Alphabet Soup: How the UCC, CISG, Alphabet Soup: How the UCC, CISG, UNIDROIT Principles, Incoterms, UNIDROIT Principles, Incoterms,

UETA, E-SIGN, and the U.N. UETA, E-SIGN, and the U.N. Electronic Commerce Convention Electronic Commerce Convention Interact in International Sales of Interact in International Sales of

GoodsGoods

ABA Section on Business LawABA Section on Business Law

Uniform Commercial Code CommitteeUniform Commercial Code Committee

August 12, 2007August 12, 2007

The Law Governing The Law Governing International Sales of GoodsInternational Sales of Goods

Keith A. RowleyKeith A. RowleyProfessor of Law, William S. Boyd School of Law, Professor of Law, William S. Boyd School of Law,

University of Nevada Las VegasUniversity of Nevada Las Vegas

andand

Charles E. Tweedy, Jr. Visiting Chairholder in Law, The Charles E. Tweedy, Jr. Visiting Chairholder in Law, The University of Alabama School of LawUniversity of Alabama School of Law

krowley@law.ua.edu or or keith.rowley@unlv.edu

Scope of UCC Article 2Scope of UCC Article 2

• § 2-102: Article 2 governs § 2-102: Article 2 governs transactionstransactions (other than those intended solely for (other than those intended solely for security) in goods.security) in goods.

• § 2-106(1): Article 2 governs present or § 2-106(1): Article 2 governs present or future future salessales (passing title from the seller (passing title from the seller to the buyer for a price) of goods.to the buyer for a price) of goods.

UCC § 2-105(1)UCC § 2-105(1)

““GoodsGoods” means all things (including specially ” means all things (including specially manufactured goods) which are movable at the manufactured goods) which are movable at the time of identification to the contract for sale time of identification to the contract for sale other than the money in which the price is to other than the money in which the price is to be paid, investment securities (Article 8) and be paid, investment securities (Article 8) and things in action. “Goods” also includes the things in action. “Goods” also includes the unborn young of animals and growing crops unborn young of animals and growing crops and other identified things attached to realty as and other identified things attached to realty as described in [§ 2-107].described in [§ 2-107].

““Mixed” ContractsMixed” Contracts

Courts determine whether UCC Article 2 governs Courts determine whether UCC Article 2 governs a transaction or dispute involving a contract for a transaction or dispute involving a contract for goods and either non-goods personal property or goods and either non-goods personal property or services using one of two tests:services using one of two tests:

• Predominant purposePredominant purpose

• Gravamen of the actionGravamen of the action

CISG art. 1CISG art. 1

(1)(1) This Convention applies to contracts of sale of goods This Convention applies to contracts of sale of goods between parties whose between parties whose places of businessplaces of business are in are in differentdifferent States: States:

(a) when the States are (a) when the States are Contracting StatesContracting States …. ….

(2)(2) The fact that the parties have their places of business in The fact that the parties have their places of business in different States is to be disregarded whenever this fact different States is to be disregarded whenever this fact does not appear either from the contract or from does not appear either from the contract or from any dealings between, or from information disclosed any dealings between, or from information disclosed by, the partiesby, the parties at any time before or at the conclusion at any time before or at the conclusion of the contract….of the contract….

CISG art. 10CISG art. 10

(a) if a party has more than one place of business, the (a) if a party has more than one place of business, the place of business is that which has the place of business is that which has the closest closest relationship to the contract and its performancerelationship to the contract and its performance , , having regard to the circumstances known to or having regard to the circumstances known to or contemplated by the parties at any time contemplated by the parties at any time before or at before or at the conclusion of the contractthe conclusion of the contract;;

(b)(b) if a party does not have a place of business, reference if a party does not have a place of business, reference is to be made to his habitual residence.is to be made to his habitual residence.

