Go to Database Directory || Go to Bibliography
Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[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 1980 United Nations Convention on Contracts for the International Sale of Goods

Joseph Lookofsky
University of Copenhagen


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]

1. In those legal systems where the general law of obligations is not codified, the influence of a codified sales statute on general contract doctrine can be considerable; see, e.g. as regards Danish law, Lookofsky, Køb (Law of Sales) (Copenhagen 1996) and Bryde Andersen & Lookofsky, Lærebog i Obligationsret, Vol. I (Copenhagen 2000) Chapers 1 and 5; compare, e.g. regarding American sales and contract law, Farnsworth, E.A., Contracts (Boston 1999) §1.7.
2. See, e.g., Honnold, J. & Reitz, C., Sales Transactions: Domestic and International Law (1992) Ch.1.

B. Domestic Sales Law Applied to Domestic and International Sales

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]

1. In the present (international sales) context it seems more appropriate to refer to loca11aw as 'domestic' (rather than 'national') law, in that the 1980 Convention on Contracts for the Sale of Goods (CISG) has become part of the 'national' law of CISG Contracting States.
2. See infra, No. 9 et seq.

II. International Sales Law: the CISG

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.

1. Regarding the 1964 ULIS Conventions, which were not widely accepted, see infra No. 11 et seq. [page 17]

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.

1. Although Professor Honnold notes that the CISG Preamble was first considered and prepared two days before the adjournment of the Vienna Conference (see Uniform Law for International Sales Under the 1980 United Nations Convention (3rd ed. Deventer 1999) p. 541 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]), the Preamble still seems compatible with the international treaty interpretation mandated by Article 7: see infra No. 27 et seq.

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.

1. See Article 99(1).
2. For a more precise indication of the Convention's sphere of application, see infra No. 51 et seq.

V. Subsequent Ratifications: Two Thirds of World Trade

6. By late 1999, instruments of ratification had been deposited by nearly sixty (60) States, collectively representing more than two-thirds of total world trade. A list of CISG adherences, including effective dates, is provided in an Appendix to this monograph.

VI. Major Significance

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.

1. See supra, No. 1. [page 18]

8. Before proceeding in this monograph with a more detailed examination of the CISG Convention and its component parts, the Convention will be considered in historical perspective and in relation to the problems of private international law.

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

I. Purely Domestic Sale Subject to Local Law

9. In the case of a purely domestic contract of sale - e.g. a contract between A and B, both residents of State X, for the sale and delivery of goods located in that State - the domestic sales law of State X will most likely be well-suited to the parties' local needs. So, if a dispute should later arise between the parties to such a sale, it would seem appropriate for a court in to apply the domestic law of X to resolve the problem, in that all 'connecting links' point to the (law of the) locality concerned.

II. International Sale: Problem of Selecting Applicable Law

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.

1. The jurisdictional issue, while generally outside the scope of the present study, will be referred to below in a few specific CISG Convention contexts: see, e.g. infra No. 140 et seq. regarding Article 28 and No. 242 regarding Article 57(1).
For a comparison of the extraterritorial jurisdiction of American and European courts, see Lookofsky, J., Transnational Litigation and Commercial Arbitration (New York & Copenhagen 1992), Ch. 2.

III. Pre-CISG: Choosing the Applicable Law

A. Limited Acceptance of ULIS/ULF

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]

1. The Hague Conventions were ratified by the following states: Belgium. Gambia, F.R. Germany, Israel (ULIS only), Italy, Netherlands, San Marino, and the United Kingdom. [page 19]

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

12. For this reason, prior to the advent of the CISG, most States had no choice but to resolve international sales contract disputes by the application of domestic sales law rules. And to decide which domestic rules of law to apply - i.e., whether to apply the law of the seller's state, the buyer's state or that of some third state the competent forum court would make use of its own State's choice-of-law rules, i.e. the rules also known as 'private international law' or 'conflict of laws' rules.

C. Concrete Illustration

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]

1. Note that France never adhered to the 1964 ULIS/ULF Conventions. See text supra, No. 11.
Note also that if the parties in this example. exercising their contractual freedom, had designated the law applicable to their contract - e.g.'This contract is governed by English law' - the validity of this designation would also have depended upon the law which the forum court designated as the applicable law; under the 1955 Hague Convention (infra No. 14) the validity of the parties' determination would depend upon the putative law, i.e., in the example just provided, English law.

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]

1. Absent express agreement regarding the applicable law, a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order. See Article 3 of the 1955 Hague Convention. [page 20]
2. The United States is not a party to the 1955 Hague Convention on the Law Applicable to International Sales. The currently applicable sales conflicts rule in most American states is to be found in §1-l05(1) of the Uniform Commercial Code. Absent agreement, an American court will apply the UCC 'to transactions bearing an appropriate relation to the [particular American] state'. The application of this rule varies considerably from state to state: see Lookofsky, Transnational Litigation and Commerical Arbitration (1992) at p. 381.

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

15. These days - and as regards all international sales contracts entered on or after 1 January 1988 (when the CISG became effective in France and the United States) - both French and American courts are bound to resolve international sales problems by more appropriate, international means.

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]

1. See infra Nos. 19 et seq. CISG article 6 governs cases where the parties have 'contracted out' (infra No. 26).
2. Thus, arbitrators may apply the CISG by virtue of Article 1 (infra Nos. 21-22 and 51 et seq.) or by virtue of the parties' express agreement to 'contract in' (infra No. 73). See, e.g., Arbitral awards No. SCH-4318 and SCH-4366, both decided on 15 June 1994 by Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft - Wien, RIW 1995, 590, 591, and reported [at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] in UNILEX (CISG applied pursuant to Article 1(1)(b) since the parties had chosen Austrian law and since the CISG is the international sales law of Austria).

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]


Chapter 2. Convention Overview

§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]

1. Presented supra, No. 13 et seq.
2. See Pelichet M., La Vente Internationale de Marchandises et le Conflit de Lois, Receuil des Cours, Académie de Droit international, Vol. 1987 I, 1988, pp. 34-38 (referred to in the second edition of Honnold, J., Uniform Law for International Sales (Deventer 1991), p. 83 with note 9).
3. Regarding the application of UCC §1-103 in the pre-CISG situation, see No. 14 supra with accompanying notes.

2. Convention Applies by Virtue of Private International Law

22. The conclusion reached in the foregoing illustration does not mean that the advent of the CISG has completely obviated the need for private international law rules in the sales arena. Indeed, CISG Article l(l)(b) itself presupposes the continued application of such rules, in that the Convention applies to contracts of sales of goods between parties whose places of business are in different States when the rules of private international law lead to the application of the law of 'a' (single) Contracting State. This rule is discussed in greater detail in § 1 of Chapter 3 below.

B. Contracts for the 'Sale of Goods'

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).

1. Article 1.
2. Regarding 'goods' under Article 1 see infra No. 58.
3. Regarding Article 2 see infra No. 59 et seq.
4. Regarding Article 3 see infra No. 61.

C. Validity Issues and Third Party Rights Excluded

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]

1. Unless otherwise expressly provided. Regarding Article 4, see generally infra No. 62 et seq. [page 23]

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]

1. Regarding Article 5, see infra No. 66 et seq.

E. The CISG and Contractual Freedom

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]

1. The validity of the parties' agreement depends on the content of the applicable domestic law (Article 4). Regarding Article 6, see infra No. 70 et seq.

II. General Provisions

A. Interpretation

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.

1. See generally infra No. 74 et seq. [page 24]

B. Usages of International Trade

28. Another important CISG General Provision concerns usages of 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]

1. Regarding the parties' freedom to contract out of the CISG, in whole or part see supra No. 26.
2. Regarding Article 9, see infra No. 87 et seq.

§3. PART'S II AND III: STATES MAY RATIFY ONE OR BOTH

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]

1. Regarding the Article 92 declarations made by the Scandinavian Contracting States (Denmark, Finland, Norway and Sweden), see infra No. 328.

§4. PART II: FORMATION OF CONTRACT

I. Offer and Acceptance

30. Part II of the Convention regulates the 'Formation of the Contract' - i.e. the international contract of sale. Under the Convention, as under most domestic systems, the offer and the acceptance are regarded as the two key elements in the contract formation process.

