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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 3 case law [reproduced with the permission of UNCITRAL] [*]

[Text of article
Overview
Contracts for the sale of goods to be manufactured or produced
Contracts for the delivery of labour and services]

Article 3

(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

OVERVIEW

1. This provision makes clear that the Conventions sphere of application encompasses some contracts that include acts in addition to the supply of goods.[1]

Contracts for the sale of goods to be manufactured or produced

2. Under paragraph 1 of article 3, the Convention applies to contracts for the sale of goods to be manufactured or produced.[2] This makes clear that the sale of such goods is as much subject to the provisions of the Convention as the sale of ready-made goods.[3] This aspect of the Conventions sphere of application is, however, subject to a limitation: contracts for goods to be manufactured or produced are not governed by the Convention if the party who "orders" the goods supplies a "substantial part" of the materials necessary for their manufacture or production.[4] Article 3 does not provide specific criteria for determining when the materials supplied by the buyer constitute a "substantial part". One decision suggests that a purely quantitative test should be used in this determination.[5]

3. A different -- albeit related -- issue is whether providing instructions, designs or specifications used for producing goods is the supply of "materials necessary" for the goods' manufacture or production; if so, a sales contract in which the buyer supplies such information is excluded from the Convention's sphere of application if the "substantial part" criterion is met. In one case, a court held that the Convention was inapplicable, on the grounds of article 3(1), to a contract under which the seller had to manufacture goods according to the buyer's design specifications.[6] The court deemed the plans and instructions that the buyer transmitted to the seller to constitute a "substantial part of the materials necessary" for the production of the goods. Other courts have found that design specifications are not considered materials necessary for the manufacture or production of goods within the meaning of article 3(1).[7]

Contracts for the delivery of labour and services

4. Article 3(2) extends the Convention's sphere of application to contracts in which the seller's obligations include -- in addition to delivering the goods, transferring the property and handing over the documents [8] -- a duty to provide labour or other services, as long as the supply of labour or services does not constitute the preponderant part of the seller's obligations.[9] It has been held that work done to produce the goods themselves is not to be considered the supply of labour or other services for purposes of article 3(2).[10] In order to determine whether the obligations of the seller consist preponderantly in the supply of labour or services, a comparison must be made between the economic value of the obligations relating to the supply of labour and services and the economic value of the obligations regarding the goods,[11] as if two separate contracts have been made.[12] Thus, where the obligation regarding the supply of labour or services amounts to more than 50 per cent of the obligations of the seller, the Convention is inapplicable. It is on this basis that a court decided that a contract for a market study did not fall under the Conventions sphere of application.[13] On the other hand, a contract for the dismantling and sale of a second-hand hangar was deemed to fall within the Conventions sphere of application on the ground that the value of the dismantling services amounted to only 25 per cent of the total value of the contract.[14]

5. One court has stated that, because a clear calculation comparing the values of the goods and the services covered by a contract would not always be possible, other factors -- such as the circumstances surrounding the conclusion of the contract and the purpose of the contract -- should also be taken into account in evaluating whether the obligation to supply labour or services is preponderant.[15] Another court referred to the essential purpose of the contract as a criterion relevant in determining whether or not the Convention was applicable.[16]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
   -    To support UNCITRAL's recommendation to read more on the cases reported in the Digests, we provide mouse-click access to (i) CLOUT abstracts published by UNCITRAL (and to UNILEX case abstracts and other case abstracts); and also (ii) to full-text English translations of cases with links to original texts of cases, where available, in [bracketed citations] that we have added to UNCITRAL's footnotes; and
 
   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16.

