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| Abstract | ||||||||||||||||||
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| A U.S. buyer and a German seller entered into a contract of sale for a magnetic resonance imaging (MRI) machine. The MRI was delivered to the shipping vessel by the German company undamaged and in good working order. When the MRI reached its U.S. destination, it proved to have been damaged and in need of extensive repair. The delivery terms of the contract stated that the equipment was to be shipped “CIF New York Seaport.” Under INCOTERMS, this means that seller is responsible for paying the cost, freight, and insurance coverage necessary to bring the goods to the named port of destination, yet the risk of loss passes to buyer at the port of shipment.
The buyer brought suit in U.S. court seeking to recover for the damaged goods. It claimed that the risk of loss remained with the seller until the goods were delivered at their port of destination in the U.S. because, inter alia, the title to the goods would not pass to buyer until final payment for the goods had been made. Defendant objected that, pursuant to the INCOTERMS’ definition of CIF, the risk of loss passed to the buyer at the port of shipment. Plaintiff argued that the INCOTERMS definition was inapplicable as it had not been explicitly incorporated into the contract. The contract of sale contained a choice of law clause in favour of German law. The Court held that CISG governed the transaction. According to the Court, under German law the parties' choice of the law of a Contracting State without expressly excluding CISG implies that CISG is applicable provided that the parties to the sales contract had their places of business in two different contracting States. The Court rejected Plaintiff's argument that in the absence of an explicit reference to the INCOTERMS the definition of CIF therein contained was inapplicable to the contract. According to the Court the INCOTERMS are widely known and observed in international trade as standard definitions for delivery terms so that the reference to CIF was to be interpreted in accordance with the INCOTERMS. To this effect the Court relied on Art. 9(2) CISG according to which the parties are bound by usages widely known and observed in international trade. The Court also cited Section 346 of the German Commercial Code stating the applicability of general trade usages. As to Plaintiff's argument that the retention of title clause in the contract modified the CIF term relating to the passage of risk of loss, the Court held that under CISG the risk passes without taking into account who owns the goods (Art.4(b)). This interpretation is confirmed by Art. 67(1) CISG which states that seller's retention of documents controlling the disposition of the goods does not affect the passage of risk, thereby implying the passage of risk and the transfer of title need not occur at the same time.dependent acts and need not occur at the same time. Consequently the Court dismissed the case. |