II. CISG Offer: Requirement of Definiteness

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]

1. Regarding Article 14, see infra No. 99 et seq.

III. When Offer Effective; Revocable Versus Irrevocable Offers

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]

1. As to when an indication of intention 'reaches' the addressee, see Article 24 and infra No. 133.
2. Regarding Articles 14-17, see infra No. 99 et seq.

IV. Acceptance As Indication of Offeree's Assent

33. In order to be effective, an offeree's acceptance must be timely, and it must indicate the 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]

1. Regarding Article 18, see infra No. 112 et seq.
2. Regarding the 'conclusion' of the contract under Article 23, see infra No. 132.
3. Regarding the withdrawal of an acceptance under Article 22, see infra No. 131.
4. Regarding determination of the period of time for acceptances and late (yet effective) acceptances under Articles 20 and 21, see infra No. 126 et seq.

V. Mirror Image Rule and Battle of Forms

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]

1. Regarding the 'battle of forms' and Article 19, see infra No. 122 et seq.

§5. SALE OF GOODS: CISG PART III

35. Part III of the CISG, entitled Sale of Goods, contains the substantive rules of greatest practical significance for international sales.

I. Obligations, Rights and Remedies

36. As with any bilateral contract, a CISG contract imposes obligations on each party, and the obligations of one party translate into contractual rights for the other. [page 26]

Simply stated in terms of the parties' primary duties, the seller is obligated to deliver the goods, and the buyer is obligated to pay for them. Each party's obligation (to deliver, to pay) confers on the other party a right to expect performance of the said obligation or, in the alternative, a right to demand remedial relief for breach.

Although Part III of the CISG is broken down into five separate Chapters, this basic theme pervades the entire Part III Convention text.

II. Part III Provisions: Chapters I-V

37. Chapter I of CISG Part III, entitled General Provisions, contains a few selected rules relating to 'fundamental breach' and 'specific performance' which serve as adjuncts to the more specialized remedial rules in Chapters 2 and 3 regarding seller's and buyer's breach; Chapter 1 also contains certain general provisions, applicable to both parties, regarding delays in notification and contract modification.

Chapter II of Part III lays down the supplementary rules regarding the Obligations of the Seller and provides the buyer with various remedies for seller's breach, whereas Chapter III defines the corresponding Obligations of the Buyer and provides the seller with a catalogue of remedies for buyer's breach. Chapter IV regulates the question of the Passing of Risk (risk of loss).

Finally, Chapter V, entitled Provisions Common to the Obligations of the Seller and the Buyer, supplements both the General Provisions in Chapter 1 and the more specialized remedial rules in Chapters II and III by dealing generally with such topics as anticipatory breach, damages for breach, liability exemptions, the effects of avoidance, and the preservation of the goods.

III. Obligations of the Parties

A. Obligations of the Seller

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]

1. Article 30.
2. Regarding Article 6, see supra No. 26 and infra No. 70 et seq.
3. Regarding Articles 31-34, see infra No. 150 et seq. Regarding Article 35, see infra No. 164 et seq.
4. Except (as regards fitness for particular purpose) where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment.

B. Obligations of the Buyer

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]

1. Article 53.
2. Regarding Articles 57-59 (place and time of performance), see infra No. 242 et seq.
3. Regarding Article 14 see infra No. 100 et seq. Re. Article 55 see infra No. 240.

IV. Remedies

A. Supplementary Remedial Regime

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.

1. Fuller, L., and Perdue, W., 'The Reliance Interest in Contract Damages I', 46 Yale L.J. 52, p. 58 (1937) [available at <http://www.cisg.law.pace.edu/cisg/biblio/fuller.html>]. [page 28]

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.

1. See Lookofsky, J., Consequential Damages in Comparative Context, Part 2 (Copenhagen 1989).

C. Three Basic Forms of Remedial Relief

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.

1. For a comparison of domestic systems generally, see Treitel,. G., Remedies for Breach of Contract (Oxford 1988) and Lookofsky, op. cit. (1989), Part 4 (comparing American and Scandinavian systems). Both specific and substitutional relief serve to protect the 'expectation interest' by attempting to put the promisee in the position he would have been in had the contract been performed: accord Farnsworth. Contracts (3rd ed. 1999) §12.1.

D. Relationship Among Remedies

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).

1. By definition, a party who 'terminates' as contract puts and end to both parties' right to demand specific relief.

E. Specific Performance as Primary Convention Remedy

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]

1. See Treitel, op. cit. Ch. III. American commentators have noted a trend in American courts towards a greater availability of this - for Common lawyers - 'exceptional' remedy: see, e.g. Farnsworth, E.A., Contracts (1999) Ch. 12(B) and White, J., and Summers, R, Handbook of the Law Under the Uniform Commercial Code §6-6 (3d ed. St Paul 1988).
2. Regarding Article 46 and seller's breach, see No. 215 et seq. Regarding Article 62 and buyer's breach, see No. 255 et seq.
3. Regarding Article 28 see infra No. 140 et seq.

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]

1. Numerous CISG reported decisions involve buyers' claims for monetary relief: see generally infra No. 288 et seq. And although we find a few reported CISG decisions dealing with buyer's right to demand that seller provide substitute goods or cure, there seem to be no reported cases involving the buyer's right to 'require delivery': see infra No. 213 et seq.
2. Compare, e.g. the views advanced by Nicholas, B., 'Force Majeure, and Frustration', 27 Am. 1. Comp. L 231 (1979) [available at <http://www.cisg.law.pace.edu/cisg/biblio/nicholas.html>] with those of Lookofsky, J., 'Fault and No-Fault in Danish, American and International Sales Law. The Reception of the 1980 United Nations Sales Convention', 27 Scandinavian Studies in Law 109 (1983) available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky4.html>].
3. Regarding Articles 45 and 61, see infra Nos. 210 and 252. Regarding Article 79, see infra No. 298 et seq.
4. Regarding Article 50, see infra No. 231 et seq.
[page 30]

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]

1. Regarding the more narrow American conception of 'avoidance' by reason of mistake, see the Restatement of Contracts 2d §152.
2. Regarding Article 81(1), see infra No. 310. Pursuant to Article 81(2), discussed infra No. 312, a party who bas performed the contract either wholly or in part may claim restitution from the other party.
3. Regarding Article 25, see infra No. 136 et seq.
4. See infra No. 220 et seq.

V. Passing of Risk

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]

1. Unless the loss or damage is due to an act or omission of the seller. Regarding Article 66 see infra No. 266 et seq.
2. Regarding Articles 67-70, see infra No. 269 et seq.

VI. Anticipatory Breach

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]

1. See infra No. 279 et seq.
2. Regarding seller's stoppage in transit by reason of buyer's insolvency, etc., see infra No. 281.

§6. FINAL PROVISIONS: DECLARATIONS, ETC.

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]

1. Regarding Article 92 and the Scandinavian States, see infra No. 328.
2. See infra No. 331.
3. Regarding Article 96, see infra No. 332.

§7. OVERVIEW OF CHAPTERS 3-6

50. The following Chapters of this Encyclopedia monograph contain a more detailed analysis of the 101 Articles of the Convention. The analysis is organized under the following headings: Scope and General Provisions (CISG Part I) is discussed in Chapter 3; Sales Contract Formation (CISG Part II) is discussed in Chapter 4; Obligations, Risk and Remedies (all governed by CISG Part III) are discussed in Chapter 5; and the Final Provisions of CISG Part IV are reviewed in Chapter 6. [page 32]


Chapter 3. Convention Scope and General Provisions

§1. SPHERE OF APPLICATION

51. Chapter I of CISG Part I (Articles 1-6) deals with the Convention's Sphere of Application.

In order to determine whether the CISG applies to a given transaction and/or whether it governs a given sales dispute we must ask:

- whether the transaction meets one of the 'internationality' tests set forth in Article 1;
- whether the transaction is a 'sale' of 'goods' as required by Articles 1, 2 and 3;
- whether the particular issue or matter in dispute is 'governed' by the CISG (Articles 4 and 5);
- and whether the parties have exercised their freedom to 'contract out' (Article 6).

