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| Abstract | ||||||||||||||||||
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| Between April and October 2007, a South- Korean seller and a U.S. buyer entered into a series of contracts pursuant to which the former was to manufacture and ship approximately 500,000 women’s custom-made clothing to the latter’s place of business in New York. According to the terms of the purchase orders, the buyer was obligated to pay the seller within fifteen days of receipt of the garments. In July and August 2007, the seller shipped part of the order, which was received but not paid for by the buyer. During the following months of October and November, after having obtained assurances from the buyer that it would pay for the delivered items, the seller shipped additional garments. Later on, the seller agreed to be paid a discounted price in five installments but, since the buyer failed to make the scheduled payments, the seller suspended all further deliveries, and holds some of the garments in Los Angeles. In 2008, after having filed a UCC financing statement claiming a security interest in the goods and all the proceeds resulting from their sale, the seller sued the buyer.
The court determined that the contract in question was governed by CISG, as it applies to contracts for the sale of goods between parties whose places of business are in different contracting States (Korea and the U.S. in this case: Art. 1(1)(a) CISG). As to the merits of the dispute, the Court found that the buyer had breached its contract with the seller, since it had failed to pay for the delivered goods as required by Art. 53 CISG) (Art. 25 CISG). Moreover, relying on Art. 74 CISG, the Court ordered that the seller was entitled to recover the difference between the total contract price and the price for the July, August and October 2007 shipments. The seller also sought damages for the garments that had it manufactured but did not deliver. The court, in view of Art. 71 CISG, found that the plaintiff had rightfully withheld the last deliveries to the buyer, because it became apparent that the latter would have not been able to make any payments for those garments. Moreover, in consideration of Art. 72 CISG, which allows one of the contracting parties to avoid the contract if, prior to the date of performance, it becomes clear that the other party will commit a fundamental breach, the Court found that the seller’s avoidance of the contract and retention of the goods had been legitimate. After recalling that, following contract avoidance, the seller is entitled under CISG to either the resale of the goods and the recovery of the difference between the resale price and the contract price, or the difference between the current price and the contract price as damages (Arts. 75-76 CISG), the Court noted that in the case at hand the seller had invoked the first remedy, but had not yet resold the garments fearing that such a resale would amount to trademark infringement. In addressing such an issue, relying on established U.S. case law, the Court pointed out that when a seller manufactures trademarked goods in response to an order from the trademark owner, and the latter unjustifiably fails to accept or pay for the goods, the aggrieved seller is considered to have an implied license to sell the trademarked goods in order to mitigate its loss. Accordingly, the Court ordered that the seller be awarded a judgment in the amount of $840,085.94 against the buyer, and a declaration that it may sell the garments in its possession manufactured for the buyer without regard to the buyer’s trademark rights. |