[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

• The Author
• List of Abbreviations
• Table of Contents
• Selected Bibliography
• Index

Chapter 1. Introduction

§ 1. INTERNATIONAL SALES AND THE CISG

I. The Law of Sales Under Domestic Law

A. Sales Law as Contract Law

1. The substantive law of Sales is often treated as a distinct legal discipline, but it is also seen as a subset of the more general law of Contracts (and Obligations).[1] In any case, the contract for the sale of goods is universally acknowledged to be the single most important contract type, and the law of sales is rightly regarded as the cornerstone of 'commercial' law.[2]

2. Sales contracts between parties residing in a single State and capable of being performed within the borders of that State are governed by the domestic sales law of the state concerned.[1] Prior to the development of an international sales law acceptable to a broad range of States in the international commercial community, most contract draftsmen - as well as national courts and international arbitrators were also obliged to apply domestic sales law to international contracts of sale.[2]

3. The United Nations Convention on Contracts for the International Sale of Goods (hereinafter: the Convention and/or the CISG) was indeed the first truly international sales law to be accepted by broad segments of the international community of nations.[1] The Convention was signed on 11 April 1980, at a diplomatic conference attended by 62 States.

III. Convention Preamble: Objectives of Signatory States

4. According to the CISG Convention Preamble,[1] the States who signed the new treaty did so bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a new International Economic Order. The signatories also considered that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States. Finally, these States were also of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.

IV. Entry Into Force: Initial Ratifications

5. The Convention entered into force on 1 January 1988 (twelve months after the date of deposit of the tenth instrument of ratification).[1] As of that date, 'international sales' (as defined in CISG Part I)[2] became subject to the Convention regime in the following States: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, United States of America, Yugoslavia and Zambia.

7. On the basis of this impressive and steadily growing list of ratifications, the CISG Convention must be regarded as the most significant piece of substantive contract legislation in effect at the international level. And since the international contract of sale is the single most important international contract type,[1] the Convention has clearly earned its place in the contractual segment of the International Encyclopedia of Laws.

§2. HISTORICAL PERSPECTIVE: THE HAGUE SALES CONVENTIONS AND THE CONFLICT OF LAWS

10. In cases involving an 'international' contract of sale - e.g. a contract for the sale of goods located in State Z between merchants A and B doing business in States X and Y - the potential problems are considerably more complex. Quite apart from the procedural question of identifying the court(s) competent to decide disputes between A and B,[l] there is also the issue of the applicable substantive law, i.e., the rules which regulate the process of sales contract formation, the rules which determine the obligations of the respective parties, their remedies for breach, etc.

11. Prior to the advent of the CISG Convention, very few states had made treaty commitments to apply international sales law rules to 'international' contracts of sale, in that the Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF), both done at the Hague in 1964, had only been ratified by a small number of States.[1]

B. Choice-of-Law Rules Determine Applicable Domestic Law

13. Suppose, for example, that in 1987 - i.e., prior to the entry into effect of the CISG Convention in France and the United States - a contract for the sale of goods (wine) was entered into between a French seller and an American buyer. Suppose further that in 1988 the buyer brought an action in a French court alleging breach of that contract (delivery of watered-down wine). Assuming the contract did not contain a valid choice-of-law clause, the French court - acting in 1987 - would first have determined whether French, American (or some other) domestic sales law should govern the sale. In other words, before proceding to resolve the merits of the case, the French court was required to resort to its applicable choice-of-law rules.[1]

D. The 1955 Hague Convention

14. Continue to consider the foregoing illustration. Though not an adherent to the 1964 Hague Conventions (ULIS/ULF), France has long been a party to the 1955 Hague Convention on the Law Applicable to International Sales of Goods. And since the main choice-of-law rule under this 1955 Convention is that the 'seller's law' applies,[1] the French court would most likely have applied French sales law to decide the merits of the case concerned, even though this might seem to represent a domestic (French) - and perhaps even parochial - solution to an international problem. And although an American court confronted with a similar pre-CISG situation would probably have applied a more flexible 'conflicts' rule, the end result would surely have been an equally provincial solution, i.e., the application of domestic law to an international sales dispute.[2]

IV. After 1 January 1988: New CISG Regime Applies in Courts and Arbitral Tribunals

16. The Convention is binding upon CISG Contracting States, and the courts of these States are therefore bound to apply the CISG in all sales cases which lie within the Convention scope.[1] And in those instances where the parties to an international sales contract have agreed to arbitrate disputes, the arbitrators selected will most likely consider themselves bound to do the same thing.[2]

17. The significance of the Convention as the applicable substantive law is more fully explained in the Overview provided in Chapter 2 below. [page 21]

§1. CONVENTION CONSISTS OF 101 ARTICLES: PARTS I-IV

18. The CISG Convention contains a total of 101 separate articles. These individual provisions have been organized within the Convention's four main Parts (I-IV). The purpose of this Chapter is to provide an overview of these four Parts.

§2. PART I: SPHERE OF APPLICATION AND GENERAL PROVISIONS

I. Sphere of Application

19. Part I of the Convention contains the rules which define the CISG 'Sphere of Application and General Provisions'.

Chapter I of Part I defines the 'Sphere of Application': In order to define which contracts and disputes are within the scope of the CISG treaty, Articles 1-6 demarcate which sales are to be regarded as 'international', which kinds of transactions are to be regarded as (international) 'sales' of 'goods', which issues are 'governed' by the treaty, etc.

