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United States 11 June 2003 Federal Appellate Court [5th Circuit] (BP Oil International v. Empresa Estatal Petroleos de Ecuador)
[Cite as: http://cisgw3.law.pace.edu/cases/030611u1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20030611 (11 June 2003)

JURISDICTION: United States [federal court]

TRIBUNAL: U.S. Court of Appeals (5th Circuit) [federal appellate court]

JUDGE(S): Jerry E. Smith, Circuit Judge; Barksdale, Circuit Judge, Fitzwater, District Judge


CASE NAME: BP International, Ltd. and BP Exploration & Oil, Inc., Plaintiffs-Appellants v. Empressa Estatal Petroleos de Ecuador, et al., Defendants, Empresa Estatal Petroleos de Ecuador and Saybolt, Inc., Defendants-Appellees

CASE HISTORY: 1st instance U.S. District Court for Southern District of Texas [reversed and remanded in part; affirmed in part] ; 5th Circuit rehearing denied 7 July 2003; 5th Circuit non-CISG issues considered 16 January 2008 [04-20911] [affirmed]

SELLER'S COUNTRY: United States (plaintiff)

BUYER'S COUNTRY: Ecuador (defendant)


Case abstract

UNITED STATES: BP Oil v. Empresa 11 June 2003 / corrected 7 July 2003

Case law on UNCITRAL texts (CLOUT) abstract no. 575

Reproduced with permission of UNCITRAL

Abstract prepared by Peter Winship, National Correspondent

The issue before the court was whether the claim of the buyer should be dismissed before trial on the ground that there was no genuine issue as to material fact and the seller was entitled to judgment as a matter of law.

The seller, a corporation with its place of business in the United States, agreed to sell 140,000 barrels of unleaded gasoline to the buyer, a corporation with its place of business in Ecuador. The contract provided that the gasoline's gum content was to be less than three milligrams per one hundred milliliters as determined by a third party before shipment. Delivery was to be "CFR La Libertad-Ecuador." The contract form stated "Jurisdiction: Laws of the Republic of Ecuador".

The third party certified that the gum content limitation was satisfied before shipment. However, the buyer tested the oil after receiving it at La Libertad and found that the limit was not satisfied. The buyer refused to accept delivery of the oil and drew upon a letter of guarantee. The seller sold the oil to its supplier for a loss and sued the buyer for breach of contract and wrongful draw upon the letter of guarantee. The district court, applying domestic Ecuadorian law, granted summary judgment for the buyer. The seller appealed.

The appellate court concluded that the contract was governed by the Convention because the parties had their places of business in two different Contracting States pursuant to art. 1(1)(a) CISG. Applying an "affirmative opt-out requirement" because it best promoted uniform application of the Convention and good faith in international trade, the court also found that the parties had not excluded application of the Convention by their choice of the laws of Ecuador to govern the contract when Ecuador was a Contracting State (art. 6 CISG).

The court found that the seller had not breached its contract with respect to the quality of the oil sold because the gasoline conformed at the time that risk of loss passed to the buyer. (art. 36(1) CISG). The court also stated that Incoterms are "incorporated" into the Convention under article 9(2) because they are well known in international trade even if their use is not global. The relevant Incoterm states that the risk of loss passes when the goods pass the ship's rail. Having appointed a third party to inspect the gasoline before shipment, the buyer ought to have discovered the nonconformity ("defect") before the gasoline was shipped according to art. 39(1) CISG. Only if the seller "knew or could not have been unaware" of the nonconformity at the time that risk passed would the seller be responsible on the basis of art. 40 CISG.

The appellate court therefore reversed the lower court decision and remanded the case to determine whether the seller had provided nonconforming gasoline by failing to add sufficient gum inhibitor.

