What Small Business Owners Need to Know About International Trade and Sales
Cross border trade

In simple terms what Law Applies to Sales of Goods Transactions? 

 

The cross-border sale of goods is one of the most common types of international trade transactions.

Usually the trade goes smoothly:

Products are ordered, delivered and paid for; the participating parties would not know the wiser what body of law is governing their transaction. But, sometimes, issues arise concerning the terms of the sale that require the parties to understand what law actually is governing.

What Law Applies to Sales of Goods Transactions?

Two bodies of law, in general, govern the sales of products—the Uniform Commercial Code (“UCC”), which is almost always implemented through state law, and the UN Convention on Contracts for the International Sales of Goods (“CISG”) – a body of international law– to which most nations, including the U.S., are party.  

Originating as a model code, the Uniform Commercial Code has been adopted in some version by each American state, except Louisiana.

Sales of goods transactions occurring within a state are governed by that State’s UCC. Where transactions across state lines occur, what state law applies may depend on whether the contract between the buyer and seller selects a governing law, otherwise what law applies may depend on the states’ respective conflicts of law rules.

In the case of transactions across international borders, involving purchasers and seller from nations who have signed on to the CISG, the latter body of law applies.

What is important to consider is that unless the parties expressly designate a body of law to govern their transaction, the default body of governing law would be the CISG.  Although the UCC and CISG are similar in many respects, there are also some very important differences between them.

The four major differences are detailed below:

1.  Statute of Frauds

Under the UCC, all transactions involving sales of goods of more than $500.00 must be in writing. Under the CISG, by contrast, there is no requirement that the terms of a transaction be contained in a writing.

Under the CISG, a party alleging contract breach has the burden of coming forward with evidence of a contract, which can include invoices, email exchanges, and even testimony from third parties, etc. 

2.  Parol Evidence

Under the law of most, if not all, of the American states, evidence of the terms of a contractual relationship cannot be admitted as evidence in a court of law for the purpose of contradicting an unambiguous contract term.

Under this construction, clear and unambiguous contract terms control regardless the content of the parties’ pre-contract negotiations. Under the CISG, by contrast, there is no such Parol Evidence Rule: If a dispute arises concerning a contract term, the parties can offer up evidence relating to their contract negotiations to establish their intent behind the term’s meaning.

Next page- Trade differences 3 and 4 and Takeaway

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