I. Internationality under Article 1

52. As a starting point, the Convention applies in cases falling within one of the two categories set forth in Article 1, paragraph 1, subparagraphs (a) and (b):

'1. This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
a) when the States are Contracting States; or
b) when the rules of private international law lead to the application of the law of a Contracting State.'

A. Parties' Places of Business in Different Contracting States

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]

1. The situation in Norway with respect to the CISG field of application is unique, in that the 'transformed' version of Article 1 in §87 of the Norwegian SGA defines an 'international sale' as any sale where the parties have their places of business in different States (provided that the fact that parties' respective places of business are in different States is recognizable to both parties at the time of contracting). Although the Norwegian draftsmen intended that the SGA version of the CISG should apply to international sales whenever the applicable private international law rules point to Norway (see the Norwegian Ot prp nr 80 s. 18 and Bergem & Rognlien, Kjøpsloven at 441-442), this procedure seems in conflict with the basic principle underlying CISG Article l(l)(a) and might even mislead Norwegian courts as to the proper application of Article l(l)(b). On the other hand, a court or arbitral tribunal outside Norway would only in rare situations decide a CISG case on the basis of the transformed SGA rules. See generally Lookofsky, J., Understanding the CISG in Scandinavia (1996) §§2-2 and 2-4.
2. See para. 6 of the Secretariat's Commentary to Article l(l)(a) of the 1978 UNCITRAL Draft Convention, A/CONF./97/5 (Article 1(1)(a) applies 'even if the rules of private international law of the forum would normally designate the law of a third country'). See also P. Winship, 'Private International Law and the U.N. Sales Convention,' 21 Cornell International Law Journal 487, pp. 519-520 (1988).
3. The declarations do not, however, affect the possible application of Part II by virtue of Article 1(1)(b): see also infra No. 54. For a more complete discussion of the effect of the Article 92 declarations see Lookofsky, J., in 18 Journal of Law & Commerce 289-299 (1999); see also infra No. 328.

B. Convention Application by Private International Law

54. Subparagraph (l)(b) of Article 1 becomes relevant when the subparagraph (l)(a) criterion is not met, i.e. when one or both parties to the contract do not reside in CISG Contracting States.

For example, if a contract for the sale of wine is made in January 2000 between a seller in France and a buyer in England, French courts would not be bound by Article l(l)(a) to apply the CISG as the gap-filling regime: the contract is of course between parties residing in different States, but because England (as of January 2000) is still not a CISG Contracting State, the different States concerned are not different 'Contracting States'. (Of course, English courts are not bound to apply the Convention either.) But the Convention becomes applicable nonetheless - at least in a French court - if the applicable rules of private international law (i.e., the choice of law or conflict of laws rules of the forum court) lead to the application of the law of a (single) Contracting State.

(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]

1. Accord: Schlechtriem, P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tidsskrift vid Stockholms Universitet (1992) p. 6. [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]
2. See supra No. 14.
3. Absent express agreement regarding the applicable law, a sale (generally) shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order: see Article 3(1) of the 1955 Hague Convention. For an exception see Article 3(2).
4. For a more complete discussion of the effect of the Article 92 declarations see Lookofsky, J., 'Alive and Well in Scandinavia: CISG Part II,' 18 Journal of Law & Commerce 289-299 (1999) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky1.html>]; see also infra No. 328.

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]

1. See infra No. 328.
2. The United States reservation was motivated by the allegedly unsettled and unpredictable status of private international law - a situation which, from an American point of view, might be rectified by the widespread adoption of the 1986 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods. See Gabor, E, 'Stepchild of the New Lex Mercatoria: Private International Law from the United States Perspective,' 8 Northwestern Journal of International Law & Business 538 (1988) [available at <http://www.cisg.law.pace.edu/cisg/biblio/gabor.html>]. Regarding this intended successor to the [page 35] 1955 Hague Convention see Lando, O., 'The 1985 Hague Convention on the Law Applicable to Sales,' 51 Rabels Zeitschrift 60 (1987).
3. See P. Winship 'The Scope of the Vienna Convention on International Sales Contracts,' in International Sales (Galston & Smit ed. 1984) at pp. 1-32 [available at <http://www.cisg.law.pace.edu/cisg/biblio/winship5.html>].
4. See Schlechtriem, op. cit. No. 54 at id. and infra No. 331.

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:

'(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.'

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.

1. See supra No. 53.

E. Irrelevant Factors: Nationality, Civil-Commercial

57. Whereas paragraph 2 of Article 1 may be said to narrow the application of the Convention, paragraph 3 was designed to function as a non-restricting kind of rule. This provision provides:

'(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.'

Because the Convention applies in international situations, i.e. where the parties have their places of business in different States, the contracts in question will usually be 'commercial' in nature, in that both parties to the contract are likely to be 'merchants' in the usual sense. But this need not be the case for the Convention to apply, and the fact that the civil-commercial distinction is relevant in some domestic systems is of no significance as regards the applicability of the CISG. What is relevant in this connection, and as developed more fully below, is that most 'consumer'-type transactions are excluded from the Convention sphere by virtue of Article 2(a). [page 36]

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

A. Article 1: Sales, Goods (e.g., Computer Software) etc.

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]

1. See infra No. 59 et seq.
2. Re. Article 7(1), see infra No. 75 et seq.
3. See, e.g., OLG Koblenz (Germany), 17 September 1993, No. 2 U 1230/91, RIW 1993, 934-938, also reported in UNILEX. Regarding the distinction between CISG sales and services, see generally infra No. 61.
4. This is, for example, true under American and Scandinavian sales law. Re. Scandinavian law see, e.g., Lookofsky, J., Køb (Sales: Copenhagen 1996) Ch. 2.3. Compare Herber in Schlechtriem, op. cit. p. 23 (arguing that goods should be understood as 'moveable, tangible objects', notwithstanding the fact that the French ULIS term objets mobiliers has been replaced with the term marchandises).
5. Compare, e.g. as regards American domestic sales law, UCC §1-105(1) which defines goods as 'all things. . . which are movable at the time of identification to the contract for sale ... '
6. See Herber in Schlechtriem, op. cit. p. 23.
7. Accord: Herber at id. and Diedrich, F., 'Maintaining Uniformity in International Uniform Law Via Autonomous Interpretation: Software Contracts and the CISG', in Pace U. International L Rev. 303, 306 (1996) [available at <http://www.cisg.law.pace.edu/cisg/biblio/Diedrich.html>]. A similarly broad view prevails in many domestic sales systems. See, e.g. (re. the Danish Sales Act) Lookofsky, Kpb (Copenhagen 1996) §2.3 and Nørager & Theilgaard, Købeloven (Copenhagen 1993) p. 37. But compare Ferarri 'Specific Topics of the CISG,' 15 J.L & Com. 1, 66-67 (1995) [available at <http://www.cisg.law.pace.edu/cisg/biblio/2ferrari.html>], emphasizing the fact that (standard) programs are usually embodied in a corporeal medium (disks).
8. Sales of books and compact disks are clearly governed by the CISG, even though the intangible content of the book (story) or disk (music, video image) is protected by an intangible property right. Although shares of stock and other securities are specifically excluded from the Convention scope (see infra, No. 60), there is no good reason to extend these Article 2(d) exceptions by analogy. Accord Piltz, Internationales Kaufrecht, §2 Rd.Nrn. 47-48, Herber in von Caemmerer & Schlechtriem, Kommentar, Art.1 Rd.Nr.21. A German court has held that a contract for the sale of standard software is governed by the CISG: see the decision of LG München, 8 February 1995, No. 8 HKO 24667/93, CLOUT Case 131, also reported in UNILEX. This view also finds support in a German case decided under German law: see BGH, 14 July 1993, MDR 1993, 950, applying German domestic sales law to a transaction involving the delivery and installation of standard computer software. American (U.C.C.) precedents on the software issue include RXX Industries, Inc. v. TEKA, 722 F.2d 543 (9th Cir. 1985) (operational software system classified as moveable goods and the essence of supplier's total obligation) and Advent Systems LId v. Unisys Corp., 925 F.2d 670 (3d Cir. 1991).
9. Accord: Bernstein, H. & Lookofsky, J., Understanding the CISG in Europe, §2-5 (The Hague 1997) and Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (CISG), p. 23 (Oxford 1998), both sources supporting the view that the CISG should be applied to standard and specialized software sales contracts, even if the programs are transferred electronically.
10. Accord Diedrich, supra note 7.
11. Accord Honnold, J. & Reitz, C., Sales Transactions: Domestic and International Law (1992) p. l0 with n. 22.
12. See infra, No. 61.

