Reproduced with permission of the publisher, Kluwer Law International, The Hague

• Dedication
• Preface
• Table of contents
• Case-law: Bibliography
• Abbreviations: Judicial and Arbitral Decisions
• Index

Chapter 1.

The 1980 Convention: A Brief Introduction

§1 On April 11, 1980, a diplomatic conference of sixty-two States unanimously approved a Convention providing uniform law for international sales of goods. By December 11, 1986, instruments of adherence (e.g., ratification or accession) had been deposited with the Secretary-General by eleven States: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syrian Arab Republic, United States of America, Yugoslavia and Zambia. Under Article 99 the Convention went into force a year after the deposit of the tenth instrument of adherence; for the above eleven States the Convention entered into force January 1, 1988.

At publication, over 50 States, including States from each region and embracing a large majority of the world’s population, have adhered to the Convention. [Go to listing of] these States, with dates of adherence and entry into force, and any applicable reservation. Adherence patterns of other Conventions, with less initial momentum than CISG, indicate that this Convention is moving towards virtually unanimous acceptance.

§2 A. Primary Role of the Contract

The dominant theme of the Convention is the role of the contract construed in the light of commercial practice and usage—a theme of deeper significance than may be evident at first glance. In some countries protective rules inspired by the plight of consumers could be superseded by the uniform rules developed for international commerce. To avoid any collision with such protective legislation, consumer purchases are excluded from the Convention. (See the Commentary to Arts. 2(a) and 5, infra at §§ 50–55, 71.)

The Convention does not override domestic law that outlaws certain transactions or invalidates proscribed contracts and oppressive terms; outside this narrow area the Convention protects the contractual arrangements made by the parties. (See, e.g., Ch. 2, infra at §27). Moreover, the parties may exclude the Convention, and the terms of their contract will [page 3] prevail over any inconsistent provision of the uniform law. (See the Commentary to Art. 6, infra at §74.) In short, like most domestic sales rules applicable to commercial contracts, the Convention’s rules play a supporting role, supplying answers to problems that the parties have failed to solve by contract.

The Convention in two fundamental ways responds to the power of agreement. The Convention itself was produced by agreement. States from all parts of the world, through collaboration sustained for over a decade, reached consensus on a Convention of over a hundred articles. Then, as Contracting States, they agreed that in international sales they would substitute the Convention’s rules for their domestic laws. Although we can not know whether civilization grew from a social compact those who saw the development of the Convention can not doubt the power to move towards civilization by agreement.

Consistent with these origins, the Convention does not interfere with the freedom of sellers and buyers to shape the terms of their transactions. Nations can control their domestic commerce and can exclude or restrict the flow of trade. However, with the collapse of imperial and economic empires, commercial enterprises can not compel parties in other countries to trade with them and, with the development of international competition, can not dictate contract terms. Domestic trade may be subject to national management but international trade depends on agreement.

A highly respected legal scholar in a rhetorical flourish (later modified) announced the "Death of Contract". At least for international sales this report (as Mark Twain said of a report that he had died) is "grossly exaggerated".[1]

§3 B. Major Contours of the Convention

The Convention deals with the two basic aspects of the sales transaction. Part II governs the formation of the contract; Part III governs the obligations of the parties under the contract. States by specific declaration (Art. 92) may exclude either Part. (In the Commentary, see the Introduction to Part II of the Convention, infra at §131.) [page 4]

Part II on Formation (Arts. 14–24) includes rules on the definiteness required of offers, the effect of communications addressed to the general public ("public offers"), the power to revoke an offer, and the requisites for a binding acceptance. The "Sales" rules in Part III (Arts. 25–88) include Chapters on the seller’s obligations with respect to quality of the goods and freedom of the goods from third-party claims (Ch. II), the buyer’s obligations to pay for the goods (Ch. III), the allocation of risk of loss (Ch. IV), and the remedies available to both parties for breach (Ch. V).

A more precise view of the Convention can be obtained by examining the Detailed Table of Contents. Some may wish at this point to read the introductory passages that are interspersed throughout the Commentary; references to these introductions are given in a footnote.[2]

§4 C. Development of the Convention

Concern for the barriers resulting from legal diversity spans the centuries [3] but we must be content to start our account with the work launched in the 1930s when the International Institute for the Unification of Private Law (UNIDROIT) requested a distinguished group of European scholars to prepare a draft of a uniform law for the international sale of goods. A preliminary draft was issued in 1935. The work, suspended during the war, resumed soon after the end of hostilities. In 1951 a conference of 21 nations encouraged the continuation of the project, and in 1956 and 1963 revised drafts were sent to governments for comments. In the meantime, work was commenced on a uniform law for the formation of the contract; in 1958 a draft uniform law was circulated.

In April 1964 a Diplomatic Conference of 28 States met at the Hague to act on these two related drafts. After three intense weeks the Conference finalized two conventions: One set forth a Uniform Law for the International Sale of Goods (ULIS) and the other a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF). In [page 5] 1972 both conventions went into effect following ratification by five States; adherents for the most part were European. [4]

The 1964 Hague Conventions were of fundamental value but it became evident that success on a worldwide scale called for worldwide participation and sponsorship. In 1966 a resolution by the General Assembly of the United Nations provided for the establishment of a worldwide representative body to promote "the progressive harmonization and unification of the law of international trade." This body, the United Nations Commission on International Trade Law (UNCITRAL), had its first session in 1968; in its first decade UNCITRAL made notable progress in preparing uniform international rules for arbitration, carriage of goods by sea, negotiable instruments and the sales of goods—progress that was analyzed in a symposium issue of the American Journal of Comparative Law. References to these and other aspects of the Commission’s work are given in a footnote. [5]

§6 (a) The Commission: Structure and Working Methods

UNCITRAL’s structure has two essential elements—the number of members is limited and the representation is worldwide. To facilitate efficiency in handling technical legal questions, the Commission’s membership is limited to 36 States, but that membership is allocated among the regions of the world. A formula in the Commission’s charter provides the following regional distribution: Africa, 9; Asia, 7; Eastern Europe, 5; Latin America, 6; Western Europe and Others, 9. This last "region" (the [page 6] industrial West) embraces Australia, New Zealand, Canada and the United States. [6]

The full Commission meets once a year for sessions of two to four weeks. At these sessions the Commission decides on topics for work and receives progress reports from its constituent bodies—principally Working Groups that, even with reduced size, are cross-sections of the Commission’s worldwide representation. When a Working Group has completed its work on a draft Convention, the full Commission gives detailed consideration to each provision. This legislative process will be seen in a specific context when we turn to the development of the Draft Convention on Sales (infra at §9).

§7 (b) The Representatives

The General Assembly resolution that established UNCITRAL provided that the Member States shall appoint representatives "in so far as possible from among persons of eminence in the field of international trade". In fact, UNCITRAL representatives proved to be a wholesome mix of academic specialists in commercial and comparative law, practicing lawyers, and members of government ministries with years of experience in international lawmaking.

The Commission faced a formidable task. The representatives responded with a flexible, international approach that embraced the premise that their national interests in having an effective uniform law would not be served by bargaining (in the spirit of tariff negotiations) for the use of the maximum number of scraps of national law. Examining the development of the Convention will expose the dangers inherent in using local legal idioms; the representatives minimized this problem by deciding what result was appropriate for a series of pivotal factual examples, and by repeated review of multilingual drafts designed to embody these decisions. Since each nation has both sellers and buyers, agreeing on a solution that was fair to both parties to the contract was only rarely complicated by issues of national interest. On a few points, it was suggested that the interests of industrial and developing countries called for different rules. These issues arose in surprisingly technical settings—the time within which notice must be given that goods were defective (Arts. 39 and 44, infra at §§254 et seq.), and the circumstances in which one party [page 7] may suspend performance because of possible failure of counterperformance (Art. 71, infra at §385). Happily, the delegates finally found acceptable solutions even for these problems.