CISG art. 2(a)CISG art. 2(a)

This Convention This Convention doesdoes notnot apply to sales of apply to sales of goods bought for goods bought for personal, family or personal, family or household usehousehold use, unless the seller, at any time , unless the seller, at any time before or at the conclusion of the contract, before or at the conclusion of the contract, neither knew nor ought to have known that the neither knew nor ought to have known that the goods were bought for any such use ….goods were bought for any such use ….

CISG art. 23CISG art. 23

A contract is A contract is concludedconcluded at the moment when at the moment when an acceptance of an offer becomes effective in an acceptance of an offer becomes effective in accordance with the provisions of this accordance with the provisions of this Convention.Convention.

CISG art. 18(2)-(3)CISG art. 18(2)-(3)

An acceptance of an offer An acceptance of an offer becomes effectivebecomes effective at at the moment the indication of assent (by return the moment the indication of assent (by return promise or performance) reaches the offeror…. promise or performance) reaches the offeror…. within the time [the offeror] has fixed or, if no within the time [the offeror] has fixed or, if no time is fixed, within a reasonable time ….time is fixed, within a reasonable time ….

CISG art. 2(b)-(f)CISG art. 2(b)-(f)

The CISG The CISG doesdoes notnot apply to sales: apply to sales:

• by auction;by auction;

• by authority of law;by authority of law;

• of stocks, shares, investment securities, of stocks, shares, investment securities, negotiable instruments, or money;negotiable instruments, or money;

• of ships, vessels, hovercraft, or aircraft;of ships, vessels, hovercraft, or aircraft;

• of electricity.of electricity.

CISG Art. 3(2)CISG Art. 3(2)

The CISG “does not apply to contracts in The CISG “does not apply to contracts in which the which the preponderant partpreponderant part of the of the obligations of the party who furnishes the obligations of the party who furnishes the goods consists in the supply of labor or other goods consists in the supply of labor or other services.”services.”

CISG Art. 3(1)CISG Art. 3(1)

The CISG The CISG doesdoes apply to contracts “for the apply to contracts “for the supply of goods to be manufactured or supply of goods to be manufactured or produced … produced … unlessunless the party who orders the the party who orders the goods undertakes to supply a substantial part of goods undertakes to supply a substantial part of the materials necessary for such manufacture or the materials necessary for such manufacture or production.”production.”

Contracting State ReservationsContracting State Reservations

A country that is a party to the CISG may A country that is a party to the CISG may declare that it is not bound by one or more declare that it is not bound by one or more provisions of the CISG -- most commonly:provisions of the CISG -- most commonly:

• the formation rules (Arts. 13-24);the formation rules (Arts. 13-24);

• Article (1)(1)(b); andArticle (1)(1)(b); and

• Articles 11 and 29 and those formation rules Articles 11 and 29 and those formation rules that recognize the validity of oral offers, that recognize the validity of oral offers, acceptances, agreements, and modifications.acceptances, agreements, and modifications.

Scope of the CISG: RecapScope of the CISG: Recap

Subject to a valid reservation, the CISG applies to sales Subject to a valid reservation, the CISG applies to sales of goods between parties whose places of business or of goods between parties whose places of business or habitual residences are in two Contracting States, habitual residences are in two Contracting States, unlessunless

(a)(a) either party doesn’t know or have reason to know either party doesn’t know or have reason to know that the other party’s place of business is in another that the other party’s place of business is in another country;country;

(b) the buyer is purchasing the goods for personal, (b) the buyer is purchasing the goods for personal, family, or household use and the seller knows or has family, or household use and the seller knows or has reason to know the buyer’s intended use of the goods or reason to know the buyer’s intended use of the goods or the sale is excluded by Article 2(b)-(f); orthe sale is excluded by Article 2(b)-(f); or

(c) the seller is primarily supplying labor or other (c) the seller is primarily supplying labor or other services, to which the goods provided are incidental.services, to which the goods provided are incidental.

Contracting Out of the CISGContracting Out of the CISG

• Article 6 permits the parties to “exclude the Article 6 permits the parties to “exclude the application of [the CISG] or, subject to article application of [the CISG] or, subject to article 12, derogate from or vary the effect of any of 12, derogate from or vary the effect of any of its provisions.”its provisions.”

