statements and other relevant circumstances are to be considered when determining the effect of a contract and its terms The most important of these are Articles and Article sentence provides that a party may seek to prove that a statement has become a term of the contract by any means including by the statements of witnesses Article concerns contract interpretation Article provides that in certain circumstances contracts are to be interpreted according to actual intent When the inquiry into subjective intent proves insufficient Article provides that statements and conduct are to be interpreted from the point of view of a reasonable person This evaluation according to Article takes into account all relevant circumstances of the case including the negotiations any course of conduct or performance between the parties any relevant usages and subsequent conduct of the parties In sum the CISG indicates that a writing is one but only one of many circumstances to be considered when establishing and interpreting the terms of a contract There were several practical reasons for not including a Parol Evidence Rule in the CISG First most of the world's legal systems admit all relevant evidence in contract litigation Secondly the Parol Evidence Rule especially as it operates in the United States is characterized by great variation and extreme complexity The leading US case is MCC-Marble Ceramic Center Inc v Ceramica Nuova D'Agostino S p A The principal purpose of the Parol Evidence Rule is to respect the importance the parties may have accorded to their writing Under the Convention as well a writing constitutes an important fact of a transaction - it must be presumed to fulfill a function otherwise it would not have been employed The special role of a writing however must be construed in accordance with the general principles that govern the CISG PLAIN MEANING RULE In some common law jurisdictions the Plain Meaning Rule prevents a court from considering evidence outside a seemingly unambiguous writing for purposes of contractual interpretation The Plain Meaning Rule does not apply under the CISG Article specifies the Convention's method for contract interpretation As a general rule Article mandates that all facts and circumstances of the case including the parties' negotiations are to be considered during the course of contract interpretation Words are almost never unambiguous Moreover the application of the Plain Meaning Rule would impede one of the basic goals of contract interpretation under the CISG which is to focus on the parties' actual intent If contract terms are deemed to be unambiguous the Plain Meaning Rule would prevent presentation of other proof of the parties' intent Under the CISG therefore the fact that the meaning of the writing seems unambiguous does not bar recourse to extrinsic evidence to assist in ascertaining the parties' intent MERGER CLAUSE A Merger Clause also referred to as an Entire Agreement Clause when in a contract governed by the CISG derogates from norms of interpretation and evidence contained in the CISG The effect may be to prevent a party from relying on evidence of statements or agreements not contained in the writing Moreover if the parties so intend a Merger Clause may bar evidence of trade usages However in determining the effect of such a Merger Clause the parties' statements and negotiations as well as all other relevant circumstances shall be taken into account When the parties agree to a Merger Clause its effect may be to derogate under Article from norms of interpretation and evidence contained in the CISG Merger Clauses have two objectives The first objective is to bar extrinsic evidence that would otherwise supplement or contradict the terms of the writing Merger Clauses mainly derogate from Article which provides that a sales contract may be proved by any means including witnesses The second objective is to prevent recourse to extrinsic evidence for the purpose of contract interpretation This objective would constitute a derogation from the Convention's canons of interpretation incorporated in Article The CISG does not deal with Merger Clauses and therefore does not contain similar distinctions The dividing line may be blurred Under the CISG there is authority for the proposition that a properly worded Merger Clause bars the consideration of extrinsic evidence Extrinsic evidence should not be excluded unless the parties actually intended the Merger Clause to have this effect Under the CISG a Merger Clause does not generally have the effect of excluding extrinsic evidence for purposes of contract interpretation However the Merger Clause may prevent recourse to extrinsic evidence for this purpose if specific wording together with all other relevant factors make clear the parties' intent to derogate from Article for purposes of contract interpretation A Merger Clause generally will not be held to exclude trade usages relevant under Article or established practices concerning the implicit background of the transaction unless those usages and practices are specifically mentioned Assign OPEN TERMS AND RELATIONAL CONTRACTS Open and implied terms The Anti-Technical Environment The basic philosophy Section - Art is concerned with missing or implied terms i e terms that the parties have not expressly addressed in their contract Section - establishes significant policies concerning indefiniteness in contracts - The manner in which a contract for the sale of goods is formed is irrelevant if the outward manifestations of the parties are sufficient to demonstrate agreement Section - dealing with offer and acceptance in contract formation and allowing any reasonable