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CISG CASE PRESENTATION

United States 10 April 2009 Federal District Court [Illinois] (CNA Int'l, Inc. v. Guangdong Kelon Electronical Holdings et al.) [Jury trial of a CISG proceeding]
[Cite as: http://cisgw3.law.pace.edu/cases/090410u1.html]

Primary source(s) of information for case presentation: Case recordst

Case Table of Contents


Case identification

DATE OF DECISION: 20090410 (10 April 2009)

JURISDICTION: United States

TRIBUNAL: U.S. District Court, Northern District of Illinois, Eastern Division [federal court of 1st instance]

JUDGE(S): Amy J. St. Eve

CASE NUMBER/DOCKET NUMBER: 05 C 5734

CASE NAME: CNA International, Inc. v. Guangdong Kelon Electronical Holdings et al.

CASE HISTORY: See also Federal District Court [Illinois] 3 September 2008

SELLER'S COUNTRY: United States (plaintiff)

BUYER'S COUNTRY: Hong Kong [People's Republic of China (defendant)

GOODS INVOLVED: Refrigerators and freezers


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 77 [Also relevant: Articles 35 ; 77 ]

Classification of issues using UNCITRAL classification code numbers:

74A ; 74C [General rules for measuring damages (loss suffered as consequences of breach): may include "harm to a party's reputation as a consequence of the breach;" Other issues (burden of proof): "party claiming breach has the burden of proving its damages with reasonable certainty, but it need not prove its damages with mathematical precision"]

Descriptors: Damages ; Burden of proof

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): Data on the case presented below

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Data on the case

United States District Court, Northern District of Illinois, Eastern Division

CNA Int'l, Inc. v. Guangdong Kelon Electrical Holdings Company etal.

No. 05-CV-5734

10 April 2009

-     Basic issues in the case [excerpt from a petition by plaintiff]
-     Judge's Instructions to the jury [9 April 2009]
-     Jury verdict [10 April 2009]
-     Judgment [10 April 2009]

BASIC ISSUES IN THE CASE

Excerpt from Plaintiff CNA International, Inc.'s Petition for Rule 37 Sanctions for Defendant's Failure to Produce Reasonably Qualified Rule 30(B)(6) Witness, dated 19 September 2007

[...]

5. Plaintiff asserts that the United Nations Convention on Contracts for the International Sale of Goods ("CISG") applies to this action as both the United States and the People's Republic of China are signatories to the Convention. A copy of the text of the CISG is attached hereto as Exhibit "B" for the Court's convenience.

[The Court ruled that the CISG applies to the case. See CNA Int'l, Inc. v. Guangdong Kelon Electronical Holdings et al., 3 September 2008.]

6. Under Article 35 of the CISG, a seller is required to deliver goods that are of the quantity, quality and description required by the contract. Moreover, the CISG provides that goods do not conform to the contract if they: i) are unfit for the purposes for which the goods would ordinarily be used; ii) do not possess the qualities of goods which the seller has held out to the buyer as a sample or model.

7. Where a seller is liable for breach of contract under the CISG, Article 74 provides that the buyer may recover damages consisting of a sum equal to the loss, including loss of profit, suffered by the buyer as a consequence of the breach, though the recoverability of damages depends on what the breaching party foresaw or ought to have foreseen at the possible consequences of a breach when viewed at the time the contract was concluded.

8. In this case there are many central issues to determine including, i) whether the Defendants held out certain samples to the Plaintiff prior to the time of contact thereby warranting to the Plaintiff the quality of the goods that would ultimately be delivered; ii) whether the goods that Defendants actually produced were defective; iii) the nature of the defect discovered in the goods manufactured by Defendants; iv) what the Defendants should have reasonably foreseen as consequences of a breach when viewed at the time the contract was concluded; v) efforts the Plaintiffs took to mitigate damages; and vi) the nature and amount of any damages that may be recoverable by Plaintiffs.