B. Sales Contracts Expressly Excluded: Article 2

1. Consumer Sales

59. Article 2 of the CISG provides that the Convention does not apply to the kinds of 'sales' specified in Article 2, paragraphs (a)-(f).

Taking a closer look at the first excluded item, we note that the Convention does not apply to sales: [page 38]

'(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 ...'

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]

1. Numerous examples are to be found in the United States, both at the State and Federal level: see, e.g. E.A. Farnsworth, Contracts (1999) §4.29. Similar examples are to be found within the context of the European Union: see, e.g. J. Lookofsky, 'The State of the Union ... in Contract and Tort', XLI American Journal of Comparative Law 89 (1993).
2. I.e. Article 1(1) notwithstanding. See, e.g., the decision of Oberster Gerichtshof, Austria, 11 February 1997, No. 10 Ob 1506/94, CLOUT Case 190, also reported in UNILEX, holding that the CISG was not applicable to sale of Lamborghini automobile purchased for buyer's personal use.
3. Regarding the burden of proof, if the buyer can establish that the goods in fact were bought with such purpose in mind, it will presumably be up to the seller (who claims the CISG should apply) to show that he was in 'good faith' (neither knew nor should have known). Regarding the possible overlap between consumer-protection laws and the CISG, see Herber, R, in Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (CISG), p. 34 (Oxford 1998).

2. Additional Exclusions

60. In addition to the subsection (a) exclusion applicable to 'consumer sales,' subsections (b)-(f) of Article 2 provide that the Convention does not apply to sales:

'(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.'

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]

1. Compare Honnold J., Uniform Law for International Sales (1999) at pp. 50-51 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] and Herber in Schlechtriem op. cit. at pp. 36-37.

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

61. Article 3 of the CISG seeks to draw the line between true 'sales', i.e., where the supplier's main obligation is to supply goods, and transactions where the supplier's main obligation is to supply (labour or other) services. Article 3 provides as follows:

'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 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]

1. See also supra No. 58.
2. See the decision of OLG Köln (Germany), 26 August 1994, No. 19 U 282/93, RIW 1994, 970-972, also reported in UNILEX.
3. Compare re. German domestic law Diedrich, F., 'Maintaining Uniformity in International Uniform Law Via Autonomous Interpretation: Software Contracts and the CISG', VIII Pace U. International L Rev. 303, 327 (1996) [available at <http://www.cisg.law.pace.edu/cisg/biblio/Diedrich.html>].
4. Accord Honnold J., op. cit. at p. 57.
5. See, e.g., the decision of Handelsgericht Zürich (Switzerland), 26 April 1995, No. HG 920670, reported in UNILEX, holding that a contract for the sale and installation of a fitness device was (essentially) a 'sales contract' governed by the CISG.

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

62. Article 4 of the Convention distinguishes between (on the one hand) rules which regulate sales contract formation and the parties' rights and obligations, both of which are governed by the CISG, and (on the other hand) questions relating to sales contract validity and property in the goods, both of which lie outside the CISG scope:

'This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:
a) the validity of the contract or of any of its provisions or of any usage;
b) the effect which the contract may have on the property in the goods sold.'

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]

1. For a validity exception see infra No. 63. Since the Convention governs only 'the rights and obligations of the seller and the buyer arising from [a contract of sale]', the highest court in France has held that the CISG did not govern the rights of a French third-party against an American seller who issued an end-user guarantee: see the decision of Cour de Cassation, 5 January 1999, CLOUT Case 241, setting aside the curious decision of Cour d'Appel de Grenoble, 15 May 1996, CLOUT Case 204, also reported in UNILEX. [page 41]
2. See infra under letter C.
3. See infra under letter D.
4. See infra under letter A with note 3.

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]

1. See infra No. 92 et seq.
2. See infra No. 142 et seq.
3. For a comparison between Danish domestic validity rules and the validity provisions of the UNlDRIOT Principles of International Commercial Contracts, see Lookofsky, J., 'The Limits of Commercial Contract Freedom: Under the UNIDROIT 'Restatement' and Danish Law', XLVI American Journal of Comparative Law (1998) pp. 485-508 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky2.html>].
As regards, e.g. mistake, some commentators have argued that the CISG avoidance rules displace (some) domestic rules permitting a mistaken buyer to rescind: for a comparison of the widely diverging views on this point see Hartnell, H., 'Rousing the Sleeping Dog ...' 18 Yale J. Int. L (1993) 72-78 [available at <http://www.cisg.law.pace.edu/cisg/biblio/hartnell.html>]; compare, e.g., Schlechtriem, P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tidsskrift vid Stockholms Universitet (1992) pp. 11-12 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]; see also infra No. 225.
4. Re. Article 6 see infra No. 70 et seq.
5. This is a validity question. See, e.g., Lookofsky, supra note 3, pp. 494 ff.
6. Re. surprising standard terms and Article 2.20 of the UNIDROIT Principles see Lookofsky, op. cit.
7. In this situation, both Swedish and French courts would apply the 1955 Hague Convention to determine the law applicable to the validity question: see supra No. 13 et seq. and infra No. 80.
8. Under 36 of the Danish Contracts Act, 'A contract can be amended or held unenforceable, in whole or in part, if enforcement would be unreasonable or contrary to accepted standards of fair dealing ... In making [this] determination ... consideration shall be given to the circumstances at the time of contracting, the content of the contract and circumstances which have later occurred' (translation by the present author). Similar validity rules apply in the other Scandinavian States.
As regards the validity of contractual limitations and disclaimers in relation to Article 35, see generally infra No. 172 et seq.
9. Under, e.g. American domestic law, avoidance might be allowed for a fraudulent misrepresentation without concern for its materiality,' (Farnsworth, op. cit. 1999, §§4-10-4-15) whereas under CISG Article 49(1)(a), a fundamental breach is the condicio sine qua non for avoidance (Huber in Schlechtriem, op. cit. 1998 at 416).
10. See Bernstein, H. & Lookofsky, J., Understanding the CISG in Europe (1997) pp. 56-59.
11. See, e.g., the decision of LG Aachen (Germany), 14 May 1993, RIW 1993, 760-761, also reported in UNILEX (application of CISG precluded recourse to domestic law regarding mistake as to the quality of the goods).
12. But see Huber, U., in Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (Oxford 1998), at 370 (rejecting rule-concurrence in the absence of three 'preconditions').
13. The ULIS Conventions of 1964, which preceded the CISG (see supra No. 11), expressly excluded the buyer's right of recourse to domestic law in the case of non-conforming goods (ULIS Article 53), except in cases of fraud (ULIS Article 89), but the Vienna drafters hoping it would be possible to create a separate, internationally uniform set of validity rules intentionally refrained from including a similar provision in the CISG: see Huber in Schlechtriem, op. cit. at 370 with n. 86. The subsequent failure of the international legislator to achieve its validity goal hardly provides national courts - let alone CISG commentators with a licence to fill the gap with solutions pre-empting concurring domestic rules of law.
[page 43]

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]

1. See infra No. 312. See also, e.g., the decision of OLG Koblenz (Germany), 16 January 1992, CLOUT Case 226, also reported in UNILEX, holding that CISG did not regulate the validity of a 'retention of title' clause.

C. Delictual Obligations Not Governed by CISG

65. According to Article 4, the Convention governs only the rights and obligations of the seller and buyer arising from the contract. Conversely, the Convention does not govern rights and obligations - of the parties, or of third parties - which may arise by virtue of the applicable domestic law of delictual obligations (the law of tort, principles of liability for negligence, etc.).

