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Saggi, Conferenze e Seminari 34. Reproduced with permission of Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell

How International is the Sales
Law of the United States

Henry D. Gabriel
Roma (March 1999)

  1. American Commercial Law in the International Arena
  2. Revision of the Sales Provisions of the Uniform Commercial Code
    1. Scope
    2. Definitional Changes
    3. Statute of Frauds
    4. Parol Evidence Rule
    5. Formation in General
    6. The Warranty in the Box
    7. Unenforceable Terms in Consumer Contracts
    8. The Battle of the Forms
    9. Personal Injury and Property Damage to Property Other Than the Goods Sold
    10. Express Warranties
    11. Risk of Loss
    12. Perfect Tender Rule
    13. Reasonable Use After Revocation of Acceptance
    14. Cure
    15. Election of Remedies
  3. Why the Lack of Influence of International Commercial Law on the Revision of Article Two
    1. Different Legal Traditions
    2. Article Two Part of a Broader Unified Commercial Code
    3. The Primary Goal of the Revision Process is Not Met by the CISG
    4. Incompatible Structural Differences
    5. Incompatible Substantive3 Differences
     Conclusion

The Major Changes in the Sales Provisions of the
Uniform Commercial Code and Why International Commercial Law
Has Had Little Impact on the Revisions

In this paper, I discuss the recent and ongoing substantive revisions of the sales provisions of the Uniform Commercial Code in the United States of America with particular emphasis on the lack of influence international commercial law, particularly the CISG, has had on the revision.

I. American Commercial Law in the International Arena

Commercial law in America is primarily state, not federal law, and it is independently promulgated in fifty-one separate jurisdictions. Until the late nineteenth century, American commercial law was based on English common law and the law of merchants, and each state's law evolved independent of the other states' law. Today, although commercial law is still the law of the individual states, commercial law is primarily uniform throughout the United States because of the existence and passage in the various jurisdictions of the Uniform Commercial Code ("UCC"). The UCC has been adopted in some form by all American jurisdictions (Louisiana has not adopted the sales and leases provisions, but has adopted the rest of the UCC), and the UCC embodies the major corpus of American commercial law.

The UCC is now fifty years old, and the commercial law in America is going through a period of fundamental and substantial change and revision. The need for the revisions is due to essential changes in business practices as well as the development of more inclusive and faster methods of communication since the adoption of the UCC in the early 1950's. Also, highly important, is the perceived need for American [page 1] commercial law to conform to the growing body of international commercial law which is necessary in our now global economy.

There are two organizations which have developed and continue to revise the UCC: The National Conference of Commissioners for Uniform State Laws ("NCCUSL")[1] and the American Law Institute ("ALI").[2] It is important to note that although NCCUSL is a government organization (the ALI is not), neither organization, nor the combination of the two have the power to create positive law. The UCC, and the subsequent revisions of it, are presented to the various state legislatures for adoption, and the Code only becomes the law of a respective state when it is adopted by that state's legislature. It is also important to realize that because the individual states have the power to adopt whatever version or modifications the state pleases, there is a substantial amount of non-uniformity among the states.[3]

Beginning early in the century, several discreet uniform acts were drafted by NCCUSL to codify areas of commercial law. These acts [page 2] covered negotiable instruments,[4] sales,[5] documents of title,[6] and security rights in personal property.[7] These uniform acts were widely adopted by the various states, and made substantial progress in unifying the commercial law in America. The Acts were codifications of the existing common law, and none of them were influenced in any significant degree by either civil law or international law. It is within this tradition that the drafting of the original Uniform Commercial Code arose.

In 1935, the ALI and NCCUSL, as the two major legal bodies involved in creating private law, entered into an agreement to sponsor jointly the drafting of legislation. In 1940, NCCUSL adopted a plan to unify all of the commercial law in one commercial code, and the ALI was invited to join in the task: an invitation which the ALI accepted. The drafting committees consisted of members of NCCUSL, official representatives from the ALI, as well as official representatives from the ABA. As with the current revision of the UCC, the meetings were open, and representatives from trade groups attended in abundance.

The UCC was completed in 1950 and approved by NCCUSL in 1951. Within a few years, the UCC was adopted in one form or another by all of the states. The UCC was specifically drafted to conform to actual business practices, and unlike some European Codes, is not highly abstract.

The Code is divided into the following articles: Article One: General Provisions,[8] Article Two: Sales,[9] Article Two A: Leases,[10] Article Two B: Licenses of Intangibles,[11] Article Three: Negotiable Instruments,[12] Article Four: Bank Deposits and Collections,[13] Article Four A: [page 3] Payments by Electronic Transfers,[14] Article Five: Letters of Credit,[15] Article Seven: Documents of Title, Article Eight: Investment Securities,[16] and Article Nine: Secured Transactions.[17]

This current massive, wholesale revision of the U.C.C. is happening during a period of major advances in international commercial law. A major step in that direction was the drafting and signing of the United Nations Convention on Contracts for the International Sale of Goods.[18] Other conventions and uniform rules in the areas of financing of goods, payment systems, and transport have contributed to this development.[19]

In an ideal world, the drafters of both international and domestic laws would take the best features of both bodies of law have to offer and meld them together into a comprehensive legislative scheme.[20] The CISG made many improvements over the older provisions of Article Two and these improvements could be a significant resource in the revision of the UCC provisions on sales.[21] In fact, the CISG has proven to be of very [page 4] little influence on the revision of the sales provisions of Article Two of the Uniform Commercial Code. See, Gabriel, "The Inapplicability of the United Nations Convention on the International Sale of Goods as a Model for the Revision of Article Two of the Uniform Commercial Code" 72 Tul. L. Rev.1995 (1998). Similarly, Article Four A of the UCC on Electronic Funds Transfers was a definite influence on the development of UNCITRAL Model Law on International Credit Transfers. The world is not ideal, however, and attempts to harmonize, though successful in many cases, have run into obstacles such as differences in commercial practices in the United States and elsewhere throughout the world, and differences in legal theory and perception of the appropriate policies.[22] In this paper, in the context of discussing the current revisions of the sales provisions, I will address the question of why the revision process has not taken into account the current international sales provisions.

II. Revision of the Sales Provisions of the Uniform Commercial Code

Article Two, the sale of goods provisions of the Uniform Commercial Code, which has been in its present form since 1958, is now under revision. In August 1991, NCCUSL formed an Article Two Drafting Committee to revise the Sales articles of the UCC. The committee has been meeting regularly several times a year, and has read drafts before the full body of NCCUSL in the summers of 1995, 1996, and 1997. A [page 5] final reading is due at the annual meeting of NCCUSL in the summer of 1999, and then the draft will be sent to the ALI for final approval.

The present Article two replaces the Uniform Sales Act of 1906, which itself was based on the British Sale of Goods Act of 1893. [23] Both of these earlier statutes attempted to codify the common law of sales, and as such, retained much of the formalism of the late nineteenth century common law of contract.[24] Article Two, however, represents a distinctly different approach to the law of sales. Eschewing traditional common law contract formalism, Article Two sets out rules that are designed to weave the particular sale into its specific business context.[25] The Drafting Committee to Revise Article Two continues to work in this tradition.[26]

The Uniform Commercial Code (UCC) and the United Nations Convention on the International Sale of Goods (CISG) are similar in two important ways: they both seek uniformity in the law of sales and they both are attempts to reflect modern commercial practices.[27] Noting these two considerations, because the CISG is more recent than the present UCC Article Two provisions on sales,[28] it is natural to assume that the current revision process of Article Two would take cognizance of the CISG.[29] Yet, as I will discuss, neither the CISG, nor any other [page 6] international commercial code, has had any significant influence in the revision of Article Two.[30]

1. Scope

After much tinkering with the question of scope, the Drafting Committee has settled on: "This Article applies to transactions in goods, including remedial promises."[31] This changes the scope of the Article Two from its present version by adding "remedial promises." In recognition that contracts for sale often include promises to remedy defects or problems with goods, this expands the scope of Article Two to cover these promises.

The path to this simple language has been long and torturous one for the Drafting Committee. In 1993, the Drafting Committee discussed at length and recommended to the sponsors of the UCC that a "hub and spoke" approach to the code be taken. In this format, the structure of Article Two would be wholly reworked, and the final product would consist of a core of general contractual principles along with specific code sections for sales, leases, and licenses of goods, with the possibility of sections for service contracts. The Drafting Committee on licenses was grafted on the sales committee, and work began. The project in that format became too unwieldy, and, at the annual NCCUSL meeting in the summer of 1995, the "hub and spoke" version was dismantled. As a result, the licensing committee was spun off as the Article Two B committee, and the sales committee was redirected back to the sale of goods alone. [page 7]

After much discussion back and forth on this issue, the Drafting Committee determined that service contracts will not be included as a substantive part of Article Two. As with the present law, it is expected that courts will use Article Two by analogy for service contracts in appropriate circumstances, particularly when the contract is a mixed contract of goods and services.

