THE PRESIDENT OF THE UNITED STATES
THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, ADOPTED BY A UNITED NATIONS CONFERENCE OF SIXTY-TWO STATES ON APRIL 11, 1980
SEPTEMBER 21, 1983. - Convention was read the first time, and together with the accompanying papers, referred to the Committee on Foreign Relations and ordered to be printed for the use of the Senate
U.S. GOVERNMENT PRINTING OFFICE
THE WHITE HOUSE, September 21, 1983
To the Senate of the United States:
With a view to receiving the advice and consent of the Senate to ratification, I transmit herewith the United Nations Convention on Contracts for the International Sale of Goods. This Convention was adopted on April 11, 1980, by the United Nations Conference on Contracts for the International Sale of Goods and was signed on behalf of the United States at United Nations Headquarters on August 31, 1981.
The Convention would unify the law for international sales, as our Uniform Commercial Code in Article 2 unifies the law for domestic sales.
The Convention was prepared, with the active participation of representatives of the United States, by the United Nations Commission on International Trade Law (UNCITRAL) and received the unanimous approval of this worldwide body; the Convention was then adopted, without dissent, by the United Nations Conference of sixty-two States. This unanimity attests to the broadly perceived need for the Convention and the value of its provisions.
The House of Delegates of the American Bar Association recommended in 1981 that the United States ratify the Convention, subject to a declaration permitted under Article 95 as to the grounds for applicability. I concur fully in this recommendation for the reasons set forth in the enclosed report of the Department of State.
The report of the Department of State provides a summary of the Convention and describes its approach. Worthy of emphasis is the international deference that the Convention accords to the contract made by the parties to an international sale. The parties may agree that domestic law rather than the Convention will apply, and their contract may modify or supplant the Convention's rules. The uniform international rules play their significant role when, as often occurs, a problem arises that the parties did not anticipate and solve by contract.
International trade now is subject to serious legal uncertainties. Questions often arise as to whether our law or foreign law governs the transaction, and our traders and their counsel find it difficult to evaluate and answer claims based on one or another of the many unfamiliar foreign legal systems. The Convention's uniform rules offer effective answers to these problems.
Enhancing legal certainty for international sales contracts will serve the interests of all parties engaged in commerce by facilitating international trade. I recommend that the Senate of the United States promptly give its advice and consent to the ratification of this Convention.
DEPARTMENT OF STATE,
Washington, August 30, 1983
The White House
THE PRESIDENT: I have the honor to submit to you the United Nations Convention on Contracts for the International Sale of Goods with the recommendation that it be transmitted to the Senate for its advice and consent to ratification. This Convention, adopted without dissent on April 11, 1980, by a United Nations conference of sixty-two States, culminated a half-century of work to prepare uniform law for the international sale of goods.
Sales transactions that cross international boundaries are subject to legal uncertainty - doubt as to which legal system will apply and the difficulty of coping with unfamiliar foreign law. The sales contract may specify which law will apply, but our sellers and buyers cannot expect that foreign trading partners will always agree on the applicability of United States law. Insistence by both parties on this sensitive point can prolong and jeopardize the making of the contract.
The Convention's approach provides an effective solution for this difficult problem. When a contract for an international sale of goods does not make clear what rule of law applies, the Convention provides uniform rules to govern the questions that arise in the making and performance of the contract.
The Convention does not restrict the parties' freedom to settle by contract the full range of their rights and obligations. Instead it provides that its rules yield to the terms of the international sales contract. A major need for the Convention's uniform law arises from the fact that the buyer and the seller do not anticipate every question that might arise or consider it essential to deal with every problem, and it is often inexpedient to hold up the transaction until the parties find a solution for all foreseeable contingencies. In short, the Convention (like modern national systems of commercial law) serves the significant function of providing solutions for problems that the parties have failed to resolve by contract.
The usefulness of the Convention is enhanced by the fact that its rules were specially fashioned to meet the problems and needs of international trade. Our sellers and buyers now must cope with foreign statutes and codes that were prepared a century or more ago, and were designed for domestic sales that bear little resemblance to current international transactions. Even when these problems have been ameliorated by case-law, such developments are often unknown or inaccessible to our lawyers.
The present Convention was adopted in six languages; English, of course, is one. The legislative history of the Convention is readily available in English, and most of the explanatory writing about the Convention is in English. Under the Convention our traders will not be forced to rely on foreign advice concerning the implications of the rules of a wide variety of foreign legal systems and often inadequate translations of such advice or rules.
This Convention replaces the Hague Sales Convention of 196 which, because of defects, have not been widely accepted. (The United States has neither signed nor become a party to these Conventions.) These defects were discussed and resolved during a decade of preparatory work by the United Nations Commission on International Trade Law (UNCITRAL). The thirty-six member States of UNCITRAL provided representation for all major legal systems and regions of the world. United States representatives played an active and influential part in this preparatory work and in the 1980 Conference. UNCITRAL unanimously approved the draft Convention, and the 1980 Plenipotentiary Conference of sixty-two States, again without dissent, adopted the final text.
During the eighteen-month period for signing the Convention after the 1980 Conference the following became Signatory States: Austria; Chile; Czechoslovakia; Denmark; Finland; France; German Democratic Republic; Germany, Federal Republic of; Ghana; Hungary; Italy; Lesotho; Netherlands; Norway; People's Republic of China; Poland; Singapore; Sweden; United States of America; Venezuela; and Yugoslavia. Steps for both Signatory and non-Signatory States to become parties to the Convention are now under way. Argentina, Egypt, France, Hungary, Lesotho and Syria have already ratified or acceded to the Convention, which will come into force approximately one year after four more countries have submitted their ratifications or accessions (Article 99(1)). Signature and ratification by the United States were recommended by the House of Delegates of the American Bar Association in 1981.
