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Transcript
DOMESTIC AND
INTERNATIONAL SALES
Chapter 11
Meiners, Ringleb & Edwards
The Legal Environment of Business, 12th Edition
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
HISTORY OF COMMERCIAL LAW

Years ago, English courts began to use lex mercatoria
(“the law merchant”)

Traditionally merchants who disregarded rulings under the law
merchant would be shunned by other merchants
Roman law of contracts was surprisingly sophisticated
covering countries governed by the Roman Empire
 In the early 20th Century, states had different laws for
commercial transactions; that made it difficult to
expand business into states with possibly different laws
 All States have adopted the UCC (small variations)
 Covers contracts for sale of goods
 Most countries rely on Code Law for their basic legal
framework

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
UNIFORM COMMERCIAL CODE (UCC)
Governs contracts for sale of goods (not services, real
estate or professional services)
 If contract is a “mix” of goods and services,
 Court will determine whether common law or UCC
will be applied
 HOWEVER, in such a contract parties can agree
that UCC will apply to any disputes
 Primarily state, not federal
 Each state adopts some “version” of model UCC
statute (book covers model act)
 Purpose: “simplify, clarify, and modernize the law
governing commercial contracts”

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
PARAMOUNT CONTRACTING V. DPS INDUSTRIES

Paramount needed hundreds of truckloads of dirt for a construction project.

DPS offered to sell dirt and haul it to the construction site. DPS claimed that
Paramount accepted the offer; Paramount denied it did and hired another
company.

Question: Was case governed by Article 2 of the UCC or common law? Easier to
form a contract under Article 2.

Article 2 applies to contracts for sale of goods. Does not apply for services or
labor.

When a transactions involves both goods and services, whether Art. 2 applies,
depends of “predominant purpose” of the transaction.

DPS said: Sale and delivery of dirt (goods), so Art. 2 applies.

Paramount said DPS to perform services such as placing and compacting the
dirt at the site.

DPS sued for breach of contract.

JURY found for DPS – awarded damages for sale of goods under UCC.

Paramount appealed. Contended no contract had ever been made – a services
contract.
(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
PARAMOUNT CONTRACTING V. DPS INDUSTRIES








Paramount had a contract for construction at Atlanta airport. It used
quote of dirt and hauling by DPS in its airport bid.
Contacted DPS about the volume of dirt and # of trucks needed to haul
dirt to Airport
DPS believed, at that point, there was an agreement to sell and deliver
dirt.
Memorialized the understanding in a letter to Paramount
 Said it was “holding approx. 45,000 cubic yards ready to be hauled”
. . . “once we receive the 10-day notice from you.”
No response to writing from Paramount, and later it denied there was
an agreement.
Paramount decided to buy dirt elsewhere.
HELD: Evidence is consistent that the sale of dirt was predominant
purpose of the transaction. Predominantly a sales transaction.
UCC applies. Trial decision Affirmed.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
GOODS, MERCHANTS, SALES AND TITLES
UNDER THE UCC








Goods are “all things which are movable at the time of identification
to contract.” Must be movable and tangible
All parties are bound to a standard of good-faith, or honest dealing
Article 2 applies to sale of goods
Title must pass to be a sale
Who holds title? Can hold title if:
 (1) Goods exist
 (2) Goods have been indentified to contract
Title can then pass when parties see fit
If not specified, Article 2 says title passes when:
 Seller completes all obligations regarding delivery of goods
 When seller delivers title documents (if goods didn’t need to be
moved)
If seller sells stolen property, title does not pass to buyer
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
FORMING A SALES CONTRACT

Common law governs unless UCC changes or
modifies the rules; that is, if parties do not specify
which law governs a contract, the courts look to
see if it fits under common law or under UCC, as
in Paramount Contracting case

Mostly, UCC reduces the formality required

See Exhibit 11.2
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTENT TO CONTRACT
Offer & Acceptance rules relaxed
 Only need agreement between parties
 Indefinite Offer
 OK to be missing major terms like price, delivery,
payment terms, if parties intended to be bound
 Usually need quantity, unless 1) output contract or 2)
requirements contract
 But courts require good faith dealing
• Don’t allow one party to profit from bad fortune of other
party due to unexpected large changes in circumstances
 Merchants Firm Offers – Irrevocable
 Sign in writing that offer will remain open for given period.
 If not stated, period is “reasonable time.”