Larger questions, such as the extent to which consumers and consumer contracts will receive special treatment in the sales code have plagued the Drafting Committee since the beginning of the revisions. What many had hoped would be sweeping changes in favor of providing new consumer protection has not succeeded. This has been primarily due to strong anti-consumer industry pressure.

In resolving the question of scope, it is clear that international conventions have been of no guidance. For example, a comparison of the UCC with the CISG shows such dissimilar scope between the two regimes, that no basis of reliance on the CISG by the UCC is feasible.

Neither the CISG nor Article Two covers all aspects of sales transactions. The CISG, however, is less comprehensive in its scope than Article Two, and in that respect, cannot serve as a full model for the UCC. For example, the CISG does not cover consumer contracts[32], nor does it cover questions of non-economic losses in products liability, whereas the U.C.C. covers both.[33] In fact, the UCC is a major source of products liability law in the United States, and the question of how much it will continue to be so is part of a large debate in the drafting process. This is, however, a debate for which the CISG can bring no guidance. In addition, the U.C.C. not only deals with both commercial and consumer contracts, in many contractual contexts, it sets out different rules based on whether one or both parties is a merchant. The CISG makes no such [page 8] distinctions.[34] Within Article Two, there is a constant and delicate balance between commercial and consumer contracts [35] -- a coordination unnecessary in the CISG.

Also missing in the provisions of the CISG are the broad protections in Article Two against unconscionable contracts,[36] as well as the provisions that provide claims against remote sellers without privity of contract.[37] In addition, adopting within the sales provisions the common law principles of good faith purchasers, Article Two governs the effect of a contract for sale on certain interests in the goods claimed by third persons.[38] To the extent that the proposed revisions of Article Two promote stronger consumer protection and lessen the privity requirements the differences in scope between the CISG and the U.C.C. will increase.

2. Definitional Changes

In the Revised Article Two, there are small anticipated definitional changes that coincide with modern electronic business practices. For example, "authenticate" replaces "signed." [39] This reflects the fact that electronic commerce is here and that much contracting is done by electronic communication. The full extent to which electronic commerce will effect Article Two is unclear, although as the drafting process of Article Two is coming to an end, much will be left up in the air. [page 9]

The Article Two definition of good faith will be expanded as "honesty in fact and the observance of reasonable commercial standards of fair dealing" for all sales contracts, thereby incorporating both a subjective and objective standard.[40] The present Article Two definition applies only to merchants.[41] This revision will expand the definition to all persons in a sale of goods contract, and this is consistent with the other revised articles of the UCC.

Because of the rise of electronic sales, and the implications of these on consumers, what used to be simple definitions, such as "conspicuous," have now become much more complicated. The current proposed definition of conspicuous is "with reference to a term, means so displayed or presented that a reasonable person against whom it is to operate would likely have noticed it or, in the case of an electronic message intended to evoke a response without the need for review by an individual, in a form that would enable the recipient or the recipient's computer to take it into account or react to it without review of the message by an individual."[42]

3. Statute of Frauds

NCCUSL, at the 1996 Annual Meeting (faced with a unanimous Drafting Committee) approved the decision to abolish the statute of frauds. Support for the continuance of the statute has nearly always been based on a misunderstanding of how the statute works, and a failure to appreciate that the abolition of the statute would merely allow a party the right to prove the existence and terms of the contract. Merely meeting the requirements of the statute has never sufficed alone as additionally proving the existence and terms of the agreement.

Be that as it may, succumbing to widespread disapproval of industry, as well as the serious consideration of whether the abolition of the statute of frauds would hinder the adoption of the revisions in state legislatures, the Drafting Committee, in November 1996, agreed that some [page 10] version of the statute of frauds should be restored and a draft section has now been prepared. It is generally conceded that the $500 threshold amount is too low, and it is proposed that $5,000 is a better minimum amount for the revised statute of frauds.[43]

There are, of course, legitimate reasons to retain the statute of frauds in Article Two. Assuming that one concludes that a statute of frauds is not needed in sales contracts to filter out perjured claims (and that use of the defense often promotes fraud), it does make sense that Article Two should be consistent with the law governing the leasing of goods and the proposed law governing the licencing of intangibles, both of which have statutes of frauds. Furthermore, the presence of the statute tends to channel behavior toward reducing agreements to writing. Also, the statute of frauds defense allows the resolution of contract formation issues on a summary judgment motion. It should be noted that the retention of the statute of frauds is inconsistent with the CISG[44] as well as the trend in other jurisdictions, such as the United Kingdom, to abolish it.

4. Parol Evidence Rule

The tinkering with the parol evidence rule has become somewhat of a cottage industry with the drafting process. The current proposed draft reads as follows:

(a)   Terms on which confirmatory records of the parties agree, or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to the included terms, may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. However, terms in a record may be supplemented by evidence of:

(1) consistent additional terms unless the court finds that:

(A) the record was intended as a complete and exclusive statement of the terms of the agreement; or

(B) the additional terms if agreed upon by the parties would [page 11] certainly have been included in the record; and

(2) course of performance, course of dealing, or usage of trade.

(b) Terms in a record may be explained by evidence from course of performance, usage of trade, or course of dealing without a preliminary determination by the court that the language used is ambiguous. Terms in a record may also be explained by evidence from the surrounding circumstances and other sources as determined by the court.[45]

The draft continues the tradition of covering in one section both the question of what terms are part of the agreement (subsection (a)) with the process of interpreting the meaning of the terms (subsection (b)).

Subsection (b) has sparked much debate. Although the major American commentators, such as Wigmore, Llewellyn, and Corbin, as well as the more thoughtful American judges, such as Traynor, have agreed that one should look beyond the document itself, there are many trial courts [that] do not follow this practice, and these courts have resolved the question of interpretation from the plain meaning of language within the four corners of the record. The argument to support "the plain meaning rule" is that it gives finality to the language of the document without having to pursue litigation on the question of integration. It also protects sellers from the statements of their sales personnel: a legitimate fear of sellers, but also a minefield for buyers.

The lack of conclusiveness of merger clauses is suggested in the reporters' commentary to this section. It has been strongly argued that in commercial contracts, subject to the usual defenses of fraud, mistake, and unconscionability, merger clauses should be considered conclusive on the question of intention. To date, however, the drafting committee has been unwilling to adopt the minority view of merger clauses as absolutely controlling the determination of party intent.

5. Formation in General

Formation questions, such as the traditional problems of the battle of the forms, has vexed the Article Two Drafting Committee since the [page 12] beginning of the revision process. For example, in an attempt to anticipate a variety of specialized problems, by November 1996, the Drafting Committee had formulated several specific sections to resolve formation problems. At that time, the draft was designed to deal with all formation questions, including contracts covered by the provision which specifically covered agreements where all or part of the terms of the agreement are contained in a standard form (the offer) to which the adhering party manifests assent (the acceptance). Built in to the draft were specific conceptualizations of standard forms as a definite and discreet formation problem. At the November 1996 meeting, the Drafting Committee voted to delete the provisions dealing with assent to standard forms eliminated the distinction between a "record "and a "standard form" which had been built into the draft. This decision was reaffirmed by the Drafting Committee in January 1997. Therefore, although commercial transactions often involve the use of standard forms and standard terms, Revised Article Two provides no special rules to deal with them as separate from any other formation question. The risk of unfair surprise and unreasonably favorable terms is left to the doctrine of unconscionability.[46]

At present, formation questions in general are dealt with in two sections, one dealing with formation in general,[47] and another section dealing with offer and acceptance in the formation of contracts.[48] Post [page 13] formation questions as to what terms are included in the agreement are also covered in a proposed section concerning the battle of the forms.[49]

In transactions where terms in the records of one or both parties appear to prevent agreement, the issue of formation is treated in part (b) of Revised Section 2-204 and part (a)(1) of Revised Section 2-206 rather than former provision on the battle of the forms.[50] After it has been determined that a contract has been formed, the question of what terms in a record are included in the agreement is treated in new section on standard forms in consumer contacts where consumer contracts are involved as well as in Revised Section 2-207.

Under basic contract law, either party can condition the formation of a contract upon an agreement by the other party to the terms proposed.[51] Under the proposed revision, where either the offeror or the person purporting to accept an offer expresses that condition in a record, the condition is not effective unless the language is conspicuous.[52] Whether it is conspicuous or not may depend on whether the language is in standard terms or boilerplate.[53]

Revised Article Two follows the original Article Two formulation: unless the offer clearly provides otherwise, a definite acceptance creates [page 14] a contract even though the acceptance contains terms in a record that vary the offer.[54] Unlike the Restatement (Second) of Contracts[55] and Article 19 of the CISG,[56] a definite acceptance containing terms that materially vary the terms of the offer can create a contract.[57] Of course, the offeree can avoid a contract by expressly stating that no contract exists unless the offeror agrees to the offeree's standard terms.[58] Presumably, if both parties state that they will not be bound unless the other agrees to their terms, there is no contract unless there is subsequent conduct by both recognizing the existence of a contract.

