March 6, 2008 Los Angeles, USA International Law Section Los Angeles County Bar Association

1. What Every Attorney Should Know About the Convention on Contracts for the International Sale of Goods (CISG) March 6, 2008 Los Angeles, USA International Law Section Los Angeles County Bar Association Presenters Bryan D. Hull, Professor of Law, Loyola Law School Edwin M. Smith, Leon Benwell Professor of Law, USC Gould School of Law Moderator Jeffery J. Daar, Daar & Newman

2. Background of the CISG • Promulgated by UNCITRAL in Vienna, Austria in 1980 (thus often called the Vienna sales convention) • Ratified by the U.S. in 1986 • Adopted by 70 nations • For a complete listing of nations that have adopted the CISG, see www.uncitral.org

3. The CISG Is The Law Of California • Under the Supremacy Clause of the U.S. Constitution, California is obligated to apply the terms of the CISG as a U.S. treaty. “This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land." (U.S. Const. art.VI, cl. 2.)

4. Is the Transaction w/i the scope of the CISG? • Under U.S. version of CISG, it applies to sales of goods where each party is in a different nation that has adopted the CISG, unless excluded • For example, if Buyer is located in U.S. and Seller is located in China, the CISG applies unless excluded

5. Exclusions From the CISG • Consumer purchases - for "personal, family or household use” unless the Seller had no reason to know they for personal/ family use • Auctions • Execution or other sales under legal process • Sales of commercial paper, securities or currency, investment securities, or negotiable instruments • Sales of vessels, hovercraft or aircraft & electricity • Sales of specially fabricated goods for which a substantial part of the input materials are supplied by the buyer. • Contracts under which the preponderant part of the obligations of the supplier of goods consists in the supply of labor or other services. • Seller's liability for death/personal injury caused by the goods

6. The CISG Does Not Cover All Issues • Does not cover issues of validity (e.g. mistake or unconscionability) • Does not cover questions of title • Such questions are resolved by domestic law determined under choice of law principles

7. Courts Have Applied The CISG As The Law Of California • In Asante Techs. v. Pmc-Sierra, Inc. (N.D. Cal 2001) 164 F. Supp. 2d 1142 (hereafter Asante), the court applied the CISG to a sales contract holding that the CISG applies to a contract governed by California law unless the parties affirmatively opt out of the CISG. The court stated as follows: • “Thus, under general California law, the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG, . . . , the Court rejects Plaintiff's contention that the choice of law provisions preclude the applicability of the CISG.” [Emphasis added.] (Id. at p. 1150.)

8. Parties May Opt Out of CISG in Whole or In Part • U.S. courts have held that an exclusion of the CISG under Article 6 must beexpress and that a choice-of-law clause selecting the law of a CISG contracting state is not sufficient to exclude the CISG. In Asante, the court specifically held that a choice-of-law clause selecting the laws of the State of California did not exclude the CISG: • “California is bound by the Supremacy Clause to the treaties of the United States . . . . Thus, under general California law, the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG . . . the Court rejects Plaintiff’s contention that the choice of law provisions preclude the applicability of the CISG.” [Emphasis added.] (Id. at p. 1150.) • (See also BP Oil, 332 F.3d at 337 (“Given that the CISG is Ecuadorian law, a choice of law provision designating Ecuadorian law merely confirms that the treaty governs the transaction.”); Ajax Tool Works, Inc. v. Can-Eng Manu. Ltd., , (N.D. Ill. 2003) WL 223187 at *3 (“[A]lthough the parties have designated Ontario law as controlling, it is not the provincial law of Ontario that applies; rather, because the CISG is the law of Ontario, the CISG governs the parties’ agreement.”).)

9. Contract Formation - The Offer • Do we have an offer? Article 14 • Is the offer revocable? Article 16 • “We expect to hear from you by 10 June”

10. Contract Formation - The Acceptance • Effective upon receipt by offeror (no “Mailbox rule”) • Must be no “material variation” between offer & acceptance • Assume acceptance contains arbitration clause and offer is silent on the issue • Arbitration is a material term under Article 19 • Contract may be formed by performance under Article 18

11. Writing Requirements • Generally, no statute of frauds under CISG. Article 11 • Parties may provide for no oral modifications. Article 29 • Contracting states may make a declaration under Article 96 that Article 11 does not apply (e.g. Argentina, Chile, China).

12. No parol evidence rule in the CISG • Article 8 of the CISG provides that evidence of prior negotiations is relevant to show the meaning of a contract • Parties can by contract derogate from the CISG, so could include a clause saying no evidence of any prior agreement is admissible

13. Parties may disclaim warranty liability under CISG • No specific rules for disclaimers under Article 35 relating to warranties or Article 74 relating to remedies • CISG does not pass on questions of validity according to Article 4 • Applicable domestic sales law may permit an argument of unconscionability in some cases

14. Concept of “Fundamental Breach” • injured party may avoid contract if breach fundamental (no “perfect tender rule”) • defined in Article 25: substantial deprivation of expectation that was reasonably foreseeable as a result of breach • parties may wish to define situations of fundamental breach

15. Nachfrist Notice • injured party may give other party an extended period of time to perform • if breaching party does not perform during that time, contract may be avoided • nachfrist period must be reasonable

16. Specific Performance Under the CISG • buyer's general rights to specific performance, • "The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.” Art 46(1) • seller's specific relief • "The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement." Article 62 • Court may apply domestic law standards under Article 28 and refuse specific performance

17. CISG Remedies • Article 74 provides rule awarding expectation damages • Consequential damages awarded if foreseeable as possible consequence of breach • Buyer may reduce price under Article 50 if goods non-conforming • Parties may craft their own remedies • Interest may be awarded under Article 48

18. Research Tools • Regard must be had for CISG’s international character. See Article 7 • Non-U.S. sources are thus important • Many materials are contained at www.cisg.law.pace.edu.