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
CREST RIDGE CONSTRUCTION V. NEWCOURT, INC.









John & Joe Brower worked for a construction company. They set up
their own company, Crest Ridge and were awarded a subcontract to
provide wall panels for a job.
Wanted to use the panels made by Newcourt. After some discussion,
price was $760,000 “subject to credit department approval.”
Because Crest Ridge was a new company, not much credit info.
Over the next 6 months, detailed discussions re: panel specs and
shipment was set.
Right before delivery, Newcourt demanded payment in full. Industry
practice is 45 days after shipment (so subcontractor can give goods to
general contractor who would pay the bill).
Crest Ridge could not make advance payment and had to find another
supplier at a higher price.
Crest Ridge sued Newcourt.
Jury awarded $70,214 in damages.
Newcourt appealed.
(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
CREST RIDGE CONSTRUCTION V. NEWCOURT, INC.






HELD: Affirmed. Breach of contract by Newcourt.
The phrase “subject to credit department approval” did not illustrate
that there was no contract. Did not create a refusal to grant credit.
UCC looks at “any manner sufficient to show agreement, including
conduct by both parties . . .” to recognize contract was made.
Parties exchanged price quotes and purchase order, and documents
usually binding in construction industry.
For 6 months, parties exchanged designs to clarify project. Newcourt
sent material samples; three revisions of shop drawing; fastening
details; stipulations re: color; final drawings concerning installation.
Parties left terms of payment blank. Payment was therefore due
either on delivery or according to “general usage” in the industry. To
ask for full payment in advance, was a breach of the agreement by
Newcourt.
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ACCEPTANCE
Greater flexibility in communication of acceptance
 “Any reasonable manner” under the circumstances
 May be valid even if add new terms or change existing
terms
 Conflicting Terms – the “battle of the forms”
 If offeree’s form doesn’t match offeror’s form there is an
acceptance, but use offeror’s terms unless special
action taken
 Contract Modification
 Need not provide new consideration, but must have
“good faith dealing”
 Modification must usually be in writing

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
ORKAL INDUSTRIES V. ARRAY CONNECTOR CORP.
Orkal (NY company) bought products from Array (Florida
company).
 Orkal would send purchase order forms. Array would
confirm orders with “customer order acknowledgment”
forms that contained a “forum selection clause”.
 Clause stated that in case of disputes, Array would have
to bring suit in a Florida court.
 Orkal did not object to the clause.
 Later Orkal sued Array in NY for breach of contract.
 Array moved to dismiss due to forum selection clause.
 Trial court agreed. Case was dismissed. Orkal would
have to sue Array in Florida. Orkal appealed.

(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
ORKAL INDUSTRIES V. ARRAY CONNECTOR CORP.

Additional terms become a part of a contract unless
specifically objected to within a reasonable time OR

Unless additional terms materially alter the contract

Party opposing inclusion of additional terms must
prove that terms are material changes

Inclusion of forum selection clause constitutes a
material alteration to initial contracts.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CYBER LAW
“SHRINKWRAP YOUR CONTRACT”





Many goods sold with “shrinkwrap” agreement.
If you buy a new computer, likely has an agreement in written
materials or on box stating it is the controlling terms of the
agreement.
This generally precludes “battle of the forms.”
Most courts: Say it is unreasonable to expect the seller to apprise a
consumer of every term & condition at the moment purchase is
made.
Minority of courts where “Battle of the forms” cases have arisen:

Best defense against this is that terms of agreement were clear.

Were not grossly biased against consumer.