6. The Warranty in the Box

Modern mass product marketing has created a new problem in contract formation that is generally referred to as the "warranty in the box" problem.[59] The problem is simple; the solution not so simple. Many mass produced goods are sold through direct marketing, and the buyer is only exposed to, and therefore has knowledge of the terms by which the seller is willing to conclude the agreement, after the buyer has paid for and received the goods. (The terms being the placed in the materials that the buyer receives with the goods themselves.)

Sellers want the power to sell this way, because it allows the possibility of sales by phone, the internet and fax, and still allow the seller to control the terms of the agreement, and thereby set the level of risk the seller is willing to engage in in the agreement. As this type of marketing has seen a huge growth in recent years, it is obvious that the consuming [page 15] public desires to be able to purchase goods in this manner.

However, this type of sale places a tremendous burden on traditional contract theory. Normally, by the time the customer has ordered, received and paid for the goods, the contract formation period would be assume to have passed. Therefore, any new terms that the seller attempted to impose on the buyer would be considered a modification of the agreement. Unless the buyer assented to the new terms, the new terms would not be a part of the agreement.

Several courts have taken the position that the contract formation is essentially a "rolling" agreement, and the agreement is not concluded until the buyer receives the goods and the new terms, has an opportunity to review the terms, and then reject and return the goods if the new terms are unacceptable.[60] This sleight of the hand trick conveniently gets rid of the knotty contract modification problem. However, by doing so, the reasonable expectations of buyers, as well as what may be considered the reasonable duties to be placed on buyers has been run over roughshod. The problem is this. Should we impose on buyers the obligation to be bound to any terms that they were unaware of at the time the buyer reasonably assume the deal was concluded? And if so, is it reasonable to place upon the buyer the burden to then reject the good and return them? And if we conclude that sellers can never control contracts in this manner, do we eliminate a type of commerce that consumers clearly want?

It is within the confines of these concerns that Revised Article Two has tried to balance the legitimate interests of both buyers and sellers. However, because of a total inability of agreement by interested parties, as well as disagreement by the drafting committee on the proper procedures to adopt, Revised Article Two simply does not address this problem directly, but instead leaves this problem to judicial development. In many respects, the fears that buyers, at least consumer buyers, may have about the procedures by which sellers introduce terms that are unknown at the time of contract formation, are mitigated by the new provision, discussed below on unenforceable terms in consumer contracts. This is so because if a court is empowered to delete unfair terms based on the [pace 16] substance of the terms, the fairness of the procedure for determining whether those terms are deemed to be in the contract is not as important.

7. Unenforceable Terms in Consumer Contracts

The question of when a consumer is bound to a standard term in a consumer agreement is provided for in a new provision dealing with unenforceable terms in consumer contracts.[61] The broad answer provided by this provision is that in a consumer contract a court may refuse to enforce a standard term in a record that varies materially from reasonable commercial standards of fair dealing or conflicts with one or more terms in the record.[62] This new consumer protection is quite controversial with several industry groups, and it is unclear exactly how this differs from the doctrine of unconscionability. The intent of the drafting committee is to provide a mechanism for courts to disengage offensive or unfair terms based on the substantive unfairness of the term irrespective of whether there is the procedural requirement of unconscionability present.[63] Whether this provision will survive the drafting process is yet to be seen.

8. The Battle of the Forms

The battle of the forms is an issue of seemingly no resolution, and it has prompted the Drafting Committee to more drafts.[64] The second version had a more simplified structure that focused on the issue of unfair surprise. Assuming that some contract was formed under the provisions governing formation, the sole question this draft attempted to answer was whether "varying terms" became part of the contract. and more [page 17] discussion than any provision in the sales code. The original Section 2-207 was both an exception to the common law "duty to read" principle and a particularized application in commercial cases of the unconscionability doctrine.[65] The section applies to determine if there is a contract for sale when the writings of the parties are in conflict, and if so, what terms in the writings of the parties are part of the contract. One objective of the revision process is to neutralize any strategic advantage gained where standard terms were used (although Section 2-207 was not limited to standard terms) and to reduce the risk of unfair surprise where one party apparently agreed (assented by conduct) to standard terms which had not been read or understood. The assumption is that even in commercial transactions the risk of unfair surprise requires special rules where standard terms are involved. More particularly, it assumed that commercial parties in unstructured transactions (i.e., no record containing all the terms of the contract) do not have a realistic opportunity, or should not be expected to review the standard terms of the other before apparently assenting by conduct.

The most recent manifestation of the battle of the forms provision provides:

(a)    This section is subject to Section 2-105 [Unconscionable Contract or term] and 2-206 [Unenforceable terms in Consumer Contracts].
 
(b) Unless otherwise provided in subsection (d), if a contract is formed by offer and acceptance and the acceptance is by a record containing terms additional to or different from the offer or if the conduct of the parties recognizes the existence of a contract but the records of the parties do not otherwise establish a contract for sale, the terms of the contract include:

(1) terms in the records of the parties to the extent that they agree;

(2) non-standard terms, whether or not in a record, to which the parties have otherwise agreed;

(3) standard terms in a record supplied by a party to which the other party has expressly agreed; and [page 18]

(4) terms supplied or incorporated under any provision of [the Uniform Commercial Code].
 

(c) Unless otherwise provided in subsection (d), if a party confirms a contract by a record received by the other party that contains terms that add to or differ from the previous agreement, the terms of the contract include:

(1) terms in the confirmations of the parties, to the extent that they agree;

(2) terms to which the parties have previously agreed;

(3) standard terms in a confirming record that add to or differ from the previous agreement to which the other party expressly agrees; and

(4) terms supplied or incorporated under any provision of this article.
 

(d) In this section, a term is not expressly agreed to by the mere retention or use of goods.[66]

The section deals with two special cases where disputes over terms may arise. First, where both parties exchange records, and second, where one party uses a record to confirm a contract previously formed, and states what terms are included in, and by necessary implication excluded from, the agreement. Therefore, terms upon which the records agree in substance are included, but terms on which the records do not agree are excluded, unless they become part of a modification under the provision governing modifications. This is a simple and straightforward proposition, however, when reduced to a statute, as with the existing section 2-2-7, it becomes a dense and complex piece of legislation. For this reason, as I have argued elsewhere,[67] this is one area where the simple common law rule, or the approach in the CISG,[68] would have been more successful. [page 19]

9. Personal Injury and Property Damage to Property Other Than the Goods Sold

The ALI has suggested, that based on the proposed Restatement (Third) of Products Liability, which covers the traditional areas of tort damages -- personal injury and property damage other than to the goods sold -- that the Revised Article Two should limit itself to economic harms not covered by tort law. The Drafting Committee has not adopted this idea, and the definition of loss includes personal injury and property loss resulting from a breach of warranty, hence there is no wholesale deferment to the law of tort.[69]

Revised Article Two does not state when the applicable tort law preempts warranty law in Article Two. To the extent that the goods are defective, tort law should be available. To the extent that express or implied warranties are made that are broader than the tort test for defect, Article Two should apply. The Drafting Committee has been reluctant to restrict judicial flexibility in this area, particularly where contract expectations are the basis for the claim. Thus, the remote possibility exists that goods which are not defective under tort standards (i.e., no design or manufacturing defect) may still be unmerchantable. Because the claim for personal injury or property damage in Article Two arises from a contract, the buyer must jump through all the contract hoops, such as the requirement of notice,[70] the question of whether there has been effective [page 20] disclaimers,[71] and the warranty statute of limitations in order to recover.[72]

As with present Article Two, Revised Article Two assumes that if the buyer is in privity with the seller, the rule would work as follows. Assume that a buyer purchases a component for installation into his equipment. Some time later, the buyer claims that a problem with the component caused: (1) damage to the component; (2) a shutdown of part of the factory until repairs and replacement; (3) damage to the equipment in which the component was installed; and (4) personal injury to the buyer and an employee. All of these losses are within the definition of damage in Revised Article Two, including the personal injury and the property damages.[73]

Where the buyer is not in privity, there are different and more stringent requirements to recover from the breaching seller. The remote buyer cannot recover unless the buyer meets either the requirements of the special provision on express warranties made to the public [74] or the special provision on the extension of warranties.[75]

10. Express Warranties

Express [76] warranties are now dealt with in two sections; one provision covering express warranties made to an immediate buyer,[77] and another provision covering express warranties made to remote buyers.[78]

The section on express warranties to a direct buyer clarifies that an affirmation of fact, promise, description or sample becomes a "basis of the bargain" if the buyer alleges and proves what the seller represented or promised the buyer about the goods. In other words, reliance is assumed. [page 21] This is consistent with the comments to the present section on express warranties and most of the case law. To take the representation or promise out of the agreement, one of three standards must be met: the immediate buyer did not know of the representation and knew that it was not true,[79] a reasonable person in the position of the immediate buyer would not believe that the representation was part of the agreement,[80] or in the case of a representation made in a medium for communication to the public, the immediate buyer did not know of it at the time of the agreement.[81]

This section retains the long established distinction between a representation that creates an express warranty and mere "puffing".[82] In other words, was the language an opinion, commendation, or a general valuation rather than a representation or promise about the goods? What the drafting committee has been struggling with is whether this determination is properly one whose burden should be on the buyer and seller. After much movement back and forth, the present draft simply leaves the issue open.[83]

Instead of a unitary provision on express warranties, Revised Article Two now provides for a separate section on express warranties to remote purchasers.[84] This new provision is concerned with two types of indirect warranties. First, it covers the "pass through" warranty, including the "warranty in the box," made by a seller (usually a manufacturer) to remote purchasers and their transferees through an authorized intermediary (usually a retailer in the chain of distribution) who is not an agent of the seller.[85] Second, this section covers warranties made to remote buyers [page 22] through a medium of communication to the public, such as advertizing.[86] The obligation created by this section is independent of any contract between the remote purchaser and the intermediary retailer.

