Breach of contract in a cross-border contract with an Ohio company

Last week I had received an inquiry from a company regarding the purchase of a machine. A German company purchased a processing machine in a sales transaction from a US-American business partner in Ohio. In the contract per Incoterms a pickup EXW by the German company was agreed. No special contractual provisions have been agreed.

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The problem now was that the US company did not make the machine available for pickup – despite an agreement. This did not happen even after the German company had demonstrably reminded it several times. In the meantime, the German company has found a potential alternative supplier for the machine in China. It has now asked me whether and under what conditions it can now release itself from the contractual obligation with the US company. Under no circumstances do they want to contractually commit themselves to the purchase of both machines.

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In the analysis of the legal situation, it was first essential which law should be applied here. In principle, the Rome I Regulation is relevant here, which not only applies within the member states, but also regulates non-European situations in the same way. According to Article 4 of the Rome I Regulation, contracts for the sale of movable goods are governed by the law of the country in which the seller has his habitual residence. Basically, that would make it the law of the state of Ohio, and thus the U.S. Convention on Contracts for the International Sale of Goods (UCC) would be modeled after Ohio’s requirements. However, because both the United States and Germany are signatories to the CISG, these regulations are applicable here.

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Specifically, the legal situation in the case of “non-provision of goods despite multiple reminders” under the CISG must now be analysed.

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In the CISG, any form of non-performance or poor performance of the seller’s obligations is referred to as a breach of contract. A distinction between a material and a simple breach of contract is decisive for the cancellation of the contract. Only a material breach of contract entitles the buyer to rescind the contract. A breach of contract is material if the buyer cannot have the goods repaired or redelivered, use them or resell them.

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In this specific case, the seller has breached its main obligations by not making the goods available and has failed to perform. A definite failure to perform is regularly classified as a material breach of contract. From a legal point of view, the documentation of the non-performance as well as the repeated written reminder will be sufficient to withdraw from the contract. After that, the buyer will be able to conclude the replacement contract with the Chinese contractual partner without any concerns.