Get it in Writing?

March 4, 2011, 11:42 AM

This post takes us back to the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG permits a seller and buyer in different treaty countries to create an enforceable contract for the sale of goods without reducing the deal to writing. Moreover, there is no required form for an international sales contract: in the event of a dispute, a contract may be proved by any means, including oral testimony from witnesses. Further, Article 29 of the CISG permits an oral contract modification.

However, Articles 12 and 96 of CISG allow a contracting state to declare, at the time of its adoption of the CISG, that contracts and contract modifications must be in writing. In adopting the CISG, Argentina, Chile, China, Paraguay and various Eastern European counties (including Russia) have declared that the above provisions of the CISG authorizing the unwritten formation, modification or termination of a contract will not apply if either party to the transaction has its place of business in that country.

The ambiguity obviously created by these declarations is the following: what if one party is located in a country that has made such a declaration but the other party is located in a contracting state that has not made such a declaration? The CISG is silent and the courts are split on this question.

The Third Circuit Court of Appeals recently decided, in a case involving a New Jersey-based exporter and an Argentina-based buyer, that the answer would depend on whether the court hearing the case utilized New Jersey or Argentina law in answering the question. As a practical matter, the forum court is often more inclined to apply its own familiar law rather than the unfamiliar law of a foreign country in deciding legal issues on the merits. Accordingly, the Third Circuit's ruling could really mean that the party which gets to its local courthouse first would have the advantage, especially a New Jersey exporter seeking to enforce an unwritten contract against an Argentine customer.

The moral of the story: it is strongly advisable to put any international sales contract in writing, especially when the other party is located in Argentina, Chile, etc. However, if you fail to do so and a dispute breaks out with your foreign counterpart in one of those countries, race to the local courthouse as fast as you can. --Charles V. McPhillips