For the pass through warranty, the seller's obligation to the remote purchaser arises when the goods are delivered to or received by the remote purchaser, whether or not the purchaser has knowledge of the terms.[87] Nevertheless, the alleged affirmations or promises do not create an obligation if a reasonable person in the position of the remote purchaser would believe that a promise was not made or the affirmation was mere puffing.[88]

The assumption underlying this subsection is that the seller has no other warranty (or contractual) obligation to the remote purchaser. Thus, the seller should be able to define what affirmations or promises are made with the understanding that no implied warranties are created. In short, there is no need to disclaim that which does not exist.

The second type of proposed new express warranty for remote buyers deals with warranty obligations arising from communications to the public. When a remote purchaser, who possesses knowledge of an affirmation of fact or promise made by the seller to the public, purchases the goods from a seller or lessor in the chain of distribution, the seller making the affirmation or promise has an obligation to the remote buyer if the goods fail to conform, unless the remote buyer or lessee, as a reasonable person, would believe that no promise was made or that the affirmation was puffing.[89]

The following illustrations[90] show how the two new express warranty provisions operate.

      1. A seller advertises its product in trade journals, on the internet and on television. The buyer buys the goods from the seller, directly or through an agent. Whether the advertisement is an express warranty and [page 23] part of the agreement is determined under the provision governing express warranties made to direct buyers.

      2. A seller advertises as in example one above, and the buyer purchases directly from the seller. The buyer ordered by facsimile and paid by credit card before the goods arrived. The goods arrive in a box, which contains additional warranties and terms limiting remedies. This is not a pass through warranty under the provision governing express warranties of remote buyers, but instead, is governed by the other provisions of Article Two, which determine whether the terms in the box are part of the agreement.

      3. The seller advertises as in example one above, and the buyer purchasers the goods from a retailer. In the box are warranties and limitations prepared by the seller, which the retailer was authorized to deliver to the buyer. Because there is no contractual relationship between the buyer and the seller, the provision on pass through express warranties governs the terms in the box, and the provision on express warranties to the public governs the advertising.

      4. A seller advertises as in example one above, and the buyer purchases from a retailer. There are no pass through warranties. The status of the advertising is determined by the provision on express warranties to the public.

In a fundamental break from the vast majority of case law, the Revised draft provides for consequential damages suffered by a remote purchaser, subject to two exceptions: a valid exclusion clause, or the recovery of lost profits by a remote purchaser when the claim is under the provision for express warranties created by advertising to the public.[91]

11. Risk of Loss

For questions of risk of loss, current Article Two distinguishes between those situations where one party is otherwise in breach and where there is no breach.[92] Because the risk of loss rules are based on questions of the physical proximity of goods and who is in the best [page 24] position to insure the risk, it has often been argued that questions of breach should be irrelevant to the determination of which party should have the risk of loss. At this time, however, the drafting committee has continued to make the distinction, for risk of loss purposes, whether a party is in breach.[93]

12. Perfect Tender Rule

Although discussed at great length, the "perfect tender rule"[94] remains the basis for a seller's breach in Revised Article Two. Thus, Article Two will not adopt the general common law concept of "substantial performance" or "material breach."[95]

13. Reasonable Use After Revocation of Acceptance

The revisions now clarify a concept which had been developed in much of the case law. If a buyer reasonably continues to use goods after revoking acceptance, then the buyer is responsible for the reasonable value of the use.[96]

14. Cure

The Drafting Committee has taken the position that under proper circumstances, the seller has the right to cure not only after rejection, but also after revocation of acceptance.[97] The present Article Two is unclear about this,[98] and cases have been inconsistent. [page 25]

15. Election of Remedies

Article Two provides the following alternative measurements of damages for a seller: the difference between the contract price and the resale price,[99] and the difference between the contract price and the market price at the time and place of tender.[100] A similar measurement is provided for aggrieved buyers.[101] The present code is silent on the question of whether a seller, who properly resells goods, can elect to get the contract price-market price measure of damages when that measurement would yield the seller more damages. The present code is also silent on whether a buyer that covers can elect damages under the contract price-market price differential, although the comments to section 2-713 in the current code suggests that this would be impermissible. After much debate, the drafting committee decided in September, 1998 to allow full election of remedies, and therefore, an aggrieved buyer or seller can choose any statutorily authorized measure of damage irrespective of whether that party has resold or covered.[102]

III. Why the Lack of Influence of International Commercial Law on the Revision of Article Two

There appears to be several reasons why the revision of the sales provisions of the UCC has been immune to the influence of the CISG and other international commercial law regimes. In this section of the paper, I will discuss what I believe to be the reasons for this.

Given the Mandate to the Drafting Committee, the Drafting Process Is Inward Looking, Making a Focus on International Law Difficult

To understand the process and direction of the Article Two Revision project, one must first understand the mandate given to the drafting [page 26] committee to revise Article Two.[103] The mandate is to revise the sales provisions, not to draft a new sales code. The revision is driven by the idea that the current code is not reflective of current business practices, particularly in areas such as consumer protection, warranty and products liability, and third party rights in sales contracts, as well as emerging electronic modes of contracting.[104] For this reason, the focus has been on the existing code and how it can be changed to reflect modern business practices and the better reasoned cases that have interpreted the Code. This focus tends to be inward looking -- always focused on the exiting code itself, and therefore the comparisons with other codes such as the CISG and the UNIDROIT principles tend to be incidental as opposed to deliberate.[105]

In addition, the process of open NCCUSL drafting,[106] with its heavy influence of interest groups familiar with the code and its problems (or simply the desires of specific interest groups) keeps the focus on the existing code. In allowing the full participation of all of the participants, the conversation rarely moves beyond the text of the existing statute or the language of a proposed revision. These are the concerns of the [page 27] participants to the process, and therefore this is where the discussion and drafting are centered.

Moreover, beyond the actual mandate of the drafting committee to revise the existing code there is also the question of familiarity. The members of the drafting committee, the advisors, and the observers to the process are all familiar -- very familiar with the UCC.[107] This common language and familiarity keeps the focus on the UCC.

The CISG as a whole is not An Appropriate Model for the Revision of Article Two.

Even to the extent that the drafting committee has been able to look outward to other legal systems for guidance, the CISG has not proven to be an appropriate model for the revision. There are several reasons for this which I discuss below.

1. Different Legal Traditions

The present Article 2 was drafted and operates within a context of established principles of common law contract law.[108] To the extent that Article Two does not displace the common law of contract, the common law is part of the operative principles that govern domestic sales law.[109]

Unlike the UCC, the CISG, as with all successful international conventions, is not based on any particular set of underlying established domestic legal principles, and instead, was drafted to be independent of, [page 28] rather than to work in conjunction with, any particular domestic law.[110] Without a common legal framework for both the U.C.C. and the CISG as background, because the drafting committee has never considered jettisoning the common law background of the UCC, the CISG does not fit neatly as a model for a revised Article Two.[111]

To the degree that one can attach a specific legal tradition to the CISG, an analysis would show that it is a blend of both the common law and civilian traditions.[112] One sees this clash of civil law and common law legal cultures, for example, in areas such as specific performance, [113] where the CISG has a more liberal civilian allowance for it, and the doctrine of impossibility, where the CISG also takes the more liberal civil law approach.[114]

2. Article Two Part of A Broader Unified Commercial Code

Another significant difference between Article Two and the CISG is the fact that Article Two is an integral part of the Uniform Commercial Code, and its logic, terminology and substantive rules have to conform to the articles on leases of goods, commercial paper, electronic funds [page 29] transfers, letters of credit, documents of title and secured transactions.[115] Unlike Article Two of the UCC, the CISG is an independent statute that does not attempt to fit within the broader framework of a larger code.