9. Moreover, in addition to the Plaintiff's lawsuit against the Defendants, the Defendant, Guangdong Electrical Holdings Company, Limited, has filed its own suit against CNA International, Inc. claiming breach of contract, among other things, and so similar issues will be involved in this aspect of the case as well.

JUDGE'S INSTRUCTIONS TO THE JURY

JUDGE: Amy J. St. Eve

[...]

I will now review for you the parties in this action and the positions of the parties that you will have to consider in reaching your verdict.

CNA International, Inc. is an electronic appliance distributor in the United States. CNA purchases refrigerators and freezers from certain manufacturers and then distributes those appliances under the "Magic Chef" brand name in retail stores in the United States. Guangdong Kelon Electrical Holdings Company, Limited is a Chinese manufacturer of refrigerators and freezers.

This case involves three models of refrigerators or freezers: First, a 10 cubic foot frost free refrigerator known as the MCBR1000; Second, a 1.7 cubic foot refrigerator known as the MCBE170; and Third, a 7 cubic foot upright freezer known as the MCUF7. Both parties have brought separate claims against each other.

CNA contends that Guangdong Kelon breached a contract between the parties by delivering refrigerators and freezers that did not conform to the parties' contract. CNA contends that it is entitled to damages cased by this breach.

Guangdong Kelon denies that it has done anything wrong or that CNA suffered any damages.

You must decide whether CNA has proved a breach of contract regarding the delivery of any of the three models of refrigerators or freezers. If you find a breach of contract with regard to any of the three models of refrigerators and freezers, you must decide the amount of damages, if any, that is necessary to compensate CNA for the breach.

You must also decide whether Guangdong Kelon has proved any of its affirmative defenses which it contends defeat the Plaintiff's claims. I will discuss these affirmative defenses in greater detail in a few moments.

In addition to defending the claims brought by CNA International, Guangdong Kelon contends that CNA breached the contract between the parties by failing to pay Guangdong Kelon for refrigerators that were actually delivered to CNA International. [page 19]

CNA International denies that it owes Guangdong Kelon the amount claimed in Guangdong Kelon's claim. You must decide whether Guangdong Kelon has proved a breach of contract regarding payment for the refrigerators or freezers. If you find a breach of contract, you must decide the amount of damages, if any, that is necessary to compensate Guangdong Kellon for the breach. You must also decide whether CNA have proved its affirmative defense. Again, I will discuss CNA's affirmative defense in greater detail in a few moments. [page 20]

In Counts I, II, and V, CNA has asserted three separate claims of breach of contract against Guandong Kelon and Kelon International: Count 1 for breach of contract relating to model MCBR1000; Count III for breach of contract relating to model MCBR170; and Count V for breach of contract relating to model MCUF7. For each count, CNA has the burden of proving each of the following propositions:

  1. First, that there was a contract between CNA International, Inc., and Guangdong Kelon Electrical Holdings Company, Limited for the sale of the refrigerator or freezer models;

  2. Second, that Guangdong Kelon breached the contract by failing to deliver goods of the quantify, quality and description required by the contract and that otherwise conformed to the contract;

  3. Third, that CNA gave notice of any lack of conformity to Guangdong Kelon within a reasonable time after CNA discovered or ought to have discovered the lack of conformity and that the notice specified the nature of the lack of conformity; and

  4. Fourth, that CNA International suffered damages as a result of Guangdong Kelon's breach of the contract.

If you find from your consideration of all the evidence that CNA has proved each of these propositions for a particular count by a preponderance of the evidence, then you should find for CNA as to that count and you should consider CNA's damages as to that count.

