Is your company purchasing or importing goods made in China? If you are having a dispute with your exporter from China, you should be mindful of the rules that govern international transactions.
The rules concerning the sale of goods are typically governed by Article 2 of the Uniform Commercial Code. However, when dealing with international transactions, the rules are governed by an international convention: The United Nations Convention on Contracts for the International Sale of Goods (CISG).
CISG is a treaty ratified by ninety-five countries, including the United States and China, that establishes a framework for international commerce. Two notable countries that have not ratified the CISG are India and the United Kingdom. There are a number of differences between the UCC and the CISG as it relates to transactions for goods.
Differences Between UCC and CISG
First, the UCC covers any sale of goods, whereas the CISG excludes goods for personal or household purposes as well as sales of stock, goods sold at auction, or goods of electricity.
Second, the UCC requires that any contract for goods over $500 be in writing; what’s known as the statute of frauds. The CISG, however, does not require contracts be in writing. The CISG also allows for the oral modification of agreements.
Third, the UCC and CISG differ as to what constitutes an offer. Under the UCC, an offer is made by inviting acceptance in any manner and doesn’t need to include a price. Under the CISG, however, an offer is made when “sufficiently definite,” which consists of both quantity and a price.
Fourth, the UCC and CISG also differ when it comes to the acceptance of goods. Under the UCC, the mailbox rule applies, meaning the acceptance is valid when sent by the offeree. Under the CISG, acceptance is made when it reaches the offeror.
More importantly, the UCC and CISG differ in what remedies purchasers have when it comes to deliveries that are either defective or late. Under the UCC, purchasers can utilize the perfect tender rule, meaning they should expect to receive exactly what they ordered. Under this rule, if a portion of the delivery is defective, the buyer may reject the delivery, in whole or in part that was defective, or they may accept the entire delivery.
For example, under the UCC, if you ordered 1,000 cell phones and after inspection 52 are defective, you, as the buyer, have the right to reject the whole shipment or just the 52 defective phones.
The CISG only lets buyers reject the goods if there is a fundamental breach, one “that results in such detriment to the buyer as to substantially deprive him of what he is entitled to expect.” Using the example above, you would only have the right to reject if say you ordered 1,000 cell phones and received 1,000 radios, a completely different product.
Further, the remedy of specific performance is more readily available under the CISG than the UCC. Specific performance is a contractual remedy that grants the aggrieved party the original goods ordered, as opposed to monetary compensation. Under the UCC, specific performance may be granted by a court for a breach only when the goods are “unique,” whereas, under the CISG, an affected buyer may resort to specific performance, even when monetary compensation would have been adequate.
Finally, there is the issue of damages. The UCC defines damages as either incidental or consequential. However, the CISG’s focus is on the foreseeability of damages. The CISG does not allow for punitive damages or liquidated damages.
While the CISG allows for interest, the interest rate is determined by the law of the forum where the case is brought. Also, U.S. courts have ruled the attorney’s fees are not recoverable under the CISG. The law of the state where the venue of the case is brought will determine whether attorney’s fees may be awarded.
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