Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/981027u1.html
Timestamp: 2019-04-24 16:46:09+00:00

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A U.S. broker in the market for surplus commercial aircraft parts, plaintiff, purchased three integrated drive generators from a Swedish dealer in aircraft parts, defendant. There was a dispute between the parties as to whether the seller had represented that the units were part number 729640. The two parties disputed the substance of the communications between them during negotiations. The buyer brought a legal action to recover damages for breach of the alleged representation. Each party moved for summary judgment.
The issue before the Court was whether either the seller or the buyer was entitled to summary judgment in an action brought by the buyer to recover damages for breach of a sales contract.
Although the Court confirmed its earlier order that the CISG applied generally to the contract between the parties, the Court modified its order to apply Illinois state law to contract formation issues because Sweden had declared that it was not a party to Part II of the CISG. Relying, nevertheless, on article 8(3) CISG, the Court considered evidence of statements made during negotiations when determining whether there was a material dispute as to the terms of the contract.
The Court concluded that there were unresolved issues of material fact that precluded it from granting either of the motions for summary judgment.
The court confirmed the growing body of U.S. jurisprudence to the effect that, in a case governed by the CISG, Article 8 displaces the U.S. parol evidence rule. See MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino and Claudi v. Olivieri Footwear Ltd; see also Filanto v. Chilewich Int'l Corp. The court disagreed with the possible holding to the contrary in Beijing Metals & Minerals Import/Export Corp. v. American Bus. Ctr.
With respect to Article 92 -- seller's relevant place of business is in Sweden, a Contracting State that has declared that it will not be bound by Part II of the Convention -- the court stated: "One might argue that Illinois law, not the CISG governs the parol evidence issue in this case because the parol evidence rule is a rule of contract formation and . . . Illinois law governs contract formation issues in this case [citation omitted]. However, the issue of parol evidence is addressed in article 8 of the CISG, which is in Part I of the CISG. CISG art. 8. Neither Sweden nor the United States declared that it would not be bound by Part I of the CISG. . . . Thus, the court finds that the CISG, not Illinois law, governs the parol evidence issue in this contract dispute."
Before the court are the parties' cross-motions for summary judgment. For the following reasons, the court denies both motions.
Plaintiff Mitchell Aircraft Spares, Inc. ["buyer"] has filed suit against defendant European Aircraft Service AB ["seller"] in this court, asserting claims for breach of contract and breach of warranty. [Buyer] is an Illinois corporation with its principal place of business in Illinois. [Buyer] acts as a speculator and broker in the market for surplus commercial aircraft parts. Greg Fletcher ("Fletcher") is a vice president and part owner of [buyer].
[Seller] is a Swedish corporation with its principal place of business in Sweden. [Seller] buys parts from companies in Western Europe and the United States and sells these parts to airlines, overhaul shops, brokers, and companies like itself. Leif Hedberg ("Hedberg") is a vice president and part owner of [seller]. Hedberg's main responsibilities at [seller] are purchasing and sales.
Fletcher did not contact Sundstrand immediately. Rather, Fletcher determined from the information contained in the July 3 fax that the parts available for sale were part number 729640. Fletcher then called Hedberg and said: "It appears that all three IDGs are what we want, part number 729640. Let's negotiate a price." (Fletcher Dep. at 38.) Hedberg testified that he relied on the information Fletcher told him regarding the IDGs because Fletcher "had been dealing with IDGs for years and is very knowledgeable about them" and because Fletcher "had been talking with Sundstrand about the IDGs." (Pl.'s Resp. P 16.) Fletcher and Hedberg agreed upon a price of $ 50,000 per IDG.
[Buyer] then issued a purchase order for the IDGs. The purchase order describes the IDGs as part number 729640. The purchase order also states that the "UNITS ARE TO BE AS DESCRIBED IN TELEFAX OF JUL 3, 1996 FROM LEIF TO GREG: UNIT # 1: CSD SN 5201 / GEN SN 2370; UNIT # 2: CSD SN 1692 /GEN SN 180; UNIT # 3: CSD SN 233 / GEN SN 432C." [Seller] then prepared an invoice which describes the parts as "729640 IDG." The invoice also references [buyer's] purchase order. [Seller] also provided [buyer] with a "Material Certification Form" which describes the parts as 729640 IDGs and references [buyer's] purchase order.