If you find, on the other hand, from your consideration of all of the evidence that any of these propositions has not been proved as to a particular count, then your verdict should be for Guangdong Kelon as to that count. [page 21]

In its counterclaim, Guangdong Kelon asserts one count of breach of contract against CNA. In order for Guangdong Kelon to recover for breach of contract, it has the burden of proving each of the following propositions:

  1. First, that there was a contract between CNA International, Inc. and Guangdong Kelon Electrical Holdings Company, Limited for the sale of the refrigerators;

  2. Second, that CNA failed to pay for goods that Guangdong Kelon delivered; and

  3. Third, that Guangdong Kelon suffered damages as a result of CNA's breach of the contract.

If you find from your consideration of all the evidence that Guangdong Kelon has proved each of these propositions for its counterclaim by a preponderance of the evidence, then you should find for Guangdong Kelon as to its counterclaim and you should consider Guangdong Kelon's damages as to its counterclaim.

If you find, on the other hand, from your consideration of all the evidence that any of these propositions has not been proved as to Guangdong Kelon's counterclaim, then your verdict should be for CNA as to Guangdong Kelon's counterclaim. [page 22]

I will next instruct you as to certain legal principles that govern contracts for the sale of goods. In your consideration of the parties' respective breach of contract claims, you must apply these principles to the facts of the case.

Under the law that governs this case, a contract for the sale of goods is formed when one party makes an offer and the other party accepts the offer.

An offer is a proposal for concluding a contract that is addressed to one or more specific persons. The proposal must be sufficiently definite, meaning that it indicates the goods and fixes the price, or provides for a method of determining the price.

An acceptance is a statement or other conduct made by the offeree that indicates assent. Silence or inactivity does not constitute an acceptance.

A contract for the sale of goods need not be in writing. The existence of a contract may be proved by any means, including witnesses. [page 23]

The parties to a contract are bound by any usage to which they have agreed and by any practices that they have established between themselves.

Unless they otherwise agree, parties to a contract are also considered bound by practices regularly observed by parties to contracts of the type involved in the particular trade concerned. [page 24]

Under a contract for the sale of goods, the buyer must pay the price for the goods and take delivery of them as required by the contract.

The buyer's duty to pay includes:

  1. taking any steps required by the contract to enable payment to be made; and

  2. complying with any formalities required by any laws or regulations, as necessary, to enable payment to be made.

The buyer must pay the price on the date fixed by or determinable from the contract. The seller need not request payment.

If the contract does not set a time for payment, the buyer must pay when the seller delivers either the goods or documents controlling their disposition to the buyer in accordance with the contract.

The seller may condition delivery of the goods or documents controlling their disposition on buyer's payment. [page 25]

A seller must deliver goods on the date, or during the period of time, fixed by or determinable from the contract, or, if it is not determinable from the contract, within a reasonable time after the conclusion of the contract. [page 26]

A seller must deliver goods which are of the quantity, quality and description required by the contract.

Goods delivered by the seller do not conform with the contract unless the goods:

  1. are fit for the purposes for which the goods would ordinarily be used;

  2. are fit for any particular purpose expressly or impliedly made known to the seller at the time of the contract; or

  3. possess the qualities of any sample or model goods that the seller has held out to the buyer.

The seller is liable for any lack of conformity that exists at the time of delivery to the buyer, even if the lack of conformity becomes apparent only after that time. [page 27]

Following delivery of the goods, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable under the circumstances.

If the goods, or the delivery of the goods, fails in any respect to conform to the contract, the buyer must notify the seller of any lack of conformity within a reasonable time after the buyer has discovered the lack of conformity or within a reasonable time after the buyer ought too have discovered it. The notice must specify the nature of the lack of conformity.

If the buyer does not give such notice within a reasonable time, the buyer loses the right to rely on a lack of conformity. [page 28]

If the goods or the delivery of the goods do not conform to the contract and the buyer notifies the seller of the lack of conformity, the buyer may:

  1. accept the non-conforming goods, and pursue a claim for damages;

  2. require delivery of substitute goods and pursue a claim for damages; or

  3. require the seller to remedy the lack of conformity by repair, unless this is unreasonable under the circumstances.

