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Article 4 [Substantive coverage of Convention] [1]

[TEXT OF THE UNIFORM LAW]

This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer [2] arising from such a contract. In particular [4], except as otherwise expressly provided in this Convention [3], it is not concerned with:

(a) the validity of the contract [5] or of any of its provisions [6] or of any usage [7];
(b) the effect which the contract may have on the property in the goods sold [8].

[WORDS AND PHRASES, CONCEPTS

[COMMENTARY]

[1] [CISG and other legal relationships]

      [1.1] Any legal relationship involves a host of legal relations so that it is covered in its entirety only by the respective national system of law. In the case of international legal relationships there are also other national legal systems and internationally agreed rules which are relevant. Since unification of law can only be achieved step by step there are inevitably problems of delimitation between unified and national law (Introductory remarks 2.3.). The Convention solves them, positively, in giving a definition of its scope of application so that the space left free can be covered by domestic law (or other conventions), and, negatively, in excluding certain aspects from its field of application.

      [1.2] The scope of application of the CISG is determined not only by the legal relations it involves, but also by the depth and comprehensiveness in which these relations are regulated (Maskow, Convention, 50).

As to the depth of regulation, i.e. the concreteness and detail with which the relations covered by the Convention are actually regulated, it is, in particular, Article 7, paragraph 2, which provides a general guideline. The first sentence of Article 4 covers the comprehensiveness of the regulation, i.e. the extent to which the problems falling under the substantive scope of application of the Convention are covered. [page 39]

[2] [substantive scope of application of the CISG]

The substantive scope of application of the CISG is once again summarized and described in a general way in this place, using terms which have been explained more precisely in the preceding articles. It is basically pointed to what is indeed governed by the Convention, i.e. the content of Parts II and III. Those parts can also serve to flesh out what is understood by the conclusion of the contract of sale and the rights and obligations of its parties (Honnold, 96).

In accordance with the principle of an interpretation that is favourable to the Convention (Introductory remarks 2.3.), the terms used here should be broadly interpreted. Many of the aspects of a sales contract, which are mentioned separately in Article 12 of the Hague Convention on the Law Applicable to Contracts for the International Sale of Goods 1986 apart from the rights and obligations of the parties, according to the Convention clearly fall under those terms. This is true of the interpretation and performance of the contract, (subparas. (a) and (b)); the time from which the buyer has the right to the fruits and use of the goods and/or the risk passes to him, (subparas. (c) and (d)); the consequences of non-performance; and the different ways of expiration of obligations and the loss of rights after the expiration of a time-limit, (subparas. (f) and (g)). Concerning the voidness and ineffectiveness of the contract, (subpara. (h)), compare note 4.

Other problems covered by the contract's statute in the meaning of the Hague Convention on the Law Applicable to Contracts for the International Sale of Goods 1986, namely the validity and effectiveness of reservation clauses on property and the limitation (Article 12, subpara. (e) and (g)), are not regulated by the CISG and therefore do not belong to the rights and obligations of the parties in the specific sense of Article 4.

[3] [terms which describe the substantive scope of application]

      [3.1] The discussion in note 2 has already shown that the terms which describe the substantive scope of application of the Convention in a positive or negative manner have to be identified under the CISG and not under domestic law or other conventions. This problem is of specific relevance when it comes to finding out whether the CISG expressly provides otherwise, i.e. regulates specific aspects of a problem, which is generally excluded. It is quite obvious, however, that no express, even if anonymous, rejection of certain national concepts can be demanded (similarly Schlechtriem, 19) as is indeed known under the CISG (e.g. Article 45, paragraph 3 and Article 61, paragraph 3; but there are quite a number of other articles which at least can be seen in this light). It is sufficient that the CISG contains other options to settle the problem. Here the general principles under Article 7, paragraph 2, are insufficient. But when was such express provision made? Schlechtriem (19), in our view, is [page 40] basically right in believing that national law on validity will not apply when the CISG provides a functionally adequate solution to the problem which has been settled nationally by questioning the validity of the contract, e.g. no rescission in the case of error on the character of a person under domestic law (119 (2), German BGB), if the problem can be solved pursuant to Article 71 (Article 8, note 3.4.). Honnold (97) holds a similar view, but even goes beyond and believes that the crucial question is whether the domestic rule is invoked by the same operative facts that invoke a rule of the Convention. If this is the case, the domestic law is dispensed by the Convention. Practice must show whether or not such a far-reaching general formula will prove its worth. The idea should be supported nevertheless. Heiz ("Validity of Contracts Under the United Nations Convention on Contracts for the International Sale of Goods, April 11, 1980, and Swiss Contract Law", Vanderbilt Journal of Transnational Law, Volume 30, (1987), 639 fol) has explained on the basis of this argumentation that Article 24, paragraph 1, clause 4 OR in most cases would not apply apart from the Convention in regard to an important error on a fact which by the person who erred was considered as belonging to the very foundations of a contract. Thus he chose an example that is similar to the one Schlechtriem mentioned. As a result, the view could crystallize, with respect to error on the character, that the relevant national rules as a matter of principle should not be invoked apart from the CISG. According to the opposite view, at least under Austrian law, rescission of an error is to be judged by 871 fol Austrian ABGB if this is the applicable law, because according to the latter, lack of intention is equal to defect in validity. This is clearly voiced by Lessiak ("Kaufrechtsabkommen und Irrtumsanfechtung", Juristische Blätter 1989, p. 487 fol, as above p. 496).