A. Main Rules of Application

20. Article 1 contains the two main rules of Convention application.

First, and most importantly, the CISG applies to contracts for the sale of goods between parties whose places of business are in different States, (a) when these States are 'Contracting States'.

1. Parties in Different Contracting States

21. Reconsider a more modern version of an example presented earlier.[1] Suppose that in the year 2000, i.e., after the entry into effect of the CISG in France and the United States, a contract for the sale of wine is entered into between a French seller and an American buyer. Suppose further the buyer later brings an action before a French court for damages involving an alleged breach of that contract (delivery of non-conforming goods).

In this situation, where the parties have their places of business in different CISG 'Contracting States', the French court is bound directly - by Article l(l)(a) of the CISG treaty - to apply the CISG as the gap-filling contractual regime. That is to say, the court of a CISG Contracting State will apply the Convention without any recourse to (French) rules of private international law.[2] Indeed, the rules of private international law have simply become superfluous, at least in this situation, since there is no 'conflict' among domestic laws. And if the same case were brought [page 22] before an American court, the result would be the same: also an American court would be bound by treaty to apply the CISG without recourse to (American) rules of private international law.[3]

2. Convention Applies by Virtue of Private International Law

23. The Convention applies (only) to contracts for the 'sale of goods'.[1] Since the Convention does not provide a positive definition of this term, there is room for disagreement, e.g. as to whether (all) contracts for the sale of computer software should be regarded as sales of goods.[2]

On the other hand, certain specialized kinds of sales transactions are clearly excluded from the CISG ambit, e.g.: 'consumer sales', sales by auction and forced sales, sales of ships, etc.[3] Nor does the Convention apply to contracts of 'manufacture' where the buyer supplies the necessary raw materials or to 'mixed' (sales and service) transactions where the sale of goods is but a minor element.[4] In cases where the CISG does not apply, recourse must usually be made to domestic law (via the applicable rules of private international law).

24. The main substantive provisions of the CISG deal with sales contract formation, (part II) and the rights and obligations of the seller and buyer arising from such a contract (part III). Conversely, the CISG does not generally regulate issues relating to sales contract 'validity' or the rights of third parties (property rights).[1]

D. Product Liability

25. The Convention does not apply to the liability of the seller for death or personal injury caused by the goods, but the CISG rules (which govern the seller's liability in damages for the 'foreseeable' consequences of breach) can and will be applied to resolve the issue of the seller's liability for damage to the buyer's property, in particular, when the buyer's loss is caused by the seller's breach (delivery of non-conforming goods).[l]

26. When considering the rules which regulate the Convention's applicability in a given case, it must be remembered that the Convention permits the parties to 'contract out' of the CISG or any of its individual provisions. For this reason, those States which have ratified the Convention must give the parties' express agreement (the express terms of the contract) priority over the Convention gap-filling rules, at least to the extent that applicable rules of contract validity do not stand in the way.[1]

27. Chapter II of CISG Part I contains a series of 'General Provisions'. Among these are the important rules of interpretation set forth in Articles 7 and 8.[1]

As regards interpretation of the CISG Convention itself, Article 7 requires that courts and arbitrators pay due regard to the Convention's international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

Article 7 also contains a rule for the settlement of matters which lie at the Convention outskirts: i.e., matters which are 'governed by' the Convention but not 'expressly settled' in it.

Article 8 is concerned not with the interpretation of the Convention itself, but rather with the interpretation of CISG contracts, in particular: 'statements' made (and conduct exhibited) by parties who enter contracts governed by the Convention. Depending on the circumstances such statements are to be interpreted pursuant to either a subjective or an objective test.

B. Usages of International Trade

The parties to a CISG contract are, of course, bound by any usage to which they have expressly agreed;[l] but they are also bound by their prior conduct, that is, by any practices which they have established between themselves.

Beyond this, CISG merchants will often agree to apply trade usages by implication, in particular such widely and regularly observed trade usages of which CISG contracting parties' ought to know'.[2]

29. Taken together, CISG Parts II and III constitute the substantive core of the Convention. Each of these parts may be properly regarded as an independent unit, in that Contracting States can ratify either Part II, Part III, or both.[1]

31. To constitute an offer, a proposal must meet the Convention requirement of 'definiteness'. A proposal will meet this requirement if it indicates the goods and somehow fixes the price.[1]

32. A CISG offer becomes effective upon receipt, i.e., when it 'reaches' the offeree.[1] Until that point in time, even an 'irrevocable' offer may be withdrawn. [page 25]

Once received, irrevocable offers (inter alia, those offers which fix a time for acceptance) may not be revoked during the time period concerned, although an offeree's rejection will terminate an otherwise irrevocable offer. Other (revocable) offers may be withdrawn after receipt but prior to the dispatch of an acceptance by the offeree.[2]

IV. Acceptance As Indication of Offeree's Assent

To be timely, the acceptance must reach the offeror within the time fixed by the offeror or within a reasonable time. In this connection it may be noted that a CISG sales contract is not 'concluded' when the offeree's acceptance is dispatched (although this is the point in time after which the offeror may not revoke);[1] in general, a CISG acceptance first becomes effective when it reaches the offeror.[2] In certain cases, however, the acceptance may take effect upon the performance of an act,[3] and sometimes even a late acceptance will be effective as well.[4]

34. The CISG employs the familiar 'mirror image' rule. To be effective as an acceptance, a reply must match the offer in all material respects; a reply containing material alterations or additions serves as a rejection and counter-offer. These rules are significant as regards the much-discussed 'battle of forms'.[1]

II. Part III Provisions: Chapters I-V

38. The CISG summarizes the various obligations of the seller as follows: the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.[1] The key to the seller's performance is thus that he or she must deliver the (right) goods (at the right place and at the right time) as required by the contract and this Convention.