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]

1. Compare infra under head D.
2. Accord Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (Oxford 1998), at 102 with note 36.
3. I.e., the law applicable by virtue of applicable rules of private international law. The choice of law may be complicated, inter alia, by the problem of whether to 'characterize' the particular dispute as one of contract or tort. See, e.g. Arcado Sprl v. Haviland SA, Case No. 9/87 [1989] ECC 1.
4. See also supra No. 63. Regarding tort solution in competition with Articles 5 and 35, see generally Lookofsky J., 'Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules,' 39 Am. J. Comp. L 403 (1991) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>] and infra No. 69.
5. See, e.g., Huber, U., in Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) at 370-371 (establishing three 'preconditions' for the admissibility of concurrent domestic remedies). Note that permitting a CISG party to avail himself of a concurrent domestic remedy does not necessarily violate the principle of uniform application prescribed by Article 7: see infra No. 77 with note 8.

D. Product Liability

66. Article 5 of the CISG regulates the applicability of the Convention to claims which fall under the heading of 'product liability'. Article 5 provides as follows:

'This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person.'

1. Liability for Death or Personal Injury

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.

1. See Zweigert & Kötz, An Introduction to Comparative Law (Oxford 1998) 671-678. Even those systems which generally allow competition (concurrence) between contractual and delictual claims usually decline to admit delictuaIly based product liability claims for 'pure economic loss'; see id. at 625-628 and, e.g. East River S.S. Corp. v. Transamerica Delaval, Inc., 476 US 858 (1986).
2. Supra No. 62 et seq.
[page 45]

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]

1. See, e.g., the decision of Handelsgericht Zürich (Switzerland), 26 April 1995, No. HG 920670, reported in UNILEX: contract for the sale and installation of tank; damages caused to buyer's premises by leak of salt water was question governed by CISG.
2. Goods delivered in unsuitable packaging do not conform under Article 35(d). Re. Article 35 generally see infra No. 161 et seq.
3. Regarding Article 74 see infra No. 289 et seq. Regarding the issue of a possible liability 'exemption' for unknowable defects under Article 79, see infra No. 298 et seq.

3. Competition Between Convention and Domestic Delictual Rules

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.

1. As already indicated, due to the operation of Articles 4 and 5, the liability for death or personal injury to any person as well as property damage suffered by third parties will continue to be regulated by domestic rules of delict.
2. Such competition would, of course, not provide plaintiffs with a double recovery but might, e.g. mean a more favourable position vis-à-vis notice requirements, statutes of limitation, etc.
3. Lookofsky, J., supra No. 65, note 2 (1991) at 414-415; compare, e.g., Ziegel, J., 'The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives' in International Sales (Galston & Smit ed. New York. 1984) at 9-7 [available at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel6.html>] ('debatable') and Herber, R. in Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) at 50 (arguing that some competing tort claims should be precluded); compare also Honnold, J., Uniform Law for International Sales (1999) at 72-76 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

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:

'The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions'. [page 46]

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]

1. See generally supra Ch. 1.
2. Re. Article 1(1)(a) see supra No. 53. Logic might seem to dictate that the contract formation rules in CISG Part II should always be applied to determine whether a buyer and seller who reside in different Contracting States have actually concluded (formed) an agreement to contract out (see Bailey, J., 'Facing the Truth ...', 32 Cornell Int'l LJ. 273 (1999) at 303), especially since the CISG applies by virtue of Article 1(1)(a) without resort to choice-of-law/PIL rules: see supra No. 53 with note 2; this would seem to exclude CISG-circumvention by the application of PIL rules like the 1986 Rome Convention on the Law Applicable in Contractual Matters, Article 8, which would apply the law designated by the parties to determine whether a contract has been formed, but some commentators maintain nonetheless that the parties may agree that the question of CISG contract conclusion/formation is to be determined by domestic law: see, e.g., Schlechtriem, P., Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) at 56. In any case, it is at least clear that displacement of the CISG regime presupposes that an express choice-of-law clause is upheld as valid pursuant to the applicable domestic validity rule: see supra No. 53.
3. Nearly all reported CISG decisions support this view. See, e.g., the decision of LG Düsseldorf (Germany), 11 October 1995 (No. 2 O 506/94, reported in UNILEX) applying the CISG on the basis of Art. l(l)(a), even though the seller's standard terms expressly provided for the application of 'German law'. Referring to Art. 6, the Court noted that the choice of the law of a Contracting State as the governing law of the contract could not in itself amount to an implied exclusion of CISG, because the CISG is part of the law of that State. See also OLG Koblenz (Germany), 17 September 1993 (No. 2 U 1230/91), RIW 1993, 934-938 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], where the parties' choice of 'French law', coupled with the 1(1)(b) rule, led to application of the CISG. Similarly, in a case involving a sale between a Dutch seller and an American buyer, the ICC Court of Arbitration interpreted a reference to 'the laws of Switzerland' as comprising a reference to the CISG: see ICC award No. 7565/1994, reported in UNILEX.
In situations like the foregoing, where the starting point is that the CISG applies by virtue of Article 1(1)(a)-(b), it is submitted that the issue of how statements like 'German law', 'French law' and 'the laws of Switzerland' should be interpreted should be resolved in accordance with CISG Article 8 (discussed infra No. 81 et seq.) - a provision which certainly tends to support the results reached in CISG practice.
The mere fact that the party who drafted a standard form intended, e.g.'German law' to mean German domestic law should not lead to the application of domestic, unless that is also [page 47] how the other party - or a reasonable person in the shoes of the other party - would interpret the clause. And if the rule in CISG Article 8(2) is supplemented by the (internationally accepted) contra proferentem method of interpretation (UNIDROIT Principles Art. 4.6), the effect of an unclear clause should not be to displace the CISG when that is the rule-set that would apply by default. Compare (re. the interpretation of such clauses under the ULIS) Schlechtriem, P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tidsskrift vid Stockholms Universitet (1992) p. 7 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]. Compare also re. contra proferentem and the interpetation of 'agreed documents' (drafted by representatives of both buyer and seller) Junge, W. in Schlechtriem, P., Commentary (1998) pp. 72-73.

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.

1. See infra No. 152.
2. Regarding such liability arising from the operation of Articles 35, 45 and 74, see infra No. 161, 210 and 288 et seq. 3. Indeed, in the example just described, domestic mandatory rules (regarding the validity of the purported disclaimer) may limit the effectiveness of an express disclaimer: see supra No. 63.

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]

1. E.g. because the Article 1 'international' requirements were not met or, e.g. because the contract concerned was for the sale of a 'ship' under Article 2(e).
2. See supra No. 60 with accompanying note.
3. Accord Winship, op. cit. at 1-32; regarding the American Article 95 declaration see supra No. 55. Foreign courts have reached similar results applying the rule in CISG Art. 1(1)(b): see supra No. 71 and, e.g. the decision of OLG Düsseldorf (Germany), 8 January 1993 (No. 17 U 82/92), RIW 1993, 325 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], where the parties' express choice of 'German law' made the CISG applicable by virtue of Art. 1(1)(b), nothwitbstanding the fact that the Turkish seller did not reside in a CISG State.
[page 48]

§2. GENERAL PROVISIONS

74. Chapter II of Part I of the CISG is headed General Provisions. Among these are important rules regarding interpretation - both interpretation of the Convention and of Convention contracts.

I. Convention Interpretation: Uniformity and Good Faith

75. Article 7 contains two rules regarding the interpretation of the Convention itself; the first of these provides as follows:

'(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.'

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]

1. See Article 31 of the 1969 Vienna Convention on the Law of Treaties. Regarding the 6 equally authentic, but not always completely consistent versions of the treaty see Article 101 and infra No. 335. Regarding, e.g. the US Supreme Court's 'literal' interpretation of the Hague Evidence Convention, see Société Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, 482 US 522 (1987). See also J. Hellner, 'The UN Convention on International Sales of Goods - An Outsider's View', in Ius Inter Nationes: Festschrift für Stefan Riesenfeld (1983).

