It is increasingly common for purchases and sales to cross international boundaries. When that happens, what law applies? First, the parties to a contract must look to the contract to determine what law applies. If the contract is silent, the United Nations Convention on Contracts for the International Sale of Goods (CISG) might apply.
The CISG is an international treaty that, as of the date of this blog, has 95 parties, including some of the world’s largest economies, such as the United States, China, Japan, Germany, France, Italy, Canada, and South Korea. Notably, neither the United Kingdom nor India, both in the top ten largest world economies by GDP, is a signatory. A full listed of parties can be found here.
The stated purpose of the CISG is the adoption of uniform rules to govern contracts for the international sale of goods. The CISG applies to contracts for the sale of goods between parties that are in different signatory countries. The Convention applies only to commercial contracts; it does not apply to consumer or personal contracts, and it applies only to the sale of goods, not services.
Commercial entities in the United States may be familiar with the Uniform Commercial Code (UCC), a universally adopted state law that governs the transaction of business. While the UCC and the CISG share many similarities, there are key differences, and companies should know that unless a contract explicitly provides for the application of the UCC, generally speaking the CISG will pre-empt the UCC when the contract for the sale of goods between companies from different signatory countries.
Among the differences between the UCC and CISG are the statute of frauds, what constitutes a breach, and what remedies are available. Under the UCC, any contract for sale of goods over $500 must be in writing to be enforceable, a requirement known as the statute of frauds. Under the CISG, however, no writing is required, and oral contracts are enforceable.
Another key difference between the two legal frameworks is in what constitutes a breach. Under the UCC, a buyer is entitled to perfect tender. That is, a buyer may reject goods, in whole or in part, if they are not precisely as set forth in the contract, even if the non-conformity is not material. The CISG, on the other hand, has adopted the concept of a fundamental breach, pursuant to which a buyer is entitled to remedies only where the seller has breach in such a way that the buyer is substantially deprived of what it is entitled to expect.
A further difference lies in what remedies may be available to an aggrieved party. Generally speaking, money damages are the preferred approach under the UCC. Under principles of United States contract law, specific performance – in which one side is ordered by a court to perform its obligations under the contract – is generally disfavored where the aggrieved party can be adequately compensated through money damages. Specific performance is not disfavored under the CISG, however, and an aggrieved party may have better luck forcing their counterparty to fulfill their contractual obligations.
There are many additional distinctions between the UCC and the CISG, and the foregoing is just a sample. Any entity considering a sale-of-goods contract to which the CISG might apply should carefully scrutinize the differences between the CISG and the UCC, or any other law that might apply.