Because the Convention respects the parties' freedom to define their own obligations, etc.,[2] the main purpose of rules such as those regarding the proper place and time for seller's performance is to fill in any contractual gaps which may exist.[3] Still, many CISG supplementary rules, such as those regarding 'conformity of the goods,' are likely to assume considerable importance in actual practice, precisely because many international sales contracts leave numerous gaps to be filled. And except where the parties (validly) have agreed otherwise, the goods do not conform with the contract unless they are both fit for 'ordinary' purposes (purposes for [page 27] which goods of the same description would ordinarily be used) and fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract.[4]

39. Similar considerations apply with respect to the buyer's primary obligation to pay the right price at the right time and place, i.e. as required by the contract and the Convention.[1] Once again, CISG rules such as those regarding the proper place and time for buyer's performance serve mainly to fill in such contractual gaps as may exist in the concrete case.[2] The Convention also contains a supplementary rule for those cases where a 'validly concluded' contract does not expressly or implicitly fix the price which the buyer is to pay, but the relationship between the application of this gap-filling rule (in Article 55) and the rule in Article 14 has been the subject of considerable controversy.[3]

40. When both parties perform their obligations as required by the contract and the Convention, there will be no need for the various remedies for breach set forth in Part III of the CISG. Indeed, even assuming a breach, the Convention's supplemental remedial scheme takes precedence only to the extent that the parties themselves have not (validly) set forth the contractual rights and remedies of the injured party concerned. Then again, even a carefully drafted contract which sets a clear standard for performance (and thus breach) is often 'an imperfect statute which provides no penalties, and which leaves it to [the legislator and/or] the courts to find a way to effectuate its purposes'.[1] And when the parties' private statute is imperfect in the context of an international sale, one must look first to the CISG to fill in the gaps.

B. Enforceable Contracts and Remedies for Breach

41. For every breach of an enforceable sales contract, there must be some remedy [1] Therefore, a seller's promise to deliver goods, and/or a buyer's promise to pay for them, may be described as 'enforceable' if - and only if - the promisee (the recipient of a given promise), is entitled to some remedy for breach, e.g., to a judgment decreeing specific performance, a money judgment (damages), a proportionate reduction in price, etc.

42. All significant forms of remedial relief may be described in terms of the three basic courses of action which modern legal systems - and the CISG - make available to a party injured by a contractual breach. [l]

First, specific relief is designed to make the promisor do what he or she promised, i.e., require performance of the promise in natura.

Second, substitutionary relief requires the breaching promisor to pay some amount of money to compensate the loss suffered by the promisee.

The third major remedial category is the right to terminate, i.e., allow the injured party to 'put an end to' the contractual relationship.

43. Whether a given breach entitles a buyer or seller to relief within one or more of these three fundamental categories depends both on the particular circumstances and on the applicable CISG rule(s). Of course, the right to demand specific performance (require that the promisor perform) is not compatible with the right to terminate (demand an end to the obligations of both parties),[l] but there is no mutual exclusivity as between the right to demand either specific performance or termination (on the one hand) and the right to demand damages (on the other).

44. Judging by the hierarchy of the Convention's overall remedial scheme, specific performance might be described as the 'primary' CISG remedy. And [page 29] indeed, in the view of Civilian theory, the most natural means of promissory enforcement is to simply require that a promisor keep his word:[l] e.g., require that the seller deliver the goods (if he has not yet done so) or deliver substitute goods (if the goods delivered do not conform) or cure defective delivery or - in the case of buyer's breach - require that the price be paid.[2]

On the other hand, the right to require performance under the Convention is subject to a number of important restrictions. Thus, even if the CISG (part III) rules would entitle one party to require performance of any obligation by the other, a national court is not bound to enter a judgment for specific performance unless that court would do so under its own law in respect of similar contracts of sale not governed by the Convention.[3]

F. Monetary Compensation as Primary Remedy in Practice

45. Specific performance is the starting point in theory, but just as damages tend to dominate within the domestic remedial context, monetary compensation for breach of promise has already established itself as the primary remedy in international practice pursuant to the CISG.[l]

As regards damages, the Convention deals both with the 'basis' and the 'measure' of liability. With respect to the first problem, there had been some initial disagreement as to whether the CISG adopts the 'fault' liability preference of Civilian systems or the 'no-fault' position of the Common law.[2] And although the 'no-fault' perspective has surely emerged as the dominant (and better) view, the Convention rules regarding liability 'exemptions' (i.e. situations involving alleged 'impossibility' of performance, force majeure, etc.) still deserve careful attention.[3] Also worthy of note in this connection is the alternative, albeit more limited, form of monetary relief known to Civilians - and the CISG - as the 'proportionate price reduction'.[4]

G. Avoidance and the Right to Terminate

46. The Convention deals with the tennination remedy under the heading of 'avoidance' of the contractual relationship.[1] The primary effect of avoidance is to release both parties from their obligations under the contract, subject to any damages which may be due.[2] The Convention limits access to the rather 'drastic' avoidance remedy, not only by restricting avoidance to cases of 'fundamental' (material) breach,[3] but also by widening the seller's right to cure.[4]

47. Chapter IV of Part III regulates the Passing of Risk. The general rule is that loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price.[1] The CISG ties the passing of risk to the last significant act by which the seller completes delivery.[2]

