Source: http://www.cisg.law.pace.edu/cases/020326u1.html
Timestamp: 2019-04-21 10:22:22+00:00

Document:
CASE NAME: St. Paul Guardian Insurance Company and Travelers Insurance Company, as subrogees of Shared Imaging, Inc. v. Neuromed Medical Systems & Support, GmbH, et al.
"1. [In a contract governed by the CISG,] [t]he use of the term 'CIF' without specific reference to the INCOTERMS [was held to be] sufficient to validly incorporate the term 'CIF' as defined by the INCOTERMS into the contract."
A German company, defendant, sold a mobile magnetic resonance imaging system to a United States company. The delivery term provided �CIF New York Seaport, the buyer will arrange and pay for customs clearance as well as transport to Calmut City [the ultimate destination in the United States].� Preceding the payment term was a handwritten note stating that �acceptance subject to inspection� followed by the initials of a representative of the buyer. The seller and buyer agreed that the equipment was in good working order when loaded at the port of shipment but was damaged when it arrived at its ultimate destination. Two United States insurance companies reimbursed the buyer and brought suit against the defendant as subrogees to the buyer�s claim.
The court granted the defendant�s motion to dismiss the suit for failure to state a cause of action.
The parties� contract designated German law as the applicable law. The court applied the CISG as the relevant German law. The parties had their places of business in two different Contracting States and had not agreed to exclude application of the CISG. The court noted that on similar facts German courts apply the Convention as applicable German law.
The court concluded that the risk of loss passed to the buyer upon delivery to the port of shipment by virtue of the CIF delivery term. The court found that the International Chamber of Commerce�s 1990 CIF incoterm governed by virtue of article 9(2) CISG. The court also noted that German courts apply the incoterm as a commercial practice with the force of law.
The court rejected plaintiffs� argument that the risk of loss could not have passed because the seller had retained title to the equipment. Citing articles 4(b) and 67(1) CISG, the court stated that the Convention distinguished between the risk of loss, which it deals with in chapter IV of part III, and the transfer of title, which is beyond the scope of the Convention.
The court also rejected arguments based on the typed and handwritten terms of the contract. A clause allocating the responsibility for customs clearance deals with a matter not addressed by the CIF incoterm. A clause providing for a final payment after the equipment arrives at its destination is not inconsistent with the passing of the risk of loss. Moreover, a reasonable recipient would understand the handwritten term to mean that receipt of the equipment was not to be construed as an admission that the equipment was free of defects and performed according to contract specifications.
Company, as subrogees of Shared Imaging, Inc., Plaintiffs v.
OPINION BY: Sidney H. Stein, U.S. District Judge.
Plaintiffs St. Paul Guardian Insurance Company and Travelers Property Casualty Insurance Company have brought this action as subrogrees of Shared Imaging, Inc., to recover $ 285,000 they paid to Shared Imaging for damage to a mobile magnetic resonance imaging system ("MRI") purchased by Shared Imaging from defendant Neuromed Medical Systems & Support GmbH ("Neuromed").
[Seller] has moved to dismiss the complaint on two grounds, namely that (1) the forum selection clause of the underlying contract requires the litigation to take place in Germany and (2) pursuant to Fed. R. Civ. P. 12(b)(6), the complaint fails to state a claim for relief. In an Order dated December 3, 2001, this Court first found that the contractual forum selection clause did not mandate that the action proceed in Germany and second, held the rest of the motion in abeyance pending submissions by the parties on German law, which, pursuant to the underlying contract, is the applicable law. The parties have now submitted affidavits from German legal experts.
The crux of [seller's] argument is that it had no further obligations regarding the risk of loss once it delivered the MRI to the vessel at the port of shipment due to a "CIF" clause included in the underlying contract. [Buyer] respond[s] that (1) the generally understood definition of the "CIF" term as defined by the International Chamber of Commerce's publication, Incoterms 1990, is inapplicable here and (2) the "CIF" term was effectively superceded by other contract terms such that the risk of loss remained on [seller].
Pursuant to the applicable German law -- the U.N. Convention on Contracts for the International Sale of Goods -- the "CIF" term in the contract operated to pass the risk of loss to [buyer] at the port of shipment, at which time, the parties agree, the MRI was undamaged and in good working order. Accordingly, [seller's] motion to dismiss the complaint should be granted and the complaint dismissed.
[Buyer], an American corporation, and [seller], a German corporation, entered into a contract of sale for a Siemens Harmony 1.0 Tesla mobile MRI. Thereafter, both parties engaged various entities to transport, insure and provide customs entry service for the MRI. [Buyer] originally named those entities as defendants, but the action has been discontinued against them by agreement of the parties. (Stipulation of Discontinuance dated Oct. 2, 2001.) [Seller] is the sole remaining defendant.
