Case Information
*2 Before S MITH and B ARKSDALE , Circuit Neuromed Med. Sys. & Support , Gmbh , 2002
Judges, and F ITZWATER [*] Distriсt Judge. U.S. Dist. LEXIS 5096, at *9-*10 (S.D.N.Y. Mar. 26, 2002).
J ERRY E. S MITH , Circuit Judge:
BP responded favorably to the invitation, Empresa Estatal Petroleos de Ecuador and PetroEcuador confirmed the sale on its (“PetroEcuador”) contracted with BP Oil In- contract form. The final agreement required ternational, Ltd. (“BP”), for the purchase and that the oil be sent “CFR La Libertad-Ecua- transport of gasoline from Texas to Ecuador. dor.” A separate provision, paragraph 10, PetroEcuador refused to accept delivery, so states, “Jurisdiction: Laws of the Republic of BP sold the gasoline at a loss. BP apрeals a Ecuador.” The contract further specifies that summary judgment dismissing PetroEcuador the gasoline have a gum content of less than and Saybolt, Inc. (“Saybolt”), the company re- three milligrams per one hundred milliliters, to sponsible for testing the gasoline at the port of be dеtermined at the port of departure. departure. We affirm in part, reverse in part, PetroEcuador appointed Saybolt, a company and remand. specializing in quality control services, to en-
sure this requirement was met.
I. PetroEcuador sent BP an invitation to bid To fulfill the contract, BP purсhased gaso- for supplying 140,000 barrels of unleaded gas- line from Shell Oil Company and, following oline deliverable “CFR” to Ecuador. “CFR,” testing by Saybolt, loaded it on board the M/T which stands for “Cost and FReight,” is one of TIBER at Shell’s Deer Park, Texas, refinery. thirteen International Commercial Terms The TIBER sailed to La Libertad, Ecuador, (“Incoterms”) designed to “provide a set of in- where t he gasoline was again tested for gum ternational rules for the interpretation of the content. On learning that the gum content most commonly used trade terms in foreign now exceeded the contrаctual limit, Petro- trade.” Incoterms are recognized through Ecuador refused t o accept delivery. their incorporation into the Convention on Eventually, BP resold the gasoline to Shell at Contracts for the International Sale of Goods a loss of approximately two million dollars. (“CISG”). St. Paul Guardian Ins. Co. v.
BP sued PetroEcuador for breach of con-
tract and wrongful draw of a letter of
[*]
District Judge of the Northern District of
guarantee. After PetroEcuador filed a notice
Texas, sitting by designation.
of intent to apply foreign law pursuant to F ED .
1990 (1990); ,
Treaty Doc. No. 98-9 (1983), 19 I.L.M. 668
(1980), reprinted at 15 U.S.C. app. (entered into force Jan. 1, 1988). *3 The district court disagreed and held that un- Meridian Res. Exploration, Inc. , 180 F.3d der Ecuadorian law, the seller must deliver 664, 669 (5th Cir. 1999).
conforming goods to the agreed destination, in III.
this case Ecuador. The court granted BP and PetroEcuador dispute whether the summary judgment for PetroEcuador. domestic law of Ecuador or the CISG applies.
After recognizing that federal courts sitting in
BP also brought negligence and breach of
diversity apply the choice of law rules of the
contract claims against Saybolt, alleging that
state in which they sit,
Coghlan v. Wellcraft
the company had improperly tested the
Marine Corp.
,
agreed destination, making summary judgment II. inappropriate for BP.
We review a summary judgment using the
same standards as did the district court; thus A.
our review is
de novo
.
Walton v. Alexander
,
Though the court correctly recognized that
ferences from the record must be construed in
The general fеderal question jurisdiction PetroEcuador’s expert did not disagree with statute grants subject matter jurisdiction over this assessment. [5] Given that the CISG is Ec- every civil action that arises, inter alia , under uadorian law, a choice of law provision des- a treaty of the United States. 28 U.S.C. § ignating Ecuadorian law merely confirms that 1331(a). The CISG, ratified by the Senatе in the treaty governs the transaction. 1986, creates a private right of action in
federal court.
Delchi Carrier v. Rotorex
Where parties seek to apply a signatory’s
Corp.