Enclosed is a Legal Analysis comparing the Convention's provisions with those of the Sales Article of the Uniform Commercial Code (UCC), which has been enacted by every State of the United States except Louisiana. It will be noted that the Convention embodies the substance of many of the important provisions of the UCC and is generally consistent with its approach and outlook.
For the reasons set forth in Appendix B of the Legal Analysis, I recommend that United States ratification be made subject to the declaration permitted under Article 95 that the United States will not be bound by Article 1(1)(b) of the Convention. As a result of this reservation, the Convention will be applicable only when the seller and the buyer have their places of business in different Contracting States. This limitation, also approved by the American Bar Association, provides a clear, fair and adequate basis for the applicability of the Convention.
The Convention is subject to ratification by signatory States (Article 91(2)), but is self-executing and this requires no federal implementing legislation to come into force throughout the United States. As already indicated, the Convention's effect is limited to foreign commerce of the United States and it will not affect purely domestic contracts of sale.
The Convention is a notable example of world-wide legal cooperation. It provides practical help for sellers and buyers, in our country and abroad, and by adding certainty to law it will facilitate international trade.
The Department of Commerce supports this recommendation and the Department of Justice has no objection to it.
It is hoped that the Senate will promptly give favorable consideration to this Convention and approve ratification by the United States.
GEORGE P. SHULTZ
The Convention provides uniform rules to resolve questions that have not been answered by the contracts made by the seller and the buyer in an international sale. The salient features of the Convention were summarized in the Letter of Submittal to the President. To assist in a closer study of these rules, the present statement provides a brief synopsis of the 101 articles of the Convention.
It is not feasible in this brief analysis to provide a thorough commentary on the Convention's uniform rules of law for the sale of goods. Such a commentary calls for a substantial book; detailed studies are provided by books and articles that are listed in Appendix A.
The present document is designed to spot-light the most significant provisions of the Convention, and to indicate the relationship between these provisions and United States law as set forth in Article 2 on Sale of Goods of the Uniform Commercial Code, which has been enacted by virtually all States of the United States.
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. Part IV ("Final Provisions": Arts. 89-101) establishes procedures for implementing the Convention and sets out the reservations that a State may make.
Part I sets forth rules that apply throughout the Convention. Chapter I defines the Convention's field of application. Chapter II addresses other general questions, notably interpretation of the Convention and the sales contract.
A. The Convention's Field of Application: Chapter I
Article 1 addresses two issues that control the applicability of the Convention: (1) When is a sale "international"? and (2) What contact between the sales transaction and a Contracting State will invoke the Convention? (A "Contracting State" is a country that has become a party to the Convention.) Articles 2 and 3 exclude specified types of commodities and transactions. Articles 4 and 5 draw the line between issues that are regulated and those that are excluded: the excluded issues include the validity of the contract, the effect of the contract on the ownership rights of third persons (Art. 4) and liability for death or personal injury (Art. 5). The chapter closes with a brief but important provision (Art. 6) yielding overriding effect to the contract made by the parties.
Article 1. Basic rules on Applicability
Under Article 1 the Convention will apply only if two requirements are met: (1) the seller and the buyer have their "places of business in different States," and (2) both of these States are Contracting States (i.e. States that have adopted the Convention). This simplified basis for applicability reflects a recommendation that the United States ratify subject to a declaration authorized by Article 95; the reasons for making this declaration and its effect are set forth in Appendix B. Thus, an American court would apply the Convention only to sales with an international character between parties in whose countries the Convention is in force.
Article 2. Exclusions from the Convention
Article 2 provides for six exclusions from the Convention. Three (paragraphs (a) - (c)) are based on the nature of the transaction and three (paragraphs (d) - (f)) are based on the nature of the goods.
Paragraph (a) excludes substantially all consumer purchases by language based on the Uniform Commercial Code (UCC 9-109(1)). The principal impact of the Convention is thus on commercial sales between persons in business.
The remaining five exclusions do not call for discussion in this analysis.
Article 3. Goods to be Manufactured: Services
Paragraph (1) makes it clear that a sale is not excluded from the scope of the Convention merely because it calls for the manufacture or production of goods. On the other hand, it also makes it clear that the Convention does not extend to transactions in which the party receiving a finished product supplies "a substantial part" of the necessary materials.
Paragraph (2) excludes "service" contracts, in which the "supply of labour or other services" comprises the preponderant part of the transaction.
While Articles 1-3 identify the contracts that are subject to the Convention, Article 4 defines the issues to which the Convention applies. Article 4 states that the Convention "governs only" the following: (1) "the formation of the contract" (Part II of the Convention) and (2) "the rights and obligations of the seller and the buyer arising from such a contract" (Part III of the Convention). In addition it excludes from the Convention issues with respect to "the validity of the contract or of any of its provisions or of any usage". One example is a rule of national law that prohibits the sale of specified products, such as heroin, and invalidates contracts relating to such illegal sales.
Article 4 also provides that the Convention "is not concerned with ... the effect which the contract may have on the property in the goods sold". Whether the sale to the buyer cuts off outstanding property interests of third persons is not dealt with by the Convention. This specific provision illustrates the general rule of Article 4 that the Convention is concerned only with the "rights and obligations of the seller and the buyer" arising from the sales contract. For the buyer's right, as against the seller, to receive good title, see Articles 41-43, infra.
Article 5 makes the Convention inapplicable to the liability of the seller for death or personal injury caused by the goods. This was done lest the Convention collide with rules of national law on product liability.