[Seller] contends that because the delivery terms were "CIF New York Seaport," its contractual obligation, with regard to risk of loss or damage, ended when it delivered the MRI to the vessel at the port of shipment and therefore the action must be dismissed because [buyer] ha[s] failed to state a claim for which relief can be granted. [Buyer] respond[s] that the generally accepted definition of the "CIF" term as defined in Incoterms 1990, is inapplicable. Moreover, [buyer] suggest[s] that other provisions of the contract are inconsistent with the "CIF" term because [seller], pursuant to the contract, retained title subsequent to delivery to the vessel at the port of shipment and thus, [buyer] manifestly retained the risk of loss.
In reviewing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a district court's role is to assess the legal feasibility of the complaint; it is not to weigh the evidence which might be offered at trial. See Festa v. Local 3, Int'l Bhd. of Elec. Workers, 905 F.2d 35, 37 (2d Cir. 1990); Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980); Castellano v. City of New York, 946 F. Supp. 249, 252 (S.D.N.Y. 1996). A motion to dismiss should not be granted unless "it appears beyond doubt that the plaintiff [the buyer in the instant case] can prove no set of facts in support of the claim which would entitle him to relief." Staron v. McDonald's Corp., 51 F.3d 353, 355 (2d Cir. 1995) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)); Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992) (quoting Ricciuti v. New York City Transit Auth., 941 F.2d 119, 123 (2d Cir.1991)).
Pursuant to Fed. R. Civ. P. 44.1, determinations of foreign law are questions of law. The Court "may consider any relevant material or source" to determine foreign law, whether or not submitted by a party or admissible under the Federal Rules of Evidence." Fed. R. Civ. P. 44.1. In short, under Rule 44.1, the court may "consider any material that is relevant to a foreign law issue, whether submitted by counsel or unearthed by the court's own research." Consorcio Rive, S.A. v. Briggs of Cancun, Inc., 2000 U.S. Dist. LEXIS 14142, No. Civ. A. 99-2204, 2000 WL 1364243, at *2 (E.D. La. Sept. 20, 2000).
The parties have each submitted relevant opinions of German legal experts (Werkmeister Op.; Strube Op.; Werkmeister Reply Op.) and the Court has independently researched the applicable foreign law. On the basis of those submissions and analysis, the Court finds the expert opinion of Karl-Ulrich Werkmeister for the [seller] to be an accurate statement of German law.
The parties concede that pursuant to German law, the U.N. Convention on Contracts for the International Sale of Goods ("CISG") governs this transaction because (1) both the U.S. and Germany are Contracting States to that Convention, and (2) neither party chose, by express provision in the contract, to opt out of the application of the CISG. (Strube Op. at 2; Werkmeister Op. at 2.); See CISG, art. 1(1)(a), reprinted in 15 U.S.C.A. App.; see also Claudia v. Olivieri Footwear Ltd., 1998 U.S. Dist. LEXIS 4586, No. 96 Civ. 8052, 1998 WL 164824, at *4 (S.D.N.Y. Apr. 7, 1998) [<http://cisgw3.law.pace.edu/cases/980406u1.html>]; Larry A. DiMatteo, The Law of International Contracting, 206 (2000) (hereinafter Contracting).
The CISG aims to bring uniformity to international business transactions, using simple, non-nation specific language. See Larry DiMatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, Yale J. Int'l L. 111, 133 (1997). To that end, it is comprised of rules applicable to the conclusion of contracts of sale of international goods. See Annemieke Romein, The Passing of Risk: A Comparison Between the Passing of Risk under the CISG and German Law (Heidelberg, June 1999), at <http://www.cisg.law.pace.edu/cisg/biblio/romein.html>. In its application regard is to be paid to comity and interpretations grounded in its underlying principles rather than in specific national conventions. See CISG art. 7(1), (2); see also Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995)[<http://cisgw3.law.pace.edu/cases/951206u1.html>].
Germany has been a Contracting State since 1991, and the CISG is an integral part of German law. See Romein, supra. Where parties, as here, designate a choice of law clause in their contract -- selecting the law of a Contracting State without expressly excluding application of the CISG -- German courts uphold application of the Convention as the law of the designated Contracting state. See Martin Karollus, Judicial Interpretation and Application of the CISG in Germany 1988-1994, (citing OLG Koblenz 17 September 1993; OLG Koln 22 February 1994) at <http://www.cisg.law.pace.edu/cisg/biblio/karollus.html>; see also Werkmeister Op. at 2. To hold otherwise would undermine the objectives of the Convention which Germany has agreed to uphold.
