Contracting in the Global Marketplace:  The UN Conventions on Contracts for the International Sale of Goods and the Limitation Period in the International Sale of Goods

By Anita C. Esslinger and Updated by Margaret Niles and Carmen Butler n1

September 2005; October 2005

I. Introduction and Background
The United Nations Convention on Contracts for the International Sale of Goods n2 (CISG) is not merely a codification of the status quo in international trade, but is part of a progressive effort toward harmonizing diverse approaches to international law. As of July 2005, some 65 countries had ratified, approved, accepted, acceded, or succeeded to the CISG. n3 The United Nations Convention on the Limitation Period in the International Sale of Goods, n4 as amended by the Protocol n5 (the "Limitation Convention"), was intended to operate with the CISG as a companion convention. n6 Together, the CISG and the Limitation Convention ("the Conventions") were intended to provide a coherent and internationally recognized body of law to govern agreements between parties involved in the international sale of goods.

n1 Anita Esslinger is with the London office of Bryan Cave LLP. Margaret Niles and Carmen Butler are with the Seattle office of Preston Gates & Ellis LLP.
n2 Reprinted in 19 I.L.M. 671 (1980). The CISG entered into force on January 1, 1988.
n3 These countries are as follows: Argentina, Australia, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Burundi, Canada, Chile, China, Colombia, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Gabon, Georgia, Germany, Ghana, Greece, Guinea, Honduras, Hungary, Iceland, Iraq, Israel, Italy, Kyrgyzstan, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Mongolia, Netherlands, New Zealand, Norway, Peru, Poland, Republic of Korea, Republic of Moldova, Romania, Russian Federation, Saint Vincent and the Grenadines, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syrian Arab Republic, Uganda, Ukraine, United States of America, Uruguay, Uzbekistan, Venezuela, Yugoslavia, and Zambia.
n4 Reprinted in 13 I.L.M. 952 (1974).
n5 Reprinted in 19 I.L.M. 696 (1980).
n6 The Limitation Convention entered into force in August 1988 and was ratified by the United States in 1994.
 
Where applicable, the CISG and the Limitation Convention replace the provisions of the Uniform Commercial Code (UCC) and other national laws governing contracts for the sale of goods, as well as periods of limitations relating to such sales. The UCC and national law would otherwise apply to "international" contracts between private parties in the United States and other ratifying countries. Even where the Conventions would not otherwise apply, contracting parties may generally elect either Convention as a choice of law. Because the CISG and the Limitation Convention are ratified treaties, they form a part of international and United State law. As such, it is imperative that contract drafters appreciate their effects on transactions with parties in other countries.
The purpose of this presentation is to familiarize the reader with the historical background and mechanics of researching under the CISG and the Limitation Convention, as well as with selected substantive issues of interest.
A. Harmonization Efforts
The movement toward a united international commercial code began in Europe more than seventy years ago with the formation of the International Institute for the Unification of Private Law (UNIDROIT) in 1930. UNIDROIT produced its first draft of a commercial code in 1935 before its work was interrupted by World War II. UNIDROIT resumed efforts in 1951 and produced a draft sales law. The UNIDROIT product broke the ice, but was never widely accepted.
In 1964, the United States participated in the Hague Conference that adopted the Uniform Law for the International Sale of Goods (ULIS) n7 and the Uniform Law for the Formation of Contracts (ULF). n8

n7 3 I.L.M. 855 (1964).
n8 3 I.L.M. 864 (1964).
 
In 1966, the United Nations established the United Nations Commission on International Trade Law (UNCITRAL). In 1968, UNCITRAL gave top priority to developing an effective uniform international sales law. Between 1968 and 1978, a group of fourteen nations produced a draft text of the CISG. The United States State Department Advisory Committee Study Group included representatives of corporate, governmental, and academic sectors. In 1980, some 62 nations convened in Vienna to adopt the text. Following the Vienna Convention, signatory states circulated the text for review and ratification.
United States review included hearings before the Senate Committee on Foreign Relations in 1984, ABA review and endorsement, and private sector organized support. Some scattered opposition arose, with one or two individuals testifying against it at Senate Committee hearings. On October 9, 1986, the United States Senate gave its advice and consent to ratify the CISG. The requisite number of ratifications was obtained in 1986, and the CISG entered into force on January 1, 1988.
Some of the states that are parties to the CISG ("Contracting States") may be highly influential models for others that are still considering ratification: the United States and Russia are world trade leaders, China is a leader among developing countries, and Italy and France employ prominent civil code systems. Many of the former Eastern bloc countries have now joined in ratifying the CISG and the Limitation Convention. Fifteen African countries participated in a workshop held by UNCITRAL during the summer of 1988. As of July 1, 2005, Burundi, Gabon, Ghana, Guinea, Lesotho, Mauritania, Uganda, and Zambia were parties to the CISG.
The CISG does not set a time limit within which a claim must be brought for the breach of an international contract for the sale of goods. Accordingly, UNCITRAL developed the Limitation Convention in 1971-1972, and the United Nations approved it in 1974. The Limitation Convention was amended by Protocol in 1980 to make its provisions consistent with those of the CISG. The Limitation Convention and the Protocol entered into force on August 1, 1988. The United States ratified the Limitation Convention in May 1994, and it entered into force in the United States on December 1, 1994.
The Limitation Convention does not enjoy the same widespread acceptance as the CISG, which has entered into force in more than double the number of countries. Eighteen countries (most of which are parties to the CISG) are parties to the Limitation Convention as amended by the Protocol. n9 An additional seven countries are parties to the Limitation Convention, but have not become parties to the Protocol. n10

n9 These countries are: Argentina, Belarus, Cuba, Czech Republic, Egypt, Guinea, Hungary, Mexico, Paraguay, Poland, Republic of Moldova, Romania, Slovakia, Slovenia, Uganda, United States of America, Uruguay, and Zambia.
n10 These countries are: Bosnia and Herzegovina, Burundi, Dominican Republic, Ghana, Norway, Ukraine, and Yugoslavia.
 
