Subrogating Under International Sales Contracts: Which Law Applies?

1.

A U.S. company, Acme Co., enters into a contract to purchase drywall from a Chinese company, ChinaDust Corp. The sales contract states: "This contract will be governed by the law of the State of Tennessee." Which law applies?
- A.
  
  The U.S. Uniform Commercial Code ("UCC")
- B.
  
  U.S. Common Law
- C.
  
  Chinese Law
- D.
  
  The United Nations Convention on Contracts for the International Sale of Goods ("CISG")
Correct Answer
D. The United Nations Convention on Contracts for the International Sale of Goods ("CISG")

Explanation
The correct answer is "D". The applicable law in this case is the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), developed by the United Nations Commission on International Trade Law (UNCITRAL).

The CISG is a treaty which sets out a uniform international sales law - it allows exporters to avoid choice of law issues as the CISG offers "accepted substantive rules on which contracting parties, courts, and arbitrators may rely". It can be viewed online at: http://www.uncitral.org/pdf/english/texts/sales/cisg/CISG.pdf

As of January 2010, the CISG had been ratified by 74 countries that account for a significant proportion of world trade, making it one of the most successful international uniform laws. Japan is the most recent state to have ratified the Convention. A list of countries that have adopted the CISG can be found here: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html

The CISG has been adopted by the United States. As such, it has the force of federal law and supersedes UCC-based state law. Among the U.S. reservations to the CISG is the provision that the CISG will apply only as to contracts with parties located in other CISG Contracting States, a reservation permitted by the CISG in Article 95. In this scenario, the applicable law of the sales contract is the CISG since (i) both the U.S. and China are Contracting States and (ii) the choice of law clause does not expressly exclude the CISG's application.

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2.

The same U.S. company, Acme Co., then purchases luxury cars from a German automobile manufacturer, GermanGo GmbH. The sales contract states: "This contract is governed by German law." Which law applies?
- A.
  
  The UCC
- B.
  
  U.S. Common Law
- C.
  
  The CISG as ratified by German Civil Law
- D.
  
  None of the Above
Correct Answer
C. The CISG as ratified by German Civil Law

Explanation
Since Germany is a signatory to the CISG and the wording of the sales contract does not expressly exclude the CISG's application, the sales contract is governed by the CISG.

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3.

In preparation for an employee retreat, U.S.-based Acme Co. purchases hockey equipment from a Canadian company, CanuckPuck Co. The contract states: "This contract is governed by and subject to the law of the province of Ontario." Which law applies?
- A.
  
  The UCC
- B.
  
  U.S. Common Law
- C.
  
  Ontario's domestic "Sale of Goods Act"
- D.
  
  None of the Above
Correct Answer
D. None of the Above

Explanation
Again, the applicable law is the CISG since it has been ratified by both the U.S. and Canada. Note that Ontario's "International Sale of Goods Act" expressly adopts the CISG into Ontario's domestic legislation. There is some inconsistency in Ontario case law, however, as to whether implied conditions of fitness for purpose and merchantability set forth in section 15 of Ontario's domestic Sale of Goods Act may be applied concurrently with the application of the CISG.

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4.

Acme Co. purchases a streetcar from U.K. company, BritaniaRail Inc. The contract states: "This contract is governed by and subject to the law of New York." Which law applies?
- A.
  
  The UCC
- B.
  
  U.S. Common Law
- C.
  
  The U.K.'s Sale of Goods Legislation
- D.
  
  The CISG
Correct Answer
A. The UCC

Explanation
In "international" contracts for the sale of goods between a U.S. entity and an entity of a non-Contracting State, U.S. law does not apply the CISG. Since the United Kingdom has not ratified the CISG, the contract would be governed by the UCC, as adopted under New York State law.

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5.

Finally, Acme Co. purchases a piece of equipment from Singapore. The sales contract states: "This agreement shall be governed by and interpreted in accordance with the laws of the United Kingdom." Which law applies?
- A.
  
  The Uniform Commercial Code (UCC)
- B.
  
  The Law of Singapore
- C.
  
  U.K. Sale of Goods Legislation
- D.
  
  None of the Above
Correct Answer
C. U.K. Sale of Goods Legislation

Explanation
Although both the U.S. and Singapore are Contracting States under the CISG, the sales contract calls for the express application of the law of a Non-Contracting State, the United Kingdom. As such, the U.K.'s sale of goods legislation, rather than the CISG, will govern the contract.

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6.

BONUS QUESTION: With respect to sales contracts that are governed by the CISG, which of the following statements is INCORRECT?
- A.
  
  Consideration is necessary in order to form a binding sales contract.
- B.
  
  Acceptance of an offer occurs when it is received by person who has made the offer.
- C.
  
  A sales contract does not have to be in writing.
- D.
  
  Extrinsic evidence can be used to alter, contradict or explain the terms of an unambiguous written contract
Correct Answer
A. Consideration is necessary in order to form a binding sales contract.

Explanation
The CISG is comprised of a blend of common law and civil concepts. As such, it lacks some of the well-established common law concepts such as consideration, Statute of Frauds and the parol evidence rule. The absence of these concepts in the CISG's text has presented common law courts with some challenges as to how to deal with parties' arguments based on these concepts.

An interesting article on this subject was written in 2004 and can be found here: http://www3.austlii.edu.au/nz/journals/VUWLRev/2004/28.html#fn92

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Subrogating Under International Sales Contracts: Which Law Applies?

A U.S. company, Acme Co., enters into a contract to purchase drywall from a Chinese company, ChinaDust Corp. The sales contract states: "This contract will be governed by the law of the State of Tennessee." Which law applies?

The same U.S. company, Acme Co., then purchases luxury cars from a German automobile manufacturer, GermanGo GmbH. The sales contract states: "This contract is governed by German law." Which law applies?

In preparation for an employee retreat, U.S.-based Acme Co. purchases hockey equipment from a Canadian company, CanuckPuck Co. The contract states: "This contract is governed by and subject to the law of the province of Ontario." Which law applies?

Acme Co. purchases a streetcar from U.K. company, BritaniaRail Inc. The contract states: "This contract is governed by and subject to the law of New York." Which law applies?

Finally, Acme Co. purchases a piece of equipment from Singapore. The sales contract states: "This agreement shall be governed by and interpreted in accordance with the laws of the United Kingdom." Which law applies?

BONUS QUESTION: With respect to sales contracts that are governed by the CISG, which of the following statements is INCORRECT?