Classification of issues present
APPLICATION OF CISG: No [CISG referred to by analogy]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue: Articles
7 ;
42 ; [Also cited: Articles
74 ;
79
;
80 ]
Classification of issues using UNCITRAL classification code
numbers:
7A3 [Observance of good faith];
42C1 [Seller's obligation to deliver goods free from third-party claim based on intellectual property:
seller's obligation not applicable when at time of contract buyer knew of right or claim]
Descriptors: Good faith ; General principles ; Intellectual property
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Editorial remarks
EDITOR: Arie Reich
Facts. This is a ruling under the Hague Sales Convention (ULIS) which refers to the CISG as well "by way of analogy". It deals with a sales contract between an Israeli manufacturer (seller) and a Belgian buyer who ordered certain jeans boots for export to its customer in the United States. Buyer requested seller to attach a symbol to the boots, which was a trademark of Levi's Jeans. Upon importation to the U.S., the goods were confiscated by the U.S. Customs Authorities because the symbol breached Levi's trademark. Later on, a compromise was reached whereby the symbol was removed, and the boots were sold in the U.S. market at a much reduced price.
The Belgian buyer sued for its losses, claiming that the Israeli seller failed to provide a clean title, under ULIS Article 52(a). When applying, by way of analogy, CISG Article 42, the Court reached the conclusion that the seller does not bear the responsibility for the fact that the goods were subject to a trademark of a third person, since in the circumstances, the buyer must have known about this fact or could not have been unaware of it at the time of the conclusion of the contract. Moreover, the buyer himself had supplied the seller with the designs for the boots, which included the trademark.
Nevertheless, the Court ruled that the seller should bear part of the loss, because of breach of the good faith obligation arising from Israel's general contract law (Article 39). In the Court's opinion, both the seller and the buyer must have known that the products were infringing the famous trademark of Levi's, and in ignoring this fact they both acted in bad faith. The Court developed a new doctrine of contributory fault, well known in the law of torts, but hitherto not recognized in the law of contract. The loss was therefore to be shared by the seller and the buyer in equal shares (50%-50%).
Comments. This ruling is to be faulted in the following respects:
- First, as a matter of proper methodology, one should not import provisions from domestic law and legislation into a dispute governed by the CISG (assuming the CISG would apply), unless the question is not expressly settled in the CISG, and one cannot settle it by reference to the general principles of the CISG (see Article 7(2)).
Pace Law School Institute of International
Commercial Law - Last updated February 15, 2007