unI regularly review contracts involving the sale of goods between the U.S. and Mexico or other Latin American countries.  One of the most common drafting errors in these contracts is the failure of the contracting parties to specifically exclude the United Nations Convention on Contracts for the International Sale of Goods (CISG) when they intend to do so.

The CISG is an international treaty signed by 74 countries, including the U.S. and Mexico.   In the U.S., the CISG is regarded as a self-executing treaty, meaning that it operates without any implementing legislation.  The CISG is therefore federal law in the U.S., which preempts any conflicting state law provisions, including the Uniform Commercial Code (UCC) as it may be incorporated into state law. 

As such, the CISG is the default gap-filling law in the U.S. applicable to all contracts for the sale of goods between U.S. companies and foreign companies whose places of business are in countries that are party to the CISG.  Since both the U.S. and Mexico are party to the CISG, any contract for the sale of goods between a U.S. company and a Mexican company will be governed by the CISG unless the parties expressly exclude its application.

An example illustrates how the CISG comes into play.  I am reviewing a contract this morning on behalf of a Mexican company that seeks to be the exclusive distributor in Mexico for a technology product manufactured by a Texas company.  The governing law clause, drafted by the Texas company’s U.S. counsel, provides: “This Agreement shall be governed, interpreted and construed in accordance with the laws of the state of Texas.” 

The laws of the state of Texas that govern the international sale of goods are: (1) The Texas Business & Commerce Code (TBCC), which is the UCC incorporated into Texas law; and (2) the CISG.  Accordingly, if there is a dispute under an international sales contract governed by “the laws of the state of Texas”, the court or arbitrator should apply the CISG to fill any gaps in the contract because the CISG is a self-executing treaty, which is U.S. federal law, which preempts Texas law. 

The problem is that the lawyer for the Texas manufacturer probably never intended for the CISG to govern.  In addition, since the CISG and the UCC often contain different gap-filling terms for the same set of factual circumstances (e.g., remedies in the event of breach, contract formation through the exchange of forms), the outcome of a dispute under the contract may significantly vary depending on which body of law is applied.

Fortunately, Article 6 of the CISG allows contracting parties to exclude the CISG, vary its effect, or derogate from any of its provisions.  I often use the following language to exclude the CISG from international sales contracts:

 This Agreement shall be governed by and construed under the laws of the state of _______, U.S.A. (including the Uniform Commercial Code as incorporated into the laws of the state of _______, U.S.A.), without regard to its conflict of laws provisions and without regard to the United Nations Convention on Contracts for the International Sale of Goods (CISG).