medium of acceptance is an elaboration of this general policy of - - rejects the notion that the precise moment of contract formation be identified If the manifestations of the parties evidence their factual bargain the agreement must be enforced even if the exact moment of its making can t be determined - It allows open terms The court should try to complete the terms of a contract and make the terms more precise The court must try to fill the gaps addresses the question of open terms and the extent to which courts should fill gaps Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy Once the critical elements have been found intention and reasonably certain basis for an appropriate remedy even numerous gaps will not be fatal Part of Article supplies terms that the parties leave open Section - states the general obligations of the parties the seller must transfer and deliver the goods and the buyer must accept and pay for them Section - deals with open price terms Section - deals with the uncertainty of the quantity term by imposing an obligation of good faith on the party determining quantity Section - deals with the situation in which the parties have failed to specify whether the seller must deliver the goods in a single lot o in multiple installments Sections - and - supply appropriate terms where the parties have failed to specify the place or time of delivery Section - fills the gap left when the parties have not designated a time for payment and deals with ambiguities relating to documentary transactions Section - and - refer to the warranties of merchantability when parties fail to specify the standard of quality of the goods being sold Class notes Can court measure the intention of the parties and fill the gaps We ll see in Bloor Bloor v Falstaff Brewing Corporation United States Court of Appeals Second Circuit Facts Exclusive distribution arrangement by Falstaff Falstaff bought Ballantine brewing labels trademarks accounts receivable distribution systems and other property except the brewery The price was plus a royalty of fifty cents on each barrel of the Ballantine brands sold between April and March Ballantine had been a family owned business producing low-priced beers primarily for the northeast market Its sales began to decline in and it lost money from on After its acquisition of Ballantine Falstaff continued the million a year advertising program but sales declined and Falstaff claims to have lost million in its Ballantine brand operations In March and April Paul Kalmanovitz having control of Ballantine determined to concentrate on making beer cut sales costs decrease advertising and closed four of Falstaff's six retail distribution centers This is a long term arrangements that both parties seek assets specific to the arrangement Ballantine buys the trademarks and thinks is in it in the long run for Falstaff So after this what can Ballantine do Falstaff is highly dependant on Ballantine s cooperation Why would Falstaff not act opportunistic Because of the penalty clause Just as Ballantine have some assets in this transaction that can only be used by them Falstaff can only use the assets that bought for these arrangements These parties need each other so they have fewer incentives to exploit each other Why would they make an arrangement like this Because Ballantine might have contracts that would get loans because of costs They can look in a distributor and have assurance that somebody will distribute the beer Sometimes makes sense to a party that they can act un-cooperative because they can gain more by not cooperating So should the law step in and prohibit that behavior Procedural Posture Action brought by James Bloor Reorganization Trustee of Balco Properties Corporation formerly named P Ballantine once a successful brewery Bloor claimed that Falstaff had breached the best efforts clause a and that its default amounted to the discontinuance that would trigger the liquidated damage clause The trial court upheld the first claim and awarded damages but dismissed the second Falstaff appeals from the former ruling Bloor from the latter Both sides also dispute the court's measurement of damages Bloor sought to recover from Falstaff Brewing Corporation Falstaff for breach of a contract dated March The appeal concerns two provisions of the contract which are a After the Closing Date the Buyer will use its best efforts to promote and maintain a high volume of sales under the Proprietary Rights Liquidated damages clause a v The Buyer will pay a royalty of per barrel for a period of years provided however that if during the Royalty Period the Buyer substantially discontinues the distribution of beer under the brand name Ballantine it will pay to the Seller a cash sum equal to the years and fraction thereof remaining in the Royalty Period times payable in equal monthly installments on the first day of each month commencing with the first month following the month in which such discontinuation occurs Issue whether Ballantine breached the best effort clause by the way Falstaff operated Holding - The Court concluded that Falstaff had breached its best efforts covenant and plaintiff should recover royalties The case is governed by - of the UCC - Out The put Requirements and Exclusive Dealings A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale Ruling Buyer must make a good faith effort to see that substantial sales are done when there s a best efforts clause and even without one when there s a contract of exclusive dealing Overcompensation is allowable where plaintiff has shown liability in case with a best effort clause Falstaff argues that it was not bound to do anything