The dominant theme of the Convention is the primacy of the contract. See, e.g., Arts. 4 and 35. Of the many provisions that develop this theme, Article 6 is the most important. Thus, the parties may exclude the Convention or "vary the effect" of any of its provisions. The breadth of the parties' freedom to contract is emphasized by the one exception stated in Article 6 -- the privilege of an adhering State under Articles 12 and 96 to preserve its domestic rules that require a writing. (See Art. 12, infra).
Article 7. Interpretation of the Convention
A. International Character; Uniformity; Good Faith
Paragraph (1) provides that in interpreting the Convention there shall be regard for two closely-related principles -- (a) the Convention's "international character" and (b) "the need to promote uniformity in its application." The latter provision is usual in uniform legislation in the United States. See UCC 1-102(2)(c). Paragraph (1) also provides that in interpreting the Convention there shall be regard for promoting "the observance of good faith in international trade." The Uniform Commercial Code states a "good faith" requirement that is broader than the principle of interpretation stated in the Convention. See UCC 1-203: "Every contract or duty within this Act impose a duty of good faith in its performance or enforcement." See also: UCC 2-103 (1)(b).
B. "General Principles"
Paragraph (2) provides that, where possible, questions "are to be settled in conformity with the general principles on which [the Convention] is based" -- an approach that was designed to strengthen uniform international interpretation of the Convention. A somewhat similar principle is expressed in the Uniform Commercial Code. For example, section 1-102(1) states that the UCC is to be "liberally construed and applied to promote its underlying purposes and policies."
While Article 7 deals with interpretation of the Convention, the present Article deals with the interpretation of the statements and conduct of the parties, including the provisions of the contract of sale. When there is no common "intent" of the parties, Article 8(2) applies the objective standard familiar to the common law.
Article 8(3) authorizes "due consideration" of conduct subsequent to the agreement as this may shed light on the intentions and expectations of the parties. Similarly, the Uniform Commercial Code states that in some circumstances a "course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement" (UCC 2-208). See also UCC 2-207(3) under which "conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale ..."
One of the important features of the Convention is the legal effect it gives to practices of the parties and to commercial usages.
(1) Practices Established Between the Two Parties
Expectations that have the force of contract can be established by the parties’ patterns of behavior. Under Article 9(1) the parties are bound by the “practices which they have established between themselves.” The Uniform Commercial Code also gives contractual effect to the “course of dealing between parties”-- defined as “a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.” (UCC 1-205)
(2) Usages of Trade
Article 9(2) provides that the agreement embraces a party’s expectation that the other party will observe the usages of their trade. Unless the parties have agreed otherwise, effect is given to a trade usage “of which the parties knew or ought to have known” and which “in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.” The Uniform Commercial Code also gives contractual effect to a “usage of trade”-- defined as “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” (UCC 1-205)
Under Article 6, “The parties may … derogate from or vary the effect” of the provisions of the Convention, and applicable usage has the same effect as a provision of a sales contract. In short, the provisions of the Convention yield to the expectations of the parties, whether derived from express contract terms, from their established practices or from applicable trade usage.
The Convention refers to a party’s “place of business” in several articles: 1, 12, 20(2), 24, 31(c), 42(1)(b), 57(1)(a), 69(2) and 96. If a commercial enterprise maintains a central office and one or more branch offices, Article 10 makes applicable the place of business “which has the closest relationship to the contract and its performance …”
A. Domestic Rules: “Statutes of Frauds”
In 1677 the English Parliament (29 Car. II, c.3) enacted a Statute of Frauds which required a signed writing for the enforcement of a wide variety of transactions, including the sale of goods. This requirement was embodied in the United Kingdom’s Sale of Goods Act (1893), was closely followed in the (U.S.A.) Uniform Sales Act (1896), and formed the basis for an elaborate statute of frauds included in the Uniform Commercial Code (§ 2-201). In recent decades, however, the tide has been running against such formal requirements. In 1954 Britain repealed this part of the Sale of Goods Act -- a step that has been followed by many of the other countries that had adopted this Act. Most civil law countries do not impose such formal requirements for the making of commercial contracts. Formal requirements have generated litigation and uncertainty, and are generally regarded to be of doubtful value for international trade.
B. The Convention
The 1980 Convention rejects such formal requirements (Article 11). This does not, however, bar the parties from imposing formal requirements. An offeror may require that an acceptance be in writing; an oral “acceptance” is not an “assent” to the offer. (See Arts. 18 and 19, infra.) In addition, pursuant to Article 29, infra, the parties by a contract in writing may require “any modification or termination by agreement” to be in writing.
A Contracting State may protect its formal requirements from Article 11 by making a reservation under Article 96. See Article 12, infra.
Laws of the U.S.S.R. impose strict formal requirements for the making of foreign trade contract. In the UNCITRAL proceedings, delegates of the U.S.S.R. indicated that preserving these requirements was of great importance to protect its established patterns for the making of foreign trade contracts. Most delegates, however, including the United States, concluded that formal requirements were inconsistent with modern commercial practice -- particularly in view of the speed and informality that characterized many transactions in a market economy.
The result was a compromise. In Part IV (Final Provisions), Article 96 authorizes a Contracting State “whose legislation requires contracts of sale to be concluded in or evidenced by writing” to make a “declaration” that Article 11 (and certain other provisions of the Convention affecting formal requirements) “does not apply where any party has his place of business in that State.” Article 12 articulates the effect of a declaration under Article 96. A declaration (reservation) under Article 96 would not ensure that the formal requirements of the declaring State would apply to transactions involving its buyers and sellers. Such applicability would result only when conflicts rules point to the formal requirements of the declaring State. However, conflicts rules may point to foreign law, which may have no formal requirements or may impose formal requirements that are unfamiliar to traders in the declaring State. These considerations explain why it is not recommended that the United States make a declaration pursuant to Article 96.
