Data

Date:: 20-06-2003
Country:: USA
Number:: 02-2169
Court:: U.S. Court of Appeals, 3rd Circuit
Parties:: Standard Bent Glass Corp. v. Glassrobots Oy

Keywords

APPLICATION OF CISG - EXLUDED

RESERVATION UNDER ART. 92 CISG REGARDING PART II ON FORMATION OF CONTRACT

Abstract

A Finnish seller and an US buyer (situated in Pennsylvania) entered into negotiations for the sale of machinery that would produce cut glass. During the negotiations the parties sent each other their respective sales standard terms, but neither agreed to the other's terms. Both parties performed the contract and, after the machinery had been delivered and installed, signed a document certifying that the machinery met the contract requirements. However, subsequently the buyer noticed defects in the machinery. Since the parties disputed the cause of the defects, the buyer brought an action against the seller in a court in Pennsylvania. The seller, invoking an arbitration clause contained in an appendix to its sales standard terms, filed a motion to compel arbitration. The buyer objected that it had never agreed to the arbitration clause.

The Court decided in favour of the seller since it held that the arbitration agreement was binding on the buyer. It based its decision on Pennsylvania law (more precisely on Section 2-207 U.C.C.) and not on CISG, notwithstanding the fact that both the United States and Finland have ratified CISG. Indeed Finland has made a reservation under Art. 92 CISG and therefore was not bound by Part II CISG on contract formation.

Fulltext

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OPINION OF THE COURT

Scirica, Chief Judge.

On appeal is a motion to compel arbitration in a commercial dispute. At issue are principles of contract formation under the Uniform Commercial Code.

I. A. Standard Bent Glass, a Pennsylvania corporation, set out to purchase a machine for its factory that would produce cut glass, and in March 1998, commenced negotiations with representatives of Glassrobots Oy, a Finnish corporation. On March 19, 1998, Glassrobots tendered a written offer to sell Standard Bent Glass a glass fabricating system. The initial offer was rejected but negotiations continued and, in February 1999, reached a critical juncture. On February 1, Standard Bent Glass faxed an offer to purchase a glass fabricating system from Glassrobots. [1] The offer sheet commenced, "Please find below our terms and conditions related to ORDER # DKH2199," and defined the items to be purchased, the quantity, the price of $1.1 million, the payment terms, and installation specifics, instructions, and warranties. The letter concluded, "Please sign this ORDER and fax to us if it is agreeable ."

On February 2, Glassrobots responded with a cover letter, invoice, and standard sales agreement. The cover letter recited, in part: "Attached you'll find our standard sales agreement. Please read it through and let me know if there is anything you want to change. If not, I'll send you 2 originals, which will be signed." Glassrobots did not return, nor refer to, Standard Bent Glass's order.

Later that day, Standard Bent Glass faxed a return letter that began, "Please find our changes to the Sales Agreement," referring to Glassrobots's sales agreement. The letter apparently accepted Glassrobots's standard sales agreement as a template and requested five specific changes. The letter closed, "Please call me if the above is not agreeable. If it is we will start the wire today."

The five changes addressed using a wire transfer in lieu of a letter of credit, payment terms, late penalty for shipment delays, site visits, and technical specifications. All were straightforward modifications and spelled out in the Standard Bent Glass letter. On February 4, Standard Bent Glass wired the down payment to Glassrobots. On February 8, the wire transfer cleared Glassrobots's bank account.

On February 5, Glassrobots sent Standard Bent Glass a revised sales agreement. The revised agreement incorporated nearly all of the requested changes, except for the late penalty for shipment delays. Also, the revised agreement did not mirror the payment terms requested by Standard Bent Glass (although the payment terms were altered in Standard Bent Glass's favor).

Glassrobots's cover letter accompanying the revised agreement recited, "Attached you'll find the revised sales agreement. ... Please return one signed to us; the other one is for your files." Section 12.1 of the standard sales agreement provided that "[t]his Agreement shall come into force when signed by both parties." Standard Bent Glass never signed the agreement.

On February 9, Standard Bent Glass sent another fax to Glassrobots: "Just noticed on our sales agreement that the power is 440 +- 5. We must have 480 +- 5 on both pieces of equipment." There was no further written correspondence after February 9. No contract was ever signed by both parties. Nevertheless, the parties continued to perform. Glassrobots installed the glass fabricating system. On August 5, both parties signed the Acceptance Test Protocol, which stated: "We undersigners hereby certify the performance and acceptance test according to the Sales Agreement TSF II 200/320 between Standard Bent Glass Corp., USA and Glassrobots Oy has been carried out. All the equipment fulfill the conditions mentioned in the same Agreement, in quality an [sic] quantity." In November 1999, Standard Bent Glass made its final payment to Glassrobots.