to market Ballantine products that would cause more than trivial losses Falstaff was required at least to explore whether steps not involving substantial losses could have been taken to stop or at least lessen the rate of decline However Falstaff had engaged in a number of misfeasance and nonfeasance which could have accounted in substantial measure for the catastrophic drop in Ballantine sales These included the closing of the North Bergen depot Also Falstaff's choose distributors for Ballantine products in New Jersey and New York which were also owners of a competing brand Finally Falstaff's put more effort into sales of its own brands which sold at higher prices despite identity of ingredients and were free from the a barrel royalty burden etc With respect to its own brands management was entirely free to exercise its business judgment as to how to maximize profit even if this meant serious loss in volume Because of the obligation it had assumed under the sales contract its situation with respect to the Ballantine brands was quite different The royalty of a barrel on sales was an essential part of the purchase price Even without the best efforts clause Falstaff would have been bound to make a good faith effort to see that substantial sales of Ballantine products were made unless it discontinued under clause a v with consequent liability for liquidated damages Burden of proof It was enough for Plaintiff to show that Falstaff didn't care about Ballantine's volume and was content to allow this to plummet so long as that course was best for Falstaff's overall profit picture an inference which the judge permissibly drew The burden then shifted to Falstaff to prove there was nothing significant it could have done to promote Ballantine sales that would not have been financially disastrous Computing the Royalties on the lost sales The court concluded the most accurate comparison was with the combined sales of Rheingold and Schaefer beers both like Ballantine being price beers sold primarily in the northeast and computed what Ballantine sales would have been if its brands had suffered only the same decline as a composite of Rheingold and Schaefer It is true that the award may overcompensate the plaintiff since Falstaff was not necessarily required to do whatever Rheingold and Schaefer did But that uncertainty is permissible in favor of a plaintiff who has established liability in a case like this Class notes Why enter in such a vague clause of best efforts To adjust based on the circumstances They might have an asymmetrical understanding the buyer has flexibility and have a greater possibility to exploit It doesn t tell us what the parties agreed to This clause is regular in a long term contract What does the best effort clause mean Page you have to treat Ballantine brand as well as your own But how do you conceptualize this Charts on Blackboard Maybe what it means is to maximize the interest of both parties because both parties are internalizing the costs and they would try to maximize both interests So what Friendly is saying is that you can act by self interest you have to enter other party s interest But the judge goes wrong by suggesting that Falstaff not only has to take into account the other party s interest but by going further and making extra efforts The judge should have said that Falstaff should have done the necessary steps as a firm to maximize both party s interest January If Ballantine wanted Falstaff to be treated as one of Falstaff s own divisions What could be done They could merge So maybe the fact that they didn t merge then best efforts clause could have meant something else But there might be tax interests or some other interests not to merge as long as the same effect can be achieved Maybe there are reasons why they didn t merge so we need to interpret the best efforts clause as Falstaff internalizing Ballantines interests as if it were their own divisions Effort of Falstaff Reward to Falstaff Gain for Falstaff Reward to Ballantine Total Reward Firm Reward - If going from to of effort Falstaff would gain Ballantine and the firm and so on From to they would get which is not good From to the return is less for Falstaff CISG ARTICLES Article formation of contract A proposal for concluding a contract is an offer if it is sufficiently definite It is sufficiently definite if it indicates the goods the quantity and the price Article A contract is concluded when an acceptance becomes effective Article If a contract is validly concluded but doesn t expressly or implicitly determine the price the parties are considered to have implied the price generally charged at the time of the conclusion of the contract United Technologies International Inc v M lev Hungarian Airlines The Supreme Court of the Republic of Hungary Facts United Technologies manufactured aircrafts and its engines Negotiations were conducted between United Technologies and Malev about the engines and the engine system of two different aircrafts Tupolyev TU- aircrafts with PRATT JT D- engines On December the parties signed a Letter of Intention about their negotiations They expressed their intention -- without undertaking any obligations -- to sign a final agreement in the future in accordance with those contained in the declaration In the Letter of Intention the Plaintiff stipulated a condition that according to which the signing of the final agreement depended on Defendant's acceptance of Plaintiff's support offer for the purchase of PW series engines from Plaintiff by Defendant for the wide bodied aircrafts to be purchased Plaintiff submitted two purchase-support offers to Defendant with the aim of aiding