B. Sources of Information
The words of the Conventions are an obvious beginning point for interpreting the Conventions. The CISG and the Limitation Convention are published in the six official languages of the United Nations: Arabic, Chinese, English, French, Russian, and Spanish. Each language version has equal import and validity. Copies of the Conventions may be downloaded from the UNCITRAL website. The CISG is available at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html. The Limitation Convention is available at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1974Convention_limitation_period.html. The CISG is also reprinted in the Appendix to Title 15 of the United States Code. n11 Although the Limitation Convention is not reproduced in the United States Code, it does appear in the United States Code Service volume on International Agreements. n12

n11 15 U.S.C.A. app. 53 (1996 Cumulative Annual Pocket Part). Additional information relating to the CISG is available in 22 I.L.M., 1368-80 (1984) and in the United Nations Convention on Contracts for the International Sale of Goods: Report of the Hearing on Doc. 98-9 Before the Senate Committee on Foreign Relations, 98th Cong., 2d Sess. (Apr. 4, 1984).
n12 U.S.C.S. International Agreements 445 (1996).
 
There are no official comments to the CISG (unlike the UCC). However, UNCITRAL has published a Commentary on the Limitation Convention. n13 Preparatory works ("travaux preparatoires") and scholarly articles are also important tools for understanding the policy that supports the Conventions and differences from other laws. Travaux preparatoires are available for each Convention at the websites mentioned above. n14 The seminal scholarly work on the CISG was produced by John Honnold, Emeritus Professor at the University of Pennsylvania and a United States representative in negotiations. n15

n13 U.N. Doc. A/Conf. 63/17 (1974).
n14 For the CISG, see http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html. For the Limitation Convention, see http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1974Convention_limitation_period.html.
n15 John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, (Kluwer Law International, 1982) (hereinafter "Uniform Law for International Sales"). The book covers the history of CISG as well as an article-by-article commentary and analysis. Many commentators compare it with the Official Comments to the UCC.
 
The United States Code Annotated and other federal statutory services do not report cases related to the Conventions. However, the Secretariat of the UNCITRAL collects and publishes information about case decisions applying the various Conventions and Model Laws promoted by it. The system is called Case Law on UNCITRAL Tests ("CLOUT"), and is available at http://www.uncitral.org/uncitral/en/case_law.html. CLOUT provides abstracts in English of all court awards or arbitral decisions reported to it that fall under the CISG.
Together with the CLOUT database, there are two other major reporting services, Pace Law School and UNILEX. Pace Law School maintains an outstanding annotated library for the CISG at www.cisg.law.pace.edu. Also available is a database called UNILEX, compiled by the Centre for Comparative and Foreign Studies. UNILEX arranges CISG cases by date, country, arbitral award, and CISG articles and issues. UNILEX is also online at http://www.unilex.info/. Finally, since 1993 the University of Pittsburgh, Journal of Law and Commerce, has regularly published English translations of some of the more significant foreign court decisions interpreting the CISG. n16

n16 See http://jlc.law.pitt.edu/CISG.html.
 
As of July 2005, United States courts have applied the CISG in at least 37 cases. Although commentators on the CISG have noted that United States courts should consider CISG-related decisions issued by foreign courts, n17 to date few courts have followed this advice. We are unaware of any published United States cases interpreting the Limitation Convention. United States entities appear to have been parties in several foreign cases. n18

n17 Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880, 886 (N.D. Ill. E.D. 2002).
n18 See http://www.unilex.info/cases.cfm?pid=1&do=Country&cr=24.
 
To date there have been over 300 decisions outside the United States where a court or arbitral tribunal has applied the CISG. n19 More than half of those decisions took place in Germany. n20

n19 Id.
n20 Id. At least one United States court has taken note that Germany, a Contracting State since 1991, has made the CISG an integral part of German Law. St. Paul Guardian Ins. Co. v. Neuromed Med. Systems & Support, No. 00 Civ. 9344 (SHS), 2002 U.S. Dist. LEXIS 5096, at *7 (S.D.N.Y. March 26, 2002).
 
C. Interpretations of the Conventions
United States courts have used case law interpreting the UCC as a guide to interpreting analogous sections of the CISG. n21 However, according to the text of the CISG, courts should instead look first to foreign commercial laws and general principals of international law. Specifically, Article 7 of the CISG provides that questions concerning matters governed by the CISG, but not expressly settled by it, "are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."

n21 See Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1024, 1027 (2d Cir. 1995). However, the Second Circuit has cautioned that caselaw interpreting UCC provisions is not "per se applicable." Id. at 1208 (quoting Orbisphere Corp v. United States, 13 C.I.T. 866, 726 F. Supp. 1344, 1355 n.7 (Ct. Int'l Trade 1989)).
 
Both Conventions state as a guiding principle that courts must reflect on the international character of the Conventions and the need to promote uniformity. There is an almost universal view among commentators that United States courts should consider foreign decisions on cases governed by the CISG. n22 However, whether United States will give deference to foreign courts remains an open question. For example, in one often cited case, a United States court held that the consequential damages provisions of the CISG applied. n23 However, when the court calculated the amount of such damages, it used "the standard formula employed by most American courts." n24 If the court had remained true to the "international character" of the CISG, it would have referred to the "foreseeability" language of the CISG or to foreign cases or principles of international law.

n22 See, e.g., Larry A. DiMatteo, The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence, 24 Nw. J. Int'l L. & Bus. 299, 311 (2004) (hereinafter DiMatteo Article); The International Character of the UN Convention on Contracts for the International Sale of Goods: An Italian Case Example, 15 Pace Int'l L. Rev. 437 (2003). At least one commentator has gone so far as to argue that United States federal courts should look to the CISG when interpreting the formation of contracts under the UCC. See, e.g., The On-Sale Bar and the New UCC Article 2: Arguments for Defining a Commercial Offer for Sale Pursuant to the United Nations Convention on Contracts for the International Sale of Goods, 5 N.C.J.L. & Tech. 351 (2004).
n23 Delchi Carrier S.p.A.., 71 F.3d at 1029. For commentary on this case and its use of domestic law, see also Schneider, Consequential Damages in the International Sale of Goods: Analysis of Two Decisions, 16 U. Pa. J. Int' Bus. L. 615 (1995).
n24 Id.
 