Subsequently, Standard Bent Glass noticed defects in the equipment. The parties disputed the cause of the defects, and on November 8, 2000, Standard Bent Glass filed a complaint against Glassrobots in state court. After removal to federal court, Glassrobots filed a motion to compel arbitration under an appendix to the standard sales agreement that Standard Bent Glass claims it never received. The District Court granted Glassrobots's motion and Standard Bent Glass appealed. [2]

B. At issue is whether there was a valid agreement and whether that agreement contained a binding arbitration clause. Glassrobots's standard sales agreement included three references [3] to industry guidelines known as Orgalime S92, which recites "General Conditions for the Supply of Mechanical, Electrical, and Associated Electronic Products." [4] Section 44 of Orgalime S92 provided a binding arbitration clause for all contractual disputes:

"All disputes arising in connection with the contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules, supplemented as necessary by the procedural rules of the law of the country of the Supplier's place of business most closely connected with the contract."
The standard sales agreement also contained a reference to binding arbitration in section 6.2 ("Completion Date"): "When the above has been satisfactorily fulfilled, both parties will agree in writing upon the Completion Date as being the date of the Acceptance Test. In the event that the parties cannot agree as to the Completion Date, the matter shall be submitted to arbitration as set out later in this Agreement."

Standard Bent Glass admits it received the standard sales agreement. But Standard Bent Glass denies the Orgalime S92 appendix was attached to the standard sales agreement, contending it received the appendix after the February 1999 negotiation period. [5]

II. As noted, the District Court granted Glassrobots's motion to compel arbitration. Based on its application of contract principles, the court found "the agreement of the parties is represented by the February 5, 1999 Sales agreement." The court then examined whether that agreement included a binding arbitration clause. The court noted but declined to credit Standard Bent Glass's denial it had ever received the Orgalime S92 appendix to the sales agreement, which purportedly included the arbitration clause. [6] Based on multiple references in the revised sales agreement to Orgalime S92, and its arbitration clause, the court found the parties' conduct "affirmatively manifests the parties' consent to the arbitral clause contained in the Sales Agreement."

A. Because this dispute involves the sale of goods, the Uniform Commercial Code applies, specifically 13 Pa.C.S. section 2207 (adopting UCC section 2- 207). The UCC addresses "the sad fact that many ... sales contracts are not fully bargained, not carefully drafted, and not understandingly signed by both parties." 1 James J. White & Robert S. Summers, Uniform Commercial Code § 1- 3, at 6 (4th ed.1995). In these cases, we apply UCC section 2-207 to ascertain the terms of an agreement. Step-Saver Data Sys., Inc. v. Wyse Tech. & The Software Link, 939 F.2d 91, 98 (3d Cir.1991). [7]
The UCC, as adopted by Pennsylvania, recognizes a party's acceptance of a contract through performance and does not require a signed agreement. Under UCC section 2-201(3)(a), a party's partial performance removes an agreement from the Statute of Frauds. In a commercial transaction involving the sale of goods, where the parties' performance demonstrates agreement, we look past disputes over contract formation and move directly to ascertain its terms:

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FOOTNOTES

* Judge Scirica began his term as Chief Judge on May 4, 2003.

** The Honorable John R. Gibson, United States Circuit Judge for the Eighth Judicial Circuit, sitting by designation.

1. The specific offer was for the purchase of a glass bending and tempering furnace and a flat laminating line 200/400.

2. We review de novo the District Court's interpretation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd., 186 F.3d 210, 215 (2d Cir.1999) ("The district court's construction of the Convention, like the construction of any statute, is a matter of law which we review de novo.").

3. The cover letter to the standard sales agreement referred to the enclosure of certain appendices, including Orgalime S92. Section 11.1 of the agreement provided: "As to the other conditions shall apply Orgalime S92 General Conditions for the Supply of Mechanical, Electrical and Associated Electronic Products." Section 13 listed the annexes to the agreement, including "Appendix VI Orgalime S92."

4. Juha Karisola, the Glassrobots managing director, averred that "Orgalime is the European Federation of National Industrial Associations representing the European mechanical, the [sic] electrical, electronic and metal article industries. The Orgalime S92 General Conditions are frequently used in international trade and are commonly incorporated, in whole or in part, into Glassrobots' international contracts."

5. Michael Hartley, president of Standard Bent Glass, averred that "[t]he Orgalime S92 document was never provided to me by Glassrobots or anyone else and that I have never seen or read the Orgalime S92 document until sometime after February/March of 2000." Moreover, Hartley maintained he disliked arbitration clauses and "[sought] to avoid any provisions in contracts which require arbitration."

6. Whether Standard Bent Glass received the Orgalime S92 appendix is an issue of fact. We believe, therefore, the District Court should not have "decline[d] to credit" Standard Bent Glass's claim at this stage of the proceedings.

7. Pennsylvania adopted UCC section 2-207 in its entirety. See 13 Pa.C.S. § 2207. With diversity jurisdiction, we will apply the choice of law provision of the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941); Woessner v. Air Liquide, Inc., 242 F.3d 469, 472 (3d Cir.2001). Because performance occurred in Pennsylvania, we apply Pennsylvania law. See Knauer v. Knauer, 470 A.2d 553, 557-58 (Pa.Super.Ct.1983) (noting relevant factors in determining the law applicable to an issue). The United Nations Convention on the International Sale of Goods, 15 U.S.C.App., Art. 1(1)(a), generally governs contracts for the sale of goods between parties whose place of business is in nations that are signatories to the treaty, absent an express choice of law provision to the contrary. The United States is a signatory to the CISG, but Finland is not a signatory to the portion of the CISG, Art. 92, that governs contract formation. Because the parties have not raised the CISG's applicability to this dispute, we decline to address it here.

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Source

Published in original:
-available at the University of Pace website, http://www.cisg.law. pace.edu}}