the purchase of two aircrafts supplied with Plaintiff's engines At this time Defendant was negotiating with two aircraft manufacturers and had not yet come to a decision about the type of the aircraft to be bought The offers were kept open by Plaintiff until December on condition that the validity of Defendant's declaration of acceptance depends on the appropriate provisions to be made by the Government of Hungary and that of the United States Defendant did not sign either support offers but in the presence of Plaintiff's proxy composed a letter together with him which was sent to the Vice-President of Plaintiff's company by telex notifying him that they had selected the PW engine for the new wide bodied fleet of aircrafts Later the Parties had a verbal discussion Following that Defendant notified Plaintiff in writing that Defendant would not choose PW series engines for the Boeing aircraft Procedural posture Lawsuit initiated by the Plaintiff United Technologies International Inc Pratt Whitney Commercial Engine Business against the Defendant MAL V Hungarian Airlines in respect of validity of contract The Supreme Court changes the partial judgment of the City Court of Budapest and rejects the Plaintiff's claim Plaintiff stated that Defendant had definitely and irrevocably committed itself to purchase the new aircraft with PW engines Defendant refused to do so Plaintiff initiated asking the court to declare that the contract between the Parties was enforceable as of December Plaintiff claimed that Defendant with its declaration dated on December accepted Plaintiff's contractual offer dated on December thus a valid and legally binding contract was made for the sale and purchase of PW engines and spare engines According to Plaintiff's position the December offer fully complies with the content of Section of the CISG For the offer clearly states the product its quantity and contains data on the basis of which the price can be determined precisely Defendant asked for the dismissal of the suit Defendant did not acknowledge entering into a contract with Plaintiff According to Defendant's position Plaintiff's December offers could not be regarded as a contractual offer for they did not contain the quantity the price or the specified goods stipulated by Paragraph Section of the CISG It just gave them options Issue whether there was an enforceable contract Holding No there isn t a contract Plaintiff must reimburse all costs that emerged during the first and the appeal procedure to Defendant Rule Lacking an appropriately explicit offer from Plaintiff and not having a clear indication as to the subject of the service in Defendant's declaration of acceptance no sales contract has been established between the Parties There s no offer because there s no price Article in order to have sufficiency the price must be stated Bid According to Paragraph Section of the Agreement a proposal to enter into a contract addressed to one or more persons qualifies as a bid if it is properly defined and indicates the bidder's intention to regard itself to be under obligation in case of acceptance A bid is properly defined if it indicates the product expressly or in essence defines the quantity and the price or contains directions as to how they can be defined Indication of product quantity and price are essential elements Plaintiff made two parallel offers for the same deal on December depending on Defendant's choice of the Boeing or the Airbus aircraft In case Boeing was selected within the respective offer two separate engines were indicated This offer did not contain the base price of the PW engine In case Airbus was selected within the respective offer two different jet engine systems and two different spare engines were indicated The base price of the jet engine systems is not included in the offer In case there is no base price value stability calculations have no importance Open price term Article The price cannot be determined according to Article of the Agreement either as jet engine systems have no market prices Plaintiff's offers were alternative therefore Defendant should have determined which engine or jet engine system listed in the offers it chose There was no declaration made on behalf of Defendant in which Defendant would have indicated the subject of the service the concrete type of the engine or jet engine system listed in the offers as an essential condition of the contract Defendant's declaration that it had chosen the PW series engine expresses merely Defendant's intention to close the contract which is insufficient for the establishment of the contract The court of first instance was mistaken when it found that with Defendant's December declaration the contract was established with the power according to which Defendant was entitled to select from the indicated four types with a unilateral declaration later after the contract had been closed The opportunity to choose after closing the contract does not follow from the offer If perhaps such a further condition would have been intended by Defendant then this should have been regarded as a new offer on its behalf Lacking an appropriately explicit offer from Plaintiff and not having a clear indication as to the subject of the service in Defendant's declaration of acceptance no sales contract has been established between the Parties It is a different issue whether the series of discussions and Defendant's declaration of acceptance created such a special atmosphere of confidence where Plaintiff could seriously count on closing the contract and failing that Plaintiff suffered economic and other disadvantages With this question and with its legal grounds