2014

LAWCOMM 406 International Sales & Finance

Part 1: International Sales

DISTRIBUTION WARNING NOTICE:This casebook is available only to students enrolled in LAWCOMM 406 at The University of Auckland. You may not sell, alter or further reproduce or distribute any part of the casebook to any other person.

Paul MyburghElsabe Schoeman

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CONTENTS Part 1: INTERNATIONAL SALES ...................................................................................................... 1

Sale of Goods (United Nations Convention) Act 1994..................................................................... 3

1 APPLICATION OF CISG ........................................................................................................... 4

ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001) ............................... 5

RHOMBERG GMBH V OTT, SCHWEIZERISCHES BUNDESGERICHT, SWITZERLAND, 11 DECEMBER 2000 ................................................................................................................................................ 7

2 CONTRACT FORMATION AND INTERPRETATION .................................................................... 8

MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH11 UNITED STATES 7 DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS] ................................................................ 11

BUNDESGERICHTSHOF, VIII ZR 304/00, GERMANY, 9 JANUARY 2002 (POWDERED MILK CASE) . 14

3 PARTIES OBLIGATIONS....................................................................................................... 16

3.1 Parties Obligations at Common Law ............................................................................ 16

PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402 .............................................. 16

BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA) ..................................................... 18

COMPTOIR DACHAT ET DE VENTE DU BOERENBOND BELGE S/A V LUIS DE RIDDER LIMITADA (THE JULIA) [1949] AC 293 (HL) .................................................................................................... 26

BERGER & CO INC V GILL & DUFFUS SA [1984] AC 382 (HL) ......................................................... 30

SCOTTISH & NEWCASTLE INTERNATIONAL LTD V OTHON GHALANOS LTD [2006] EWCA CIV 1750 ...................................................................................................................................................... 37

PROFINDO PTE LTD V ABANI TRADING PTE LTD [2013] SGHC 10 ................................................. 48

3.2 Parties Obligations under the CISG .............................................................................. 56

BUNDESGERICHTSHOF, VIII ZR 159/94, GERMANY, 8 MARCH 1995 (NZ MUSSEL CASE) ............. 60

SMALLMON V TRANSPORT SALES LTD [2011] NZCA 340 .............................................................. 66

TRIBUNALE BUSTO ARSIZIO, ITALY, 13 DECEMBER 2001 (PLASTIC BAGS CASE)........................... 81

LANDGERICHT, FRANKFURT (MAIN), GERMANY, 11 APRIL 2005 [2-26 O 264/04] (USED SHOES CASE) ............................................................................................................................................. 82

SOCIT FRANCO-AFRICAINE DE DISTRIBUTION TEXTILE V MORE AND MORE TEXTILFABRIK GMBH ........................................................................................................................................... 85

3.3 Incoterms 2010 ............................................................................................................ 87

4 PASSING OF RISK ................................................................................................................ 88

ST. PAUL GUARDIAN INSURANCE CO V89 NEUROMED MEDICAL SYSTEMS & SUPPORT, GMBHUNITED STATES 26 MARCH 2002 FEDERAL DISTRICT COURT [NEW YORK] ...................................................................................................................................................... 89

BEDIAL SA V PAUL MUGGENBURG & CO GMBH, CMARA NACIONAL DE APELACIONES EN LO COMERCIAL, SALA C, ARGENTINA, 31 OCTOBER 1995 ................................................................. 92

OBERLANDESGERICHT OLDENBURG, 2 U 54/98, GERMANY,92 22 SEPTEMBER 1998 (SMOKED SALMON CASE).............................................................................................................................. 92

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TRIBUNALE DI APPELLO DI LUGANO, SECONDA CAMERA CIVILE, 12.97.00193, SWITZERLAND, 15 JANUARY 1998 (COCOA BEANS CASE) .......................................................................................... 93

5 PASSING OF PROPERTY ....................................................................................................... 94

THE TANG HE [2000] 4 HKC 701 ................................................................................................... 94

CARLOS FEDERSPIEL & CO SA V CHARLES TWIGG & CO LTD [1957] 1 LLOYDS REP 240 ............ 100

RODER ZELT- UND HALLENKONSTRUKTIONEN GMBH V ROSEDOWN PARK PTY LTD [1995] 17 ACSR ............................................................................................................................................ 110

6 FRUSTRATION .................................................................................................................. 129

MALAYSIA DAIRY INDUSTRIES PTE LTD V DAIREX HOLLAND BV, RECHTBANKS-HERTOGENBOSCH, 9981 ............................................................................................................ 130

BUNDESGERICHTSHOF, VIII ZR 121/98, GERMANY, 24 MARCH 1999 (VINE WAX CASE) ........... 130

VITAL BERRY MARKETING NV V DIRA-FROST NV, RECHTBANK VAN KOOPHANDEL, HASSELT ... 131

7 BREACH, CANCELLATION AND REMEDIES .......................................................................... 132

EGO FRUITS SARL V LA VERJA, COUR DAPPEL DE GRENOBLE, CHAMBRE COMMERCIALE, ....... 139

SHUTTLE PACKAGING SYSTEMS V JACOB TSONAKIS INA SA 2001 U.S. DISTRICT COURT (MICHIGAN) ................................................................................................................................ 140

DELCHI CARRIER SPA V ROTOREX CORP (1995) 71 F3D 1024 ..................................................... 142

DOWNS INVESTMENTS V PERWAJA STEEL [2001] QCA 433 ....................................................... 147

BUNDESGERICHTSHOF, GERMANY, VIII ZR 100/11, 26 SEPTEMBER 2012 (CLAY CASE) ............. 158

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SALE OF GOODS (UNITED NATIONS CONVENTION) ACT 1994

An Act to give effect to the provisions of the United Nations Convention on Contracts for the International Sale of Goods BE IT ENACTED by the Parliament of New Zealand as follows: 1. Short Title and commencement (1) This Act may be cited as the Sale of Goods (United Nations Convention) Act 1994. (2) This Act shall come into force on a date to be appointed by the Governor-General by Order in Council. 2. Interpretation In this Act, Convention means the United Nations Convention on Contracts for the International Sale of Goods done at Vienna on the 11th day of April 1980, a copy of the English text of which is set out in the Schedule to this Act. 3. Act to bind the Crown This Act shall bind the Crown. 4. Convention to have force of law The provisions of the Convention shall have the force of law in New Zealand. 5. Convention to be a code The provisions of the Convention shall, in relation to contracts to which it applies, have effect in place of any other law of New Zealand relating to contracts of sale of goods to the extent (a) That the law is concerned with any matter that is governed by the Convention; and (b) That the application of the law is not expressly permitted by the Convention. 6. Certificates about Contracting States A certificate signed by the Secretary of Foreign Affairs and Trade, or by a Deputy Secretary of Foreign Affairs and Trade, stating whether or not, in respect of any specified day or period, (a) A State is a Contracting State: (b) A declaration made under the Convention is effective in

respect of a State and, if so, the contents of any such declaration shall be conclusive evidence for all purposes of the matters stated in the certificate. SCHEDULE: UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS The States Parties to this Convention Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order, Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States,

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Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, Have agreed as follows:

1 APPLICATION OF CISG

PART I. SPHERE OF APPLICATION AND GENERAL PROVISIONS CHAPTER I. SPHERE OF APPLICATION Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention. Article 2 This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity. Article 3 (1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services. Article 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage;

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(b) the effect which the contract may have on the property in the goods sold. Article 5 This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. Article 6 The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.

