by Christopher C. Kokoruda
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is exactly what its name suggests: It governs international commercial contracts for the sale of goods, just as art. 2 of the Uniform Commercial Code (UCC) governs domestic transactions in goods.1 The general principles upon which the CISG is based are its “international character and . . . the need to promote uniformity in its application and the observance of good faith in international trade.”2
The CISG was finalized for adoption by United Nations member-states in Vienna in 1980. In December 1986, the United States ratified the CISG, and it became effective in January 1988.3 As of August 2010, more than 75 countries have ratified the convention, including major U.S. trading partners, such as China, Japan, Germany, Canada, Mexico, France, as well as most of Latin America and the European Union.4
Although the CISG is founded on many concepts that are more familiar to civil law attorneys, as Florida becomes an increasingly important hub for international trade, Florida attorneys will need to take on an increasing international character. This article provides practitioners a basic foundation to recognize when the CISG applies and to facilitate familiarity with many of the key distinctions between the CISG and art. 2 of the UCC.
When the CISG Applies
Under U.S. law, the CISG is considered to be a self-executing treaty, meaning that no subsequent congressional enactment is required to make the convention’s provisions binding on U.S. courts.5 Indeed, the CISG’s provisions apply directly as substantive sales law to agreements for the international sale of goods.6
This simply means that whenever parties to an agreement for the international sale of goods are from two different signatory states, the CISG will automatically provide the governing substantive law, not the UCC.7 This bears repeating: The CISG automatically applies to contracts for the sale of goods between parties whose places of business are in different signatory countries unless the parties expressly opt-out of the convention.8
Because the CISG is the default applicable law when parties from two different signatory countries execute an agreement for the sale of goods unless they “opt out,” inquiring minds will want to know, how does one “opt out” of the CISG? Opting out of the CISG is simple, but it must be done expressly rather than by implication.9 Specifically, because the CISG is the substantive law, a choice of law provision in an international sales agreement between parties from different signatory countries is not sufficient to opt out of the CISG.10 Thus, many such sales agreements are actually governed by the CISG. Nevertheless, lawyers and courts in these cases often mistakenly apply the UCC.11 Although there are many possible explanations for this, the fact remains that many international sales transactions are governed by the CISG, and there are numerous significant legal distinctions between the CISG and the UCC.
What’s at Stake
There are at least two primary reasons that lawyers and jurists should consider whether the CISG applies. First, the CISG may impact a party’s choice of forum (i.e., state versus federal court). Second, there are many striking substantive legal differences between art. 2 of the UCC (as well as the common law) and the CISG.
With respect to choice of forum, the impact of the CISG is straightforward, but often overlooked. The CISG is a federal law (a treaty), and, therefore, imparts federal subject-matter jurisdiction under 28 U.S.C. §1331. Thus, unlike causes of action brought under art. 2 of the UCC, claims under the CISG do not require complete diversity of citizenship and more than $75,000 to be in controversy to open federal courthouse doors. In other words, the CISG creates a private right of action in federal court for breach of the international sales agreement in question.12
Although federal subject matter jurisdiction is always important to consider, knowing the CISG’s substantive distinctions with the UCC is vital to any CISG case. As mentioned above, because the CISG is a product of international compromise between competing legal traditions, the convention contains significant substantive differences with art. 2 of the UCC and U.S. common law. These distinctions are as fundamental as the method of contract formation, basic principles of contract construction and interpretation, the writing requirement (statute of frauds), and the applicability of the parol evidence rule, just to name a few. These key differences between the CISG and art. 2 of the UCC are briefly discussed below.
To begin, the parol evidence rule does not apply to contracts governed by the CISG. Art. 8(3) of the convention permits courts to take “due consideration . . . to all relevant circumstances of the case including the negotiations” when interpreting an agreement.13 In other words, evidence of a pre-existing oral agreement that expressly contradicts or varies the terms of the subsequent written agreement is a perfectly acceptable form of proof in CISG cases.14 Of course, this contradicts the UCC’s version of the parol evidence rule.15
Perhaps one of the most interesting and fundamental distinctions between the CISG and the UCC is that the CISG requires courts first to consider the parties’ subjective intent when interpreting agreements.16 Only when the parties’ subjective intent cannot be determined does the CISG require a court to interpret an agreement “according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.”17 Unquestionably, this is not a common exercise among U.S. common law lawyers and courts. Florida law, for instance, permits only an inquiry into the parties’ objective intent as evidenced by a reasonable interpretation of the outward manifestations of the parties.18 The CISG’s elevation of subjective intent, like its elimination of the parol evidence rule, in many ways runs contrary to many central pillars of traditional U.S. law.
