Differences between CISG and Article 2 of the Uniform Commercial Code (UCC)

Differences between CISG and Article 2 of the Uniform Commercial Code (UCC)

Introduction

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is a charter that offers a uniform law in international sales. It allows traders to avoid the procedural stages in litigation cases where there is a conflict of laws and it is necessary to reconcile these different jurisdictions.

The Uniform Commercial Code (UCC) on the other hand is one of several uniform Acts that were promulgated in efforts to harmonize the law of sales and other commercial transactions in all the states of the United States of America. This is with the full knowledge that commercial dealings are prevalent well beyond the jurisdiction of one state. Article 2 of the UCC specifically deals with the sale of goods.

There are several differences between CISG and Article 2 of the UCC and each provides for what should be included in international contracts.

Applicability

It is true that the CISG does not apply to transactions that are purely domestic. Its scope is however quite significant. This is because in the United States, where international commercial transactions are involved, it replaces a major part of the UCC. While the CISG does not apply to purely domestic transactions, its scope is quite significant, given that it replaces a keystone of the code involving the sale of goods, Article 2.

One noteworthy difference between the UCC and the CISG is that while the UCC applies to both commercial and consumer transactions, the CISG excludes, specifically, consumer sales from its provisions. Also excluded from the CISG are the goods that have been purchased through auctions, aircrafts, ships, electricity, securities and contracts of service.

Formation of a Contract

The CISG is partly based on the traditions of common law but influences of civil and socialist law have found their way into it. This blend of laws has led to there being provisions and principles in it are very different from the provisions of the UCC. For instance, under the rules of common law, a contract is valid if it has the following elements: it is entered into by mutual assent; there is sufficient consideration; the parties making it have the legal capacity to enter into it; and if it is not an illegal contract or for an illegal purpose.

Therefore, a contract is generally void if any of the above elements are missing. The CISG on the other hand, provides for only the formation of the contract of sale and the rights of both the seller and the buyer arising from that contract. It is therefore not concerned with the validity of the contract as it is, unlike the UCC which provides for these under Article 2-201 to 2-205. So, factors such as where a person is induced into a contract fraudulently, lack of capacity to enter into a contract or where the domestic law prohibits the sale of goods of a specified nature are not provided for under the CISG. Additionally, the formation of a contract under the CISG does not require that consideration be present.

Offer and Acceptance

The provisions as to offer, invitation to treat, counter offer and acceptance are governed by article 14 – 22 of CISG and 2-206 to 2-210 of the UCC.

In international transactions, contracts can also be formed where there is an exchange of orders that are confirmed or accepted through the exchange of forms that have small print terms that are in themselves conflicting. The CISG provides that an acceptance that has modifications is as good as a counteroffer. Unless the offeror does not object and the modifications themselves do not fundamentally change the terms of the original offer.

Where the offeror has not objected verbally without delay, the terms, the CISG states, become those of the offer as modified by the acceptance. This therefore means that they will be binding unless the changes are so fundamental or objected to. Under both common and civil law, this is known as “battle of the forms.”

To some extent, the UCC is almost consistent with these provisions of the CISG. However, the UCC endeavors to maintain the original intention of the parties to the contract where it is agreed that only minor differences exist. It should be noted however, that this provision only applies as to between merchants and merchants and not merchants and consumers. Additionally, under the provisions of the UCC, a purported acceptance that contains additional terms or terms that are different and will fundamentally change the contract are considered to be counteroffers. This therefore means that there would be no contract unless the offeror now accepted all the terms that have been made in the counteroffer.

Other provisions differences also exist. For example, under the UCC, the law recognizes that when an offer has been made by mail, the time of acceptance is when the acceptance has been mailed. The CISG on the other hand takes a different position. Under the CISG, an offer is accepted only at the moment it is received.

Another fundamental difference between these two laws is that the CISG limits a party the contract’s ability to withdraw a contract that is irrevocable. The UCC on the other hand, provides that offers can generally be revoked as long as they have not yet been accepted.

The mode of acceptance also illustrates another major difference between the two set of laws. Generally, there is no contract until the offer has been accepted. On one hand the CISG provides that an acceptance as long as it takes any form of statement or action by the offeree that suggests he has intention to be bound to the contract, it will be good. On the other, common law provides that the mode for which the acceptance is made must be as specified by the offeror and if not specified, it must be in a mode that would, under those circumstances, be appropriate.

Obligations of the Seller and Passing of Risk

The provisions as to the delivery of goods, quality, quantity and description of goods are under article 35 of the CISG and 2-301 to 2-328 of the UCC. The provisions as to the passing of risk are in article 67 of the CISG and 2-401 to 2-403 of the UCC.

There is always an imposed duty of the seller or supplier as to the quality and fitness of the goods or services supplied.The CISG provides that the buyer must examine the goods as soon as it is practically possible and bring to the sellers attentions any lack of conformity with the requirements he had. If there be any defect, the buyer must notify the seller within reasonable time after delivery has been made or at least within two years.

Where the buyer fails to examine the goods or complain about them, he forfeits the right to reject them or claim damages or a reduction in price. It should be noted that the notice must be sufficient enough to specify the defects that are being complained of. Under the UCC, the same provisions apply although the duration of time is relatively shorter. It thus allows the buyer to refuse delivery of goods that are defective or that do not conform to the order.

Breach and Damages for Breach

Article 71-73 of the CISG and article 2-601 to 2-616 of the UCC provide for breach of the contract for sale, while article 74-77 of the CISG and 2-701 to 2-710 of the UCC provides for damages.

The CISG allows the buyer to sue for the breach of contract. However, this right is very limited. Where the contract has been fundamentally breached, the buyer may reject goods and require that substitute goods be delivered. However, the result of the breach must be of such a contractual detriment that it will substantially deprive him of the goods. Additionally, it allows the seller to correct performance as long as there is no unreasonable delay or inconvenience the buyer. The buyer may also avoid the contract if even after notification in reasonable time; the seller still does not perform. The CISG also affords the seller protections from a potential financial incapacity of the buyer. He may, after sending a notice, suspend the delivery of the goods or prevent their release if it is apparent that the buyer may be unable to pay. He must however deliver if there has been an assurance to pay.

Under the UCC on the other hand, a buyer has the right to terminate a contract as long as a condition has been breached. This is regardless of the fact that it may be a minor breach. In addition, the seller has no right to withhold delivery whatsoever simply because he is afraid that the buyer may not pay, unless this is expressly provided for in the contract.

References

United Nations Convention on Contracts for the International Sale of Goods (1980) [CISG]. 52 Federal Register 6262, 6264-6280 (March 2, 1987); United States Code Annotated, Title 15, Appendix (Supp. 1987).

The American Law Institute and the National Conference of Commissioners on Uniform State Laws (1998) .Uniform Commercial Code Article 2 – Sales.