Judges may take judicial notice of foreign decisions. However, not all opinions are published in all countries. n25 Stare decisis is not a civil law concept. Because civil law judges are not bound by precedent to the degree that United States judges are bound, there is less incentive to publish opinions. Because of this difference, many civil law courts give only vague descriptions of the facts underlying each case. Consequently, some foreign law cases provide imperfect tools for United States judges who seek guidance from foreign courts.

n25 Another difficulty United States judges have is finding translated foreign decisions. As mentioned above, UNILEX provides a database of cases, all of which are posted in their original language. However, unless a judge is multilingual or uses a translator, he or she probably will not refer to these cases.

 
II. Applicability of the Conventions
A. In General
When a Contracting State ratifies the Conventions, the Conventions generally become a part of that State's laws and will apply automatically to agreements meeting the Conventions' jurisdictional requirements. However, parties to a particular contract may decide to "opt out" of the Conventions.
There are a small number of exceptions to this rule. A Contracting State may choose from a number of derogations to the application of the Conventions. For instance, where two or more Contracting States have the same or closely related legal rules on matters governed by the Conventions, they may agree at any time that the Conventions will not apply to contracts between parties located in those States. n26 Under the same circumstances, a Contracting State and a non-Contracting State may also choose to opt out of the Conventions. n27

n26 CISG, art. 94; Limitation Convention art. 34, as amended by the Protocol.
n27 Id.
 
Under the CISG, a Contracting State may declare that Article 1(1)(b), the "conflict of laws jurisdiction" provision, shall not apply. n28 A similar provision appears in the Protocol to the Limitation Convention. Article XII of the Protocol permits a Contracting Party to declare that it will not be bound by Article I of the Protocol, which added the conflict of laws jurisdiction provision to the Limitation Convention.

n28 CISG, art. 95. But see Valero Marketing & Supply Co. v. Greeni Oy, 373 F. Supp. 2d 475 (2005) (holding that the decision to opt out under Sub 1(b) is only relevant when the trading partners of the Contracting State is in a non-Contracting State; otherwise, even when a Contracting State opts out of Sub 1(b), the CISG will apply to applicable contracts with other Contracting States).
 
Under the Limitation Convention, a Contracting State may declare that the Convention will not apply to actions for annulment of a contract. n29 A Contracting State may also declare that it shall not be bound by Article 24. n30 Article 24 states that expiration of the limitation period shall be taken into account only if invoked by a party to such proceedings. n31

n29 Limitation Convention, art. 35.
n30 Limitation Convention, art. 36.
n31 Limitation Convention, art. 24.
 
The automatic application of CISG and the Limitation Convention can have unexpected results if a party agrees to a contract without realizing that the Conventions will constitute the governing law of the contract. In at least one case involving an American company, the company was surprised to learn that the CISG would apply. When the federal court applied the CISG in accordance with treaty law, it held that the parties must incorporate an arbitration clause from a separate but related contract. The separate contract required arbitration in Russia and barred the American party from initiating a breach of contract suit in New York. n32 This case illustrates the importance of understanding the impact of the Conventions and reviewing and modifying as appropriate "standard" agreement clauses in order to reflect accurately the expectations of the parties.

n32 Filanto S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229 (S.D.N.Y. 1992).
 
Like the UCC, which protects freedom of contract for the parties, both Conventions permit the parties to an international contract for the sale of goods to expressly exclude the Conventions' application. The CISG also allows the parties to derogate from or vary the effect of any of its specific provisions (i.e. to "opt out") in a particular international sales contract. n33 Some United States companies doing international business choose to opt out entirely. In part this may be because they are unfamiliar with the provisions of the Conventions, not because they have analyzed the Conventions' provisions and determined that the provisions are undesirable.

n33 Article 6 of the CISG provides as follows: "The parties may exclude the application of this convention or, subject to article 12, derogate from or vary the effect of any of its provisions." Article 3(2) of the Limitation Convention as amended by the Protocol provides: "This Convention shall not apply when the parties have expressly excluded its application."
 
Parties may also expressly include the Conventions, even where they would not otherwise be applicable. The choice to expressly include the Convention is available wherever applicable law allows the parties to an agreement to make an individual choice of law. In the United States this choice is generally allowed if the choice is reasonable. Scholars have argued that because the CISG is an international treaty with many signatory states, the choice of CISG would probably be viewed as reasonable, at least as it relates to matters covered by the CISG. n34

n34 Uniform Law for International Sales, supra note 14.
 
Finally, some tribunals have also applied provisions of the CISG as "lex mercatoria" (under general principles of private international law) where, for example, no choice of law clause was included in the contract and the jurisdictional bases for applying the Conventions were not present. n35

n35 See Louis F. Del Duca and Patrick Del Duca, Practice Under the Convention on International Sale of Goods (CISG): A Primer for Attorneys and International Traders (Part I), 27 Uniform Comm'l Code L.J. 331, 342 (1995) (discussing cases before the International Chamber of Commerce and the Iran-United States Claim Tribunal) (hereinafter Del Duca Article). See also Unknown Parties, 7331/1994, ICC Court of Arbitration-Paris, France (1994) (UNILEX D. 1994-33) (holding that the CISG applied because it reflected general principles of international commercial practice and adding as an aside that both parties were from Contracting States).
 
1. Jurisdictional Bases for Application of the Conventions
Unless the parties have "opted out" of the Conventions, they will be applied to particular contracts involving the international sale of goods in the following situations:

- The places of business of the parties to the contract are in different Contracting States; or
- The rules of private international law lead to the application of the law of a Contracting State (unless, as is the case with the United States, the Contracting State has declared that it will not be bound by this provision). n36

n36 But see supra note 27.
 
2. Different Contracting States
Article 1(1)(a) of the CISG provides that the CISG applies to contracts of sale of goods between parties whose places of business are in different States when the States are Contracting States.
The Limitation Convention applies to contracts for the international sale of goods "if, at the time of the conclusion of the contract, the buyer and seller have their places of business in different States" and if the parties to such a contract "are in Contracting States." n37

n37 Limitation Convention, arts. 2(a) and 3(1)(a) (as amended by the Protocol).
 
