Do the UCC or CISG Govern your Global Contracts?

In the US, the Uniform Commercial Code (“UCC”) simplify laws of commercial transactions between states.  But, sometimes, parties to international goods contracts improperly assume the UCC authority governs their international transaction as well.  But, article 2 of the UCC governs the contractual sale of goods to US domestic transactions, not international agreements.  

The default law for the contractual international sale of goods is the United Nations Convention on Contracts for the International Sale of Goods (“CISG”).  Over seventy-five countries, including the US, have adopted the CISG as their international sales law.  But to be clear, the CISG applies only to sales of goods between parties in countries that have adopted the CISG. For example, the CISG would be valid where there is a contract for the purchase of widgets between a German seller and a US buyer.  This default authority is because (1) the contract is for the sale of goods, and (2) the parties are in different countries that have signed on to the CISG Convention.

Here is another crucial piece of information—the CISG is a self-executing treaty (law), so it is binding in U.S. courts.  So, to recap, the CISG automatically supplies the fundamental governing law to businesses transacting in different participating countries—not the UCC.  

Why does this matter?  It is because the CISG, being a treaty, confers federal subject-matter jurisdiction—meaning if a claim arises between the parties to the contract, your case can be heard in federal court—straight away.  Moreover, there is no amount in controversy limit (otherwise $75,000+) and the requirement for complete diversity of citizenship is irrelevant, among other important reasons. Additionally, when applying the CISG to an international sale of goods contracts, the shrewd businessperson should, generally, include the appropriate CISG language. Further, it is also prudent to add a "gap filler" law to supplement issues not resolved by the CISG.  Being proactive during the contract formation phase can save time and money. Still, more importantly, it may provide contracting parties a sense of increased certainty—give us a call for further details.

But what if you want the UCC to govern your international sale of goods contract.  Is there a way around this default law?  Yes, there is.  Parties can expressly opt-out of the CISG.  A well-drafted choice of law clause can effectively prohibit or guarantee the application of the CISG over an international sale of goods contracts.

To conclude, while there are substantive differences among the UCC and the CISG, the CISG changes the rules of engagement on the substantive laws for the international sale of goods. If you have questions, BridgehouseLaw is here to provide answers and clarity and to assist in drafting your contracts.