Chapter 6 practise exercise (answers)
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Dec 6, 2023
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IBS 850
Chapter 6 practice exercise:
FACTS:
Caplan Automotive Corporation (“CAC”) is a Canadian car manufacturer that sells its cars in
Canada and around the world.
SCENARIO A:
CAC has entered into a contract to provide 6 customized cars to Royal Fleet Corp, a British company that
supplies cars to the British royal family in London, England.
The contract specifies that the cars will be
delivered by June 1, 2020 but in April, CAC realized that it will
not be able to produce and deliver the
cars on time.
CAC informed Royal Fleet that the cars will be 2 weeks late.
1.
Is this contract governed by the CISG or by the common law? Explain.
T
he contract is governed by the common law.
The CISG does not apply because the UK (including
England) is not a contracting state.
Both Canada and England are common law countries and their
contract law is very similar.
2.
Is Royal Fleet entitled to refuse to pay for the cars? Explain.
Royal Fleet is entitled to refuse to pay.
Under the common law, delivery date is a condition of the
contract.
When one party breaches a condition (as CAC has done) the innocent party does not have to
fulfill its obligations under the contract.
3.
If the cars had been sold to a limousine company in Spain instead of to Royal Fleet, would your
answer be different? Explain your reasoning.
In this case, the CISG would apply to the contract (it is an international sale of goods, and the countries
where the parties are based are both contracting states).
Under the CISG, when one party informs the
other that they can’t meet a delivery date, the innocent party must grant an extension (Nachfirst notice).
If the late party misses the new deadline, then the innocent party can refuse to pay.
So, the limo
company would have to agree to the extension, and if CAC does not deliver by the new deadline, then the
limo company can refuse to pay.
SCENARIO B:
CAC sent an offer to sell 100 cars to Microsoft for its new car-sharing program in Silicon Valley (California,
USA).
The offer stated that Microsoft could accept until July 1, 2020.
After CAC made the offer, its cars
were reviewed very positively in Car and Driver magazine and CAC realized that they could charge a lot
more. It emailed Microsoft (they had not yet responded to the offer) and informed them that the offer
was cancelled.
Microsoft responded by claiming that the CAC must keep the offer open until July 1.
1.
Is this dispute governed by the CISG?
Why or why not.
This dispute is governed by the CISG.
The contract is for a sale of goods, the parties are based in two
different countries and those countries are both contracting states.
2.
Can CAC cancel (revoke) its offer without significant legal consequences? Explain.
Under the CISG, CAC can not revoke the offer since the offer clearly states that it would be open
until July 1.
3.
Would the answer be different if the customer had been based in British Columbia (Canada)?
Explain.
If the customer is based in British Columbia, this would not be an international sale and the common law
would apply. Under common law, CAC is allowed to revoke the offer as long as the customer has not yet
accepted, and CAC lets the customer know.
SCENARIO C:
CAC is hoping to enter a contract with a buyer in Vietnam, Star Enterprises.
Star plans to sell the cars to
its customers in Thailand and Cambodia.
Name the contract clause that CAC should try to include in its
contract with Star, to address the following issues:
1.
To specify which company will be responsible for arranging and paying for transportation and
insurance.
Incoterms
2.
To require Star to do everything possible to obtain the necessary approvals from the Vietnamese
government.
Best efforts clause
3.
To allow Start to sell the cars to its customers in Thailand, without having to actually take
possession of the cars.
Sale of documents
4.
To specify whether Canadian or Vietnamese law will apply to disputes between CAC and Star.
Choice of law clause
5.
To ensure that CAC will not be in breach of the contract if its factory is closed down in a second-
wave Covid-19 lockdown.
Force majeure clause
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