• With one exception, U.S. courts have With one exception, U.S. courts have consistently required the parties to expressly consistently required the parties to expressly disavow the CISG; simply choosing the disavow the CISG; simply choosing the domestic law of a jurisdiction will not suffice.domestic law of a jurisdiction will not suffice.

CISG vs. UCCCISG vs. UCC

• American Mint LLC v. GOSoftware, Inc.American Mint LLC v. GOSoftware, Inc., 2006 , 2006 WL 42090 (M.D. Pa. Jan. 6, 2006)WL 42090 (M.D. Pa. Jan. 6, 2006)

• TeeVee Toons, Inc. v. Gerhard Schubert GmbHTeeVee Toons, Inc. v. Gerhard Schubert GmbH , , 2006 WL 2463537 (S.D.N.Y. Aug. 23, 2006)2006 WL 2463537 (S.D.N.Y. Aug. 23, 2006)

• American Biophysics Corp. v. Dubois Marine American Biophysics Corp. v. Dubois Marine SpecialtiesSpecialties, 411 F. Supp. 2d 61 (D.R.I. 2006), 411 F. Supp. 2d 61 (D.R.I. 2006)

““Scope” of the UNIDROIT PrinciplesScope” of the UNIDROIT Principles

The Principles The Principles shallshall be applied if the parties have be applied if the parties have expressly agreedexpressly agreed the Principles will govern their the Principles will govern their contract and contract and maymay be applied: be applied:

• if the parties have agreed that general principles of if the parties have agreed that general principles of law, including law, including lex mercatorialex mercatoria, will govern their , will govern their contract;contract;

• if the parties have not chosen governing law;if the parties have not chosen governing law;

• to interpret or supplement uniform law to interpret or supplement uniform law instruments, such as the CISG.instruments, such as the CISG.

UNIDROIT Principles art. 1.4UNIDROIT Principles art. 1.4

Nothing in the Principles shall restrict the Nothing in the Principles shall restrict the application of mandatory rules, whether application of mandatory rules, whether national [e.g., UCC], international [e.g., CISG] national [e.g., UCC], international [e.g., CISG] or supranational origin, which are applicable in or supranational origin, which are applicable in accordance with the relevant rules of private accordance with the relevant rules of private international law.international law.

Incoterms 2000Incoterms 2000

• The CISG is silent on transportation terms (e.g., The CISG is silent on transportation terms (e.g., “F.O.B.”). The International Chamber of Commerce “F.O.B.”). The International Chamber of Commerce periodically publishes Incoterms, which define the periodically publishes Incoterms, which define the commercial delivery terms most commonly used by commercial delivery terms most commonly used by parties to international sales contracts.parties to international sales contracts.

• Several U.S. courts have treated Incoterms as a trade Several U.S. courts have treated Incoterms as a trade usage of which the parties to a contract otherwise usage of which the parties to a contract otherwise governed by the CISG were or should have been governed by the CISG were or should have been aware when they made a contract including one or aware when they made a contract including one or more terms defined by Incoterms.more terms defined by Incoterms.

Harmonic ConvergenceHarmonic Convergence

• CISG art. 9(b) (“The parties are considered, unless CISG art. 9(b) (“The parties are considered, unless otherwise agreed, to have impliedly made applicable otherwise agreed, to have impliedly made applicable to their contract … a usage of which the parties to their contract … a usage of which the parties knew or ought to have known and which in knew or ought to have known and which in international trade is widely known to, and regularly international trade is widely known to, and regularly observed by, parties to contracts of the type ….”)observed by, parties to contracts of the type ….”)

• UNIDROIT Principles art. 1.9(2) (“The parties are UNIDROIT Principles art. 1.9(2) (“The parties are bound by a usage that is widely known to and bound by a usage that is widely known to and regularly observed in international trade by parties in regularly observed in international trade by parties in the particular trade concerned ….”)the particular trade concerned ….”)