48. The CISG rules concerning 'anticipatory' breach are in some respects closely related to the remedy of avoidance for fundamental breach.[1] Depending on the circumstances, one party's anticipatory breach may provide the other with grounds for suspending performance already commenced.[2]

49. Part IV of the Convention contains a number of important 'Final Provisions,' inter alia, the right of signatory States to make certain declarations (reservations) to specified articles and/or parts of the CISG. These include the right of States to declare that they wish to be bound only by the Convention's Part II (Contract Formation) or Part III (Sale of Goods) rules,[1] the right of States to declare that they will not be bound by the 'private international law' rule in subparagraph (1)(b) of [page 31] Article 1,[2] and the rule which permits States to recognize only sales contracts and modifications if in writing.[3]

§7. OVERVIEW OF CHAPTERS 3-6

53. Common to subparagraphs (1)(a) and (1)(b) is the requirement that the sales contract in question be 'international', i.e., a sale between parties whose places of business are in 'different States'. This is the (always) necessary - but in itself insufficient - condition for the application of the Convention by virtue of the main Article 1(1) rule.[1] If a party has more than one 'place of business', reference should be made to Article 10 (infra No. 91).

If, in a given situation, the different States in which the parties reside happen to be CISG Contracting States (States which have acceded to the Convention), then the Convention applies by virtue of subparagraph (1)(a). For example, if a contract for the sale of wine is entered into in January 2000 between a seller in France and a buyer in California (France and the United States being different Contracting States), both French and American courts are bound by Article 1(1)(a) of the treaty to apply the CISG as the gap-filling regime. In this situation, the Convention [page 33] applies without any recourse to rules of private international law; indeed, in this situation there is no conflict between the domestic sales laws of the US and France.[2]

It should be noted in this context that the Scandinavian States (Denmark, Finland, Norway and Sweden) have all made Article 92 declarations; the limited effect of these declarations is that - in respect to matters governed by CISG Part II (Formation of Contract) - the Scandinavian States are not Contracting States within Article 1(1)(a).[3]

B. Convention Application by Private International Law

(Note that although Article l(l)(b) functions on the basis of such private international law (PIL) rules, the l(l)(b) rule is not itself a conflict of laws rule. Rather, Article 1(1)(b) corresponds to a domestic rule which, e.g. might help a French court decide whether to apply the rules which apply to domestic consumer sales or those which apply to domestic sales between merchants.)[l] [page 34]

To continue with the example set forth above (a year-2000 contract for the sale of wine between a seller in France and a buyer in England), French courts are bound to apply the CISG Convention if the applicable French PIL rule leads to the application of 'French law' (the law of 'a' Contracting State). And indeed, this would seem to be the likely result, since France is a party to the 1955 Hague Convention on the Law Applicable to International Sales of Goods,[2] and since the main choice-of-law default rule under this 1955 Convention is that the 'seller's law' (in this case: the law of France) applies;[3] therefore, we would expect a French court to conclude that the Convention applies by virtue of subparagraph (1)(b) of Article 1.

As previously noted, the Scandinavian States (Denmark, Finland, Norway and Sweden) have all made Article 92 declarations with respect to CISG Part II, but these declarations do not affect the obligation of the Scandinavian States to apply the rule in CISG Article 1(1)(b), and this can lead to the application of CISG Part II, even in cases where one party resides in a Scandinavian State.[4]

C. Article 95 Declaration

55. The 'private international law' rule in Article 1(1)(b) was not embraced by all those involved in the drafting of the CISG. This led to the declaration set forth in Article 95, whereby a Contracting State may declare that it will not be bound by subparagraph (1)(b) of Article 1 of the Convention.[1] Thus far (as of December 1999), China, Czechoslovakia, Singapore and the United States have availed themselves of this declaration.[2]

In cases where only one party resides in a Contracting State, the courts in these Article 95 countries will apply (not Article 1(1)(b), but) the forum state's rules of private international law to select the applicable sales law, although it is still possible that this process will lead to the application of the CISG.[3]

It should also be noted that a Contracting State which has not made an Article 95 declaration should not apply Article 1(1)(b) in respect of any Contracting State that has made an Article 95 declaration.[4]

D. Parties in Different States: Disregarded in Exceptional Cases

56. The 'internationality' element, common to both subparagraph (l)(a) and (l)(b) situations, is that the parties to the contract have their places of business in different States.[1] However, paragraph 2 of Article 1 creates an exception to the general rule:

If the parties concerned neither know nor ought to know that they reside in different States, they have no reason to know that the contract which they enter is 'international;' in such event they should hardly expect the CISG to be the applicable law. So in this case, it will be appropriate to 'disregard' the fact that the parties actually do reside in different States. By disregarding this fact, and thus the criterion common to the application of subparagraphs (l)(a) and (l)(b), a court would reach the result that the Convention does not apply to the transaction concerned.

II. Transaction Must Be a 'Sale' of 'Goods' Within Articles 1-3

58. Article 1 makes it clear that the Convention rules apply only to 'sales of goods' (contrats de vente de marchandises). Apart from the fact that Articles 2 and 3 expressly exclude some transactions which might otherwise fall within this category,[1] the CISG text does not contain any definition of the term 'sale' or of the term 'goods'.

