Problem
China National is a Beijing-based corporation organized under the laws of China with specific foreign trading rights. It facilitates the import and export of goods between Chinese and foreign companies. Apex is a company incorporated in Ontario, California and engaged in the import and distribution of consumer electronic goods. In 2000, China National entered into a purchase agreement with Apex for the export of DVD players. The purchase agreement was formalized with the conclusion of several but substantially identical written contracts for the different types of player. Each contract contained two significant provisions:
• In the event of nonconformity of the goods with the contract, Apex should claim for quality discrepancy within thirty days after arrival of the goods at the port of destination,
• All disputes arising from the contract shall be submitted to a certain arbitration tribunal specified in the contract and the award is final and binding on both parties.
Apex imported and sold the products to major retailers such as Circuit City, Best Buy, and K-Mart. Soon after distribution of the imported goods, Apex began receiving reports from its retailers that consumers were dissatisfied with the quality of the DVD players: disk loaders did not open; they did not load after a DVD was inserted; they did not recognize certain music files; the front panel of the loader fell off, etc. Some were returned. In spite of these problems, Apex continued to place more orders with China National. It did, however, express its concerns to China National. Apex declined to pay China National claiming "financial troubles," as well as China National's refusal to correct the defects. In an effort to obtain payment, China National wrote several letters to Apex threatening legal action. It eventually filed suit in California.
The central issue to be decided by the court was whether Apex had rejected the goods or, if it had not, whether it would later be relieved of liability. The court stated that if buyers accept nonconforming goods and do nothing, the law deems them to have accepted those goods. Apex's actions in continuing to order and sell known defective goods constituted an acceptance of those goods. Such conduct of ordering and selling defective goods was inconsistent with the seller's ownership and acceptance. It ordered Apex to pay for all unpaid invoices. (Source: 141 F. Supp. 2nd 1013. 2001 U.S. Dist.)
Task
i. Is the contract governed by the CISG?
ii. Do you agree with the decision of the court? Why/why not?