Cite as Khoo, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 34-40. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use unless the seller, at any time before or at 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, hovercraft or aircraft;
(f) of electricity.
1. History of the provision.
1.1. - Article 2 has its antecedent in Article 5 of ULIS. The main changes consist in the elimination of the provision of Article 5(2) of ULIS relating to the exclusion of instalment sales and the addition of a more comprehensive provision excluding consumer sales. There are also other minor amendments.
1.2. - The history of paragraph (a) of this article merits some detailed treatment. During its gestation in the Working Group another working group of UNCITRAL, the Working Group of Time-Limits and Limitations (Prescription), was also engaged in drafting a similar provision for the 1974 Limitation Convention. It was considered desirable to have uniform wording in both conventions as far as possible. This uniformity was maintained during the early stages of the work of these two working groups.
1.3. - The Working Group on Sales experimented with several versions, until the present version of this paragraph was adopted in the UNCITRAL Draft Convention. These attempts were [page 34] directed at giving an objective definition of a consumer sale and prescribing any special condition which would determine the applicability of the Convention.
1.4. - As for the definition of it consumer sale, early drafts attempted to define it as a sale of goods «of a kind and in quantity ordinarily bought by an individual for personal, family or household use» (Yearbook, II (1971), 55; Yearbook, III (1972), 79; see also Section I of the 1977 United Kingdom Unfair Contract Terms Act: «goods of a type ordinarily supplied for private use or consumption»). This formula was also found in drafts of the 1974 Limitation Convention (Yearbook, III (1972), 111).
1.5. - The adoption of the simpler formula «of goods bought for personal, family or household use» in the 1974 Limitation Convention brought about a corresponding change in the draft of the Working Group on Sales (Yearbook, VI (1975), 51). There was no longer any reference to the «kind» and «quantity» of the goods sold, or to the goods being bought by an individual.
1.6. - It has always been considered important that, with respect to sales of goods purchased for personal, family or household use, the Convention should apply only where the seller did not know nor ought to have known of the purpose of the purchase. To mention a few of the attempts, the first draft of the Working Group (Yearbook, II (1971), 55) provided that the Convention should not apply «unless seller knew that the goods were bought for a different use».
1.7. - The 1975 Draft, as amended in 1976, says:
1.8. - In 1977, the phrase «neither knew nor ought to have known» was adopted (Yearbook, VIII (1977), 15), the words «at any time before» being added later.
1.9. - There was also an attempt to introduce a set of objective facts to indicate the seller's knowledge by reference to the [page 35] contract, to dealings between the parties and to information disclosed by the parties (Yearbook, III (1972), 79).
1.10. - The reason underlying all these drafting efforts was the need to determine from the circumstances at the time of the conclusion of the contract whether the Convention applied or not. The Working Group and UNCITRAL made a deliberate departure from the corresponding provision of the 1974 Limitation Convention, where the «unless» clause was omitted altogether. This departure was made on the ground that in the context of the 1974 Limitation Convention the parties had ample opportunity to establish whether a sale is a commercial or consumer sale, whereas in cases falling under the present Convention, it is important to know ab initio whether the Convention applies or not.
1.11. - It remains only to record an attempt made at the Vienna Conference to introduce a positive formulation in the shape of «if the seller knew or ought to have known that the goods were bought for such use». Although not introduced for this purpose, this formulation would have removed the rather ungainly multiplicity of negatives in this provision of the article. The proposal was not accepted, as some delegations thought that it represented a change of substance (Official Records, II, 238-239).
1.12. - Paragraph (b) excepting «auction[s]» has no precedent in ULIS. It was introduced by the Working Group in 1970 (Yearbook, II (1971), 55, 56), and had a smooth passage through all stages of the legislative process. There is a similar provision in the 1974 Limitation Convention.
1.13. - Paragraph (c) is based on Article (5)(1)(d) of ULIS («by authority of law or on execution or distress»). «Distress» was deleted from the draft by the Working Group in 1970 (Yearbook, II (1971), 56) on the ground that it was a term known only to common law systems. At that session, the Working Group also decided on the present wording of the paragraph, which is a logical improvement over ULIS.
1.14. - Paragraph (d) is an exact reproduction of Article 5(1)(a) of ULIS. It also has its parallel in lhe 1974 Limitation Convention (Article 4(d)). [page 36]
1.15. - Paragraph (e) is based on Article 5(1)(b) of ULIS, with the addition of «hovercraft», introduced for the first time at the Vienna Conference, and with the omission of the words «which is or will be subject to registration» decided upon by the Working Group in 1975 (Yearbook, VI (1975), 51).
2. Meaning and purpose of the provision.
2.1. - Article 2 spells out the sales which are excluded from the ambit of the Convention. The exclusions are based upon the purposes for which the goods are sold, the type of transaction and the kind of goods sold. The article serves a variety of purposes.
2.2. - Article 2(a) is intended to exclude consumer purchases from the sphere of application of the Convention. Although most consumer sales take place where the seller and buyer are in the same country, there will inevitably be cases in which the parties are from different States. Other conditions being satisfied, such sales would attract the application of the Convention. The exclusion of consumer sales serves the purpose of avoiding problems of a conflict between the Convention and the mandatory rules of domestic law designed for the protection of consumers.
