## Facts

- PetroEcuador solicited bids for 140,000 barrels of unleaded gasoline deliverable “CFR La Libertad–Ecuador,” incorporating the Incoterm “CFR.”
- The contract required gum content below three milligrams per 100 milliliters, with compliance to be determined at the port of departure, and it stated: “Jurisdiction: Laws of the Republic of Ecuador.”
- PetroEcuador designated Saybolt, Inc. to test and certify the gasoline’s compliance.
- BP acquired gasoline from Shell, loaded it at Deer Park, Texas, and obtained Saybolt certification at Deer Park indicating the gasoline met the gum-content requirement.
- After the vessel arrived in La Libertad, Ecuador, the gasoline tested above the gum-content limit; PetroEcuador refused delivery.
- BP resold the gasoline back to Shell at an approximately $2 million loss.
- BP sued PetroEcuador in federal court for breach of contract and wrongful draw on a letter of guarantee, and sued Saybolt for negligence and related theories.

## Issues

1. Whether the contract was governed by Ecuadorian domestic sales law or by the CISG, given the clause selecting the “laws of the Republic of Ecuador.”
2. Under the CISG and the incorporated CFR term, when risk of loss passed and whether conformity was assessed at shipment or destination.
3. Whether BP could maintain negligence or related claims against Saybolt based on its testing and certification role.

## Decision

- The Fifth Circuit held the CISG governed because the parties were in Contracting States and did not clearly exclude the CISG; a clause selecting Ecuadorian law did not, by itself, opt out of the CISG.
- The court held that under the CISG and the incorporated Incoterm CFR, risk passed to PetroEcuador when the gasoline was loaded on board in Texas, provided BP shipped conforming goods at that point and did not knowingly ship nonconforming goods.
- The court reversed summary judgment for PetroEcuador and remanded for factfinding on whether the gasoline was nonconforming at shipment and whether BP knew or could not have been unaware of any nonconformity.
- The court affirmed dismissal of BP’s claims against Saybolt.

## Legal Principles

- The CISG applies to international sales between parties in Contracting States unless the contract clearly excludes the CISG; selecting the law of a Contracting State generally includes the CISG as part of that law.
- Incoterms such as CFR can operate as trade usages binding the parties under the CISG, including for allocating risk and defining shipment-contract obligations.
- Under the CISG, the seller is responsible for nonconformity existing at the time risk passes, even if it becomes apparent later.
- CISG notice protections for the seller may be unavailable where the seller knew or could not have been unaware of the nonconformity (including under CISG Article 40), making the seller’s knowledge a material fact in risk and conformity disputes.

## Conclusion

The Fifth Circuit applied the CISG notwithstanding an Ecuador-law clause, treated CFR as a binding trade usage shifting risk at shipment, reversed summary judgment for the buyer because disputed facts remained regarding shipment conformity and seller knowledge, and affirmed dismissal of the testing-company claims.


BP Oil Int’l, Ltd. v. Empresa Estatal Petróleos de Ecuador, 332 F.3d 333 (5th Cir. 2003)