Clearly, both these key Convention terms must be given an 'autonomous' interpretation,[2] but we need not blind ourselves to a few basic notions widely accepted under domestic law, for example, the fact that a contract for the distribution of goods is not a contract of 'sale'.[3]

By the same token, the term 'goods' (marchandises) is usually equated with 'things' (or - somewhat less appropriately - 'objects'),[4] and it would seem that the subject of an international sale must be a moveable thing,[5] i.e., a thing which can be transferred (from one place to another) by a carrier or other medium, although not necessarily by a 'physical' medium. Clearly, (immovable) real property lies outside the concept of a moveable thing, just as 'know-how' and 'goodwill' have little or no link with the generally accepted notion of goods.[6]

Looking beyond these inherent restrictions, however, there is good reason to understand the CISG notion as broadly as possible, so as to cover all moveable and not just 'corporeal' - things.[7] For this and other reasons, most commentators argue that the Convention should at least apply to sales of standard computer programs (software), even though the intangible content of a tangible (compact or floppy) disk is protected by an intangible property right.[8] Indeed, even when computer programs are sold/downloaded over the Internet (i.e., when the programs are not even embodied in a tangible medium), the CISG default rules seem well-suited to regulate the parties' obligations and remedies for breach.[9] And although some have maintained that contracts for the delivery of non-standard programs should be held to lie outside the CISG scope, the arguments presented for such a distinction do not appear convincing,[10] in that the CISG expressly equates contracts for the supply of goods to be manufactured or produced with contracts for the sale of finished goods, and since the relationship between the value of the physical elements embodied in the particular good (e.g., the floppy disk which carries the program) and the value of the technology or information needed to manufacture or process the good seems irrelevant.[11] If, on the other hand, the service element in a given mixed (sales/service) transaction - e.g., the supplier's post-delivery obligation to perform maintenance on the computer system sold under the same contract - is found to predominate the transaction (taken as a whole), then Article 3(2) will ensure that the (whole) contract is removed from the CISG scope.[12] [page 37]

B. Sales Contracts Expressly Excluded: Article 2

Many States have enacted special statutes designed to protect the rights of consumers who buy goods for 'personal, family or household use,' etc.[1] By virtue of the applicable private international law (choice-of-law) rules, such consumer-protection statutes are also likely to be applied so as to protect the interests of consumers who enter 'international' (consumer) sales contracts, e.g., when they purchase goods outside their home State, while traveling abroad or via the Internet (e-commerce).

By virtue of Article 2(a), the CISG will not displace the operation of these local consumer statutes, even when the transaction is 'international' in the Article 1 sense. Thus, if a buyer who resides in CISG State A buys goods for 'personal, family or household use' from a seller whose place of business is in CISG State B, the CISG will not apply,[2] unless such 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.[3]

The exclusion of sales by auction (b) and on execution (c) are attributed to the special character of such sales and to the special nature of the applicable domestic law rules. The exclusion of stocks, shares, investment securities, negotiable instruments and money (d) was also intended to avoid conflict with mandatory rules of domestic law applicable to international securities and currency transactions. The exclusion of ships, vessels, etc. (e) is attributed to special (registration) rules often [page 39] applicable to these kinds of goods; there is, however, some disagreement as to where (or whether) to draw the line between, e.g. an excluded 'ship or 'vessel and a (smaller) 'boat'.[1]

C. Contract of Sale v. Contract for Services: Article 3

The first, very obvious point to be noted in this connection is that a contract for the distribution of goods is not a contract of 'sale'.[1] The same is true of a contract to provide market research.[2]

Since contracts for the supply of goods to be manufactured or produced generally fall within the CISG scope (unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production), such a transaction can neither be regarded as a contract for the 'sale of a service' nor as a 'mixed' sales/service contract, even though the value of the labour and services rendered in connection with the production of the goods are seen as a significant - or even the 'dominant' - element in the transaction concerned.[3]

On the other hand, paragraph (1) makes it clear that a transaction which might otherwise be considered a CISG sale of goods falls outside the Convention scope, if the buyer undertakes to supply a substantial part of the materials necessary for such manufacture or production. Although the term 'substantial' in paragraph (1) seems hardly precise, a seller's supply of, e.g. 10 per cent-20 per cent of the total raw materials needed for production would presumably be insufficient to keep the transaction within the CISG scope.[4]

According to the rule in paragraph (2), where a supplier undertakes to supply a mixture of goods and services - e.g., contract whereby the supplier not only undertakes to provide the buyer with a computer system, but also promises to service and/or upgrade the system at regular intervals - the CISG will apply if the sales element is clearly the 'preponderant' part of the total transaction.[5] If a purely financial means of measurement were to be applied, this would translate to more than 50 per cent of the total value of the obligations concerned.[page 40]

III. Issues Excluded From Convention Scope: Validity, Property and Delict

Those who are already somewhat familiar with Parts II and III of the Convention (outlined in Chapter 2 above and discussed more fully in Chapters 4-6 of this monograph) might see Article 4 as an ex tuto kind of provision, the main effect of which is to reaffirm that which already follows by logical implication from the content of the Part II and III rules. For clearly, the Convention is designed to 'govern' only the formation of the sales contract (part II) and the rights and obligations of the seller and the buyer arising therefrom (part III); it is not designed to govern (most) validity questions or 'property' questions relating to the rights of third partes,[1] etc.

