The Franchise Memorandum

The Fifth Circuit Court of Appeals recently affirmed a federal district court’s ruling in a breach of contract action brought by Shenzen Synergy Digital, a China based manufacturer and exporter, against Mingtel, a Texas based importer. Shenzen Synergy Digital Co., Ltd. v. Mingtel, Inc., 2023 WL 4573552 (5th Cir. July 18, 2023). Synergy and Mingtel had successfully contracted together for three years, in a relationship where Mingtel would define specifications for computer tablets and Synergy would fill them. In August 2017, Mingtel sent two purchase orders to Synergy, “Order 59” and “Order 60,” with each purchase order specifying 10,000 units of a unique model tablet. In October 2017, Mingtel received the tablets from Order 60 and began reselling them to customers. However, Mingtel received customer complaints about slow performance and poor quality and refused to pick up the Order 59 tablets when they were ready in early 2018. In March 2019, Synergy sued Mintgel in federal court in Texas and Mingtel countersued for breach on the basis that the Order 60 tablets were non-conforming goods. The court ruled in favor of Synergy and denied Mingtel’s counterclaim because Mingtel failed to demonstrate the tablets were nonconforming goods.

On appeal, because the parties were international, the Court applied the U.N. Convention on Contracts for the International Sale of Goods (CISG) as the relevant law. Under the CISG, in order to state a claim for breach due to non-conforming goods, the burden is placed on the purchaser to prove that the products are defective at the time of transfer. The Court reviewed the “sparce evidence produced at trial” and found that Mintgel had not met this burden and also noted that Mingtel failed to timely examine the products for defects or notify Synergy of any issues the products may have had. Accordingly, because Synergy did not breach its contract for Order 60, Mingtel was not justified in its anticipatory repudiation of contract for Order 59.