no suit being initiated the court of appeals was not entitled to deal with Maybe the plaintiff had an estoppel theory maybe they could have argued that they relied on the contract even if there wasn t one and they could have used the estoppel against the defendants from denying they didn t have a contract Class notes This is a narrow concept of what constitutes an offer United says that theirs is an offer because by the defendant choosing they are bound to execute But the court says that is not true the defendant had to choose the goods and then the United would have had to make an offer on those terms and if the offeree would accept then a contract was formed Why isn t article enough to form a contract Because engine systems don t have market prices But what if you call an expert witness Would they be able to determine a price range They probably could so could it really be the case that if the engines don t have a market price then there s no way to figure out what is generally charged for these systems This seems to be a weak argument Besides article doesn t even mention market prices Article use You use article when you have a validly concluded contract but without a price Concluded Contract Article when an acceptance of an offer becomes effective Offer article says that you have an offer with specified goods quantity and price This is sufficient but is not a necessary condition Acceptance article says that an acceptance becomes effective at the moment the indication of the assent reaches the offeror So how could you have a validly concluded contract without a price It seems to be a contradiction here between article and how do you get out Some commentators say that article is not the exclusive means to form a contract Also other commentators say that even though article says that an offer is sufficiently definite if has goods price and quantity it is not a requisite Assign Prospective nonperformance Anticipatory Repudiation under article of UCC Repudiation is permitted by the UCC But what about repudiation when the one repudiating actually retracts Repudiation has to be very specific The section covers the rules applicable if before the time for performance arrives a party to a contract appears unable or unwilling to perform Under pre-code doctrine an ambiguous or hedged suggestion of future nonperformance by one party did not trigger any relief even if it undercut the other side s confidence in the contract and seriously impaired the purposes of the agreement Thus it could trigger rescission and liability UCC deals with this through - and - it build on traditional common law with some changes - Anticipatory Repudiation When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other the aggrieved party may a await performance b resort to any remedy for breach - -seller s remedies or - -buyer s remedies even though he has notified the party that he would await the performance c in either case suspend his own performance - where the seller repudiates the buyer may cancel Section - is procedural Neptune Research Development v Teknics Industrial Systems Facts Buyer manufactured solar-operated valves Sule the buyer s founder contacted Shepler seller s president Sule placed an order for a machine on April for with a mid-June delivery date and gave a deposit Each page of the contract had notice saying cancellation charge The contract also stated that shipping dates were approximate Seller failed to make timely delivery The machine wasn t ready by mid-June Seller and buyer that the machine could be delivered on September but the machine wasn t ready at that time either Sule decided to cancel the order and he sent a letter informing that Sule wanted his deposit back and seller didn t want to give it back Issues Whether the seller repudiated when he said the machine could not be delivered on time Whether the seller be allowed to retract its repudiation because buyer did not change its position for the worse Holding The statement that it couldn t be delivered on time constituted an anticipatory repudiation within the meaning of - Buyer is allowed to cancel the contract and therefore seller cannot retract under - Rule An announcement that the seller cannot deliver on time is repudiation under - and if the loss will substantially impair the value of the contract the aggrieved party can await performance or resort to any remedy for breach The repudiating party can retract unless the aggrieved party has cancelled Repudiation anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance - comment substantially impair the value of the contract The UCC comment to - states that the most useful test of substantial value is to determine whether material inconvenience or injustice will result if the aggrieved party is forced to wait and receive an ultimate tender minus the part or aspect repudiated The court says that it is reasonable to treat the substantial value interchangeable with the materiality standard standard from Ross case for which the Restatement sets forth the criteria in section Factors are as follows The extent to which the injured party will be deprived of the benefit which he reasonable expected The extent to which the injured party can be compensated The extent to which the party failing to perform will suffer forfeiture The likelihood that the failing party will cur his failure The extent to which the behavior of the failing party comports good faith and fair dealing Factors c d and e are especially relevant here The seller suffered no forfeiture buyer had reason to believe that buyer would not cur his failure and it seems that seller didn t act in good faith Therefore not delivering