Here Lions Roam: Cisg as the Measure of a Claim's Value and Validity and a Debtor's Dischargeability

• Publication year: 2018

Here Lions Roam: CISG as the Measure of a Claim's Value and Validity and a Debtor's Dischargeability

Amir Shachmurove

HERE LIONS ROAM: CISG AS THE MEASURE OF A CLAIM'S VALUE AND VALIDITY AND A DEBTOR'S DISCHARGEABILITY

Amir Shachmurove^*

Introduction.............................................................................................463

I. A Comedy of Errors......................................................................468

II. Relevant Bankruptcy Law: The Code and the Rules............470

A. Code and Rules......................................................................... 470
B. Determination of a Claim's Validity and Value ....................... 471
C. Temporary Valuation Pursuant to Rule 3018(a) ...................... 475
D. Nondischargeability of Claims under § 523(a)(2).................... 477

1. Section 523(a)(2)(A)........................................................... 477
2. Section 523(a)(2)(B)........................................................... 481

E. Caveat: Multiplying Universes................................................. 482

III. Construction of Treaties Generally and CISG Particularly..................................................................................483

A. General Rules ........................................................................... 483
B. CISG's Domestic Status ........................................................... 486

1. Preeminence ....................................................................... 486
2. Caveats about Utility of Domestic Case Law in CISG Cases .................................................................................. 489

C. Defining CISG's Boundaries.................................................... 493

1. Jurisdictional Requirements............................................... 493
2. Explicit and Implicit Omissions from CISG's Scope.......... 495
3. General Principles and Trade Usages as Interpretive Aids ..................................................................................... 496

IV. Unified Approach: The Code and the CISG...............................500

A. Existence of an Enforceable Contract ...................................... 502

1. Summary of Relevant Articles ............................................ 502
2. Code Application of CISG's Oddities ................................. 505

B. Duties and Breach Defined ....................................................... 506

1. Summary of Relevant Articles ............................................ 506

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2. Code Application of CISG's Oddities................................. 514

C. Measuring Damages................................................................. 514

1. Summary of Relevant Articles ............................................ 514
2. Code Application of CISG's Oddities ................................. 517

Conclusion.................................................................................................519

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"I am tormented by an everlasting itch for things remote. I love to sail forbidden seas, and land on barbarous coasts."¹

Introduction

Fittingly enough, their history begins in the same decade, their creation borne forward by the same ideological currents and overseen by similarly conversant intellects.² In 1940, William A. Schnader,³ with the concurrence of a more collectively⁴ and poetically inclined Karl N. Llewellyn,⁵ proposed the creation of a complete commercial code for adoption by every state.⁶ Destined to become its era's "most ambitious codification" after years of effort "by literally hundreds of . . . lawyers and businessmen,"⁷ Schnader's project aimed not just to achieve the coordination of the Uniform Sales Act, the Uniform Negotiable Instruments Law, the Uniform Bills of Lading Act, Uniform Warehouse Receipts Act, and all other such acts in the field of commercial law,⁸

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but also their modernization and extension to then-unregulated fields.⁹ Nearly a decade later, Llewellyn, Schnader's chosen reporter,¹⁰ and the peerless drafting crew that he assembled released a draft composed of nine integrated articles, with notes and comments appended.¹¹ In August 1953, after several minor amendments were proposed and ratified, the Uniform Commercial Code (UCC or U.C.C.) saw the day's light.¹² Meanwhile, touched by this same desire for predictability and uniformity in commercial matters,¹³ Ernst Rabel, a German Jew destined to flee to the United States,¹⁴ crafted the progenitor of the United Nations Convention on Contracts for the International Sale of Goods (CISG or C.I.S.G.),¹⁵ its immediate predecessor—the Uniform Law on the Formation of Contracts for the International Sale of Goods and the Uniform Law on the International Sale of Goods—adopted in 1964,¹⁶ and thereby gained unofficial