Under these provisions, the Conventions would apply, for example, to the sale of tin cans by an American-based manufacturer, F.O.B. n38 seller's American factory, to a food processor in Mexico City. The buyer and seller are located in different Contracting States. The same is true for an American equipment manufacturer purchasing component parts from the Viennese office of an Austrian engineering/manufacturing firm. The Conventions do not require that the goods actually move across international boundaries. And the nationality of the parties is irrelevant to the determination whether the Conventions apply. n39 Thus, the CISG applies in a case where a United States buyer purchases goods that are already in the United States, but from a seller whose business is in Canada. n40

n38 F.O.B. is an international commercial term that means "free on board." The phrase is a shipment term where the seller is called on to deliver goods to a carrier named by the buyer. F.O.B. provides that when the seller delivers the goods to the named carrier, the buyer will assume all costs and liabilities from there.
n39 CISG, art. 1(3); Limitation Convention, art. 2(e).
n40 See, e.g., Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F. Supp. 2d 1142 (N.D. Cal. 2001).
 
If a party has multiple places of business, the place of business that has the closest relationship to the contract and its performance will generally be treated as that party's place of business for purposes of determining the applicability of the Conventions. n41 This rule may have real implications for a multinational corporation that maintains divisions in more than one country, or for a situation in which parent and subsidiary corporations act as a "single enterprise." Strict application of this rule might produce some strange results. For instance, one could argue that the Conventions might apply to an agreement between two United States parties where the agreement was to be carried out outside of the United States in a country where one United States party had a branch.

n41 CISG, art. 10(a); Limitation Convention, art. 2(c).
 
The rules of agency could provide another consideration in determining whether a contract is covered by the Conventions. n42 The difference between a broker buying for his own account with a view towards resale and an agent acting on behalf of another person might change the determination that the Conventions apply. Where a broker from the same country as the buyer acts as a disclosed agent for a seller from a different country, a court, taking into account where the contract is to be performed, might determine that CISG will apply. If the broker were buying on his own account, it is likely that CISG would not apply.

n42 See, e.g., Fercus, S.R.L. v. Mario Palazzo, No. 98 Civ. 7728 (NRB), 2000 U.S. Dist. LEXIS 11086, at *12-13 (S.D.N.Y. Aug. 8, 2000).
 
In an effort to promote certainty about where a company is doing business, the Conventions provide that they will not apply when the contracting parties are from different countries, but this fact is not evident in the contract itself or was not known or disclosed at any time before or at the conclusion n43 of the contract. n44 For example, under these provisions the CISG will not apply when there is an undisclosed foreign principal. The purpose of these provisions is to prevent parties from being unexpectedly bound by Conventions or by a disadvantageous system of law due to the non-disclosure (unintentional or otherwise) of another party.

n43 "Conclusion" presumably means the execution and delivery of the contract.
n44 CISG, art. 1(2); Limitation Convention, art. 2(b).
 
B. Application of the Conventions Resulting from Conflict of Law Principles
The Conventions also provide that they will apply when the rules of international law lead to the application of the law of a Contracting State. n45 Using general conflict of laws rules in a forum, a court could decide that a Contracting State's laws should be used in resolving a particular dispute. For example, imagine a buyer who is located in a Contracting State and a seller who is located in a non-Contracting State. If the seller commences suit in a forum whose conflict of law points to the laws of the buyer's country, the court should apply the Conventions since they automatically become part of the law of the Contracting State.

n45 CISG, art. 1(1)(b); Limitation Convention, art. 3(1)(b) (as amended by the Protocol).
 
There is some confusion about the effect of these provisions on a Contracting State's domestic law when the parties to an agreement included an express choice of law clause and the law chosen is that of a Contracting State. n46 Some have argued that Article 1(1)(b) only applies to include the CISG where there is no express choice of law clause. n47 The more orthodox view appears to be that the CISG becomes part of a Contracting State's domestic law upon ratification (assuming that the Contracting State has not derogated from this basis of jurisdiction) and an agreement with an express choice of law clause choosing that Contracting State's law leads to the application of the CISG. n48

n46 See, e.g., Ferrari, Recent Development: CISG: Specific Topics of the CISG in Light of Judicial Application and Scholarly Writing, 15 J.L. & Comm. 1, 40-43 (Fall 1995) (hereinafter "Ferrari Article").
n47 See Nuova Fucinati S.p.A. v. Fondmental International A.B. (1993), (Tribunale Civile di Monza) included in 15 J.L. & Comm. 159 (1995) (holding that the parties' express choice of Italian law did not include the CISG even though Italy had ratified the Convention).
n48 See Ferarri Article, supra note 45 at 182-86 (citing relevant German cases).
 
In ratifying the CISG, some of the Contracting States have chosen under Article 95 to preclude the operation of Article 1(1)(b). n49 The United States is one of those countries. n50 The United States has also chosen to preclude the operation of the conflict of laws jurisdiction added by the Protocol to the Limitation Convention. n51 In derogating from these provisions, the State Department noted the well-developed body of contract law already existing in the United States. The State Department's decision shows a preference for applying United States law rather than the CISG to cases involving a party from a non-contracting State. Notwithstanding the State Department's decision, United States entities that are engaged in the international sale of goods should be clear about the intention to include or exclude application of the CISG.

n49 Article 95 provides: "Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph 1(1)(b) of article 1 of this Convention."
n50 China, the Czech Republic, Saint Vincent and the Grenadines, Singapore, and Slovakia have made similar declarations.
n51 Article XII of the Protocol allows "any State [to] declare at the time of the deposit of its instrument of accession or its notification under article X that it will not be bound by article I of the Protocol." Article I of the Protocol is the equivalent to article 1(1)(b) of the CISG.
 