ASANTE TECHNOLOGIES INC V PMC-SIERRA INC 164 F SUPP 2D 1142 (2001) JAMES WARE, United States District Judge: The Complaint in this action alleges claims based in tort and contract. Plaintiff contends that Defendant failed to provide it with electronic components meeting certain designated technical specifications.

Plaintiff is a Delaware corporation having its primary place of business in Santa Clara County, California. Plaintiff produces network switchers, a type of electronic component used to connect multiple computers to one another and to the Internet. Plaintiff purchases component parts from a number of manufacturers. In particular, Plaintiff purchases application-specific integrated circuits (ASICs), which are considered the control center of its network switchers, from Defendant.

Defendant is also a Delaware corporation. Defendant asserts that, at all relevant times, its corporate headquarters, inside sales and marketing office, public relations department, principal warehouse, and most design and engineering functions were located in Burnaby, British Columbia, Canada. Defendant also maintains an office in Portland, Oregon, where many of its engineers are based. Defendants products are sold in California through Unique Technologies, which is an authorized distributor of Defendants products in North America. It is undisputed that Defendant directed Plaintiff to purchase Defendants products through Unique, and that Defendant honored purchase orders solicited by Unique. Unique is located in California. Determining Defendants place of business with respect to its contract with Plaintiff is critical to the question of whether the Court has jurisdiction in this case.

Plaintiffs Complaint focuses on five purchase orders. Four of the five purchase orders were submitted to Defendant through Unique as directed by Defendant. However, Plaintiff does not dispute that one of the purchase orders, dated January 28, 2000, was sent by fax directly to Defendant in British Columbia, and that Defendant processed the order in British Columbia. Defendant shipped all orders to Plaintiffs headquarters in California. Upon delivery of the goods, Unique sent invoices to Plaintiff, at which time Plaintiff tendered payment to Unique either in California or in Nevada. The Parties do not identify any single contract embodying the agreement pertaining to the sale. Instead, Plaintiff asserts that acceptance of each of its purchase orders was expressly conditioned upon acceptance by Defendant of Plaintiffs Terms and Conditions, which were included with each Purchase Order. Paragraph 20 of Plaintiffs Terms and Conditions provides APPLICABLE LAW. The validity [and] performance of this [purchase] order shall be governed by the laws of the state shown on Buyers address on this order. The buyers address as shown on each of the Purchase Orders is in San Jose, California. Alternatively, Defendant suggests that the terms of shipment are governed by a document entitled PMC-Sierra TERMS AND CONDITIONS OF SALE. Paragraph 19 of Defendants Terms and conditions provides APPLICABLE LAW: The contract between the parties is made, governed by, and shall be construed in accordance with the laws of the

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Province of British Columbia and the laws of Canada applicable therein, which shall be deemed to be the proper law hereof . . . .

The Convention on Contracts for the International Sale of Goods (CISG) is an international treaty which has been signed and ratified by the United States and Canada, among other countries. The CISG was adopted for the purpose of establishing substantive provisions of law to govern the formation of international sales contracts and the rights and obligations of the buyer and the seller. U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text, 15 U.S.C. App. at 52 (1997). The CISG applies to contracts of sale of goods between parties whose places of business are in different States . . . when the States are Contracting States. 15 U.S.C. App., Art. 1 (1)(a). Article 10 of the CISG provides that if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance. 15 U.S.C. App. Art. 10.

The CISG only applies when a contract is between parties whose places of business are in different States. 15 U.S.C. App., Art. 1 (1)(a). If this requirement is not satisfied, Defendant cannot claim jurisdiction under the CISG. It is undisputed that Plaintiffs place of business is Santa Clara County, California, U.S.A. It is further undisputed that during the relevant time period, Defendants corporate headquarters, inside sales and marketing office, public relations department, principal warehouse, and most of its design and engineering functions were located in Burnaby, British Columbia, Canada. However, Plaintiff contends that, pursuant to Article 10 of the CISG, Defendants place of business having the closest relationship to the contract at issue is the United States. Plaintiff asserts that Unique acted in the United States as an agent of Defendant, and that Plaintiffs contacts with Unique establish Defendants place of business in the U.S. for the purposes of this contract.

Plaintiff has failed to persuade the Court that Unique acted as the agent of Defendant. Plaintiff provides no legal support for this proposition. To the contrary, a distributor of goods for resale is normally not treated as an agent of the manufacturer. Restatement of the Law of Agency, 2d 14J (1957) (One who receives goods from another for resale to a third person is not thereby the others agent in the transaction.); Stansifer v. Chrysler Motors Corp., 487 F.2d 59, 64-65 (9th Cir. 1973) (holding that nonexclusive distributor was not agent of manufacturer where distributorship agreement expressly stated distributor is not an agent). Agency results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Restatement of the Law of Agency, 2d, 1 (1957). Plaintiff has produced no evidence of consent by Defendant to be bound by the acts of Unique. To the contrary, Defendant cites the distributorship agreement with Unique, which expressly states that the contract does not allow Distributor to create or assume any obligation on behalf of [Defendant] for any purpose whatsoever. Furthermore, while Unique may distribute Defendants products, Plaintiff does not allege that Unique made any representations regarding technical specifications on behalf of Defendant. Indeed, Unique is not even mentioned in the Complaint. To the extent that representations were made regarding the technical specifications of the ASICs, and those specifications were not satisfied by the delivered goods, the relevant agreement is that between Plaintiff and Defendant. Accordingly, the Court finds that Unique is not an agent of Defendant in this dispute. Plaintiffs dealings with Unique do not establish Defendants place of business in the United States.

Plaintiffs claims concern breaches of representations made by Defendant from Canada. Moreover, the products in question are manufactured in Canada, and Plaintiff knew that Defendant was Canadian, having sent one purchase order directly to Defendant in Canada by fax. Plaintiff supports its position with the declaration of Anthony Contos, Plaintiffs Vice President of Finance and Administration, who states that Plaintiffs primary contact with Defendant during the development and engineering of the ASICs at issue . . . was with [Defendants] facilities in Portland, Oregon. The Court concludes that these contacts are not sufficient to override the fact that most if not all of Defendants alleged representations regarding the technical specifications of the products emanated

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from Canada. Moreover, Plaintiff directly corresponded with Defendant at Defendants Canadian address. Plaintiff relies on all of these alleged representations at length in its Complaint. In contrast, Plaintiff has not identified any specific representation or correspondence emanating from Defendants Oregon branch. For these reasons, the Court finds that Defendants place of business that has the closest relationship to the contract and its performance is British Columbia, Canada. Consequently, the contract at issue in this litigation is between parties from two different Contracting States, Canada and the United States. This contract therefore implicates the CISG.

Plaintiff next argues that, even if the Parties are from two nations that have adopted the CISG, the choice of law provisions in the Terms and Conditions set forth by both Parties reflect the Parties intent to opt out of application of the treaty. Article 6 of the CISG provides that the parties may exclude the application of the Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions. 15 U.S.C. App., Art. 6. Defendant asserts that merely choosing the law of a jurisdiction is insufficient to opt out of the CISG, absent express exclusion of the CISG. The Court finds that the particular choice of law provisions in the Terms and Conditions of both parties are inadequate to effectuate an opt out of the CISG.

