International law trumps UCC for deals in 61 nations
Dr. John Murray, Jr. -- Purchasing, 2/6/2003 2:00:00 AM
The United Nations Convention on Contracts for the International Sale of Goods (CISG), now applies to sales of goods (but not to sales of such services as contract manufacturing) between businesses in these countries: Argentina, Australia, Austria, Bosnia and Herzegovina, Bulgaria, Burundi, Canada, Chile, China, Columbia, Croatia, Cuba, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guinea, Hungary, Iceland, Iraq, Israel, Italy, Kyrgystan, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Netherlands, New Zealand, Norway, Peru, Poland, Republic of Moldova, Romania, Russian Federation, Saint Vincent & Grenadines, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Uganda, Ukraine, the U.S., Uruguay, Uzbekistan, Venezuela, Yugoslavia and Zambia.
Two major countries that have yet to adopt CISG are England and Japan. Even where a U.S. buyer of goods contracts with a U.S. distributor, if it appears that the goods are the product of a seller with its principal place of business in another CISG country, CISG applies. The law governing the sale of goods between U.S. buyers and sellers is the Uniform Commercial Code (UCC). While there are similarities between the UCC and CISG , there are also many differences.
Under the UCC, an offer to purchase goods is accepted by the mailing of the acceptance of the offer. Under CISG, an acceptance must be received to be effective and it must be received within the time stated in the offer. This rule can create problems where an offer states that a party has a certain time in which to accept, e. g., 10 days. Under the UCC, the ten days would not begin to run until the offer is received. Under CISG, however, the ten days begins to run as of the date on the offer. By the time the offer is received, a certain number of the ten days would have elapsed and the acceptance must be received by the offeror within the remainder of the ten days.
The UCC requires any contract for the sale of goods priced at $500 or more to be evidenced by a "writing" or electronic record. There is no such requirement under CISG.
Under the UCC, merely placing a time limit on the duration of an offer does not prevent the offeror from revoking it. If, for example, a seller or buyer makes an offer stating that it must be accepted within 10 days, the offer may be revoked (withdrawn) at any time before the ten days elapse unless the offer provides written assurance that it will not be revoked. Under CISG, however, an offer that merely states that it will only last for ten days prevents the party making the offer from withdrawing it during the ten-day period.
Under the UCC, if a buyer sends a purchase order and the seller responds with an acknowledgment stating the same price and quantity terms but adding other terms not found in the offer, the acknowledgment may still be an acceptance of the offer forming a contract. Typically, the buyer who makes an offer will prevail in this "battle of the forms." Under CISG, virtually any additional term in the acknowledgment will convert the seller's acceptance into a counter offer. The seller will then ship the goods and buyer will accept the goods (ignoring boilerplate additional terms) and seller's terms will prevail.
Under the UCC, where terms of the contract are reduced to a writing that manifests the parties' intention to be bound only by written terms, evidence of terms discussed in negotiation before the writing was executed will not be admitted into evidence. Under CISG, such evidence is admissible.
Interpretation of contract language under the UCC is based on the standard of what a reasonable person would have understood the words to mean under all of the surrounding circumstances. Under CISG, however, evidence of the subjective intention of the individual parties may even trump a document signed by both parties.
There are a number of other differences between the UCC and CISG of which the parties should be aware in making their contract. Article 6 of CISG allows the parties to agree that CISG will not apply, i. e., they may "opt out" of CISG. Unless they agree to opt out, however, CISG automatically applies to any contract for the sale of goods between parties with their principal places of business in different CISG countries. The parties may also decide that they wish to opt out of only one or more provisions of CISG. Whether they decide to opt out of CISG entirely or only certain parts, their contract should clearly indicate this intention. In a recent case, the buyer's purchase order stated that the deal should be governed by the law of California while the seller's acknowledgment stated that the deal should be governed by the law of British Columbia (Canada). The case was tried in a federal court in California where the court found the "law" of California (or any U.S. state) and the "law" of British Columbia (or any other Canadian province) was CISG where parties such as the parties in this case had principal places of business in different CISG countries. Both the U.S. and Canada had adopted CISG and it superceded the state law of California and the local law of British Columbia. If the parties did not want CISG to apply, they should have expressly indicated that CISG did not apply to their contract before stating the law that would.
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