C. Drafting Choice of Law and Forum Clauses
There are a number of pitfalls to avoid when drafting choice of law clauses. For instance, if a contract merely states that "the law of New York shall control," the context of the contract will produce varying results depending upon the countries in which the parties do business. In contracts with parties from Contracting States, the Conventions will automatically apply. In contracts with parties from non-Contracting States, while arguments exist that the New York UCC should apply, the matter is not free from doubt. If the parties intend to exclude a Convention, it is best to do so expressly. An express exclusion of the Conventions could be accomplished with the following language:

This Agreement and the rights and obligations of the parties under this agreement shall not be governed by the provisions of the United Nations Convention on Contracts for the International Sale of Goods or the United Nations Convention on the Limitation Period in the International Sale of Goods, as amended; rather, this requirement and these rights and obligations shall be governed by the law of the State of New York, including its provisions of the Uniform Commercial Code. n52

n52 See, e.g., United Nations Convention on Contracts for the International Sale of Goods: Report of the Hearing on Doc. 98-9 Before the Senate Committee on Foreign Relations, 98th Cong., 2d Sess. (Apr. 4, 1984). The State Department adds: "Note to provision A: The reference to the Uniform Commercial Code would, of course, be omitted if the selected state were a foreign country rather than a State of the United States." Id.
 
If the parties do intend the CISG to apply to the agreement, they may want to consider including a "gap-filler" clause. A gap filler clause would address issues that the CISG does not govern, including validity, mistake, duress, fraud, and other issues that are covered by the contract law in some states. n53 In addition, the parties may wish to consider specifying the particular law a court should use when interpreting ambiguous or undefined provisions of the Conventions. As noted above, the CISG's own interpretation provision does not contribute to contract certainty because it suggests that courts settle any ambiguous issues "in conformity with the general principles on which it is based" and "in conformity with the law applicable by virtue of the rules of private international law." n54 General international law principles do not necessarily promote certainty because they might include inconsistent common and civil law notions. A possible "opt-in" and "gap-filler" provision follows:

This Agreement shall be governed by the provisions of the English language versions of the United Nations Convention on Contracts for the International Sale of Goods and the United Nations Convention on the Limitation Period in the International Sale of Goods, as amended; however, any ambiguities or matters not covered by these Conventions shall be governed by the law of [the State of New York, including its provisions of the Uniform Commercial Code] [other specified law].

n53 Article 4 provides: "This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or any usage..."
n54 CISG, art. 7.
 
Because the official versions of the Conventions are in several different languages, parties also should include a choice of language in the choice of law provision. Some commentators have also suggested that in contracts between parties having multiple offices in different states, that the contract specify the office having the closest relationship to the contract.
The choice of forum can also be important with respect to available remedies for breach. Without a choice of forum clause, courts in civil law countries will take specific performance as their starting point while courts in common law countries will start with money damages.
 
III. Some Comparisons with the UCC
A. Scope of Coverage
The Conventions apply to "contracts for the sale of goods." However, neither Convention actually defines the term. Many of the recent cases interpreting the CISG address the question of whether the agreement is a sale of goods and whether any of the exceptions provided in Article 2 apply. n55 At least four foreign courts have decided that a distribution agreement does not qualify as a contract for sale of goods. n56 However, at least one foreign court has held that individual sales made pursuant to such an agreement do qualify as a sale of goods. n57 United States courts recently followed the majority of foreign courts in concluding that a distribution agreement does not come under the definition of contract for sale of goods. n58

n55 Del Duca Article, supra note 34.
n56 Box Doccia Megius v. Wilux Int'l B.V., 550/92 SKG, Gerechtshof Amsterdam, Netherlands (July 16, 1992) (UNILEX D.1992-15); Unknown Parties, 2 U 1230/91, Oberlandesgericht Koblenz, Germany (Sept. 17, 1993) (UNILEX D. 1993-23); Unknown Parties, 12.G.75.556/1994/36, Metropolitan Court of Budapest, Hungary (March 19, 1996) (UNILEX D. 1996-3.3); Unknown Parties, 6 U 152/95, Oberlandesgericht Dusseldorf, Germany (July 11, 1996) (UNILEX D. 1996-9).
n57 Unknown Parties, 2 U 1230/91, Oberlandesgericht Koblenz, Germany (Sept. 17, 1993) (UNILEX D. 1993-23).
n58 Viva Vino Import Corp. v. Farnese Vini, No. 99-6384, 2000 U.S. Dist. LEXIS 12347, at *3 (N.D.Ill. Mar. 28, 2002); Helen Kaminski Pty. Ltd. V. Marketing Australian Prods., No. M-47 (DLC), 1997 U.S. Dist. LEXIS 10630, at *7 (S.D.N.Y. July 23, 1997).
 
The Conventions exclude the following types of transaction from coverage:

(1) Goods bought for personal, family or household use;

(2) Auction sales (for which most countries have specialized rules);

(3) Sales on execution or otherwise by authority of law;

(4) Sales of stocks, shares, investment securities, negotiable instruments, or money;

(5) Sale of ships, vessels, hovercraft, or aircraft; and

(6) Sales of electricity. n59

n59 CISG, art. 2; Limitation Convention, art. 4, as amended by the Protocol.
 
In contrast, the UCC applies to sales of consumer goods and sales at auctions. Given the broad definition of goods under the UCC, it may also apply to other sales specifically excluded by the CISG.
Several court decisions interpreting the coverage of the CISG also assume that the CISG only applies to corporeal, tangible goods. n60 The Conventions exclude mixed contracts for goods and services when the "preponderant part" of the contract is services; however, CISG does not define "preponderant." n61 While contracts including services and mixed contracts also raise issues under the UCC, the UCC may not be as restrictive. Parties should be aware that goods such as computer programs may be designated as programming services or intangible intellectual property rather than tangible goods. Therefore, drafters may want to make specific provisions of applicable law in their agreement. Drafters may also consider designating an agreement as either one or the other and define "preponderant" on the basis of size, weight, value, or some other measurement.

n60 Unknown Parties, AZ Vb 92205, Hungarian Chamber of Commerce Court of Arbitration (Dec. 20, 1993) (UNILEX D. 1993-27); Unknown Parties, 19 U 282/93, Oberlandesgericht Koln, Germany (Aug. 26, 1994) (UNILEX D. 1994-21).
n61 CISG, art. 3; Limitation Convention, art. 6.
 