Although selection of a particular choice of law, such as the California Commercial Code or the Uniform Commercial Code could amount to implied exclusion of the CISG, the choice of law clauses at issue here do not evince a clear intent to opt out of the CISG. For example, Defendants choice of applicable law adopts the law of British Columbia, and it is undisputed that the CISG is the law of British Columbia. (International Sale of Goods Act ch. 236, 1996 S.B.C. 1 et seq. (B.C.).) Furthermore, even Plaintiffs choice of applicable law generally adopts the laws of the State of California, and California is bound by the Supremacy Clause to the treaties of the United States. U.S. Const. art. VI, cl. 2 (This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land.) Thus, under general California law, the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG, and in view of Defendants Terms and Conditions which would apply the CISG, the Court rejects Plaintiffs contention that the choice of law provisions preclude the applicability of the CISG.

For the foregoing reasons, Plaintiffs Motion to Remand is DENIED. Accordingly, the Request for Attorneys Fees is also DENIED.

RHOMBERG GMBH V OTT, SCHWEIZERISCHES BUNDESGERICHT, SWITZERLAND, 11 DECEMBER 2000 A Swiss couple consulted an Austrian kitchen manufacturing company in order to buy a fitted kitchen of a specific brand. Although the seller was aware of the fact the buyers were only interested in a kitchen of that specific brand, it delivered a fitted kitchen manufactured by its own firm. A dispute arose when, a few days after delivery, the buyers realized that the kitchen was not of the expected brand; therefore, they asked the seller to take back the kitchen against reimbursement of the deposit paid. The seller objected and brought an action against the buyers to recover the outstanding purchase price. Both the First and the Second Instance Courts dismissed the sellers claim.

The Supreme Court confirmed the Appellate Court decision. In doing so, the Supreme Court held that the lower Court had appropriately established that the contract was governed by CISG, since both parties had their place of business in Contracting States. The fact that the buyers intended to purchase the kitchen for their family use was not taken into consideration by the Court.

As to the merits, the Court ruled that no contract has been validly concluded because the parties were in disagreement as to the exact nature of the goods to be sold. Yet even assuming that a

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valid contract was concluded, the buyers were entitled to set it aside on the ground of a mistake on their part in accordance with the domestic law governing defects of consent. 2 CONTRACT FORMATION AND INTERPRETATION

CHAPTER II. GENERAL PROVISIONS Article 7 (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. Article 9 (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 10 For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence. Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirements as to form. It may be proved by any means, including witnesses.

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Article 12 Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article. Article 13 For the purposes of this Convention ``writing includes telegram and telex. PART II. FORMATION OF THE CONTRACT Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. Article 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. Article 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror. Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one

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relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph. Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one partys liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. Article 20 (1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree. (2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows. Article 21 (1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect. (2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect. Article 22 An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. Article 23 A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. Article 24 For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other indication of intention ``reaches the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.

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MAGELLAN INTERNATIONAL CORP V SALZGITTER HANDEL GMBH UNITED STATES 7 DECEMBER 1999 FEDERAL DISTRICT COURT [ILLINOIS]

Milton I. Shadur, Senior United States District Judge: Offers, Counteroffers and Acceptance Magellan is an Illinois-based distributor of steel products. Salzgitter is a steel trader that is headquartered in Dusseldorf, Germany and maintains an Illinois sales office. In January 1999 Magellans Robert Arthur (Arthur) and Salzgitters Thomas Riess (Riess) commenced negotiations on a potential deal under which Salzgitter would begin to act as middleman in Magellans purchase of steel bars - manufactured according to Magellans specifications - from a Ukrainian steel mill, Dneprospetsstal of Ukraine (DSS). By letter dated January 28, Magellan provided Salzgitter with written specifications for 5,585 metric tons of steel bars, with proposed pricing, and with an agreement to issue a letter of credit (LC) to Salzgitter as Magellans method of payment. Salzgitter responded two weeks later (on February 12 and 13) by proposing prices $5 to $20 per ton higher than those Magellan had specified.

On February 15 Magellan accepted Salzgitters price increases, agreed on 4,000 tons as the quantity being purchased, and added $5 per ton over Salzgitters numbers to effect shipping from Magellans preferred port (Ventspills, Latvia). Magellan memorialized those terms, as well as the other material terms previously discussed by the parties, in two February 15 purchase orders. Salzgitter then responded on February 17, apparently accepting Magellans memorialized terms except for two amendments as to prices. Riess asked for Magellans acceptance of those two price increases by return fax and promised to send its already-drawn-up order confirmations as soon as they were countersigned by DSS. Arthur consented, signing and returning the approved price amendments to Riess the same day. On February 19 Salzgitter sent its pro forma order confirmations to Magellan. But the general terms and conditions that were attached to those confirmations differed in some respects from those that had been attached to Magellans purchase orders, mainly with respect to vessel loading conditions, dispute resolution and choice of law.

Contemplating an ongoing business relationship, Magellan and Salzgitter continued to negotiate in an effort to resolve the remaining conflicts between their respective forms. While those fine-tuning negotiations were under way, Salzgitter began to press Magellan to open its LC for the transaction in Salzgitters favor. On March 4 Magellan sent Salzgitter a draft LC for review. Salzgitter wrote back on March 8 proposing minor amendments to the LC and stating that all other terms are acceptable. Although Magellan preferred to wait until all of the minor details (the remaining conflicting terms) were ironed out before issuing the LC, Salzgitter continued to press for its immediate issuance.

On March 22 Salzgitter sent amended order confirmations to Magellan. Riess visited Arthur four days later on March 26 and threatened to cancel the steel orders if Magellan did not open the LC in Salzgitters favor that day. They then came to agreement as to the remaining contractual issues. Accordingly, relying on Riesss assurances that all remaining details of the deal were settled, Arthur had the $ 1.2 million LC issued later that same day. Post-Acceptance Events Three days later (on March 29) Arthur and Riess engaged in an extended game of fax tag initiated by the latter. Essentially Salzgitter demanded that the LC be amended to permit the unconditional

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substitution of FCRs for bills of lading even for partial orders and Magellan refused to amend the LC, also pointing out the need to conform Salzgitters March 22 amended order confirmations to the terms of the parties ultimate March 26 agreement. At the same time, Magellan requested minor modifications in some of the steel specifications. Salzgitter replied that it was too late to modify the specifications: DSS had already manufactured 60% of the order, and the rest was under production.

Perhaps unsurprisingly in light of what has been recited up to now, on the very next day (March 30) Magellans and Salzgitters friendly fine-tuning went flat. Salzgitter screeched an ultimatum to Magellan: Amend the LC by noon the following day or Salzgitter would no longer feel obligated to perform and would sell the material elsewhere. On April 1 Magellan requested that the LC be canceled because of what it considered to be Salzgitters breach. Salzgitter returned the LC and has since been attempting to sell the manufactured steel to Magellans customers in the United States. Magellans Claims Complaint Count I posits that pursuant to the Convention a valid contract existed between Magellan and Salzgitter before Salzgitters March 30 ultimatum. Hence that attempted ukase is said to have amounted to an anticipatory repudiation of that contract, entitling Magellan to relief for its breach.