,
undisputed that the CISG is the law of British As incorporated federal law, the CISG gov- Columbia.”
erns the dispute so long as the parties have not
elected to exclude its application. CISG art. 6. PetrоEcuador argues that the choice of law Dr. Romero interprets article 4 of the Ecuador Commercial Code as “stat[ing] that mercantile provision demonstrates the parties’ intent to customs (INCOTERMS) will be used to interpret apply Ecuadorian domestic law instead of the commercial contract disputes when the law is ‘sil- CISG. We disagree. ent’ as to an issue in dispute. However, mercantile customs/INCOTERMS do not apply to the case at A signatory’s assent to the CISG hand because the Commercial Code is not silent on necessarily incorporates the treaty as part of the various contract issues this Agreement that nation’s domestic law. BP’s expert presents.” This statement merely begs the question witness as to Ecuadorian law, Xavier Rosales- whether the Commercial Code of Ecuador applies Kuri, observed that “the following source of in lieu of the CISG. Notably, article 4 of thе Ecuadorian law would be applicable to the Commercial Code was enacted in 1960, over thirty present case: (i) United Nations Convention on year before Ecuador ratified the CISG. the International Sale of Goods . . . .” See also Ajax Tool Works, Inc. v. Can-Eng
Manu. Ltd.
,
parties, as here, designate a choicе of law clause in The United States Senate ratified the CISG in their contract SS selecting the law of a Contracting 1986. Ecuador ratified the CISG in 1993 without State without expressly excluding application of any rights or reservations. 15 U.S.C. app.
Similarly, because the CISG is the law of Ecuador, it govеrns this dispute. “[I]f the par- PetroEcuador’s invitation to bid for the ties decide to exclude the Convention, it procurement of 140,000 barrels of gasoline should be expressly excluded by language proposed “CFR” delivery. The final which states that it does not apply and also agreement, drafted by PetroEcuador, again states what law shall govern the contract.” specified that the gasoline be sent “CFR La R ALPH H. F OLSOM , ET AL ., I NTERNATIONAL Libertad-Ecuador” and that the cargo’s gum B USINESS T RANSACTIONS 12 (2d ed. 2001). content be tested pre-shipment. Shipments An affirmative opt-out requirement promotes designated “CFR” rеquire the seller to pay the uniformity and the observance of good faith in costs and freight to transport the goods to the international trade, two principles that guide delivery port, but pass title and risk of loss to interpretation of the CISG. CISG art. 7(1). the buyer once the goods “pass the ship’s rail”
at the port of shipment. The goods should be B. tested for conformity before the risk of loss The CISG incorporates Incoterms through passes to the buyer. F OLSOM , supra, at 41. In article 9(2), which provides: the event of subsequent damage or loss, the
buyer generally must seek a remedy against the
The parties are considered, unless
carrier or insurer.
In re Daewoo Int’l (Am.)
otherwise agreed, to have impliedly
Corp.
,
formation a usage of which the parties
knew or ought to have known and In light of the parties’ unambiguous use of which in international trade is widely the Incoterm “CFR,” BP fulfilled its known to, and regularly observed by, cоntractual obligations if the gasoline met the parties to contracts of the type involved contract’s qualitative specifications when it in the particular trade concerned. passed the ship’s rail and risk transferred to PetroEcuador. CISG art. 36(1). Indeed, Say- CISG art. 9(2). Even if thе usage of bolt’s testing confirmed that the gasoline’s Incoterms is not global, the fact that they are gum content was adequate before departure well known in international trade means that from Texas. Nevertheless, in its opposition to they are incorporated through article 9(2). [7]
(...continued) Courts in France and Germany have done so, and the CISG . . . . To hold otherwise would undermine both treaties and the UNCITRAL Secretariat de- the objectives of the Convention which Germany scribe Incoterms as a widely-observed usage for has agreed to uphold.”). сommercial terms.”). See St. Paul Guardian Ins. , 2002 U.S. Dist. In accepting PetroEcuador’s invitation, BP
LEXIS 5096, at *9-*10 (stating that “INCO- stated “CNF” as the condition of delivery. CNF TERMS are incorporated into the CISG through was used in a previous version of Incoterms to Article 9(2)”); R ALPH H. F OLSOM , ., supra , at specify “cost and freight” delivery. I NTERNATION - 72 (“Incoterms could be made аn implicit term of AL HAMBER OF OMMERCE NCOTERMS the contract as part of international custom. (1980). In any event, the final agreement uses the term “CFR.” *6 BP’s motion for summary judgment, Petro- er BP knowingly provided gasoline with an Ecuador contends that BP purchased the gaso- excessive gum content. The district court line from Shell on an “as is” basis and should permit the parties to conduct discovery thereafter failed to add sufficient gum inhibitor as to this issue only.
as a way to “cut corners.” [9] In other words,
the cargo contained a hidden defect. IV.