Neither the CISG nor the Limitation Convention applies to claims based on the seller's liability for death or personal injury caused by the goods to any person. Consequently, courts will analyze the issue using national law, whether it is designated by the parties or determined by a conflict of laws approach. Accordingly, this may be an appropriate area for designating the national law that is to fill this gap.
B. Limitation Periods
Unlike UCC § 2-725, the CISG does not set a limitation for the time in which a party may commence an action for a breach of contract. Accordingly, the Limitation Convention was designed to respond to this issue. Absent such a Convention, parties that are entering into sales contracts in the international context might face conflicting and confusing legal systems. However, only about one-half of the countries signatory to CISG have also ratified the Limitation Convention. This leaves a gap in the attempt to promote uniformity of international contract rules and increases the uncertainty faced by parties.
The Limitation Convention purposefully avoided terms like "statute of limitations" or "prescription period." Instead it uses the more neutral term "limitation period" in an effort to avoid the debate on whether the limitation period raises a substantive or procedural question. n62 However, the effort to use neutral terms in the Limitation Convention was undermined by the Protocol provision that requires courts to apply conflict of laws principles. Conflict of law principles undermine efforts to make the Limitation Convention more neutral because they may operate differently depending on whether a provision is substantive or procedural.

n62 Limitation Convention, art. 1. See Anita F. Hill, A Comparative Study of the United Nations Convention on the Limitation Period in the International Sale of Goods and Section 2-725 of the Uniform Commercial Code, 25 Tex. Int'l L.J. 1 (1990) (hereinafter "Hill Article").
 
The differences between UCC § 2-725 and the Limitation Convention at first seem large. The UCC deals with what it titles a "Statute of Limitations" in a few short paragraphs. The Limitation Convention has 46 articles and an amending Protocol. Upon examination, however, in many cases the UCC and the Limitation Convention appear to have a very similar effect.
Both UCC § 2-725 and Article 8 of the Limitation Convention provide for a limitation period of four years. Under the UCC, that is the time in which a party must bring an action for breach of any contract for the sale of goods. Under the Limitation Convention, that is the time in which a buyer or seller must exercise a claim "arising from a contract of international sale of goods or relating to its breach, termination or invalidity."
Unlike the UCC, which allows parties to reduce the period to as little as a year, n63 the limitation period set in the Limitation Convention cannot be reduced by the parties except in one limited circumstance. Parties may reduce the limitation period only if an otherwise valid clause in the contract stipulates that arbitral proceedings shall commence within a shorter limitation period than that prescribed in the Convention. n64 It does not allow the parties to extend the period in the contract, although it does permit a debtor to extend the period by a declaration in writing to the creditor. n65

n63 UCC § 2-725(1).
n64 Limitation Convention, art. 22.
n65 Id.
 
Where the UCC relies on a body of common law to flesh out the basic provisions of the statute of limitations, the Limitation Convention attempts to provide an answer to a wide variety of situations. For example, the UCC declares that "a cause of action accrues when a breach occurs, regardless of the aggrieved party's lack of knowledge of the breach." n66 In contrast, the Limitation Convention lays out specific rules for determining when claims accrue in particular situations. It provides different rules for claims based on breach of contract, n67 non-conformity of goods, n68 fraud, n69 breach of express warranty, n70 anticipatory repudiation, n71 and breach of installment contract. n72

n66 UCC § 2-725(2).
n67 Limitation Convention, art. 10(1).
n68 Limitation Convention, art. 10(2).
n69 Limitation Convention, art. 10(30)
n70 Limitation Convention, art. 11.
n71 Limitation Convention, art. 12(1).
n72 Limitation Convention, art. 12(2).
 
The Limitation Convention and UCC rules for accrual of a cause of action for a breach of contract are similar. Under both regimes, the limitation period commences on the date on which the breach occurs. n73 While the Limitation Convention expressly defines a breach of contract in Article 1(3)(d) of the, the UCC relies on common law. The effect is the same, however. Under both the Limitation Convention and the UCC, a breach of contract occurs when a party fails to perform or performs inadequately under the contract.

n73 Limitation Convention, art. 10(1); UCC § 2-725(2).
 
Similarly, under both the Limitation Convention n74 and judicial interpretations of the UCC, the limitation period begins to run on the date when defective or non-conforming goods were delivered. It appears that this provision in the Limitation Convention is intended to apply only to implied warranties when it refers to defective goods because it provides a separate section that seems to apply to express warranties. n75 Neither the Limitation Convention nor the UCC allows for a delay in the discovery of non-conformity. Under the Limitation Convention, courts will find that the delivery of the goods occurs on the date at which they come under buyer's actual physical control. n76 Thus both rules place responsibility on the buyer to inspect goods promptly. With respect to breach of express warranties, however, the Limitation Convention differs from the UCC. The Limitation Convention provides that the period begins to run when the buyer notifies the seller of the facts on which the claim is based. n77

n74 Limitation Convention, art. 10(2).
n75 Limitation Convention, art. 11.
n76 See Hill Article, supra note 61, at 19-21.
n77 Limitation Convention, art. 11.
 
The Limitation Convention resorts to a discovery-based rule for actions based on fraud. Article 10(3) of the Limitation Convention provides that the limitation period begins when the aggrieved party discovers the fraud or could reasonably have discovered the fraud. This is similar to the approach used under the UCC.
There are differences between the UCC and the Limitation Convention in the provisions for ceasing or tolling the limitation period. At least nine articles in the Limitation Convention set forth the rules for cessation. n78 There are no rules for tolling the period of limitation. However, there are rules that operate similarly to a tolling statute, allowing a court to extend the period in the case of fraudulent concealment. n79 In contrast, the UCC merely states that general law on the tolling of the statute still applies. n80

n78 Limitation Convention, arts. 13-21.
n79 See Hill Article, supra note 61, at 19-21.
n80 UCC § 2-275(4).
 
C. Offers
One major difference between the CISG and the UCC is that the CISG has no equivalent to the UCC § 2-201 requirement that contracts for the sale of goods for the price of $ 500 or more must be evidenced by a writing. Thus, an oral agreement can arise under CISG merely if the agreement satisfies the requirement of the CISG in other respects. n81 CISG Article 96 allows countries to exclude this provision if they wished by taking a "reservation." The Russian Federation and other Eastern Bloc countries insisted on this since the notion of an oral contract for the purchase of goods was not acceptable for their centralized, planned economies. The United States did not make such a reservation.

n81 See, e.g. MCC-Marble Ceramic Center, Inc. v. Cermaica Nuova d'Agostino, S.p.A., 144 F.3d 1384, 1389-90 (11th Cir. 1998); Unknown Parties, 10 Ob 518/95, Oberster Gerichtshof, Austria (February 6, 1996) (UNILEX D. 1996-3.1).
 