Count II seeks specific performance of the contract or replevin of the manufactured steel. That relief is invoked under the Illinois version of the Uniform Commercial Code (UCC, specifically 810 ILCS 5/2-716) because Magellan is unable to cover its delivery commitments to its customers without unreasonable delay (Complaint P42). Count I: Breach of Contract Choice of Law As stated earlier, Magellan first claims entitlement to relief for breach of contract. Because the transaction involves the sale and purchase of steel goods the parties acknowledge that the governing law is either the Convention or the UCC. Under the facts alleged by Magellan, the parties agreed that Convention law would apply to the transaction, and Salzgitter does not now dispute that contention. That being the case, this opinion looks to Convention law. Pleading Requirements [T]he specification of the pleading requirements to state a claim for breach of contract under the Convention truly poses a question of first impression. Despite that clean slate, even a brief glance at the Conventions structure confirms what common sense (and the common law) dictate as the universal elements of any such action: formation, performance, breach and damages. Hence under the Convention, as under Illinois law (or the common law generally), the components essential to a cause of action for breach of contract are (1) the existence of a valid and enforceable contract containing both definite and certain terms, (2) performance by plaintiff, (3) breach by defendant and (4) resultant injury to plaintiff. In those terms it is equally clear that Magellans allegations provide adequate notice to Salzgitter that such an action is being asserted.

Formation of a contract under either UCC or the Convention requires an offer followed by an acceptance (see Convention Pt. II). Although analysis of offer and acceptance typically involves complicated factual issues of intent issues not appropriately addressed on a motion to dismiss this Court need not engage in such mental gymnastics here. It is enough that Magellan has alleged facts that a factfinder could call an offer on the one hand and an acceptance on the other.

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Under Convention Art. 14(1) a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. So, if the indications of the proposer are sufficiently definite and justify the addressee in understanding that its acceptance will form a contract, the proposal constitutes an offer (id. Art. 8(2)). For that purpose [a] proposal is sufficiently definite if it indicates the goods and expressly or implicitly makes provision for determining the quantity and the price (id. Art. 14(1)).

In this instance Magellan alleges that it sent purchase orders to Salzgitter on February 15 that contained the material terms upon which the parties had agreed. Those terms included identification of the goods, quantity and price. Certainly an offer could be found consistently with those facts.

But Convention Art. 19(1) goes on to state that [a] reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. That provision reflects the common laws mirror image rule that the UCC has rejected (see Filanto, 789 F. Supp. at 1238). And Salzgitters February 17 response to the purchase orders did propose price changes. Hence that response can be seen as a counteroffer that justified Magellans belief that its acceptance of those new prices would form a contract.

Although that expectation was then frustrated by the later events in February and then in March, which in contract terms equated to further offers and counteroffers, the requisite contractual joinder could reasonably be viewed by a factfinder as having jelled on March 26. In that respect Convention Art. 18(a) requires an indication of assent to an offer (or counteroffer) to constitute its acceptance. Such an indication may occur through a statement made by or other conduct of the offeree. And at the very least, a jury could find consistently with Magellans allegations that the required indication of complete (mirrored) assent occurred when Magellan issued its LC on March 26. So much, then, for the first element of a contract: offer and acceptance.

Next, the second pleading requirement for a breach of contract claim performance by plaintiff was not only specifically addressed by Magellan but can also be inferred from the facts alleged in Complaint P43 and from Magellans prayer for specific performance. Magellans performance obligation as the buyer is simple: payment of the price for the goods. Magellan issued its LC in satisfaction of that obligation, later requesting the LCs cancellation only after Salzgitters alleged breach. Moreover, Magellans request for specific performance implicitly confirms that it remains ready and willing to pay the price if such relief were granted.

As for the third pleading element Salzgitters breach Complaint P38 alleges:

Salzgitters March 30 letter (Exhibit G) demanding that the bill of lading provision be removed from the letter of credit and threatening to cancel the contract constitutes an anticipatory repudiation and fundamental breach of the contract.

It would be difficult to imagine an allegation that more clearly fulfills the notice function of pleading.

Convention Art. 72 addresses the concept of anticipatory breach:

(1) 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. (2) 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. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.

Convention Art. 25 states in relevant part:

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....

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That plain language reveals that under the Convention an anticipatory repudiation pleader need simply allege (1) that the defendant intended to breach the contract before the contracts performance date and (2) that such breach was fundamental. Here Magellan has pleaded that Salzgitters March 29 letter indicated its pre-performance intention not to perform the contract, coupled with Magellans allegation that the bill of lading requirement was an essential part of the parties bargain. That being the case, Saltzgitters insistence upon an amendment of that requirement would indeed be a fundamental breach.

Lastly, Magellan has easily jumped the fourth pleading hurdle resultant injury. Complaint P40 alleges that the breach has caused damages to Magellan. Count II: Specific Performance or Replevin Convention Art. 46(1) provides that a buyer may require the seller to perform its obligations unless the buyer has resorted to a remedy inconsistent with that requirement. As such, that provision would appear to make specific performance routinely available under the Convention. But Convention Art. 28 conditions the availability of specific performance:

If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.

Simply put, that looks to the availability of such relief under the UCC. And in pleading terms, any complaint adequate to provide notice under the UCC is equally sufficient under the Convention.

Under UCC 2-716(1) a court may decree specific performance where the goods are unique or in other proper circumstances. That provisions Official Commentary instructs that inability to cover should be considered strong evidence of other proper circumstances. UCC 2-716 was designed to liberalize the common law, which rarely allowed specific performance (see, e.g., 4A Ronald A. Anderson, Uniform Commercial Code 2-716: 11 (3d ed. 1997)). Basically courts now determine whether goods are replaceable as a practical matter--for example, whether it would be difficult to obtain similar goods on the open market (see generally Andrea G. Nadel, Annotation, Specific Performance of Sale of Goods Under UCC 2-716, 26 A.L.R. 4th 294 (1983)).

Given the centrality of the replaceability issue in determining the availability of specific relief under the UCC, a pleader need allege only the difficulty of cover to state a claim under that section. Magellan has done that. Conclusion It may perhaps be that when the facts are further fleshed out through discovery, Magellans claims against Salzgitter will indeed succumb either for lack of proof or as the consequence of some legal deficiency. But in the current Rule 12(b)(6) context, Salzgitters motion as to Counts I and II is denied, and it is ordered to file its Answer to the Complaint on or before December 20, 1999.

BUNDESGERICHTSHOF, VIII ZR 304/00, GERMANY, 9 JANUARY 2002 (POWDERED MILK CASE)

A German seller and a Dutch buyer entered into several contracts for the sale of powdered milk. The contracts were concluded by telephone and subsequently confirmed in writing by both parties. The letters of confirmation sent by the buyer contained a standard term stating that, notwithstanding

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any duty of the seller to pay back the purchase price, the liability of the seller for damages suffered (or to be suffered) should be at all times limited to the invoiced amount for the delivered goods.

The sellers letters of confirmation contained a term according to which the sale was to be governed exclusively pursuant to the sellers standard terms and contrary statutory conditions or standard terms of the buyer were expressly excluded. Moreover, a warranty clause contained in the sellers standard terms stated that the buyer should inspect the goods immediately upon delivery and note any complaints on the delivery note; defects that were not noticeable at the time of delivery could only be claimed before the printed expiration date.

The buyer resold the milk to an Algerian and a Dutch company. Upon delivery, and after a sample inspection by the buyer which gave no negative results, the packaged powdered milk was shipped to Algeria and to Aruba/Netherland Antilles. After processing, part of the milk delivered to Algeria turned out to have a rancid taste. The Algerian customer lamented the non-conformity of the goods and therefore the buyers customers met twice with the buyer and the seller, in order to achieve an amicable solution. Thereupon, by letter dated August 24, 1998, the seller acknowledged that a specified quantity of the milk did not meet the contractual requirements and that the buyer had warranty claims as to that quantity; with reference to its standard terms, however, the seller denied any liability as to further claims.