[Seller] then shipped the IDGs to [buyer]. [Buyer] then forwarded the IDGs to Sundstrand for overhaul. After working on the parts, Sundstrand informed [buyer] that all three of the IDGs were part number 708524 and not part number 729640. At Hedberg's request, [buyer] sent the IDGs with serial numbers 233 and 1692 to Nortek in Miami Florida. Nortek confirmed that those IDGs were part number 708524. [Buyer] claims that it has suffered damages in the amount of $120,000 as a result of having received IDGs that were part number 708524 instead of part number 729640.
Unable to resolve the dispute, [buyer] filed suit in this court for breach of contract and breach of warranty. On July 21, 1998, [buyer] filed a motion for summary judgment. On August 4, 1998, [seller] filed a motion for a determination of the applicable law. [Buyer] did not oppose [seller's] motion. On August 13, 1998, the court issued an order, ruling that the applicable law is the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), 15 U.S.C. app. (West 1998). [Buyer] then filed its amended motion for summary judgment, which was fully briefed on September 18, 1998. [Seller] filed its motion for summary judgment on September 22, 1998, which was fully briefed on October 21, 1998.
Before addressing the merits of the parties' motions, the court must address the issues raised with regard to choice-of-law and subject matter jurisdiction. After an initial review of this case, the court determined that it had diversity jurisdiction because the case is between a citizen of Illinois and a citizen of Sweden and the amount in controversy exceeds $75,000. 28 U S. C.1332(a)(2). Because it was a diversity case, [seller] moved the court to determine whether the substantive law of Sweden, Illinois, or the CISG governed this contract dispute. [Seller] argued that the CISG governed. [Buyer] did not oppose the motion and did not argue that the CISG did not govern. Thus, the court determined that the CISG governed.
The parties then submitted their motions for summary judgment, in which each party raised an issue not raised in the parties' briefs regarding the choice-of-law determination. [Seller] argued for the first time that the court's subject matter jurisdiction is actually not based on diversity but is based on a federal question because the case arises under the CISG, a convention of the United States. See 28 U.S.C. § 1331. [Buyer] argued for the first time that issues of contract formation are governed by Illinois law because Sweden opted out of Part II of the CISG, which is the part that governs contract formation.
First the court will address its basis for subject matter jurisdiction. As previously explained, it is clear that this court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332. Thus, this court has jurisdiction over the case regardless of whether the CISG provides an independent basis for subject matter jurisdiction. The court's opinion would not change in any way if it found that its jurisdiction were based on the CISG. Thus, the court need not reach the issue of whether the CISG provides an independent basis for subject matter jurisdiction.
Next the court addresses the choice-of-law issues presented in this case. As previously discussed, the CISG governs most of the issues in this case because the United States, where [buyer] has its place of business, and Sweden, where [seller] has its place of business, are both States Party to the CISG. CISG art. 1. As the parties agree, the CISG does not govern issues which are addressed in Part II (Formation of the Contract) of the CISG because Sweden declared in its instrument of ratification that it would not be bound by Part II. CISG Parties to the Convention n.16. Rather, as the parties also agreed, Illinois law governs the contract formation issues in this case.
A motion for summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P.56(c). A genuine issue of material fact exists for trial when, in viewing the record and all reasonable inferences drawn therefrom in a light most favorable to the non-moving party, a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 US. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995).
The burden is on the moving party to show that no genuine issues of material fact exist. Anderson, 477 US. at 256; Celotex Corp. v. Catrett, 477 US. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Once the moving party presents a prima facie showing that he is entitled to judgment as a matter of law, the non-moving party may not rest upon the mere allegations or denials in its pleadings but must set forth specific facts showing that a genuine issue for trial exists. Anderson, 477 US. at 256-57; Celotex, 477 US. at 324; Schroeder v. Luftansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989).
Both parties argue that they are entitled to summary judgment on [buyer's] breach-of-contract claim. [Buyer] argues that the parties contracted for [seller] to sell [buyer] three IDGs part number 729640 and that [seller] breached the contract when it sold [buyer] IDGs which were not part number 729640. [Seller] argues that the parties contracted for [seller] to sell [buyer] the three IDGs that [seller] had available for sale and not for [seller] to sell IDGs part number 729640. [Seller] further argues that [buyer] assumed the risk that the IDGs would not be part number 729640 and that [buyer's] decision to purchase the IDGs was the direct result of [buyer's] unilateral mistake in interpreting the information that [seller] provided.