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]

1. See Article 32 of the 1969 Vienna Convention on the Law of Treaties. Regarding the 6 equally authentic versions of the treaty text see infra No. 335.
2. Many European commentators place great emphasis on decisions interpreting the provisions of ULIS, notwithstanding the fact that numerous CISG States (including the United States) were clearly opposed to - and therefore never ratified - the ULIS: see supra No. 11.
3. For a comprehensive collection of CISG conference documents, see Honnold, Documentary History of the 1980 Uniform Law for International Sales (1989). As regards the use of the CISG documentary history as an interpretative aid, even Professor Honnold (Uniform Law, 1999 at 463 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]) urges restraint: 'Interpretation based on discussions by a large legislative body is more meaningful for decisions of broad issues of policy than for detailed applications'.
4. An American proposal to draft an official Commentary to the 1980 Convention was rejected: see P. Winship, op. cit. (No. 55), at pp. 1-27. The Commentary to the 1978 Draft Convention (A/CONF./97/5), while providing some useful insights, will never attain world-wide recognition as an official and authoritative source of Convention interpretation. For this reason alone, one should reject the proposal by Bailey ('Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of [page 50] International Sales', 32 Cornell Int'l LJ. 273 (1999) at 300 to adopt the 1978 Commentary as the 'official' (American) commentary to the CISG.
5. The striking similarity between CISG Article 74 and the Common law Hadley v. Baxendale rule prompted some provincial (American) observations in the Delchi case, noted infra No. 290 with note 1.
6. For example, some German courts seem to have read the inspection and notice rules in CISG Articles 38 and 39 as if they were re-statements of the (very strict) requirements laid down in German domestic law: see infra Nos. 186 et seq.
7. Professor Flechtner, emphasizing the somewhat flexible nature of the (regard is to be had) command in Article 7(1), makes an interesting case for a regional CISG interpretation: see Flechtner, H, 'Another CISG Case in the U.S. Courts: Pitfalls for the Practitioner and the Potential for Regionalized Interpretations,' 15 J.L & Comm. 127 (1995) pp. 132 ff [available at <http://www.cisg.law.pace.edu/cisg/biblio/jlcvol15.html>]. He argues that, e.g. a NAFTA or European Union interpretation of the sales treaty might represent a 'critical first step in transcending familiar but parochial approaches ... the initial stage [of courts] becoming accustomed to adopting an international perspective ...' (id. at 137).
8. For example, so as to preclude reasonable recourse to alternative domestic remedies, even though the outcome of a given kind of case might then vary, depending on the applicable (competing) domestic rule of law. See supra No. 62 et seq. and infra Nos. 78-80.
9. This contrasts, e.g. with the competency of the European Court of Justice to interpret the Brussels Convention on Jurisdiction and Judgments.
10. Accord: Flechtner, H., 'The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and Other Challenges to the Uniformity Principle in Article 7(1),' 17 J.L & Comm. 187 (1998) [available at <http://www.cisg.law.pace.edu/cisg/biblio/flecht1.html>].
11. Regarding the CLOUT system see United Nations document A/CN.9/SER. C/GUIDE/l and Schlechtriem, P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tulskrift (vid Stockholms Universitet), Årgång 3/NR 1/1991-1992 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlech2.html>]. Easy access to CISG decisions (and other secondary CISG sources) worldwide has been further facilitated by the establishment of the Pace Law School Institute of International Commercial Law Website, CISG Database (http://www.cisg.law.pace.edu) and by the creation of the UNILEX database developed by the Centre for Comparative and Foreign Law Studies in Rome, published by Transnational Publishers (New York): see http://www.cnr.it/CRDS/UNILEX.htm. See generally Andersen, C., 'Furthering the Uniform Application of the CISG: Sources of Law on the Internet', 10 Pace Int'l L Rev. (1998) 403 [available at: <http://www.cisg.law.pace.edu/cisg/biblio/andersen1.html>].
12. Accord: Flechtner, supra note 10, at 211.
13. See infra Nos. 78-80.
14. See Herber in Schlechtriem, Commentary (1998) at 63 (party's conduct to be measured by views of 'reasonable person of the same kind'). The good-faith rule in Article 7(1) has been cited, inter alia, in support of a decision which declares estoppel (venire contra factum proprium) to be a general Convention principle: see award No. SCH-4318 rendered by Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien, 15 June 1994, reported in UNILEX; accord Herber at id. Article 1.7 of the UNIDROIT Principles of International Commercial Contracts clearly accords with the notion of a CISG duty (or general principle) to act in accordance with good faith and fair dealing in international trade. See also the award cited infra No. 178 with note 3.

II. Convention Interpretation: Matters Governed But Not Settled

78. Whereas Paragraph 1 of Article 7 provides general rules for the interpretation of the sales treaty, Paragraph 2 contains a special rule designed for the settlement of matters 'governed by' but 'not expressly settled' by the Convention. This provision provides as follows:

'(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles [page 51] on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.'

79. Article 7(2) provides a potentially powerful tool which courts and arbitrators can use to plug 'gaps' in the literal CISG text. By locating a relevant CISG 'general principle' for the resolution of a matter 'governed but not settled' by the Convention text, decision-makers can remain within the four comers of the treaty in situations where they otherwise would need to revert to other (usually domestic) rules of law. In this respect, Article 7(2) might be described as dealing with a 'preemption' problem: when and to what extent should CISG general principles be used to settle matters not expressly settled in the Convention, thus preempting potentially competing (non-CISG) rules of law?

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) from setting it up. Having assumed that this 'matter' (the seller's possible forfeiture of the defense of late notice) is governed but not expressly settled by the Convention, the tribunal held that estoppel was a general CISG principle (a special application of the even more general CISG principle of good faith), thus paving the way for a - just and reasonable - ruling without recourse to non-Convention rules of law.[12]

In a bolder - and more controversial - expedition within the Article 7(2) realm, a German appellate court ruled that, for purposes of determining its jurisdiction vis-à-vis an American defendant-seller, the place at which that seller was to pay damages (if ultimately held liable to the German plaintiff-buyer in respect of third-party personal injury claims) was a matter governed-but-not-settled by the CISG.[13] The court cited Article 57(1)(a), which deals expressly with the buyer's duty to pay the price, as evidence of a CISG general principle that all 'payments' (including damages awarded for a CISG breach) are to be made at the creditor's place of business; and since the plaintiff-buyer's business was in Germany, the German court held it had jurisdiction to decide the case. CISG commentators have criticized this decision on various grounds,[14] and the court's application of Article 7(2) might well head the list.[15]