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Classification of issues present

APPLICATION OF CISG: Yes [selection of law of a Contracting State]


Key CISG provisions at issue: Articles 6 ; 9(2) ; 36(1) ; 39(1) ; 40 ; 67

Classification of issues using UNCITRAL classification code numbers:

6B [Choice of law (agreements to apply Convention): choice of law of Contracting State];

9B [Implied agreement on international usage, standards];

36A2 [Conformity determined as of time when risk passes to buyer: seller responsible when lack of conformity becomes apparent later];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

40B [Seller's knowledge of non-conformity (seller fails to disclose non-conformity: sanction): seller loses right to rely on articles 38 and 39];

67A [Passage of risk when contract involves carriage of goods]

Descriptors: Choice of law ; Usages and practices ; Incoterms ; Conformity of goods ; Latent defects ; Passage of risk ; Lack of conformity notice, timeliness ; Knowledge ; Lack of conformity known to seller

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Editorial remarks

Excerpt from Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at 409

"When risk of loss passes to the buyer pursuant to Article 67, the seller is not responsible for any deterioration or damage to the goods. In B.P. Oil International, Ltd. v. Empresa Estatal Petroleos De Ecuador, [672] the buyer refused to accept delivery claiming that the goods did not conform to the contract specifications.[673] The contract provided that the goods were to be delivered 'CFR' and undergo a pre-shipment inspection for conformity.[674] The U.S. Fifth Circuit Court of Appeals found that the goods should have been tested for conformity before risk of loss passed to the buyer at the port of shipment.[675] The court also stated that the general principle in the event of subsequent damage or loss was that the buyer must first seek a remedy against the carrier or insurer. [676]"

672. 332 F.3d 333 (5th Cir. 2003).

673. Id. at 335.

674. Id. at 338.

675. Id.

676. Id. at 338, (citing In re Daewoo Int'l (Am.) Corp., No. 01-Civ-8205, 2001 U.S. Dist. LEXIS 19796, at *8 (S.D.N.Y. Dec. 3, 2001)). Because there was a question of fact, however, as to whether the seller fulfilled its contractual obligations regarding the specifications of the goods before they passed the ship's rail, the court ordered the district court to permit the parties to conduct discovery on this limited issue. Id. at 339. German courts have likewise held that under Article 67 the seller is not responsible for the depreciation of goods. OLG Schleswig 11 U 40/01, Aug. 22, 2002 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/020822g2.html> [English translation by Veit Konrad, translation edited by Mark Beamish]. Another German court held that a seller is not responsible for subsequent damage to goods once they are handed over to the carrier. AG Duisburg 49 C 502/00, April 13, 2000, (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/000413g1.html> [English translation by Ruth M. Janal, translation edited by Camilla Baasch Andersen]. In that case, the court held that Article 67 applied because the buyer was not able to prove that there was an agreement between the parties for risk of loss to pass to the buyer at a different location. A third German court stated that a seller is only liable for a defect if it gave a mandate to the carrier regarding the means of shipment. OLG Schleswig-Holstein 11 U 40/01, Aug. 22, 2002, supra note 676. An Argentina court reached the same conclusion and held that after the risk of loss passed to the buyer, it was obligated to pay the purchase price unless the loss or damage to the goods was due to an act or omission of the seller. CN Buenos Aires 47.448 (Bedial, S.A. v. Paul Müggenburg and Co. GmbH), Oct. 31, 1995 (Arg.), CLOUT Case No. 191, available at [<http://cisgw3.law.pace.edu/cases/951031a1.html>].

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Citations to other abstracts, case texts and commentaries


English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=924&step=Abstract>


Original language (English): Text presented below; see also (1) 332 F.3d 333 (5th Cir. (Tex.)); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=924&step=FullText>; <http://www.ca5.uscourts.gov/opinions/pub/02/02-20166-cv0.pdf>; (2) Correction: <http://www.ca5.uscourts.gov/opinions/pub/02/02-20166-cv1.pdf>; 2003 U.S. App. LEXIS 13595; 2003 Westlaw 21523355

Translation: Unavailable

Translation (Portuguese): CISG Brazil database <http://www.cisg-brasil.net/downloads/casos/bpoil-v-empresa-estatal%20petroleos-de-ecuador.pdf>


English: [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 121; CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 1 para. 32 Art. 6 para. 14 Art. 9 para. 26; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 101