Meanwhile also the Dutch customer complained about the non-conformity of a certain amount of milk and obtained damages from the buyer.

The buyer commenced an action for damages against the seller, alleging that the non-conformity of goods was caused by a defect that already existed at the time of the passing of risk, but only became apparent after processing.

The First Instance Court dismissed the buyers complaint. The Court of Appeal (Oberlandesgericht Dresden, 23.10.2000) partially granted the claim, ordering the seller to pay damages according to articles 74, 75 CISG.

The Supreme Court agreed with the lower Court in finding that the partial conflict of the parties standard terms (battle of the forms) could not lead to a failure of the entire contract, since the parties, in performing the contract, had shown that such a conflict was not to be considered a material modification of their agreement (Art. 19(1) and (3) CISG).

As to the battle of the forms, the Court furthermore confirmed that, in an application of the knock out doctrine, generally accepted in scholarly opinions, conflicting standard terms only do not become part of the contract; the evaluation of such a conflict must proceed, however, from a systematic interpretation of all the rules involved. Thus, the liability of the seller for lack of conformity was governed by CISG, seeing as both buyers and sellers standard terms were not applicable to the contract as far as non-conformity was concerned.

The Court pointed out that in the case at hand, the result would not change even applying the minority doctrine of the last shot, since it would be contrary to the principle of good faith (Art. 7(1) CISG) for the seller, whose standard terms were sent after the buyers, to assume that only those terms of the buyers standard conditions more favorable to the seller would apply.

As far as the burden of proof is concerned, the Court confirmed the principle according to which the burden of proof is a matter generally governed by CISG, either expressly (Art. 79(1) CISG) or impliedly (Art. 2(a) CISG). In the case at hand, however, the admission of liability expressly made in writing by the seller was to be considered a matter excluded by the scope of CISG (Art. 4 CISG), and therefore the resulting burden of proof issues had to be solved according to the applicable domestic law (i.e. German law).

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3 PARTIES OBLIGATIONS 3.1 Parties Obligations at Common Law

PYRENE CO LTD V SCINDIA NAVIGATION CO LTD [1954] 2 QB 402 DEVLIN J: read the following judgment: This case raises questions of interest and importance upon the interpretation of the Hague Rules and their applicability to a f.o.b. seller. The plaintiffs sold a piece of machinery, a fire tender, to the Government of India (which acted in this matter through a department known for short as; I.S.D.) for delivery f.o.b. London. I.S.D. nominated the Jalazad, one of the defendants vessels, as the ship to be loaded under the contract of sale, and through their agents, Bahr Behrend & Co., made all the arrangements for the carriage of the goods. While the tender was being lifted on to the vessel by the ships tackle, and before it was across the rail it was, through the fault of the ship, dropped and damaged. Under the contract of sale the property had not then passed to I.S.D. The damage to the tender cost 966 to repair and the plaintiffs sue for that sum.

The contract of sale provided for delivery f.o.b. London, the price including dock and harbour dues and port rates to be paid by the seller; and further expressly provided that freight was to be engaged by the buyer, who was to give due notice to the seller when and on board what vessel the goods were to be delivered. Payment was to be made twenty-one days after delivery and after receipt of certain documents for which the contract called, such as invoice, inspection certificate, etc., and of the dock companys or mates receipt. In the special circumstances of this case and because of delay in shipment, payment was in fact made in advance, but on the terms that that should not affect the sellers obligations as to delivery. As I have said, it was agreed that the property did not pass till delivery over the ships rail.

It is worth noting that the problem which I have to consider does not arise as a matter of course in every f.o.b. contract. The f.o.b. contract has become a flexible instrument. In what counsel called the classic type as described, for example, in Wimble, Sons & Co. Ld. v. Rosenberg & Sons [1913] 3 K.B. 743, the buyers duty is to nominate the ship, and the sellers to put the goods on board for account of the buyer and procure a bill of lading in terms usual in the trade. In such a case the seller is directly a party to the contract of carriage at least until he takes out the bill of lading in the buyers name. Probably the classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to the berth or at least those of which she is notified. Under present conditions, when space often has to be booked well in advance, the contract of carriage comes into existence at an earlier point of time. Sometimes the seller is asked to make the necessary arrangements; and the contract may then provide for his taking the bill of lading in his own name and obtaining payment against the transfer, as in a c.i.f. contract. Sometimes the buyer engages his own forwarding agent at the port of loading to book space and to procure the bill of lading; if freight has to be paid in advance this method may be the most convenient. In such a case the seller discharges his duty by putting the goods on board, getting the mates receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. The present case belongs to this third type; and it is only in this type, I think, that any doubt can arise about the seller being a party to the contract.

The contract of carriage in this case was made in the office of Bahr Behrend & Co., for they are both agents for I.S.D. and freight brokers for the defendants. An instruction came to Bahr Behrend from I.S.D. to arrange for the shipment of these goods among other cargo, and a note by Bahr Behrend dated March 29, 1951, records that the shipment was booked per the Jalazed. The ordinary practice is for I.S.D. to prepare a bill of lading (the defendants have a special form for Government of India shipments) and to send it to Bahr Behrend. Bahr Behrend check the items on it from a return made out by the cargo superintendent after shipment and then sign and issue the bill

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of lading on behalf of the defendants generally some days after the ship has sailed, dependent on the volume of the cargo to be dealt with.

It is the practice in the Port of London for all loading to be done by the port authority at the ships expense. The whole charge, therefore, for loading from alongside is paid by the ship and covered by the freight; in this case, it included the cost of lighterage from the dock to the ships side. On April 7 Bahr Behrend, on behalf of I.S.D., notified the plaintiffs that space had been engaged, and instructed them to dispatch the goods to arrive alongside the vessel.

The question at once arises: if, as the plaintiffs contend, there is no contractual relationship between them and the defendants, how do they get these goods on board? If the ship sails off without loading the goods the plaintiffs are in breach of their contract of sale. Have they no redress against the ship? Mr. Megaw argues that they would have none, and that vis-a-vis the sellers the ship in loading acts as a volunteer. This seems to me to be a position which none of the three parties would have accepted for a moment.

Let me look at the situation first from the standpoint of the shipper, I.S.D. In the ordinary case, such as I have been considering above, where the shipper takes out a bill of lading or an insurance policy, he has at the time of the contract himself got the property in the goods; the question whether he contracts for the benefit of subsequent owners depends on proof of his intention at the time of contracting. But where, as in this case, he has not got the property at the time of the contract, and does not intend to acquire it before the contract begins to operate, he must act as agent. He cannot intend otherwise; the intention is inherent in the act; he must either profess agency or confess himself a wrongdoer. For if the shipowner lifts the sellers goods from the dock without the sellers authority he is guilty of conversion to which the shipper, by requiring him to do it, makes himself a party.

Let me look at it now from the standpoint of the ship. If the shipowners were sued for conversion they would surely have redress against the shipper. A person who requests a carrier to handle goods must have the right to deal with them or it would not be safe to contract with him. A shipowner cannot be supposed to inquire whether the goods he handles do or do not belong to the shipper who entrusts them to his care; if the goods are not the shippers there must be implied a warranty of authority by him that he has the right to contract with regard to them.