BP raises negligence and breach of contract Having appointed Saybolt to test the claims against Saybolt, alleging that the gasoline, PetrоEcuador “ought to have company improperly tested the gasoline’s gum discovered” the defect before the cargo left content before shipment. These claims amount Texas. CISG art. 39(1). [10] Permitting to indemnification for BP’s losses suffered on PetroEcuador now to distance itself from account of PetroEcuador’s refusal to accept Saybolt’s test would negate the parties’ delivery. Our conclusion that PetroEcuador is selection of CFR delivery and would liable so long as BP did not knowingly provide undermine the key role that reliance plays in deficient gasoline renders these claims moot. international sales agreements. Nevertheless, Summary judgment was therefore proper, BP could have breached the agreement if it though we need not review the district court’s provided goods that it “knew or could not reasoning.
have been unaware” were defective when they
“passed over the ship’s rail” and risk shifted to If PetroEcuador improperly refused CFR PetroEcuador. CISG art. 40. delivery, it is liable to BP for any consequential
damages. In its claims against Saybolt, BP Therefore, there is a fact issue as to wheth- pleaded “in the alternative”; counsel also ac- knowledged, at oral argument, that beyond ble in accordance with the contract . . . for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that timе.” Under CISG article 36(1), “[t]he seller is lia- those damages stemming from PetroEcuador’s refusal to accept delivery, BP has no collateral claims against Saybolt. If Saybolt negligently misrepresented the gasoline’s gum content, PetroEcuador (not BP) becomes the party with a pоtential claim. CISG article 39(1) states: “The buyer loses the right to rely on a lack of conformity of the
goods if he does not give notice to the seller spe- Theoretically, BP might still have a collateral breach of contract claim against Saybolt for cifying the nature of the lack of conformity within $3,913.96 SS the amount that it, PetroEcuador, and a reasonable time after he has discovered it or Shell were invoiced for Saybolt’s inspection ser- ought to have discovered it.”
vices. There is, however, no evidence in the record See also R ALPH H. F OLSOM ., supra , at that BP ever paid its share of the invoice. Even so, 41 (“Thus, the buyer is still able tо recover for any the breach of contract claim set forth in BP’s Third nonconformity which becomes apparent long after Amended Consolidating Claim alleges only that the delivery, but the buyer may have to prove that the contract requires Saybolt to “defend, indemnify and dеfect was present at the delivery and was not hold BP harmless from any damages.” BP does caused by buyer’s use, maintenance or protection not seek recovery of the inspection fee as part of its of the goods.”). breach of contract claim.
Even if PetroEcuador is not liable because
BP knowingly presented gasoline with an in-
adequate gum content, BP’s claims drop out.
BP alleges that Saybolt “negligently
misrepresented the quality” of the gasoline
before its loading in Texas; it also claims that
Saybolt’s improper testing was “a proximate
cause of the gasoline to be refused by
PetroEcuador and/or the gum content to
increase which caused BP to suffer pecuniary
loss.” BP’s claims depend on the fact that
Saybolt misrepresented the quality of the
gasoline. It goes without saying, however,
that if BP knew that the gasoline was deficient,
it could not have relied on Saybolt’s report to
its detriment.
The judgment dismissing PetroEcuador is
REVERSED and REMANDED for
proceedings consistent with this opinion. The
judgment dismissing Saybolt is AFFIRMED.
Notes
[2] We assume
arguendo
that the provision stat-
the light most favorable to the non-movant.
ing “Jurisdiction: Laws of the Republic of Ecua-
Matsushita Elec. Indus. Co. v. Zenith Radio
dor” unambiguously conveys the intent to apply
Corp
.,
[3] See 28 U.S.C. § 1652 (“The laws of the sev- material fact issue concerning the рarties’ eral states, except where the Constitution or trea- intent that would preclude summary ties of the United States or Acts of Congress other- judgment.” Amoco Prod. Co. v. Tex. wise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.”);
[1] BP also filed an amended admiralty claim Resolution Trust Corp. v. Chapman , 29 F.3d against the TIBER in rem , Tiber Shipping, L.L.C., 1120, 1124 (7th Cir. 1994) (“What Illinois courts and Rio Grande Transport in personam .