United Nations Convention on Contracts for the International Sale of Goods

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1 United Nations Convention on Contracts for the International Sale of Goods ACC International Legal Affairs Committee Legal Quick Hit: November 13, 2014 Presented by: Jeffrey S. Dunn Michael Best & Friedrich LLP

2 Scope and Application of the CISG Article 1(a)(1) Different Contracting States Example American manufacturer sells goods to a Mexican purchaser. In this case, the relevant places of business for the buyer and the seller are located in different Contracting States The following factors DO NOT matter when analyzing whether the CISG applies: Where the buyer takes delivery of the goods Whether the goods cross an international border The nationalities of the buyer or seller May even apply to a contract between two domestic entities if their relevant places of businesses are in different Contracting States. See Asante Technologies, Inc. v. PMC-Sierra (United States, Northern District, California, July 27, 2001) 2

3 Scope and Application of the CISG Article 1(1)(b) Conflict of Law Principles The CISG may also apply when the rules of international law lead to the application of the law of a Contracting State Example Only the buyer is located in a Contracting State; the seller commences a lawsuit in a forum whose conflict of law principles apply the laws of the buyer s country, which automatically applies the CISG Article 95 Contracting States are permitted to derogate or preclude the operation of Article 1(1)(b) The United States has chosen to preclude Article (1)(1)(b) See 3

4 Exclusions from the CISG Article 2 excludes certain types of transactions: Goods bought for personal, family, or household use Sales of ships, vessels, hovercraft, or aircraft Auction sale Sales on execution or otherwise by authority of law Sales of stock, shares, investment securities, negotiable instruments, or money Sale of electricity 4

5 Mixed Contracts for Goods and Services CISG Article 3 Excludes mixed contracts for goods and services when the preponderant part of the contract is services. Does not define preponderant Example The CISG will not apply to the non-sale aspects of a distributorship agreement with foreign entity. See e.g. Helen Kaminski v. Marketing Australian Products (S.D.N.Y., July 21, 1997) 5

6 Opting into the CISG Sample Opt In Clause The rights and obligations of the Parties under this Agreement shall be governed by the provisions of the English-language version of the 1980 U.N. Convention on Contracts for the International Sale of Goods and the United Nations Convention on the Limitation Period in the International Sale of Goods, as amended; however, any ambiguities or matters not covered by these Conventions shall be governed by the laws of the State of [insert jurisdiction], including its provisions of the Uniform Commercial Code [or other specified laws]. See SB04 ALIABA 37 at page 6. 6

7 Opting out of the CISG Article 6 Sample Opt Out Clause The rights and obligations of the Parties under this Agreement shall not be governed by the provisions of the 1980 U.N. Convention on Contracts for the International Sale of Goods or the United Nations Convention on the Limitation Period in the International Sale of Goods, as amended (collectively, the Conventions ); rather, the rights and obligations of the Parties shall be governed by the laws of the State of [insert jurisdiction], including its provisions of the Uniform Commercial Code. For the avoidance of doubt, the Conventions are hereby excluded. See SB04 ALI-ABA 37 at page 7. 7

8 Interpretation of the CISG Article 7 Guiding principle: Regard is to be had to the international character of the Conventions and the need to promote uniformity. In this regards, there is an almost universal view among commentators that foreign decisions should be taken into account by U.S. courts in deciding cases governed by the CISG. See page 3 SB04 ALI-ABA 37 (1996) Case law resources

9 CISG vs. UCC Statute of Frauds CISG No Statute of Frauds Article 11 a contract of sale need not be concluded in or evidenced by writing... It may be proved by any means, including witnesses (i.e., parol evidence) CISG Reservation 96 permits countries to derogate from the no writing requirement Drafting Tip: include both a merger and written modification provisions UCC Statute of Frauds Contracts for $500 or more must be evidenced in writing Part Performance exceptions provided in subsection 2-201(3) 9

10 CISG vs. UCC Firm Offers CISG Article 16(2) Firm offer rules are more vague Offer cannot be revoked if (1) it indicates by stating a fixed time for acceptance or otherwise that it is irrevocable or (2) if it is reasonable for the offeree to rely on the offer being irrevocable (and the offeree acted in reliance) UCC Firm offers are irrevocable when in writing with assurances that they will be held open Not to exceed 3 months 10

11 CISG vs. UCC Warranties & Disclaimers UCC CISG Based on parties intent and understanding Article 35(2) defines the attributes which, when met, show that the goods conform to the contract Similar to the UCC s implied warranties of merchantability and fitness for particular purpose (although the word implied is not used) CISG permits a disclaimer of warranties so long as the parties have agreed in writing or orally to Under 2-313, any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise Specific rules must be followed to exclude or modify express and implied warranties 11

12 CISG vs. UCC Battle of the Forms CISG CISG employs the common law mirror image rule If the terms of the acknowledgment vary from the terms of the offer, no contract results Instead, the acknowledgment operates as a counter-offer Last Shot doctrine UCC No mirror image rule A contract exists despite the fact that acceptance contains different or additional terms The different or additional terms are considered proposals for addition to the contract unless (1) the offer expressly limits acceptance to the terms of the offer; (2) the additional terms materially alter the offer; (3) notice of objection has been given or is given within a reasonable time after notice of them is received 12

13 CISG vs. UCC Rejection of Non-Conforming Goods CISG No Perfect Tender rule Buyer may declare the Contract voided only if the failure by the seller to deliver conforming goods constitutes a fundamental breach of the contract A fundamental breach exists only if it results in such a detriment to the other party as to substantially deprive him of what he is entitled to expect under the contract UCC Perfect Tender rule Buyer is entitled to reject the goods if they fail to conform to the contract Buyer may also cancel the contract 13

14 Limitations Period Convention The CISG does not contain any statutes of limitation or limitation period provisions The United Nations Convention on the Limitation Period in the International Sale of Goods, as amended by Protocol Entered into force in August 1988 and ratified by the United States in 1994 Companion convention to the CISG Rules on scope and applicability similar to the CISG Not adopted by all of the countries that have adopted the CISG Article 8 of the Limitation Convention provides for a 4-year limitation period, which can be reduced only in very limited circumstances UCC provides for a 4-year statute of limitations, which can be reduced to as little as one year 14

15 Questions 15

16 Contact Information Jeffrey S. Dunn Michael Best & Friedrich LLP (Lex Mundi member firm for USA, Wisconsin) 1000 Maritime Drive Manitowoc, WI Tel: *This presentation is intended for general information purposes only and does not constitute legal advice. Specific questions and requests for legal advice should be addressed to legal counsel. 16