This provision does not call for discussion.
PART II: FORMATION OF THE CONTRACT
INTRODUCTION TO PART II OF THE CONVENTION
A. Relation Between Part II and other Parts of the Convention
Part II of the Convention, Formation of the Contract, is subject to the rules of Part I (Arts 1-13) on the scope and interpretation of the Convention, but is independent of Part III (Arts. 25-88) which deals with the obligations of the parties to the contract. Article 92 (Part IV) permits a Contracting State to declare that it will not be bound either by Part II or by Part III.
B. Structure of Part II
The first four articles (14-17) deal with the offer -- the minimum criteria for an offer (Art. 14), and the withdrawal (Art. 15), revocation (Art. 16) or termination (Art. 17) of an offer. The next five articles (18-22) deal with acceptance -- “acceptances” that do not match the offer (Art. 19), the period allowed for acceptance (Arts. 20 and 21), and withdrawal of an acceptance (Art. 22). The two final articles (Arts. 23 and 24) relate to the time when a contract is concluded.
(1) “Public Offers”
Article 14 incorporates the generally accepted premise that a person may make an offer to as large a group as he wishes. However, a communication addressed to a large group, if construed as an offer, can involve practical difficulties and hazards. These practical considerations are reflected in Article 14(2): If a proposal is not “addressed to one or more specific persons,” it is not an offer “unless the contrary is clearly indicated by the person making the proposal.” See Restatement Second of Contract § 29.
(2) Definiteness: Unstated Price
Difficult problems arise when the parties neither fix the price, expressly or implicitly, nor agree on a method for fixing the price. The Convention’s solution calls for construing Article 14(1) in the light of Article 55, which states that in the above circumstances the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged for such goods at the time of the conclusion of the contract. The Uniform Commercial Code (§ 2-305) similarly provides that the parties “if they so intend can conclude a contract for sale even though the price is not settled.”
Under Article 15 an offeror may withdraw an offer by a communication that reaches the offeree ahead of the offer. The reason supporting Article 15 is that the enforcement of contracts is designed to protect expectations; none can arise until the offer reaches the offeree. Cf. Article 18(2), infra.
Article 16 limits the powers of an offeror to revoke an offer which the offeror has stated or indicated will be “firm” or irrevocable, or on which the offeree has reasonably relied. Compare the provisions giving effect to “firm” offers in the Uniform Commercial Code (UCC 2-205). See Restatement Second of Contracts § 87 and Illustration 6.
Under Article 17, an offeree may not accept an offer which he has rejected. The same rule is applied in the United States. See Restatement Second of Contracts § 38.
Article 18 states how an offer may be accepted. Its most significant provision is in paragraph (3): under some circumstances, an offeree may accept an offer by performing an act requested by the offeror, such as dispatch of the goods. For a similar rule see Section 2-206(1)(b) of the Uniform Commercial Code.
Article 19 faces the situation in which a reply to an offer purports to be an acceptance but contains modifications of the offer. This situation most commonly results from the routine exchange of the buyer’s printed purchase order and the seller’s printed acknowledgement of sale form. Under the Convention, no contract results from such an exchange if the purported acceptance contains additional or different terms that materially alter the offer. A list of examples of material alterations makes it clear that most alterations are material. However, an acceptance with an immaterial modification will be effective unless the offeror objects.
The Convention’s approach to this difficult problem differs from that of the Uniform Commercial Code, under which even a material alteration may not prevent the purported acceptance from creating a contract (UCC 2-207). The Convention would thus avoid many of the problems that have arisen under and resulted in criticism of the Code provision.
The following articles dealing with various aspects of acceptance do not call for discussion:
Article 20. Interpretation of Offeror’s Time-Limits for Acceptance
Article 21. Late Acceptances: Response by Offeror
Article 22. Withdrawal of Acceptance
Article 23. Effect of Acceptance; Time of Conclusion of Contracts
Article 24. When Communication “Reaches” the Addressee
These articles complete Part II: Formation of Contract.
PART III: SALE OF GOODS
INTRODUCTION TO PART III OF THE CONVENTION
When an enforceable international sales contract has been formed, Part III governs the rights and obligations of the seller and buyer.
Part III has five chapters. Chapter I (Arts. 25-29) contains general provisions that are applicable throughout Part III of the Convention. Chapter II (Arts. 30-52) deals with the obligations of the seller (Secs. I & II) and remedies for the seller’s breach (Sec. III). Chapter III (Arts 53-65), paralleling the structure of Chapter II, states the obligations of the buyer (Secs. I and II) and remedies for the buyer’s breach (Sec. III). Chapter IV (Arts. 66-70) is devoted to risk of loss. Chapter V (Arts. 71-88) addresses anticipatory breach (Sec. I), damage measurement and interest (Secs. II & III), excuses (“exemptions”) based on serious impediments (Sec. IV), effects of avoidance (Sec. V), and duties to preserve goods that face loss or deterioration (Sec. VI).
CHAPTER I. GENERAL PROVISIONS
The breach of a sales contract by one party gives the other party a right to recover damages, but Article 25 relates to other remedies -- the buyer’s right to reject goods and the seller’s right to refuse to deliver. In domestic law these remedies may be called “rejection”, “revocation of acceptance”, “avoidance”, “termination” or “cancellation”. In the Convention (Arts. 49 & 64) a party’s privilege not to perform the contract because of the other party’s breach is called “avoidance of the contract.”
In the Convention, as in our legal system, “avoidance” is not available for every breach. Under Articles 49(1)(a) and 64(1)(a), infra, a party may avoid the contract when the other party commits a “fundamental breach”-- a term that is defined in Article 25.
