Would it surprise you to learn that when you see a clause in your international sales contract stating that Massachusetts (or any other State’s) law applies, that it actually incorporates an international treaty that will likely supersede the Uniform Commercial Code (“UCC”)?
The United States is a signatory to the United Nations Convention on the International Sale of Goods (“CISG”). The CISG qualifies as American federal law and therefore pre-empts state law such as the UCC. The CISG applies to any contract for the sale of goods between companies (it does not apply to consumer sales) whose places of business are in different countries when either (1) both of those countries are signatories to the CISG; or (2) the law of a signatory country is applicable to the contract. So if a contract states that any US State’s law applies, then the CISG will govern that contract unless the contract specifically excludes application of the CISG. And if a contract is with any European country (other than the UK), Canada, Mexico, China, Russia, Brazil, or any of the other 89 countries that have become party to the treaty, the CISG will apply.
Much like the UCC, the CISG applies the default rules of the road for contract formation, and supplies default terms to fill in gaps where terms have not been specified in the contract. Both are generally similar, but they have some important differences that may have a serious impact on international contracts. A few of those are covered below:
Statute of Frauds
The UCC is very clear that any contract for goods over $500 must be supported by a writing, which comes directly from the Statute of Frauds. Article 11 of the CISG, however, states that “A contract of sale need not be concluded in or evidenced by writing.” This can mean that oral contracts for millions of dollars’ worth of goods are perfectly legal when you are dealing with international contracts. This can often call for extra care in making sure to get contracts in writing when dealing internationally, so that the main terms are not misconstrued.
Battle of the Forms
In the not-infrequent case where a purchase order and the purchase confirmation have different sets of boilerplate terms, the UCC and the CISG handle things very differently. UCC 2-207 applies a “knock out rule” where inconsistent terms between the buyer and the seller are knocked out and replaced by UCC default rules. Conversely, the CISG uses the “mirror image rule,” where a reply which purports to accept an offer but has additional or different terms constitutes a counter-offer rather than an acceptance. If the only changes are to non-material terms, however, then it constitutes an acceptance and the final set of terms sent with the acceptance governs the parties’ contract unless there is some objection.
Perfect Tender Rule
Under the UCC, if the goods do not conform exactly to what was ordered in the contract, the buyer may reject them in whole or in part. This is referred to as the “perfect tender rule.” Under the CISG, however, a buyer can only reject goods if there is a non-conformity which substantially deprives the buyer of what it was entitled to expect under the contract, and only if the seller foresaw or should have foreseen such a result. This can lead to significant issues for an importer that may have purchase contracts governed by the CISG and sales contracts in the United States governed by the UCC. If non-conforming goods are delivered, the importer must accept them unless there is a fundamental non-conformity, but then when they try to sell them on, their customers can reject them on the basis of the perfect tender rule.
There are other differences between the UCC and the CISG, and if you have an international sales contract, you should be aware of which law your contract is actually operating under. If you end up in a contract dispute over an international contract for the sale of goods, you should consult an experienced international disputes attorney to advise on which law governs the contract, as well as how that law will be interpreted.
For more information about our international litigation practice, please visit our international litigation page.