Choice of Law: International Contracts

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For our members in the United States, particularly those under PACA, the Uniform Commercial Code (UCC) is a familiar reference when contract law issues occur. It is also common for contracts to refer to state law or jurisdictional law, since these may differ from federal law. Each country has its own legislation governing contract formation and performance. Canada, for example, has a Provincial Sales of Goods Act in each province, except for Québec, which is governed by its Civil Code.

The choice of law becomes even more critical when dealing outside your own country. Some jurisdictions have provisions that may favor citizens of their country. As global trade expands, it is inevitable that more disputes will arise. Therefore, it is essential to understand the implications of the relevant laws in the global marketplace.

For trade between most countries, the default law is The United Nations Convention on Contracts for the International Sale of Goods (CISG), also known as the Vienna Convention. Most trading nations, including the US and Canada, are signatories to this convention, meaning that they have agreed to its application when trading with another member state.

Are there real differences between UCC and CISG?

To answer that question, we asked an expert to do a bit of research comparing the UCC to the CISG.

Professor Anthony Daimsis is a Law Professor and member of the International Law Group at the University of Ottawa. He is Director of the Faculty of Law’s Moot Court program, and of the National Program. He also teaches courses in international arbitration and international sales law at Osgoode Hall, and lectures on international arbitration for the Swiss International Law School. Prof. Daimsis is author of the forthcoming book, International Arbitration: the fundamentals and the indispensables, as well as The Common Law Lawyer’s Guide to the Convention on the International Sale of Goods.

Comparing the CISG’s Contract Formation Provisions with those of UCC

The following page provides a non-exhaustive list of differences between the Uniform Commercial Code (“UCC”) and the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) focussing particularly on contract formation provisions. Below are four important differences between the UCC and the CISG.

Executive Summary

First, parties may form CISG contracts orally; no written evidence is necessary.  In contrast, the UCC requires parties to put into writing contracts worth over $500.   The same is true for modifications; parties seeking to modify UCC contracts worth over $500 must use a written modification, while parties may modify CISG contracts orally provided the contract does not preclude oral modification.

Second, unlike under the UCC, no parol evidence rule exists under the CISG. This means that under the CISG, decision makers can examine all surrounding circumstances when interpreting a contract, including negotiations and subsequent conduct.  In contrast, the UCC limits decision makers to the “four corners” of the written contract and negotiations are only useful to complement the written agreement.

The third difference lies in the consequences of parties failing to fix a price at contract formation. Absent a price – the UCC fixes the price and ties it to what is reasonable at the time of delivery.  In contrast, when a CISG contract does not name a price, the CISG fixes it at what is reasonable at the time the contract is concluded.

Lastly, while parties may make irrevocable offers (firm offers) under both the UCC and the CISG, under the UCC these offers will not remain irrevocable beyond three months.  The CISG, however, places no such time limit.  In addition, under the UCC, if the firm offer language appears on a form supplied by the offeree, the offeror needs to separately sign, initial, or otherwise authenticate the part of the contract that makes the offer irrevocable. The CISG has no such requirement.

  1. ORAL AND MODIFIED AGREEMENTS

Parties may form CISG contracts orally; no written evidence is necessary.  In contrast, the UCC requires parties to put into writing contracts worth over $500.   The same is true for modifications; parties seeking to modify UCC contracts worth over $500 must use a written modification, while parties may modify CISG contracts orally provided the contract does not preclude oral modification.

APPLICATION

Example I-A (oral agreements)

Party A telephones Party B requesting 10,000lbs of potatoes, packed in 1000 x 10lb bags, at $3 per bag, delivery in one week. No money is exchanged and the potatoes are never delivered.

  • Under the UCC, this contract is not enforceable.
  • Under the CISG, this contract is enforceable.

Four exceptions exist under the UCC’s Statute of Frauds

The Ten-Day-Reply Doctrine

(See UCC, §2-201(2))

Specially Manufactured Goods

(See UCC, §2-201(3)(a))

The Admission Exception

(See UCC §2-201(3)(b))

The “Payment or Delivery and Acceptance” Exception

(See UCC §2-201(3)(c))

Example I-B (modification)

Party A sends a written offer to Party B requesting 10,000lbs of potatoes, packed in 1000 x 10lb bags, at $3 per bag, delivery in one week. Two days later, Party A calls Party B asking it to instead send 500 x 20lb bags, at $6 per bag. One week later, Party B sends 1000 x 10lb bags of potatoes.

  • Under the UCC, a court relying on the four corners rule may not enforce the amendment.
  • Under the CISG, this contract is enforceable if Party A can prove the modification was requested (offered) and accepted…

For a complete version of Prof. Daimsis article, please click here.

We recognize that this will likely generate some discussion and look forward to answering your questions in future Solutions blogs.