In some respects, however, Article 4 is a controversial rule. One point which has generated a good deal of debate is the extent to which the rules of the Convention governing contractual liability (damages for breach of obligations arising from the sales contract) serve to displace (or compete with) domestic law rules of delictual liability,[2] inter alia, those product liability rules which are grounded in delict (tort).[3] Another unresolved question is the extent to which the CISG avoidance rules serve to displace (or compete with) domestic law claims for rescission, e.g. by reason of mistake or misrepresentation.[4]

A. Contractual Validity, Domestic Law & Concurrent Remedies

63. As indicated in Article 4, the Convention is 'not [generally] concerned' with the validity of the contract, i.e., 'except as otherwise expressly provided in this Convention'. An example of an exception, i.e., an express CISG provision relating to a validity question, is Article 11;[1] another example is Article 29.[2]

The fact that the Convention is not (generally) concerned with the validity of the contract or of any of its provisions means that domestic rules of law must be used to resolve the great majority of problems which fall under the validity label, inter alia, questions which relate to the doctrines of mistake, fraud, duress (threat), and the reasonableness of contract terms.[3]

Thus, although the CISG gives the parties freedom to formulate their obligations and remedies in the event of breach (etc.),[4] the validity of the parties' contract (and its individual terms) cannot be resolved on the basis of the CISG alone, simply because the CISG was not designed to police international sales agreements for unfairness:[5] the CISG drafters made no attempt whatsoever to prescribe the legal effect of, e.g. a mutual mistake as to the existence of the subject matter of the contract, a seller's negligent or fraudulent misrepresentation as to the quality of the goods, a seller's threat of non-performance (unless a price-increase is secured, i.e., economic duress), an unreasonable disclaimer or limitation of liability, etc.

To expand upon one of the examples just listed, if a seller in Sweden sells goods to a buyer in France, then, as regards the rights and obligations of the seller and the buyer arising from such a contract, the CISG applies. However, if that seller's contract is a standard form which purports to disclaim all liability in the event of breach, the validity of that - arguably 'surprising' or otherwise unreasonable - disclaimer is a matter which lies outside the CISG scope.[6] And since the applicable rules of private international law in such a situation would probably point to Swedish domestic law,[7] the disclaimer will only be effective (so as to displace the CISG remedial regime) if it satisfies the 'reasonableness' requirement set forth in the General Clause of the Swedish Contracts Act.[8]

In the foregoing (disclaimer) example, the applicable validity rules serve to fill in the wide validity 'gap' in the Convention which is openly acknowledged by Article 4. A related, yet more difficult problem is the question of concurrent - and thus potentially 'competing' - domestic remedies. For example, depending on the circumstances of the particular case, a buyer's domestic law claim for rescission by reason of a seller's negligent or fraudulent misrepresentation as to the quality of the goods (i.e., the remedy which domestic law provides in such an 'invalidity' situation) might be seen to overlap (and thus also compete) with the CISG avoidance rules,[9] just as the same seller's liability for the economic consequences of such a misrepresentation would - at least in some situations - appear to overlap with the Convention damages regime.[10]

Of course, since solutions to a given legal problem may vary (in detail) from state to state, there is at least some risk that the outcome of a given case, decided in [page 42] accordance with the domestic law applicable to it, might be different if decided in accordance with the domestic law of another state. For this reason, courts and arbitrators may have reason to exercise restraint before they permit differences among domestic validity rules to do damage to the otherwise uniform Convention remedial solution.[11] On the other hand, courts and arbitrators should also think twice before allowing the Convention to pre-empt ('trump') domestic rules designed to police against unfairness,[12] inter alia, since those who drafted the Convention rejected a rule which would have limited recourse to competing rules of domestic law.[13]

B. Convention Not Concerned With Property in Goods

64. As indicated in the first sentence of Article 4, the Convention is concerned with the inter partes rights and obligations of the seller and buyer arising from an international sales contract. Conversely, according to paragraph (b) of Article 4, the Convention 'is not concerned with ... the effect which the contract may have on the property in the goods sold'. For example, the question of whether a given buyer, as a 'good faith' purchaser, cuts off rights which creditors or other third parties might otherwise have in the goods is not a CISG problem, but rather an issue to be decided under the otherwise applicable domestic law. Similarly, the right of a seller to obtain restitution of goods delivered may well be restricted by local laws protecting the rights of buyer's creditors.[1]

C. Delictual Obligations Not Governed by CISG

The first point to be noted in this connection is that national courts have no choice but to use domestic rules of liability in order to resolve 'delictual' matters clearly not governed by the Convention. This is especially clear as regards the claims of third parties, for example the right of a third-party consumer to hold a (CISG) seller liable for injuries to that consumer's person or property caused by a defective product (which happens to have been the subject matter of a CISG sale).[1] But the same necessity for recourse to domestic law arises, e.g., in respect of a 'seller's' claim for damages against his 'buyer' for bad-faith termination of contractual negotiations (culpa in contrahendo); for clearly, if no CISG contract has been made, the situation cannot be described as involving rights and obligations 'arising from the contract'.[2]

Beyond this, since domestic rules of delictual liability (e.g., the duty to exercise due care and thus avoid injury to others) are sometimes permitted to 'compete' with rules of contractual liability under domestic law, it has been argued that the delictual rules (otherwise applicable in a given international context) [3] should sometimes be permitted to compete with the CISG contractual regime. Thus, as regards product liability, misrepresentation and similar torts, the domestic solutions can and should sometimes serve to supplement - albeit also complicate - the CISG solution;[4] other commentators, putting a higher (and arguably excessive) premium on the interest of 'uniform' CISG application, have sometimes taken a different view.[5] [page 44]

D. Product Liability

67. Within domestic systems, the area of law known as 'product(s) liability' regulates the liability of sellers (hereunder manufacturers, producers and others) for personal injury and/or property damage caused by the sale of defective goods to any person. In some systems, product liability claims are seen as grounded in delictual (tort) principles; other systems, which also view such claims as contractually based, sometimes allow the two rule sets to compete.[l]

Clearly, a product liability claim advanced by any person who is not a party to a CISG contract cannot be governed by the CISG, in that all third party claims against the seller in such a situation would lie outside the CISG by virtue of Article 4.[2] And as regards the CISG question of inter partes product liability, Article 5 expressly excludes CISG application as regards the seller's liability to any person (including the buyer) for death or personal injury caused by the goods. Therefore, a CISG seller's liability for death or personal injury - both as regards the injury to the buyer and to third parties - must be governed by non-Convention law, typically the law of delict applicable by virtue of the rules of private international law.