The role played by “fundamental breach” under the Convention is similar to that played by Section 2-608 of the Uniform Commercial Code, under which a buyer who has accepted goods that turn out to be defective may revoke his acceptance if the non-conformity “substantially impairs” the value of the goods to him (UCC 2-612, but cf. 2-601). The UCC does not attempt to define “substantial” impairment. The Convention’s definition of “fundamental breach” also allows leeway to consider whether avoidance is needed to assure full protection for the aggrieved party.
Article 26 provides that a “declaration of avoidance of the contract is effective only if made by notice to the other party”. This is one of the significant advances of the 1980 Convention over the 196 Hague Convention on Sales (ULIS).
At various points ULIS gave an injured party a remedy called “ipso facto avoidance”. This type of avoidance occurred automatically with no need to notify the other party (ULIS 25, 26(1)). Consequently, the other party might be led to perform in ignorance of the injured party’s decision to refuse performance. At the 1964 Hague Conference the delegations of the United States and other states attempted unsuccessfully to eliminate ipso facto avoidance.
In the UNCITRAL proceedings, the delegations of the United States and other countries were able to remove the doctrine of ipso facto avoidance, resulting in the simple rule of Article 26. Requiring that notice be given of a remedy as drastic as avoidance is consistent with the Uniform Commercial Code. See UCC 2-602(1) (notice of rejection), 2-608(2) (notice of revocation of acceptance).
Under Article 26, supra, avoidance of a contract is effected “by notice” and in other setting communications have importance consequences. E.g. Arts. 39(1) (notice of lack of conformity) and 43 (notice of right or claim of third party). Article 27 addresses the problems that arise when a notice is sent but, because of a mishap in transmission, is delayed, garbled or lost. Article 27 lays down the general rule that a party satisfies his duty to notify if he dispatches the communication “by means appropriate in the circumstances.”
This general rule is subject to exceptions in Articles 47(2), 48(4), 63(2), 65(1) & (2) and 79(4). Nearly all of these exceptions involve a communication by a party who is in breach of contract; the “receipt” principle was used so that a mishap in transmission would not add to the burdens of the aggrieved party.
The Uniform Commercial Code similarly requires the buyer to “notify” the seller of breach or “be barred from any remedy”, and provides that one “notifies” another “by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it” (UCC 2-607(3) and 1-201(26)). The UCC, like the Convention, states exceptions form this general rule (e.g. § 2-616).
The Convention’s system of remedies for breach of contract is based on the premise that a party in breach may be compelled to perform his obligations. On the other hand, restrictions on the right to specific performance appear in Articles 46(2) and 46(3).
Even with the restrictions just mentioned, the Convention grants specific performance on a wider scale than does the common law. As a concession to the common law, Article 28 provides that rules of national law withholding specific performance will prevail over the rules of the Convention. Thus, courts in the United States would still be subject to the limits on such remedies provided in Section 2-716 of the Uniform Commercial Code. Cf. UCC 2-709.
Sales contracts sometimes provide that they may be modified only in writing. Article 29 gives effect to these private “statutes of frauds”. The Uniform Commercial Code is similar (UCC 2-209)(2)).
Introduction to Chapter II
Chapter II opens with a brief statement giving the essence of the seller’s obligations (Art. 30). The remaining articles of the Chapter are grouped in three sections. Two sections define the seller’s most important duties: The time and place for delivering the goods (Sec. I, Arts. 31-34); the quality of the goods and their freedom from third party claims (Sec. II, Arts. 35-44). The final section sets forth the basic remedies that are given to the buyer when the seller fails to perform his duties under the contract (Sec. III, Arts. 45-52).
The brief summary of Chapter II in Article 30 does not call for further discussion.
SECTION I: DELIVERY OF THE GOODS AND HANDING OVER THE DOCUMENTS
Article 31. Place for Delivery
When the contract, interpreted in the light of practices and usages, does not state where the seller should deliver the goods, the place of delivery is determined by Article 31. See also the Convention’s rules on risk of loss in Article 67 and 69, infra.
In international sales, the seller usually completes his obligation to deliver, by “handing over the goods to the first carrier for transmission to the buyer.” Art. 31, supra, and Article 67, infra. However, the seller also normally makes various arrangements with respect to carriage. Any provision of the sales contract (including usage and any practice between the parties) is decisive as to the seller’s obligations in this regard; to the extent that there is no agreement with respect to shipping arrangements, Article 32 fills the gap.
Paragraph (1), requiring the seller to notify the buyer of the shipment, is similar to Section 2-504(c) of the Uniform Commercial Code. Paragraph (2), dealing with transportation arrangements, is similar to UCC 2-504. Paragraph (3) calls for cooperation between the parties with respect to supplying needed information concerning insurance. Similar rules on co-operation are set forth in the Uniform Commercial Code (2-311, 2-319(1)(c) and 2-319(3)).
This articles does not call for discussion.
Article 34 responds to commercial practice in international sales that permits, and often requires, delivery of the goods to be effected by handing over documents (such as a bill of lading) that control the goods. Accord: UCC 2-310(b). Cf. UCC 2-505 and 2-507(2).
Article 34 also provides that the seller’s right to “cure” a defective delivery of goods (Art. 37, infra) extend to the delivery of documents. The Uniform Commercial Code provides that a seller may cure a “tender or delivery” which may include the tender of documents (2-508(1); 2-504(b)).
Introduction to Section II
Articles 35 and 36 define the seller’s obligations with respect to the quality of the goods. Articles 37-40 describe procedures that apply when goods are defective -- the seller’s privilege to cure defects in the goods (Art. 37) and the buyer’s obligation to examine the goods and notify the seller of non-conformity (Arts. 38-40). Articles 41 and 42 define the rights of the buyer when the goods are subject to third party claims of ownership (Art. 41) and of rights based on patents, trademarks or other types of intellectual property (Art. 42). Article 43 requires the buyer to notify the seller of these claims; the concluding article (Art. 44) gives grounds for excusing a failure to notify the seller.
