I. INTRODUCTION

1. The Committee of the Whole I was established by the Commission at its 180th meeting, on 23 May 1977. The Committee met under the chairmanship of Mr. Gyula Eörsi (Hungary) and held 32 meetings. At its 4th meeting, on 25 May 1977, the Committee elected Mr. Jorge Barrera-Graf (Mexico) as Rapporteur.

2. Under the terms of reference given to it by the Commission, the Committee was requested to consider the draft Convention on the International Sale of Goods as adopted by the Commission's Working Group on the International Sale of Goods. The text of the draft Convention is set forth in annex I to the report of the Working Group on the work of its seventh session (A/CN.9/116).[*] A commentary on the articles of the draft Convention may be found in annex II to that report.

3. In the course of its discussions, the Committee gave consideration to the comments on the draft Convention submitted by Governments and international organizations. These comments are set forth in A/CN.9/125 and Add. 1 to 3.[**] An analysis of these comments, except those set forth in addenda 2 and 3, is contained in A/CN.9/126.[**]

4. A summary of the Committee's discussions in respect of the articles of the draft Convention and its recommendations to the Commission are set forth in paragraphs 13 to 561 of this report. At the beginning of the summary of discussions on each article, the text of that article as adopted by the Working Group on the International Sale of Goods, is reproduced.

5. At its 3rd meeting, on 24 May 1977, the Committee established a Drafting Group composed of the representatives of Colombia, Czechoslovakia, France, Mexico, Nigeria, Singapore, the Union of Soviet Socialist Republics, the United Kingdom of Great Britain and Northern Ireland and the United States of America. The Drafting Group was requested to redraft those articles of the draft Convention in respect of which modifications of substance had been agreed upon in the Committee, to consider drafting proposals submitted by Governments and international organizations in their written comments and in the course of the Committee's discussions and, generally, to examine the text of the draft Convention from the point of view of consistency of the terminology used and to ensure consistency between language versions.

6. The Committee also established several ad hoc groups for the purpose of reaching consensus or compromise on important legal issues dealt with in the draft Convention.

7. The Committee did not have sufficient time to consider the draft text proposed by the Drafting Group. It was noted that the Committee had considered in detail each individual article of the draft Convention and that the Drafting Group had based its work on the decisions taken and the conclusions reached in the Committee. The Committee therefore adopted the text of the draft Convention as revised by the Drafting Group with the changes described in paragraph 9 below.

8. The text of each article of the draft Convention, as recommended by the Committee for approval by the Commission, is set forth after the summary of the discussions on that article.

9. The Committee noted that the Drafting Group had placed two portions of the text in square brackets in order to bring them to the special attention of the Committee:

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Art. 39

(a) The Committee deleted, in paragraph (1) of article 23, the words "[in the circumstances]" which appear within the expression "after he has discovered it or ought [in the circumstances] to have discovered it." In its original discussion the Committee had requested the Drafting Group to consider including [page 25] this expression in the text. However, the Drafting Group queried whether the expression should be included because, although the length of the period clearly depended on the circumstances of the case, the insertion of this expression in only one article could lead to a contrary conclusion in other articles of the draft Convention which did not use this expression in relation to other time-limits imposed on the parties. The Committee agreed with this reasoning.

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Arts. 42, 43

(b) The Committee deleted the square brackets which the Drafting Group had placed around article 25(2). The Drafting Group had taken this action in order to bring to the attention of the Committee the question whether it wished to have a provision on notice in article 25. The Committee decided to have such a provision and accordingly removed the square brackets. Two representatives indicated that they preferred to retain the square brackets as they were opposed to the substance of the provision.

10. The Committee also accepted the recommendation of the Drafting Group to reverse the order of articles 48 and 49 and authorized the Secretary-General to renumber the articles of the draft Convention.

11. The Committee recommends that the Commission should request the Secretary-General: (a) to prepare, under his own authority, a Commentary on the draft Convention; and (b) to suggest titles for each article by inserting such titles in the Commentary.

12. The Committee approved this report at its 32nd meeting, on 17 June 1977.

II. DELIBERATIONS AND DECISIONS

Draft Convention on the International Sale of Goods

Part I. Substantive Provisions

CHAPTER I. SPHERE OF APPLICATION

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Art. 1

13. The text of article 1, as adopted by the Working Group on the International Sale of Goods, is as follows:

Paragraph (1)

Basic criterion

14. The Committee considered a proposal that would narrow the basic criterion for the application of the Convention by requiring that the parties to a contract of sale, besides having their places of business in different States, should also be of different nationalities. The purpose of this proposal was to ensure that, if buyer and seller were of the same nationality, their national law would apply, even if the place of business of the buyer was in a State other than the State in which the seller's place of business was situated.

15. The Committee did not retain this proposal on the grounds that the determination of nationality, particularly in relation to corporations, was a complex issue over which national laws differed. In addition, the nationality of the other party may not be evident to each party at the time of contracting. Accordingly, the adoption of the nationality requirement would greatly complicate the task of determining whether the Convention applied and could thus lead to uncertainty.

Places of business

16. Two proposals were made in regard to the concept of "places of business." Under one proposal, that concept should be replaced by the concept of "residence" since the test of "places of business: of the parties could have considerable disadvantages in practice. For example, if two enterprises having their residence in the same country had places of business in different countries the Convention would apply. After deliberation, the Committee decided not to retain the proposal on the grounds that the test of "residence" would not simplify the determination of whether the Convention applied and would, in some cases, not be appropriate. The Committee applied and would, in some cases, not be appropriate. The Committee also did not retain a second proposal under which the relevant places of business of the parties should be limited to their "main" places of business. The Committee's views in this respect are set forth under article 6(a).[a]

Subparagraph (1)(a)

17. The Committee considered, but did not retain, a proposal that it should be sufficient for the Convention to apply if one of the States in which the parties have their places of business was a Contracting State. The Committee noted that the present text reflected the approach of article 3 of the Convention on the Limitation Period in the International Sale of Goods, hereinafter referred to as the "Convention on the Limitation Period", and that the requirement that the States in which the parties have their places of business be Contracting States was preferable since it was based on the principle of reciprocity.

Subparagraph (1)(b)

18. Subparagraph (1)(b) provides that the Convention is applicable if the rules of private international law of the forum leads to the application of the law of a Contracting State and that, in such a case, it is immaterial whether the place of business of one or both parties is in a Contracting State.

19. The Committee considered two proposals which were addressed to this issue. Under the first proposal, subparagraph (b) should be deleted; under the second proposal, the Convention should be attracted only if the rules of private international law of a Contracting State led to its application.

20. Neither of these proposals commanded sufficient support in the Committee to be retained and the Committee recommends therefore to the Commission that the present wording of subparagraph (b) should be adopted.

Paragraph (2)

21. The Committee approved paragraph (2) without change.

Proposed paragraph (3)

22. The Committee, in its deliberations on article 6, referred to the Drafting Group the question whether article 6(c) should be relocated as article 1(1)(c).

Decision

23. The Committee accordingly recommends that the commission should adopt the following text:

"Article 1

"(1) This Convention applies to contracts of sale of goods entered into by parties whose places of business are in different States:
"(a) When the States are Contracting States; or
"(b) When the rules of private international law lead to the application of the law of a Contracting State. [page 26]
"(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract for from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.
"(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration."

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Art. 2

24. The text of article 2, as adopted by the Working Group on the International Sale of Goods, is as follows:

Subparagraph (a)

Exclusion of consumer sales

25. The Committee was agreed that consumer sales should be excluded from the scope of the Convention on the ground that such transactions were, in a number of countries, subject to special laws and regulations designed to protect consumers. Such an exclusion would not significantly limit the scope of application since consumer sales would only in relatively few cases qualify as an international sale within the meaning of the Convention.

26. The Committee considered a proposal that would delete the words "unless the seller, at the time of the conclusion of the contract, did not know and had no reason to know that the goods were bought for any such use." The proposal was based on the ground that these words, which do not appear in the corresponding provision (article 4(a)) of the Convention on the Limitation Period, introduced a subjective element in that it depended on the subjective view of the seller whether or not the sale was a consumer sale and, consequently, whether or not the Convention would apply.