      [3.2] When the CISG itself proceeds on the assumption that certain facts do not constitute a reason for nullifying a contract (although they do under domestic law) then this includes, in our view, an express and different provision (express does not explicitly mean direct). This refers, for instance, to contracts without agreement on price (Article 55, notes 1 and 2) or certain grounds for failure (Article 79, note 13.6.).

[4] [rights and obligations of the seller and the buyer ]

      [4.1] Apart from those mentioned in subparas. (a) and (b) there are many other problems which are relevant to sales contracts and which in part directly relate to the rights and obligations of the parties, which are not and/or not directly provided for. Those include agency (authority), limitation, calculation of periods (individual aspects are, however, provided in the CISG - e.g. in Article 20), plurality and change in Contracting Parties, claims for liquidated damages and the amount of interests. Domestic law is invoked to the [page 41] extent provided for in Article 7, paragraph 2. Also, unless conventions like the Limitation Convention (Part II) and, at a later date, the Agency Convention (Part IV) apply.

      [4.2] Another problem, which can only be mentioned briefly, here follows from the possible concurrence between claims that derive from the contract of sales law and those that fall under the law of torts.

Theoretically there is no doubt that in the context of sales contracts there can emerge rights under the law of torts which are not covered by the Convention and have, therefore, to be deduced from domestic law. Problems arise, however, in cases where the same fact may entail consequences both under the CISG and the domestic law of torts. This relates, in particular, to cases of product liability (Article 5). But the concurrence in regard to rights goes much further. This is also to be seen in connection with the broad term of breach of contract used in the Convention which is, in our view, expressed, above all, in Article 45, paragraph 1 and Article 61, paragraph 1 and not so much in Article 74 which does flesh out the consequences. We hold that in regard to this specific question (generally in note 2), the rules of the Convention should supersede domestic law. Schlechtriem (Borderline, 473 fol) makes an attempt to solve the problem by way of making a distinction between contractual and other interests with the contractual and their respective obligations being decided in accordance with the Convention. Since the qualification of the interests must not be characterized by domestic rules, they would have to be guided by the Convention. That is why we are afraid that not much will be gained by Schlechtriem's attempts because in the long run they will lead back to the question of the rights and obligations of the seller and the buyer under the Convention. We believe that it is still too early to try to make the general principles more precise; first a consensus will have to be achieved in regard to the categories of main cases.

Insofar as the Convention is invoked it must, in our view, be applied as it is, i.e. it excludes claims under the domestic law of torts. We, therefore, cannot join Khoo (BB, 47) who believes that the Convention would not want to take away rights from the parties which they would otherwise have. The Convention very well replaces existing rights by certain other rights.

We do not consider as sufficient other provisions regarding the competence for tort claims (Schlechtriem apparently believes otherwise, Borderline 475) in order to justify application of domestic law in regard to that. It would also be extremely problematic to limit the consequences of such application by interpreting that law in the [page 42] light of the CISG because the recognized methods of interpretation will not yield sufficiently certain results in this context.

[5] [validity of the contract]

      [5.1] Concerning the validity of contracts a distinction is made between formal and substantive validity. Formal validity may depend on keeping with provisions on form. The Convention provides for this so that domestic law will apply only in exceptional cases, namely when a reservation is made against the freedom of form (compare Articles 11, 12 and 29, note 2). Hence, this rule above all relates to the substantive validity of the contract. It is, however, pointed out that a distinction between provisions of validity as to substance and such relating to form can often be doubtful (Herber/Doralt, 41). In our view, obligations should be prevented from being re-introduced through the backdoor, by declaring certain form requirements to be substantive.

The validity of the contract in terms of substance depends on fulfillment of specific contract law provisions, which for instance could be aimed at fighting unfair behaviour that is contrary to normal commercial conduct (fraud, threat, profiteering). In this context, such situation should be mentioned where the rights and obligations of the parties are grossly imbalanced and where the contract is declared invalid by virtue of law for those and other reasons (e.g. impossibility of performance). By 1972 UNIDROIT had already submitted a draft convention on the validity of international sales contracts (ETUDE XVI/B, Doc. 22, U.D.P. 1972) which was examined in the process of preparing the CISG, but was not included (Enderlein, Ausarbeitung, 3 fol). As to the effects on validity it does not matter whether or not the relevant contracts are invalid by virtue of law or voidable (directly by the parties or the judge at the request of the parties) (Schlechtriem, 18 fol; Honnold, 97), nor does it matter whether invalidity is absolute or can be remedied by procuring a (governmental) approval. Validity or invalidity of a contract are governed by the applicable national law.

In regard to the contractual validity, the statute of the contract is applied in general, i.e. the law which under the decisive conflict-of-law rules (Introductory remarks 2.3., Article I, note 6.2. and Part IV of the Hague Convention on the Law Applicable to Contracts for the International Sale of Goods) governs contracts.