Under the CISG, "the seller must deliver goods which are of the quantity, quality and description required by the contract." CISG art. 35. The seller is liable in accordance with the contract and this Convention for any lack of conformity. CISG art. 36. Therefore, the issue is what specific goods the parties contracted for [seller] to sell [buyer].
Before analyzing the evidence submitted by the parties, the court must determine whether it can consider parol evidence in deciding the parties' dispute. [Buyer] argues that the court cannot because the contract, i.e., the purchase order, is clear and unambiguous. [Seller] argues that the court can because the contract is patently ambiguous. Neither [buyer] nor [seller] addressed whether parol evidence is admissible under the relevant provisions of the CISG.
This court was unable to find any case from the Seventh Circuit or a district court in the Seventh Circuit which has addressed the issue of whether a court can consider parol evidence in a contract dispute governed by the CISG. This is not surprising because "there is virtually no case law under the Convention." Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995). Thus, the issue of whether the court can consider parol evidence in a contract dispute governed by the CISG is an issue of first impression for this court.
The Eleventh Circuit addressed this issue in its highly persuasive opinion in the case of MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, 144 F.3d 1384, 1389-90 (11th Cir. 1998). Because this court agrees with the holding and reasoning of MCC-Marble on this issue, the court will provide a detailed account of the MCC-Marble opinion.
In MCC-Marble, the plaintiff was suing the defendant for breach of contract. Id. at 1385. The CISG governed the breach-of-contract dispute. Id. at 1385. In addition to other defenses, the defendant relied on certain provisions contained in the pre-printed contract, which the defendant had prepared and the plaintiff had executed. Id. The plaintiff argued that the parties never intended for the provisions to apply to their agreements. Id. at 1386. In support of its argument, the plaintiff submitted an affidavit from the individual who signed the forms on the plaintiff's behalf. Id. The affiant stated that the plaintiff had no intent to be bound by the terms of the pre-printed forms and that the defendant was aware of that intent. Id. Applying the parol evidence rule and thus ignoring the evidence contained in the plaintiff's agent's affidavit, the district court granted summary judgment in favor of the defendant. Id. 1387.
The Eleventh Circuit reversed the district court. Id. at 1393. Addressing the parol evidence issue, the court first analyzed article 8 of the CISG. Article 8(1) provides: "For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was." The court read article 8(1) as requiring the court "to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time." Id. at 1388. The court also noted that article 8(3) "expressly directs courts to give 'due consideration . . . to all relevant circumstances of the case including the negotiations . . .' to determine the intent of the parties." Id. at 1389.
Having determined that much, the court then was forced to address the issue of "whether the parol evidence rule, which bars evidence of an earlier oral contract that contradicts or varies the terms of a subsequent or contemporaneous written contract, plays any role in cases involving the CISG." Id. Observing that the CISG contains no express statement on the role of parol evidence, the court stated: "It is clear, however, that the drafters of the CISG were comfortable with the concept of permitting parties to rely on oral contracts because they eschewed any statutes of fraud provision and expressly provided for the enforcement of oral contracts." Id. (citing article 11 of the CISG). The court then concluded: "Given article 8(1)'s directive to use the intent of the parties to interpret their statements and conduct, article 8(3) is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent." Id. The court thus held that CISG rejects the parol evidence rule and clearly instructs the court to admit and consider probative parol evidence regarding the parties' negotiations inasmuch as that evidence reveals the subjective intent of the parties. Id.
This court agrees with the Eleventh Circuit that article 8 of the CISG requires the court to consider parol evidence inasmuch as that evidence is probative of the subject intent of the parties. This conclusion is in accord with the great weight of persuasive authority on the issue. See MCC-Marble, 144 F.3d at 1390 and n.17 (citations omitted); Claudi v. Olivieri Footwear Ltd., No. 96 Civ. 8052, 1998 WL 164824, at *5-6 (S.D.N.Y. Apr. 1, 1998) (stating that "contracts governed by the CISG are freed from the limits of the parol evidence rule and there is a wider spectrum of admissible evidence to consider in construing the terms of the parties' agreements); see also Filanto v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1238, n.7 (S.D.N.Y. 1992). Accordingly, the court finds that it must consider any evidence concerning any negotiations, agreements, or statements made prior to the issuance of the purchase order in this case in determining whether the parties contracted for [seller] to sell [buyer] three IDGs part number 729640 or, alternatively, to sell [buyer] the three IDGs that [seller] had available for purchase.