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Case text

United States Court of Appeals, Fifth Circuit

BP Oil International, Ltd., and BP Exploration & Oil, Inc.,
Empresa Estatal Petroleos de Ecuador, et al., Defendants,
Empresa Estatal Petroleos de Ecuador and Saybolt, Inc., Defendants-Appellees

No. 02-20166

11 June 2003

Kerry Charles Williams, Matthew Graham Zagrodzky (argued), Chamberlain, Hrdlicka, White, Williams & Martin, Houston, TX, for Empresa Estatal Petroleos Del Ecuador. Ralph Alan Midkiff (argued), Clements, O'Neill, Pierce, Wilson & Fulkerson, Houston, TX, for Saybolt Inc.

Appeals from the United States District Court for the Southern District of Texas. Before Smith and Barksdale, Circuit Judges, and Fitzwater,[*] District Judge.

Jerry E. Smith, Circuit Judge:

Empresa Estatal Petroleos de Ecuador [buyer] contracted with BP Oil International, Ltd. [seller], for the purchase and transport of gasoline from Texas to Ecuador. [Buyer] refused to accept delivery, so [seller] sold the gasoline at a loss. [Seller] appeals a summary judgment dismissing [buyer] and Saybolt, Inc. ("Saybolt"), the company responsible for testing the gasoline at the port of departure. We affirm in part, reverse in part, and remand.

[For purpose of this presentation, Plaintiff-Appellant BP Oil International, Ltd., is referred to as [seller] and Defendant-Appellee Empresa Estatal Petroleos de Ecuador is referred to as [buyer].]

I.   [Buyer] sent [seller] an invitation to bid for supplying 140,000 barrels of unleaded gasoline deliverable "CFR" to Ecuador. "CFR," which stands for "Cost and FReight," is one of thirteen International Commercial Terms ("Incoterms") designed to "provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade." [1] Incoterms are recognized through their incorporation into the Convention on Contracts for the International Sale of Goods ("CISG").[2] St. Paul Guardian Ins. Co. v. Neuromed Med. Sys. & Support, GmbH, 2002 WL 465312, at *2, 2002 U.S. Dist. LEXIS 5096, at *9-*10 (S.D.N.Y. Mar. 26, 2002).

[Seller] responded favorably to the invitation, and [buyer] confirmed the sale on its contract form. The final agreement required that the oil be sent "CFR La Libertad-Ecuador." A separate provision, paragraph 10, states, "Jurisdiction: Laws of the Republic of Ecuador." The contract further specifies that the gasoline have a gum content of less than three milligrams per one hundred milliliters, to be determined at the port of departure. [Buyer] appointed Saybolt, a company specializing in quality control services, to ensure this requirement was met.

To fulfill the contract, [seller] purchased gasoline from Shell Oil Company and, following testing by Saybolt, loaded it on board the M/T TIBER at Shell's Deer Park, Texas, refinery. The TIBER sailed to La Libertad, Ecuador, where the gasoline was again tested for gum content. On learning that the gum content now exceeded the contractual limit, [buyer] refused to accept delivery. Eventually, [seller] resold the gasoline to Shell at a loss of approximately two million dollars.

[Seller] sued [buyer] for breach of contract and wrongful draw of a letter of guarantee. After [buyer] filed a notice of intent to apply foreign law pursuant to Fed.R.Civ.P. 44.1, the district court applied Texas choice of law rules and determined that Ecuadorian law governed. [Seller] argued that the term "CFR" demonstrated the parties' intent to pass the risk of loss to [buyer] once the goods were delivered on board the TIBER. The district court disagreed and held that under Ecuadorian law, the seller must deliver conforming goods to the agreed destination, in this case Ecuador. The court granted summary judgment for [buyer].

[Seller] also brought negligence and breach of contract claims against Saybolt, alleging that the company had improperly tested the gasoline.[3] Saybolt moved for summary judgment, asserting a limitation of liability defense and waiver of claims based on the terms of its service contract with [seller]. The court granted Saybolt's motion, holding that [seller] could not sue in tort, that [seller] was bound by the waiver provision, and that Saybolt did not take any action causing harm to [seller]. Pursuant to Fed.R.Civ.P. 54(b), the court entered final judgment in favor of [buyer] and Saybolt.