Consumer, when viewing the product, would see the agreement so could
read it and know how to return the product if not satisfied with it.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
STATUTE OF FRAUDS
o
o


Basic rule that sale of goods for $500 or more is not enforceable unless
in writing and signed by the party against whom enforcement is sought
Sufficiency of writing under UCC is relaxed; not every material term
needs to be specified.
Failure to Respond To A Writing
 Section 2-201(2) says that if a writing in confirmation of the contract
is received, it satisfies the writing requirements UNLESS “written
notice of objection” is within 10 days after the writing was received.
Parol Evidence
 More relaxed under the UCC than at common law.
 2-202 says parol evidence can’t usual be used against the writing.
 BUT can explain customary trade dealings or the meaning of certain
terms.
 HOWEVER, if the intent that the original writing is “a complete and
exclusive statement of terms,” parol evidence may not be used to
change the terms.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
FILLING THE GAPS

Filling the Gaps – UCC instructs judges to fill parts of contract left
open or unclear, i.e. price, quantity or delivery terms
 UCC will look to trade usage and past business dealings of the
parties in determining the outcome of unclear terms.
 It will also apply “reasonableness” standard.
 Regarding price, if the contracts are not clear, 2-305 tells courts
to determine “a reasonable price” – fair market value, past
dealings, etc. may be used.
 Regarding quantity, 2-306 recognizes requirements contracts
and output contracts, where quantities may not be clear.
 Regarding delivery term, 2-309 states delivery must be within “a
reasonable time.”
 2-311 states that seller has option for arrangements for
shipment.
 2-308 presumes delivery at seller’s place of business.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
GRIFFITH V. CLEAR LAKES TROUT CO.
Clear Lakes, a fish hatchery, had 6-year deal with Griffith, a
trout grower. Griffith would buy small trout from Clear Lakes
and sell them back when they had grown to “market size”.
 After 3 years, Clear Lake’s customers demanded larger fish
than 12-16 oz. fish delivered by Griffith.
 Clear Lakes began to take fewer fish; waited longer to get
them.
 Griffith was left with too many fish; Griffith deeply in debt;
could not change operations easily.
 Griffith sued Clear Lakes for breach of contract for not
accepting the trout that Griffith had grown to “market size.”
 Clear Lakes claimed no contract ever existed because the
parties differed as to what was “market size.”

(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
GRIFFITH V. CLEAR LAKES TROUT CO.

District court ruled in favor of Griffith.

Court held that parties knew that “market size” was 12-16
oz. when formed contract.

Clear Lakes appealed.

HELD: Affirmed.

HELD: Both parties understood the “market size”.

Parties intended to make a contract, and the contract will
not fail for indefiniteness.

Course of performance between Griffith and Clear Lakes of
3 yrs. dealing with ~ 1 lb. trout indicates an understanding of
the “market size” of trout.

There is similar trade usage predating their contract.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTERNATIONAL PERSPECTIVE
ASSURE FOREIGN BUYERS OF PRODUCT QUALITY


When a firm is unknown, especially moving into foreign markets, it
needs to demonstrate goods are of good quality.
Certification by private organization that has global acceptance is a
good mechanism. Common is International Organization for
Standardization (ISO):
 Network of national standards institutes of 130 countries.
 Coordinates the system and sets the standards.
 ISO certification is required by many firms before they will consider
buying goods.
 Firms apply for ISO certification. Visited by a certified registrar.
 Follow a complex procedure to document and organize production
procedures. Firms are audited for compliance.
 Firms must demonstrate how they know and follow qualityassurance procedures.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
PERFORMANCE AND OBLIGATIONS



UCC Section 2-601 deals with seller’s delivery conforming to terms of
agreement. If the goods fail to conform to the contract, the buyer may:
Reject the whole; Accept the whole, or Accept any commercial unit or
units and reject the rest
Tender of Delivery
 Valid and sufficient offer of performance under a contract
 Seller obliged to tender goods at buyer’s place of business
 Buyer may contract to accept goods at point of production
 “Perfect Tender Rule”: Seller must tender the quality, quantity &
delivery method as specified in the contract
 If no perfect tender, the buyer has right to reject goods and rescind
contract
Seller’s Right to Cure (UCC Section 2-508):
 Seller may cure if: Time for seller’s performance had not yet passed;
Seller notifies buyer of intent to cure defect, and Seller properly
repairs or replaces the defective goods within time allowed
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
BUYER’S RIGHTS AND OBLIGATIONS

Buyer’s duty is to accept conforming goods and pay for
them (2-507)

Buyer has right of inspection before acceptance (2-513)

Buyer may reject nonconforming goods and withhold
payment (2-601; 2-602)

Buyer has duty to accept goods. If goods are
nonconforming but accepted, buyer may later revoke
acceptance, but only if nonconformity “substantially
impairs” value of goods (2-606; 2-607; 2-608). (Parties
can always negotiate a lower price.)

