Case 10-4 Filanto, SpA v. Chilewich International Corp.

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Case 10-4 Filanto, SpA v. Chilewich International
Corp.

• CSA 6470
• International Legal Framework
• By Frank C.L. Huang

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CISG

• The United Nations Convention on Contracts for
  the International Sale of Goods (CIGS or
  Convention) existed in 1980 and established the
  benchmark of for the unification of commercial
  law in the post-war era.
• It is generally recognized as the first sales law
  treaty to be accepted worldwide.
• 57 nations ratified the Convention including most
  major trading states. US signed the treaty in
  1986.

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Judicial Body

• Federal Court
• United States District Court, Southern District
  of New York

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Related Parties Facts

• Chilewich International Corp, an export-import
  firm in New York
• Byerly Johnson, Ltd., Chilewichs agent in the
  United Kingdom
• Filanto, SpA, an Italian corporation engaged in
  the manufacture and sale of footwear
• Location Russia

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Issues

• Acceptance of offer/Silence or inactivity as
  acceptance
• General principles (duty to communicate)/Good
  faith

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Decision

• Filanto is bound by the terms of the March 13
  Memorandum Agreement, so must arbitrate its
  dispute in Russia

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Rational Defendant Chilewich contends that

• The Memorandum Agreement it signed and sent to
  Filanto was an offer
• Filantos retention of that, along with the
  acceptance of L/C by Filanto estops it from
  denying its acceptance of the contract. In other
  words, seller had a duty timely to inform buyer
  that it objected to the Russian Contract.

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Rational Plaintiff Filanto contends that

• March 13 Memorandum Agreement was indeed an
  offer, but the return of the Memorandum Agreement
  signed by Filanto, along with the cover letter
  purporting to exclude parts of the Russian
  Contract was a counteroffer under Article 19(1)
  of the CISG.

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Rational Ruling of the Court

• There is simply no satisfactory explanation as to
  why seller failed to object to the Russian
  Contract in a timely fashion after buyer had.
  commenced its performance under the Agreement,
  and the letter of credit it furnished on May 11
  itself mentioned the Russian Contract.

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Rational Ruling of the Court

• An offeree who, knowing that the offeror has
  commenced performance, fails to notify the
  offeror of its objection to the terms of the
  contract within a reasonable time will, under
  certain circumstances, be deemed to have assented
  to those terms U.S. domestic law provided
  "compelling arbitration since party who failed
  timely to object to sales not containing
  arbitration clause deemed to have accepted its
  terms" holding that "party who failed to object
  to inclusion of arbitration clause in sales
  confirmation agreement bound to arbitrate".

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Rational Ruling of the Court

• The CISG itself recognizes this rule Article
  18(1), provides that 'a statement made by or
  other conduct of the offeree indicating assent to
  an offer is an acceptance.' Although mere
  'silence or inactivity does not constitute
  acceptance', the court may consider previous
  relations between the parties constituted
  acceptance, CISG Article 8(3). In this case, in
  light of the extensive course of prior dealing
  between these parties, seller was certainly under
  a duty to alert buyer in timely fashion to its
  objections to the terms of the March 13
  Memorandum Agreement, particularly since buyer
  had repeatedly referred it to the Russian
  Contract and seller had had a copy of that
  document for some time.

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Relevancy

• This is the first case that raised significant
  issue under CISG
• Parties submission. Watch out whether you were
  bound to the law
• Beware of the Arbitration Clause.