27. The Committee was of the view that the knowledge of the seller that the contract of sale was one falling within the scope of the Convention was important. In the framework of the Convention on the Limitation Period, the parties had ample time and opportunity to establish whether the sale was a consumer sale or a commercial sale and, accordingly, to determine whether the limitation of legal proceedings and the prescription of the parties' rights against each other would, or would not, be governed by that Convention. The Committee therefore concluded that the present wording of subparagraph (a) should be retained.

Exclusion of sales by auction, on execution or otherwise by authority of law, and of stocks, shares, investment securities, negotiable instruments or money

28. There were no proposals made to amend or delete any of the provisions of subparagraphs (b), (c) or (d) and the Committee recommends that these subparagraphs should be retained In their present wording.

Exclusion of sales of ships, vessels or aircraft

29. Opinions were divided on the question whether the sale of ships, vessels and aircraft should, as under the present text. be excluded from the scope of application of the Convention.

30. Under one view, these sales should fall within the scope of the Convention because:

31. Under another view, the exclusion of sales of ships, vessels and aircraft was justified on the ground that:

32. The Committee, after deliberation, concluded that the issue could not be solved by a compromise text based on consensus. It therefore recommends that the Commission adopt the present text of subparagraph (e).

Exclusion of sales of electricity

33. The Committee considered two proposals:

34. The Committee did not retain the proposal for deletion of subparagraph (f). It noted that, in many legal systems, electricity was not considered to be a corporeal movable and that, consequently, the deletion of the subparagraph would not necessarily bring the sale of electricity within the Convention but might, on the contrary, give rise to uncertainty.

35. The Committee also did not accept the proposal that the sale of gas be assimilated to the sale of electricity and thus be excluded from the scope of the Convention. It was noted that since a considerable number of both simple and compound bodies existed in either gaseous, liquid or solid state, the sale of these goods would be excluded under the proposal or, at least, present borderline cases. The Committee was of the view that the drawing up of a list of all borderline classes would be a lengthy process and would be inadvisable. In cases where the application of the Convention to the sale of gas was not desired, the parties could, under article 5, vary the effect of any of its provisions. The Committee was therefore agreed to maintain the present wording of subparagraph (f).

Decision

36. The Committee concludes that no change of substance is called for in respect of article 2. It therefore recommends that the Commission should adopt the following text:

"Article 2

"This Convention does not apply to sales:
"(a) Of goods bought for personal, family or household use, unless the seller, at the time of the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;
"(b) By auction;
"(c) On execution or otherwise by authority of law;
"(d) Of stocks, shares, investment securities, negotiable instruments or money;
"(e) Of ships, vessels or aircraft;
"(f) Of electricity." [page 27]

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Art. 3

37. The text of article 3, as adopted by the Working Group on the International Sale of Goods, is as follows:

38. The Committee considered a proposal that article 3 be deleted and then considered proposals relating to paragraph (2).

Deletion of provision

39. The proposal to delete article 3 was based on the ground that the types of contract envisaged by the article fell outside the sphere of the sale of goods and that the article was therefore not appropriate in a Convention which regulated the obligations of the buyer and the seller. There was, however, a considerable body of opinion in favour of retaining article 3, particularly for the reason that the provision was useful for determining whether the Convention applied in borderline cases. It also provided a useful guideline for the courts of a number of common law countries which otherwise might assume that the Convention would apply. After deliberation, the Committee decided not to retain the proposal to delete article 3.

Paragraph (2)

40. The Committee, for the same reasons, did not retain a proposal that paragraph (2) be deleted.

41. The Committee also considered a proposal under which the words "a substantive part of the materials" were to be replaced by the words "materials or any part of them", so that, if any part of the materials were supplied by the buyer, the Convention would not apply. The proposal was based on the premise that it would not be equitable to make the seller responsible for conformity of the goods if some of the materials for the production of those goods were supplied by the buyer. In opposition to this proposal it was pointed out that the text provided a useful guideline for a number of legal systems. It was also noted that the provision followed article 6(2) of the Convention on the Limitation Period. After deliberation, the Committee decided to retain the original text.

Relationship of article 3(2) to seller's responsibility for defects

42. The Committee considered a proposal to amend article 3(2) to regulate the question of the seller's responsibility for the goods in cases where the buyer has supplied less than a "substantial part" of the materials. This proposal is discussed in paragraphs 179 to 184 of the report relating to article 19.

Decision

43. The Committee concludes that no change of substance is called for in respect of article 3. It therefore recommends that the Commission should adopt the following text:

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Art. 6 bis

44. The text of article 4, as adopted by the Working Group on the International Sale of Goods, is as follows:

45. The Committee noted that article 4 was based on the premise, accepted by most legal systems, that the parties to a sales transaction were at liberty to choose the law applicable to their contract, and that the article was designed to extend the application of the Convention to contracts of sale in circumstances not envisaged by article 1.

46. The discussions in the Committee revealed that the article was not free from ambiguities and was thus open to divergent interpretations. Whilst it was generally agreed that parties were free to incorporate provisions of the Convention into their contract to the extent that these provisions did not conflict with the applicable law, opinions differed greatly on the question as to the extent to which and the circumstances in which parties could choose the Convention as the law of the contract. Amongst the issues that were raised in this context was that of the relationship of article 4 to the preceding articles of the Convention, in particular whether the article could be interpreted as permitting parties to make the Convention applicable to domestic sales contracts and to the types of contract that were excluded from the Convention by virtue of articles 2 or 3.

47. The Committee considered various proposals which, by restricting the tenor of article 4, were designed to clarify these issues. None of these proposals commanded sufficient support and were therefore not retained.

48. Under one proposal, the choice of the Convention as the law of the contract would be effective only if the contract was entered into by parties whose places of business were in different States and one of these States was a Contracting State. The purpose of this proposal was to ensure that the Convention would apply only to international sales and, by its insertion into article 4 prevent its application to sales excluded from the Convention under articles 2 or 3. However, there was significant support for the view that the proposal, if adopted, would needlessly restrict the application of the Convention, for instance in circumstances where a business firm had a branch in another State which sold goods to a buyer whose place of business was situated in that same State. Under the terms of article 6(a), the parties would have their place of business in the same State and the Convention would not apply, although the transaction could be qualified as international. Adherents to the view that the parties should be able, in such a case, to choose the Convention as the law of the contract were therefore opposed to the restriction to party autonomy which the proposal sought to achieve. Consequently, the Committee did not retain this proposal.

49. Concern was, however, expressed, also amongst those opposing the proposal, that article 4, if retained, should not be used to circumvent article 2 (a) which expressly excluded consumer sales, since many countries had enacted consumer protection legislation governing important aspects of this type of sale.

50. The Committee did not retain a proposal, based on article 4 of the 1964 Hague Uniform Law on the International Sale of Goods (ULIS), that the Convention, if chosen as the law of the contract, would be subject to the mandatory provisions of the law that would have been applicable if the parties had not chosen the Convention.

51. At the close of the discussions on article 4, there was a considerable body of opinion in the Committee which questioned the practical need for a special provision on the lines of article 4. Whatever the parties agreed would only be valid within the limits of mandatory law.

Decision

52. The Committee concludes that article 4 raises many difficult questions of interpretation which even protracted discussions have failed to solve. Because of this, and in view of the fact that a provision on the lines of article 4 is not strictly necessary to achieve the purpose for which it was drafted, the Committee recommends to the Commission that the article should be deleted. [page 28]

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Art. 6

53. The text of article 5, as adopted by the, Working Group on the International Sale of Goods, is as follows:

54. The Committee considered a proposal that the Convention apply to a sales transaction only if it is made so applicable by the parties to the transaction. The purpose of this proposal was to facilitate accession to the Convention by States which, though viewing the Convention favourably as a whole, had reservations concerning particular issues. A subsidiary reason cited in support was that, since many rights under the Convention depended upon compliance with the Convention and the contract, it would be preferable to require that the parties expressly adopt the Convention rather than relying on article 5 to ensure that inconsistent contractual provisions will govern.

55. The proposal did not command sufficient support in the Committee and was therefore not retained. Amongst the arguments put forward against its retention was the view that to make the application of the Convention dependent upon any express stipulation by the parties would turn the Convention into a model law and would thereby remove the raison d'être of the Convention, namely, that it would apply automatically unless the parties had excluded it, or derogated from or varied the effect of any of its provisions.