on time is material going to the essence of the contract under the factors of of the Restatement of contracts and the statement constitutes an anticipatory repudiation A contract doesn t need to expressly state that time is of the essence Since it s a repudiation its covered under section - and the buyer may resort to any remedy therefore the buyer may cancel the contract under - and if the buyer cancels the contract then the seller can t retract under - - if a party repudiates when a performance is not due the aggrieved party can resort to any remedy for breach - a buyer s remedy for repudiation is cancellation among others Cancellation when either party puts an end to the contact for breach by the other - - The repudiating party can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or he indicated that he considers the repudiation final Traditional common law position requires repudiation to be an extremely clear indication of nonperformance In this case it s clear that the buyer lost faith and trust so they are going to validate the cancellation of Neptune So the repudiator party can t retract by the mere words of I cancel Class notes Repudiation requirements There has to be a substantial impairment So mere non-performance is not enough So when they defaulted the first time it s not repudiation but when they defaulted the second time it was repudiation In June the buyer can be expected to wait but by September th when the defendant hasn t been in touch with Neptune and then tells them that they are going to be again late then Neptune doesn t trust them and they lost faith so there s no easy way to determine what constitutes repudiation Repudiation depends tremendously on context So whether or not there s a substantial impairment of the contract there s going to be a relation to the circumstances Nevertheless one would hope that we could rely on a set of factors that would tell us that repudiation had happened That substantial impairment happened or not Problem - and - UCC Pg In a transaction governed by article of UCC Ceres Crofter agreed to sell bushels of corn to Moody Inc for delivery by October The purchase price was and Moody would pay it as follows signing the agreement on April on September and the rest upon delivery In which of the following scenarios is there repudiation which would allow the aggrieved party to cancel In late August Crofter called the manager of Moody to say that she didn t like the manager s politics and would therefore not sell her corn to Moody There s overt communication therefore there s repudiation and they can cancel Under - it would be anticipatory repudiation because the performance is not yet due because under - comment the communication by Crofter demonstrates clear determination not to continue with performance It substantially impairs the value of the contract under the materiality standard of section of the Restatement of contracts since the injured party will be deprived of the benefit the failing party will not suffer forfeiture doesn t seem like Crofter will cur his failure and because it seems unfair dealing Therefore Moody can cancel the contract under - b and - In late August the manager of Moody drove past Crofter s farm and noticed that no corn had been planted There s no repudiation in this case and therefore no right to cancellation Even though performance is not yet due under comment of - there is no communication or action which renders performance impossible or demonstrates a clear determination no to continue with performance Besides common law requires repudiation to be a clear indication of nonperformance Class maybe they have another farm this could be taken as an action which renders performance impossible There s a risk for the buyer In late August Moody manager heard from Crofter s seed supplier that Crofter had planted no corn on her farm Because of the location and typography of the farm the manager could not personally confirm the seed supplier s story Despite at least attempts in five days the manager has been unable to reach Crofter by phone There is no repudiation for the same reasons stated above Class Canceling the contract is risky here because there s no clear indication of nonperformance You can only cancel the contract when there s an actual repudiation an overt communication an action that renders performance impossible or a clear determination not to continue Hypotheticasl what if it never gets planted and then Moody sues on October and the corn price has gone up Then if you argue for Crofter you can say that there was a repudiation since there was nothing planted but it could be risky However if Crofter told Moody early on that there was a repudiation and Moody waited until October and the corn prices went up Here there are still some guesses to be made Let s say the buyer cancels the contract and entered into a contract with somebody else now can crofter retract No because under - the repudiator can t retract if the other party cancelled Let s assume they just canceled but didn t enter into another contract No under - because it just needs cancellation or materially changed its position Same facts as c but in addition the seed supplier has been involved in a dispute with Crofter concerning overdue payments for seed On October the Moody s manager learned that Crofter had not yet made good on a contract with a competitor to deliver bushels of corn before the end of September The price of corn has skyrocketed since Crofter and Moody entered into their contract Class Notes Reasonable Grounds for Insecurity from - According to - there has to be reasonable grounds for insecurity in order to demand in writing