My clients occasionally do business with non-U.S. dealers and individuals.
I advise them concerning customs and tax rules, and occasionally represent them in litigations or arbitrations against foreign companies for unpaid invoices or counterfeit coins.
But when a U.S. company trades with a non-U.S. company or person, does U.S. law apply or the law of the foreign person’s country?
A recent case involving potatoes from Canada shows how confusing international trade can be.
Illinois Trading (an Illinois firm) bought frozen potatoes from a Canadian supplier named VLM on several occasions.
In each case Illinois Trading sent a purchase order to VLM indicating the item, quantity, price, and place of delivery. VLM responded with an email confirming the terms of the order, and then VLM shipped the potatoes with an invoice that included terms and conditions entitling VLM to interest on unpaid amounts and attorneys’ fees if VLM had to undertake collection proceedings.
Illinois Trading didn’t pay one of VLM’s invoices, and VLM sued in federal court in Illinois for the outstanding balance, plus interest and attorney’s fees.
Illinois Trading objected to liability for interest and attorney’s fees, and the district judge applied Illinois law, specifically Article 2-207 of the Uniform Commercial Code relating to “additional terms” in sales of goods.
That UCC provision enforces provisions imposed by one party after the contract is initially concluded if the other party doesn’t object at the time and the provisions don’t “materially alter” the contract.
Illinois Trading admitted that it didn’t object at the time, and the judge found that imposing liability in the case of breach wasn’t a material alteration, ordering Illinois Trading to pay the additional sums.
On appeal, this decision was reversed. The court of appeals didn’t disagree about the meaning of Illinois law, but rather determined that Illinois law didn’t apply in the first place.
The United States and Canada have ratified the United Nations Convention for the International Sale of Goods, and the court found that the treaty supersedes the UCC for any contracts between U.S. and Canadian companies.
Treaty supersedes UCC
Like UCC Article 2-207, Article 19 of the treaty permits an acceptance that does not materially alter the terms of the offer, but unlike the UCC, Article 19 defines as “material” provisions which “[relate] … to the … extent of one party’s liability to the other or the settlement of disputes.”