2. Damage to Buyer's Property Distinguished

68. This leaves a narrow, yet commercially significant product liability question within the CISG regime: the seller's liability to the buyer for damage to the buyer's property caused by the seller's delivery of non-conforming goods, for example, the sale and delivery of a corrosive chemical in leaky containers causing damage to the floor of buyer's warehouse.[1] Note in this connection that goods which would be regarded as 'defective' in a product liability context are also describable as goods which do 'not conform' under Article 35 of the CISG,[2] and note further that delivery of non-conforming goods renders a CISG seller liable for all 'loss ... suffered by the other party as a consequence of the breach'.[3]

69. Because such claims for buyer's property damage traditionally have been regulated by domestic rules of delict (tort, negligence, strict product liability, etc.), a question arises as to whether the application of these older rules should now be displaced by the new CISG regime,[l] or whether the two rule-sets should be permitted to 'compete'.[2] Although there would seem to be good reason to at least allow some degree of competition (concurrent claims),[3] the question will ultimately have to be resolved by the various national courts on a case-by-case basis.

IV. Freedom of Contract: Convention as Supplementary Regime

70. Article 6 of the CISG reaffirms the well-known principle of contractual freedom and the status of the Convention as a supplementary regime. Article 6 provides as follows:

A. Contracting Out

71. The Convention was designed to eliminate or at least reduce the application of domestic sales law in international contexts, but like the domestic rule-sets which it displaces, the CISG is designed primarily to serve as a supplementary regime which fills contractual 'gaps'.[1] For this reason, Article 6 expressly gives parties to an international sales contract the right to 'contract out' of the CISG - in whole or in part - and thus prevent the automatic application of the Convention pursuant to Article 1(1).

So if, for example, a seller in France and a buyer in Russia agree that their sales contract shall be governed by the 'Swedish Sale of Goods Act of 1990' (Koplagen), then that Swedish (domestic) law will displace the CISG, i.e., even though both French and Russian courts otherwise (absent the clause) would have applied the Convention between the parties concerned, simply because they reside in different Contracting States.[2]

For those who would seek to contract out of the CISG, however, careful contract drafting is advised: a clause which simply states that, e.g. 'French law' applies will not be interpreted as displacing the CISG, because the CISG has become an integral part of French law.[3]

72. As regards contracting out, where the parties do not elect to displace the CISG regime in its entirety, they will often contract out to a more limited extent, e.g. where the contract expressly incorporates the INCOTERMS.[l]

Another common example of partial contracting out is provided in situations where certain terms are set forth in a standard form agreement containing, e.g. a repair-or-replace clause, a disclaimer or limitation of liability,[2] an arbitration clause, etc. In such situations the parties' rights and obligations will be governed by a combination of (a) the express contractual provisions, (b) the applicable domestic rules of validity (which may serve to limit the effect of the express provisions)[3] and (c) the supplementary Convention rules.

B. Contracting In

73. In those situations where the CISG would not automatically apply,[1] there is, of course, no need for the parties to 'contract out' of the Convention regime; rather, the starting point would ordinarily be the application of the domestic sales and sales contract formation rules as determined by the choice of law rules of private international law. Then again, as a compromise between 'provincial' solutions, the parties to an international sale can elect to 'contract in' to the Convention - not only in cases where the parties do not reside in Contracting States, but also, e.g. with respect to the sale of a 'ship'.[2]

Note also in this connection that a court might well interpret a general reference to 'New York law' as evidencing an intent to 'contract in' to the Convention, i.e., in case where the Convention would not otherwise (in the absence of such a clause) apply.[3]

§2. GENERAL PROVISIONS

76. The Convention is a supranational statute, a binding piece of international legislation. And so the courts of all CISG Contracting States are bound to respect the letter of the law. Indeed, when a question arises as to how a given part of the Convention should be understood, the most natural interpretation is likely to be the 'plain meaning' of the treaty text.[1]

77. In many cases, however, the 'plain meaning' and/or proper application of (the six, equally authentic versions of) a given Convention' provision will not be clear, thus giving rise to more than one possible interpretation or application in the concrete case. In these cases, Convention interpreters can seek guidance in secondary sources of the CISG rule of law.[1]

Since the Convention is a statutory instrument (a treaty), some interpreters will seek evidence of the international legislator's intent. Some might, for example, look back to the ULIS (that which came before CISG): but although a number of CISG provisions seem similar to those in ULIS, that does not necessarily mean that the (different) legislators of these (different) treaties possessed the same legislative intent.[2] Indeed, the entire CISG 'legislative history' (travaux préparatoires), while voluminous, it is often inconclusive.[3] Nor should the unofficial 'Secretariat Commentary' to the 1978 draft Convention be allowed to serve (anywhere) as an authoritative CISG guide.[4]