Then from the standpoint of the seller, if his goods are left behind, and it is said to him: You made no contract with the ship; what else did you expect? he would answer, I think, that he naturally supposed that all the necessary arrangements had been made by the shippers.

In brief, I think the inference irresistible that it was the intention of all three parties that the seller should participate in the contract of affreightment so far as it affected him. If it were intended that he should be a party to the whole of the contract his position would be that of an undisclosed principal and the ordinary law of agency would apply. But that is obviously not intended; he could not, for example, be sued for the freight. This is the sort of situation that is covered by the wider principle; the third party takes those benefits of the contract which appertain to his interest therein, but takes them, of course, subject to whatever qualifications with regard to them the contract imposes. It is argued that it is not reasonable to suppose that the seller would submit to the terms of a contract whose detail he does not know and which might not give him the sort of protection of which he would approve. I do not think that as a matter of business this is so. Most people board a bus or train without considering what protection they will get in the event of an accident. I see nothing unreasonably imprudent in a seller assuming that the buyer, whose stake in the contract is greater than his, would have obtained whatever terms are usual in the trade; if he were legally minded enough to inquire what they were, the answer would be that by statutory requirement the contract was governed by the Hague Rules.

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BIDDELL BROS V E CLEMENS HORST CO [1911] 1 KB 934 (CA) FARWELL L.J.: The first question in this case is whether a contract for hops c.i.f. to London, terms net cash, but without the words against documents, means that the price is to be paid against documents, or after the buyer has had the opportunity of inspecting the goods. Hamilton J. has held, and I agree with him, that terms net cash adds nothing to the contract to pay: it means only no credit and no deductions by way of discount or otherwise. The neat question, therefore, remains, whether the fact that the contract is c.i.f. is by itself sufficient to import payment against documents, or, in other words, whether a contract which does not contain those words is to be read as a contract which does contain them.

Now, apart from rectification, with which we are not concerned in this case, there are three ways only in which a provision not expressed in a written document can be added to it. The first is where the words used are elliptical; the second is usage, including in that term the law merchant, whereby, under certain limitations, terms may be added to or phrases may be explained and construed in a written document; and the third is necessary implication as explained in The Moorcock, and Hamlyn & Co. v. Wood & Co., where Lord Esher says: The Court has no right to imply in a written contract any such stipulation, unless, on considering the terms of the contract in a reasonable and business manner, an implication necessarily arises that the parties must have intended that the suggested stipulation should exist. It is not enough to say that it would be a reasonable thing to make such an implication. It must be a necessary implication in the sense that I have mentioned. The words of the contract here, namely, The parties of the second part shall pay for the said hops at the rate of ninety (90) shillings sterling per 112 lbs., c.i.f. to London, are obviously elliptical so far as c.i.f. is concerned, and on construction mean that the 90s. is to include cost insurance and freight, which are to be provided by the seller on behalf of the buyer, but they express no time or term of payment: payment is dealt with in the next sentence - terms net cash - and here is the natural and usual place to add against documents or the like, if the parties so intend. But Hamilton J. himself says that net cash does not mean against documents, and I can find nothing in the whole of the words read together, or in any of them read separately, from which any such meaning can be extracted on any rules of construction known to the law. It is in my opinion equally impossible to add any term by usage. Usage must be proved by evidence, or must have been so often proved as to be part of the law merchant, and to be the subject of judicial knowledge (see Gibson v. Small); but here no evidence was tendered, nor was it suggested, that there was any usage or law merchant. It is common ground that in the majority of c.i.f. contracts the words cash or bills or the like against documents are expressly inserted, and this very fact is almost conclusive that there is no usage or law merchant, for usage implies a term outside the written document, and is prima facie negatived by finding an express clause usually inserted in written documents of the class in question. The clauses usually inserted in a particular form of written contract are quite distinct from clauses not so inserted but added by usage or law merchant: the usage or law merchant dispenses with the express insertion. The omission from a contract of a clause usually inserted in contracts of that class is evidence of the intention of the parties that such clause shall not apply, not that it shall: nor can the Court infer from the express insertion of a particular clause in most of the contracts of a particular class any usage justifying the addition of such a clause to a contract of that class in which it is not inserted. If Hamilton J. had ruled that there was any usage, so often proved that he had judicial knowledge of its existence, to the effect that a c.i.f. contract always implied cash against documents, whether so expressed or not, I should probably have deferred to his great knowledge and experience in commercial cases, but he has not done so, nor has counsel suggested that any such usage has ever been proved, and they could hardly be ignorant of its existence, if it had any; in the absence of any such usage the judge cannot mero motu add to the law merchant, as to which Foster J. says in Edie v. East India Dock Co., Much has been said about the custom of merchants. But the custom of merchants, or law of merchants, is the law of the kingdom and is part of the common law. People do not sufficiently distinguish between customs of different sorts. The

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true distinction is between general customs, (which are part of the common law), and local customs (which are not so). This custom of merchants is the general law of the kingdom, part of the common law; and Wilmot J. says, The custom of merchants is part of the law of England; and Courts of law must take notice of it, as such. There may indeed be some questions depending upon customs amongst merchants, where, if there be a doubt about the custom, it may be fit and proper to take the opinion of merchants thereupon; yet that is only where the law remains doubtful. And even there, the custom must be proved by facts, not by opinion only; and it must also be subject to the control of law. Indeed in the Court below the respondents counsel argued on the construction of the words net cash, and did not suggest that c.i.f. could be construed as including payment against documents. This reticence is important when the question is as to the existence of usage - a matter that could hardly be unknown to the counsel of experience who argued this case.

There remains, therefore, only the third ground. At common law the delivery of goods by the seller and acceptance and payment by the buyer are regarded as concurrent acts, the buyer being entitled to a reasonable opportunity for inspection before he accepts and pays. It is thus expressed by Rolfe B. in Startup v. Macdonald: Now, it may be observed, that in every contract by which a party binds himself to deliver goods, or pay money, to another, he in fact engages to do an act which he cannot completely perform without the concurrence of the party to whom the delivery or the payment is to be made. Without acceptance on the part of him who is to receive, the act of him who is deliver or to pay, can amount only to a tender. But the law considers a party who has entered into a contract to deliver goods or pay money to another, as having, substantially, performed it, if he has tendered the goods or money to the party to whom the delivery or payment was to be made, provided only that the tender has been made under such circumstances that the party to whom it has been made, has had a reasonable opportunity of examining the goods, or the money, tendered in order to ascertain that the thing tendered really was what it purported to be. Indeed, without such an opportunity an offer to deliver or pay does not amount to a tender. The general rule, therefore, is payment against inspected goods; and this is simple enough where both parties and the goods are together in the same place. But when goods are shipped from across seas, the contract becomes complicated by the fact that the delivery, although not complete until acceptance, commences on a c.i.f. contract on shipment, and the property passes, subject to certain qualifications not necessary now to consider, when the goods are shipped; if the seller fails to ship, or ships goods not according to contract, the breach by him is committed there and then: Parker v. Schuller; Crozier, Stephens & Co. v. Auerbach. But the buyers acceptance and duty to pay is not on shipment. The c.i.f. contract usually provides for payment against documents, a practice convenient for both parties, as the bill of lading enables financial dealings on the credit of the goods to be carried out before the arrival of the goods; but no one has ever suggested that on a c.i.f. contract, silent as to time of payment, the buyer is bound to pay on shipment of the goods. The result must therefore be that the ordinary rule of law is not displaced, namely, payment against examined goods. It is said that this cannot be so, because under the contract in common form c.i.f. payment against documents the buyer has to unload and warehouse the goods at his own expense; whereas the seller would have to bear such expense if he has to afford the buyer an opportunity of inspection before payment can be required. But this is only to state the different consequences flowing from two contracts expressed in different terms: there is no such necessity for any implication as to justify the Court in altering the usual incidence of burdens under a contract silent as to this particular burden; and actual physical necessity is not suggested, and would indeed be disproved by the fact that in this very case such inspection before payment has been given by the sellers in one case at any rate during the existence of this contract. I do not suggest that the conduct of the parties under the contract is admissible as evidence of the construction of the contract; I think that it is not (although it would be so in a suit to rectify on the ground of common error); but it is admissible to shew that there is in fact no such impossibility as to render the contract impossible of performance without the addition of the terms suggested.