Throughout the United Nations system, UNCITRAL became known as a businesslike and hard-working group. After a day of legislative sessions, representatives would give evenings and weekends to informal working-group sessions to resolve stubborn problems. The years of hard, successful work (and brief, notable periods of relaxation in pleasant surroundings) developed an esprit somewhat like that of a veteran regiment. The members jealously guarded their record of reaching decisions without a formal vote; in each case the legislative product was approved by consensus.[7]

§8 (c) The Secretariat

The Commission and its constituent bodies are served by a Secretariat consisting of the United Nations International Trade Law Branch. This writer cannot speak of the Secretariat with detachment. During the period (1969–1974) when he served as Chief of this Branch and as Secretary to the Commission he became deeply attached to this remarkable international team [8]

The role of the Secretariat was established by a few basic facts of time and space. The Commission meets once a year; during a two to four week session it considers the progress of programs in several complex and diverse legal fields. In the Working Groups, national representatives come together from all parts of the globe, from diverse legal and linguistic backgrounds, for annual sessions of two or three weeks. All of the representatives have primary, full-time responsibilities in their Universities or Ministries. For these reasons, progress at the legislative sessions has depended on preparatory materials provided by the Secretariat. These materials included studies analyzing the divergences among the existing legal rules; reports on commercial practices to assist in making a choice among alternative solutions to pivotal factual examples; draft statutory texts formulated, at crucial spots, with clearly labelled alternatives to facilitate debate and decision with a minimum of confusion or misunderstanding. A strong role for the U.N. Secretariat could touch sensitive political nerves [page 8] but at an early stage it was recognized that successful work depended on this help; the desire for success muted this and other divisive issues.

The replies laid the foundation for the Commission’s decisions at its second (1969) session. It became evident that the 1964 Conventions, despite the valuable work they reflected, would not receive adequate adherence. The basic difficulty stemmed from inadequate participation by representatives of different legal backgrounds in the preparation of the 1964 Conventions; despite efforts by UNIDROIT to encourage wider participation these Conventions were essentially the product of the legal scholarship of Western Europe.[9]

UNCITRAL thereupon established a Working Group of 14 States—a cross-section of UNCITRAL’s world-wide representation—and requested the Working Group to prepare a text that would facilitate "acceptance by countries of different legal, social and economic systems." Under the effective chairmanship of Professor Jorge Barrera Graf of Mexico the Working Group completed this task in nine annual sessions. In 1976 the Working Group completed its work based on the 1964 Hague [page 9] Sales Convention (ULIS); this was embodied in a Draft Convention on Sales—as contrasted with Formation. In 1978 the Working Group completed its work based on the 1964 Hague Formation Convention (ULF), and issued its Draft Convention on Formation. In June 1978 the full Commission completed its review of these two drafts, and combined them in a single Draft Convention that dealt both with the formation of the contract (Part II) and with the rights of the parties to the contract (Part III). This 1978 Draft Convention on Contracts for the International Sale of Goods received the Commission’s unanimous approval. The General Assembly of the United Nations promptly authorized the convening of a diplomatic conference to act on the UNCITRAL draft.[10]

In March 1980, representatives of 62 States and 8 international organizations met in Vienna to finalize the UNCITRAL Draft Convention. The diplomatic conference worked for five weeks within the forbidding walls of the Hofburg; the principal sessions were held in the ornate hall that had provided the setting for the Congress of Vienna and for SALT II—international arrangements of incomparably greater political portent but (unhappily) without such world-wide representation.[11]

Nearly all the provisions in the UNCITRAL Draft Convention of 1978 were approved in substance by the Conference. Significant changes are listed here in a footnote and are discussed in the Commentary.[12] The degree of approval of the UNCITRAL draft resulted from the fact that representatives from each region of the world had participated in preparing the draft. In addition, most delegates realized that the eighty-eight articles [page 10] of the uniform sales law (Parts I–III) were closely related to each other as parts of an integrated whole; major changes in individual articles could affect the integrity of the structure. As the Conference progressed with its article-by-article discussion it became evident that the time for review of the draft as a whole would be limited, as compared with the repeated reviews that had occurred during the decade of work in UNCITRAL. See §9, supra. Thus, proponents of amendments had a heavy burden: they needed to show not only that a change was needed but also that a proposed amendment was clearly drafted and would not lead to untoward consequences in relation to other provisions of the law.

Through overtime work and close cooperation between language specialists of the United Nations and members of the Drafting Committee, the Convention was finalized in six official languages—Arabic, Chinese, English, French, Russian and Spanish.[13]

Plenary sessions met only at the beginning and end of the Conference. The text of the Convention was substantially completed by two "committees." The "committees" resembled the Plenary since all States were represented but the committee concept permitted simultaneous work on different topics and also facilitated flexible procedures—a committee could take action by a simple majority while decisions in Plenary required a two-thirds vote.

The First Committee prepared the principal substantive provisions of the Convention (Parts I-III, Arts. 1–88) while the Second Committee prepared Part IV—Final Provisions (Arts. 89–101). These Final Provisions govern the steps necessary to bring the Convention into force and the content of permissible "declarations" (reservations) by adhering States.

The Second Committee, in response to authorization from the General Assembly, also prepared a Protocol to the 1974 Convention on the Limitation Period in the International Sale of Goods. This Protocol modified provisions of the 1974 Limitation Convention on its sphere of applicability to make the 1974 Convention conform to the 1980 Sales Convention.[14]

At the end of the Conference, the texts prepared by the First and Second [page 11] Committees were voted on in Plenary, article by article. Under the rules of the Conference, each article required approval by a two-thirds majority. In fact, of the 88 substantive articles (Parts I-III), 74 were approved unanimously and 8 additional articles received no more than 2 negative votes. All of the other articles were approved by large majorities but in two instances the majority fell short of two-thirds; on these articles, ad hoc working groups then brought in compromise versions that were approved without dissent. The Convention, as a whole, was then submitted to a roll-call vote and was approved without a dissenting vote. In short, the spirit of consensus that had developed in UNCITRAL was maintained to the end of the Diplomatic Conference.[page 12]

Chapter 2.

Salient Features of the 1980 Convention

§11 This chapter is designed to highlight some of the more significant features of the Convention. This is not a summary of the Convention; a more complete overview can be gained by examining the Detailed Table of Contents and by reading, seriatim, the brief introductions to the various parts of the Convention that appear in the Commentary, infra, at §§36, 131, 180 and 458. This chapter draws attention to aspects of the Convention that are of special significance: issues that underlie major parts of the Convention and challenging questions that will be discussed fully later. The most one can hope for here is an apéritif.

§12 A. Scope of the Convention

During the half-century of work that led to the present Convention there was general agreement that the uniform rules would apply only to international sales; the 1980 Convention governs contracts "between parties whose places of business are in different States." (See the Commentary on Art. 1, infra at §39.) Why is the Convention’s scope restricted in this manner? To many the answer will seem obvious but it may be useful to explore some of the reasons for this basic decision.

§13 (a) Reasons for Excluding Domestic Transactions

Although we cannot claim for law that universality of outlook that has been achieved in basic science, lawmakers have not remained so isolated that it has been necessary to await the separate invention of each legal wheel. The international use of legal ideas is illustrated by widespread acceptance of the French Code Civil; the borrowing of the work embodied in the German and Swiss codes; the adoption within Scandinavia of parallel law on various topics, including Sales; and the widespread acceptance of common law ideas, including those embodied in the (U.K.) Sale of Goods Act.[page 13]

§14 (b) The Convention as a Model for Improving Domestic Law

While the obligation to implement the rules of the convention is confined to the international sale, the opportunity to use the legal work embodied in the Convention is not so restricted. It is too early to come to conclusions concerning the Convention’s usefulness for domestic law reform; it must suffice to suggest that the question should not be overlooked.

This book includes references to domestic rules, and the Convention will surely stimulate comparative studies in this area. The Scandinavian States have drawn on the Convention in revising their sales law. The results of this experience will shed further light on the value of the Convention for the reform of domestic law.[1]

The Commentary to Article 7 at §92 discusses the significance of international case law and scholarship under the Convention and the procedures for making this material generally available. Domestic law based on the Convention can be enriched by this body of thought and experience, and students and practitioners can gain wider horizons by this contact with the world of international commerce.

The 1964 Sales Convention directed the tribunals of Contracting States to apply its rules to any international sale even though the transaction [page 14] and its parties had no contact with any Contracting State.[2] As we shall see in the Commentary to Article 1, the 1980 Convention rejects this "universalist" approach. Contracting States are obliged to apply the Convention only when the places of business of both the parties to the sale are in Contracting States (Art. 1(1)(a)) or when the rules of private international law lead to the application of the law of a Contracting State (Art. 1(1)(b)), and this latter ground may be excluded by reservation. (Commentary to Art. 1, infra at §47.) These provisions do not seem too modest in view of widespread adherence to the Convention and the opportunity of parties to agree on the applicability of the Convention. (See Commentary to Art. 6, infra at §78.)

§16 B. Interpretation of the Convention

The special problems of construing an international text are faced in Article 7, which lays down a series of principles for interpreting the Convention. The most basic principle is this: Interpretation shall respond to the Convention’s "international character and to the need to promote uniformity in its application." Ways to effectuate this principle, examined in the Commentary to Article 7, include the following: The effort, in drafting the Convention, to avoid legal idioms that have divergent local meanings and, instead, to speak in terms of physical events that occur in international trade; the use of the legislative history of the Convention as a means of escape from preconceptions derived from domestic laws; and the dissemination and use of international case law (jurisprudence) and [page 15] scholarly critique (doctrine). (Commentary to Art. 7, infra at §§87, 88, and 92.)