56. The Committee also did not retain a proposal that the Convention may be excluded only by an express stipulation of the parties. In support of this proposal it was submitted that it should not be possible that the Convention, which was to apply as the law of the contract, could be set aside by mere implication. The suggestion was also made that the faculty which the parties had to exclude the Convention should be subject to their choosing another law of the contract to replace the Convention.

57. The proposal, and the allied suggestion, were opposed on the ground that it may be perfectly clear that the parties do not wish the Convention to apply even though this intention was not stated expressly. Another argument against the proposal was that the Convention itself envisaged exclusion or modification of its provisions by other than express means, as in article 8 on usages.

Decision

58. The Committee concludes that no change of substance is called for in respect of this article, now renumbered as article 4. It therefore recommends that the Commission should adopt the following text:

"Article 4

"The parties may exclude the application of this Convention or derogate from or vary the effect of any of its provisions."

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Art. 10

59. The text of article 6, as adopted by the Working Group on the International Sale of Goods, is as follows:

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Art. 1(3)

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Art. 10

Subparagraph (a)

(i) Deletion of subparagraph (a)

60. The Committee considered a proposal that article 6(a) be deleted and that the introductory words of article 1(1) be amended so that the Convention would apply to contracts entered into by parties whose main places of business are in different States. In support of this proposal it was pointed out that it would be simpler to determine the main place of business rather than ascertaining which place of business had "the closest relationship to the contract and its performance." In opposition to the proposal, it was pointed out that use of the main place of business departed from the concept of relationship with the contract, with the result that the Convention may be attracted to transactions wholly formed and performed in one State, e.g. if the contracting parties have their main places of business in different States. Similarly, the Convention may not apply to international transactions because the contracting parties have their main places of business in one State. It was also noted that the present text was likely to correspond to the intention of the parties. Further, it was observed that article 6(a) corresponds to article 2(c) of the Convention on the Limitation Period" After considerable discussion and deliberation, the Committee did not retain the proposal to delete article 6(a).

(ii) Insertion of new definition of "place of business"

61. It was proposed that a new definition of "place of business" be formulated which did not relate "place of business" to the contract and its performance. In support of this proposal, it was stated that a clear definition would enable the relevant "place of business" to be determined at the moment of the conclusion of the contract. Such determination was difficult with the present definition which required that account be taken on the performance of the contract. A further problem was that as each party may have numerous obligations it may be difficult in practice to apply the test of "closest relationship with the contract and its performance." However, in opposition to the proposal, it was stated that article 6(a) is a good indication of the intention of the parties and also gives a clear method of determining which places of business are relevant for the purposes of the Convention. It was also observed that although performance naturally occurs after the conclusion of the contract the last part of article 6(a) specifically limits consideration of performance "to the circumstances known to or contemplated by the parties at the time of the conclusion of the contract." After extensive deliberations the" Committee decided to reject the proposal to reformulate the definition of "place of business."

(iii) Relationship of place of business to performance

62. The Committee considered a proposal to delete the reference to the performance of the contract which, in the proposed text, is relevant in determining which of more than one place of business should be selected for the purposes of the Convention. The view was expressed that the concept of performance did not necessarily relate to a single act but could cover a series of actions, such as handing the goods over to a carrier and delivery to the buyer. There could thus arise an ambiguity if a branch of the seller's business, participating in the performance of the contract, were situated in the buyer's State since it might be doubtful if the Convention would be applicable. It was further argued that it was at the time of the conclusion of the contract that it was necessary to know whether it was the national law or the Convention which applied, and that this question should not be resolved in the fight of subsequent circumstances.

63. In favour of retention of the reference to performance it was argued that the question at issue should be considered in the light of the last phrase of paragraph (a): "having regard to the circumstances known to or contemplated by the parties at the conclusion of the contract." It should be the transaction as a whole, "the contract and its performance", which should determine the relevant place of business.

64. The Committee, after deliberation, decided not to retain the proposal to delete the reference to performance. [page 29]

Subparagraph (b)

65. The Committee adopted the present text after noting a proposal that rather than making reference to the habitual residence of the parties it would be preferable to clearly define the meaning of "place of business."

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Art. 1(3)

Subparagraph (c)

66. The Committee considered three proposals:

(i) Transfer of article 6(c)

67. In support of the proposal to transfer the substance of article 6(c) to a new location as article 1(1)(c), it was pointed out that this change would make it possible to take into consideration the civil or commercial character of the parties or of the contract for such purposes as determining the time for sending notices to the other party. The proposal was also supported on the ground that article 6(c) was better located in article 1 as it dealt with the sphere of application of the Convention whereas articles 6(a) and (b) were concerned with" the definition of "place of business." In opposition to the proposal, it was stated that it would be preferable to retain article 6(c) in its present location so that it would conform to article 2(e) of the Convention on the Limitation Period. It was also noted that since article 2(a) of the Sales Convention did not exclude all consumer sales from the sphere of application of the Convention, it would be desirable to preface article 6(c) by the words "except as provided in article 2(a)." A representative stated that while he would not object to such a change it was on the understanding that nationality of the parties was always irrelevant, even in consumer sales.

68. After considerable discussion, the Committee referred the question of the location of article 6(c) to the Drafting Committee which was also requested to consider whether article 6(c) should exclude article 2(a).

(ii) Deletion of subparagraph (c)

69. In support of the proposal to delete article 6(c), it was stated that as no other article dealt with nationality or with the civil or commercial character of the parties it was superfluous to have a separate provision stating that these matters were not to be taken into consideration. In opposition to this proposal, it was noted that many civil law systems apply different standards depending on the civil or commercial nature of the parties or of the contract. Accordingly, it was helpful to have a provision which clearly indicated that these considerations did not affect the application of the Convention. Similarly, it was helpful to provide that the nationality of the parties did not affect the operation of the Convention. The proposal was also opposed on the basis that it would create unnecessary conflict with the Convention on the Limitation Period. The Committee, after deliberation, did not retain the proposal for deletion.

(iii) Separation of article 6(c) into two articles

70. In support of this proposal, it was stated that the question of the civil or commercial character of the parties, or of the contract, was distinct from the question of nationality and so should be dealt with in a separate article as was the case in ULIS (article 1(3) and article 7). It was also suggested that the question of nationality should be dealt with in article 1 as it related to the scope of application of the Convention. The Committee referred this matter to the Drafting Committee.

Decision

71. The Committee recommends that the Commission should adopt the following text of this article, now renumbered as article 5:

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Art. 10

"Article 5

"For the purposes of this Convention:
"(a) If a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at the time of the conclusion of the contract;
"(b) If a party does not have a place of business, reference is to be made to his habitual residence."

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Art. 4

72. The text of article 7, as adopted by the Working Group on the International Sale of Goods, is as follows:

Further limitations to the scope of the Convention

73. The Committee considered a proposal that additional matters be excluded from the scope of application of the Convention. In this connexion, reference was made to national legislation designed to protect the buyer in instalment sales and "door to door" sales. Not all of these types of sale were excluded under article 2 (a) of the Convention, but national legislation, regulating these types of sales should nevertheless take precedence over the Convention.

74. The Committee did not retain this proposal on the ground that the Convention did not relate to matters of validity and that the question of whether the types of sales contract to which the proposal referred were valid would be left to national law.

Deletion of paragraph (1)

75. It was suggested that paragraph (1) be deleted since it was a declaratory provision which did not appear to serve any useful purpose. It was unusual for a Convention to specify the matters which it did not purport to settle.

76. Deletion of the provision was opposed on the ground that paragraph (1) served the purpose of preventing the Convention from overruling domestic law relating to the validity of contracts. In this connexion, reference was made to article 36 of the Convention relating to open-price contracts: the question of the validity of such contracts was, as article 7(1) made clear, left to national law.

77. The Committee, after deliberation, did not retain the proposal to delete paragraph (1).

Deletion of paragraph (2)

78. The Committee retained a proposal to delete paragraph (2) after having decided that the matter of rights and claims relating to industrial or intellectual property should be dealt with in article 25.

