Contract Law: How the CISG Affects Your International Transactions

January 13, 2015

Please note, this is the fourth article in my five-part series on contract law. To view the third post, “Contract Law: Wisconsin Court Decisions,” please click hereTo view the second post, “Contract Law: The Battle of the Forms,” please click hereTo view the first post, “Contracts for the Sale of Goods,” please click here.

The United Nations Convention on Contracts for the International Sale of Goods (CISG) was ratified by the United States and has been our law since January 1, 1988. It is a self-executing multilateral treaty between the United States and other signatories; thus, it is binding, by default, upon private international “contracts for the sale of goods between parties whose places of business are in different States … when the States are contracting States.” On September 26, 2014, the United Nations announced: “Guyana becomes the eighty-third State Party to the Convention.”

Today, just over a quarter of a century after it became effective, 80% of all international sales transactions are governed by the CISG. Although it is the default governing body of contract law over all U.S. trade in goods with nine of its top 10 trading partners, most commercial lawyers are unfamiliar with the CISG.

UCC Article 2 deals with Sales and is often referred to as the “domestic analog of the CISG.” There are many similarities between the two codes (UCC and CISG); however, there are important differences. U.S. manufacturers who use their domestic sales documents for international transactions may be in for a surprise.

Key Points:

  • A choice of the law of a CISG Contracting State includes the choice of the CISG. (The Draft Hague Principles on Choice of Law in International Commercial Contracts, July 2014)
  • The parties to a contract may agree to apply a signatory’s domestic law, but only by affirmatively opting-out of the CISG. (CISG Article 6) Therefore, a choice of law provision, to be effective, must not only select the law that will apply, but affirmatively state that the CISG will not apply to the contract.
  • CISG Article 11: A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.
  • CISG Article 12 provides that Article 11 “does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention.”
  • CISG Article 19:
    • A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.
    • However, a reply to an offer, which purports to be an acceptance, but contains additional or different terms which do not materially alter the terms of the offer, constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
    • Additional or different terms relating, among other things, to the price; payment; quality and quantity of the goods; place and time of delivery; extent of one party’s liability to the other; or the settlement of disputes are considered to alter the terms of the offer materially.
  • CISG Article 96: A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration … that any provision of article 11 … that allows a contract of sale … to be made in any form other than in writing, does not apply where any party has his place of business in that State.

Your company’s standard terms and conditions may expressly provide that the agreement will be governed by the law of your state, and may require the seller to consent to the exclusive jurisdiction of your federal court. However, if it does not affirmatively state that the CISG does not apply to this contract, you may end up defending the breach of contract claim under CISG (and not under the UCC) in your federal court.

Or, if a contract states that it is governed by terms and conditions available for inspection on the internet at a specified URL – or states in German that the exclusive jurisdiction and venue is Berlin, Germany – the fact that you did not review the T&Cs online and that you cannot sprechen sie deutsch will not prevent your federal court from dismissing your claim and sending you packing for Berlin. There will be more on these issues in Section 5, my final part of this series.

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