Usinor Industeel v. Leeco Steel Products, Inc.
47 U.C.C. Rep. Serv. 2d (West) 887, 2002 U.S. Dist. LEXIS 16281, 209 F. Supp. 2d 880 (2002)
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Rule of Law:
The Convention on Contracts for the International Sale of Goods (CISG) governs the rights and obligations between a buyer and seller in an international sales contract, but it does not govern the rights of third-party creditors. The priority of a third-party creditor's security interest in the goods is determined by applicable domestic law, such as the Uniform Commercial Code (UCC).
Facts:
- Usinor Industeel, a French corporation, and Leeco Steel Products, Inc., an Illinois corporation, entered into a sales agreement for specialty steel.
- The agreement contained a clause stating that Usinor would remain the owner of the goods until Leeco made complete and total payment.
- Between December 2000 and April 2001, Usinor produced and shipped steel valued at over $1.1 million to Leeco's designated locations.
- Leeco had intended to sell the steel for a project with Caterpillar, but that project was halted.
- Leeco took delivery of the steel but failed to make full payment, owing Usinor over $988,000.
- Leeco had financed its operations, including the purchase of inventory, through a line of credit with LaSalle National Bank.
- LaSalle Bank held a security interest in Leeco's inventory.
- Leeco defaulted on its loan payments to LaSalle Bank.
Procedural Posture:
- Usinor Industeel filed a Motion for Replevin against Leeco Steel Products, Inc. in the U.S. District Court for the Northern District of Illinois, a federal trial court.
- The court entered a temporary restraining order to preserve the steel shipments.
- LaSalle National Bank filed an unopposed motion to intervene in the case, which the court granted.
- The court then granted injunctive relief, preserving the steel until it could rule on Usinor's replevin motion.
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Issue:
Does the Convention on Contracts for the International Sale of Goods (CISG) govern the priority of interests in goods when a third-party creditor asserts a security interest in those same goods?
Opinions:
Majority - Lindberg, Senior District Judge
No, the CISG does not govern the priority of interests when a third party's rights are involved; priority is determined by domestic law. The CISG governs only the rights and obligations of the buyer and seller. Article 4(b) of the CISG explicitly provides that the convention is not concerned with 'the effect which the contract may have on the property in the goods sold.' This language, supported by scholarly commentary, means that the rights of third-party creditors are excluded from the CISG's scope and must be resolved under domestic law. A choice-of-law analysis indicates that Illinois law, and therefore the Uniform Commercial Code (UCC), applies. Under UCC § 2-401(a), Usinor's retention-of-title clause did not preserve ownership but merely created an unperfected security interest. LaSalle, in contrast, held a perfected security interest in Leeco's inventory, which attached to the steel once Leeco took possession. As a perfected security interest has priority over an unperfected security interest, LaSalle's claim to the steel is superior to Usinor's.
Analysis:
This decision clarifies a crucial limitation on the preemptive scope of the CISG in the United States. It establishes that while the CISG governs the core buyer-seller relationship in an international sale, it does not displace domestic commercial law, such as UCC Article 9, when it comes to the rights of third-party creditors. The ruling serves as a critical warning to international sellers that a simple retention-of-title clause in a sales contract is insufficient to protect their interests against secured creditors in the U.S. To ensure priority, sellers must also take steps to perfect their security interests under the relevant state's UCC, such as filing a financing statement.