Yet another key significant distinction is embodied in art. 16 of the CISG and deals with contract formation. Under the Florida common law tradition, offers to contract are generally freely revocable.19 However, the opposite is generally true in many civil law traditions where offers to enter into a contract are often presumed to be irrevocable.20 Art. 16 of the CISG attempts to craft a compromise between these contrasting views. On one hand, it provides a general rule that appears to mirror the common law “mailbox rule” where a revocation is valid provided it reaches the offeree before he or she dispatches acceptance of the offer. On the other hand, art. 16 of the CISG provides a major exception when an offer is considered irrevocable anytime the offeror indicates either that the offer is irrevocable or fixes a time period for acceptance. Of further interest, a careful reading of art. 16 reveals no mention of the need for consideration to make the offer irrevocable (indeed, there is no mention of consideration anywhere in the CISG). As well, there is no mention of anything that resembles the “firm offer” requirements embodied in UCC §2-205.
It may also be surprising to learn that art. 11 of the CISG entirely dispenses with the statute of frauds — that is, a contract for the sale of goods does not need to be in writing to be enforceable under the CISG.21 This, too, noticeably contradicts traditional U.S. contract law and the UCC, which requires a writing for the sale of goods for more than U.S. $500.22
Finally, the CISG and the UCC diverge when it comes to the rights of aggrieved parties. The CISG does not follow the UCC’s “perfect tender” rule. Instead the CISG permits parties to declare a contract avoided only when one of the parties is determined to be in “fundamental breach” of the contract.23 The CISG’s remedy of avoidance is, thus, often more difficult to invoke than rejection, revocation of acceptance, or cancellation under the UCC.24 Nevertheless, the CISG does permit claims for damages, specific performance,25 and reduction of purchase price (available only to buyers).26
In short, with respect to the aforementioned legal constructs, the CISG places parties on a significantly different substantive playing field than art. 2 of the UCC.27 However, there are still many analogous provisions contained in the CISG and art. 2 of the UCC.28 Further, U.S. courts have held that “caselaw interpreting analogous provisions of Article 2 of the Uniform Commercial Code …may also inform a court where the language of the relevant CISG provisions tracks that of the UCC.”29 Notwithstanding analogous provisions, skillful attorneys will take careful note of the significant distinctions between these two bodies of law.
If a client is not keen on the idea of litigating under the CISG, simply make sure the agreement expressly opts out and refers to the more familiar UCC, keeping in mind that in most jurisdictions a choice of law provision is not sufficient to exclude application of the CISG. Ultimately, the CISG automatically applies to a significant number of transactions — many more than lawyers and courts often realize. This is important because the CISG differs considerably from art. 2 of the UCC and U.S. common law. It is helpful to view many of these distinctions as compromises between the common law and civil law traditions. As international trade plays an increasingly vital role in Florida’s economy, it will become ever more important for Florida’s lawyers to further familiarize themselves with the CISG.
1 UN Document Number A/CONF 97/19, available at http://www.uncitral.org/uncitral/en/uncitral_texts/ sale_goods/1980CISG.html. Also, the CISG is reprinted at 15 U.S.C.A. Appendix (West Supp. 1995). The Uniform Commercial Code has been incorporated in Fla. Stat. §§670.101, et seq.
2 CISG art. 7(1).
3 See UNCITRAL Secretariat official records, available at http://www.uncitral.org/uncitral/en/uncitral_ texts/sale_goods/1980CISG_status.html.
4 See id.
5 See Chicago Prim Packers, Inc. v. Northam Food Trading Co., 408 F.3d 894, 897 (7th Cir. 2000).
6 See MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova d’Agostino, S.p.A., 144 F.3d 1384 (11th Cir. 1998). Also note that art. 2 of the CISG provides that the convention does not apply to sales of goods purchased for personal, family, or household use; goods purchased at auction; securities, negotiable instruments, or money; ships, vessels, aircraft, or “hovercraft”; and electricity.