1. See supra No. 62 et seq., Lookofsky, 'Loose Ends and Contorts ...', 39 Am. J. Comp. L (1991) at 407 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>], Hartnell, H., 'Rousing the Sleeping Dog ...' 18 Yale 1. Int. L (1993) at 18 [available at <http://www.cisg.law.pace.edu/cisg/biblio/hartnell.html>] and Herber in von Caemmerer & Schlechtriem. Kommentar (1995), Art. 7 Rd. Nr. 28.
2. The German terms Gesetzesanalogie and Rechtsanalogie seem appropriate to describe the two techniques: see Bernstein & Lookofsky, CISG/Europe §2-11.
3. See infra No. 97 et seq.
4. See sources cited in Kritzer, Guide to Practical Applications of the UN Convention (1989), Suppl. 7, 80-81 (Detailed Analysis of Article 7(2)).
5. See the first sentence of Article 4, supra No. 62.
6. See supra No. 71 with note 3 and infra No. 81 et seq.
7. Previously mentioned supra (No. 77) in connection with Convention 'interpretation' under Article 7(1). Re. estoppel see infra with note 12. Re., e.g. the prohibition against the 'misuse of rights' and the principle of 'reasonableness' see Herber in Schlechtriem. Commentary (1998) at 63 (party's conduct to be measured by views of 'reasonable person of the same kind'). For other suggestions of general principles to be found in the Convention see Magnus in Staudinger, Kommentar, Art. 7 Rd. Nm. 41-57, Ferrari, F., 'Uniform Interpretation of the 1980 Uniform Sales Law,' 24 Georgia Journal of International and Comparative Law 183 (1994) at 225 [available at <http://www.cisg.law.pace.edu/cisg/biblio/franco.html>], Honnold, Uniform Law (1999) §99 and Hyland, 'Conformity of Goods', in Einheitliches Kaufrecht und Nationales Obligationenrecht (Schlechtriem ed. Baden-Baden 1987) at 331-333. [page 53]
8. Arbitral awards No. SCH-4318 and SCH-4366, both decided on 15 June 1994 by Internationales Schiedsgericht der Bundeskammer der gewerblichen Wtrtschaft - Wien, RIW 1995, 590, 591, [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] and in UNILEX.
9. See infra No. 296 et seq.
10. Whereas the decision of LG Aachen (Germany) of 20 July 1995 (reported in UNILEX) expressly rejected an Article 7(2) solution to the interest-rate problem, noting that the Vienna Convention drafters tried but failed to solve the interest-rate problem, the Vienna arbitrators in the awards cited supra (in note 8) settled the very same problem using Article 7(2)!
11. This issue arose in Arbitral award No. SCH-4318, cited supra, note 8. Regarding the CISG notice provisions, which have been strictly construed by the German courts, see infra No. 186 et seq.
12. Said to be reflected in Article 16(2)(b), discussed infra No. 109, and in the second sentence of Article 29(2), noted infra No. 146. As authority for this proposition (abstraction), the Austrian tribunal cited Professor Bonell in Bianca-Bonell, Commentary at 81 [available at <http://www.cisg.law.pace.edu/cisg/biblio/bonell-bb7.html>] and Herber & Czerwenka, Internationales Kaufrecht at 48 (1991); accord Honnold, Uniform Law (1999) pp. 105 ff. See also the decision of OLG Karlsruhe, Germany, of 25 June 1997, RIW 1998 pp. 235-237, CLOUT Case 230, also reported [at <http://cisgw3.law.pace.edu/cases/970625g1.html> and] in UNILEX. See also infra No. 139 n. 4.
13. Decision of OLG Düsseldorf (2 July 1993). RIW 1993, 845, reported in [<http://cisgw3.law.pace.edu/cases/930702g1.html> and in] UNILEX. The American (Indiana) seller had sold a machine to the German buyer at a time when the CISG had been adopted by the USA, but not by Germany. The machine was delivered to, and installed in, a factory in Russia. In the course of its operation an accident occurred which killed one worker and injured several others. In the action brought by the buyer in Germany, relief was sought from the seller in the form of (a) damages for repair costs incurred by the buyer and (b) a declaratory judgment holding the seller liable for all losses that the buyer might incur as a result of the Russian workers' death and personal injuries.
14. See Schlechtriem, EW1R Art. 1 CISG 1/93, 1075-1076 (also in Kritzer, Guide, Vol. 2, Supp. 9, 1994).
15. As argued by Bernstein & Lookofsky, Understanding the CISG in Europe (The Hague 1997) p. 26, the use of Article 7(2) to determine the place of damages payment has no meaning unless the payment of damages is the relevant 'obligation' for German procedural purposes, which is not the case: in an action by a German buyer against an American seller seeking indemnification against possible third party personal injury claims, the relevant obligation is the seller's (Article 35) duty to deliver conforming goods; see Huber in v. Caemmerer & Schlechtriem, Kommentar, Art. 45, Rd. Nr. 64 with note 117 and BGHZ 78,257,261; see also the decision of OLG Koblenz of 23 February 1990, IPRax 1991, 241 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]; but see Herber id., Art. 7, Rd. Nr. 41 and Schlechtriem, previous note at id. Even assuming, arguendo, that the payment of damages is the relevant obligation, the German court's application of Article 7(2) should still be challenged, in that the issue of where a judgment debtor is to pay damages seems hardly a 'matter ... governed by' the CISG. Re. the place of performance of a buyer's obligation to pay the price under Art. 5(1) of the Brussels Convention, see generally Hertz, K., Jurisdiction in Contract and Tort under the Brussels Convention (Copenhagen 1998) Ch. 5.

80. If no relevant CISG 'general principle' can be found, then Article 7(2) provides that the 'matter' in question must be settled 'in conformity with the [substantive] law applicable by virtue of the rules of private international law' (PIL).

Usually, the PIL (choice of law) rules will point to a domestic substantive law rule.[1] In some commercial situations, however, the applicable substantive rule may prove to be an international rule, e.g., a rule located within the larger body of lex mercatoria; in such case, the decision-maker will in all likelihood have located a highly appropriate adjunct to the international CISG regime.[2]

1. See supra No. 79 with note 1.
2. Within an arbitral context, see Lowenfeld, 'Lex Mercatoria: an Arbitrator's View,' 6 Arbitration International 133 (1990) and Lookofsky, Transnational Litigation, Chapter 6.2.3 and pp. 661-6772 (re. the Deutsche Schachtbau case: [1987] 2 All ER 769). The UNIDROIT [page 54] Principles of International Commercial Contracts were drafted to establish a balanced set of rules designed for commercial use throughout the world: see generally Bonell M., An International Restatement of Contract Law (2nd ed. 1997) Ch. 1.

III. Interpretation of Statements by Parties

81. Article 8 of the CISG is concerned not with the interpretation of the Convention itself, but rather with the interpretation of 'statements' made (and conduct exhibited) by the parties, the buyer and seller in an international contract of sale. Article 8 provides as follows:

'1. For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

2. If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.'

3. In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.'

A. Subject Matter of Article 8: Statements and Conduct

82. The subject matter to be interpreted in accordance with Article 8 is the 'statements' (and conduct) of the parties, inter alia, the kind of statements made by the offeror and the offeree during the contract formation process as regulated by CISG Part II; indeed, Article.8 was originally drafted with sales contract formation in mind.[1] However, Article 8 came ultimately to be placed in CISG Part I, Chapter II, and its relevance as a General (part I) Provision therefore extends to Part III of the Convention as well.

1. See Honnold J., op. cit. (1999) at 115 with note 1.

83. Without straining the clear meaning of words, Article 8 would seem to govern the interpretation of an agreement containing 'statements' drafted ('made') by one party and then signed by the other.[1]

Moreover, although the terms of a document prepared with the full participation of both parties would seem difficult to subsume within the same ('statements ... of a [single] party') category, it might well be argued that the interpretation of such 'joint statements' is a matter governed by the Convention but not expressly settled in it; if so, this particular interpretation question should be similarly settled in conformity with the general interpretation principles laid down in Article 8.[2] [page 55]

1. Compare, e.g. the decision of LG Oldenburg (Germany), 28 February 1996, No. 12 O 2943/94, reported [at <http://cisgw3.law.pace.edu/cases/960228g1.html> and] in UNILEX (Dutch buyer ordered three 'truck loads' of eggs from German seller; reasonable seller should have understood buyer's statement/order to mean 3 full truck-loads).
2. Regarding Article 7(2) see supra No. 78 et seq. According to Professor Honnold (id. at 116 with note 3), paragraph (2) of Article 8 applies when a jointly executed instrument contains 'statements' prepared (and thus 'made') by one party and signed ('accepted') by the other. But when both parties 'participate fully' in preparing the instrument, he argues that only paragraph (3) would apply.

B. Subjective and Objective Tests

84. Depending on the circumstances, the statements of the parties are to be interpreted pursuant to either a subjective or an objective test. One party's statements and conduct are to be interpreted subjectively, according to his intent under paragraph (1), where the other party knew or could not have been unaware what that intent was. Where, however, such other party neither knew nor could have been so aware, the first party's statements are to be interpreted objectively under paragraph (2), according to the understanding that a reasonable person in the same circumstances would have had.

C. Due Consideration to All Relevant Circumstances

85. Paragraph (3) is a qualification of the objective interpretation test set forth in paragraph (2). In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case, including the negotiations, etc.