Laws that may readily be amended (e.g., income tax laws and regulations) may indulge in detail but this is not feasible for laws that must endure. Most of the domestic laws on obligations and on sales have stood almost for a century and many are even older. International legislative machinery is even harder to put into motion. The Sales Convention must be read and applied in a manner that permits it to grow and adapt to novel circumstances and changing times. The Convention provides for flexibility in various ways.

§19 (a) The Contract: Practices of the Parties; Usages

Perhaps the most important vehicle for flexibility is the role that the Convention gives to the contract. (See Overview, Ch. 1, supra at §2; Art. 6, infra at §75.) On points where the contract is silent, current practices and usage may apply. Under Article 9, the parties "are bound by any usage to which they have agreed and by any practices which they have established between themselves"; in addition, the parties are considered to "to have impliedly made applicable to their contract" any usage which "in international trade is widely known to, and regularly observed by..." such parties. Statutory norms grow old but applicable practices and usages change with changing times and respond to special circumstances and needs. (See the Commentary to Art. 9, infra at §112.)

§20 (b) "Good Faith"

Adaptation and development are also encouraged by the statement in Article 7 that one of the factors to be considered in interpreting the Convention is the need to promote "the observance of good faith in international trade." The Commentary to Article 7 (infra at §94) notes that using "good faith" only as a guide for interpretation is less sweeping than the general "good faith" requirements of some legal systems; nevertheless, in many situations interpretation in the light of the principle of "good faith" can avoid stultification or circumvention of specific provisions of the Convention.

§21 (c) Recourse to "General Principles" of the Convention

Many legal systems work from the premise that solutions to legal problems can and must be found within the four corners of the Code—a [page 16] premise that compels the extension by analogy of one or another of the Code’s provisions. Other legal systems take a more strict view of statutes. For example, statutes like the (U.K.) Sale of Goods Act may be regarded as islands in an ocean of uncodified common law; in this setting if the statute does not readily supply an answer the court may draw on general common-law ideas.

This leads to important questions: How can one establish the general principles on which the Convention is based? How diligently should a tribunal look for such principles before it turns, via rules of private international law, to a rule of domestic law? For this writer, these questions present the Convention’s most intriguing challenge; they are explored in the setting of Article 7, infra at §94.

§23 D. The Sale of Goods: Part III of the Convention

§ 25 (a) Obligations of the Parties.

The Convention’s contractual theme is announced in parallel provisions that open Chapter II (Obligations of the Seller) and Chapter III (Obligations of the Buyer): Each party must perform all of the obligations "required by the contract" (Arts. 30 and 53, infra at §206 and §309). This emphasis on the contract continues throughout the Convention and dominates the provisions dealing with the parties’ obligations concerning delivery, quality of the goods, and payment of the price. The significant point is not that the Convention mentions the contract; this is generally true of domestic sales law. What is significant is the fact that giving legal effect to the expectations of the parties (as shown by the language of the contract, the practices of the parties and applicable usages) is so consistently the theme of the Convention.[3]

§26 (b) Remedies

The tendency in some codified systems to distinguish between remedies for different categories of breach of contract found its way into the 1964 Hague Convention on Sales. ULIS divided [page 18] performance by the seller into five categories, and set up a separate remedial system for each category—an approach that produced length, complexity and ambiguity. For instance, separate remedies were provided for default as to the date of delivery and the place of delivery; this distinction was difficult to apply since goods that are still en route on the date for delivery can be regarded as either at the wrong place (en route) or delivered at the wrong time. Other artificial distinctions resulted from the fragmented approach to the seller’s obligations and to remedies for breach.[4]

The Convention’s unified contractual approach to the parties’ duties was implemented by a unified system of remedies for breach. Under Article 45 a single set of remedies applies when the seller "fails to perform any of his obligations"; similarly, Article 61 provides a single set of remedies when the buyer "fails to perform any of his obligations." The remedy does not depend on formal classifications of types of breach but on the seriousness of the breach. This approach reduced bulk and complexity.

This unified approach to obligations and remedies at one point touched an important issue of substance. Some legal systems have traditionally restricted the seller’s damage liability for defective goods to cases where the defect resulted from the seller’s fault; other legal systems base damages simply on breach of contract.[5]

Under the Convention, a party’s failure to perform the contract invokes the full range of remedies. For example, under Article 45 if the seller "fails to perform any of his obligations under the contract...the buyer may...claim damages...." And, contrary to the result in ULIS, the Convention’s excuse from damage liability when non-performance results from an impediment (cf. force majeure) does not extend to the delivery of defective goods.[6] [page 19]

We now face one of the thorniest problems in the law of contracts and sales: When will breach by one party free the other party of his obligation to perform? Students of comparative law do not credit any domestic legal system with a satisfactory approach to this problem; most of the traditional statutes dealing with the sale of goods tend to be casuistic and unresponsive to the interests at stake.[7]

In international sales the problem has special significance because of the cost of transporting goods to a distant buyer and the difficulty of disposing of rejected goods in a foreign country. These factors led to agreement on rules that can save the contract from destruction on technical and trivial grounds. One approach was a series of provisions that permit a party in breach to "cure" the deficiency in performance—Articles 34, 37 and 48. A second approach limits avoidance to breaches that are "fundamental" (Arts. 25, 49, 64). This limitation on the right of an aggrieved party to avoid the contract is subject to a powerful tool for clarifying the position of both parties: An aggrieved party who faces non-performance (failure to deliver goods or to pay the price) may fix a final, "additional period of time of reasonable length for performance"—the famous Nachfrist notice adapted from German law. Failure to perform in accordance with this notice is a ground for avoidance; the aggrieved party need not establish that the breach was "fundamental." Articles 47 and 49(1)(b) (avoidance by the buyer); Articles 63 and 64 (1)(b) (avoidance by the seller).[8]

The Sales part of the Convention devotes a separate chapter to risk of loss (Ch. IV, Arts. 66–70). These rules, applicable when the contract is [page 20] silent, are designed to place the risk of loss on the party who is in the better position to care for or insure the goods. The rules are not complicated by concepts such as "property" but are stated in terms of physical events. For example, risk passes when goods "are handed over to the first carrier" (Art. 67); when the contract does not involve carriage, risk passes when the buyer "takes over" the goods (Art. 69). These rules are, of course, subject to special provisions on the effect of breach of contract (Arts. 69, 70). A fuller description of the rules on risk appears in the introduction to Part III, Chapter IV, infra at §358, and in the Commentary on Articles 66–70, infra at §§360–383.

§30 E. An Invisible Gain: The Omission of "Awesome Relics"

Ernst Rabel, whose monumental study of the comparative law of sales provided the foundation for the early work towards a uniform sales law, said that one of the gains from the new law would be to avoid the "awesome relics of the dead past that populate in amazing multitude the older codifications of sales law."[9] This book notes some of the outdated legal [page 21] formulae that still complicate domestic sales law. One may delight in legal antiques and in the patina of ingenious circumlocutions that have had to substitute for fundamental reform but these aesthetic values may not be appreciated by a modern merchant and, more especially, by his trading partner from a different legal tradition.

The evolution of the 1980 Sales Convention was summarized in Overview, Chapter 1, supra at §4. Our concern now is with factors that have affected the texture and quality of the Convention and distinguish it from domestic law.

§33 (b) The Refining Processes of International Collaboration

The most powerful forces towards eliminating "awesome relics of the dead past" were intrinsic to the process of international collaboration. Proposals that embodied the idioms or traditions peculiar to a single system were subjected to polite but revealing analysis by puzzled representatives from other systems. Another powerful solvent was the process of translation; formulae that were vague or redolent of domestic legal tradition would set off alarms when they appeared in other languages. Unhappy experience with concepts in the 1964 Sales Convention that defied translation (délivrance; ipso facto avoidance) helped pave the way for UNCITRAL’s use of simpler, clearer language.[10]

One device used by the Secretariat in presenting issues to UNCITRAL seemed to facilitate agreement and, perhaps, a more direct mode of expression. At points where proposed legal texts might be read differently by delegates from different legal backgrounds the crucial issues were posed initially in terms of concrete factual examples. It proved to be easier to reach agreement on the results of concrete cases than to agree on legal drafts; and starting with agreement on the substance of the rule made it easier to draft a text that was direct and clear.[11]

The process was not always successful; on occasion, the discussion emphasized competing formulas of domestic law and [page 23] agreement was found only through a general rule based on the formula of wider applicability and an exception based on the competing formula. These compromises led to some of the less elegant provisions of the Convention but were the necessary (and less than outrageous) price for international agreement.[12] More often, the international deliberative process rejected the anachronisms that complicate domestic law and produced a statutory text that is relatively straightforward and uncluttered with technical detail. The value simply of eliminating technical rules that divert attention from the transaction and its commercial setting could easily be overlooked. (Who notices obstructions that have been removed from a highway?)[13] [page 24]

Part 1

Sphere of Application and General Provisions
(Articles 1–13)

§35 The balance of this work is a Commentary on the articles of the Convention. The uniform rules for sales transactions appear in Parts I-III of the Convention. Part I (Arts. 1–13) defines the Convention’s field of application and includes other general provisions. Part II (Arts. 14–24) governs formation of the contract. Part III (Arts. 25–88) governs the rights and obligations of the parties to the contract of sale.