There are other important differences between the CISG and Article Two. For example, CISG has no statute of frauds.[116] UCC does not have a counterpart to Article 12 because a writing is mandatory under the UCC. Although there has been debate on whether the Revised Article Two should retain the statute of frauds,[117] and the absence of one in the CISG being one argument for its abolition,[118] it appears unlikely now that the statute of frauds will be removed from Article Two.

There are other areas of concern in the Article Two revision that are also outside the scope of the CISG. For example, the CISG also does [page 30] not have a parol evidence rule.[119]

In addition to the points made above about the differences between the scope of Article Two and the CISG, it should also be pointed out that the Revision Committee has not approached the question of the scope of Article Two in a consistent manner, nor has the committee always assumed that the scope of the Revised Article Two would reflect the same scope as the present Article Two. In fact, the contours of Article Two have expanded and contracted greatly over the revision process, and this examination and re-examination of scope has taken up much of the energy of the drafting committee. In doing so, this discussion has led the process further afield from considerations of external legal rules such as the CISG by further focusing the attention of the revision to the narrow question of what should Article Two look like.

3. The Primary Goal of the Revision Process is Not Met by the CISG

Another reason why the CISG has not proven to be an appropriate model for the revision of Article Two is because the primary goal of the revision is not met by the CISG. One of the major reasons for the revision of Article Two is the need to conform the code to the change in business practices which have come about in the last fifty years since present Article Two was drafted. While it is true that Article Two in its present form does not respond to modern electronic and computer based business transactions,[120] neither does the CISG, and therefore the CISG cannot serve as a model to revise Article Two in light of electronic commerce.[121] [page 31]

4. Incompatible Structural Differences

Another reason why the CISG has not been an appropriate model for the Article Two revision is because of several incompatible structural differences in which the two regimes treat basic legal concepts. For example, an important structural difference between the CISG and Article Two involves the buyer's rights when the seller tenders non-conforming goods. Under the U.C.C., upon delivery of non-conforming goods, the buyer can choose between acceptance and rejection of the goods.[122] Unlike Article Two, the CISG does not provide a similar structure of rejection and acceptance as found in Article Two, and under the CISG the buyer can require the seller to repair or replace the goods only in the case of a fundamental breach.[123] It is important to note that this difference in standards in the ability to avoid a seller's performance transcends many areas of sales law, particularly the right to cure as well as the entire damages scheme.[124]

The law of warranty is another good example of where the basic structure of Article Two is fundamentally different from the CISG, and therefore keep the CISG from being an appropriate model for the reform of Article Two.[125] Both the CISG and Article Two have the basic presumption that the seller must tender goods that conform to the contract.[126] Under Article Two, this proposition is resolved under a theory of warranty.[127] The American law of warranty is an outgrowth of a long [page 32] history of common law responsibility having roots in both contract and tort. [128] The U.C.C. rules are very much grounded in this history, and there has been no suggestion of or reason put forth to depart from this history.

In contrast, the CISG does not have a general theory of warranty. Instead, the CISG simply provides a series of mandates, such as that the seller "must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract."[129] Interpretation of the terms are not set out in the articles on seller's responsibility concerning the goods, but are covered by the general article on interpretation of agreements.[130]

I have suggested elsewhere that the standard of conformity under the CISG are virtually the same as those imposed under Article Two of the UCC, and that the difference is only one of terminology.[131] Therefore practically there will be no difference in the result found under the two regimes. Yet, for purposes of drafting, whether the difference is actually substantive [132] or only one of terminology, the difference is significant, for under the UCC, a revision will always be looking to the language of warranty and the well established rules base on this language. As the CISG does not work in terms of "warranty", it cannot serve as a model for the Article Two revision in this area.

This point is emphasized in terms of modification and disclaimers [page 33] of warranties. Since the term "warranty" is not used, the CISG has no provision dealing with the "exclusion or modification" of warranties. Rather, disputes over quality turn on what the contract "required" under Article 35(1) and whether the parties have "otherwise agreed" under Article 35(2). Unlike Article Two, no special rules for interpretation are provided in these cases, nor are there special procedures for exclusions or modifications.

5. Incompatible Substantive Differences

Another reason why the CISG has not proven to be an effective model for the Article two revision arises from several major substantive differences between the UCC and the CISG: differences that are not likely to be changed by the revision process. Two areas of importance are the standards for rejecting goods under a contract and the question of third-party non-privity rights.

Under the U.C.C., a buyer can reject the goods "if the goods or the tender of delivery fail in any respect to conform to the contract".[133] This rule, known as the "perfect tender rule," effectively negates the common law contract rule of requiring a "material breach" as a basis for the rejection of goods. The purpose of this rule is to give certainty to buyers as to their right to reject goods instead of having to guess whether the non-conformity in the goods or the tender of the goods resulted in the amorphous notion of a "material breach".[134] Although sometimes criticized as not reflecting actual business practices and party expectations,[135] the drafting committee has considered the rule in light of possible alternatives, including the CISG, and the committee has consistently decided to keep the present rule in the revision.[136]

In distinction to the U.C.C., generally under the CISG, a buyer may only refuse delivery of non-conforming goods or a non-conforming tender of the goods only if the non-conformity amounts to a "fundamental [page 34] breach" under Article 25 of the CISG.[137] There is one other situation other than a fundamental breach that allows a buyer to avoid the contract. Under article [49], the buyer may also avoid the contract if, in the case of non-delivery, the seller does not or will not deliver the goods within the additional time fixed by the buyer under article 47.

This requirement for avoidance of the contract makes sense in the prototypical international sales agreement in which goods are to be shipped transnationally. In this case, something more than some defect should be required to disengage a contract between parties who may be several thousand miles away. This difference between the U.C.C. and the CISG in the standards for avoiding agreements not only sets up a basic dissimilarity in the performance of contracts, but it also affects the remedial structure of the two regimes. For this reason, it is difficult to make meaningful comparisons between the two systems for purposes of drafting one code based upon the other. For example, the alternative remedies of "cover"[138] or "market damages"[139] for an aggrieved buyer depend upon a proper avoidance of the contract. These damages would not be available were the buyer to retain the non-conforming goods, and under the CISG, absent a fundamental breach, the buyer would be retaining the non-conforming goods. If you add to this difference in the standards by which a party is entitled to these remedial rights under the U.C.C. and the CISG the additional civil law preference for specific performance found in the CISG,[140] you find levels of complexity in the comparison of the U.C.C. and the CISG that make the reliance on the CISG less than fruitful.

Another area of significant concern in the Article Two revision is the question of the extent to which parties not in privity will have rights in sales contracts. The present version of Article Two, having come at [page 35] the time of the emergence of modern product liability law, shows the confusion and indecision that questions of privity brought to the drafting process at the time it was written.[141] The question of privity, and how far responsibility will be extended to parties who are not in privity continue to be one of the most contentious areas of debate in the revision process: a debate concerned with the scope of seller liability to third parties either through traditional derivative third party liability [142] or the possibility of new direct warranty rights either through advertising or pass through warranties.[143] And it must be remembered that these arguments about the scope of seller responsibility go beyond the abstract question of the purpose of the doctrine of privity in contract, and are in addition, intertwined into the question of how much consumer protection will be built in to the structure of Article Two.[144] Under the present Article Two, the privity requirement has been eroded by the courts, as well as greatly extended in the various alternative versions of Article Two itself.[145]

Yet, this question of privity is another area which the CISG brings no guidance. CISG Article 35(1), by limiting quality disputes to what the contract requires, applies only to the two-person sale between commercial parties. No article of the CISG extends the responsibility to a remote buyer, either directly or through a third party beneficiary concept.[146] Where the UCC has deeply embedded within it the protection of consumer interests, these interests are simply not part of the CISG. [page 36]

Any discussion on the influence of international commercial law on the revision of Article Two has to take into consideration that there are a great number of rules proposed in the revised draft, many of which are in the present draft, that are consistent with the approach of the CISG, but were not chosen as appropriate because they are in the CISG, but instead, simply evolved as consistent with common business practices or otherwise thought to be consistent with the rest of the provisions in Article Two. Examples of this include such default rules as payment is due at the time of delivery of the goods,[147] the buyer must give the seller notice of the defect to rely upon the defect as a basis for the breach,[148] the buyer has a right to inspect before payment,[149] and, a general duty to mitigate consequential damages.[150]

There are, of course, many other examples of this.