Buyer has duty to pay (2-507) when goods are received.
Can inspect before payment is made.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
SALES WARRANTIES

Warranty of Title – Good title will be transferred free of
claims against it (2-312)

Express Warranties – Created by seller’s promise as to
quality, safety, performance or durability of goods. May
be created:


From sample or model

By description of attributes

By seller’s statements or promises
Warranties may be disclaimed, but disclaimers must be
specific to the type of warranty and must be
conspicuous.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
IMPLIED WARRANTIES

Merchantability - For sales by merchants:
 Goods must be of quality generally acceptable in trade
 Must be able to do what is expected


Implied Warranty of Fitness for a Particular Purpose
 Buyer communicates to seller, or seller “had reason to
know” buyer’s particular needs; buyer relies on seller’s
expertise; then may have warranty


i.e. an umbrella will keep water off of user
i.e. a salesperson’s recommendation of a certain paint on a
metal barn that will not chip and peel.
Seller may make disclaimers; language may need to be
specific and the disclaimer must be conspicuous.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
LEE VS. R&K MARINE, INC.

Lee bought new boat from R&K Marine. Agreement contained a
disclaimer for all warranties, express or implied (including implied
warranty of merchantability or fitness for particular purpose).

Three years later cracks and deterioration discovered in the hull.
Appraiser determined manufacturing defects – boat was a
complete loss.

Manufacturer was bankrupt; Lee sued R&K, claiming breach of
warranties of merchantability and fitness for particular purpose.

Summary judgment for R&K; Lee appealed.

HELD: Affirmed. UCC 2-316(2) states to exclude these warranties,
writing must be “conspicuous”.

Here writing was in capital letters.

A reasonable person would have noticed it.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
SELLER’S REMEDIES
o
o
Buyer repudiates before receiving goods
•
Cancel contract
•
ID goods; minimize losses by completing or stopping
manufacture
•
Withhold or stop delivery
•
Resell goods in commercially reasonably manner
•
Sue buyer for losses incurred
Buyer repudiates after receiving goods
•
If buyer won’t pay, sue for payment & damages
•
If buyer wrongfully rejects, can reclaim goods & remedy
as above; If can’t reclaim goods, sue for payment &
damages
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
BUYER’S REMEDIES
o
o
Seller repudiates before delivery of goods
•
Cancel contract
•
Obtain goods from another supplier
•
Sue seller
Seller fails to deliver
•
Cancel contract
•
Obtain goods from another supplier

•
Called cover: price paid for substitute goods or
market price for measure of damages
Sue seller
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
BUYER’S REMEDIES


Seller delivers nonconforming goods, buyer rejects

Cancel contract

Obtain goods from another supplier

Sue seller

Sell rejected goods to recover advance payments

If no advance payments, store or reship goods
Seller delivers nonconforming goods, buyer accepts

Deduct damages from price

Sue seller for damages

Sue for breach of warranty
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
BUYER’S DAMAGES

Cover


Incidental damages


Buy substitute goods and recover price difference
Include: reasonable costs of inspecting, receiving,
transporting and taking care of goods
Consequential damages

Foreseeable damages that result from seller’s
breach

May be with third parties, not necessarily seller
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
QVC, INC. V. MJC AMERICA, LTD.







QVC (TV shopping network) offered customers Soleus-brand electric
heaters. Made in China for Soleus. QVC sold 19,100 heaters in 20072008.
Customers reported safety problems.
• QVC stopped sales and had product evaluated.
• Showed quality problems.
QVC ordered a recall; refunded money to customers who returned
the product or returned electric cord to heater.
QVC’s contract with Soleus contained strong warranty terms.
• Holding seller responsible for all costs related to defects, including
recall costs.
Soleus disputed there was a problems.
QVC sued.
District Court: Soleus breached warranty so awarded damages to
QVC.
(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
QVC, INC. V. MJC AMERICA, LTD.