§36 Introduction to Part I of the Convention

§37 A. The Convention’s Field of Application: Chapter I

§38 B. Interpretation and Related Questions: Chapter II

§39 The Overview (Ch. 2, supra at §12) drew attention to the limited applicability of the Convention. In brief, under Article 1 the Convention will apply only if two basic requirements are met: (1) The sale must be international,—i.e., the seller and the buyer must have their "places of business in different States," and (2) The sale must have a prescribed relationship with one or more States that have adhered to the Convention.

§40 A. Basic Rules on Applicability

The 1980 Convention lays down a single basic criterion of internationality: The seller and buyer must have their "places of business in different States." The 1964 Conventions used the same criterion but added further tests: Did the contract "involve" international shipment? Where did "the acts constituting the offer and acceptance" take place? The deliberations in UNCITRAL showed that these additional tests did not give predictable answers; the location of the parties’ places of business provided more solid footing.[2]

§41 (a) The Undisclosed Foreign Principal

Paragraph (2) of Article 1 addresses the following case:

The above transaction would not be governed by the Convention. Paragraph (2) of Article 1 is based on the premise that the facts that involve the Convention should be available to the parties at the time of the conclusion of the contract. This premise is also illustrated by Article 10(a), quoted infra at §42, which states that the choice between multiple places of business—a choice that is important in determining applicability of the Convention—shall be based on "circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract."

§42 (b) Multiple Places of Business

Article 10(a) works from the premise that a single party (such as a corporation) may have multiple places of business, and that a selection of the applicable place of business is based on its relationship to an individual sales contract. Consequently, the Convention does not invoke any of the rules for fixing a single location or "nationality" of a corporation, such as determinations based on the place of incorporation, "domicile", or "seat" ( siège, siège social or Sitz ). Article 10(a) must be construed and applied on the basis of its special role in determining the applicability of the Convention.[3]

In Example 1B, let us suppose that the making and performance of the contract are more closely related to State B than to State A. By virtue of Article 10(a), supra, Seller’s relevant place of business is in State B. Consequently, under Article 1(1), the parties’ relevant places of business are not "in different States"; the Convention does not apply.

Suppose that in Example 1B, a business in State B is incorporated in State B but is owned by a parent company incorporated in State A and the sales contract is executed between the company formed in State B and a party located in State B. Even if the corporate subsidiary in State B is closely controlled by the parent in State A the Convention would not apply to the contract. Under Article 1(1), applicability of the Convention is based on the location of the "parties" to the contract, and in this case the [page 31] parties are both in the same State. To avoid circumventing a State’s regulatory policies it may be necessary to "pierce the corporate veil" but it is difficult to imagine circumstances in which this doctrine would apply to free a corporate subsidiary from the domestic law of its place of incorporation. The effect of the active participation by a manufacturer or other supplier in a sale by a seller to a buyer is explored in connection with Article 4, §63 infra.

In Example 1B, suppose that the seller’s place of business in State B is not incorporated in State B but is a branch office of a company formed in State A and having its headquarters in State A. Determining which place of business, under Article 10(a), supra, "has the closest relationship to the contract and its performance" will call for weighing competing considerations. The factors in the scale are reduced by the rule of Article 10(a) that the relationship is to be determined on the basis of the circumstances known to or contemplated by both parties "before or at the conclusion of the contract"; supervision by the head office in State A that is known only to the seller is irrelevant; the same is true of facts learned by the buyer subsequent to the making of the contract.[4] The relative importance of the role of the two places of business in making and in performing the contract will be discussed infra at §43. However, where the balance seems close the parties would be well advised to settle the point by contract—by stating whether the Convention or specified domestic law is applicable.

The multiple places of business involved in consortia necessarily create difficult problems as to applicable law under traditional domestic law and the Convention. Usually such complex arrangements are governed by a detailed contract which should include an express provision on whether the Convention or a specified domestic legal system applies. See Kritzer Manual Ch. 27.

§43 (c) "Place of Business"; Sojourn During Negotiations

For reasons explained more fully in the Commentary to Article 10, infra at §124, the answer to both questions should be No. "Place of business", as used in Article 1, should be construed to mean a permanent and regular place for the transacting of general business, and would not include a temporary place of sojourn during ad hoc negotiations.[5] This interpretation is indicated by Article 10(a) which points to the relationship between the place of business and "the contract and its performance. " The procurement or production of goods to meet the buyer’s requirements is normally of much greater significance to both parties than the place where the contract is negotiated and signed. Moreover, references to "places of business" in other parts of the Convention show that this term excludes a temporary "place" like the hotel room in Example 1C. For example, Article 31(c) provides that where the contract does not "involve carriage of the goods" (para (a)) and the goods are not located at a place known by the parties (para (b)), the seller’s obligation to deliver consists in placing the goods at the buyer’s disposal "at the place where the seller has his place of business at the time of the conclusion of the contract" (para (c)). The meaning of "place of business" as a site of continuing business activity is similarly shown by provisions in Articles 24, 42(b) and 69(2).

In addition, the elusive and insubstantial nature of the place of contracting led UNCITRAL to delete provisions in Article 1(1) of ULIS that made aspects of the making of the contract relevant in determining whether a sale was international. This view is also supported by the emphasis on the place for performance in the 1980 EEC Convention on the Law Applicable to Contractual Obligations (Art. 4(2)).

Compare: (1) FR. CA Paris, J.D.24410, 24 April 1992, Fauba v. Fujitsu, affirmed, C. de Cass. (Sup. Ct), 4 January 1995. A French buyer (B) ordered electronic components from a German seller (S) through S’s liaison office in France. In a dispute over B’s rejection of a shipment, S argued that CISG did not apply on the ground that B (located in France) ordered the goods through the German seller’s office in France; thus, the parties to the transaction were not located in different States, as required by Article [page 33] 1(1). The court held that S’s liaison office was not an autonomous legal entity but, instead, was a French branch of the German seller. Consequently, the transaction was between parties in different States; the Convention applied. UNILEX D.1995-1; CLOUT 155. (2) Cf. ARB. ICC (Paris), 7531/1993 (1994). An Austrian buyer (B) and a Chinese seller (S) made a contract for the purchase from S of scaffold fittings. B conducted part of the negotiations in China, where S was located. Held: Negotiations in the same country did not bar application of Art.1(1)(a); the parties had their places of business in two different Contracting States. UNILEX D. 1994-31. Accord: Bonell/Ligouri ULR, 1996-1, 153 n.33. See: Schlechtriem, Com. (1998) 24.

§45 (a) Both Parties in Contracting States (Sub (1)(a))

The Convention’s function in enhancing certainty through uniform law needs to be emphasized, for in this setting one concern central to conflicts law, the proper allocation of regulatory power among competing sovereignties, has little significance. The "regulatory" aspects of the uniform rules are minimal, evidenced by the parties’ freedom to reject the Convention or modify its rules (Art. 6, §74, infra ) and by the Convention’s deference to the rules on validity under applicable domestic law (Art. 4(a), §64, infra ).

The Convention’s function in reducing the costs of legal uncertainty also supports the decision, made in Sub(1)(a), to apply the uniform rules when the parties have their places of business in different Contracting States even when important aspects of the transaction take place in a non-Contracting State. Uncertainty concerning the parties’ obligations generates planning costs that center in the parties’ places of business and affect the economic success of the enterprise. These enterprise costs are of concern to the parties and to the States where they have their places of business—rather than to States where aspects of the transaction occur.

