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| Abstract | ||||||||||||||||||
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| By way of two contracts, an Austrian vendor of hard metals (“the seller”), agreed to sell a hard metal powder to the Alabama-based company (“the buyer”) for delivery to “consignment”. The buyer planned to use the powder in its manufacturing. After it had received some of the powder, the buyer refused to take delivery of the amount remaining according to the contract. It wrote a letter to the seller in which it denied having a binding obligation to either take delivery of, or pay for any, powder it did not wish to use. Unknown to the seller, the buyer had in fact purchased the powder from another vendor for a lower price. The seller sued to recover the amount that it would have received had the buyer paid for all of the powder.
Both parties disputed the meaning of the term “consignment” contained in the contracts. The buyer contended that, under the industry’s customary usage of the term “consignment”, no sale occurred unless it actually used the powder. On the contrary the seller put forward that, during the parties’ dealings over a period of seven years, the term “consignment” had been understood to mean that the buyer had a binding obligation to pay for all the powder specified in the contract, while the seller would delay billing the buyer until the powder had actually been used. By applying CISG pursuant to its Art. 1(1)(a), the Court of first instance ruled in favor of the seller and held it entitled to recover damages plus interest. The buyer appealed. The Appellate court upheld the lower Court decision. In doing so, it rejected the buyer’s argument that the meaning of the term “consignment” under its common usage in the industry should prevail over the meaning as understood from the practices established between the parties. Contrary to what was argued by the buyer, Art. 9(2) CISG (“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 …”) can not be understood to mean that, unless the parties expressly agree to the meaning of a term, the customary trade usage applies. Nor can such an interpretation be supported, as again contended by the buyer, from the fact that Art. 9(1) CISG separates the phrase “any usage to which they have agreed” (thus meaning express agreement) from the phrase “any practices which they have established” (thus meaning an implicit agreement deriving from the course of dealing). In reaching such a conclusion, the Court pointed out that the buyer’s construction of Art. 9 CISG would render meaningless the reference in Art. 8(3) CISG to any practices established between the parties. Furthermore, such an approach would cause paragraph 1 of Art. 9 CISG to be void, since the parties could no longer be bound by the practices established between themselves but instead, absent an express agreement on the meaning of the term, they would be bound by the term’s customary usage even if they had established a contrary usage in their course of dealing. The court also noted that the facts confirmed that the meaning of “consigment” was indeed the one argued by the seller. The buyer kept the powder it received from the seller separate from powder it received from others, and sent usage reports to the seller, after which the seller would invoice the buyer. The buyer once expressed its desire to return some powder, but was told by the seller that it could not, as it was contractually obliged to purchase the powder. The buyer subsequently kept the powder, used it and sent a usage report; this instance in particular proved to the court that the buyer had agreed with the seller’s interpretation. The court also upheld the district court's decision in relation to damages, viz. that the seller reasonably mitigated its losses (art 77 CISG). The buyer, as the party in breach, needed to show that the seller did not take reasonable steps to mitigate its losses. However, not only did the buyer fail to present any such evidence, but the court also found, through evidence provided by the seller, that the seller had both sought to reduce its losses as soon as possible (its first sale of the powder occurred only 17 days after receiving the buyer’s letter of denial) and had also sold the powder at the highest prices possible. |