International Sale of Goods

As noted in the discussion about the sale of goods, there is an exception to the general rule that the U.S.'s Uniform Commercial Code governs the sale of goods. That exception is that, under certain circumstances, the applicable body of law is a multilateral treaty called the Convention on the International Sale of Goods ("CISG").

Article I of the CISG provides that it applies:

  • "to contracts of sale of goods between parties whose places of business are in different States:
    • (a) when the States are Contracting States"

The signatories include U.S., and a number of the countries that Americans buy goods from: China, Canada, Italy, Germany, Dominican Republic, Hondurus, Japan, South Korea, Mexico, Peru, Poland, Russian federation, to name just a few. Given the volume of goods coming into the U.S. from China, a significant portion of trade is governed by the CISG.

Other articles of the CISG provide that it does not apply to 1) sales of goods for personal or household use, 2) of ships and similar vessels, 3) sale of goods where the predominant obligation of the party supplying the goods is to furnish services. Thus, it often happens that a U.S. importer will supply fabrics to a Chinese factory to sew into garments. Under such circumstances, the CISG would not apply.

Article 96 of the CISG permits countries signing it to declare themselves not bound by certain of its provisions. For example, in signing the convention, China declared itself not bound by Article 11, which made it unnecessary that the contract be in writing. So for a U.S. company dealing with a Chinese company, it is important to have the contract in written form. For example, a U.S. buyer should issue the Chinese supplier a written purchase order and require that the Chinese supplier accept it in writing.

There seems to be a fair amount of caselaw construing the CISG in Europe, but the American courts seems to know relatively little about it. As a consequence, the American courts tend to assume that the CISG closely tracks the UCC and then decide the case under the UCC.

But there are some meaningful differences between U.S. law and the CISG. For example, the CISG permits recovery for loss due currency fluctuations. Suppose a German seller sells to a New York buyer, who is supposed to pay in U.S. dollars. When payment is due, the 1 dollar is worth 1 Euro. The seller sues the buyer and gets a judgment in U.S. dollars for the cost of the goods. But by the time the judgment is issued, 1 dollar is now worth only .75 Euros.

Under New York law, the German seller receives nothing to compensate him for the fact that the dollars are now worth less to him. But under the CISG, the German buyer receives an additional amount to compensate him for the fact that the dollar is now worth fewer Euros.

Given these pitfalls in litigating under the CIGS, an American company dealing with a company in a signatory country should simply include a provision stating that the law of a U.S. state, such as New York, governs the interpretation of the contract.

Such provisions, called choice of law provisions, are enforced. But the problem is that the foreign company may then refuse to do business with the U.S. company. More generally, the problem is that many businesses, such as garment importers, don't want to pay a lawyer to draw up the contract. So for want of a few thousand dollars, they may find themselves with a much larger problem is something goes wrong with the deal.

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