Decision

79. The Committee recommends to the Commission, that paragraph (1) of this article, now renumbered as article 6 should [page 30] be retained and that paragraph (2) should be deleted, and that, accordingly, the Commission should adopt the following text:

"Article 6

"This Convention governs only the rights and obligations of the seller and the buyer arising from a contract of sale. In particular, except as otherwise expressly provided therein, this Convention is not concerned with:
"(a) The formation of the contract;
"(b) The validity of the contract or of any of its provisions or of any usage;
"(c) The effect which the contract may have on the property in the goods sold."

CHAPTER II. GENERAL PROVISIONS

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Art. 9

80. The text of article 8, as adopted by the Working Group on the International Sale of Goods, is as follows:

Relevance of usages

81. It was noted that article 8 had not retained the provision of paragraph (2) of article 9 of ULIS according to which, in the event of conflict with the uniform law, usages would prevail unless otherwise agreed by the parties.

82. However, the view was expressed that the proposed article 8 still attached too much importance to usages and that the unification of law could well become compromised unless it was made clear that usages were only an additional faction which, in the case of implied usages, become binding on the parties only if the usage was not in conflict with the contract or the Convention.

83. The prevalent opinion in the Committee was in favour of maintaining the proposed text of article 8 and the suggestion was therefore not retained.

New paragraph (3): Interpretation of trade terms

84. The Committee considered a proposal designed to reintroduce a provision along the lines of paragraph 3 of article 9 of ULIS which provides that:

The proposal was made on the ground that a distinction should be drawn between the application of usages, covered by paragraphs (1) and (2) of article 8, and the application of trade terms such as FOB or CIF, In respect of which there existed several interpretations.

85. The contrary view was expressed that the subject-matter of the proposed new paragraph was already covered by paragraphs (1) and (2) and was therefore unnecessary.

86. The Committee did not retain the proposal as a slight majority of views expressed were in favour of retaining the text proposed by the Working Group on the International Sale of Goods.

Decision

87. The Committee concludes that no change of substance is called for in respect of this article, now renumbered as article 7. It therefore recommends that the Commission should adopt the following text:

"Article 7

"(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
"(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract a 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."

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Art. 25

88. The text of article 9 as adopted by the Working Group on the International Sale of Goods is as follows:

89. The view was expressed that the definition of fundamental breach in the proposed article was unsatisfactory in that one of the prerequisites of a fundamental breach was that the substantial detriment to the other party had been foreseen by the party in breach or that that party had reason to foresee such detriment. In cases of litigation, the burden of proof would thus be on the innocent party and this could not be considered a proper solution. In this connexion, the Committee considered and accepted the suggestion that the final phrase of the proposed article should read:

90. It was noted that the proposed text did not deal with the point of time at which it was possible to foresee the result. It was pointed out that article 10 of ULIS referred to "the time of the conclusion of the contract." According to another view, it would be fairer to refer to the time at which the breach was actually committed rather than the time at which the contract was concluded. The Committee, after deliberation, did not consider it necessary to specify at what moment the party in breach should have foreseen or had reason to foresee the consequences of the breach.

91. The proposal was made that the criterion of fundamental breach should be a "loss of interest in the contract" on the part of the innocent party. This suggestion was opposed on the ground that it brought in the question of motive for entering into a contract and that this was too subjective an element. The Committee did not retain this proposal.

92. The Committee also did not retain a proposal that the text of foreseeability be deleted. It was pointed out in this connexion that article 9 was designed to avoid the cancellation of a contract for reasons which were not sufficient to warrant avoiding it.

Relationship to right of seller to cure [c]

93. During its consideration of article 29, the Committee considered a proposal that article 9 read as follows (new language in italics):

94. In support of this proposal, it was stated that the proposed addition to article 9 would protect against technical avoidance of the contract when there had been an offer to cure under article 29. However, under another view this change was unnecessary because the conditions governing an offer by the seller to cure were governed by article 29 and, if there was no offer to cure, the situation was governed by article 9. Accordingly, the proposal was superfluous. [page 31]

95. The Committee did not retain the proposal.

Decision

96. The Committee recommends that the Commission should adopt the following text of this article, now renumbered as article 8:

"Article 8

"A breach committed by one of the parties is fundamental if it results in substantial detriment to the other party unless the party in breach did not foresee and had no reason to foresee such a result."

CISG number

Arts. 26, 27

97. The text of article 10 as adopted by the Working Group on the International Sale of Goods is as follows:

98. The Committee considered a proposal that the general rule in article 10 be that communications must be received by the addressee. In support of this proposal, it was stated that this "receipt theory" accorded with principles of equity because the sender would always know if he had dispatched a notice. Consequently, if there was no reaction from the addressee he could easily take steps to ensure whether the notice had in fact arrived. In opposition to this proposal, it was pointed out that countries which utilized the "receipt theory" had supporting procedural rules which enabled the theory to work in practice since it was extremely difficult to establish whether a notice had in fact been received by the addressee. But as such procedural rules were not present in countries which utilized the "dispatch theory", it would be necessary to include them in the Convention which would complicate the text of the Convention.

99. After deliberation, the Committee decided not to adopt the "receipt theory" as the basis of article 10. However, it was understood that this decision did not preclude particular provisions from requiring that communications called for by that provision be received.

Paragraph (1)

100. The Committee considered a proposal that paragraph (1) be deleted. In support of this proposal, it was stated that paragraph (1) might be interpreted to mean that the sanction for non-compliance with its provisions is that the notice will be denied effect. However, this result would be unjust if the notice was actually received in time although it had not been sent by the "means appropriate in the circumstances." Furthermore, since the provision was designed to mean that the sender will be deprived of the benefit of article 10(3), which relieves him from transmission hazards, it would be more appropriate to delete the provision and introduce the requirement of appropriate means of transmission directly into article 10(3).

101. After noting the concern of an observer that it may be difficult for a judge to determine whether particular means of transmission were "appropriate", the Committee retained the proposal to delete paragraph (1) and to introduce the requirement of appropriate means of transmission directly in article 10(3).

Paragraph (2)

102. The Committee considered proposals that the declaration of avoidance must be made by written notice to the other party or, alternatively, be immediately followed by written notice. The Committee decided to consider these proposals in connexion with article 11. The Special Drafting Group created in respect of article 11 did not retain these proposals and, therefore, the present text of paragraph (2) was retained.

103. However, the Committee referred the provision to the Drafting Group for reformulation to make it clear that prior notice of a declaration of avoidance is not required.

CISG number

Art. 27

Paragraph (3)

104. The Committee considered a proposal that paragraph (3) be replaced by the following text:

105. In support of this proposal, it was stated that since the Convention required a large number of communications there should be a general provision which deals with questions of their transmission to the addressee. It was pointed out that the proposal would ensure errors in transmission or lost or delayed transmission would be treated uniformly throughout the Convention. Furthermore, a clear rule governing hazards of transmission was very important since the terminology governing the giving of notices varied considerably throughout the Convention. The present text of paragraph (3) dealt with only two situations which could give the impression that the varying terminology used throughout the Convention implied varying rules concerning whether communications must be received or merely sent. In addition, it was stated that the provision proposed in paragraph 104 above could easily be amended so as to exclude any communications for which a different rule was considered to be more appropriate.

106. There was general support for the proposal that the risk of transmission of lost or delayed notices, or errors in transmission, be governed by one article. However, it was also agreed that adoption of such a provision should be subject to any contrary provisions in the existing text or to any future contrary provisions which might be formulated during the course of the present session.

107. The Committee, after deliberation, tentatively retained this proposal by placing it within square brackets. After having examined the other provisions of the Convention, the Committee adopted the tentatively retained text with the addition of a phrase indicating that some articles contained a different rule. The Drafting Group was requested to use appropriate language which clearly indicated the reversal of the general rule established by paragraph (3) in each article that made communications effective only on receipt.

108. The Committee also considered a proposal that paragraph (3) apply to all communications required by the Convention except communications under articles 28, 29(2), 29(3), 44, 46 and 47(3).

