CISG: Essential Elements

1. Oral Contracts/Statements

A contract need not be concluded in or evidenced in writing. Import companies that negoti­ate contracts by phone may be under the impression that the agreement will not be enforce­able since it is not made in writing. However, they could be held liable under CISG if they verbally accept an offer or their verbal offer is accepted by the other party. CISG, however, allows members to opt out of this provision (in favor of domestic law that requires a state­ment in writing).

Example: ABC Inc., a cellular phone manufacturer in Florida, contacts various suppliers of semiconductors. The import manager negotiated an oral contract with suppliers in Italy and Germany. Both suppliers orally accepted the offer made by ABC Inc. (type, quality, quantity, price of semiconductors). A few days later, the import manager was advised that a Russian company makes similar goods at lower prices and that the price includes transportation costs to ABC Inc. in Florida. The import manager of ABC Inc. called the suppliers in Italy and Germany to cancel the contract. He thought that oral contracts are not valid and thus are unenforceable. Since each party is located in a different CISG country, CISG applies. The oral contracts with the German and Italian suppliers are en­forceable. This means that ABC Inc. is obligated to buy the semiconductors or pay damages.

2. Parol Evidence

Prior oral statements (including witness testimony) are potentially enforceable and can be used to challenge the provisions of a written contract. Thus, exporters-importers have to be cautious about representations made during the negotiations that are not intended to be part of the written contract, since oral statements could be construed as part of the written con­tract (if used to prove intent). One solution is to include an integration clause that states that the written contract is the entire agreement and that no other agreements or evidence that is contradictory is admissible.

Example: An Australian supplier of dairy products orally agreed to pay the cost of insurance during transportation of the goods to the buyer’s warehouse in Portland, Oregon. However, the written terms of the contract explicitly provided for payment by the U.S. buyer.

The prior oral statement by the supplier is admissible and can be used to modify the terms of the written contract. The supplier would be obligated to pay the cost of insurance.

3. Battle of the Forms

A reply to a sales offer that purports to be an acceptance but contains additions or modifica­tions is a rejection of the offer and constitutes a counteroffer. However, if the counteroffer does not materially alter the terms of the offer, it constitutes an acceptance unless the seller objects and notifies the offerer. Material terms include price, payment, quantity and quality of goods, place and time of delivery, and liability.

Example: A manufacturer of leather shoes in Italy sent a purchase order for 500 pounds of polished leather from New Zealand at $10 per pound and three-year warranty. The supplier in New Zealand accepted the order but modified the terms: “$12 per pound and two-year warranty.” The terms added by the sup­plier are material to the contract and hence constitute rejections of the offer or considered a counteroffer.

4. Duty to Inspect and Proper Notice

In the event that the buyer receives nonconforming goods, he or she must give timely (within a short period as is practicable) and effective notice of nonconformity (specifying the nature of nonconformity). The buyer’s notice such as “the goods are rancid” or “poor workmanship and improper fitting of the goods” were considered by courts as being insufficiently specific and not regarded as notice (see International Perspective 8.1).

5. Right to Remedy Deficiencies

CISG permits the seller to remedy the delivery of defective goods after the time of perfor­mance has expired unless such delivery would cause the buyer “unreasonable inconvenience and uncertainty.” The buyer reserves the right to sue for damages caused by the delay or to buy the initial delivery of nonconforming goods.

6. Exemptions from Liability

CISG exempts a party from liability for failure to perform any of his or her obligations due to reasons beyond his or her control that were not foreseeable at the time of the contract formation. Prompt notice of the impediment is required to avoid damages. The following circumstances do not give rise to exemptions from liability: financial difficulties of seller’s supplier, buyer’s inability to obtain foreign currency, increases in the cost of goods, and de­livery problems due to production stoppages.

7. Limitation Period

There are no provisions in CISG on limitation period (the time within which a buyer must bring a court action or seek arbitration). Another United Nations (UN) convention, Conven­tion on the Limitation Period in the International Sale of Goods, provides rules on limitation periods and has been ratified by eighteen countries, including the United States in 1994. The convention provides a four-year limitation period for most claims.

The International Chamber of Commerce (ICC) has also published several valuable doc­uments on international trade. The Uniform Rules for Contract Guarantees (1978) deals with the issue of performance and bank guarantees supporting obligations arising in inter­national contracts. The ICC also has rules on adaptation of long-term contracts to changing economic and political circumstances.

Standard contract forms are often used in certain types of international commercial trans­actions, such as trade in commodities or in capital goods. These contracts are prepared by trade associations, such as the Cocoa Association of London, the Refined Sugar Association, or certain agencies of the United Nations (model contracts for supply of plant, equipment, and machinery for export or for the export of durable consumer goods and engineering articles) (see International Perspective 8.2).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.