There was prompt agreement on Sub(1)(a) or Article 1 but the second ground for applicability, Sub. (1)(b), was sharply contested on the ground that basing applicability on rules of private international law would undermine the legal certainty that was the Convention’s central goal. To meet this objection the Conference added Article 95 which permitted Contracting States to reject Sub (1)(b).[8] (The effect of an Article 95 reservation will be considered further in §47, infra. )

To sum up: The 1980 Convention rejected the "universalist" approach of the 1964 Conventions; Article 1(1) provides for applicability based on either of two types of connection between the sales transaction and a Contracting State: (1) In all Contracting States the Convention will apply when (Sub (1)(a)) the seller and the buyer have their places of business in different Contracting States. (2) The Convention will apply (Sub (1)(b)) when the rules of private international law point to a Contracting State, subject to a reservation by Contracting States that they "will not be bound" by this provision.[page 35]

§46 (b) Applicability Under Rules of Private International Law; Sub (1)(b): An Introduction

§46.1 (c) The Effect of Reservations

We shall meet this problem again (§§ 47.4–47.6 infra ) in connection with reservations under Article 95 to exclude applicability based on Article 1(1)(b).[page 37]

B. Alternative Approaches to Applicability

A proposal to delete subparagraph (1)(b) was defeated; as a compromise, the Convention’s Final Provisions (Part IV) included the following:[11]

The above declaration permitted under Article 95 has been made by the following States: China, Czech Republic, Singapore, Slovakia and U.S.A.

We may now return to Example 1D (§46, supra ) in which State A, the place of business of the seller, was a Contracting State but State B, where the buyer was located, was not a Contracting State. Now let us assume that State A in ratifying the Convention made the declaration permitted by Article 95. State A will now apply the Convention only to the sales covered by Sub (1)(a)—transactions between parties in two Contracting States. Since Sub (1)(b) is excluded, State A’s rules of private international [page 38] law designating the law of State A now invoke its domestic law rather than the Convention.

The factors favoring and opposing the making of an Article 95 declaration will vary from State to State; only a few general considerations can be mentioned.[12] In brief, as Example 1D suggests, in most situations an Article 95 declaration narrows the applicability of the Convention and enlarges the applicability of the domestic law of the declaring State. A Contracting State whose domestic law is ill-suited for international transactions may well prefer the wider applicability of the Convention that results from Sub (1)(b), and will choose not to make an Article 95 declaration. On the other hand, States whose domestic law is modern and well-suited to international transactions may well conclude that the Convention’s greatest value is within the area defined by Sub (1)(a)—transactions between two Contracting States. Although (in the long run) under Sub(1)(a) in approximately half the cases the Convention will supplant the domestic law of the declaring State, in the other cases the Convention will supplant foreign law, which usually will be less accessible than the Convention and often will be archaic and ill-suited to international transactions. Moreover, this important objective—displacing foreign law with uniform international law—is not well served by Sub (1)(b). In most cases, conflict (PIL) rules will point to the State of either the seller or the buyer. (See the provisions of the 1955 and 1986 Hague PIL Conventions at §45.2, supra and §47.3, infra. ) As we have seen, when both the seller and buyer are in Contracting States Sub (1)(a) invokes the Convention. Thus, the relevant situation for analysis is that of Example 1D (§46, supra ): only one of the parties to the sale is in a Contracting State. The option offered by Article 95 must of course be considered from the point of view of Contracting States since only they can make an Article 95 declaration.

Does the Contracting State effectively displace foreign law by retaining Sub (1)(b)? No: Sub (1)(b) invokes the Convention only when conflicts (PIL) rules points to a Contracting State—and in the cases where Sub (1)(b) is relevant the trading partners of the Contracting States are in [page 39] non-Contracting States. (Non-Contracting States can scarcely reproach Contracting States for choosing to apply their domestic law in transactions with non-Contracting States: If these States are concerned about coping with foreign domestic law they can adhere to the Convention!)

As noted above, five States have made the reservation permitted by Article 95 " not to be bound" by paragraph (1)(b) of Article 1 ("Sub (1)(b)") which provides that the "Convention applies when the rules of private international law lead to the application of the law of a Contracting State". (For simplicity these will sometimes be referred to as "Reservation States" or States that have "rejected" Sub (1)(b). The significance of the latter expression is discussed at §47.5, infra. ) Most States have not exercised the Article 95 option and are bound by Sub (1)(b). Interesting questions arise from the interplay of these differing choices.

As we have seen, Sub (1)(b) is irrelevant when both the seller and buyer are in Contracting States. We now turn to this general situation: One party is in a Contracting State (State A) and the other party is in a non-Contracting State (State B). A dispute between these parties comes before a third State (State C), a Contracting State whose rules of private international law (PIL) point to State A, a Contracting State. The question will be: Does the Convention or the domestic law of State A apply to the transaction? The problem will be: What is the effect of various combinations of choices by States A and C to reject or retain Sub (1)(b).

These cases become interesting only when State A (the place of business of one of the parties) and State C (the forum ) have made different choices with respect to Sub(1)(b). We need to note in passing the following cases where there is no ground for dispute:

(1) When both State A and State C have retained Sub(1)(b), the Convention will apply.

(2) When both State A and State C have rejected Sub(1)(b) the Convention will not apply. Thus, if the forum decides that PIL points to State A the case will be governed by the domestic law of State A.

Now, at long last, we reach the interesting cases where the two Contracting States have taken different decisions about retaining Sub(1)(b). To simplify the discussion let us assume that decisions taken by the forum (State C) on private international law are the same as the decisions of other fora facing the same situation. We shall also assume, as usual, that the parties (unfortunately) have not solved the problem in their contract.[page 40]

§47.5 (a) The Party’s State has Retained and the Forum has Rejected Sub (1)(b)

The proper effect of an Article 95 reservation becomes clearer when we consider the reason why States requested and exercised this option to reject Sub (1)(b) and thereby confine applicability to Sub (1)(a). One State observed that it would make an Article 95 reservation to protect its traders from being deprived of their familiar domestic law without the countervailing gain of supplanting the foreign law of trading partners in non-Contracting States, e.g., State B in Example 1F.[page 41][13] Substituting uniform international law for such foreign law was regarded as one of the important advantages of becoming a Contracting State. Certainly Sub (1)(b) was not rejected because of difficulty or distaste with applying the Convention as a neutral forum like State C, for the Article 95 reservation is necessarily made by a Contracting State—a State that is friendly to and willing to apply the Convention.

In short, the proper approach for the forum in State C is to decide which State’s law is indicated by the rules of PIL. Then, when PIL points to the law of a State that retained Sub. (1)(b) (as in Example 1F) the forum should apply the Convention. As we have noted, this approach gives the same result in the fora of all States that have retained Sub (1)(b) and all non-Contracting States, and would eliminate the impossible problems (including forum -shopping) that would arise if fora in States like State C should improperly apply their Article 95 reservation when no party from an Article 95 reservation State is before the court.

Latent in the above solution is this question: By what authority does the forum in State C apply the Convention based on its conflicts (PIL) rules when State C has made an Article 95 reservation " not to be bound" by Sub (1)(b). Has it been wrong to state that an Article 95 reservation "rejects" Sub (1)(b)? When States make a reservation that they are "not bound" by Sub (1)(b) are its tribunals free to apply Sub (1)(b) if they choose? See Pelichet, 1986 PIL Convention 43.

In Example 1F on what ground should the tribunal in State C, a Reservation State, apply the Convention law of State A when State C’s conflicts (PIL) rules point to State A? Suppose that the dispute between the parties in Example 1F were taken to a tribunal in State N, a non -Contracting State, and the conflicts (PIL) rules of N (like those of State C) pointed to State A. The tribunal in State N surely should apply the Convention, since this is the law of State A that applies to this transaction (§47.3, supra ). Sub (1)(b) is irrelevant in State N, a non-Contracting State; State N would apply the Convention because this is the correct application of State N’s rules of private international law. This also is the reason why in Example 1F the tribunal in State C, although a Reservation State, should apply the Convention; here, too, Sub (1)(b) is irrelevant. Cf. Pelichet, 1986 PIL Convention 43.

The approach suggested above may be illustrated and tested by the following case: [page 42]

Example 1G. Seller is in State A, a Contracting State that (unlike State A in Example 1F) has made an Article 95 reservation that it is "not bound" by Sub (1)(b); Buyer is in State B, a non-Contracting State. The forum is in State A which, as was just noted, is a Reservation State. The conflicts (PIL) rules of State A point to State C, a Contracting State that has retained Sub (1)(b).

Should the forum in State A apply the Convention to this transaction? The first step is to recognize that Article 95 does not provide that a State that makes the reservation shall apply its own domestic law; it merely frees that State from Sub (1)(b). Thus, in the present example, if the conflicts (PIL) rules of State A pointed to Buyer’s State (State B), a non-Contracting State, the State A forum would apply the domestic (non -Convention) law of State B. This recourse to conflicts (PIL) is, of course, not in response to a command from Sub (1)(b) but simply in order to decide the case under the most appropriate system of law. This principle also applies if the answer to the conflicts (PIL) inquiry points to a Contracting State such as State C. In Example 1G the forum in State A should apply the Convention rather than the domestic law of State C.