If goods are bought for «personal, family or household use», the Convention does not apply unless the seller did not know and there was no reason for him to know that the goods were bought for such use; if the seller did not know and had no reason to know, then the Convention applies. The knowledge must exist before or at the time of the conclusion of the contract.
2.3. - The exclusion of auctions in paragraph (b) serves the purpose of removing from the sphere of application of the Convention a category of sale transactions which is of only marginal importance in international trade. The reason for the exclusion is that at an auction the seller would not know until the hammer is down who will be the successful bidder; the seller would therefore not know whether the sale will be governed by the Convention. It is considered undesirable that the applicability of the Convention should be determined in such a random fashion. [page 37]
2.4. - Paragraph (c) excludes sales by execution and sales by authority of law generally. These sales do not feature much in international trade and they are also usually subject to special rules of domestic law.
It is not easy to fully define the meaning of the phrase «by authority of law». Since it refers to the domestic law of the country in which the sale takes place, what it encompasses must vary from one legal system to another. It is clear, however, that the sale must be by the compulsive process of the law, by the exercise of the judicial or quasi-judicial power of the state, e.g., execution, attachment, etc. A sale without any intervention of the court in pursuance of a security document giving power to one party to sell in the event of default would, for example, be outside the scope of this paragraph.
2.5. - Paragraph (d) excludes sales of stocks, shares, investment securities, negotiable instruments and money from the ambit of the Convention. It serves the purpose of accomodating the thinking of legal systems which do not regard commercial paper and money as «goods» and which therefore would find it unacceptable that their sale should be brought within the scope of the Convention. Sales of commercial paper and money also present problems peculiar to themselves. In any event, the operative articles of the Convention, such as the conformity provisions in Article 35, are in fact not designed for sales of such things.
2.6. - Paragraph (e) excludes sales of ships, vessels hovercraft and aircraft from the Convention. Unlike the corresponding provisions in ULIS, there is no reference to the requirement of registration as the criterion for exclusion. The effect is that all vessels, ships, hovercraft and aircraft are excluded whether or not they are subject to the registration requirement of any national law. This exclusion resolves the problem arising in some countries in which it is not settled whether ships, vessels and aircraft are within the definition of «goods» in their sales laws. It also makes it unnecessary to decide whether hovercraft are ships, vessels or aircraft.
2.7. - The sale of electricity is excluded by paragraph (f). In some legal systems, it is not settled whether electricity is [page 38] considered to be a good. Electricity is certainly capable of being the subject of sale, but there are clearly difficulties in attributing to it all the legal qualities of a physical object (see Benjamin's Sale of Goods, London (Sweet and Maxwell), 2nd ed. 1981, 59). That electricity can be sold, however, would give rise to doubt whether its sale comes within the scope of the Convention. The explicit exclusion in paragraph (f) removes this doubt.
3. Problems concerning the provision.
3.1. - Article 2 makes its due contribution to the avoidance of potential problems of conflict between the Convention and mandatory rules of domestic law. It also resolves doubts as to whether sales of certain categories of things are governed by the Convention. It therefore helps to delineate the respective spheres of application of the Convention and of domestic law. The provision itself on the whole is also unlikely to give rise to serious problems of interpretation.
3.2. - If there is anything in this article which is likely to give rise to problems, it is perhaps the provision governing consumer sales in paragraph (a). This provision may raise questions concerning the burden of proof. Who, for example, has the burden of proving that goods have been bought for personal, family or household use? Who must show that the seller neither knew nor ought to have known that the goods were bought for such use? In regard to the latter question, it was assumed by some participants during deliberation in UNCITRAL and also at the Vienna Conference that it was for the seller to prove absence of knowledge, on the view that the «unless» clause indicated such a legislative intent (Yearbook, VI (1975), 51; Official Records, II, 238-239). However, this supposed effect of the word «unless» is not universally accepted, as demonstrated by the discussion on the article defining «fundamental breach» at the Vienna Conference (now Article 25), an article also containing an «unless» clause. Delegations speaking on the burden of proof were all quite definite that it was not the intention to deal in the Convention with any questions concerning the burden of proof. The consensus was that such questions must be left to the court as matters of procedural law (Official Records, II, 295-298). [page 39]
3.3. - It is submitted that this is the right view both in relation to Article 25 and in relation to Article 2(a). After all, the provision does not say «unless the seller proves that he neither knew...».
3.4. - To say this, however, is not to deny the proposition that the burden of proving the state of the seller's knowledge is on the seller. It would be gratuitous for a party to offer to prove, and idle to expect him to prove, the state of the other party's knowledge.
3.5. - Practical considerations also suggest that the buyer, on the other hand, would bear the burden of proving that he bought the goods for personal, family or household use. It is assumed that consumer protection laws are generally more favourable to the buyer than is the Convention. It would be the buyer, rather than the seller, who would wish to assert and who would therefore have to prove, that the goods were bought for such use.
3.6. - Since consumer sales are usually of small amounts and are unlikely to feature prominently in the calendar of commercial courts, it may take a long time before such problems receive any authoritative judicial ruling. Even then, such rulings are of persuasive authority only in jurisdictions sharing a similar outlook in matters of procedural law. [page 40]