In my opinion Lord Blackburns statement in Ireland v. Livingston throws no light at all on the question before us, and I cannot follow the reasoning of Hamilton J. in this case . I will assume that

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as a matter of usage the seller is bound to tender the bill of lading to the buyer when it arrives, and, if the buyer accepts it, he must, of course, pay for the goods on such acceptance, because the delivery of the bill of lading is a symbolical delivery of the goods, and, if the goods are accepted, the right of antecedent (though not of subsequent) inspection before payment is thereby waived, just as it would be in the case of acceptance of the goods themselves without inspection. But I fail to follow the consequence said by the learned judge to ensue. The duty on A. to tender to B. a document before he can require payment does not impose on B. a duty to accept such document as equivalent to goods, if he has a right to inspect such goods before accepting and paying for them. B. has the option of choosing between two alternative rights: he may accept symbolical delivery or actual delivery, but in the absence of express contract it is at his option, not at the sellers. In the great majority of cases, it suits both buyer and seller better to give and accept symbolical delivery by the bill of lading, and the existence and exercise of this option explain why in cases where the c.i.f. contract does not contain the words cash against documents, or the like, the contract is in fact often so carried out. But this is no evidence of usage for the buyer to accept in all cases, or, in other words, to waive the option. If the goods were lost at sea, the option would at once cease because inspection would have been rendered impossible, and the buyer would be bound to pay against documents.

Then it is said that Parker v. Schuller is an authority against the appellants. In my opinion, that case has no bearing on the present. The question there related solely to the duty of the seller and the place where the performance of the contract by him was to be carried out. We are here concerned with the duty of the buyer. No one doubts that the sellers breach of a c.i.f. contract arises on failure to ship, but no one suggests that the buyers duty to pay arises on such shipment; his duty depends on the terms of the contract, and never came into question in Parker v. Schuller. The basis of my judgment is that the buyer has a common law right (now embodied in the Sale of Goods Act) to have inspected goods against payment, and this cannot be taken away from him without some contract expressed or implied, and here I can find neither. In this particular, and very ill-drawn, contract there are words, especially in the clause referring to refusal to pay for any hops delivered and accepted hereunder, which bear out the conclusions at which I have arrived, but I prefer to rest my judgment on the general grounds above stated. It is said that this decision will upset mercantile practice, but I fail to see any difficulty in parties who desire it adding against documents to their contracts - a course hitherto adopted in the majority of c.i.f. contracts.

In my opinion the appeal should be allowed and judgment entered for the plaintiffs. [VAUGHAN WILLIAMS LJ concurred.] KENNEDY L.J (dissenting): This is an appeal of the plaintiffs in the action against the judgment of Hamilton J. sitting as a judge without a jury for the trial of commercial cases in the Kings Bench Division. The action before him comprised a claim of the plaintiffs for damages for breaches of two contracts, partly typewritten and partly printed, and a counter-claim of the defendants for breaches of the same contracts.

So far as regards the claim of the plaintiffs, which Hamilton J. has dismissed, his judgment was in my opinion right, and but for the contrary opinion of the other members of this Court, from whom I have the misfortune to differ, I should have ventured to think the case a reasonably simple one.

The material terms of the two contracts, with the conflicting contentions of the litigants thereon, are carefully stated by Hamilton J. in the opening portion of his judgment, and it is needless for me to repeat them here at length. It is sufficient, in order to make clear the reasoning of my judgment, to summarize the statement of the learned judge. Each of the contracts in question is a contract for the sale of foreign hops of specified quality, to be shipped by the defendants, the sellers, from the Pacific Coast to Sunderland, and to be paid for by the plaintiffs, the purchasers, at the rate of 90s. sterling per 112 lbs., c.i.f. to London, Liverpool, or Hull, terms net cash. No point arises, as the

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learned judge states, upon the question of the calculation of freight being to London, Liverpool, or Hull, while the shipment was to Sunderland. Possibly the explanation of this arrangement is that Messrs. C. Vaux & Sons, Limited, the original purchasers, who assigned their interest under the contracts to the plaintiffs, carried on business at Sunderland. Anyhow, the fact is, as it has been treated throughout the argument, immaterial. The dispute between the parties is as to the conditions under which, according to the true interpretation of these contracts, the price is to be paid. The plaintiffs case is that the price was not to be paid until they had been given an opportunity of inspecting the shipment, which could not be given until after its arrival in this country. The defendants contend that the plaintiffs obligation was to pay for the hops, whether they arrived or not, against tender of the shipping documents. I agree with Hamilton J., and indeed it was not disputed on the argument before us, that the plaintiffs in the correspondence clearly expressed their intention not to take delivery of the 1909 shipment (which is that to which this litigation is confined) except upon the terms of payment for which they now contend; and, therefore, if they are wrong in that contention, they relieved the defendants from the obligation to tender, and they have themselves broken these contracts so far as regards this particular shipment. Before litigation began, the defendants, for the sake of peace, offered, as a matter of grace, to make the plaintiffs the reasonable and businesslike concession of attaching to the shipping documents certificates of quality of the Merchants Exchange at San Francisco, or other competent authority. But this offer was rejected by the plaintiffs, and the parties, respectively, are now standing upon their rights, as they allege, under the documents which contain the contracts. The Court, therefore, has in the present case to decide what are the true conditions of the right of the seller to payment under a c.i.f. contract, if that commercial contract is to be performed strictly according to its tenor.

Hamilton J. has unhesitatingly decided in favour of the defendants. In his opinion it was unnecessary to refer to authorities as to the meaning of the terms cost freight and insurance, because those terms are now well settled and, as he hoped he might add, well understood. But he has given a reasoned judgment to which I can discover no answer in the argument of the appellants counsel, which was for all practical purposes the same as that which appears from the Law Reports to have been put forward by them unsuccessfully in the Court below. But for the differing opinion of Vaughan Williams L.J. and Farwell L.J., which, of course, raises in my mind a doubt of the correctness of my own, I should have been content to adopt that judgment as it stands. But, in the circumstances, and believing as I do that this appeal affects a large and important branch of import business, it is, I think, right that I should deal with the case in my own way, although this will involve a much longer judgment than I should otherwise have thought necessary or justifiable.

The plaintiffs that is the appellants argument, apart from a reference to certain subordinate and subsidiary printed clauses to which I shall advert after dealing with the main question, hangs upon considerations arising from (a) the absence, after the words net cash, of such words as against documents, or in exchange for documents; (b) the provisions of s. 28 and s. 34 of the Sale of Goods Act, 1893, in respect of the buyers right to have delivery in exchange for the price and to have an opportunity to examine goods tendered for acceptance.