109. In support of this proposal, it was stated that the rule in paragraph (3) was appropriate to most, but not all, communications required by the Convention. In particular, article 46 and the second sentence of article 47(3) expressly provided for the receipt of notices. In addition, it was noted that it appears inappropriate to extend the benefit of paragraph (3) to a defaulting party's request for an additional period of time to perform, or to cure defects, pursuant to articles 29(2) and (3). The provision was also suggested to be inappropriate to articles 28 and 44.

110. In opposition to the proposal, it was argued that it would be preferable to adopt a general rule and to decide, on specific exceptions when later articles were being considered.

111. After deliberation, the Committee did not retain the proposal to specifically exclude, at this stage, articles 28, 29(2), 29(3), 44, 46 and 47(3) from the operation of article 10(3). [page 32]

112. The view was expressed that the article should be operative only if the addressee had no reason to know, or foresee, the error in transmission or the failure of the notice to arrive or arrive on time. There was, however, no support for this proposal.

113. The Committee further considered a proposal that paragraph (3) be limited to cases where the sender repeated the communication within a period of three months. It was stated that this would balance the rights and obligations of the contracting parties in cases where there had been lost or delayed communications or errors in transmission. The Committee did not retain this proposal for want of support.

Decision

114. The Committee accepted a recommendation of the Drafting Group that paragraphs (2) and (3) of article 10 be contained in separate articles with paragraph (2) now renumbered as article 9 and paragraph (3) as article 10. The Committee therefore recommends that the Commission should adopt the following text:

CISG number

Art. 26

"Article 9

"A declaration of avoidance of the contract is only if made by notice to the other party."

CISG number

Art. 27

"Article 10

"Unless otherwise expressly provided in this Convention, if any notice, request or other communication is given by a party in accordance with this Convention and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication."

CISG number

Art. 11

115. The text of article 11 as approved by the Working Group on the International Sale of Goods is as follows:

116. The Committee considered a proposal for the deletion of article 11 and then considered a number of compromise proposals.

Deletion of article 11

117. It was proposed that article 11 be deleted as it related to matters of formation and validity of contracts which were outside the scope of the Convention. The view was expressed that such matters should be dealt with in a Convention on Formation or be left to the applicable national law. It was also pointed out that the Sales Convention should not concern itself with how the contents of the contract could be proved as this was a matter of procedure which was also outside its scope. However, the contrary view was expressed that it was crucial that the Convention gave a clear indication of how the contract and its contents can be established for otherwise many of the rights given by the Convention might be put at great risk. In this connexion, reference was made to article 36 on determination of the price. It was also pointed out that deletion of article 11 would be satisfactory only if the matter was in fact dealt with in an international Convention, ratified by the same parties as had ratified the Sales Convention, or if matters of formation were dealt with in the same Convention as matters regulating the rights and obligations of the parties to the contract. In addition, failure to provide a clear rule, whether it be a strict requirement for writing or a flexible approach, would cause great uncertainty to the parties to the contract who may have considerable difficulty in ascertaining national law requirements.

118. The Committee decided, in view of the importance of the question, to consider a number of compromise proposals and to refer these proposals to a special drafting group with the mandate to formulate an acceptable compromise proposal.

119. The representatives of Brazil, the German Democratic Republic, Nigeria, Singapore, Sweden, the Union of Soviet Socialist Republics, and the United States of America were appointed to the Special Drafting Group.

120. The Committee also requested the Special Drafting Group to consider the proposals relating to article 10(2) which required declarations of avoidance to be in writing or to be followed by written notification.

Compromise proposals

121. The Committee considered three compromise proposals.

122. It was proposed that the following be added to the existing text of article 11:

123. In support of this proposal, it was stated that it constituted a compromise in that it permitted the retention of article 11 although, in the view of several representatives, article 11 dealt with matters of formation and validity of contracts which were outside the proper scope of the Convention. However, in order to achieve a proper balance in the text it would be necessary to make an exception for cases where the legislation of any of the States in which the places of business of the parties are situated require that a contract must be concluded in "written form" which was defined to include communications by telegraph and teleprinter as well as those in handwritten or typed form.

124. However, under another view the proposal did not constitute an effective compromise because the substantive rules in article 11 would be set aside if contrary to the legislation in any of the States in which the places of business of the parties are situated even where, if the compromise proposal was not adopted, such legislation would not regulate the contract. In this respect it was stated that the proposal was less of a compromise than the original proposal to delete article 11.

125. The Committee, after deliberation, referred the proposal to the Special Drafting Group.

126. It was also proposed that the following paragraph be added to article 11:

127. In support of this proposal it was stated that the proposed provision went a considerable distance in recognizing the needs of countries which, required written form. However, it was noted that the article would introduce principles of national law into the Convention which might cause inconvenience to businessmen.

128. This proposal was also referred to the Special Drafting Group.

129. A number of representatives and observers were of the view that article 11 should be retained but that it should be made subject to reservations or declarations. It was stated that this would enable parties to know whether they must comply with national requirements relating to the form of the contract. This suggestion was also referred to the Special Drafting Group. [page 33]

130. The Special Drafting Group proposed the following text:

"Article 11

"1. A contract of sale need not be evidenced by writing and is not subject to other requirements as to form. It may be proved by means of witnesses.
"2. Paragraph 1 of this article does not apply to a contract of sale where any party has its place of business in a Contracting State which has made a declaration under article (X) of this Convention.

"Article (X)

"A Contracting State under whose legislation a contract of sale shall be concluded in or evidenced by writing may, at the time of signature, ratification or accession, make a declaration to the effect that article 11, paragraph 1, shall not apply to any sale involving a party having its place of business in a State which has made such a declaration."

131. The Committee adopted a proposal that article 11(1) should conform to article (X) by providing that a contract of sale need not be concluded in writing as well as that it need not be evidenced by writing. Several representatives opposed this proposal because it appeared to imply that the draft Convention was regulating matters concerning the formation of contracts rather than confining itself to contracts which were considered valid by the applicable law. These representatives considered that the proposal was appropriate for a Convention on Formation but not appropriate for a Convention on Sales.

132. The Committee rejected a proposal that article 11(1) be divided into two articles, one dealing with the form of contracts and the other dealing with questions of proof.

133. A representative stated that the definition of "place of business" in article 6(a) would create difficulties in practice in relation to the application of article 11 and article (X). The same representative also indicated that article (X) was based on a system of reciprocity since article 11(1) would only be excluded if both Contracting States had made declarations under article (X). In his view, a declaration by one Contracting State should be sufficient to exclude the operation of article 11(1).

Decision

134. The Committee therefore recommends that the Commission should adopt the following text:

CISG number

Art. 11

"Article 11

"(1) A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirements as to form. It may be proved by any means including witnesses.

CISG number

Art. 12

"(2) Paragraph (1) of this article does not apply to a contract of sale where any party has his place of business in a Contracting State which has made a declaration under article (X) of this Convention.[*]

CISG number

Art. 96

"* Article (X)

"A Contracting State whose legislation requires a contract of sale to be concluded in or evidenced by writing may, at the time of signature, ratification or accession, make a declaration to the effect that article 11, paragraph (1), shall not apply to any sale involving a party having his place of business in a State which has made such a declaration."

CISG number

Art. 28

135. The text of article 12, as adopted by the Working Group on the International Sale of Goods, is as follows:

136. The Committee concludes that no change of substance is called for in respect of article 12. It therefore recommends that the Commission should adopt the following text:

"Article 12

"If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court could do so under its own law in respect of similar contracts of sale not governed by this Convention."

CISG number

Art. 7(1)

137. The text of article 13, as approved by the Working Group on the International Sale of Goods, is as follows:

138. The Committee considered several proposals seeking to specify more clearly the criteria of 0interpretation. These proposals were based on the premise that the proposed wording of article 13 was too general and lacked substance.

Intention of the parties as basis for interpretation

139. It was noted that article 13 was concerned with the interpretation and application of the provisions of the Convention and that the Convention did not contain a provision on the interpretation of the contract. The proposal was made that article 13 be preceded by a provision stating that "in the interpretation of contracts regard is to be had to the purpose of the contract and the interdependence of its various provisions." It was submitted that a rule governing interpretation of a contract of sale was needed in order to enable the courts to establish the respective rights and obligations of the parties as specified in the contract and contemplated by the parties.

