Conditions for the Existence of CISG

In the determination of the remedies available for the GCEI due to the delivery of the defective goods by the seller SEPE, it is imperative that the discussion first determine whether the trade between SEP, SEPE and GCE and GCEI constitutes a Contract for the International Sale of Goods. Carr and Goldby noted that the existence of an international sale of goods is underpinned with the presence of parties having principal places of business in a different country. For this purposes, the CISG defines the countries as States. The following section outlines key provisions for the existence of CISG with respect to the case study of SEPE, SEP, and GCE GCEI. In the first scenario, CISG applies when both parties have their places of business in contracting states as stipulated by Article 1(1) (a). The provisions of CISG, therefore, apply to SEP and GCE and their respective subsidiaries based on their principal place of business within the contracting states. In addition, the contract further qualifies as CISG since the seller, SEPE originates from Australia which is CISG contracting state while, GCEI primarily operates in UK which is not a CISG contracting state based on article 1 (1) (b).

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Apart from the determination of the existence of the Contract of International Sale of Goods between the subject parties, one should further evaluate whether the contractual agreement between SEP and GCE fulfilled the stipulated elements of a CISG contract as stated by Herbert and Joseph . According to , the core elements of a CISG contract includes an offer and an acceptance. Critical evaluation of the case study indicated that the contractual agreement sufficiently fulfilled the prerequisites for the existence of a CISG contract. The CEO of GCE and GCEI exhibited the element of an offer when he made an offer to purchase 1 million small engines parts from SEP by filling the GCEI purchase form. Similarly, the CEO of SEP and SEPE also accepted the offer through his response by filling an SEPE supply form. The contract, therefore, was underlined with written documentation an offer and subsequent acceptance response between the parties.

Lookofsky and Herbert further highlighted on the key provisions of the International sale of goods contract on the basis of Article 25-29. On one hand, Article 25 highlights on the fundamental breach while, on the other hand, Article 25 concerns the specific performance with regards to the contract. A fundamental breach occurs when one party fails to meet the contractual agreement to the effect that the other party suffers a loss. On the other hand, specific performance entails remedies available to both parties, which could either, be legal remedies inform of damages and equitable remedies in the form of injunctions.

Under Articles 30-52 and 66-70 of the UN convention on the contracts for the International Sale of Goods (CISG), the seller is obliged to undertake the following: to deliver the goods and hand over the documents, to ensure conformity of the goods to the specification of the buyer and provide for third party claims . The article further underlines the remedies for the breach of the contract by the seller but not inclusive of the damages to the goods and services. Based on the case study, the primary seller SEP had an obligation to ensure that the small parts of the engines delivered to the GCEI met the predetermined conditions and, therefore, lacked manufacturing damages. Under the provisions for the conformity of the goods and third parties CISG, the buyer being GCE and fronted by GCEI retained the right to claim damages given that the goods delivered after being inspected failed to meet the quantity, quality and description as dictated by the contract. It emerged that the goods delivered had manufacturing defects and hence a failure on the part of the seller, SEP to foresee the shortcomings of the products. It therefore suffices to note that the International Trade laws, under the provisions of the CISG, imparts the buyer with the power to exercise his rights and further claim damages under the Articles 46 to 52 and Articles 74-77.

Remedies Available to GCEI under the CISG for the 25 % defective Goods from the Manufacturer

Claims for Performance

The first remedy that is presented to GCEI in respect of the 25 percent of the engine parts that were useless due to the manufacturing defect is the buyers right to specific performance. It is evident from the case study that 25 % of the delivered engine parts were dysfunctional, therefore, failed to meet the specific performance as was expected by GCEI. Under article 46(1), if the goods do not conform to the contract, the buyer may require the seller to deliver substitute goods or to repair damaged goods. Vis a vis, GCEI is provided with the remedy to demand a substitute of the defective goods with new orders within a reasonable timeframe to fulfill the specific performance by being of good quality. However, Article 46 (2)-(3) further warns that the right of the buyer to demand specific performance on the part of the seller should be considered personal to the parties involved and therefore does not involve the courts to the jurisdiction to which the two parties have agreed to submit themselves for the purposes of litigation.

