Would you like some cadmium with your soft drink?

Yesterday, the Consumer Product Safety Commission (CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's (D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co. (DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinner that transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

All fun aside, why is a commercial law blog interested in allegedly cadmium-contaminated glassware products introduced into the stream of commerce without any warning about or disclaimer regarding the possibility that they might contain an alleged carcinogen?

If this were a tort law or products liability blog, we might opine about the inevitable class-action product liability lawsuit against some combination of McDonald's, Arc International, Arc International North America, Durand Glass Manufacturing Co., the as-yet undisclosed supplier(s) of the cadmium-contaminated paint or other ingredient Durand used to commemorate Shrek™, Fiona™, Donkey™, and Puss in Boots™ (okay, Puss is probably not trademarked, given that the character's name dates from the late Seventeenth century, but we want to minimize our exposure to IP liability because most of us teach at public universities and neither we nor our employers can afford, in the current fiscal climate, to defend any infringement claim that survives a Rule 12(b)(6) motion) on the glassware (and, perhaps, DreamWorks -- for making a movie about which McDonald's predicted sufficient interest that it undertook to procure the offending glassware for resale).

If this were a civil procedure blog we might weigh whether the terms and conditions (no doubt, conveniently located somewhere on the Internet) purportedly governing McDonald's sale of the collectible glassware unconscionably compel non-class arbitration (assuming facts not in evidence) in light of the Supreme Court's recent grant of certiorari in AT&T Mobility LLC v. Concepcion, No. 09-893 (cert. granted May 24, 2010), about which my friend and UNLV colleague Jean Sternlight and my friend and ContractsProf Blog colleague Meredith Miller have recently blogged here and here, respectively.

If this were a consumer law blog, we might wring our hands or cluck our tongues at yet another clear example of Corporate America's crass exploitation of our children and squeeze-the-last-penny sellers who outsource production of low-priced, lower-cost consumer goods to Third World outposts like ... New Jersey. (Just kidding, Jay.)

But, again, what's the commercial law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warranties each seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international spice to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are parties to the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

Meanwhile, on the UNCITRAL Front

Having recently updated you on the status of the various official UCC revisions and amendments (nothing new to report on that front, by the way), I thought it would be worthwhile to take UNCITRAL's pulse and see how the U.N. Conventions on Contracts for the International Sale of Goods (CISG) and on the Use of Electronic Communications in International Contracting (CUECIC) are faring.

Both strike me as profoundly relevant to anyone teaching Contracts, Sales (or a UCC survey course that includes sales), International Sales (or an International Commercial Transactions survey course), or -- at least in the CUECIC's case -- an Electronic Commerce course. The CUECIC's fortunes might also shed some light on the likelihood that the ALI Principles of the Law of Software Contracts will influence contracting practices, contracting disputes, and the evolution of contract law outside the U.S.

CISG

The U.N. first approved the CISG 30 years ago, and it had gathered the requisite ten ratifications and accessions to take effect ("enter into force" to use the U.N.'s terminology) on January 1, 1988. As of June 1, 2010, when Albania's accession entered into force, the CISG was in effect in 74 countries, including Australia, Canada, China, France, Germany, Italy, Japan, Mexico, the Russian Federation and ten of the other fourteen former Soviet republics, Singapore, and South Korea. Great Britain and most of OPEC's member-states are notable non-signatories.

CUECIC

The U.N. General Assembly adopted the CUECIC in November 2005. Despite the International Chamber of Commerce's endorsement, only 18 countries have signed the convention, and none has acceded to, accepted, approved, ratified, or succeeded to it. Consequently, it is not yet in effect anywhere. Moreover, nearly 2-1/2 years have passed since Honduras became the most recent signatory in January 2008. The United States and most of its major trading partners -- excluding China, the Russian Federation, Singapore, and South Korea -- have not signed the CUECIC.

Revised Article 2 Finally Adopted!

Today's news included an announcement that all states have finally agreed to adopt the Revised Article 2, which many thought to be pretty much a dead letter at this point. As you might expect, consumer groups are thrilled and the Business Roundtable is irked commenting:

"While the Roundtable supports uniform drafting efforts, clearly this is
the result of mischief. This will put market opportunities and innovation
on hold. The benefits will not outweigh the cost."