140. Because it lacked sufficient support, the proposal was not retained. It was pointed out that the proposal enunciated a universally accepted principle of interpretation which had no place in the Convention and that the Working Group on the International Sale of Goods was engaged in preparing a draft text on the validity of a contract of sale, a matter which extended to some issues relating to interpretation of contracts of sale of goods.

CISG number

Art. 7(2)

Private international law

141. Another proposal considered by the Committee was worded as follows:

142. In support of this proposal, the view was expressed that the Commission, in addition to unifying substantive law, should also endeavour to unify the rules of conflict of laws which affect the contract of sale. A rule on the lines of the proposed text would be a step in that direction. Moreover, the proposed provision was in harmony with article 3 of the 1955 Hague Convention on the Law Applicable to International Sale of Goods.[e] If parties should find such a rule too rigid they could derogate from it under article 5 of the Sales Convention.

143. The Committee, after deliberation, did not retain the [page 34] proposal. The view was expressed that a rule of private international law had no place in an international convention providing substantive rules to regulate the relationship of buyer and seller, such as the one under consideration. Whilst it was true that article 3 of the 1955 Hague Convention opted for the law of the country where the seller had his place of business that article listed exceptions. Thus, a contract of sale conclude in the country of the buyer, as the result of an attempt on the part of the seller to attract customers, would come under the 1955 Hague Convention. The point was also made that, unless a reservation clause were included in the final clauses of the Convention, the proposal, if adopted, would give rise to problems for those States which were parties to the 1955 Hague Convention.

CISG number

Art. 7(2)

General principles on which the Convention is based

144. A third proposal was as follows:

145. The proposal was made on the ground that the guidelines offered by article 13 were insufficient and that it would be desirable to refer expressly to the general principles on which the Convention is based. It was of great importance that, in case of doubt as to the interpretation of certain provisions of the Convention, the Courts should not refer to domestic law.

146. The Committee did not retain this proposal since it did not receive sufficient support.

Decision

147. The Committee concludes that no change of substance is called for in respect of article 13. It therefore recommends that the Commission should adopt the following text:

CISG number

Art. 7(1)

"Article 13

"In the interpretation and application of the provisions of this Convention, regard is to be had to its international character and to the need to promote uniformity."

CHAPTER III. OBLIGATIONS OF THE SELLER

CISG number

Art. 30

148. The text of article 14, as adopted by the Working Group on the International Sale of Goods, is as follows:

149. The Committee concludes that no change in substance is called for in respect of article 14. It therefore recommends that the Commission should adopt the following text:

"Article 14

"The seller must deliver the goods, hand over any documents relating thereto and transfer the property in the goods, as required by the contract and this Convention."

Section I. Delivery of the goods and handing over of documents

CISG number

Art. 31

150. The text of article 15 as adopted by the Working Group on the International Sale of Goods, is as follows:

Introductory phrase

151. The Committee did not retain a proposal that the words "or in accordance with a particular trade term" be added to the opening phrase of article 15 so that it would read:

This proposal was considered to be unnecessary since the seller's obligation to deliver arose out of the contract, which would include any trade term used in the contract.

152. The Committee considered and adopted, subject to review by the Drafting Group, a proposal that the opening phrase of article 15 read:

The new language was intended to make it clear that the rules in article 15 would apply only if the contract did not specify that the seller was bound to deliver the goods at any other particular place.

CISG number

Art. 9

"Usages"

153. The Committee agreed that the "usages" referred to in the proposed text as well as in article 17, referred to usages as defined under article 8. It left to the Drafting Group to consider whether it was opportune to refer to "usages" or whether, in the light of article 8, it was unnecessary to do so.

CISG number

Art. 31

Paragraph (a)

154. The Committee rejected a proposal to add the words "or to the shipper" after the phrase "handing the goods over to the first carrier." These words were considered unnecessary since whoever took the goods for shipment was the "first carrier" for the purposes of the Convention.

Decision

155. The Committee concludes that no change of substance is called for in respect of article 15. It therefore recommends that the Commission should adopt the following text:

"Article 15

"If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
"(a) If the contract of sale involves carriage of the goods -- in handing the goods over to the first carrier for transmission to the buyer;
"(b) If, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place -- in placing the goods at the buyer's disposal at that place;
"(c) In other cases -- in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract." [page 35]

CISG number

Art. 32

156. The text of article 16 as adopted by the Working Group on the International Sale of Goods, is as follows:

157. The Committee considered but did not retain a proposal for an exception to the general rule in article 10 as adopted by the Committee which provides that a party who has sent a notice by appropriate means may rely on the notice even if it does not arrive. Under the proposal the seller could have relied on a notice sent under article 16(1) only if the notice arrived.

Decision

158. The Committee concludes that no change of substance is called for in respect of article 16. It therefore recommends that the Commission should adopt the following text:

"Article 16

"(1) If the seller is bound to hand the goods over to a carrier and if the goods are not clearly marked with an address or are not otherwise identified to the contract, the seller must send the buyer a notice of the consignment which specifies the goods.
"(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for the carriage to the place fixed by means of transportation which are appropriate in the circumstances and according to the usual terms for such transportation.
"(3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must provide the buyer, at his request, with all available information necessary to enable him to effect such insurance."

CISG number

Art. 33

159. The text of article 17, as adopted by the Working Group on the International Sale of Goods, is as follows:

160. The Committee considered but did not retain the following proposals:

(i) That the reference to usages be deleted from paragraph (a);
(ii) That the word "circumstances" in paragraph (b) be made more precise;
(iii) That the phrase "within a reasonable time" in paragraph (c) be made more precise by adding the words "taking into account the nature of the goods and the circumstances of the contract";
(iv) That a new paragraph (2) be added which would require the seller to give the buyer notice of the date for delivery reasonably in advance of delivery where that date is fixed by the seller.

Decision

161. The Committee concludes that no change of substance is called for in respect of article 17. It therefore recommends that the Commission should adopt the, following text:

"Article 17

"The seller must deliver the goods:
"(a) If a date is fixed by or determinable from the contract, on that date; or
"(b) If a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or
"(c) In any other case, within a reasonable time after the conclusion of the contract."

CISG number

Art. 34

162. The text of article 18, as adopted by the Working Group on the International Sale of Goods, is as follows:

163. The Committee concludes that no change of substance is called for in respect of article 18. It therefore recommends that the Commission adopt the following text:

"Article 18

"If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract."

164. The Committee considered a proposal to add the following article as article 18 bis:

165. In support of this proposal, it was stated that the article would parallel the requirement in article 23 of the giving of a notice specifying the nature of any lack of conformity of the goods. However, the Committee did not retain the proposal as it was generally considered that the buyer should not lose his remedies for late performance by the seller simply because he had failed to give notice.

Section II: Conformity of the Goods

CISG number

Art. 35

166. The text of article 19 as adopted by the Working Group on the International Sale of Goods is as follows:

Subparagraph (1)(b)

167. The Committee considered a proposal that this subparagraph apply only to those particular purposes which are expressly made known to the seller and that the exception to the seller's responsibility contained in the latter part of the subparagraph be deleted. The proposal would thus amend the subparagraph to read as follows:

The two aspects of this proposal are considered separately.

(i) Limitation of subparagraph to those particular purposes expressly made known to the seller

168. In support of the proposal to delete reference to particular purposes impliedly made known to the seller, it was stated that the present text of article 19(1)(b) imposes the difficult task on a tribunal of determining whether the seller had the requisite implied knowledge. However, the Committee did not retain this proposal as it found little support.

(ii) Deletion of exceptions to the seller's responsibility

169. Under this aspect of the proposal the words "except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement" would have been deleted from article 19(1)(b). In support of this proposal, it was stated that it would avoid complicated litigation in which the seller sought to establish that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement. It was noted that the proposal also had the advantage of greatly simplifying the language of article 19(1)(b). In addition, the proposed text would ensure that the seller must supply goods which conform to the contract. It was pointed out that should the seller consider that the goods may not be fit for the particular purposes stated by the buyer, the seller should decline to enter into the contract. It was also suggested that article 19(1)(b) may be superfluous because the seller would be responsible under the first sentence of article 19(1) for any failure of the goods to be fit for any purposes expressly or impliedly made part of the contract. Article 19(1)(b) simply contained a rule of interpretation which may aid a court to decide whether those particular purposes were part of the contract. As this result would follow under most national rules of interpretation, it would do little harm to delete this portion of article 19(1)(b) which was couched in language which caused considerable difficulty.