Damages

As the buyer, GCEI could further employ the provisions of damages as remedial steps towards the delivery of the 25 % defective goods. Under Article 45 of the CISG, given that the seller has failed to perform any of its obligations under the contract or this Convention, the buyer may (a) exercise the rights provided in articles 46 to 52 and (b) claim damages. Vis a vis, GCEI have legal ground for filing for damages resulting from the provision of defective products which the firm cannot sell to the airline company. However, in order for GCEI to claim damages, it must demonstrate the following:

(i) There was a breach of contract

(ii) The firm suffered damage as a result of the breach

(iii) The damage was foreseeable.

First, SEP breached the contract by supplying defective goods that could not advance the operations of GCE and further negated the agreements of the contract. Secondly, GCEI has the right to demand damages as a consequence of the financial loss in terms of the termination of the contract by the airline company due to lateness. And finally, with regards to the defective goods due to substandard manufacturing, the damage was foreseeable and only expounds on the extent of the negligence of the SEP on its duties to meet the specifications of the buyer. Therefore, SEP will be liable to pay the damages resulting from the defective goods as stipulated by Article 74 which states that

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which it then knew or ought to have known, as a possible consequence of the breach of contract.The scenario was best exhibited by the case of Sociedade de Construcoes Aquino & Filho Lda v Fundicio Benito.

Additional Time for Performance

Apart from the remedy obtained from the specific performance, GCEI may further employ the provisions of the Nacht Frist Notice. Nacht Frist Notice refers to the provisions for additional time for performance. Therefore, in the case of GCEI and SEP, the buyer being GCE through its proxy GCEI may fix an additional timeframe, beyond the 10 days that had already passed for the SEP to manufacture new batch of machine parts that will meet the contractual agreement between the two parties. However, these provisions will only prove effective if the GCE is also presented with Nacht Frist Notice by the Airline manufacturer for the delivery of the engine parts. This remedy is provided under the Article 47 which originated from the German code of count von Bismarck.

Suspension of the Performance

An additional remedy for GCEI may constitute the application of the Article 71 that provides for the immediate suspension of the performance. GCEI may opt to suspend its obligations to SEP underpinned by the following reasons. The extreme extent of the SEPE inefficiency to perform to the expectations of the contract and the loss of creditworthiness due to the delivery of 25 % defective products as a result of manufacturing shortcomings. On its part, GCEI must give a timely notice of the suspension of the performance to the other party even if the goods had been delivered or not. Unlike the provisions of Article 72 for the right to avoid the contract, Article 71 which outlines the right to suspend performance further notes that the contract between GCEI and SEPE could further be continued after the suspension given that both parties have agreed to exhibit mutual assurance for meeting of contractual agreements . In its defense, GCEI will be oblige to defend its call for suspension of contract due to the breach of contract which is underlined with the guidelines provided by article 8 (2) that state that an objective standard should be applied in exercising the suspension of contracts.

These circumstances have further been provided with Article 71(1) a) and b) which states that the suspension of performance should be due to a serious deficiency in the ability to perform or in creditworthiness and fault of the conduct in preparing to perform or in performing the contract. Based on the case study, SEPE has indicated extreme inability to perform on the basis of late delivery and subsequent provisions of 25 % defective goods due to manufacturing limitations. As a result of the suspension of the contract, SEP and SEPE must indicate beyond reasonable doubt their ability to uphold the agreements of the contract in case GCEI opts to reconsider its position on the suspension of performance.

Avoidance of the Contract

Article 49 further states that the buyer may declare the contract avoided given the following conditions: The buyer may declare the contract avoided:

(a) If the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or

(b) In case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.

With respect to the delivery of the defective goods that were of no use to GCEI, SEPE highly failed to meet its obligations as stipulated on the contract an act which further led to a fundamental breach of the contract. It is expected that the delivered goods by SEPE should be in a state that could be utilized by company GCEI to meet its obligations to the customers, in this case, was the airline company. Vis a vis, GCEI as the buyer has the right to avoid the contract under two scenarios which include: in the event of fundamental breach of the contract and if the seller does not deliver the goods within the additional period fixed by the buyer. In the case of SEPE, the party contravened the provisions that underlines the fundamental breach of the contract. The fundamental breach of contract has further been comprehensively expounded by article 25 which states that:

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

From the definition, it is clear that the delivery of defe...