This approach to Example 1G is also appropriate since it is applicable to various fora to which the dispute might be brought. For example, in this case the plaintiff (e.g. Seller) might choose to bring the action in Buyer’s State (State B), a non-Contracting State. State B’s conflicts (PIL) rules (particularly with the further succeeds of pending measures for unification) may resemble those of State A. In that event, the conflicts (PIL) inquiry by the forum in State B might well point to the law of State C,—or some other similar Contracting State where, for a transaction like this, the Convention is the applicable law.

Example 1H. The facts are the same as in Example 1G in that State A (the Seller’s State) made an Article 95 declaration that A "is not bound" by Sub (1)(b). However, in this case the forum is State C, a Contracting State that has retained Sub (1)(b). As in Example 1F, the conflicts, (PIL) rules of the forum point to State A.

The correct approach follows from the discussion of Example 1F. The forum in State C, having determined that PIL points to State A, should conclude that since State A has rejected Sub (1)(b) the law of State A for this transaction does not include the Convention; consequently the forum in State C should apply the domestic sales law of State A.

This approach respects State A’s option to reject applicability of the Convention under Sub (1)(b) when a party in that State contracts with a party in a non-Contracting State and the rules of PIL point to State A. (Reasons for exercising this option were noted at §47.1, supra. ) Moreover,[page 43] this approach would be like the approach of: (1) other States that have rejected Sub (1)(b) (like State A); (2) all non-Contracting States like State N in §47.5, supra.[14]

In short, the fact that States have responded differently to the option offered by Article 95 should present no serious difficulties once it is understood that the choice is exercised in the interest of parties in a State that makes this choice, and that fora of other States should respect that choice. In addition, as we have seen (§46.1, supra ), this result is consistent with the result of other reservations permitted by the Convention.

Two of the above examples, 1F and 1H, (perhaps unnecessarily) probed the effect of reservations excluding Article l(1)(b) in unusual situations—litigation brought in a State where neither the seller nor buyer has its place of business. ("The expense of spirit in a waste of shame." W.Sh.S#109.) In this rarified atmosphere, this writer’s views have met both support and criticism. See: On the obligations of States (whether or not Contracting) to respect Article 95 reservations excluding Sub 1(1)(b), see Schlechtriem, Comm. (1998) 27–28, §§43–44; idem., 1986 Commentary 27 n.56a; Bonell/Ligouri, ULR (1996-1) 153–154, n. 37–40, (1997-2) 391–393; Evans, M., Bianca-Bonell Commentary (1987) 656–657; Winship, P., 21 Cornell Int. L.J. 487–533 (1988); Gabor, F. A. 7 N.W.J. Int. L.& Bus. 696–726 (1986), 8 id. 538–569 (1988). But cf. Ferrari, F., Sphere of Application (CISG) 15–16, n. 201–206.

Happily, controversies involving the applicability of CISG under Article 1(1)(b), and the rare cases involving reservations to this provision, are diminishing as the number of adhering States increases. The future lies with Article 1(1)(a) and its clear-cut rule: The Convention applies when the places of business of the seller and buyer are in different Contracting States.[page 44]

§48 C. Other Problems of Applicability

The rules on applicability of the Convention do not refer to the nationality of the parties or to their civil or commercial character. Consequently, it was not necessary to add in paragraph (3) that these factors are not to be "taken into consideration in determining the application of this Convention."[15]

The specific rejection of a distinction between "the civil or commercial character of the parties or of the contract" should prevent any misapprehension by those who are accustomed to separate civil and commercial codes. The 1980 Convention is not of this character. True, the typical international transaction is commercial and, as we shall see, Articles 2(a) and 5 specifically exclude most consumer-type transactions. But the central point, emphasized by paragraph (3), is that the traditional classifications in some legal systems between "civil" and "commercial" parties and transactions are irrelevant in determining the applicability of the Convention.[16]

Article 1(1) provides that the Convention applies to the sale of "goods". The meaning of this term will be examined following the discussion of provisions of Articles 2 and 3 which shed light on this question. See §56 infra.[page 45]

Article 2. Exclusions from the Convention

§49 Article 2 excludes from the Convention six specific categories. The first three (paragraphs (a)-(c)) are based on the nature of the transaction; the remaining three (paragraphs (d)-(f)) are based on the nature of the goods.

§50 A. Specific Exclusions

Most consumers do their shopping at stores in their own community; all of these purchases fall outside the Convention because they are not international (Art. 1, supra at §39). However, consumers may occasionally shop on the other side of a nearby international border or during trips abroad, or may order from foreign mail-order houses. In some of these transactions the seller will know that the buyer is a foreigner so that the transaction would meet the Convention’s requirements of internationality. (See Art. 1(2), supra at §41).[page 46]

In UNCITRAL attention was drawn to the development of national legislation and case law designed to protect consumers; it was agreed that the Convention should not supersede these rules. Consideration was given to a provision that the Convention would not override any domestic rule that was "mandatory" or that implemented "public policy" (ordre public ) but it was found that these concepts carried different meanings in various legal systems; the clearest and safest solution was specifically to exclude consumer purchases from the Convention.[2]

The phrase "goods brought for personal, family or household use " refers to the purpose of the buyer at the time of the purchase. (A similar definition in (U.S.A.) UCC 9–109 applies when the goods "are used" by the buyer for the above purposes; in UNCITRAL "are used" was deleted so that applicability of the Convention would not depend on action taken by the buyer subsequent to the purchase.) The character of the goods is not decisive; the Convention applies to the international purchase of furniture for a business office even though this type of furniture is customarily bought by consumers.

The "unless" clause that concludes paragraph (a) may be illustrated as follows:

Example 2A. Seller, a dealer in photographic equipment in State A, accepted an order from Buyer, a resident of State B, for expensive and complex photographic equipment of the type normally used by professionals. In a controversy over the sale, when Seller invoked the Convention, Buyer offered evidence that he bought the equipment for his personal use as an amateur.

In this case, the seller should be able to show, under the "unless" clause of paragraph (a), that he "neither knew or ought to have known" of the buyer’s purpose; in this event, the Convention would govern the sale. As to burden of proof see O.R. 239, Docy Hist. 460.

Questions that turn on proof of what a person "knew" or "ought to have known" can hardly be free of doubt but advance planning can minimize the uncertainty. Sellers who distribute catalogues to international customers may wish to place on the catalogue’s order forms (and on similar contract forms) a statement such as the following: "International purchases of this equipment may be governed by the United Nations Convention on Contracts for the International Sale of Goods unless the goods are bought for personal, family or household use. If the goods are [page 47] bought for such use, please check the appropriate box below." A buyer who does not make the requested indication could scarcely contend that the seller "ought to have known" of the buyer’s purpose.

The structure of Article 2(a) and practical considerations applicable to the allocation of the burden of proof suggest that the buyer has the burden of proving that it bought the goods for personal, family or household use; the seller would have the burden of proving that it did not know (and had no means of knowing) the buyer’s purpose.

AUSTRIA, Ob (Sup. Ct.), 10 Ob 1506/95, 11 February 1997. B (Swiss) sued S (Austrian), an importer of Italian cars, for failure to deliver a Lamborghini Countrac. The Court held, pursuant to Art. 2(a), that CISG did not apply since B purchased the car for personal use. The opinion noted that CISG would have applied if the seller had proved that it "neither knew or ought to have known" that the car was purchased for personal use. CLOUT 190.

(Sales to consumers are included in "Principles of European Contract Law".)

The exclusion of sales "by auction" resulted from various considerations: Auction sales present unique problems with respect to formation of the contract. The seller will not know who the buyer is (and hence whether the Convention applies under Art. 1(1)) until after the sale is "knocked down" to the highest bidder. Local law often applies special regulations to auction sales.[3]

These considerations are useful in defining the scope of this exclusion. For example, when the buyer fails to pay for the goods the seller may be empowered to "avoid" the contract and resell the goods. Similar rights may be given to the buyer when the seller delivers seriously defective goods (Arts. 49, 64, 75, 81, 88). Such resales by a party to the contract, even though authorized by the Convention, are not excluded from the Convention as sales "(c) on execution or otherwise by authority of law." The same principles apply when a secured party on default by the debtor resells the collateral at a private sale rather than by auction.[4]

The exclusion of the intangible rights listed in Article 2(d) illustrates the fact, discussed more fully in §56, infra, that the sale of "goods" refers to moveable, corporeal things. In the 1964 Hague Conventions and in UNCITRAL there was general agreement that transactions in the types of assets listed in Article 2(d) should be excluded from the law covering "sales of goods. " The exclusion of "negotiable instruments" (Fr.: effets de commerce; Sp.: titulos o efectos de comercio ) refers to instruments calling for the payment of money; documents controlling the delivery of goods (e.g., warehouse receipts, bills of lading) are subject to the Convention when they are employed to effect the delivery of goods. See Arts. 30, 34, 58(1), infra. See: HUNG. Arb. AZVb 92205, 20 December 1993. CISG is not applicable to shares. UNILEX D. 1993-27. See: Schlechtriem, Com. (1998) 35.