Conclusion

Since 1992, the sales provisions of the Uniform Commercial Code have been under revision. As with the predecessor code, the drafters have used the common law within the context of perceived actual business practices as the model for the revised code. Within this tradition, the drafting committee has chosen not to use the CISG as a model for the revision. Although there has been a move toward a more unified, global set of legal standards in many areas of commercial law, this is not the case with the sales provisions of the American Uniform Commercial Code. [page 37]


FOOTNOTES

1. The purpose of the NCCUSL is to determine what areas of private state law might benefit from uniformity among the states, to prepare statutes or "uniform acts" to carry that object forward, and then to have those statutes enacted in each jurisdiction represented in NCCUSL. NCCUSL was created in 1892, and it consists of representatives ("Commissioners") from each state, the District of Columbia, Puerto Rico, and the United States Virgin Islands. The Commissioners are appointed by their respective states, either by the state's governor or the legislature of the state. For a more through discussion of the structure and function of NCCUSL, see Gabriel, The Revision of the Uniform Commercial Code in the United States and Its Implications for Australia, 24 Monash L. Rev 291, 292 (1998). Fred Miller, the Executive Director of NCCUSL has an excellent discussion of the process of NCCUSL drafting committee meetings in Fred H. Miller, The Uniform Commercial Code: Will the Experiment Continue?, 43 Mercer L. Rev. 799 (1992). For a more specific commentary on the revision of the Uniform Commercial Code, see Fred H. Miller, Realism not Idealism in Uniform Laws - Observations from the Revision of the U.C.C., 39 S. Tex. L. Rev. 707 (1998).

2. The ALI, organized in 1923, is an organization of a group of prominent American judges, lawyers, and teachers whose purpose is "to promote the clarification and simplification of the law and its better adaptation to social needs, to secure the better administration of justice, and to encourage and carry on scholarly and scientific legal work." The work of the organization is primarily the drafting of a series of restatements of the basic law. Although the work of the ALI is highly influential, the organization is not a governmental body, and its influence arises from the prestige of its members and the work they produce.

3. The fact that the legislation had to pass the legislatures of fifty-one jurisdictions, and also has some non-uniform amendments by some states, has not been a problem for the creation of a general uniform commercial law in the United States, as the U.C.C. has accomplished.

4. Uniform Negotiable Instruments Law (1896).

5. Uniform Sales Act (1906).

6. Documents of title were governed by both the Uniform Warehouse Receipts Act (1906) and the Uniform Bills of Lading Act (1909).

7. Uniform Conditional Sales Act (1918) and the Uniform Chattel Mortgage Act (1926).

8. This article is presently being revised, with a completion date of 2000.

9. This article is presently being revised, with a completion date of 1999.

10. This article was drafted in 1989, with a revision due in 1999.

11. This article is due to be completed in 1999.

12. This article was last revised in 1990.

13. This article was last revised in 1990.

14. This article was promulgated in 1989.

15. This article was revised in 1995.

16. Revised in 1994.

17. Presently being revised, and due for completion in 1998.

18. United Nations Convention on Contracts for the International Sale of Goods, Final Act, U.N. Doc. A/CONF. 97/18 (1980), reprinted in S. Treaty Doc. No. 9, 98th Cong., 1st Sess., and in 19 Int'l Legal Materials 668 (1980).

19. United Nations Convention on International Bills of Exchange and International Promissory Notes (1988); UNCITRAL Legal Guide on Electronic Funds Transfers (1987); UNCITRAL Model Law of International Credit Transfers (1992); United Nations Convention on Independent Guarantees and Standby Letters of Credit (1995); Convention on the Limitation Period in the International Sale of goods (1974), International Countertrade Transactions (1992); United Nations Convention of the Carriage of Goods by Sea (1978); United Nations Convention on the Liability of Operators of Transport Terminals in International Trade (1992).

20. And this has happened to some extent. For example, the revision of Uniform Commercial Code Article Five: Letters of Credit was greatly influenced by the current International Chamber of Commerce Uniform Customs and Practice for Documentary Credits. (The "UCP"). Katherine A. Barski, Letters of Credit: A Comparison of Article 5 of the Uniform Commercial Code and the Uniform Customs and Practice for Documentary Credits, 41 Loy. L. Rev. 735 (1996). Acknowledging that the UCP is the major source of law governing most international letter of credit transactions, and that the UCP reflects current business practices, the drafting committee consciously drafted Revised Article Five to be in harmony with the UCP.

21. On December 11, 1986, the United States ratified the United Nations Convention on Contracts for the International Sale of Goods which came into effect January 1, 1988. While many of its provisions mirror comparable provisions of the U.C.C., significant differences exist. UNCITRAL's accompanying convention, the Convention on the Limitation Period in the International Sale of Goods, was ratified by the United States and came into effect last December.

22. However, this is not to say that the U.C.C. has not been recognized internationally. In fact, the influence of the Uniform Commercial Code as a model for commercial law has received much international recognition. See e.g., Roy Goode, The Wilfred Fullanger Memorial Lecture: The Codification of Commercial Law, 14 Monash L. Rev., 135 (1988); Dame Mary Arden, Time of an English Commercial Code?, 56 Cambridge L. J. 516, 517-18 (1997); Anthony Duggan, U.C.C. Influences on the Development of Australian Commercial Law, 29 Loy. L.A. Law Rev. 991, (1996); Ronald C.C. Cuming, Article 9 North of 49 degree: The Canadian PPS Act and the Quebec Civil Code, 29 Loy. L.A. L. Rev., 971 (1996); Henri Gunato, The Impact of U.S. Law Propositions on Indonesian Commercial Law, 29 Loy. L.A. L. Rev., 1047 (1996).

23. See Braucher, The Legislative History of the Uniform Commercial Code, 58 Colum. L. Rev., 798, 799 (1958).

24. Gilmore, On the Difficulties of Codifying Commercial Law, 57 Yale. L. J.1341, 1341-42 (1948).

25. Ingrid Michelsen Hillinger, The Article 2 Merchant Rules: Karl Llewellen's Attempt to Achieve the Good, the True, the Beautiful in Commercial Law, 73 Geo. L. J. 1141, 1151-60 (1985); Kevin M. Teeven, A History of Legislative Reform of the Common Law of Contract, 26 U. Tol. L. Rev. 35, 73-75 (1994). The CISG was likewise drafted with the practical business implications in mind. Sono, UNCITRAL and the Vienna Convention, 18 Int'l Law. 7, 13 (1984).

26. PEB Study Group: Uniform Commercial Code, Article Two Executive Summary, 46 Bus. Law. 1869 (1991).

27. See generally, Richard E. Speidel, The Revision of U.C.C. Article 2, Sales in Light of the United Nations Convention on Contracts for the International Sale of Goods, 16 Nw. J. Int'l L. & Bus. 165 (1995).

28. Article Two has been in its present form since 1958. The CISG was promulgated in 1980. United Nations Convention on Contracts for the International Sale of Goods, Final Act, U.N. Doc. A/CONF. 97/18 (1980), reprinted in S. Treaty Doc. No. 9, 98yj Cong., 1st Sess., and in 19 INT'L LEGAL MATERIALS 668 (1980).

29. Another reason why it is appropriate that the Article Two revisions should take the CISG in to consideration is because, as with the U.C.C., the CISG is the law of the United States. The CISG is a self-executing treaty with the preemptive force of federal law. Unless otherwise agreed, CISG applies to "contracts for sale of goods between parties whose places of business are in different States. . .when the States are Contracting States." CISG art. 1(a). Because it is federal law, when the CISG is applicable it preempts the U.C.C..

30. References in the text to Revised Article Two are based on the most recent draft of the revisions, the March 1, 1999 draft. Current drafts of the Uniform Commercial Code may be found at <http://www.law.upenn.edu/library/ulc/ulc.htm>. In a couple of places in this text, the references are to the draft as it was changed from the March 1, 1999 draft at the meeting of the drafting committee from March 12-14, 1999.

31. Revised Section 2-103. For reasons discussed later in this paper, the CISG is simply not an appropriate model to base the scope provision of Article Two.

32. CISG art. 2(a).

33. The broad scope of Article Two is set out in U.C.C. 2-103: "[T]his article applies to transactions in goods". This scope provision is carried over verbatim in the proposed revision. Revised Article Two 2-103 (July 1997 draft). Article Two has always overlapped with the law of torts to provide for non-economic losses. U.C.C. 2-715(2)(b). The drafting committee has not suggested a change in this respect. Revised Article Two 2-806(a)(2) (July 1997 draft).

34. There is an implicit assumption in all international contracts that the parties are merchants, or at least reasonably knowledgeable about the standards of business transactions.

35. Consumer issues is one of the major flash points in the revision process. For examples of the debate, see e., Fred H. Miller, Consumer Issues and the Revision of U.C.C. Article 2, 35 William and Mary Law Review 1565 (1994);Yvonne Rosmarin, Consumers-R-Us: A Reality in the U.C.C. Article 2 Revision Process, 35 William and Mary Law Review 1593 (1994); Symposium: Consumer Protection and the Uniform Commercial Code, 77 Wash. Univ. L. Q. 1-672 (1997).

36. U.C.C. 2-302; Revised Article Two 2-105. Although the doctrine of unconscionability is not likely to be expanded in the Revised Article Two (at one time, it was proposed to include "unconscionable conduct" as well as "unconscionable terms"), the concept is simply ignored in the CISG, as being a concept that goes to the validity of the contract, and thus excluded under Article 4. It is interesting to note that the doctrine of unconscionability is one area of Article Two that is being exported to other countries. Anthony Duggan, U.C.C. Influences on the Development of Australian Commercial Law, 29 Loy. L.A. Law Rev. 991, 995-97 (1996).