Under UCC § 2-205, firm offers are irrevocable when made in a signed writing that gives assurance that the offer will be held open for a period not to exceed three months. Thus under the UCC, a firm offer is easily recognized at the commencement of the contract formation process. In contrast, the firm offer rules under CISG allow more leeway for individual interpretation. CISG Article 16(2) provides that an offer cannot be revoked if (i) it indicates by "stating a fixed time for acceptance or otherwise that it is irrevocable" or (ii) if it is reasonable for the offeree to rely on the offer as being irrevocable (and the offeree has acted in reliance). Note that because the CISG does not require a signed writing, these matters are more difficult to ascertain.
D. Parol Evidence Rule and Merger Clauses
UCC § 2-202 prohibits the use of parol or extrinsic evidence to contradict a writing which is intended by the parties to be a final expression of their agreement. Parol evidence may not be used as evidence of additional or contradictory terms of an agreement unless it explains or supplements the agreement. Under this rule, prior agreements and contemporaneous oral agreements are virtually excluded as evidence of the bargain. Even evidence of consistent but additional terms to an agreement must be excluded if it appears that the agreement was intended to be complete and exclusive. n82 The UCC, however, does provide that an agreement may be explained or supplemented by the previous conduct of the parties (course of dealing), trade usage, or the course of performance. n83 However, courts will ignore any evidence that is inconsistent with the express terms of the agreement.

n82 UCC § 2-202(b).
n83 UCC § 2-202 (citing UCC §§ 1-205, 2-208).
 
In contrast, the CISG directs the courts to give due consideration to all relevant evidence of the parties' intent including negotiations, course of dealing, usages, and performance. n84 The UCC's parol evidence rule therefore does not CISG contracts. A German court used this rule to examine pre-contract negotiations and statements to determine that an agreement existed between two parties. n85

n84 CISG, art. 8(3). See also MCC-Marble Ceramic Center, Inc., 144 F.3d at 1387-1391.
n85 Unknown Parties, 5O 543/88, Landgericht Hamburg, Germany (Sept. 26, 1990) (UNILEX D. 1990-6).
 
This rule has been the subject of a strange decision by one of the few United States cases to mention CISG. The Fifth Circuit in Beijing Metals & Minerals Import-Export Corp. v. American Business Center, Inc., in a footnote concerning the applicability of CISG, stated that "we need not resolve this choice of law issue, because our discussion is limited to application of the parol evidence rule (which applies regardless)..." n86 The Court then went on to apply a UCC-based parol evidence rule, apparently on the mistaken assumption that it was similar to the rule in CISG. This decision has been universally criticized in recent literature on CISG. n87 In contrast, when the District Court in Filanto S.p.A v. Chilewich International n88 applied the CISG, it looked to a prior agreement, prior conduct between the two parties, and subsequent behavior. n89

n86 993 F.2d 1178 (5th Cir. 1993).
n87 See, e.g., DiMatteo Article, supra note 21, at 328; Del Duca Article, supra note 34, at 361.
n88 789 F. Supp. 1229.
n89 Id. See also MCC-Marble Ceramic Center, Inc., 144 F.3d at 1389-90; Mitchell Aircraft Spares, Inc. v. European Aircraft Service AB, 23 F. Supp. 2d 915, 919-921 (N.D.Ill. 1998); Calzaturifico Claudia, No. 96 Civ. 8052 (HB)(THK), 1998 U.S. Dist. LEXIS 4586, at *17-20 (S.D.N.Y. April 6, 1998).
 
Given the possibility under CISG that a court might add terms to an agreement, drafters must carefully review merger clauses to determine their effect. A drafter may consider expressly defining a hierarchy of types of conduct between the parties that can modify the effect of CISG. In order to avoid the inclusion of extraneous clauses in an agreement, drafters may strengthen standard merger clauses to show the following:

 - that the parties intended to derogate from the CISG pursuant to CISG Article 6;

- that certain types of evidence (negotiations, prior agreements, correspondence, and so forth) may not be used to determine the final understanding; and

- that any subsequent modifications or additions to an agreement can only be made in writing.
E. Warranties and Disclaimers
Warranties and disclaimers also present issues which may be partially cured by relying on the UCC to act as a "gap-filler."
1. Warranties
Under the CISG, a contract is interpreted to emphasize the parties' intent and the "understanding" based on their actions relating to the subject matter of the contract. n90 UCC § 2-313 similarly provides for "express warranties" which become the "basis of the bargain," regardless of the lack of words such as "warrant."

n90 CISG, art. 8.
 
CISG Article 35(2) defines particular attributes which, when met, show that the goods "conform to the contract." These provisions are implied warranties (although never specifically identified as such) and are broadly equivalent to the concepts of implied warranties of merchantability and fitness for a particular purpose provided in the UCC. Like the UCC, the CISG requires that the goods be suitable for the purpose for which they would ordinarily be used, that the goods be fit for a particular purpose about which the seller knew and on which the buyer reasonably relied, and that the goods be adequately contained or packaged. Unlike UCC § 2-314, however, the CISG does not provide a standard explaining what is meant by "merchantable" and in fact does not use the word.
Foreign tribunals that have addressed the implied warranty in Article 35(2)(a) have sometimes interpreted it in a manner favorable to the seller. n91 In one German case, a buyer acting under an international contract sold mussels that had high cadmium levels, higher than what the German Health Department regarded as safe. n92 The German lower court determined that the mussels conformed under the contract because they were fit for the purpose for which such goods were normally used (i.e. presumably they were still edible). n93 It ignored suggestions from the German Health Department as irrelevant to an interpretation of the agreement under the CISG. Even if the suggested levels had been binding under local law, the court said, the only way to promote uniformity under CISG was to ignore local law and use only the standard provided in CISG. This decision was affirmed in the higher court. n94

n91 Unknown Parties, 5 U 15/93, Oberlandesgericht Frankfurt am Main, Germany (Jan. 18, 1994) (UNILEX D. 1994-2).
n92 Unknown Parties, 13 U 51/93, Oberlandesgericht Frankfurt am Main, Germany (Apr. 20, 1995) (UNILEX D. 1994-10).
n93 Id.
n94 Unknown Parties, VIII ZR 159/94, Bundesgerichtshof, Germany (Mar. 8, 1995) (UNILEX D. 1995-9).
 
