You have been purchasing widgets from Widget Supply Company for years without any problems. Unfortunately, a dispute arises between you and the supplier so you contact Vandenack Weaver LLC to help resolve the dispute.
If the dispute is between two parties that each have a place of business in the United States, we would turn to Article 2 of the Uniform Commercial Code (also known as the UCC) to help interpret the sales agreement between the parties and otherwise determine any default rules to be applied. Article 2 of the UCC is a standard set of laws applicable to the sale of goods. Each state in the United States has adopted some variation of Article 2 of the UCC with the only exception being Louisiana, which has elected to maintain its civil law for governing the sale of goods in the state.
However, what if the place of business for one of the parties is not in the United States? In this case, we would likely need to turn to the United Nations Convention on Contracts for the International Sale of Goods (also known as “CSIG” or the Vienna Sales Convention) to help interpret the agreement and resolve the dispute. The CISG is an international treaty that provides for a uniform set of laws governing the sale of goods between parties located in countries that have ratified the CISG, referred to as “Contracting States.” The CISG has been ratified by 80 countries, accounting for almost three-quarters of all world trade. A list of Contracting States may be found at https://cisgw3.law.pace.edu/cisg/countries/cntries.html. The CISG establishes a set of rules governing certain aspects of the making and performance of commercial contracts between sellers and buyers of goods. By adopting the CISG, a country agrees to treat it as part of its own set of laws.
The purpose of the CISG is to make it easier and more economical to buy and sell raw materials, commodities and manufactured goods in international commerce. Predictability in the law helps reduce the cost of negotiating and entering into such agreements. In international transactions, there is often doubt about which country’s law will control should a dispute arise. The law applicable to the sale of goods for one country often differs from that of another country. Fear of the unknown often prevents a party from accepting the “foreign” laws of the other party. Where there is doubt about the rules that apply, and a divergence as to the impact each set of rules would have on the agreement, the parties cannot be sure of their rights and obligations. Legal uncertainty makes it more difficult to negotiate a contract and resolve any later disputes. The CISG attempts to reduce this uncertainty.
The CISG, like the UCC, contains rules governing the making and interpretation of contracts for the sale of goods. The CISG also contains rules governing the obligations of each of the parties and remedies for failure to comply with such obligations. The CISG, like the UCC, does not deprive sellers and buyers of the freedom to mold their contracts to their own specifications. Generally, the parties are free to modify the rules established by the CISG or even agree that the CISG does not apply and designate the domestic laws of a particular country to be applied to the contract.
While the CISG can be characterized as being generally consistent with the UCC, there are some differences, such as:
- Revocable Offers – The CISG has a greater tendency to treat offers as irrevocable as compared to the UCC.
- “Battle of Forms” – Under the CISG, a reply to an offer that purports to be an acceptance, but has additions, limitations or other modifications is generally considered to be a rejection and counteroffer. The UCC, on the other hand, tries to avoid this “battle of forms” and allows an expression of acceptance to be operative, unless the acceptance states that it is conditioned on the offeror consenting to the additional or different terms contained in the acceptance. Under Article 19 of the CISG, additional or different terms in an acceptance prevent a contract from arising unless the terms are not material and the offeror does not object to them. In contrast, under the UCC, the addition of, for example, an arbitration provision in an acceptance would not keep a contract from being formed between the parties. Under the CISG, it is likely that there would not be a contract at all.
- Writing Requirement – Under the UCC’s statute of frauds, oral contracts for the sale of goods of $500 or more are generally not enforceable. The CISG frowns on such formalities. Unless otherwise specified by a Contracting State, the CISG does not require that a sales contract be reduced to writing and may be proved by any means, including witness testimony. Some Contracting States have not adopted this approach. For example, China, the Russian Federation and Argentina require a contract to be in writing even if the CISG is used to govern the understanding of the parties.
Even though the UCC and CISG are very similar in many respects, there are still differences that may have a material impact on your transaction. Therefore, it is generally recommended that you execute a written agreement for the sale/purchase of international goods, with such writing specifically addressing which law will be applied to interpretation and construction of the contract.