Paragraph (1) of Article 35 emphasizes that the seller must supply goods of the quality provided in the contract. As mentioned earlier (Art. 9, supra) under the Convention the practices established by the parties and applicable trade usages help to determine the contractual obligations of the parties. Accord: UCC 1-205. The Uniform Commercial Code also emphasizes the importance of the contract. (UCC 2-313).
Paragraph (2) of Article 35, like Sections 2-314 and 2-315 of the Uniform Commercial Code, gives effect to the buyer’s basic expectations of quality. Paragraph 2(a), on fitness of goods for “the purposes for which goods of the same description would ordinarily be used,” is similar to UCC-2-314(2)(c). Paragraph 2(b), on fitness for a particular purpose is similar to UCC 2-315. Paragraph (2)(c), on conformity with a sample or model, is similar to UCC 2-313(1)(c). Paragraph 2(d), on packaging, is similar to UCC 2-314(2)(e). Paragraph (3), on the effect of the buyer’s knowledge of a lack of conformity, is comparable to UCC 2-316(3)(b).
Goods often arrive in poor condition because of damage that occurred after the risk of loss passed to the buyer. Paragraph (1) of Article 36 makes it clear that the seller is not responsible for defects that result from transit casualties which the buyer has assumed under the contract or under the Convention’s rules on risk of loss (Arts. 66-70, infra). Paragraph (2) deals with the effect of contractual guarantees that goods will retain a specified quality for a prescribed period of time.
Under Article 37 the seller, up to the agree date for delivery, may remedy defects in the goods and thereby prevent destruction of the contract by “avoidance”-- the remedy that in U.S. law is termed “rejection” (UCC 2-601) or “revocation of acceptance” (UCC 2-608). The “cure” provisions of Article 37 closely resemble those of UCC 2-508(1). Cf. Art 48, infra, and UCC 2-508(2).
Article 38 provides rules on how soon the buyer “must examine” the goods. These rules are given legal effect by Article 39(1), which cuts off the buyer’s rights if he fails to notify the seller of a non-conformity within a reasonable time after he “ought to have discovered” it. The rules on inspection and notice in Articles 38 and 39(1) are similar to the notice requirement in UCC 2-607(3)).
As was mentioned under Article 38, the notice requirement of Article 39(1) is similar to that of UCC 2-607(3). However, Article 39(2) sets an outer limit for notice of two years unless the parties agree otherwise; the UCC states no fixed outer limit for notification. Cf. UCC 2-725 (limitation period for actions of fours years after delivery). On the other hand, the Uniform Commercial Code extends to claims, including those for personal injury arising out of consumer purchases, where substantial delays in notification may be justified. As we have already seen, the Convention excludes substantially all consumer transactions (Art. 2(a)) and excludes all claims for death or personal injury (Art. 5). Article 44 of the Convention relaxes the notice requirement of Articles 39(1) and 43(1) to the extent of allowing the buyer to reduce the price (Art. 50) “or claim damages, except for loss of profit” when the buyer “has a reasonable excuse for his failure to give the required notice.” This provision, however, does not remove the two-year outer limit for notification set by Article 39(2) or authorize a buyer, who has failed to give notice within a reasonable time, to exercise other remedies such as avoidance of the contract (Art. 49, cf. Art 46).
Article 41. Third-Party Ownership Claims to Goods
Article 42. Third-Party Claims Based on Patent or Other Intellectual Property
Article 43. Notice of Claim
One of the limits on the scope of the Convention is set by Article 4: “this Convention … is not concerned with … (b) the effect which the contract may have on the property in the goods sold”. Thus, if a third person claims the goods because of a defect in the seller’s title, the question whether the buyer is protected, as a good faith purchaser, against that third-party claim is not governed by the Convention but is left to applicable domestic law.
Article 41 addresses this question: When the seller supplies goods that are subject to a third-party claim, what are the rights of the buyer against the seller? Third-party claims “based on industrial property or other intellectual property” (e.g., a patent or copyright) are dealt with in Article 42.
The protection afforded the buyer under Article 41 is similar to the implied warranty of title provided by the Uniform Commercial Code (UCC 2-312)(1)). The Code gives the buyer rights against the seller when a third person establishes a claim “by way of infringement or the like” (UCC 2-312(3)), but does not deal with the problems that arise when the buyer encounters an infringement claim in a country where the seller could not have anticipated that the goods would be used or resold. These problems are addressed in Article 42.
The notice provisions of Article 43 do not call for discussion here. Cf. Articles 39, 40, and 44, supra. (Article 43 does not set a fixed cut-off period for notice comparable to the two-year period in Article 39(2)).
Introduction to Section III
A. A Bird’s-Eye View of the Section
The first two sections of Chapter II define the seller’s duties; Section III defines the buyer’s remedies when the seller is in breach.
Section III opens (Art. 45) with a general overview of the remedial system and indicates the relationship of different remedies to each other. Cf. UCC 2-711, 2-720. Article 46 states the buyer’s right to compel performance by the seller. See Art. 28, supra, and UCC 2-716.
Three articles (Arts. 47-49) address the buyer’s right to “avoid” the contract, a concept that includes the rejection of goods. Cf. UCC 2-601, 2-608. Article 47 empowers the buyer to fix an additional final period for the seller’s delivery of the goods -- a step that clarifies the buyer’s right to avoid the contract for delay in delivery. Article 48 empowers the seller to “cure” defects in performance and thus forestall avoidance of the contract. Cf. UCC 2-508, Article 49 states the grounds on which the buyer may avoid the contract. Cf. UCC 2-608.