CISG Article 35(3) also provides that the seller is not liable for a non-conformity if, when the contract was made, the buyer knew or "could not have been unaware" of the non-conformity. Professor Honnold has suggested n95 that this wording implies that the buyer may not have a duty to investigate. However, whether courts would agree is not clear. n96

n95 Uniform Law for International Sales, supra note 14, at 256.
n96 But see DiMatteo Article, supra note 21, at 358 (arguing that the initial obligation of all buyers is the duty of inspection, and that a failure to inspect deprives the buyer of the right to rely upon the defense of nonconformity. DiMatteo also recognizes that courts differ on how flexibly they interpret this rule).
 
2. Disclaimers
The CISG does not have an Article that compares to UCC § 2-316 on "Exclusion or Modification of Warranties." Nevertheless, CISG Article 6 permits the parties to "derogate from or vary the effect" of any of CISG's provisions. CISG Article 8 also permits courts to interpret contracts to find whether the parites' understanding was reached. CISG Article 35 further provides that the parties may agree to a different definition of conformity. Taken together, these provisions should be interpreted to permit CISG parties to exclude or modify the CISG implied warranties.
Because they are not expressly regulated by CISG, disclaimers may be considered an issue of validity (not covered by the CISG), thus making the designation of familiar "gap-filler" law more important.
3. Warranty and Disclaimer Drafting Issues
Drafters should carefully consider whether to include warranties and disclaimers in agreements governed by the CISG. UCC experience will have to suffice as guidance until there are more precedents on which the parties may rely. To date we are not aware of any decisions under the CISG on disclaimers of warranties. Traditional UCC drafting principles may serve as a guide for drafting agreements that will be governed by the CISG. Some principles to consider include the following:

 - Disclaimers and limitations of liability should be conspicuous.

- Disclaimers should describe warranties under the CISG Article 35 warranties and the warranties of merchantability and fitness for a particular purpose under the UCC.

- Any express warranties should commence and expire at ascertainable times.

- Remedies should be appropriate to the warranty and should clearly indicate whether they are to be exclusive.
F. Other Selected Issues and Comments
The CISG raises several other issues, many of which have been discussed extensively in other literature. For example:
The UCC and the CISG diverge on the question of the "Battle of the Forms." The Battle of the Forms occurs when an offeror sends an offer, the offeree counter-offers with variant terms, and the offeror objects to the offeree's variant terms or the variant terms are "material." When this occurs, the UCC recognizes the contract and throws out the disputed terms. However, under the CISG no contract is formed, and the court instead recognizes the counter-offer. The CISG also allows offerors to prevent the formation of a contract where variant terms suggested by the offeree are non-material, if an objection is made. n97

n97 See Henry F. Gabriel, The Battle of Forms: A Comparison of the United Nations Convention for the International Sale of Goods and the Uniform Commercial Code, 49 Bus. Law. 1053 (1994).
 
The CISG allows for the recovery of interest on sums which are overdue under an agreement. It does not, however, provide a formula for interest calculation. Drafters should include a complete interest calculation to establish the amounts of interest due to parties under CISG Articles 78 and 84. Many of the cases providing for interest under CISG have used national rates of interest instead of general principles of international law. n98 To avoid this application, drafters should pay particularly careful attention to the rate of interest in the country with the closest contact to the agreement, and should expressly provide for calculation of interest.

n98 Delchi Carrier S.p.A, 71 F.3d at 1029; Unknown Parties, 5 U 15/93, Oberlandesgericht, Frankfurt am Main, Germany (Jan. 18, 1994) (UNILEX D. 1994-2). But see Schmitz-Werke GMBH + Co. v. Rockland Industries, Inc., No. 00-1125, 2002 U.S. App. LEXIS 12336, at *15 (4th Cir. 2002) (unpublished opinion) (holding that exchange rate should be resolved using private international law); Elastar Sacifia v. Bettcher Industries Inc., Juzgado Nacional de Primera Instancia en lo Commercial 7, Argentina (May 20, 1991) (UNILEX D. 1991-4) (determining interest through relevant trading customs).
 
CISG Article 9(2) requires parties to an agreement to be familiar with certain international trade practices related to their agreement. The Article does allow the parties to expressly agree that such usages will not apply to their contract. A new and inexperienced company may want to consider such an exclusion. It is also common to use Incoterms n99 for delivery in an agreement. A party agreeing to an Incoterm should ensure that it understands the full implications of the term because Incoterms do form part of "widely known" and "regularly observed" international trade usages, knowledge of which Article 9(2) imputes to the parties.

n99 "Incoterms" refer to international commercial terms. A list of commonly used terms is available at http://www.jus.uio.no/lm/icc.incoterms.1990/doc. For an example of a United States case where the court applied Incoterms, see BP Oil, International Ltd. V. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333 (5th Cir. 2003).
 
The CISG and the UCC also deal quite differently with such issues as rejection, revocation of acceptance, and termination for breach. Drafters should review these differences between the CISG and the UCC in an effort to determine whether exclusion of all or portions of the CISG is desirable.
 
IV. Conclusion
For parties who are unprepared, an encounter with the CISG or the Limitation Convention may result in unpleasant surprises. It may appear that the safest and least labor intensive option is to opt out of both Conventions and choose a governing law that is familiar and well developed. However, analysis may reveal that the Conventions provide a better result in certain situations than a particular national law. Moreover, there may be occasions in which the CISG can serve as a "neutral" governing law where neither party is willing to accept as governing law the national law of the other party.
Where the parties intend to "opt out of" or "opt into" the CISG, drafters must carefully compose the agreement to ensure that the intended result is achieved. Drafters should also think carefully about whether to include gap-fillers and whether to include exceptions to specific provisions. This kind of thoughtful analysis and drafting will go a long way in helping to achieve the intentions and expectations of the parties in any contract for the international sale of goods.