37. U.C.C. 2-318; Revised Article Two 2-409.

38. U.C.C. 2-403.

39. Revised Section 2-102(2).

40. Revised Section 2-102(23).

41. Article Two 2-103(1)(b).

42. Revised Section 2-102(a)(11)(A).

43. Revised Section 2-201(a).

44. CISG Art. 11.

45. Revised Section 2-202. (As drafted after the March 12-14, 1999 drafting committee meeting.)

46. Revised Section 2-105.

47. Revised Section 2-203. This section provides:

      (a) A contract may be made in any manner sufficient to show agreement, including by offer and acceptance, conduct of both parties, or operations of electronic agents which recognize the existence of a contract.

      (b) If the parties so intend, an agreement sufficient to constitute a contract may be found even if the time of its making is undetermined, one or more terms are left open or to be agreed upon, the records of the parties do not otherwise establish a contract, or one party reserves the right to modify terms.

      (c) Even if one or more terms are left open, a contract does not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for an appropriate remedy.

      (d) Language that expressly conditions the intention to make a contract upon agreement by the other party to terms proposed prevents contract formation unless the required agreement is given or conduct by both parties recognizes the existence of a contract. However, an express condition contained in a record must be conspicuous.

48. Revised Section 2-205. This section provides:

      (a) Unless otherwise unambiguously indicated by the language or circumstances:

            (1) An offer to make a contract must be construed as inviting acceptance in any manner and by any medium reasonable under the circumstances. A definite and seasonable expression of acceptance operates as an acceptance even though it contains terms that add to or differ from the offer.

            (2) An order or other offer to buy goods for prompt or current shipment shall be construed to invite acceptance by either a prompt promise to ship or a prompt or current shipment of conforming goods or nonconforming goods. However, a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

      (b) If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance within a reasonable time may treat the contract as discharged.

49. Revised Section 2-207.

50. U.C.C. 2-207(1).

51. This has always been the law in the U.C.C. as well as the common law. See U.C.C. 2-207(1) (1990 Official Text).

52. Revised Section 2-203(d).

53. Revised Section 2-102(11).

54. Revised Section 2-205(a)(1).

55. Restatement (Second) of Contracts 59. This section, entitled Purported Acceptance Which Adds Qualifications, provides the following: "A reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer." Id.

56. Article 19 provides the following, in relevant part: "A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer." CISG Art. 19(1).

57. Revised Section 2-205(a)(1).

58. Revised Section 2-203(d).

59. This is also known as the "Gateway" problem, based on the discussion of the issue in the case of Hill v. Gateway 2000, Inc. 105 F.3d 1147 (7th Cir. 1997). See also, ProCD, Inc. v. Zeidenberg 876 F.3d 1447 (7th Cir. 1996).

60. Id.

61. Revised Section 2-206.

62. Id.

63. For the doctrine of unconscionability, courts have traditionally required both "procedural" and "substantive" unconscionability. The "procedural" aspect requires either that the term is an adhesion term (hidden in the agreement so that there is no effective notice) or that there is truly disparate levels of bargaining power. "Substantive" unconscionability is the aspect of the true unfairness and unreasonableness of the term.

64. The drafting history of Revised Section 2-207 has the most extensive history of any proposed revised section in Article Two. Initially, two versions of Section 2-207 were drafted. The first followed Section 2-207 in the 1990 Official Text and attempted to amplify and clarify it in light of its apparent objectives, the extensive academic commentary, and the judicial decisions.

65. U.C.C. 2-207.

66. Revised Section 2-207.

67. Gabriel, The Battle of the Forms: A Comparison of the United Nations Convention for the International Sale of Goods and the Common Law with the Uniform Commercial Code, 49 Bus. Law., 1053 (1994).

68. CISG Art. 19.

69. Revised Section 2-806. Article Two provides for damages for economic losses as well as damages to person or property. Therefore, a seller who makes and breaches an implied warranty of merchantability can be liable for consequential damages to person or property resulting from the breach. This does not resolve the tension between warranty law and tort law where goods cause damage to person or property. The source of that tension arises from disagreement over whether the concept of defect in tort and the concept of merchantability in Article Two are coextensive where personal injuries are involved. For instance, if goods are merchantable under warranty law can they still be defective under tort law, and if goods are not defective under tort law can they be unmerchantable under warranty law? The answer to both questions is "yes" if the contract standard for merchantability, e.g., reasonable expectations, and the tort standard for defect is different. Even though the outcome under different standards will be the same in most cases, i.e., unmerchantable goods are frequently defective and defective goods are frequently unmerchantable, there are a few exceptions, especially where design defects are involved.

70. Revised Section 707(c)(1).

71. Revised Section 406.

72. Revised Section 814.

73. Revised Section 2-806.

74. Revised Section 408.

75. Revised Section 409.

76. The revision committee has made no substantive changes to the implied warranty provisions in Article Two. The present law has caused no serious problems that the committee found worth addressing.

77. Revised Section 2-403.

78. Revised Section 2-408.

79. Revised Section 2-403(c)(1).

80. Revised Section 2-403(c)(2).

81. Revised Section 2-403(c)(3).

82. U.C.C. 2-313(2); Revised Section 2-403(b).

83. Revised Section 2-403(b).

84. Revised Section 2-408.

85. Revised Section 2-408(b). If the intermediary is an agent of the seller, the provision on express warranties to direct purchasers applies. The provision on express warranties to direct purchasers is also intended to apply where there is direct dealing between the seller and buyer through an intermediary or where the manufacturer makes an offer to the public and individuals accept the offer by purchasing the goods from a retailer.

86. Revised Section2-408(c).

87. Revised Section 2-408(b)(1) (A) & (B).

88. Id.

89. Revised Section 2-408(c)(3). The standard of "puffing" is the same in this provision as in the provision on express warranties made to direct purchasers.

90. These illustrations are drawn from the March 1997 draft of Revised Article Two.

91. Revised Section 2-408(f)(3).

92. U.C.C. 2-509 and 2-510.

93. Revised Section 2-612.

94. Revised Section 2-703.

95. Under the CISG, the buyer has no right to reject non-conforming goods. However, if such non-conformity results in a fundamental breach of the contract, the buyer may avoid the contract, CISG Art. 25, demand substitute goods, CISG Art. 46(2), or fix an additional time for performance by the seller, CISG Art. 47(1).

96. Revised Section 2-704(b)(2).

97. Revised Section 2-709.

98. The cure provision in current article two, 2-508, provides for cure following rejection. It does not provide for the seller's right to cure following a buyer's revocation of acceptance. However, the provision on revocation of acceptance, 2-608, provides that a buyer that revokes acceptance has the same rights and duties as a buyer that rejects goods.

99. U.C.C. 2-706(1); Revised Section 2-819(a).

100. U.C.C. 2-708(1); Revised Section 821(a).

101. U.C.C. 2-712 & 2-713; Revised Sections 2-825 & 2-826.

102. For an analysis arguing in favor of this position, see Henry D. Gabriel, The Seller's Election of Remedies Under the Uniform Commercial Code: An Expectation Theory, 23 Wake Forest L. Rev. 429 (1988).

103. See. PEB Study Group: Uniform Commercial Code, Article Two Executive Summary, 46 Bus. Law. 1869 (1991).

104. Id. at 1870.

105. Despite this, lip service has always been given to the need to study carefully the CISG in the revision process: "The study group further recommends that the Drafting Committee, in its deliberations, constantly monitor, assess, and integrate, where appropriate, developments in the following areas external to Article Two: ... [t]he ratification and implementation of the Convention on the International Sales of Goods." PEB Study Group: Uniform Commercial Code, Article Two Executive Summary, 46 Bus. Law. 1869 (1991).

106. Fred Miller, the Executive Director of NCCUSL has an excellent discussion of the process of NCCUSL drafting committee meetings in Fred H. Miller, The Uniform Commercial Code: Will the Experiment Continue?, 43 Mercer L. Rev. 799 (1992). For a more specific commentary on the revision of the Uniform Commercial Code, see Fred H. Miller, Realism not Idealism in Uniform Laws - Observations from the Revision of the U.C.C., 39 S. Tex. L. Rev. 707 (1998). These meetings are open, and all interested parties have the right and power to participate, although some commentators have complained that economic and political pressures actually result in the drafting process not being sufficiently open to all interested parties, see e.g., Kathleen Patchel, Interest Group Politics, Federalism, and the Uniform Laws Process: Some Lessons from the Uniform Commercial Code, 78 Minn. L. Rev. 83, 88-106 (1993); Edward L. Rubin, The Code, The Consumer, and the Institutional Structure of the Common Law, 75 Wash. U. L. Q. 11, 13 (1997).

