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The United Nations Convention on Contracts for the International Sale of Goods (CISG), Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), U.N. Doc. No. A/CONF. 97/19 (1981), 19 I.L.M. 671 (1980) (reprinted at 15 U.S.C.S. app.) creates a private right of action in federal court. The treaty applies to contracts of sale of goods between parties whose places of business are in different states when the states are contracting states. CISG art. 1(1)(a).
Defendant Empresa Estatal Petroleos de Ecuador ("PetroEcuador") sent plaintiff BP Oil International, Ltd. ("BP") an invitation to bid for supplying 140,000 barrels of unleaded gasoline deliverable "CFR" to Ecuador. "CFR," or "Cost and Freight," was a recognized Incoterm used in international trade via the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). BP accepted and PetroEcuador confirmed the sale on its contract form. The final agreement required that the oil be sent "CFR La Libertad-Ecuador." A separate provision provided: "Jurisdiction: Laws of the Republic of Ecuador." The contract further specified that the gasoline have a certain gum content, to be determined at the port of departure. PetroEcuador appointed defendant Saybolt, Inc. to ensure that requirement was met. BP obtained the gasoline; it was tested by Saybolt, loaded on a tanker and taken to Ecuador. Saybolt tested the gasoline again, and because the gum content exceeded the contractual limit, PetroEcuador refused to accept delivery. Eventually, BP resold the gasoline at a loss. BP then filed a lawsuit against PetroEcuador in federal district court for breach of contract and wrongful draw of a letter of guarantee. BP also brought negligence and breach of contract claims against Saybolt, alleging that it had improperly tested the gasoline. The district court applied Texas choice of law rules and determined that Ecuadorian law governed. On PetroEcuador's motion, the district court granted it summary judgment, holding that under Ecuadorian law, BP, the seller, was required to deliver conforming goods to the agreed destination, Ecuador. Likewise, the district court granted Saybolt summary judgment, holding that BP could not sue in tort, that BP was bound by the waiver of claims provision in its service contract with BP and that Saybolt did not take any action causing harm to BP. Final judgment was entered for PetroEcuador and Saybolt. BP appealed.
Did the choice of law provision demonstrate the parties' intent to apply Ecuadorian domestic law instead of CISG?
The court affirmed in part and reversed in part the district court's judgment and remanded the matter for further proceedings. The court ruled that given that the CISG was Ecuadorian law, a choice of law provision designating Ecuadorian law merely confirmed that the CISG governed the transaction. In light of the parties' unambiguous use of the Incoterm "CFR," BP fulfilled its contractual obligations if the gasoline met the contract's qualitative specifications when it passed the ship's rail. Therefore, summary judgment was improper because there was a fact issue as to whether BP knowingly provided gasoline with an excessive gum content. As to the claims against the Saybolt, the court held that its conclusion that PetroEcuador was liable so long as BP did not knowingly provide deficient gasoline rendered BP's negligence and breach of contract claims moot. If in fact Saybolt negligently misrepresented the gasoline's gum content, it was PetroEcuador, not BP, who had a potential claim. Summary judgment for Saybolt was therefore proper.