2. See [BELGIUM Hof van Beroep Gent 15 May 2002 (Design of radio phone case)]; [AUSTRIA Oberster Gerichtshof 14 January 2002 (Cooling system case) (see full text of the decisions); AUSTRIA Oberster Gerichtshof, 18 April 2001]; [GERMANY Oberlandesgericht Saarbrücken, 14 February 2001 (Windows and doors case)]; [GERMANY Oberlandesgericht Stuttgart 28 February 2000 (Floor tiles case)]; [ICC Court of Arbitration, Award 9448 of July 1999 (Roller bearings case)]; [SWITZERLAND Handelsgericht des Kantons Zürich 8 April 1999 (Windmill drives case)]; [SWITZERLAND Handelsgericht des Kantons Zürich 10 February 1999 (Art books case)]; [SWITZERLAND Handelsgericht des Kantons Zürich 21 September 1998 (Catalogue case)] (see full text of the decision); [GERMANY Landgericht Saarbrücken 26 March 1996 (Ice-cream parlor furnishings case)]; [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 5 December 1995 (Waste container case)]; [NETHERLANDS Hof s'Hertogenbosch 9 October 1995 (Cloth case)]; [GERMANY Landgericht Oldenburg 9 November 1994 (Lorry platforms case)]; [GERMANY Oberlandesgericht München 8 February 1995 (Plastic granule case)] (see full text of the decision); [SWITZERLAND Kanton St. Gallen, Gerichtskommission Oberrheintal 30 June 1995 (Sliding doors case)]; [GERMANY Landgericht Memmingen 1 December 1993 (Shoes case)]; [ICC Court of Arbitration Award 7660/JK of 23 August 1994 (Battery machinery case)]; ICC Court of Arbitration Award 7844 of 1994 (Radio equipment case)]; [SWITZERLAND Handelsgericht des Kantons Zürich 9 September 1993 (Furniture case)]; [SWITZERLAND Zivilgericht Basel-Stadt, Switzerland, 21 December 1992 (Textiles case)] (see full text of the decision).

3. See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 17.

4. For the applicability of the CISG in cases where reference was made to article 3(1), but where the courts stated that the substantial part of the materials necessary was provided by the seller, see [GERMANY Landgericht München, 27 February 2002 (Globes case)]; [FRANCE Cour d'appel Grenoble 21 October 1999 (Footwear case)]; [GERMANY Landgericht Berlin 24 March 1998 (Knitwear case)].

5. See [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 5 December 1995 (Waste container case)] (see full text of the decision).

6. See [FRANCE Cour d'appel Chambéry 25 May 1993 (Adapters case)].

7. See [SWITZERLAND Handelsgericht des Kantons Zürich 10 February 1999 (Art books case)] (see full text of the decision); [GERMANY Oberlandesgericht Frankfurt am Main 17 September 1991 (Shoes case)] (see full text of the decision).

8. For a definition of a contract for the sale of goods under the Convention, see the text of the Digest relating to art. 1.

9. See [NETHERLANDS Hof Arnhem 27 April 1999 (Movable room units case)]; [SWITZERLAND Kantonsgericht des Kantons Zug 25 February 1999 (Blood infusion devices case)]; [GERMANY Oberlandesgericht München 9 July 1997 (Fitness equipment case)] (see full text of the decision); [SWITZERLAND Obergericht des Kantons Luzern 8 January 1997 (Blood infusion devices case)]; [SWITZERLAND Handelsgericht des Kantons Zürich 26 April 1995 (Saltwater isolation tank case)]; [FRANCE Cour d'appel Grenoble 26 April 1995 (Marques Roque v. Manin Reviere) (Candy case)]; [AUSTRIA Oberster Gerichtshof 27 October 1994 (Brushes and brooms case)]; [SWITZERLAND Richteramt Laufen des Kantons Berne 7 May 1993 (Automatic storage system case)]; for a decision in which article 3(2) was cited, but in which the court did not resolve the issue of whether the contract was one for the sale of goods or one for the supply of labour and services, see [BELGIUM Rechtbank Koophandel Hasselt, 19 September 2001 (Vehicle repairs case)].

10. [FRANCE Court d'appel Paris 14 June 2001 (Decorated laminated glass panels case)]. See also [AUSTRIA Oberster Gerichtshof 14 January 2002 (Cooling system case)] (see full text of the decisions) (approving lower appeals courts approach that applied the Convention to contract for the sale of specially manufactured goods and rejected trial courts holding that the Convention was inapplicable because the services used to produce the goods constituted the preponderant part of the seller's obligations)

11. See [SWITZERLAND Kantonsgericht des Kantons Zug 25 February 1999 (Roofing materials case)].

12. For an implicit affirmation of the principle referred to in the text, see [ICC International Court of Arbitration, Award 7153 of 1992 (Hotel materials case)].

13. See [GERMANY Oberlandesgericht Köln 26 August 1994 (Market study case)].

14. See [FRANCE Cour d'appel Grenoble 26 April 1995 (Marques Roque v. Manin Reviere) (Second hand portable warehouse shed)] (see full text of the decision).

15. See [GERMANY Landgericht Mainz 26 November 1998 (Cylinder case)].

16. See [ITALY Cass. civ. 9 June 1995 (Leather goods case)].


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