October 27th, 2014 By Virtual Paralegal Services

There are two bodies of law that govern international contracts: the Uniform Commercial Code (“UCC”) of America and the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), which is an international body of law. It is important to know and understand a client’s business goals to better represent them regarding corporate contracts. And, as such, it is imperative to know which rule of law will govern their business.

UCC vs. CISG

The UCC is applicable when the transaction involves a sale of goods where U.S. law applies. It is applied automatically during sales of goods. In contrast, the CISG is applicable in commercial transactions of goods between the parties in signatory nations. These parties have the ability to modify the UCC in an international context. The most significant difference between the UCC and CISG is that the latter allows its parties to opt out of the convention. In order for the opt-out choice to be effective, both parties must opt out and both parties must clearly specify an alternate choice of law.

Both are only applicable during sale of goods. The CISG does not apply to service contracts; however, it does apply to a mixed contract of goods and services. Also, consumer goods are not regulated by the CISG, but are regulated by the UCC. The CISG will not cover certain items such as goods bought by auction, shares of stock, investment securities, sales of aircraft, and sales of electricity.

Similarities between UCC and CISG

Both UCC and CISG provide a Warranty of Merchantability (goods are fit for their ordinary purpose) and Warranty of Fitness for a Particular Purpose (goods are conformed to the purpose made known to the seller, where buyer reasonably relies on seller’s skill and judgment in choosing goods).

In the event of contract ambiguities, both the UCC and CISG allow for similar methods of interpretations. The court, or dispute resolution body, will look at either the course of dealing between the parties (previous contracts); course of performance (the parties interactions throughout the current contract); or the usage of trade terminology (how other parties in similar industries act).

Available Remedies under UCC and CISG

Although both codes use different words, they allow for similar remedies. In the event of a breach the non-breaching party has the right to purchase alternative or replacement goods. Consequential damages are available. The buyer has the right to receive the difference in the price paid minus the value of goods received from the seller. Finally, the seller has the right to force the buyer to pay, take delivery, or perform its obligations under the contract.

Damages and the Foreseeability Requirement

When a party alleges there was a breach to the contract, the CISG allows for recovery only in cases where the damages were foreseeable. However, under the CISG, the foreseeability requirement is much more relaxed than under the UCC, thereby allowing for greater recovery for the non-breaching party. The CISG only requires that the consequences of the breach be possible at the time of contract formation. In contrast, the UCC requires the breaching party to know or have reason to know of the potential consequences.

Do you have questions about contracts? Contact us today to find out how we may best serve your needs!

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