II.  We review a summary judgment using the same standards as did the district court; thus our review is de novo. Walton v. Alexander, 44 F.3d 1297, 1301 (5th Cir.1995) (en banc). Summary judgment is proper where "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). All inferences from the record must be construed in the light most favorable to the non-movant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "[O]nly when there is a choice of reasonable interpretation of the contract is there a material fact issue concerning the parties' intent that would preclude summary judgment." Amoco Prod. Co. v. Tex. Meridian Res. Exploration, Inc., 180 F.3d 664, 669 (5th Cir.1999).

III. [Seller] and [buyer] dispute whether the domestic law of Ecuador or the CISG applies. After recognizing that federal courts sitting in diversity apply the choice of law rules of the state in which they sit, Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 452 n. 2 (5th Cir. 2001) (citation omitted), the district court applied Texas law, which enforces unambiguous choice of law provisions. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 678 (Tex.1990). Paragraph 10, which states "Jurisdiction: Laws of the Republic of Ecuador," purports to apply Ecuadorian law.[4] Based on an affidavit submitted by [buyer]'s expert, Dr. Gustavo Romero, the court held that Ecuadorian law requires the seller to deliver conforming goods at the agreed destination, making summary judgment inappropriate for [seller].

     A. Though the court correctly recognized that federal courts apply the choice of law rules of the state in which they sit, it overlooked its concurrent federal question jurisdiction that makes a conflict of laws analysis unnecessary.[5] The general federal question jurisdiction statute grants subject matter jurisdiction over every civil action that arises, inter alia, under a treaty of the United States. 28 U.S.C. 1331(a). The CISG, ratified by the Senate in 1986, creates a private right of action in federal court. Delchi Carrier v. Rotorex Corp., 71 F.3d 1024, 1027-28 (2d Cir.1995). The treaty applies to "contracts of sale of goods between parties whose places of business are in different States ... [w]hen the States are Contracting States." CISG art. 1(1)(a). [Seller], an American corporation, and [buyer], an Ecuadorian company, contracted for the sale of gasoline; the United States and Ecuador have ratified the CISG.[6]

As incorporated federal law, the CISG governs the dispute so long as the parties have not elected to exclude its application. CISG art. 6. [buyer] argues that the choice of law provision demonstrates the parties' intent to apply Ecuadorian domestic law instead of the CISG. We disagree.

A signatory's assent to the CISG necessarily incorporates the treaty as part of that nation's domestic law. [seller]'s expert witness as to Ecuadorian law, Xavier Rosales-Kuri, observed that "the following source of Ecuadorian law would be applicable to the present case: (i) United Nations Convention on the International Sale of Goods. ..." [Buyer]'s expert did not disagree with this assessment.[7] Given that the CISG is Ecuadorian law, a choice of law provision designating Ecuadorian law merely confirms that the treaty governs the transaction.

Where parties seek to apply a signatory's domestic law in lieu of the CISG, they must affirmatively opt-out of the CISG. In Asante Techs., Inc. v. PMC- Sierra, Inc., 164 F.Supp.2d 1142, 1150 (N.D.Cal. 2001), the court held that a choice-of-law provision selecting British Columbia law did not, without more, "evince a clear intent to opt out of the CISG. ... Defendant's choice of applicable law adopts the law of British Columbia, and it is undisputed that the CISG is the law of British Columbia." [8]

Similarly, because the CISG is the law of Ecuador, it governs this dispute. "[I]f the parties decide to exclude the Convention, it should be expressly excluded by language which states that it does not apply and also states what law shall govern the contract." RALPH H. FOLSOM, ET AL., INTERNATIONAL BUSINESS TRANSACTIONS 12 (2d ed. 2001). An affirmative opt-out requirement promotes uniformity and the observance of good faith in international trade, two principles that guide interpretation of the CISG. CISG art. 7(1).

      B. The CISG incorporates Incoterms through article 9(2), which provides:

"The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned." CISG art. 9(2).

