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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 3
Contract of Sale v. Contract for Services

61. Article 3 of the CISG seeks to draw the line between true 'sales', i.e., where the supplier's main obligation is to supply goods, and transactions where the supplier's main obligation is to supply (labour or other) services. Article 3 provides as follows:

'1. Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

2. This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.'

The first, very obvious point to be noted in this connection is that a contract for the distribution of goods is not a contract of 'sale'.[1] The same is true of a contract to provide market research.[2]

Since contracts for the supply of goods to be manufactured or produced generally fall within the CISG scope (unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production), such a transaction can neither be regarded as a contract for the 'sale of a service' nor as a 'mixed' sales/service contract, even though the value of the labour and services rendered in connection with the production of the goods are seen as a significant - or even the 'dominant' - element in the transaction concerned.[3]

On the other hand, paragraph (1) makes it clear that a transaction which might otherwise be considered a CISG sale of goods falls outside the Convention scope, if the buyer undertakes to supply a substantial part of the materials necessary for such manufacture or production. Although the term 'substantial' in paragraph (1) seems hardly precise, a seller's supply of, e.g. 10 per cent-20 per cent of the total raw materials needed for production would presumably be insufficient to keep the transaction within the CISG scope.[4]

According to the rule in paragraph (2), where a supplier undertakes to supply a mixture of goods and services - e.g., contract whereby the supplier not only undertakes to provide the buyer with a computer system, but also promises to service and/or upgrade the system at regular intervals - the CISG will apply if the sales element is clearly the 'preponderant' part of the total transaction.[5] If a purely financial means of measurement were to be applied, this would translate to more than 50 per cent of the total value of the obligations concerned.[page 40]

1. See also supra No. 58.
2. See the decision of OLG Köln (Germany), 26 August 1994, No. 19 U 282/93, RIW 1994, 970-972, also reported in UNILEX.
3. Compare re. German domestic law Diedrich, F., 'Maintaining Uniformity in International Uniform Law Via Autonomous Interpretation: Software Contracts and the CISG', VIII Pace U. International L Rev. 303, 327 (1996) [available at <http://www.cisg.law.pace.edu/cisg/biblio/Diedrich.html>].
4. Accord Honnold J., op. cit. at p. 57.
5. See, e.g., the decision of Handelsgericht Zürich (Switzerland), 26 April 1995, No. HG 920670, reported in UNILEX, holding that a contract for the sale and installation of a fitness device was (essentially) a 'sales contract' governed by the CISG.


Pace Law School Institute of International Commercial Law - Last updated April 1, 2005
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