CHAPTER 4
The Formation and Performance of Contracts for the
Sale of Goods
CASES IN THIS CHAPTER
Asante Technologies, Inc. v. PMC-Sierra, Inc
Solae, LLC v. Hershey Canada, Inc.
Chicago Prime Packers, Inc. v. Northam Food Trading Co.
Harriscom Svenska, AB v. Harris Corp.
TEACHING SUMMARY
Historically, sales law was first the province of merchants. Indeed, businessmen are credited
with developing one of the first bodies of law, via Lex Mercatoria, a necessary creation to
manage trade with far-off individuals. Nevertheless, the domestic laws of various countries often
continued to develop along different lines. Thus, legal rules pertaining to the creation and
completion of contracts differ from country to country. As international merchants sought to take
advantage of global sales opportunities, the legal differences sometimes created problems.
Consequently, countries came together to create the CISG to standardize certain international
contract principles. The CISG was ratified by the United States in 1988 and applies to
commercial contracts for the sale of goods between buyers and sellers located in different
countries, both of which have ratified the CISG. The CISG is not applicable to consumer
contracts, liability for injury or death caused by defective products, or the sale of services. The
CISG allows trade usages to fill in the gaps of a contract and it also permits minor alterations in
an acceptance of an offer to contract to become part of the contract terms. The CISG is designed
to permit flexibility in arriving at contract terms. Various remedies for breach of contracts are
detailed in the CISG. Students familiar with the UCC will note both similarities and differences
in comparing the CISG to the UCC.
CASE QUESTIONS AND ANSWERS
Asante Technologies, Inc. v. PMC-Sierra, Inc.
1. What were the court’s holdings with respect to place of business, choice of applicable law
and preemption of state contract law?
2. On what basis did the court conclude that the parties had not sufficiently evidenced an
intent to opt out of the CISG? What language would you have included in the purchase
and confirmation orders to clearly evidence such an intent?
3. What reasons did the court give for preempting state contract law in favor of the CISG?
Solae, LLC v. Hershey Canada, Inc.
1. What was the court’s holding with respect to the inclusion of the forum selection clause in
the parties’ contract?
2. What are the requirements for the formation of a contract pursuant to the CISG?
3. Did the court improperly excuse Hershey’s failure to object to the forum selection clause
given the parties’ extended dealings (which included conditions of sale containing a forum
selection clause)? Why or why not?
Chicago Prime Packers, Inc. v. Northam Food Trading Co.
1. What was the court’s decision with respect to Chicago Prime Packer’s claim for breach of
contract?
use.
Chapter 4: Sales Contracts and Excuses for Nonperformance
2. What should Northam have done in order to avoid the result in this case?
3. Is the court’s opinion overly harsh given that Northam was only a trading company and not
the end user of the product? Why or why not?
Harriscom Svenska, AB v. Harris Corp.
1. On what basis did the court deny Harriscom’s claim of breach of contract against RF
Systems?
2. How much “government interference” should be required in order to invoke a force
majeure clause?
3. Who should bear the risk in transactions with customers in risky locations such as Iran,
the seller or the buyer?
ANSWERS TO QUESTIONS AND CASE PROBLEMS
Chapter 4: Sales Contracts and Excuses for Nonperformance
2. Answer: The non-delivery of the boots was not excused. Such an occurrence was
foreseeable but was not noted in the contract. In any event, the defendant could not show that the
3. Answer: Delchi was permitted to recover for its attempts to remedy the
nonconformities in the goods, expediting of the replacement compressors from Sanyo, handling
4. Answer: Neither the 250% increase in the price of raw materials nor the delay in
5. Answer: No. The contract between the parties included an exhaustive list of force
majeure circumstances that would discharge the parties from the contract (and rescue them
6. Answer: No. The court said the German plaintiff Goede did not prove it was a
Chapter 4: Sales Contracts and Excuses for Nonperformance
the term includes deficiencies in one of the parties’ performance in addition to defects in the
tendered goods.
8. Answer: In their article Nominating Manfred Forberich: The Worst CISG Decision
in 25 Years?, Professors Joseph Lookofsky and Harry Flechtner define the “homeward trend” as
the tendency of courts interpreting the CISG to project the domestic law in which the interpreter
MANAGERIAL IMPLICATIONS
Students might consider: 1) differences in negotiating contracts with the Japanese, Chinese,
and Germans; 2) strategies for reducing risk to both buyer and seller, particularly the buyer’s
risk of receiving nonconforming goods (use of laboratory analysis and inspection reports from
independent firms); 3) the use of standard forms for purchase orders and confirmations; 4) the
potential for a force majeure; and 5) the rights of the parties on breach.
ETHICAL CONSIDERATIONS
This question calls for an opinion from students. Students may utilize the discussions of ethics
set forth in the ethical considerations section of Chapter 1, the discussion of ethics in Chapter 2
and the discussion of the purpose of the CISG set forth in Chapter 4 to answer this question.
TEACHING SUGGESTIONS / COOPERATIVE LEARNING ACTIVITIES
This chapter provides an excellent opportunity for experiential education.
1. Students, working alone or in groups representing various countries (both
members and non-members of CISG), can negotiate and/or draft an “international” contract for
the sale of some item (cases of scotch, cans of beans, clothing). Ultimately, the two groups
would deliver a single contract. An instructor may enact several guidelines (such as all contracts
must include a choice of law clause, must contemplate future disputes) for students or may
leave students to their own devices.
2. If the instructor chooses the option of contract negotiation between groups or
students representing two countries, the instructor can require students to present their work in
the form of a portfolio. Within this portfolio, student groups would log all negotiations, including
written or verbal offers, the time, place of negotiations, other content discussed, and the final
use.
Chapter 4: Sales Contracts and Excuses for Nonperformance
contract. Instructors may also wish to forbid face-to-face negotiations between groups, so as to
underscore some of the problems that may arise in international negotiations when parties must
communicate via e-mail or letter. This will teach students to be very precise in their
communications. This may be accomplished through a course chat room or through e-mail (with
students including copies of all letters or printouts of all e-mails).
3. Instructors may also wish to require students to negotiate with partner students
also taking International Business Law at another institution. This, also, would require/ensure
long-distance negotiations (as all documents would pass by fax, e-mail, or mail, and all
negotiations through these means or phone) and implicate the trust issues that such businesses
commonly face.
4. Finally, after reviewing contracts, instructors may wish to create a contract
dispute (perhaps goods were not delivered, were damaged, or were not of the type
contemplated by one party). Student groups would then respond to questions with reference to
both their contract and CISG.
use.