One might argue that Illinois law, not the CISG, governs the parol evidence issue in this case because the parol evidence rule is a rule of contract formation and, as discussed above, Illinois law governs contract formation issues in this case. Mohr v. Metro East Mfg. Co., 711 F.2d 69, 71 (7th Cir. 1983). However, the issue of parol evidence is addressed in article 8 of the CISG, which is in Part I of the CISG. CISG art. 8. Neither Sweden nor the United States declared that it would not be bound by Part I of the CISG. See CISG Parties to the Convention nn.l6 and 19. Thus, the court finds that the CISG, not Illinois law, governs the parol evidence issue in this contract dispute.
Assuming that Illinois law would govern the parol evidence issue, however, parol evidence would still be admissible in this case. In Illinois, parol evidence is admissible when the contract is ambiguous. Foxfield Realty Inc. v. Kubala, 287 Ill. App. 3d 5l9, 678 N.E.2d 1060, 1063, 223 Ill. Dec. 52 (Ill. App. Ct. 1997). Whether an ambiguity exists is a question of law for the court to decide. Id. (citing Hammel v. Ruby, 139 Ill. App. 3d 241, 487 N.E.2d 409, 93 Ill. Dec.742 (1985)).
In this case, the purchase order is ambiguous. Although the purchase order describes the goods as IDGs part number 729640, it also states that the UNITS ARE TO BE AS DESCRIBED IN TELEFAX OF JUL 3." The July 3 fax never describes the IDGs as part number 729640; rather, the fax gives the part numbers for the generators and transmissions. [Seller] has submitted evidence that the part numbers given for the transmissions and the generators could never go together to form an IDG part number 729640. Therefore, the contract is ambiguous as to whether the parties contracted for [seller] to sell [buyer] IDG's part number 729640 or the three IDGs with the generator and transmission parts described in the July 3 fax, which were not IDG's part number 729640. Because the contract contains such an ambiguity, Illinois law allows the court to consider parol evidence in interpreting the contract.
Having determined that the CISG requires the court to consider the contract along with any evidence concerning any negotiations, agreements, or statements made prior to the issuance of the purchase order in this case, the court must now determine whether there is a genuine issue of fact as to whether the parties contracted for [seller] to sell [buyer] three IDGs part number 729640 or, alternatively, to sell [buyer] the three IDGs that [seller] had available for purchase. The court finds that there is.
On the one hand, there is evidence that the parties contracted for [seller] to sell [buyer] IDGs part number 729640. First the purchase order, invoice, and material certification all state that [seller] is selling [buyer] three IDGs part number 729640. Second, there is evidence that the information contained in the July 3 fax indicated that the part number of the IDGs was 729640. Finally, there is Fletcher's testimony that (1) the parts were listed on the ILD as three number 729640 IDGs; (2) at the time that the July 3 fax was sent, both [seller] and [buyer] knew that [buyer] was only interested in purchasing IDGs with part number 729640; and (3) Fletcher asked Hedberg if [seller] had any IDGs part number 729640 and Hedberg responded "Yes."
On the other hand, there is evidence that the parties contracted for [seller] to sell the IDGs it had available for purchase, which were not part number 729640. First, the July 3 fax never identified the IDGs as part number 729640; rather, it simply listed the part numbers of the transmissions and the generators which went together to form the IDG. Second, the purchase order states that it is for the units described in the July 3 fax, which are the units [seller] had available for purchase. Finally, there is Hedberg's testimony that (1) the parts were listed on the ILD with two or three alternative part numbers and not just part number 729640; (2) he and Fletcher did not discuss the part number of the IDGs in that first conversation; (3) he relied on Fletcher's expertise in IDGs in the negotiations; (4) he told Fletcher that [seller] could not determine the exact part number of the IDGs available for sale and "made it clear" to Fletcher that he did not have the information necessary to determine whether the part number of the IDGs was 729640; (5) Fletcher requested information about the IDGs "to try to confirm" the part number of the units that [seller] wished to sell and that [buyer] wished to buy; (6) Hedberg sent Fletcher the July 3 fax "so that [buyer] might make a determination" of the part number of the IDGs; and (7) Fletcher decided to buy the IDGs available after determining for himself that the IDGs were part number 729640.