The Obama administration announced, though, that "we cannot afford half measures" and suggested that the drafters instead return to the bargaining table to get the thing done for real.

For those of us who just finished writing Professor Doug Whaley's co-authored competition, we are thrilled! The problem involved rewriting the section of Doug Whaley's Sales text on statute of limitations presuming that revised Article 2 was in force. Of course, under today's announcement, the new statute of limitations goes into effect immediately. Revised Article 2 retained the basic 4 year limitations period but has some gems in the accrual rules meant to tackle some of the more troubling portions of prior Article 2. Particularly important to the Revised 2-725's exceptions on accruals is a rule whereby sellers cannot reduce the limitations period on consumer contracts.

Happily, I will now go through my home looking for broken items that failed way before they should have.

— JSM

Impossibility Doctrine Under CISG 79

Thanks to Meredith Miller over at ContractsProf Blog for pointing out the case of Hilaturas Miel S.L. v. Republic of Iraq, --- F.Supp.2d ----, 2008 WL 4029713 (S.D.N.Y. 2008). Before the Iraqi War, Hilaturas Miel S.L. (“Hilaturas”), a Spanish company, agreed to sell yarn to the Republic of Iraq ("Iraq")under the U.N. Oil For Food Program ("OFFP"). The OFFP provided letters of credit to beneficiaries (sellers), but required independent inspection of goods when received on the ground in Iraq. When the fighting broke out, the approved United Nations independent inspectors left the country, so that there was no one to inspect the Hilaturas yarn. Shortly thereafter, the government of Iraq ceased to function. Still later, the letter of credit for the Hilaturas yarn expired. Hilaturas sold the yarn at a loss and sued for its damages.

The Southern District of New York (Sweet, J.) decided the case, Hilaturas having brought suit under the Foreign Sovereign Immunities Act. The Court granted Iraq's motion for summary judgment. Applying CISG Article 79, the court concluded that the since the contract required inspection, the withdrawl of the inspectors created an impossibility of performance. That is, payment for the yarn under the letter of credit could only be made after presentation of the required documents, including the inspector's report.

The Court, in an interesting twist, remarks that United States courts often look to analygous provisisions in the U.C.C. to resolve issues arising under the CISG. The Court goes on to conclude that UCC 2-614 on substituted performance due to impracticability of delivery or payment is such a provision. Important to the Court, the official comment explains that “a reasonable substituted performance tendered by either party should excuse that party from strict compliance with the contract terms which do not go to the essence of the agreement.”

Hilaturas argued that Iraq should have provided an alternative means of performance. That would seem to be an alterative inspection procedure or simply waiving that provision of the letter of credit. Of course, it is doubtful that alternative inspection as acceptable to the United Nations, so that payment under the OFFP letter of credit would not have been forthcoming. In the end, the inability to have the goods inspected during the letter of credit period results in performance being impossible.

CISG 79 only allows parties to excuse performance for certain impediments, namely ones beyond their control. The Court clearly dodges the lurking issue particularly in CISG 79 regarding whether the inspection impediment was "beyond the control" of Iraq and whether it could have "avoided or overcome it or its consequences." The issue is tricky since the former Governmet of Iraq no longer exists in a way to make it accountable for the breach of contract or the creation of the impediment. Hilaturas has a point that Iraq,not it, should have found a substituted performance. I am not as convinced as the Court that all of this mess was "unforeseen." Nevertheless, the Court seems right in the end here as both parties knew they were operating under the OFFP restrictions, which made the inspection provision part of the "essence" of the contract as anticipated by UCC 2-614 cmt. 1.

— JSM

Is the CISG is a self-executing treaty?

On today's ContractsProf Blog, there are interesting comments on whether CISG is a self-executing treaty under the Supreme Court's recent ruling in Medellin v. Texas, with Prof. Michael Van Alstine of Maryland opining that it is and Prof. Michael Zimmer of Seton Hall unpersuaded that a court would necessarily so find. The concern of contracts and commercial law scholars is that if CISG is not held to be a self-executing treaty, state courts may be free to refuse to follow CISG in international sales disputes litigated in state courts.