Section 4 of Purchase Orders: Soleus agreed to
indemnify QVC from any “direct, special, exemplary, and
consequential damages and losses of any kind”
including lost profits & attorneys’ fees “based upon or
resulting from . . . any alleged or actual defect” in
Heaters . . . .

QVC sought damages for cost price of heaters, lost
profits, refunded customer shipping costs, shipping costs
and several other center processing and recall costs.

HELD: QVC receives such damages for $1,681,806.84.
(see court decision for details of different kinds of
damages)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
THE CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS (CISG)
Sales covered by CISG – default rule of law for
commercial sale of goods by parties in countries that
have adopted CISG.
 Parties can specify to exclude application of CISG and
choose another law to govern the contract.
 Covers only sales between merchants, not the consuming
public.


Sales excluded:
 Auction sales
 Consumer goods bought for household use
 Contracts primarily for labor or other services
 Electricity
 Ships and aircraft
 Securities such as stock, negotiable instruments and money
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CISG SIMILARITIES TO UCC






Formality
 Need not be formal, nor in writing; Look at circumstances for
interpretation
Offers
 Advertisements are not offers; Can fill in missing terms; Is “sufficiently
definite if indicates goods & expressly or implicitly fixes/makes provision
for determining the quantity and price”.
Acceptance
 Must be made within time stated or reasonable time; Sent by reasonable
means
Battle of the Forms
 If differences are material, then 2nd form is counter offer, not contract
Duties of Parties
 Seller must deliver goods with good title; buyer must notify seller of
defects within a reasonable time
Remedies
 Behave in reasonable manner and give opportunity to cure breach –
Nachfrist notice (period of grace) -- notice of the problem and a chance
for nonconforming party to cure before lawsuit); Duty to mitigate damages
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
DINGXI LONGHAI DAIRY V.
BECWOOD TECHNOLOGY GROUP

Dingxi Longhai Dairy (China) agreed to ship 612 metric tons of Inulin
(dietary fiber extract) to Becwood, Minnesota company.

4 shipments from Tianjin, China to Londonderry, New Hampshire.

Becwood received first 2 shipments.

Paid for one, but refused to pay for second – because mold on
packaging.

Dingxi recalled shipments 3 and 4 before reaching destination.

Becwood sued for breach of contract.

District court held for Dingxi on second shipment.

Dismissed Dingxi’s claims for damages relating to shipments 3 and 4.

Decision appealed.
(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
DINGXI V. BECWOOD

Contract was governed by CISG.

The CISG structure confirms elements of breach of contract action: Formation,
performance, breach and damages.

Dingxi said it delivered all 4 shipments and Becwood failed to pay for last 3
shipments. Wanted to recover $1,415,086 plus other costs and fees.

Becwood moved to dismiss claim re: shipments 3 and 4. Said seller who
recalls goods before they reach buyer cannot recover damages, if it is
assumed buyer breach.

The district court had agreed with Becwood. It said “Dingxi has failed to assert
cognizable damages on shipments 3 and 4.”

Dingxi said there was breach of contract due to performance of its contractual
duty to deliver and Becwood’s refusal to pay.

Dingxi recalled shipments before they reached buyer. This fact will likely
preclude recovery of full contract price.

BUT if Dingxi proves that Becwood breach the contract for shipments 3 and 4,
it is almost certain to be entitled to some monetary relief.

Reversed District Court’s order dismissing Dingxi’s breach-of-contract Claims
re: shipments 3 and 4.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTERNATIONAL SALES DISPUTES: THE
DOMINANCE OF ARBITRATION






United Nations encourages use of arbitration dealings through
Convention on the Recognition and Enforcement of Foreign
Arbitrable Awards
Most countries have adopted the Convention

Then its courts are bound to recognize and enforce arbitration decisions

If proper procedure was followed
Exception: if the procedure is in conflict with law of the nation of one
of the parties OR
Has gone beyond scope of the matter covered by arbitration
In U.S., parties to a contract written under the CISG who require
arbitration have little reason to be in court
Duty of arbitrators to resolve dispute under CISG Rules
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