adequate assurance The insecurity must be on the grounds of commercial standards But how could this rumor affect your contract The basis for insecurity can arise from another contract Is there some way to conceptualize what constitutes reasonable grounds for insecurity we should consider the following factors Good faith is mentioned in the comments this tells us that we have to consider this in the commercial standards Probability of Successful Performance We also have to consider this factor So if the event we re looking at reduces the probability of the successful performance then that cuts in favor for reasonable grounds of insecurity Consequences of Breach We must also consider the Consequences of the Breach If this increases it would also be a variable that should be taken into account for the reasonable grounds of insecurity Possibility of mitigation we must also take into account the mitigation from one or both parties If we have grounds for insecurity what else could we do Power of - In this case the buyer must give a check to the seller but doesn t want to do it until he knows what s going on So what should you do You can write a letter demanding adequate assurance If you don t get a respond then you can suspend your own performance this is the power of - So even if the other party wasn t going to repudiate you can suspend the performance under - if you have reasonable grounds of insecurity and you are not deemed breaching the contract So even without repudiation you can suspend the performance In the letter you can say that under - you have reasonable grounds for insecurity that you need assurance and if you don t get it you could suspend the performance and consider the contract repudiated Adequate assurance Let s say the other party answers saying that they will perform and please send the check then what to do It depends on the facts of the particular case If this person is known for repeated delinquencies then is not adequate assurance but if this isn t the case then it s adequate assurances Adequate assurance is a fact-based test - allows you to suspend the performance but it doesn t allow you to change the deal On September Crofter sent Moody a letter stating that unless she received the balance of the entire purchase price before the end of September she would not deliver any corn in October There s repudiation under - comment and the buyer can cancel In this case there s a new condition and under comment of - this is not repudiation by itself However this new condition could amount to a statement of intention not to perform except on conditions which go beyond the contract therefore there s repudiation In the middle of August Crofter received a phone call from the manager of Moody explaining that because grain prices had been falling Moody was experiencing temporary but severe cash flow difficulties and would almost certainly not be able to make the by September The manager indicated that mid-september was a more realistic date for payment The manager also indicated that the elevator was depending on Crofter s corn and that all balances would be paid in full upon delivery or at least they hoped so This isn t a repudiation and the seller can t cancel Under comment of - a demand for more than the contract calls for is not a repudiation additionally this there is an intention to perform January Class notes re problem We need more certainty to resolve some of this problems so if you include more specification in the contract such as if we can t contact you for days then there s repudiation However if you do this you are signaling to the other party that you don t trust them Second of all a breach in a contract is of low probability so the cost of negotiating this clause is not cost justified You will be paying your lawyer extra time for that clause but it may not be worthwhile to do it Finally it is very difficult to predict all the causes that may come up Basically it s a bad signaling On one hand we have what constitutes breach but on the other hand that s not cost effective or signal effective So the UCC has some default clauses to cover this through the section - So the problem with UCC and - is that you can use it for ANY breach If you don t get adequate assurance you can take it as repudiation - is a little more complicated to fulfill than - So you can only call a repudiation if the breach is material So - only works if you don t receive an adequate assurance If you don t get it then it s repudiation and you don t have to use - Adequate assurance under article of UCC - Right to Adequate Assurance of Performance A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract Universal Resources Corp v Panhandle Eastern Pipe Line Facts URC as seller and Panhandle as buyer entered into a year gas purchase and sales agreement URC is required to deliver a certain quantity of gas to Panhandle There s also a clause obligating Panhandle to take gas or pay for the tendered but not taken gas take-or-pay clause Panhandle would then have to pay for the deficiency in the intake of gas but could have makeup gas given by URC in the following years in relation to the deficiency URC notified Panhandle of the deficiency at the end of the year that would have to pay for but Panhandle refused URC sued Panhandle argued that since it was probable that URC wouldn t be able to provide the makeup gas then it shouldn t pay the deficiency Issue Whether Panhandle had a reasonable insecurity regarding URC s future performance and therefore URC had to given Panhandle adequate assurance of future performance Holding Panhandle fears of lack of makeup gas in the future did not rise to the level of reasonable