CISG: When the UN Sales Convention Applies to Your Export Contract and What to Put in It

When the CISG applies to your sale

The CISG applies to contracts for the sale of goods between parties whose places of business are in different States when both States are contracting States (Article 1(1)(a)). For example, a Korean exporter selling to a buyer in Germany, the United States or Viet Nam is usually under the CISG unless the contract says otherwise. It can also apply when the rules of private international law lead to the law of a contracting State (Article 1(1)(b)), but China, the United States and Singapore have declared under Article 95 that they are not bound by that rule.

The CISG does not apply to goods bought for personal, family or household use, sales by auction or on execution, stocks, securities, negotiable instruments or money, ships, vessels, hovercraft or aircraft, and electricity (Article 2). It does not deal with the validity of the contract or with the property in the goods, which remain under national law. The parties may exclude it entirely or vary its provisions (Article 6), for example by writing "The United Nations Convention on Contracts for the International Sale of Goods shall not apply"; choosing "the law of" a contracting State without excluding the CISG usually brings the CISG in, because it is part of that State's law.

Offer, acceptance and the proforma invoice

• An offer must be sufficiently definite: it indicates the goods and expressly or implicitly fixes or makes provision for the quantity and the price (Article 14). A proforma invoice or quotation that does this can be an offer.
• A reply that adds or changes terms is a rejection and a counter-offer if the changes are material, such as price, payment, quality and quantity, place and time of delivery, liability or dispute settlement (Article 19).
• No written form is required (Article 11), but States that made an Article 96 declaration keep their own written-form requirement. Sign a sales contract or have the buyer confirm the proforma in writing to avoid disputes.

Conformity, notice of defects and risk

• The seller must deliver goods of the quantity, quality and description required by the contract, packaged as the contract requires or, if it says nothing, in the usual manner or in a manner adequate to preserve and protect them (Article 35).
• The buyer must examine the goods within as short a period as is practicable (Article 38) and give notice of a lack of conformity within a reasonable time after it discovered it or ought to have discovered it, and at the latest within two years after the goods were handed over, unless the contract sets another period (Article 39).
• If the contract involves carriage and the seller is not bound to hand the goods over at a particular place, risk passes when the goods are handed to the first carrier (Article 67). An Incoterms rule in the contract replaces this with its own delivery and risk point.

Remedies, damages and force majeure

• A breach is fundamental if it substantially deprives the other party of what it was entitled to expect, unless that result was not foreseeable (Article 25). Only a fundamental breach, or failure within an additional period set by notice, lets a party avoid (terminate) the contract (Articles 49 and 64).
• Damages cover the loss, including lost profit, that the party in breach foresaw or ought to have foreseen at the time of the contract (Article 74). The injured party must take reasonable measures to mitigate the loss (Article 77).
• A party that fails to pay a sum in arrears owes interest on it (Article 78).
• A party is not liable in damages for a failure caused by an impediment beyond its control that it could not reasonably have taken into account or avoided (Article 79). Many contracts add a detailed force majeure clause.

What to put in the sales contract

Whether the CISG applies or not, write down the points it leaves to the parties: the goods and specifications, quantity and tolerance, price and currency, Incoterms rule and named place with "Incoterms 2020", delivery date, payment terms and documents, inspection and the period for notice of defects, packaging and marks, warranty, limitation of liability, force majeure, governing law (and whether the CISG applies or is excluded) and dispute resolution. Triplicate's sales contract template and generator include most of these headings, from the goods, price, Incoterms rule and payment to packing, insurance, documents, quality claims, force majeure and disputes, so the proforma invoice, commercial invoice and contract all match.