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Reproduced with the permission of Oceana Publications

excerpt from

INTERNATIONAL SALES LAW

United Nations Convention on Contracts for the International Sale of Goods

Convention on the Limitation Period in the International Sale of Goods

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 3 [Contracts for services or for goods to be manufactured] [1]

[TEXT OF THE UNIFORM LAW]

(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales [2] unless the party who orders the goods undertakes to supply a substantial part [3] of the materials necessary for such manufacture or production [4].

(2) This Convention does not apply to contracts in which the preponderant part of the obligations [5] of the party who furnishes [6] the goods consists in the supply of labour or other services [7].

[WORDS AND PHRASES, CONCEPTS

1. general comments
2. goods to be manufactured
3. a substantial part
4. materials necessary for such manufacture
5. the preponderant part
6. party who furnishes the goods
7. supply of labour or other services ]

[COMMENTARY]

[1] [general comments]

Given the difficulties in interpreting this article because of the vague terms used (notes 3 and 5) it is recommended that the parties use the following clause when wishing to apply the Convention:

"The contract is subject to the United Nations Convention on Contracts for the International Sale of Goods. Specific problems relating to services which are not covered by the Convention are subject to the law of the ' s country.That same law also applies under Article 7 of the Convention to complement it."

[2] [goods to be manufactured]

The inclusion of contracts on the delivery of goods to be manufactured (machines, manufactured goods) or produced (agricultural produce, raw materials) at the time of conclusion of the contract, in sales contracts means that the CISG can be applied also to certain contracts which are considered to be works contracts.

[3] [a substantial part]

The CISG uses here a vague term which permits flexibility but also creates uncertainty. The term "a substantial part" should be defined using criteria of value (Honnold, 92 and Khoo, BB, 42). Substantial is not "preponderant" as in Article 2, it may even be less than one half. We doubt, however, that 15 per cent will suffice, as believes Honnold. When the relevant proportional value is to be calculated, a complementary criterion could be to assess the importance of supplies of parts of the goods for the purpose of manufacture. Only if those are substantial for determining, for instance, the technical parameters of a machine to be delivered, a portion of less than one half of the value could be considered sufficient to exclude [page 36] the Convention. In this case, it should not be substantially lower, otherwise it should be above that portion.

The order has to be free of charge. When the seller acquires parts from the buyer which become part of the machine, there will be a sales contract irrespective of their proportional value.

The provision of technical drawings etc. has no influence on the character of a sales contract in the meaning of the Convention. This follows not only from the failure of a motion submitted by Britain and aiming towards the opposite (O.R., 84 fol), but can be deduced, above all, from Article 42, paragraph 2, subpara. (b) which regulates a specific problem related to it.

[4] [materials necessary for such manufacture]

This serves to exclude particularly processing upon contracts, and several other types of work contracts from the scope of application of the CISG.

[5] ["the preponderant part"]

The criteria of what is to be considered the preponderant part of the obligations are similar to those explained in note 3. But the "preponderant" part is bigger than a substantial part and has to mean more than half. A proposal by Britain, which aimed at adopting a merely quantitative, value related approach (major part of the value), did not meet with the approval of the Conference (O.R., 84 fol).

[6] [party who furnishes the goods]

The notion "seller" was not used because the partner in question was not a seller in this case, or rather not exclusively (O.R., 242)

[7] [supply of labour or other services]

The opposite conclusion would be that the CISG is to apply also to contracts which do not exclusively have the character of a sales contract. Therefore, regular contracts containing an obligation of assembly fall under the scope of the Convention.

There are problems when it comes to applying the Convention to contracts for the setting up of plants. Kahn (955 fol) is in favour of that solution in relation to turn-key contracts, while Herber (Freiburg/103), referring to ULIS jurisdiction, is considerably more cautious in aiming towards the same direction. The UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works, New York 1988, points to the fact that the Convention can be applied in regard to some works contracts and recommends agreements (303 fol). We endorse this position (in detail, see Brand/Maskow, Der internationale Anlagenvertrag, Berlin 1989, 78 fol). We do not understand why Honnold (89 fol) excludes building contracts (which have much in common with contracts for the setting up of plants even if more is manufactured at a construction [page 37] site) from the scope of the Convention. His argumentation is based on the common law interpretation of the term "goods". This is not necessarily the Convention's interpretation of the term; and furthermore, it has been extended by Article 3 (and not restricted, as Honnold (75) affirms in another place). The situation in respect of the application of the CISG to contracts for the setting up of plants and other combined contracts is different from what the Secretariat's Commentary (O.R., 16 fol) and Schlechtriem (17) believe, but is, as Kahn (956) correctly explains, to be decided pursuant to the CISG and not to applicable domestic law, since the latter is applicable only to the extent to which the former is unable to apply.

From the fact that the CISG is applicable to certain contracts containing elements that are alien to sales, it may be concluded that regulations of the Convention which are not typical for sales apply to the contract generally (see also Honnold, 93) e.g. the general provisions, the rules for the formation of the contract, the rights in case of breach of contract, and exemptions. Specific rules concerning the rights and obligations of the parties, which do not have the character of a sales contract (e.g. conditions of stay of experts) would, if need be, have to be drawn from national law (frequently the contracts sufficiently provide for them). Where there are contradictions between the CISG and the national rules for non-sales elements (e.g. when the national law to be applied to assembly contracts permits ordinary unilateral termination which is unknown under the CISG) the Convention will supersede that domestic law because it applies to the largest part of the performance anyway.

When the terms "labour" and "other services" are used to characterize non-sales obligations, then this is obviously done to express that human labour as such is owed, irrespective of whether it has a form giving effect or not. If it is only the result of labour which is owed, like in many contracts on the preparation of scientific and technological results (project contracts), then there exists a sales contract in the sense of the CISG in any case.

This also has to be taken into account when the preponderant part of obligations is defined. "Labour" or "other services" include, above all, assembly work, supervision, control, storage, after-sales services and maintenance. [page 38]

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