insecurity as a matter of law Panhandle didn t have a reasonable insecurity so URC wasn t required to give adequate assurance and its failure doesn t excuse Panhandle from making the deficiency payments Rule Without reasonable grounds of insecurity the party can t ask for an adequate assurance and therefore cannot suspend any performance The reasonable ground of insecurity is determined by commercial standards In this case there wasn t an event after the execution of the agreement that would have given rise to a reasonable insecurity The alleged insecurity was from subjective evaluations There were unsupported assumptions about the market Demand for Adequate assurance What must include in a demand for adequate assurance Nothing in statute addresses this question at the very least the demand should describe the grounds for insecurity and make it clear that serious consequences will flow from a failure to respond or from a response that is not prompt and adequate Demands must be in writing but some courts have allowed oral demands when they were unambiguously communicated and the recipient clearly understood their significance Parties can eliminate some of the uncertainties surrounding the adequate assurances process by specifying in the contract itself what circumstances will justify a demand for assurances what assurances will be adequate and the time within which assurances must be given comment to - Adequate assurances and anticipatory repudiation under article A of the UCC and UCITA Prospective Nonperformance under article A just questions Prospective Nonperformance under UCITA just questions Prospective Nonperformance under the CISG Article of CISG correlates to - and - of UCC Article A party may suspend the performance of his obligations if after the conclusion of the contract it becomes apparent that the other party will not perform a substantial part of his obligations as a result of a a serious deficiency in his ability to perform or in his creditworthiness or b his conduct in preparing to perform or in performing the contract If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them The present paragraph relates only to the rights in the goods as between the buyer and the seller A party suspending performance whether before or after dispatch of the goods must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance Article If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract the other party may declare the contract avoided If time allows the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations Article A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result Problem Article Pg Sawmill must give notice of suspension to People s Republic under article due to a serious deficiency in People s Republic creditworthiness under a In - ANY reasonable grounds is enough for insecurity In article is more restrictive by saying that you can suspend if becomes apparent that the other party will not perform a substantial part Article says that the non-performance of substantial part must be for serious deficiency in his ability to perform or his creditworthiness or his conduct in preparing to perform or in performing the contract The problem is whether this is available to Sawmill What if this would happen under the UCC would this be a enough for reasonable grounds of insecurity So article seems to have less applicability if the party you are contracting with is not performing with another party in another contract Article applies in a narrower situations than - Because it has to be substantial performance and the causes are more limited Article intersect with article Article talks about a fundamental breach which is defined in article Problems with UCC and CISG So - only works if you don t receive an adequate assurance If you don t get it then it s repudiation and you don t have to use - However in article of CISG if you don t receive adequate assurance you still have to go to article In both cases it seems that there is repudiation if there is Materiality Substantial impair the value of the contract UCC or constitutes a fundamental breach CISG If the World Bank wouldn t rescind the financing but the People s Republic had canceled the development the advice would have been the same as above Compare standards and procedures between - of UCC and article of CISG Sawmill must give notice of suspension to People s Republic under article But if People s Republic gives adequate assurance as in this case then Sawmill must continue with its performance Decision of September Landgericht Berlin Germany Facts A German shoe retailer ordered shoes from an Italian company to be delivered to the buyer s place of business four months later and to be paid within days of being charged The German buyer failed to complete payment due under a prior contract between the parties The seller requested to secure the payment of the later contract within a week or would resell the goods and claim damages The buyer refused to give security alleging that it had a right to refuse to pay in the previous contract because of defects in goods The seller resold the shoes to a third party at a loss and commenced action against buyer for difference and other fees Ruling The buyer didn t have the right to suspend payment because it didn t have the right to relay on a lack of conformity of the goods The buyer hadn t given notice of non-conformity within a reasonable time after months he gave notice The seller had the right to declare the contract avoided under Art and of CISG since even before the delivery of the goods it was clear that the buyer wouldn t pay the purchase price and therefore commit a fundamental