CISG--Part 2
By Dr. John Murray, Jr. -- Purchasing, 10/7/1999
My last column introduced the United Nations Convention on Contract for the International Sale of Goods, known to lawyers as CISG, the Vienna Convention or, simply, the "Convention." It became the law of the U.S. on January 1, 1988, and is now the law of 49 other nations as well. It deals only with contracts for the sale of goods between parties in different nations ("contracting states") that have adopted the Convention.Americans are used to the Uniform Commercial Code (UCC), which has been enacted throughout the country to govern contracts for the sale of goods. The UCC applies to contracts between American companies. If, however, the contract is between a U.S. firm and a corporation in another CISG country such as Canada, Mexico, Germany, France or more than forty others, CISG will apply instead of the UCC. We refer to the UCC as "domestic law" to indicate controlling law between U.S. companies. While CISG is also U.S. law, it applies only with respect to international contracts.
In my last column, we considered some of the major differences between CISG and the UCC. I continue that comparison in this column by considering some basic problems. Analyses of the problems appear later in the column. Don't peek.
1. Before signing an extensive, negotiated contract for an expensive machine, the buyer asked the seller if the machine included a particular fail-safe feature that would assure the safety of the operator. The seller assured the buyer that the feature was included. The document the parties signed, however, did not mention this feature. When the machine was used, the operator suffered injury because there was no fail-safe feature. Compare the buyer's legal status under the UCC with CISG.
2. A U.S. buyer agreed to purchase a large quantity of ceramic tile from an Italian manufacturer to be delivered in monthly shipments. After the parties had orally agreed to the basic terms of the deal, the seller presented its standard form document, which the U.S. buyer signed without reading the fine print (boilerplate) clauses. One of these clauses allowed the seller to terminate the contract if payment was late on any shipment, and this is what the seller did when the buyer made a late payment on one of the shipments. The lawsuit was brought in a U.S. court that applied CISG. What result?
3. A U.S. company sent a purchase order to a Canadian seller for a computerized extrusion machine at a price of $389,000. The seller replied with its acknowledgment form that exactly matched the negotiated terms of the deal--the identification of the product, the price, time and place of delivery, and other delivery terms. The acknowledgment, however, also included a disclaimer of the implied warranty of merchantability and a clause excluding any consequential damages. When the machine failed to operate in a merchantable manner and caused more than $200,000 in consequential damages, the buyer sued. What result under CISG as compared to the UCC?
4. A buyer is eager to enter into a contract with an Australian seller of leather but does not wish the contract to be governed by CISG. Advise the buyer.
Analyses
1. Under U.S. domestic law (the UCC), the buyer would be precluded from introducing the seller's statement concerning the fail-safe device into evidence under what lawyers call the "parol evidence rule," which is designed to protect the reliability of written evidence. Under CISG, however, the buyer would be allowed to attempt to prove the seller's statement since there is no such rule under CISG. Neither does CISG require a contract for the sale of goods to be evidenced by a writing, while the UCC requires a writing for any sale of goods contract with a price of $500 or more.
2. Because both Italy and the U.S. have adopted CISG, the U.S. court in this actual case applied CISG instead of the UCC. Under the UCC, the court would have held the buyer to boilerplate terms of the contract since an "objective" test is applied under domestic law. A reasonable person is bound by what he signs. Under CISG, however, evidence that the parties did not "subjectively" intend to be bound by such terms would be admissible and could result in a verdict for the buyer in this case.
3. Under domestic U.S. law (the UCC), this is a classic "battle of the forms" case and the different or additional terms in the seller's acknowledgment (warranty disclaimer and exclusion of consequential damages) would be excised. The buyer would win the battle. Under CISG, however, the seller's acknowledgment would be viewed as a counteroffer because it contained these different or additional terms. The counteroffer would reject the buyer's purchase order (offer) and the buyer's acceptance of the goods would be an acceptance of the seller's terms. The seller would prevail in the "battle of the forms."
4. Unless the parties otherwise agree, CISG law will prevail in this case since both the U.S. and Australia have adopted CISG. Article 6 of CISG, however, allows the parties to agree that CISG will not apply. If the parties are so inclined, it is very important that they express that agreement clearly and, preferably, in writing. Remember, however, that neither party may unilaterally oust CISG. Both parties must agree that it will not apply. Otherwise, it automatically applies.
We will consider still other differences between the UCC and CISG in our next column on this important topic.
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