The substantive validity of international sales contracts can furthermore depend on norms of an economy-managing or economy-controlling character. In such case, each State will apply his own domestic rules without invoking conflict-of-law rules. This is also true of courts and arbitral tribunals (however with restrictions, above all in the case of international arbitral tribunals), provided that the relationship [page 43] to be judged is substantially related to the State in question. Other States, which are related in such a way, demand at the same time that their relevant rules be invoked. But apart from some provisions in conventions there is no general obligation to take foreign public prohibitions and permissions requirements into account. (On the overall problem, see Lando, International Encyclopedia, 112 fol).

The parties to the contract, however, have to consider the existence of those rules. Were they to not do so, the course of the transaction would slacken if the State which had prescribed the prohibitions or permissions requirements had a real influence on that process. Article 54 of the Convention is based on the same assumption.

      [5.2] The examples given for validity requirements should have made clear that, on the one hand, it was indeed not possible insofar to bring about broad unification and that, on the other, the States could not renounce the inclusion of a relevant reservation in regard to national law. Concerns are, therefore, not unfounded that those provisions could turn out to be the "black hole" which shortens the scope of application of the CISG (Winship, Commentary, 636). Indications of that kind are already given in publications (examples in note 6.2.). This trend can be countered at present by scientific efforts at the international level which are aimed at a narrow interpretation of the possibility to declare void under domestic law specific clauses or usages (note 6.1.) and at a broad interpretation of other express provisions of the Convention (note 3), but against which Lessiak expresses himself (loc sit, note 3.1., p. 492 fol).

[6] [domestic rules on general business conditions]

      [6.1] In regard to specific contract provisions, the same considerations apply as for the contract as a whole (note 5). In addition, the question should be asked how the contract in its entirety is to be treated when only some provisions are declared void. It has to be answered pursuant to domestic law.

      [6.2] There are legislative rules in a number of countries to prevent abuse of general business conditions. Those are, in part, limited to consumer sales. At least the British Unfair Contract Terms Act of 1977 to a large extent exempts international sales contracts. Insofar the problem is irrelevant. But other provisions of that kind relate completely or to a lesser degree to international sales contracts in the meaning of the Convention (regarding the legal situation in several countries see H. Rudolph/G. Neumann/P.-M. Petzow, Allgemeine Geschäftsbedingungen und Vertragsgestaltung, Berlin 1985, p. 31 fol). Herber (Doralt, 36) rightly pointed to the fact that the Contracting States' domestic law within the Convention's scope of application has to grant autonomy to conclude contracts unless [page 44] such protective provisions can be regarded as obstacles to the contract's effectiveness. This presupposes, in our view, that the relevant provisions, whether they are part of specific legislative acts or of general contractual rules, can clearly be recognized as referring to the validity of the contract and do not have to be re-interpreted as such.

We also believe that the problem of to what extent of domestic law contradict the validity of specific contractual provisions, which from time to time is raised in publications (see also note 3 of Article 6), has to be solved in a similar way. While Winship ("International Sales Contracts Under the 1980 Vienna Convention", Uniform Commercial Code Journal, 1984/1, p. 66 fol) seems to understand "mandatory" rules of law to be the international mandatory rules of the Lex fori in the meaning of Article 7, paragraph 2, ECE Convention 1980, Magnus (133) obviously sees this problem in a larger perspective. We hold that mandatory rules of domestic law should not be interpreted as contradicting the validity of specific contractual provisions in the meaning of the CISG (it appears that Thieffry, 383, believes the same, while Kahn, Caractéres, 399, leaves open the possibility of a broader interpretation of national law). This is unequivocal insofar as the CISG itself contains rules for this (note 3.1.). In regard to the area beyond, which is covered by the general principles of Article 7, paragraph 2, one should be very careful. Mandatory national rules should be invoked at most if they provide for the voidness of contrary stipulations not just implicitly. Typically, international mandatory norms are formulated clearly so that one can assume that they will prevail more often than normal mandatory rules of domestic law. Generally, there is still a large degree of uncertainty in this matter, but Hellner (Dubrovnik, 361) seems to be right in admitting that the unification of control in regard to standard terms of contract, that he would find desirable, might be very difficult to attain.

[7] [usage and non-validity]

Basically, recognition of a specific conduct as usage and non-validity exclude each other. It is nonetheless possible that certain countries consider as void internationally recognized usages or such usages which are agreed between the parties.

[8] [problems of title]

It is a fact that the Convention mentions problems of title in providing in Article 30 for the obligation of the seller to pass title in the goods, and also indirectly in Article 41, stipulating that the goods delivered have to be free from third party rights or claims (see furthermore Article 42). It is, however, up to the applicable domestic law to determine the time and conditions of such passing of title. [page 45]

These problems are extremely complex so that they could not be solved with the CISG. Even the attempt at regulating one partial problem, namely the protection of the bona fide purchaser of movable property by means of a uniform law whose draft had been prepared in the framework of UNIDROIT (UNIDROIT Yearbook, 1967-68, vol. 1, 222 fol), was not successful.

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