In regard to the wording of the contract, I do not think that the comment that the terms might have been more fully expressed helps one way or the other as to the interpretation of the contract as it stands. All that can be said is that, the condition of payment not being expressly stated except in so far as the words net cash negative payment by acceptance and the allowance of deduction or discount, it must be settled by the interpretation of the document according to established principles of mercantile law. If any implication is necessary, the law, as stated by Bowen L.J. in his judgment in The Moorcock, desires to give such business efficacy to the transaction as must have been intended at all events by both parties, who are business men. This is not a case, as it seems to me, of a contract the terms of which present ambiguity or conflict. There is no contrariety between cost freight and insurance, net cash and cost freight and insurance, net cash against documents. Both the fuller and the shorter form are, I believe, in everyday use: examples of both can be found within the covers of modern law reports (see, for example, Parker v. Schuller and

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Sanders v. Maclean); and, although it is probable, I should think, and the present litigation certainly vindicates its expediency that the fuller form is the more common, it has, so far as I am aware, never before this case been suggested that a contract cost freight and insurance, net cash or a contract cost freight and insurance, payment by acceptance may not imply against documents in each case. The well-known passage in the opinion of Lord Blackburn (then Blackburn J.) in Ireland v. Livingston, referred to by Hamilton J., in which a great master of the commercial law stated the course of business in the performance of a cost freight and insurance contract as very usual and well understood, plainly cannot be relied on for the respondents as an actual decision in their favour; for the statement itself is obiter, and the particular contract in that case contained the words payment by acceptance on receiving shipping documents. But Lord Blackburns opinion was delivered in the House of Lords forty years ago, and, speaking for myself, I do not recollect hearing it suggested until I listened to the argument of the plaintiffs counsel in this case that the value of that opinion, as setting forth the relative rights and duties of seller and buyer in the ordinary course of procedure under a c.i.f. contract, wholly depended upon the insertion of against (or in exchange for) shipping documents after the statement of the mode of payment by cash or by acceptance, as the case may be.

Let us, however, leave out of sight altogether for the present all question of usage or judicial recognition of usage. The application of the principles and rules of the common law, now embodied in the Sale of Goods Act, 1893, to the business transaction embodied in the c.i.f. contract appears to me to be decisive of the issue between these parties. Let us see, step by step, how according to those principles and rules the transaction specified in such a c.i.f. contract as that before us is and, I think, must be carried out in order to fulfil its terms.

At the port of shipment in this case San Francisco the vendor ships the goods intended for the purchaser under the contract. Under the Sale of Goods Act, 1893, s. 18, by such shipment the goods are appropriated by the vendor to the fulfilment of the contract, and by virtue of s. 32 the delivery of the goods to the carrier whether named by the purchaser or not for the purpose of transmission to the purchaser is prima facie to be deemed to be a delivery of the goods to the purchaser. Two further legal results arise out of the shipment. The goods are at the risk of the purchaser, against which he has protected himself by the stipulation in his c.i.f. contract that the vendor shall, at his own cost, provide him with a proper policy of marine insurance intended to protect the buyers interest, and available for his use, if the goods should be lost in transit; and the property in the goods has passed to the purchaser, either conditionally or unconditionally. It passes conditionally where the bill of lading for the goods, for the purpose of better securing payment of the price, is made out in favour of the vendor or his agent or representative: see the judgments of Bramwell L.J. and Cotton L.J. in Mirabita v. Imperial Ottoman Bank. It passes unconditionally where the bill of lading is made out in favour of the purchaser or his agent or representative, as consignee. But the vendor, in the absence of special agreement, is not yet in a position to demand payment from the purchaser; his delivery of the goods to the carrier is, according to the express terms of s. 32, only prima facie deemed to be a delivery of the goods to the buyer; and under s. 28 of the Sale of Goods Act, as under the common law (an exposition of which will be found in the judgments of the members of the Exchequer Chamber in the old case of Startup v. Macdonald, a tender of delivery entitling the vendor to payment of the price must, in the absence of contractual stipulation to the contrary, be a tender of possession. How is such a tender to be made of goods afloat under a c.i.f. contract? By tender of the bill of lading, accompanied in case the goods have been lost in transit by the policy of insurance. The bill of lading in law and in fact represents the goods. Possession of the bill of lading places the goods at the disposal of the purchaser. A cargo at sea, says Bowen L.J. in Sanders v. Maclean, while in the hands of the carrier, is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognized as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass, just as

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under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to some one rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods but also all rights created by the contract of carriage between the shipper and the shipowner. It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be. The meaning of delivery under the Sale of Goods Act is defined by s. 62 to be voluntary transfer of possession from one person to another. Such delivery, as the learned draftsman of the Act and its editor remarks in his note to this section, may be either actual or constructive: see Chalmers Sale of Goods Act, 1893, 7th ed. p. 140; and, as Bowen L.J. has pronounced, in the case of seaborne goods, the delivery of the bill of lading operates as a symbolical delivery of goods. But then I understand it to be objected on behalf of the plaintiffs: Granted that the purchaser might, if he pleased, take this constructive delivery and pay against it the price of the goods; what is there in the cost freight and insurance contract which compels him to do so? Why may he not insist on an option of waiting for a tender of delivery of the goods themselves after having had an opportunity of examining them after their arrival?

There are, I think, several sufficient answers to such a proposition. In the first place, an option of a time of payment is not a term which can be inferred, where the contract itself is silent. So far as I am aware, there is no authority for the inference of an option as to times of payment to be found either in the law books or in the Sale of Goods Act. Secondly, if there is a duty on the vendor to tender the bill of lading, there must, it seems to me, be a corresponding duty on the part of the purchaser to pay when such tender is made. Very relevant on this point is the language of Brett L.J. in his judgment in Sanders v. Maclean, which applies to this class of contract the same principle as was expounded by Bowen L.J. in The Moorcock. He said: The stipulations which are inferred in mercantile contracts are always that the party will do what is mercantilely reasonable; and, if it be the duty implied in the c.i.f. contract, as held by Brett L.J. in that case, that the vendor shall make every reasonable exertion to send forward and tender the bill of lading as soon as possible after he has destined the cargo to the particular vendee, it is, I venture to think, mercantilely reasonable that the purchaser should be held bound to make the agreed payment when delivery of the goods is constructively tendered to him by the tender of the bill of lading, either drawn originally in his favour or indorsed to him, and accompanied in case of loss by the policy of insurance. For thereunder, as the bill of lading with its accompanying documents comes forward by mail, the purchaser obtains the privilege and absolute power of profitably dealing with the goods days or weeks, or, perhaps, in the case of shipments from a distant port, months, before the arrival of the goods themselves. This is, indeed, the essential and peculiar advantage which the buyer of imported goods intends to gain under the c.i.f. contract according to the construction which I put upon it.

But, in truth, the duty of the purchasers to pay against the shipping documents, under such a contract as the present, does not need the application of that doctrine of the inference in mercantile contracts that each party will do what is mercantilely reasonable, for which we have the great authority of Lord Esher. The plaintiffs assertion of the right under a cost freight and insurance contract to withhold payment until delivery of the goods themselves, and until after an opportunity of examining them, cannot possibly be effectuated except in one of two ways. Landing and delivery can rightfully be given by the