The section closes with three articles dealing with special situations -- the buyer’s right to reduce the price (Art. 50), the applicability of remedies to only part of the goods (Art. 51; cf. UCC 2-601)(c), 2-608(1)) and deliveries that are too early or excessive in quantity (Art. 52; cf. UCC 2-601(c)). Although the remedy in Article 50 (reduction of price) has its origin in civil law concepts, its formula has been amended so as to approximate the common law right to deduct damages from the price (Cf. UCC 2-717).
B. Relationship to Other Parts of the Convention
Section III of the present chapter provides remedies that apply only to breach by the seller; Section III of Chapter III provides comparable remedies for breach by the buyer. These two sections are supplemented by remedial provisions in Chapter V that apply to both parties -- e.g., anticipatory breach (Sec. I), the measurement of damages, and interest (Secs. II and III), “exemption” from damages (Sec. IV) and the effects of avoidance of the contract (Sec. V).
C. General Comment
It is not feasible for this legal analysis to analyze in detail the remedial provisions of Articles 45-52. It must suffice to note that, with the encouragement of the United States delegation, UNCITRAL reviewed the 1964 Hague Convention (ULIS), unified and simplified its complex provisions, and thereby met the serious objections of the United States delegation to the 1964 Hague Conference.
CHAPTER III: OBLIGATIONS OF THE BUYER
Introduction to Chapter III
The structure of Chapter III is similar to that of the preceding chapter on Obligations of the Seller. Two sections state the buyer’s duties: to pay the price (Sec. I, Arts. 53-59; cf. UCC 2-310(a), 2-507(1)) and to take delivery (Sec. II, Art. 60). The final section defines the remedies that are available to the seller when the buyer fails to perform these duties (Sec. III, Arts. 61-65; cf. UCC 2-703). These remedial provisions (like those in Chapter II) are supplemented by general rules on remedies in Chapter V (Arts. 71-88).
Many of the provisions of this chapter on the obligations of the buyer are mirror-images of provisions in the preceding chapter on the obligations of the seller.
Introduction to Chapter IV
Casualty to the goods (e.g. by theft or fire) may occur in various settings -- while the seller holds the goods before delivering them to a carrier or to the buyer, while the goods are in transit, while the buyer is examining the goods, or while the buyer holds the goods after rejecting them. Usually the loss will be covered by insurance. Allocating the risk of loss between seller and buyer should reflect considerations such as these: Which party is in a better position to evaluate the loss and press a claim against the insurer and to salvage or dispose of damaged goods? Who can insure the goods at the least cost? Who is more likely to carry insurance under standard commercial practice? What rules on risk will minimize litigation over negligence in the care and custody of the goods?
The United States delegates to the 1964 Hague Conference on Sales reported their disappointment that risk of loss was governed by concepts that were so abstract that results were unpredictable and unresponsive to commercial needs. In UNCITRAL, on the initiative of the United States and other delegations, these objections were met by a thorough overhaul of these rules. As a result, the 1980 Convention speaks of physical acts of transfers of possession -- the “handing over” of the goods to a carrier or to the buyer.
Article 67 deals with the important issue of risk of loss in transit. When the contract (including the parties’ established practices (Art. 9) does not solve this problem, the Convention, like the Uniform Commercial Code, provides the general rule that risk passes to the buyer when the goods are handed over to the carrier. Article 67 also echoes the Code in providing that the seller’s retention of “documents controlling the disposition of the goods does not affect the passage of the risk.” (See UCC 2-509)(1)(a)).
Article 68 deals with contracts for the sale of goods that are already in transit when the contract is made, and provides that risk passes at the making of the contract unless the parties otherwise agree or the circumstances indicate an earlier time. The Uniform Commercial Code does not address this problem.
Article 69 deals, among other matters, with non-transit situations, and makes risk pass to the buyer “when he takes over the goods”-- an approach that is similar to UCC 2-509(3). Finally, Articles 69(1) and 70 deal with the effect of breach of contract on risk; in both approach and result these articles are similar to the Uniform Commercial Code (UCC 2-510).
This concluding chapter addresses special problems with respect to remedies for breach of contract. Section I, Anticipatory Breach and Installment Contracts (Arts. 71-73), is concerned primarily with protection against impending failure of counter-performance; a party who faces this problem may, in some circumstances, suspend performance (Art. 71; cf. UCC 2-609, 2-705) or avoid the contract (Art. 72; cf. UCC 2-610). Article 73 deals with similar problems that arise in contracts for the delivery of goods by installments (Cf. UCC 2-612). Section II (Arts. 74-77) provides rules for measuring damages. (Cf. UCC 2-706-2-710, 2-712 to 2-715, 2-723). Section III consists of a brief provision Art. 78) allowing the recovery of interest on sums in arrears. Section IV, exemptions (Arts. 79-80), confronts the difficult question of excuse from liability when performance is prevented by an impediment (e.g., force majeure). (Cf. UCC 2-613, 2-615). Section V, Effects of Avoidance (Arts. 79-80), includes provisions on the restitution of benefits received under a contract that has been avoided. (Cf. UCC 2-711 (1) & (3)). Section VI, Preservation of the Goods (Arts. 85-88), is designed to prevent the waste or deterioration of goods that have been rejected. (Cf. UCC 2-602(2)(b), 2-603, 2-604).
Many of these provisions are ministerial. Articles 89 and 91 are administrative provisions commonly included in United Nations conventions. Article 90 deals with the relationship between the 1980 Convention and any other convention that “contains provisions concerning the matters governed by” the 1980 Convention. The most significant provisions in this part deal with permitted reservations and the Convention’s entry into force.