A request for substitution or repair must be made either in conjunction with the buyer's notice to the seller of the lack of conformity, or within a reasonable time thereafter. [page 29]

The seller may remedy any failure to perform his obligations, even after the date for delivery, if:

  1. the seller CNA do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement of the buyer's expenses; and

  2. the seller does so at its own expense.

However, the buyer retains any right to claim damages. [page 30]

The seller may declare the contract avoided if a failure by the buyer to perform any of his obligations under the contract amounts to a fundamental breach of contract.

A breach of contract is fundamental if it substantially deprives the other party what it is entitled to expect under the contract. A breach is not fundamental if the result was not reasonably foreseeable under the circumstances. [page 31]

If you find that either party has breached the contract, you must then decide how much money, if any, would fairly compensate the damaged party for the breach. The party claiming breach has the burden of proving its damages with reasonable certainty, but it need not prove its damages with mathematical precision.

In calculating damages, you should determine the sum of money that will put the party claiming breach in as good a position as it would have been in if the breaching party had performed all of its promises under the contract.

Damages may include:

  1. the loss, including loss of profit, actually suffered by the party as a consequence of the breach and may include the loss of future profits;

  2. additional costs reasonably spent as a result of the breach or in taking measures to mitigate, or reduce, loss resulting from the breach;

  3. loss resulting from claims by third parties as a result of the breach of contract; and

  4. harm to a parties' reputation as a consequence of the breach.

Damages must not place the party claiming breach in a better position than it would have enjoyed if the contract had been properly performed.

Damages may not exceed the loss that was reasonably foreseeable by the parties when they entered into the contract. [page 32]

Guangdong Kelon has also asserted an affirmative defense of failure to mitigate damages. A party damaged by a breach of contract must take reasonable measures to minimize its damages, including loss of profit, resulting from the breach. Under this defense, Guangdong Kelon must prove:

  1. that CNA failed to reasonably mitigate its damages; and

  2. the amount of money by which CNA's damages should have been mitigated.

For each of CNA's three breach of contract counts, if you find that Guangdong Kelon has proved both of these propositions by a preponderance of the evidence, you should find for Guangdong Kelon on its affirmative defense of failure to mitigate damages as to the particular count you are considering, and reduce the amount of the damages you award to CNA as to that count by the amount by which CNA's loss should have been mitigated, as established by Guangdong Kelon. [page 33]

If the buyer has received the goods and intends to exercise any right under the contract to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller. [page 34]

A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable. [page 35]

[Case 1:05-cv-05734, Document 209, Filed April 9, 2009, pages 19 of 38 to 35 of 38]

JURY VERDICT

Jury deliberations held on April 10, 2009. The jury returns a verdict in favor of plaintiff on Count 1 of the complaint and assesses damages in the amount of $1,250,000.00. The jury returns a verdict in favor of defendant on Counts III and V of the complaint. The jury returns a verdict in favor of defendant on defendant's counterclaim for breach of contract against plaintiff and assess damages in the amount of $980,979.50. The Clerk of Court is directed to enter judgment in accordance with the jury's verdict. Parties' oral motions for directed verdicts are enied in light of the jury's verdict. Jury trial ends.

[Case 1:05-cv-05734, Document 213, Filed April 10, 2009, page 1 of 1]

JUDGMENT

IT IS HEREBY ORDERED AND ADJUDGED that judgment is entered in favor of plaintiff CNA International, Inc. on Count 1 of the complaint and damages are awarded in the amount of $1,250,000. Judgment is entered in favor of defendant Guangdong Kelon Electrical Holdings Company, Limited on Counts III and V of the complaint. Judgment is awarde3d in favor of defendant Guangdong Kelon Electrical Holdings Company, Limited on defendant's counterclaim for breach of contract against plaintiff and damages are awarded in the amount of $980,979.50.

[Case 1:05-cv-05734, Document 214, Filed April 10, 2009, page 1 of 1]

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Pace Law School Institute of International Commercial Law - Last updated January 20, 2010
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