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Accurately applying the invalidation rule of the United Nations Convention

Accurately applying the invalidation rule of the United Nations Convention on Contracts for the International Sale of Goods to maintain the international order of the sale of goods

Basic Case

On February 9, 2017, EC Company of Spain signed a sales contract with Manette Company, agreeing that EC Company would purchase bleached gauze from Manette Company. Later EC Company claimed that the goods delivered by Manette Company did not comply with the contract, resulting in the inability to achieve the purpose of the contract. The lawsuit requested the termination of the sales contract, return of payment, and compensation for expected profit losses. EC Company chose to apply the United Nations Convention on Contracts for the International Sale of Goods in the case trial.

Judgment result

The Intermediate People’s Court of Nantong City, Jiangsu Province, held that the parties to this case have their places of business in China and Spain, both of which are contracting parties to the Convention. The parties did not explicitly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods in the contract. Therefore, the Convention on Contracts for the International Sale of Goods should be applied to resolve disputes in this case. The quality issue of the gauze involved in the case is not a major quality defect. The gauze still has practical value and can be used or resold. Manette Company has not reached the level of fundamental breach of contract, and EC Company has no right to declare the entire contract invalid. In addition, EC Company became aware of the non conformity of the goods to the contract on October 18, 2017, but did not issue a declaration of invalidity until June 18, 2019 when the request was filed, which exceeded a reasonable period and resulted in the loss of the right to declare the entire contract invalid. Due to the fact that Manette Company only delivered 85% of the goods, both parties filed a lawsuit due to a quality dispute, and the remaining 15% of the contract cannot be fulfilled. Therefore, within the scope of EC Company’s litigation request, it is legally confirmed that the remaining 15% of the contract that has not been fulfilled is invalid. The claim amount proposed by EC Company should be the result of a thorough evaluation of its own direct losses and available benefits. However, it also has faults in the performance of the contract, which indirectly caused the expansion of losses. Therefore, referring to the claim amount and considering factors such as the degree of fault of both parties and the available value of the goods involved, it is determined that Manette Company will compensate EC. After the first instance judgment, neither party has appealed and has fulfilled its obligations.

Typical significance

The system of invalidation of contracts stipulated in the United Nations Convention on Contracts for the International Sale of Goods is essentially equivalent to the system of contract termination under Chinese law. In the trial of the case of disputes over contracts for the international sale of goods between Chinese enterprises and enterprises in the “the Belt and Road” co construction country, this case accurately understood and applied the system of invalidation of the contract under the Convention. On the one hand, it accurately identified the fundamental breach of contract and the reasonable period for the exercise of the right to rescind the contract, and it is not allowed to declare all contracts invalid, which reflects the institutional provisions of the Convention on the authority to rescind the contract under the second paragraph of Article 49 based on the principle of good faith; On the other hand, based on the characteristics of partial delivery of contract goods, it is allowed to declare the contract partially invalid, that is, to be partially terminated, and the defaulting party shall compensate the corresponding economic losses of the complying party, which better demonstrates the functional role of the people’s court in maintaining the international order of goods sales in accordance with the law and equally protecting the legitimate rights and interests of domestic and foreign parties.

 

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