Even if the usage of Incoterms is not global, the fact that they are well known in international trade means that they are incorporated through article 9(2).[9]

[Buyer]'s invitation to bid for the procurement of 140,000 barrels of gasoline proposed "CFR" delivery. The final agreement, drafted by [buyer], again specified that the gasoline be sent "CFR La Libertad- Ecuador" and that the cargo's gum content be tested pre-shipment.[10] Shipments designated "CFR" require the seller to pay the costs and freight to transport the goods to the delivery port, but pass title and risk of loss to the buyer once the goods "pass the ship's rail" at the port of shipment. The goods should be tested for conformity before the risk of loss passes to the buyer. FOLSOM, supra, at 41. In the event of subsequent damage or loss, the buyer generally must seek a remedy against the carrier or insurer. In re Daewoo Int'l (Am.) Corp., 2001 WL 1537687, 2001 U.S. Dist. LEXIS 19796, at *8 (S.D.N.Y. Dec. 3, 2001).

In light of the parties' unambiguous use of the Incoterm "CFR," [seller] fulfilled its contractual obligations if the gasoline met the contract's qualitative specifications when it passed the ship's rail and risk transferred to [buyer]. CISG art. 36(1). Indeed, Saybolt's testing confirmed that the gasoline's gum content was adequate before departure from Texas. Nevertheless, in its opposition to [seller]'s motion for summary judgment, [buyer] contends that [seller] purchased the gasoline from Shell on an "as is" basis and thereafter failed to add sufficient gum inhibitor as a way to "cut corners." [11] In other words, the cargo contained a hidden defect.

Having appointed Saybolt to test the gasoline, [buyer] "ought to have discovered" the defect before the cargo left Texas. CISG art. 39(1). [12] Permitting [buyer] now to distance itself from Saybolt's test would negate the parties' selection of CFR delivery and would undermine the key role that reliance plays in international sales agreements. Nevertheless, [seller] could have breached the agreement if it provided goods that it "knew or could not have been unaware" were defective when they "passed over the ship's rail" and risk shifted to [buyer]. CISG art. 40.[13]

Therefore, there is a fact issue as to whether [seller] knowingly provided gasoline with an excessive gum content. The district court should permit the parties to conduct discovery as to this issue only.

IV.  [Seller] raises negligence and breach of contract claims against Saybolt, alleging that the company improperly tested the gasoline's gum content before shipment. These claims amount to indemnification for [seller]'s losses suffered on account of [buyer]'s refusal to accept delivery. Our conclusion that [buyer] is liable so long as [seller] did not knowingly provide deficient gasoline renders these claims moot. Summary judgment was therefore proper, though we need not review the district court's reasoning.

If [buyer] improperly refused CFR delivery, it is liable to [seller] for any consequential damages. In its claims against Saybolt, [seller] pleaded "in the alternative"; counsel also acknowledged, at oral argument, that beyond those damages stemming from [buyer]'s refusal to accept delivery, [seller] has no collateral claims against Saybolt.[14] If Saybolt negligently misrepresented the gasoline's gum content, [buyer] (not [seller]) becomes the party with a potential claim.

Even if [buyer] is not liable because [seller] knowingly presented gasoline with an inadequate gum content, [seller]'s claims drop out. [Seller] alleges that Saybolt "negligently misrepresented the quality" of the gasoline before its loading in Texas; it also claims that Saybolt's improper testing was "a proximate cause of the gasoline to be refused by [buyer] and/or the gum content to increase which caused [seller] to suffer pecuniary loss." [Seller]'s claims depend on the fact that Saybolt misrepresented the quality of the gasoline. It goes without saying, however, that if [seller] knew that the gasoline was deficient, it could not have relied on Saybolt's report to its detriment.

The judgment dismissing [buyer] is REVERSED and REMANDED for proceedings consistent with this opinion. The judgment dismissing Saybolt is AFFIRMED.


* District Judge of the Northern District of Texas, sitting by designation.

1. INTERNATIONAL CHAMBER OF COMMERCE, INCOTERMS 1990 (1990); see also Nuovo Pignone, SpA v. Storman Asia M/V, 310 F.3d 374, 380 n. 5 (5th Cir.2002).

2. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), 19 I.L.M. 668 (1980), reprinted at 15 U.S.C. app. (entered into force Jan. 1, 1988).

3. [seller] also filed an amended admiralty claim against the TIBER in rem, Tiber Shipping, L.L.C., and Rio Grande Transport in personam.

4. We assume arguendo that the provision stating "Jurisdiction: Laws of the Republic of Ecuador" unambiguously conveys the intent to apply Ecuadorian law.

5. See 28 U.S.C. 1652 ("The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply."); Resolution Trust Corp. v. Chapman, 29 F.3d 1120, 1124 (7th Cir.1994) ("What Illinois courts would choose is, however, irrelevant. This is not a diversity case, where Erie would require the forum court to apply the whole law of the state, including its choice of law principles.").

6. The United States Senate ratified the CISG in 1986. Ecuador ratified the CISG in 1993 without any rights or reservations. 15 U.S.C. app.

7. Dr. Romero interprets article 4 of the Ecuador Commercial Code as "stat[ing] that mercantile customs (INCOTERMS) will be used to interpret commercial contract disputes when the law is 'silent' as to an issue in dispute. However, mercantile customs/INCOTERMS do not apply to the case at hand because the Commercial Code is not silent on the various contract issues this Agreement presents." This statement merely begs the question whether the Commercial Code of Ecuador applies in lieu of the CISG. Notably, article 4 of the Commercial Code was enacted in 1960, over thirty year before Ecuador ratified the CISG.

8. See also Ajax Tool Works, Inc. v. Can-Eng Manu. Ltd., 2003 WL 223187, 2003 U.S. Dist. LEXIS 1306, at *8 (N.D.Ill. Jan. 30, 2003) ("The parties' contract states that the 'agreement shall be governed by the laws of the Province of Ontario, Canada.' Obviously, this clause does not exclude the CISG."); St. Paul Guardian Ins., 2002 WL 465312, at *2, 2002 U.S. Dist. LEXIS 5096, at *8 (stating that the CISG applies "[w]here parties, as here, designate a choice of law clause in their contract -- selecting the law of a Contracting State without expressly excluding application of the CISG. ... To hold otherwise would undermine the objectives of the Convention which Germany has agreed to uphold.").

9. See St. Paul Guardian Ins., 2002 WL 465312, at *2, 2002 U.S. Dist. LEXIS 5096, at *9-*10 (stating that "INCOTERMS are incorporated into the CISG through Article 9(2)"); RALPH H. FOLSOM, ET AL., supra, at 72 ("Incoterms could be made an implicit term of the contract as part of international custom. Courts in France and Germany have done so, and both treaties and the UNCITRAL Secretariat describe Incoterms as a widely- observed usage for commercial terms.").

10. In accepting [buyer]'s invitation, [seller] stated "CNF" as the condition of delivery. CNF was used in a previous version of Incoterms to specify "cost and freight" delivery. INTERNATIONAL CHAMBER OF COMMERCE, INCOTERMS 1980 (1980). In any event, the final agreement uses the term "CFR."

11. Under CISG article 36(1), "[t]he seller is liable in accordance with the contract ... for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time."

12. CISG article 39(1) states: "The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it."

13. See also RALPH H. FOLSOM, ET AL., supra, at 41 ("Thus, the buyer is still able to recover for any nonconformity which becomes apparent long after delivery, but the buyer may have to prove that the defect was present at the delivery and was not caused by buyer's use, maintenance or protection of the goods.").

14. Theoretically, [seller] might still have a collateral breach of contract claim against Saybolt for $3,913.96 -- the amount that it, [buyer], and Shell were invoiced for Saybolt's inspection services. There is, however, no evidence in the record that [seller] ever paid its share of the invoice. Even so, the breach of contract claim set forth in [seller]'s Third Amended Consolidating Claim alleges only that the contract requires Saybolt to "defend, indemnify and hold [seller] harmless from any damages." [Seller] does not seek recovery of the inspection fee as part of its breach of contract claim.

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