The 1964 Hague Conventions excluded sales "of any ship, vessel or aircraft, which is or will be subject to registration." ULIS 5 (1)(b); ULF 1(6)(b). The reference to registration was designed to designate goods which, according to Prof. Tunc’s commentary, "are or will be subject to [page 49] a special system of rules which, moreover, frequently resembles that for immovables." In UNCITRAL it was found that national legislation included many varieties or regulations that might (or might not) be deemed to include "registration"; the concluding phrase was deleted. Consideration was given to excluding only vessels of a specified tonnage; this attempt also was abandoned.[5]

Does the exclusion of the sale of "ships, vessels" (Fr.: navires, bateaux; Sp.: buques, embarcaciones ) extend to small pleasure craft such as sailboats and rowboats? No such restriction seems feasible for the exclusion of "aircraft." UNCITRAL’s inability to find a workable basis for distinguishing between large and small craft and the difficulty that courts would encounter in developing such a distinction suggest that Article 2(d) must be read without qualification: Sales of small pleasure craft do not fall within the Convention. Article 7(1) provides: "In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application ..." International uniformity in interpretation and application would be more readily achieved by an unqualified reading of Article 2(d) than by judicial attempts to narrow the scope of the provision.[6] See Nicholas, LQR (1989) 206. On the other hand, Professor Schlechtriem has suggested that this exception should not be extended to the sale of boats that under domestic law do not come under the special regulations of domestic law applicable to ships.[7] Discussion at the Diplomatic Conference is reported at O.R. 240–241, Docy Hist. 461–462.

Providing a ship with supplies (e.g., fuel) or with equipment necessary for the voyage, although within domestic maritime law would be subject to the Convention if other requirements of Article 1 are met. See McMahon, 21 J. of Mar. L. & C. 305, 306 (1990). On the sale of materials for ship construction see §56, infra. However, under Article 90 the Convention would yield to an "international agreement" governing the rights of the seller and buyer who "have their places of business in States parties to such agreement". See §§462–464, infra. HUNG. Sup. Ct. Gf.31-349/1992f9, 25 September 1992. Malev v. Pratt & Whitney. Aircraft engines [page 50] are subject to CISG. UNILEX, D. 1942-20. See: Winship, P., 50 J. Air L. & Comm. 1053–1066 (1985).

§56 B. "Sale of Goods"

It is clear that "goods" governed by the Convention must be tangible, corporeal things, and not intangible rights like those excluded by Article 2(d) above—stocks, shares, investment securities and instruments evidencing debts, obligations or the right to payment. As has been noted at §53, supra, the point is that these documents represent intangible rights —a claim for payment or for receiving dividends or other payments from an enterprise.[8] Article 3(2), §60 infra, takes a similar approach in excluding contracts in which the preponderant part of a party’s obligations "consists in the supply of labour or other services ". Possible dispute over whether electricity is tangible (a quantum) or intangible (a wave) was avoided by the exclusion of electricity. See Article 2(f). On the other hand, a sale (e.g.) of gas is within the Convention; a motion to exclude gas was defeated.[9] The classification of computer software has led to controversy; some software seems difficult to distinguish from an exceedingly compact book or phonograph record. Here, as in other borderline areas, it seems prudent to state in the contract whether the Convention applies. See Fakes, 3 Software L.J. 559 (1990).[page 51]

The conclusion that "goods" refers to tangible, corporeal things means that sales of patent rights, copyrights, trademarks and "know-how" are not governed by the Convention.[10] (As we shall see, under the Convention a buyer of goods has rights against the seller if the goods are subject to a "right or claim of a third party based on industrial property or other intellectual property." See Art. 42, §§267–270, infra. )

Many provisions of the Convention also make clear that the term "goods" (French: merchandises; Spanish: mercaderias ) refers to moveable tangible assets. A sale of land is excluded. Any possible doubt on this point is foreclosed by numerous provisions that are incompatible with transactions in land—e.g. quality and packaging (Art. 35), replacement or repair of defective parts (Art. 46), shipment and damage during transit (Arts. 67–69), delivery by installments (Art. 73), preservation and warehousing to prevent loss or deterioration (Arts. 85–88). It follows that a contract to construct a bridge, building or other permanent structure is not a contract for the sale of "goods". The building materials are goods but materials that the builder brings to the building site normally may be removed without breaking the contract with the land-owner; Cf. (U.S.A.) UCC 2-105(1). On the other hand, the Convention would apply to an international sale of a mobile building even though the buyer might decide to affix it permanently to his land.[11] See: ICC Arb. 1992:7153. Materials to be used in construction of building are "goods" subject to CISG. CLOUT 26, UNILEX D. 1992-1.

Questions can arise from contracts relating to things that at the making of the contract are a part of or attached to land (e.g. oil, ores, trees, buildings) but which will become moveable at a later stage. Contracts requiring the seller to extract or sever corporeal objects from land and make them available to the buyer seem to be covered by Article 3(1) (§57, infra ) as "Contracts for the supply of goods to be manufactured or produced.... " Legislative history (§56 n. 9, supra ) shows that the sale of gas is covered; there is no reason to suppose that a direct underground origin for the gas affects this result. On the other hand, a contract permitting a party to come on land and mine, drill or cut timber does not call for one party to deliver goods to the other; crucial provisions of the Convention on conformity of goods (Art. 35), delivery, shipment (Arts. 31–33) and risk of loss (Arts. 66–70) do not address the special circumstances [page 52] of contracts for mining or other extraction activities. Cf. (U.S.A.) UCC §2–107(1): sale of goods includes (minerals and the like only "if they are to be severed by the seller"); Ont. L. Ref. Sales, Vol. 3 p. 15 (Draft Act. §2.5(1)). But cf. Bridge, Sale 28–29. However, the parties by agreement may make the Convention applicable to these translations (§81, infra. ).

Some domestic sales laws exclude exchanges of goods. The (U.K.) Sale of Goods Act applies to transfers or property "for a money consideration"—a restriction that raises questions of interpretation when (e.g.) S delivers goods at a stated price to B with the understanding (as in a "trade-in" transaction) that goods that B delivers to S will reduce the price by a stated amount.[12]

The Convention does not state any restrictions as to the price. Article 53 states: "The buyer must pay the price for the goods...". Articles 55–59 speak in the same general terms. This, plus the parties’ freedom under the Convention to shape the transaction to meet their needs supports the view that exchanges of goods are not excluded unless the parties so choose (Art. 6 infra ).[13] On the other hand, some "counter-trade" arrangements, primarily concerned with the balance of payments, may not describe the goods or other obligations of the parties with sufficient definiteness to constitute a contract of sale. See §56.2 and Article 14, §133 infra. See UNCITRAL Legal Guide on Drawing up Contracts in International Countertrade Transactions (Ch. III of 1990 draft considers alternative approaches to contract. A/CN.9/332); Kritzer Manual Ch. 25; Loeber in Weidring Conf. (1986) 299–315.[page 53]

§ 56.2 (3) Framework Agreements for Future Orders and Deliveries; Franchise Agreements

This agreement, without more, does not constitute a "contract of sale" under Article 1 and is not governed by the Convention. (The definiteness required of offers is discussed under Article 14 at §§134–137, infra. ) However, if orders are thereafter made and accepted, the "framework" agreement can supply the detailed terms of the transaction to supplement or modify the provisions of the Convention. (See: GER Düsseldorf, 6 U 152/95, 11 July 1996. CISG is not applicable to framework agreement, but is applicable to individual contracts.) See Article 6, §§74–84. If the "framework" agreement was made before the date of the Convention’s entry into force, under Article 99 the Convention would govern orders and contracts made after that date but not before.

The arrangements and practices involved in franchise and dealership relationships are too varied for thorough treatment here. Dealers sometimes sue for losses incurred in preparing for a franchise arrangement that is expected on the basis of representations that fall short of promises. These claims present some of the problems presented by outlays during negotiations that fail to ripen into contract—the problem known in some legal systems as culpa in contrahendo. These problems arise from such diverse settings that they are dealt with or excluded by provisions of Part II on Formation of the Contract. Other problems arise out of termination clauses in franchise agreements that are challenged as so harsh as to violate standards of conscionability—problems of contract validity that Article 4(a) leaves to domestic law. See §§64–69 (validity) and §§4–95 (good faith). In addition, close examination of the facts may show that the issue does not arise out of a "contract of sale of goods" and therefore falls outside of the scope of the Convention.