C. CISG, INCOTERMS and "CIF"
"The 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 and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned." CISG, art. 9(2), reprinted in 15 U.S.C.A. App.
The use of the "CIF" term in the contract demonstrates that the parties "agreed to the detailed oriented [INCOTERMS] in order to enhance the Convention." Neil Gary Oberman, Transfer of Risk From Seller to Buyer in International Commercial Contracts: A Comparative Analysis of Risk Allocation Under CISG, UCC and Incoterms, at <http://www.cisg.law.pace.edu/cisg/thesis/Oberman.html>. Thus, pursuant to CISG art. 9(2), INCOTERMS definitions should be applied to the contract despite the lack of an explicit INCOTERMS reference in the contract.
"If the contract of sale involves carriage of the goods and seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place." CISG, art 67(1), reprinted in 15 U.S.C.A. App.
Pursuant to the CISG, "the risk passes without taking into account who owns the goods. The passing of ownership is not regulated by the CISG according to art. 4(b)." Romein, supra. Article 4(b) provides that the Convention is not concerned with "the effect which the contract may have on the property in the goods sold." CISG art. 4(b). Moreover, according to Article 67(1), the passage of risk and transfer of title need not occur at the same time, as the seller's retention of "documents controlling the disposition of the goods does not affect the passage of risk." CISG art. 67(1).
Accordingly, pursuant to INCOTERMS, the CISG, and specific German law, [seller's] retention of title did not thereby implicate retention of the risk of loss or damage.
[Buyer] next contend[s] that even if the "CIF" term did not mandate that title and risk of loss pass together, the other terms in the contract are evidence that the parties' intention to supercede and replace the "CIF" term such that [seller] retained title and the risk of loss. That is incorrect.
Citing the "Delivery Terms" clause in the contract, [buyer] posit[s] that had the parties intended to abide by the strictures of INCOTERMS there would have been no need to define the buyer's obligations to pay customs and arrange further transport. (Strube Op. at 13 P 2.23(a-b).) [Buyer's] argument, however, is undermined by Incoterms 1990, which provides that "it is normally desirable that customs clearance is arranged by the party domiciled in the country where such clearance should take place." (See Werkmeister Op. Ex. Incoterms 1990 at 109.) The "CIF" term as defined by INCOTERMS only requires the seller to "clear the goods for export" and is silent as to which party bears the obligation to arrange for customs clearance. (Id. at 151.) The parties are therefore left to negotiate these obligations. As such, a clause defining the terms of customs clearance neither alters nor affects the "CIF" clause in the contract.
[Buyer] also cite[s] to the "Payment Terms" clause of the contract, which specified that final payment was not to be made upon seller's delivery of the machine to the port of shipment, but rather, upon buyer's acceptance of the machine in Calumet City. These terms speak to the final disposition of the property, not to the risk for loss or damage. INCOTERMS do not mandate a payment structure, but rather simply establish that the buyer bears an obligation to "pay the price as provided in the contract of sale." (Id. at 151.) Inclusion of the terms of payment in the contract does not modify the "CIF" clause.
Finally, [buyer] emphasize[s] the handwritten note, "Acceptance upon inspection." (Feit Aff. Ex. 1.) Based upon its placement within the contract and express terms, the note must serve to qualify the final clauses of the "Payment Terms," obliging buyer to effect final payment upon acceptance of the machine. (Id.) As [seller's] expert correctly depicts, "A reasonable recipient, acting in good faith, would understand that the buyer wanted to make sure that receipt of the good should not be construed as the acceptance of the buyer that the good is free of defects of design or workmanship and that the good is performing as specified. This addition does not relate to the place of delivery." (Werkmeister Reply Op. at 3.) Accordingly, despite [buyer's] arguments to the contrary, the handwritten note does not modify the "CIF" clause; it instead serves to qualify the terms of the transfer of title.
The terms of the contract do not modify the "CIF" clause in the contract such that the risk of loss remained with [seller]. The fact remains that the CISG, INCOTERMS, and German law all distinguish between the passage of the risk of loss and the transfer of title. Thus, because (1) [seller's] risk of loss of, or damage to, the MRI machine under the contract passed to [buyer] upon delivery of the machine to the carrier at the port of shipment and (2) it is undisputed that the MRI machine was delivered to the carrier undamaged and in good working order, [seller's] motion to dismiss for failure to state a claim is hereby granted.
For the foregoing reasons, [seller's] motion to dismiss for failure to state a claim is granted and the complaint is dismissed.

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