170. In opposition to the proposal to delete the second part of the subparagraph, it was stated that it was equitable for the seller to escape responsibility where it demonstrated that a buyer did not rely upon the seller's skill and judgement or where the special expertise of the buyer made it unreasonable for him to claim reliance on the general expertise of the seller. It was also stated that since all the subparagraphs of article 19(1) were prefaced by the expression "except where otherwise agreed" it followed that if the last part of article 19(1)(b) Were deleted, the rules of interpretation in many jurisdictions may entail the result that the seller would be liable for any failure of the goods to be fit for a particular purpose made known to the seller whether or not that particular purpose was made part of the contract. It was pointed out that the existing text created an equitable balance between seller and buyer. Furthermore, under article 19(1)(a) the seller would, unless otherwise agreed, always be responsible for goods which were not fit for the purposes for which goods of the same description would ordinarily be used.

171. After considerable discussion and deliberation, the Committee did not retain the proposal.

Other proposals relating to subparagraph (1)(b)

172. The Committee also considered a proposal that article 19(1)(b) be replaced by the following:

173. In support of this proposal, it was stated that the buyer should be able to rely upon the goods not being suitable for a particular purpose only if that particular purpose was made part of the contract. A further advantage of this proposal was stated to be that it avoided the complications of the second part of the present text of article 19(1)(b). However, it was pointed out that limiting the provision to particular purposes which were made part of the contract was an unjustified narrowing of the seller's obligations and that accordingly it was desirable to retain the original text.

174. After considerable discussion the Committee did not retain this proposal.

175. The Committee also considered, during its deliberations on the major proposals discussed above, the following proposals which were designed to overcome some of the difficulties expressed in relation to article 19(1)(b):

176. None of these proposals commanded sufficient support in the Committee and were not retained.

Burden of proof

177. The Committee considered a proposal that the following paragraph be added to article 19:

178. There was little support for this proposal as it was considered inappropriate for the Convention, which relates to the international sale of goods, to deal with matters of evidence or procedure. The Committee, accordingly did not retain the proposal.

Contracts where buyer supplies a small part of the materials

179. The Committee considered a proposal to introduce a rule into article 19 to deal with the situation where the goods do not conform with the contract because of a defect in materials supplied by the buyer. It was pointed out that article 3(2) did not exclude such cases from the scope of application of the Convention where the amount of material supplied by the buyer was less than a substantial part of the materials necessary for the manufacture and production of the goods. The Committee also considered a proposal that article 3(2) be amended to deal with this problem to achieve essentially the same result.

180. These proposals, in their final form, were as follows:

(i) That the following paragraph be added to article 19: [page 37]

CISG number

Art. 3(2)

(ii) That the underscored words be added to article 3(2):

181. In support of the first proposal it was pointed out that even though the amount of material supplied by the buyer was not substantial, a defect in these materials might cause a major lack of conformity in the goods as produced by the seller. It was stated that the seller should be liable for any lack of conformity of goods produced by him caused by defects in materials supplied by the buyer but that this obligation should not be absolute. The seller should not be liable if the seller did not know or could not have been aware of such defects or if the buyer insisted on the use of those materials after notification of the defects in the materials supplied.

182. Under another view, the proposal was unnecessary since it dealt with a matter of minor importance and merely stated an obvious result.

183. The second proposal, which sought to achieve the same result by amending article 3(2), was met by the same criticisms that were directed against the first proposal. In addition, it was stated that the notion that the Convention applied to the supply of materials by the buyer to the seller "as it would to a sale unless the circumstances indicate the contrary" could raise difficulties of interpretation since the buyer would have to be treated as the seller and vice versa. Further, such a fictional contract, without a price, would cause difficulties in a number of legal systems.

184. Although there was considerable support for the general principle contained in these proposals the Committee, after extensive discussion centered on eliminating drafting difficulties, decided to reject both proposals.

Decision

185. The Committee concludes that no change of substance is called for in respect of article 19. It therefore recommends that the Commission should adopt the following text:

CISG number

Art. 35

"Article 19

"(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. Except where otherwise agreed, the goods do not conform with the contract unless they:
"(a) Are fit for the purposes for which goods of the same description would ordinarily be used;
"(b) Are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;
"(c) Possess the qualities of goods which the seller has held out to the buyer as a sample or model;
"(d) Are contained or packaged in the manner usual for such goods.
"(2) The seller is not liable under subparagraphs (a) to (d) of paragraph (1) of this article for any non-conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such nonconformity."

CISG number

Art. 36

186. The text of article 20 as adopted by the Working Group on the International Sale of Goods is as follows:

Decision

187. The Committee concludes that no change of substance is called for in respect of article 20. It therefore recommends that the Commission should adopt the following text:

"Article 20

"(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
"(2) The seller is also liable for any lack of conformity which occurs after the time indicated in paragraph (1) of this article and which is due to a breach of any of his obligations, including a breach of any express guarantee that the goods will remain fit for their ordinary purpose or for some particular purpose, or that they will retain specified qualities or characteristics for a specific period."

CISG number

Art. 37

188. The text of article 21 as adopted by the Working Group on the International Sale of Goods is as follows:

189. The Commission considered, but did not retain, a proposal that article 21 expressly state that the seller has a right to deliver the goods before the date of delivery in order to make explicit what is already implicit in the language of article 21. However, there was little support for this proposal as it was considered that the emphasis in article 21 should remain on the seller's right to cure and that it would be inappropriate to confer on a party to a contract the right to breach that contract.

Decision

190. The Committee concludes that no change of substance is called for in respect of article 21. It therefore recommends that the Commission should adopt the following text:

"Article 21

"If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any nonconforming goods delivered or remedy any lack of [page 38] conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. The buyer retains any right to claim damages as provided for in this Convention."

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Art. 38

191. The text of article 22 as adopted by the Working Group on the International Sale of Goods is as follows:

Paragraph (1)

192. The Committee considered a proposal to replace paragraph (1) with the following provision:

193. In support of this proposal, it was stated that the buyer should have a right to examine the goods and that accordingly acceptance should be postponed until the buyer had such an opportunity for examination. However, it was pointed out that the framing of the proposal in terms of acceptance rather than, in terms of an obligation to examine the goods would cause needless difficulties since national law doctrines relating to acceptance differed widely. In any case, the buyer was adequately protected by article 23(1) which provides that the right to rely on a lack of conformity is lost only if the buyer does not give notice "within a reasonable time after he has discovered it or ought to have discovered it."

194. The Committee, after deliberation, decided not to retain this proposal.

Paragraph (2)

195. The Committee considered a proposal that in cases involving carriage of goods the examination may be deferred until the goods arrive at the final place of destination. The Committee did not retain this proposal as it commanded no support.

Decision

196. The Committee concludes that no change in substance is called for in respect of article 22. It therefore recommends the following text to the Commission:

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Art. 39

197. The text of article 23, as adopted by the Working Group on the International Sale of Goods, is as follows:

Paragraph (1)

198. The Committee considered a proposal that the text should be reworded to indicate that the buyer does not lose his "right" to rely on a lack of conformity in the goods if he fails to give notice but that he loses the power to enforce his rights. This would furnish a better legal basis for the common occurrence that, without being obligated to do so, the seller recognizes his obligations in respect of his having delivered goods which failed to conform to the contract, in spite of not having received notice of the lack of conformity in proper time.

199. The Committee did not retain this proposal for lack of support.

200. The Committee considered two proposals to reduce the obligation of the buyer to examine the goods. The first proposal was for the replacement of the words "ought to have discovered [the lack of conformity]" by "could have discovered it in the circumstances." The second proposal would have deleted the words "within a reasonable time." It was suggested that the buyer should be placed under no obligation to discover defects. In particular, buyers from developing countries are at a particular disadvantage when it comes to examining technologically complicated machinery.

201. The Committee did not retain these proposals since it was of the view that the buyer should have the duty both to examine the goods and to notify the seller of lack of conformity. However, the Committee referred to the Drafting Group the question as to whether the words "in the circumstances" should be added to the words "or ought to have discovered it."

