The Law of Global Distribution: Selling products in the flat worldBy Matthew Blackwell
Imagine that you've unveiled a new product line. It's a huge success and companies from locations all over the world are approaching your firm eager to buy these new gadgets.
Next, consider that you have done your homework and understand basic contact law related to sales under the Uniform Commercial Code (UCC), but have no idea what kinds of laws apply in some of the foreign countries where your new product is in demand.
That means it's time to read the United Nations Convention on Contracts for the International Sale of Goods (UN CISG), which was created to promote international trade through standardization. Standardization of contract terms reduces obstacles and allows parties to have an understanding of the substantive rules of law when negotiating the terms of a contract, including choice of law issues, even if they are not familiar with the foreign contract law.
Read All About It
The UN CISG governs sales contracts, especially in providing interpretation and gap filling measures, between parties in countries that are signatories of the convention. The UN CISG was originally signed in 1980 and went into effect in 1988, and now has a total of 67 signatory counties. The UN CISG, in an international context, works much like the sales portion of the UCC does in domestic transactions, with the exception of a few important distinctions.
Although the UN CISG and UCC are very similar, one difference is that the UN CISG requires the parties to specify the price of the goods involved in a transaction. Under the UCC, if the parties fail to specify the price, a reasonable price will be later determined. With the UN CISG, a contract without price would fail due to indefiniteness. The UN CISG and UCC diverge on the requirement of contracts in writing. The UCC requires that if a contract for the sale of goods is more than $500, the contract must be in writing, unless it is conceded that there was indeed a contract or if the goods have been accepted and payment made. The UN CISG, on the other hand, has no requirement for writing.
One Way or Another
Under contract law, the moment of acceptance of the offer is an important issue. For example, if the buyer accepts an offer by mailing an acceptance to the seller, but the acceptance is lost in the mail, and the seller sells the product to another buyer, is there a contract between seller and the original buyer?
Under the UCC, acceptance occurs when notice of acceptance is mailed or otherwise transmitted. So under the UCC there is a contract between the original parties. However, the UN CISG recognizes acceptance when the party offering the goods for sale actually receives notice. In this example, under the UN CISG, there would not be a contract between the original parties.
A party offering goods for sale may want to later change its mind and revoke the offer. With the UCC, an offer is only irrevocable when there is a signed document stating that the offer will remain open to the buyer. The UN CISG makes an offer irrevocable when there is a fixed time period available for acceptance, not necessarily in writing; if the offeree reasonably relies on the offer as being irrevocable; or there is some other indication that the offer is irrevocable.
The final major difference between the UN CISG and UCC relates to how to deal with the differences in the terms that arise during a reply to an offer with additional or different terms.
The UN CISG would consider a reply to an offer with changes to be a counter offer, and hence, a rejection of the original offer. At such point, the offeree would no longer have the power of acceptance. The UCC takes a more liberal approach and there would only be a rejection if the new terms were conditioned upon acceptance.
Know the Rules
The UN CISG applies to international sales contracts that have a minimum contact with a signatory country. The parties to the contract must have a place of business in different countries, but there is no requirement that the goods actually are shipped between the two countries. Also, the parties to the contract must be aware that the transaction is international.
If the contract is between a party in one signatory country and a party in a non-signatory country, the UN CISG applies if the choice of law would otherwise be in the signatory country. The United States built in its own reservation that requires that the UN CISG only apply when a transaction is between parties in the United States and another signatory country.
If the parties to a transaction governed by the UN CISG do not want it to apply, they must expressly opt out of its application. An opt out provision must make it clear that the parties do not want the UN CISG to apply to their transaction and have chosen the law that would not allow the UN CISG to govern.
The implication to your business is that with international sales of goods, the UN CISG may apply and it is important to understand your rights and obligations. It is also important to know whether it is better to opt out of the UN CISG or to be subject to its terms.