107. The Reporter and Co-Reporter are both commercial law professors with strong backgrounds in the Uniform Commercial Code, as are nine of the fourteen members of the drafting committee. The five practicing lawyers on the drafting committee all have substantial experience in commercial practice. It is also true, though, that several of these participants are expert in international commercial law, particularly the CISG. Most of the advisors and observers are either in law firms that represent commercial interests or in-house counsel for businesses. These lawyers are experienced in U.C.C. practice, and they bring this substantial knowledge to the process.

108. An understanding of the common law is certainly necessary to understand the U.C.C.. As one commentator has recently noted: "While it is obviously a statute, and may even claim to be a code, it relies heavily upon the common-law models. Sometimes it follows these models slavishly, and sometimes it modifies them creatively, but common law has remained at the foundation of the vast majority of the Code's provisions." Edward L. Rubin, The Code, The Consumer, and the Institutional Structure of the Common Law, 75 Wash. Univ. L. Q. 11, 14 (1997).

109. U.C.C. 1-103.

110. Alejandro M. Garro, Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods, 23 Int'l Law. 443 (1989).

111. Unlike the U.C.C., where the common law is the basis for resolving questions not directly answered by the Code itself, see U.C.C. 1-103, under the CISG, questions for which there are no clear answers are to be "settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." CISG Art. 7(2).

112. This is not surprising given that the CISG was drafted by representatives of sixty-two countries representing all major legal traditions. Elizabeth Hayes Patterson, United Nations Convention on Contracts for the International Sale of Goods: Unification and the Tension Between Compromise and Domination, 22 Stan. J. Int'l L. 263, 303 (1986).

113. For an excellent discussion on the broader right of specific performance under the CISG than under American domestic law, see Steven Walt, For Specific Performance Under the United Nations Sales Convention, 26 Tex. Int'l L. J. 211 (1991).

114. Article 79 of the CISG follows the civil law tradition of force majeure, and provides that either party may be excused from any aspect of the contract. The U.C.C. has a more limited approach, and provides for sellers to be excused for delay in delivery or for non-delivery. U.C.C. 2-615. Under the proposed revision, the seller will be excused for delay in performance or non-performance. Revised Article Two, 2-716 (July 1997 draft). The buyer's remedies for frustration of purpose, which would be covered by Article 79 of the CISG, is to be left to the common law in American domestic law.

115. For example, in the current revision process of the Uniform Commercial Code, representatives from the drafting committees to revise Article Two meet and consult regularly with the drafting committee to revise Article 2A: Leases and the drafting committee of Article 2B: Licencing to coordinate definitions and general concepts. In addition, the "three twos" (Article 2: Sales, Article 2A: Leases, and Article 2B: Licenses) are all being coordinated with the revision of Article 1: Definitions.

116. As with most generalizations about the law, this one is not exactly accurate. The counterpart to U.C.C. 2-201 under the CISG is Article 11. Where U.C.C. section 2-201 requires that all contracts for sale of goods in excess of $500.00 be in writing, CISG Article 11 eliminates the requirement of a writing to evidence the agreement: "A contract of sale need not be concluded in or evidenced by writing ...." Article 11 also eliminates any mandatory requirement for enforcement based on any domestic requirement of form. However, Article 11 does not prevent the parties from imposing their own contractual requirements. For example, under Article 29, "parties by a contract in writing may require any modifications or termination by agreement to be in writing."

Thus, Article 11 must be read in conjunction with Article 12. Article 12 allows contracting states to opt out of Article11, and thus to require a writing to evidence the agreement.

Therefore, Article 11 does not apply where any party has his place of business in a state that has decided under Article 12 to require a writing as a necessary element of a valid contract.

117. The July, 1996 draft abolished the statute of frauds for Article 2. This result was strongly recommended by the PEB Study Group and was approved by the Drafting Committee on March 6, 1993. However, at the great insistence of many industry groups, at the November, 1996 drafting committee meeting, the Drafting Committee decided to restore "some version" of the statute of frauds.

118. PEB Study Group: Uniform Commercial Code, Article Two Executive Summary, 46 Bus. Law. 1869, 1874 (1991).

119. In fact, the CISG basically invites the introduction of parol evidence. See Article 8(3): "In determining the intent of a party or the understanding a reasonable person would have had, due consideration is given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties."

120. Emerging forms of electronic contracting, and present Article Two's structural inability to handle this, was a major reason justifying the revision of Article Two. PEB Study Group: Uniform Commercial Code, Article Two Executive Summary, 46 Bus. Law. 1869 (1991).

121. For example, neither the definition of a writing under the U.C.C. (section 1-201(46)) nor the CISG (Art.13) is broad enough to encompass transaction by electronic data interchange. Although the CISG does not specifically deal with the important area of the licensing of information, neither will the revised Article Two.

122. U.C.C. 2-601; Revised Article Two 2-703 (July 1997 draft).

123. CISG Art. 46 (2).

124. For a discussion of the differences between the CISG and the U.C.C. for damages, see Henry D. Gabriel, A Primer on the United Nations Convention on the International Sale of Goods: From the Perspective of the Uniform Commercial Code, 7 Ind. Int'l & Comp. L. Rev. 279, 296-303 (1997).

125. The comparison provisions to the U.C.C. warranty 2-313, 2-314, 2-315, and 2-316 are set forth in two articles in the CISG - Articles 35 and 36.

126. Under paragraph (1) of Article 35, goods must conform to the contract with respect to "quantity, quality, description, and packaging". Likewise, under the U.C.C., goods must conform to the contract description. U.C.C. 2-313.

127. The seller may make an express warranty, an implied warranty of merchantability, or an implied warranty of fitness for particular purpose or all three in a particular transaction. These warranties are terms of the contract to which the goods must conform. U.C.C. 2-313, 2-314, 2-315. The basic structure and contours of these warranties are preserved in the Revised Article Two. Revised Article Two 2-403, 2-404, and 2-405 (July 1997 draft).

128. The classic and standard article tracing the rise of American warranty law through the morass of tort and contract is William L. Prosser, The Implied Warranty of Merchantable Quality, 27 Minn. L. Rev. 117 (1943).

129. CISG art.35(1).

130. CISG art. 8.

131. Henry Gabriel, Practitioner's Guide to the Convention on Contracts for the International Sale of Goods (CISG) and the Uniform Commercial Code (U.C.C.), pp. 104-112 (1994); Henry D. Gabriel, A Primer on the United Nations Convention on the International Sale of Goods: From the Perspective of the Uniform Commercial Code, 7 Ind. Int'l & Comp. L. Rev. 279, 285-87 (1997).

132. For the argument that the differences are substantive, see Franco Ferrari, The Relationship Between the U.C.C. and the CISG and the Construction of Uniform Law, 29 Loy. L.A. La. Rev. 1021 (1996).

133. U.C.C. 2-601.

134. John Honnold, Buyer's Right of Rejection, 97 U. Penn. L. Rev. 457, 471 (1949).

135. See eg., White and Summers, Uniform Commercial Code, pp.301-302 (4th ed. 1995).

136. Revised Article Two 2-701.

137. CISG art. 49(1). A breach is a "fundamental breach" "if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract". CISG art. 25.

138. U.C.C. 2-712; CISG art. 75.

139. U.C.C. 2-713; CISG art. 76.

140. Steven Walt, For Specific Performance Under the United Nations Sales Convention, 26 Tex. Int'l L. J. 211 (1991).

141. The disagreement both of what the state of law was, as well as where it was headed, resulted in the Official Version of Article Two having three alternatives. U.C.C. 2-318.

142. The Revised Article Two retains the traditional derivative third party non-privity rights. Revised Article Two 2-409.

143. Revised Article Two 2-408.

144. See eg., Donald F. Clifford, Express Warranty Liability of Remote Seller: One Purchase, Two Relationships, 75 Wash. U. L. Q. 413 (1997); Curtis R. Reitz, Manufacturers' Warranties of Consumer Goods, 75 Wash. U. L. Q. 357 (1997).

145. See William L. Stallworth, An Analysis of Warranty Claims Instituted by Non-Privity Plaintiffs in Jurisdictions That Have Adopted Uniform Commercial Code Section 2-318 (Alternative A), 20 Pepp. L. Rev. 1215 (1993); William L. Stallworth, An Analysis of Warranty Claims Instituted by Non-Privity Plaintiffs in Jurisdictions That Have Adopted Uniform Commercial Code Section 2-318 (Alternatives B & C), 27 Akron L. Rev. 197 (1993).

146. At least one American commercial law scholar has found this to be a failure in the CISG. See, Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L. Rev. 265, 293 (1984).

147. CISG art. 58; U.C.C. 2-511(1); Revised Article Two 2-607(a).

148. CISG art. 58(1); U.C.C. 2-605; Revised Article Two 2-702.

149. CISG art. 58(3); U.C.C. 2- 513; Revised Article Two 2-609.

150. CISG art. 79; U.C.C. 2-715(2)(a); Revised Article Two 2-806(1).


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