Articles 92-96 specify those “declarations” (reservations) that may be made by Contracting States to modify their obligations under the Convention.
Article 92 permits a Contracting State to declare that it will not be bound by Part II (Formation of the Contract) or by Part III (Obligations of the Parties under a Contract of Sale). At the 1964 Hague Conference, contrary to the position urged by the United States, separate conventions were adopted on formation of the sales contract and on obligations under the contract. In UNCITRAL, the United States position was accepted. Because of the relationship between Parts II and III, it seems advisable for the United States to ratify the entire Convention without a declaration under Article 92.
Article 93 is designed to permit a declaration (reservation) by a Contracting State with a constitutional system different from the United States (e.g. Canada) that embraces territorial unites in which “different systems of law are applicable in relation to the matters dealt with” in the Convention. As already indicated, the Convention applies only to international sales. In view of the Constitutional power of the United States federal government over foreign commerce (Constitution Art. I § 8) and the treaty power (Constitution Art. II § 2; Art. VI), a declaration by the United States pursuant to Article 93 would be unnecessary and inappropriate. In the absence of a United States declaration, the Convention will extend to all territories under the jurisdiction of the United States.
Article 94 seeks to meet the needs of States joined in economic communities (e.g. Benelux) by providing for reservations by two or more Contracting States “which have the same or closely related legal rules on matter governed by” the Convention. If two or more States make declarations under Article 94, the Convention will not apply to transactions among parties in these States but will, of course, apply to transactions among parties in other states. See Article 1, supra. There is no need for the United States to make use of such a reservation.
Article 95 permits a Contracting State to declare that it will not be bound by Article 1(1)(b) which would make the Convention also apply “when the rules of private international law lead to the application of the law of a Contracting State.” States that make this declaration would apply the Convention only when the seller and buyer have their places of business in different Contracting States (Art. 1(1)(a)). As noted under Article 1, supra, it is recommended that the United States ratify subject to this reservation; the reasons are set forth in Appendix 9 to this analysis.
Article 96 permits a declaration by a State that wishes to protect its domestic legislation that “requires contracts of sale to be concluded in or evidenced by writing”, i.e., a “statute of frauds”. For the reasons given in the discussion of Articles 11 and 12 of the Convention, it is considered inadvisable for the United States to make use of the reservation permitted by this Article.
Article 99(1) provides that the Convention enters into force on the first day of the month following the expiration of twelve months after the tenth State has consented to be bound by the Convention. Article 99(2) governs the time when the Convention enters into force with respect to States whose consent to be bound follows that of the ten initial States.
1980 U.N. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS
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Bibliography, August 1983
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PROPOSED UNITED STATES DECLARATION UNDER ARTICLE 95
APPLICABILITY OF THE CONVENTION BASED ON ARTICLE 1(1)(b)
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 ore more States that have adhered to the Convention. This statement is concerned with the second requirement -- the relationship between the Convention and one or more Contracting States.
The Convention, in subparagraphs (1)(a) and (1)(b) of Article 1, states two such relationships, either of which will suffice.
(a) First, under subparagraph (1)(a) the Convention applies when the places of business of the seller and the buyer are in different Contracting States.
(b) Second, under subparagraph (1)(b) the Convention would also apply:
(b) when the rules of private international law lead to the application of the law of a Contracting State.
At the 1980 Diplomatic Conference, delegates of the United States and several other countries proposed the deletion of the second of these grounds for applicability -- subparagraphs (1)(b) of Article 1. This proposal was defeated; as a compromise, the Convention's Final Provisions (Part IV) provide in Article 95 that a Contracting State may, by reservation, declare “that it will not be bound by subparagraph (1)(b) o[f] Article 1”.
The Untied States, in signing the Convention, stated that ratification subject to the Article 95 reservation was contemplated. This position, recommended by the American Bar Association, will promote maximum clarity in the rules governing the applicability of the Convention. The rules of private international law, on which applicability under subparagraph (1)(b) depends, are subject to uncertainty and international disharmony. On the other hand, applicability based on subparagraph (1)(a) is determined by a clear-cut test: whether the seller and buyer have their places of business in different Contracting States.
A further reason for excluding applicability based on subparagraph (1)(b) is that this provision would displace our own domestic law more frequently than foreign law. By its terms, subparagraph (1)(b) would be relevant only in sales between parties in the United States (a Contracting State) and a non-Contracting State. (Transactions that run between the United States and another Contracting State are subject to the Convention by virtue of subparagraph (1)(a).) Under subparagraph (1)(b), when private international law points to the law of a foreign non-Contracting State the Convention will not displace that foreign law, since subparagraph (1)(b) makes the Convention applicable only when “the rules of private international law lead to the application of the law of a Contracting State.” Consequently, when those rules point to United States law, subparagraph (1)(b) would normally operate to displace United States law (the Uniform Commercial Code) and would not displace the law of foreign non-Contracting States.
If United States law were seriously unsuited to international transactions, there might be an advantage in displacing our law in favor of the uniform international rules provided by the Convention. However, the sales law provided by the Uniform Commercial Code is relatively modern and includes provisions that address the special problems that arise in international trade.
For these reasons it seems advisable for the United States to exclude applicability of the Convention under sub-paragraph (1)(b) by the declaration (reservation) permitted by Article 95. Fortunately, this position will not interfere with broad application of the Convention to international sales. Widespread adoption of the Convention can be anticipated; hence it is expected that eventually a substantial portion of Untied States international trade will involve other Contracting States and will receive the benefits of the Convention by virtue of subparagraph (1)(a) of Article 1. Moreover, parties who wish to apply the Convention to international sales contracts not covered by Article 1(1)(a) may provide by their contract that the Convention will apply.