Reproduced with permission of the American Bar Association from 29 International Lawyer 525-554 (1995)
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"(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
"(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services."
The terms "substantial" and "preponderant" are not defined.
Illustration. A Texas computer dealer agrees to purchase assembled computers from a Mexican enterprise. (Both the United States and Mexico are parties to the Convention.)The Texas dealer supplies one of the five necessary components of an assembled computer, but this one component is worth 50 percent in wholesale value of the assembled unit. The Mexican enterprise supplies the other four components and the unskilled labor. Whether the Convention governs is uncertain. The Mexican "seller" has obligations to supply both labor and components. How does one determine the "preponderant part" of these obligations? [CISG art. 3(2)] Similarly, the Texas "buyer" supplies a valuable component. How does one determine whether the component is a "substantial part" of the necessary materials? [CISG art. 3(1)] On these facts, the parties are likely to be aware of the problem and should resolve the question simply by expressly choosing whether the Convention is or is not to apply.
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