Given these unclear international guideposts, it is understandable that national courts may sometimes - perhaps unwittingly - tend to interpret the CISG in accordance with well-entrenched domestic views, inter alia, in cases where the Convention terminology seems reminiscent of (older) local law.[5] Indeed, the [page 49] problem here is not just the risk of diverging (yet viable) interpretations; in some casest a given 'domestic' interpretation may lead to a clearly wrong CISG result.[6]

In order to guard against such inappropriate consequences, Article 7(1) tells courts and arbitrators that regard is to be had to the international character of the Convention and to the need to promote uniformity in its application. The implication here is that an independent (autonomous) interpretation should be undertakent (at least) with a view towards achieving results acceptable to a significant number of CISG Contracting States.[7] On the other hand, the flexible command set forth in paragraph (1), working in tandem with the equally flexible (governed-but-not-settled) rule in paragraph (2), hardly compels courts and arbitrators to pursue the uniformity goal at all costs.[8]

As regards case law (precedent), it is significant that no international court has been made competent to interpret the CISG.[9] And yet, since Article 7(1) requires courts to display (due) 'regard' to the international character of the Convention and to the need to promote uniformity in its application, national courts are bound to at least take account of CISG foreign precedents [10] - a task made easier by CLOUT (Case Law on UNCITRAL Texts) and other systems which report the numerous CISG decisions rendered by courts and arbitral tribunals around the world.[11] Of course, since the decisions from (even the highest) courts of other jurisdictions can at best achieve status as 'persuasive' (as opposed to binding) precedent, a truly 'international' interpretation of the Convention remains a most difficult task.[12]

When interpreting the CISG treaty, 'regard is [also] to be had' to the observance of good faith in international trade. Hardly by accident, this aspect of the Article 7(1) mandate might seem to fall short of domestic analogues which lay down the good faith duties of contracting parties (indeed, some Convention drafters feared the 'uncertain' contours of that kind of thing). But the distinction between good faith interpretation and good faith performance is proving to be more apparent than real, especially since 'matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based';[13] in fact, general Convention principles of reasonable conduct and venire contra factum proprium have already been identified as specific elements of an even more general Convention principle which requires both CISG parties to act in good-faith.[14]

II. Convention Interpretation: Matters Governed But Not Settled

First, it should be emphasized that paragraph (2) can only be applied with respect to matters which are governed by the Convention but which are not expressly settled in it ('les matières régies par la présente Convention et qui ne sont pas expressément tranchées par elle'). Conversely, it seems clear that certain questions - such as those relating to the validity of the sales contract, third party rights, etc. which are not governed by the Convention can only be settled by resort to rules outside the Convention, (usually) domestic rules of law.[1]

It should also be noted some problems which might be solved by the application of Article 7(2) might also/alternatively be solved by means of analogy, even though Article 7(2) surely also authorizes a more fluid kind of judicial decision-making than that associated with analogy in the traditional sense.[2] For example, since CISG Article 13 clearly governs the issue (matter) of how to define a 'writing', one might argue that the possible extension of Article 13 to more modern means of communication (e.g. telefax) is a 'matter' governed-but-not-settled by the CISG,[3] although it might then require some creativity to locate a CISG general principle with which to resolve this matter. But we might also try to resolve the matter by simply making an analogy between telefax and the means expressly listed in the Convention text.[4]

In any case, one can hardly maintain that the CISG governs all 'matters' which relate to sales contract formation and the rights and obligations of the parties, i.e., even though the Convention obviously governs a long list of individual matters within this broad range.[5] For example, although Article 8 contains rules which govern certain aspects of a larger problem - i.e., the interpretation of CISG contracts - we cannot on that basis conclude that the CISG governs the entire (contract interpretation) 'matter'. In other words, Article 8 does not displace (preempt) all other rules of contract interpretation, (e.g.) the familiar rule that unclear terms should be interpreted contra proferentem; and since Article 8 does not even 'govern' this particular 'matter', there is no occasion to search for a 'general [CISG] provision' with which to resolve it.[6]

Still, those decision-makers who favour a highly autonomous interpretation and application of the treaty will be able to open the Article 7(2) flood-gates quite wide, and commentators have already fleshed out numerous CISG 'general principles' for use in pursuing that end, inter alia, the (very general) principle of good faith.[7]

Two arbitral awards from Vienna (both concerning the buyer's refusal to pay for non-conforming metal sheets) illustrate the scope of the gap-filling power of Article 7(2).[8] The first (and more controversial) application relates to the fact that [page 52] Article 78 provides for the payment of interest (on the price and other sums in arrears) but does not set the rate.[9] Most courts and arbitrators have filled this 'gap' by resorting to domestic law, but the tribunal in these cases decided that the rate of interest was a 'matter' governed-but-not-settled by the CISG and then proceeded to settle the 'matter' (the rate) by reference to the (general CISG) 'principle of full compensation', i.e., the principle that a CISG promisee should be compensated for all (foreseeable) losses caused by the other party's breach. Seeking to rise above other, more provincial solutions, this Viennese tribunal thus found the means to 'settle' a matter which (in 1980) could not be settled by the Vienna treaty drafters.[10]

The second Article 7(2) application by the same tribunal concerned the failure by the buyer, upon receipt of the goods, to comply in timely fashion with the notice requirements of Articles 38 and 39.[11] Since the seller previously had led the buyer to believe that the notice defense would not be raised, the question was whether the seller should now be estopped (venire contra factum proprium<