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designation as this treaty's grandfather¹⁷ and christened himself as its mastermind.¹⁸ As this history suggests, each of these two protocols emerged from the minds of realists enamored of standardization.¹⁹ In time, CISG ("arguably the most influential uniform law on transborder sales in the world today")²⁰ and the UCC (the controlling commercial code in forty-nine states²¹ and so regnant as to be classified as federal common law by sundry courts²² and to be implied into countless contracts)²³ became part of the fabric of U.S. law, equally binding within their fixed sphere.²⁴

Enjoying an "uneasy coexistence," CISG and the UCC converge in some details even as they diverge in other particulars.²⁵ Philosophically, under either

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legal regime, the goods portion of a certain contract effectively dominates, and both codes contain analogous provisions for defining absent terms and afford decided recognition of party and industry customs and practices. Indeed, some of the same defects taint both, most especially their failure to account for the increasing use of computers in domestic and international sales. This frequent concord follows naturally, as Rabel saw the "English common law tradition"²⁶ from which the UCC grew as "best suited for . . . international unification."²⁷

In spite of this congruence, however, their divergences are equally manifest. Focused purely on business interests and contract formation, CISG adopts subjective standards, requires neither writing (with some exceptions) nor consideration, and constructs a mottled remedial scheme in which specific performance is enthroned above all others. The UCC, in turn, places foremost emphasis on objective criteria, addressing contract formation and validity for businesses and consumers. Properly applied, CISG may allow for the creation of a contract that would otherwise not exist under the UCC or assess the value of a claim rather differently than the UCC would dare try. In other words, CISG promotes performance even in the presence of a breach—and punishes obdurate nonperformance accordingly. Regardless of their plethora of similarities, then, CISG and the UCC are not wholly alike in analytical methodology and practical effect.

Unfortunately, federal and state courts in the United States have only imperfectly and haphazardly heeded this basic verity, thereby spawning an amorphous body of law characterized by more glaring omissions and errata than nuanced analysis. With impressive consistency, federal and state courts invoke the UCC as a guide and proceed to utilize its provisions. Eliding distinctions, though subject to two exceptions, these tribunals either utilize an improper—and thus interpretively forbidden—methodology or reach a mistaken—and textually unjustifiable—conclusion regarding a contract's existence or an award's propriety. Even where CISG's writ is acknowledged, U.S. decisions on this seminal treaty evidence an erroneous tendency to look first to case law, then to the statute, on the part of even the most assiduous jurist. In short, domestic law interpreting CISG remains rather limited in its quantity and haphazard in its

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reasoning, and difficulties thus confront any lawyer seeking to discover and cite cogent authority on a client's behalf.

Considering the preeminent role of contracts in the determination of a debtor's liabilities in cases filed under the Bankruptcy Code (the Code),²⁸ the defects so endemic in CISG's jurisprudence have already arisen within a handful of bankruptcy courts,²⁹ as too few have noticed.³⁰ In fact, as more global contracts are forged and as the Code internationalizes, these weaknesses may proliferate, tainting future liquidations or stymieing coming reorganizations in which more than purely domestic debts or actors are implicated. With "[t]he growing body of case law interpreting and using the CISG involv[ing] not only its direct application to creditors' rights, but the indirect guidance that the CISG might offer to provide meaning or context in resolving a range of disputes and ambiguities in seemingly unrelated American law,"³¹ the time is nigh for bankruptcy's practitioners, scholars, and judges to attain a fundamental understanding of CISG's nuances and ambiguities and thereby avoid replicating the mistakes of their non-bankruptcy predecessors.

In four substantive parts, this Article provides a first scholarly look at CISG's intersection with bankruptcy law so as to address the impending crisis. Part I portrays one common scenario, derived from a recent New York case, in which CISG and the UCC clashed prior to a debtor's bankruptcy filing but without the cognizance of the relevant state court. Setting the stage for this Article's synthesis, Part II summarizes several bankruptcy provisions whose interpretation often requires reference to the UCC and, therefore, CISG, and Part III précises CISG's jurisdictional provisions and interpretive scheme. Finally, Part IV limns the kind of analysis compelled by CISG as to three areas—contract formation, breach, and damages—directly relevant to the adjudication of a creditor's claims. As...