Recommendation of the Drafting Group [f]

202. The Drafting Group, however, queried whether the expression "in the circumstances" should be included in paragraph (1) of article 23 because, although the length of the period clearly depended on the circumstances of the case, the insertion of this expression in only one article could lead to a contrary conclusion in other articles of the Convention which did not use this expression in relation to other time-limits imposed on the parties. The Drafting Group accordingly placed the expression "in the circumstances" within square brackets. The Committee accepted the recommendation of the Drafting Group and deleted the expression from the article.

Paragraph (2)

203. The Committee considered a proposal to shorten the maximum period during which notice can be given from two years to one year. A two-year period was said to be longer than that which is found in most national legislation and to be an excessively long period for a seller not to know whether a claim for lack of conformity of the goods would be made by the buyer.

204. On the other hand it was said that it would work to the disadvantage of the developing countries if the maximum period of time for giving notice were to be shortened. The Committee decided not to retain this proposal.

205. The Committee also considered various proposals to [page 39] have the point of time at which the two-year time-limit commences more clearly associated with the point of time at which the buyer is required to examine the goods under article 22, and especially where examination of the goods may be deferred because of redispatch. It was noted that under article 22 the buyer is required to examine the goods within as short a period as is practicable in the circumstances, which, in the case where the contract involves the carriage of goods, is after the goods have arrived at their place of destination. It was also noted that where the goods are redispatched by the buyer without a reasonable opportunity for examination by him, in certain circumstances the examination may be deferred until after the goods have arrived at the new destination. However, under article 23(2) the two-year time-limit for giving notice of lack of conformity commenced on the date the goods "were actually handed over to the buyer."

206. However, it was pointed out that a period of fixed length, such as the two-year maximum period for giving notice under article 23(2), should commence on an easily ascertainable date. The most easily ascertainable date is the date on which the goods were actually handed over to the buyer. Even if that date may be as much as several months prior to the date on which examination of the goods is practicable or required under article 22 (3) in those cases in which the goods have been redispatched, it is not an unreasonable point of time from which to measure the maximum period for giving notice in view of the fact that two years is a relatively long time for giving such notice. It was also noted that the time the goods were actually handed over to the buyer was the point of time at which the four-year period of limitation commences under the Convention on the Limitation Period. As a result the Committee did not retain this proposal.

Decision

207. The Committee concludes that no change of substance is called for in respect of article 23. It therefore recommends that the Commission should adopt the following text:

"Article 23

"(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
"(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless such time-limit is inconsistent with a contractual period of guarantee."

CISG number

Art. 40

208. The text of article 24, as adopted by the Working Group on the International Sale of Goods, is as follows:

Decision

209. The Committee concludes that no change of substance is called for in respect of article 24. It therefore recommends that the Commission should adopt the following text:

"Article 24

"The seller is not entitled to rely on the provisions of articles 22 and 23 if the lack of conformity relates to facts of which he, knew or could not have been unaware and which he did not disclose to the buyer."

CISG number

Art. 41

210. The text of article 25, as adopted by the Working Group on the International Sale of Goods, is as follows: "The seller must deliver goods which are free from the right or claim of a third person, unless the buyer agreed to take the goods subject to such right or claim."

211. The Committee established a Special Working Group consisting of the representatives of Finland, German Democratic Republic, Ghana, India, Japan and Mexico to prepare a revised article 25 to cover situations in which the goods sold were subject to a right or claim of a third party based on industrial or intellectual property.

212. The text of article 25, as proposed by the Special Working Group, is as follows:

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Art. 42

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Art. 41

Paragraph (1)

213. The Committee noted that paragraph (1) reproduced in principle the text of article 25 as adopted by the Working Group on the International Sale of Goods with the exception that claims based on industrial or intellectual property were expressly excluded as they were to be dealt with in articles 25(2) to 25(4).

214. The Committee adopted paragraph (1).

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Art. 42

Paragraph (2)

215. The Committee noted that the Special Working Group had two major objectives in formulating paragraph (2). The first was to define the limits of the seller's responsibility to supply goods which were free from any right or claim of a. third party based on industrial or intellectual property. The objective was achieved by making the seller responsible for those rights or claims of which, at the time of the conclusion of the contract, he knew or could not have been unaware. The second objective was to indicate which industrial or intellectual property laws were relevant in determining whether the seller had breached his obligation to supply goods free from the industrial or intellectual property rights or claims of a third party. This was achieved by selecting the law of the State where the goods would be used, if use in that State was, contemplated by the parties at the time of the conclusion of the contract or, in any other case, under the law where the buyer had his place of business.

216. Although there was general support for the text proposed by the Special Working Group, two representatives reserved their position in relation to this paragraph and to [page 40] paragraphs (3) and (4). One representative indicated that he was not prepared to discuss the substantive rules contained in articles 25(2) to 25(4) because the regulation of industrial or intellectual property rights was too complex a matter to be resolved in the context of a draft Convention on the International Sale of Goods. Another representative stated that industrial or intellectual property rights should be regulated in a separate instrument and not in a draft Sales Convention.

217. An observer, while not objecting to the fact that industrial or intellectual property rights were dealt with in the Convention, objected to the substance of the rules contained in paragraphs (2) to (4) since, in his view, they would encourage the breach of existing international Conventions which regulated industrial or intellectual property rights.

218. The Committee adopted a proposal to make it clear that the seller had breached his obligation if, because of the right or claim of the third party, the buyer was precluded from reselling the goods as well as if he was precluded from using them.

219. The Committee considered, but did not retain, the following proposals to amend article 25 (2):

Limits to paragraph (2)

220. It was noted that the Special Working Group did not deal with the question of breaches of administrative regulations which might restrict the use or sale of goods and consequently, this matter was to be regulated by national law.

Paragraph (3)

221. The Commission noted that the objective of the Special Working Group in relation to paragraph (3) was to state limits to the responsibility of the seller in terms of the knowledge of the buyer. The general notion was that the seller would not be liable under paragraph (2) if the buyer knew or could not have been unaware at the time of the conclusion of the contract of the existence of those rights or claims or where the right or claim resulted from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.

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Art. 43

Paragraph (4)

222. The Committee noted that the objective of the Special Working Group in relation to paragraph (4) was to regulate the consequences of failure by the buyer to give notice of a right or claim of a third party based on industrial or intellectual property.

223. There was considerable discussion on whether both paragraphs (1) and (2) of article 23 should apply to a right or claim based on industrial or intellectual property. It was generally considered that the two-year period during which notice had to be given in accordance with article 23(2) was inappropriate in relation to article 25(4).

224. The Committee, in order to clarify the situation, decided to incorporate as nearly as possible the text of the notice requirements of article 23(1) into article 25(4).

225. The Committee decided to separate the proposed article 25 into two provisions. Article 25 (1) would become a separate article, numbered article 25, referring to third party rights or claims other than those based on industrial or intellectual property. Paragraphs (2) to (4) of article 25 would be contained in a separate article (article 26) dealing with industrial or intellectual property claims. The Committee also decided to broaden the title of section II of chapter III of the Convention so that it would refer to claims of third persons.

Relationship to article 7

226. As a consequence of adopting article 26 the Committee deleted article 7(2).

Recommendation of the Drafting Group [g]

227. The Drafting Group noted that, as a result of the action of the Committee in separating the proposed article 25 into two provisions, the notice requirement of the proposed article 25(4) would no longer apply to the provision on third party rights or claims other than those based on industrial or intellectual property (now article 25). However, because it was not clear that this was a deliberately intended result of the Committee's action, the Drafting Group prepared a new paragraph (2) to article 25 on the consequences of the failure by the buyer to give notice of a right or claim of a third party. This new paragraph, which was identical to the notice requirement as proposed by the Drafting Group for article 26(3) (the new numbering of the original proposed article. (25(4)), was placed in square brackets by the Drafting Group to bring to the attention of the Committee the question as to whether it should be retained.

228. The Committee decided to have such a provision and accordingly removed the square brackets. Two representatives indicated that they preferred to retain the square brackets as they were opposed to the substance of the provision.

Decision

229. The Committee, therefore, recommends that the Commission adopt the following text of articles 25 and 26:

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Art. 41