7 This is so unless the parties have expressly opted-out of the CISG pursuant to art. 6.
8 CISG art. 1-1(a) and 6; see also Oil Int’l Ltd. v. Empresa Estatal Petoleos de Ecuador, 332 F.3d 333, 335 (5th Cir. 2003).
9 An opt-out provision must very specifically exclude application of the CISG. A good example of such a clause is: “The Uniform Law on the Formation of Contracts for the Sale of Goods, based upon the United Nations Convention on Contracts for the International Sale of Goods, shall not be applicable.” Hull 753 Corp. v. Elbe Flugzeugwerke GmbH, 58 F. Supp. 2d 925, 927 (N.D. Ill. 1999).
10 See, e.g., BP Oil Int’l Ltd. v. Empresa Estatal Petoleos de Ecuador, 332 F.3d 333 (5th Cir. 2003). Other courts reason that because the CISG is a federal treaty, it preempts state-UCC provisions unless the CISG’s opt-out provision is expressly invoked in the parties’ agreement. See, e.g., Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880 (N.D. Ill. 2002).
11 See Ingeborg Schwenzer & Pascal Hachem, The CISG — Successes and Pitfalls, 57 Amer. J. of Comparative Law 457, 457 (2009) (estimating that 70 to 80 percent of all international transactions are potentially governed by the CISG).
12 See, e.g., BP Oil, 332 F.3d at 336.
13 See MCC-Marble, 144 F.3d at 1389 (holding that the parol evidence rule does not apply to contracts governed by the CISG).
14 Herbert Berstein & Joseph Lookofsky, Understanding the CISG in Europe 29 (1997) (“[T]he CISG has dispensed with the parol evidence rule which might otherwise operate to exclude extrinsic evidence under the law of certain Common Law countries.”).
15 See UCC §2-202.
16 See CISG art. 8(1), (2).
18 See, e.g., Gendzier v. Bielecki, 97 So. 2d 604, 608 (Fla. 1957) (“[I]n determining whether there has been a mutual consent to a contract, the courts will not explore the ‘subjective intent’ of the parties but only their ‘objective intent’; that is, the courts will undertake only to determine what a reasonable man would believe from the outward manifestations of the consent of the parties as evidenced by the language of the written document.”).
19 LaRoche v. Nehama, 979 So. 2d 1021, 1022 (Fla. 3d D.C.A. 2008) (in absence of consideration offers are freely revocable).
20 David V. Snyder, Comparative Law in Action: Promissory Estoppel, the Civil Law, and the Mixed Jurisdiction, 15 Ariz. J. Int’l & Comp. L. 695, 740 (1998).
21 See, e.g., Fercus, S.R.L. v. Palazzo, 2000 WL 1118925, *4 (S.D.N.Y. 2000) (explaining that an agreement need not be evidenced by a writing under the CISG); see also Miami Valley Paper, LLC v. Lebbing Engineering & Consulting Gmbh, 2009 WL 818618, *5 (S.D. Ohio 2009) (explaining that art. 11 of the CISG provides that agreements may be “proved by any means, including witnesses.”).
22 See UCC §2-201 (“[A] contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought....”).
23 See CISG art. 25, 49, and 64.
24 See Albert Kritzer, et al., 4 International Contract Manual §81:28 (2010).
25 Note that the specific performance remedy offered under the CISG is much broader than under the UCC. See CISG art. 46 and 62.
26 See CISG art. 45 and 61.
27 Note that there are other distinctions not discussed here, not the least of which is a much broader specific performance remedy under the CISG. See CISG art. 46 and art. 62.
28 See, e.g., CISG art. 35(1) (an express warranty provision providing that goods must be of the “quantity, quality and description required by the contract . . .”) and CISG art. 35(2) (providing for implied warranties of fitness for an ordinary purpose and for a particular purpose).
29 Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995). A serious warning: Even when UCC provisions and CISG provisions are identical, courts have warned that UCC case law is “not per se applicable” but is merely persuasive authority. Id.
Christopher C. Kokoruda is an attorney at the Miami firm Astigarraga Davis. His practice focuses on international commercial arbitration and litigation. Kokoruda is a member of the International Law Section of The Florida Bar. He extends his gratitude to Adam G. Gutin, Brittney C. Keck, and Nyana A. Miller for their insightful comments on this article.
This column is submitted on behalf of the International Law Section, Edward M. Mullins, chair, and Gregory C. Ward, editor.