These transactions are clearly "contracts of sale of goods" within Article 1 and no provision excludes them from the Convention.[14] Thus, failure to deliver goods of the agreed quality or quantity and failure to receive and pay for the goods and many related questions are governed by the Convention. The only substantial question is whether sales of quantities or shares in an identified bulk of fungible goods can satisfy the "identification" requirements of Articles 67(1) and 69(3) governing risk of loss. See §§371, 378, infra.

Computer "hardware" is clearly "goods" subject to CISG. See, e.g. GER OLG Koblenz, 2 U 1230/91, 17 September 1993: CISG is applicable to computer "chips". See also: Schlechtriem, Com. (1998) 23.

The issues are more subtle when the transaction involves "software"— e.g. the tiny silicon "chips" that can bring the "hardware" to life. These "chips", although minute, are tangible; when sold they are "goods" subject to sale. See: GER. LG München, 8 HKO 24667/93, 8 February 1995. CISG applies to "standard software". CLOUT 131, UNILEX D. 1995-3.1. See: Fakes, A., 3 Software L.J. 559-614 (1990); Primak, L.S., 11 Comp. L.J. 197-231 (1991); Bonell/Ligouri ULR (1996-1) 149, id. (1997-2) 388. Cf. License agreements: Lockhart & McKenna, 70 Mich. L. J. 646-655 (1991).

See: ARB: Hung. Ch. of Comm., Ct. of Arbn., AZVb 92205, 20 December 1993. Witz, Premières Applications 33; Ferrari, 15 JCL (1995) 67 n.448. [page 55]

Article 3. Goods to be Manufactured; Services

§ 57 Paragraph (1) of Article 3 deals with the Convention’s applicability to contracts for the supply of goods to be manufactured or produced; paragraph (2) deals with sales contracts that include the supply of labor or other services.

§58 A. Goods To Be Manufactured

By virtue of paragraph (1) of Article 3, this contract does not fall within the Convention. The same is true even if the contract states that [page 56] the goods are owned by Finisher during the processing and are thereafter sold to Owner for an agreed price. Regardless of the form of the contract, the "unless" clause of paragraph (1) is decisive: The party who ordered the goods undertook "to supply a substantial part of the materials necessary for" their manufacture or production.[2]

Questions of degree inevitably arise along the borders of the statute. Some of these question can be suggested by an example.

Example 3B. Purchaser contracted with Manufacturer for the supply of stainless steel and agreed to supply the chromium, a necessary ingredient; the value of the chromium supplied by Purchaser comprised 15% of the total value of the materials used in manufacturing the stainless steel.

The fact that the chromium was necessary for the production does not itself lead to the exclusion of this transaction; exclusion results only when the purchaser supplies "a substantial part of the materials necessary" for production. We may assume that the weight or volume of the chromium would not be "substantial" in relation to all of the necessary materials but this should not be decisive: The only commensurable relationship is one based on value. How big a proportion of the value of all the materials is "substantial?" Paragraph (2) refers to "the preponderant part"; a "substantial" part would be less than preponderant. It seems that a tribunal might well conclude that 15% is "substantial" but the evaluation of such questions of degree is difficult to predict. The parties to such an international transaction would be well advised to solve the question of the Convention’s applicability in their contract.[3]

Assume that Purchaser did not supply chromium or other materials but did supply valuable technical services and "know-how" that had "substantial" value in relation to the total value of the materials. No provision [page 57] of CISG excludes this transaction. Art. 3(2) excludes transactions only on the basis of services provided by the seller. At the Vienna Conference a proposal to exclude transactions on the basis of expert services supplied by the buyer was rejected. See O. R. 243–244; Docy. Hist. 464–465; Schlechtriem, 1998 Commentary 40.

(1) Decisions that apply the Convention, on the ground that B did not supply a "substantial" part of the materials, include: HUNG. Arb. Ch. of Comm. & Ind., VB/94131, 5 December 1995 (B supplied only 10% of goods needed for production); GER. OLG Frankfurt a M., 5 U 164/90 17 September 1991).

(2) CISG did not apply: AUS. OGH (Sup.Ct.) 27 October 1994, CLOUT 105, UNILEX D.1994-27. FR, CA Chambéry, 93-648, 25 May 1993, CLOUT 157, UNILEX D.1993-17. See also: Bonell/Ligouri, ULR (1996-1) 150–151.

§60 B. Contracts not Confined to the Supply of Goods

The above contract would not be excluded from the Convention by Article 3(2) since the "supply of labour and other services" did not comprise "the preponderant part of the obligations of the party who furnishes the good." The opposite answer would result if the contract called for services with value in excess of $1,000,000.[4] For example, Article 3(2) could exclude a contract to repair a complex machine if the cost of labor is greater than that of the replacement parts.

Does the Convention apply not only to the part of the contract dealing with the supply of goods but also to the part dealing with the supply of services? The answer should be Yes. Article 3(2) applies only when the parties deal with both goods and services in a single contract. When there are significant relationships between the two aspects of the contract the Convention should apply to the entire contract. If this is not the case, the [page 58] arrangement should be treated as two contracts and the Convention would apply only to the contract for goods. Because of the relationships between the supplying of goods and services it would be important for a single set of rules to apply to the entire contract. When a controversy arises, the most troublesome problems, not regulated by the contract, are likely to relate to remedies for breach—particularly the question whether the breach justifies avoidance of the entire contract. A unified approach to such problems may be necessary for the effective application of the Convention’s provisions to the transaction in goods; pursuant to Article 3(2) the value of goods would at least equal and in most cases would exceed the value of the services. Many of the provisions of the Convention are concerned with the physical aspects of goods—transport, damage, destruction, deterioration. Services do not generate these problems, but the irrelevance of these provisions of the Convention should not present difficulties. And the Convention’s general approach to interpretation and enforcement of the contract would be useful for the entire transaction. (The Convention’s unitary approach to the contract and its remedies was introduced in the Overview in Ch. 1 at §2 and Ch. 2 at §§24–27.)

Decisions that apply CISG since S’s services were not a "preponderant" part include: ICC Arb. (Paris), No.7153/1992, 26 August 1992; FR, Grenoble, RG 93/4897, 26 April 1995, Roque v. Le Sarl. CLOUT 152, UNILEX D.1995-14. Contra: Service was "predominant; CISG not applicable: GER. OLG Köln, 19 U 282/93, 26 August 1994 (contract for market research embodied in report). See: Bonell-Ligouri ULR 152, n. 28-31 (citing cases and articles).

§60.2 Severability. Professor Schlechtriem suggested that domestic law should decide whether a transaction involving both goods and services is one contract governed by the Convention or is two contracts with the service aspect governed by domestic law. 1986 Commentary 32. This conclusion is entitled to great weight. The present writer has held a different view but would now be inclined to agree with Schlechtriem if the approach of applicable domestic law to the question of "severability" is sufficiently flexible to give decisive weight to the question mentioned above: Will "severing" the contract prevent the effective application of the uniform international rules to the transaction in goods? If a Contracting State applies domestic rules on "severability" that ignore the effective application of the Convention to a transaction that combines goods and services that State would scarcely be honoring its obligation to give full effect to the rules governing international sales or to the mandate of Article 7(1) (§§85–86, infra ) that in interpreting the Convention "regard [page 59] is to be had to its international character and to the need to promote uniformity in its application. " See Khoo, B-B Commentary §3.1, p. 43. Article 3(2) is based on the premise that the Convention will apply to some transactions that embrace both goods and services; decisions as to which transactions will be covered can not properly be made solely on the basis of principles of domestic law.

In discussing Article 2 at §56, supra, we saw that construction of an immovable building was not a sale of "goods". Even when contracts for industrial works call for the buyer to supply the land and building, some of the equipment may become a permanent part of the building while other equipment may be free-standing and readily removable. "Turn-key" contracts may also include the supplying of "know-how" and services in placing the plant in operation.

Such complex contracts should (and often do) designate the applicable law. See Art. 6 at §75, infra. If the contract is silent, deciding whether the Convention governs any part of the transaction calls for applying by analogy the Convention’s provisions on mixed contracts in Article 3, supra, and also consideration of the parties’ implied intent (Art. 8, §§104–111, infra ) in the light of the (1) suitability of the Convention’s provisions to the contract as a whole and (2) the feasibility of "severing" the contract to make the Convention apply to only part (§60.2, supra).[5]