Based on the above evidence, the court finds that there is a genuine issue of material fact which precludes summary judgment. There is evidence that the parties contracted for [seller] to sell IDGs part number 729640. There is also evidence that the parties contracted for [seller] to sell [buyer] the IDGs that [seller] had available for purchase. Accordingly, neither party is entitled to summary judgment on this issue.
[Seller] also argues that it is entitled to summary judgment because [buyer] assumed the risk that the IDGs were not part number 729640 and made a unilateral mistake in determining that the IDGs were part number 729640. There is a genuine issue of fact, however, as to whether [buyer] assumed the risk and whether the mistake was unilateral or bilateral.
As a preliminary matter, the court notes that these issues are moot if the parties contracted for [seller] to sell [buyer] the IDGs that [seller] had available for purchase. If that is all that the parties agreed on, then the goods which [seller] sent to [buyer] would not be non-conforming and [seller] would not be liable for breach of contract. Thus, these issues as to the assumption of risk and mistake are only issues if the parties contracted for [seller] to sell [buyer] IDGs part number 729640.
As to the assumption of risk issue, however, there is a genuine issue of fact as to whether [buyer] assumed the risk. On the one hand, [seller] submitted evidence that (1) the parts were listed on the ILD as three number 729640 IDGs; (2) Fletcher asked Hedberg if [seller] had any IDGs part number 729640 and Hedberg responded "Yes"; and (3) one could tell from an external examination whether the IDGs were part number 729640 or 708524. This evidence would tend to show that [buyer] did not assume the risk. On the other hand, there is evidence that (1) Hedberg relied on the information Fletcher's determination that the IDGs were part number 729640; and (2) Fletcher knew that Hedberg/[seller] did not and could not determine the IDGs part number. This evidence tends to show that [buyer] did assume the risk. Accordingly, neither party is entitled to summary judgment on this issue.
As to the mistake issue, there is also a genuine issue of fact as to whether the mistake was bilateral or unilateral. On the one hand, there is evidence that (1) Fletcher determined that the IDGs were part number 729640; (2) Fletcher knew that [seller] could not determine what part number the IDGs were; and (3) the parties agreed that Fletcher would evaluate the information and then determine if he wanted the IDGs. This evidence would tend to show that the mistake was unilateral. On the other hand, there is evidence that (1) the parts were listed on the ILD as three number 729640 IDGs; and (2) Fletcher asked Hedberg if [seller] had any IDGs part number 729640 and Hedberg responded "Yes." This evidence would tend to show that the mistake was bilateral. Therefore, neither party is entitled to summary judgment on this issue.
Both parties also argue that they are entitled to summary judgment on [buyer's] breach of warranty claim. Their arguments mirror their arguments with respect to [buyer's] breach of contract claim. [Buyer] argues that [seller] breach[ed] its warranty to sell [buyer] IDG's part number 729640. [Seller] argues that there was no warranty to sell [buyer] IDGs part number 729640.
As with the breach of contract claim, the court finds that there is a genuine issue of fact as to whether [seller] promised to sell [buyer] IDGs part number 729640. See supra Part II.A.2. Accordingly, neither party is entitled to summary judgment on [buyer's] breach of warranty claim.
Both parties also move for summary judgment on the issue of damages. [Buyer] argues that it is entitled to a judgment of $120,000. [Seller] argues that [buyer] is entitled to nothing.
The court need not reach the issue of damages at this stage of the litigation. As previously discussed, there is a genuine issue of fact as to liability. Accordingly, the issue of damages is premature.
In sum, there are several genuine issues of material fact which preclude summary judgment in this case. Accordingly, the court denies both parties' motions for summary judgment.
1. Unless otherwise indicated, the following facts are undisputed facts taken from the parties' Rule 12(M) and Rule 12(N) statements.
2. In the event that this court's subject matter jurisdiction is based on a federal question and not diversity, it is not clear that Illinois law would be the governing law. However, as the outcome of this opinion does not depend on whether Illinois law applies, the court need not address this issue.
3. In Beijing Metals & Minerals Import/Export Corp. v. American Bus. Ctr., 993 F.2d 1178 (5th Cir. 1993), the Fifth Circuit reached an opposite conclusion. However, the court did not conduct any analysis of the CISG to support its conclusion. Thus, the court finds that the Beijing Metals opinion is not persuasive on this issue. See MCC-Marble, 144 F.3d at 1389-90 (stating that the Beijing Metals opinion was "not particularly persuasive").

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