D. Common Law Parol Evidence Rule and Article 8

86. In those cases where the parties to a contract have memorialized their understanding in a written 'statement', courts in most Civil law jurisdictions, applying their domestic procedural law, will at least have the option to consider evidence (offered by one party) that a perhaps contradictory oral statement relating to the same contractual subject was also made.[l]

And because CISG Article 8 expressly requires that 'due consideration' be given to all (potentially) relevant circumstances, including the negotiations, most Convention commentators have argued that the 'parol evidence' rule (which, in reality, is a rule of substantive Common law)[2] is not compatible with the CISG.[3] Indeed, the parol rule seems so formalistic that it has even been seen as a source of 'embarrassment' to commentators residing in the Common law realm.[4]

In any case, the decisions of most American courts which thus far have addressed the issue are in agreement with the views previously set forth by the commentators: Article 8 is incompatible with - and precludes the application of - the (domestic) parol evidence rule in cases otherwise governed by the CISG.[5] [page 56]

On the other hand, Article 8 cannot - in and of itself (i.e., absent an express 'merger clause') - solve the hard problem of whether a given parol statement should be treated as 'part' of the contract;[6] i.e., as Common lawyers sometimes put it, the problem is whether the statement-maker 'intended' his statement to bind.[7] Within the CISG context, parol evidence type problems are likely to arise as regards the definition of conforming goods under Article 35, the question being whether a given oral statement made by the seller should be interpreted as a supplement and/or modification of the seller's written description of the goods.[8]

1. For a Swedish precedent (NJA 1980 p. 398) see Lookofsky, Consequential Damages in Comparative Context (Copenhagen 1989) at p. 56 (Buyer held entitled to rescind land purchase contract; Seller's prior oral assurances rendered written 'caveat emptor' zoning provision ineffective).
2. According to Arthur Corbin's classic, yet still viable definition (Contracts §573), the parol evidence 'rule' is as follows:
'When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol [oral] or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing ...'
3. See Lookofsky, id. at 55.
4. See Honnold, J., op. cit. at p. 121. Some time ago, the English Law Commission concluded that the so-called 'rule' does not exclude evidence which. in the interests of justice, ought to be admitted): see Halsburry's Monthly Review, March 1986 at 12-13.
5. See CLOUT Case 222: MCC-Marble Ceramic Center Inc. v. Ceramica Nuova D'Agostino S.p.A., 144 F.3d 1384 (11th Cir. 1998) [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], citing, inter alia, the views of Bernstein & Lookofsky, Understanding the CISG in Europe p. 29 (1997). See also Mitchell Aircraft Spares Inc. v. European Aircraft Service AB, 23 F.Supp. 2d 915 (ND.lll. 1998) [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]. But see Beijing Metals & Minerals Import/Export Corp. v. American Business Ctr., Inc., 993 F.2d 1178 (5th Cir. 1993) [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>].
6. Parties wishing to avoid parol evidence problems under Art. 8 may include in their contract a so-called merger clause that extinguishes the effect of all prior agreements and understandings not expressed in the writing: see MCC-Marble Ceramic Center Inc. v. Ceramica Nuova D'Agostino S.p.A., supra preceding note.
7. Regarding intent and reliance under English law see, e.g. Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 2 All E.R 65 (Lord Denning: representation is warranty if 'intended to be acted on and ... in fact acted on').
8. For a concrete illustration of this particular problem, see Lookofsky, 'Loose Ends and Contorts ...', 39 Am. J. Comp. L (1991), pp. 407-410 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>].

IV. Commercial Custom and Usage

87. By virtue of CISG Article 9, commercial custom and usage become part of the international contract of sale. Article 9 provides as follows:

'1. The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

2. The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.'[page 57]

A. Express Agreement and Inter Partes Course of Dealing

88. The first part of Paragraph 1 covers the seemingly rare situation where the parties have actually agreed to be bound by a given trade usage; indeed, virtually any agreement between the parties (including, of course, an express contractual provision) takes precedence over the otherwise applicable CISG supplementary rule.[1]

In addition, Paragraph 1 also regulates a more commercially significant group of cases where the parties have established a practice between themselves.[2]

1. Compare the decision of Oberster Gerichtshof, Austria, 6 February 1996, No. 100b 518/95, [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] UNILEX (buyer had no knowledge of seller's intent to conclude contract on seller's standard terms). Regarding Article 6, see supra No. 70 et seq.
2. This corresponds to what the American Uniform Commercial Code §2-205(1) calls a 'course of dealing'. The similarity between the UCC and CISG concepts is highlighed in the opinion of the U.S. District Court in Calzaturificio Claudia S.n.c. v. Olivieri Footwear Ltd., WESTLAW 16482 (S.D.N.Y 1998), also reported in UNILEX: citing CISG Article 9(1), the court held that delivery ex works did not amount to a 'course of dealing' since seller failed to submit sufficient evidence with regard to similar terms in other transactions with buyer.

B. Implied Incorporation of Commercial Usage

89. Paragraph 2 of Article 9 lays down the requirements for the implied incorporation of a given usage in the particular international trade. To be applicable, the usage must be one which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.[1]

1. See, e.g., the decision of Gerechtshof's Hertogenbosch (Netherlands), 24 April 1996 (No. 456/95/He, reported in UNILEX), holding that the buyer, an experienced businessman in the trade concerned, could not have been unaware of the widespread use of standard terms referred to by seller in its confirmation of buyer's order, nor of specific provisions on interest, which were not of such a character that buyer could not have expected them.

90. An international custom which fulfils the Article 9 criteria takes precedence over the Convention's supplementary rules, i.e., both the contract formation rules of Part II as well as the gap-filling rights and obligations as defined in Part III. Thus, whether a buyer who fails initially to discover a non-conformity can later allege breach may well depend on an established practice between the parties or a (well known) trade usage regarding the nature of a buyer's duty to inspect within the area of trade concerned (caveat emptor).[1] Trade usage may also affect, e.g. an international seller's right to claim interest for late payment at the rate specified in standard business terms.[2]

1. Regarding Article 35 see infra No. 161 et seq.
2. See, e.g., the decision of Gerechtshof's Hertogenbosch (Netherlands), 24 April 1996, No. 456/95/He, reported in UNILEX.
[page 58]

V. Place of Business: Rules for Exceptional Cases

91. A number of Convention rules refer to a party's 'place of business'.[1] Article l0(a) provides that if a party has more than one place of business, then the relevant place of business is that which has the closest relationship to the contract and its performance.[2] Applying this rule in a case where an Austrian buyer purchased goods from the Swiss branch of a company with headquarters in Liechtenstein (notably: a non-Contracting State), a Swiss court held the contract was governed by the CISG, since it was the Swiss branch which had the closest relationship to the contract and its performance.[3]

Under the rule in Article 10, paragraph (b), if a party does not have a(ny) place of business, reference is to be made to that party's habitual residence.

1. See Articles 1 (supra No. 52), 12 (infra No. 94), 20(2) (infra No. 127), 31(c) (infra No. 155), 42(1)(b) (infra No. 202), 57(1)(a) (infra No. 242), 69(2) (infra No. 273) and 96 (infra No. 332).
2. This having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract: see Article 10(a).
3. See the decision of Bezirksgericht der Saane (Switzerland), 20 February 1997, CLOUT Case 261 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>].

VI. No Writing Requirement for CISG Contract

92. Some legal systems require that (certain) sales contracts be in writing.[1] Dispensing with that kind of 'formal validity' requirement in the international sales context, Article 11 of the CISG provides as follows:

'A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.'

1. The American Uniform Commercial Code, for example, maintains the 'Statute of Frauds' as regards certain contracts for the sale of goods: see UCC §2-201. In the United Kingdom. the corresponding rule (§4 of the Sale of Goods Act) was repealed in 1954.

A. Relation to Formal Requirements Under Domestic Law

93. In most CISG Contracting States, Article 11 serves to override the formal validity requirements of domestic law.[1] On the hand, it should be noted that the rule does not bar the parties from imposing formal requirements, nor does it necessarily negate certain regulations (and sanctions) in States which require a writing for purposes of administrative control or for enforcement of exchange control laws.[2]

1. Regarding declarations in derogation of Article 11, see Article 12 and No. 94 et seq.
2. See A/CONF./97/5, Secretariat's Commentary to Article 10 of the 1978 draft, para. 2. Regarding agreements as to form. government procurement contracts and the relationship between Article 4(a) and Article 11, see Honnold, Uniform Law (1999) pp. 135-137 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
[page 59]

B. Declarations in Derogation of Article 11

94. Just as the general rule in Article 11 is that CISG sales contracts need not be in writing, other Convention rules dispense with writing requirements as regards contract formation and contract modification. However, many States still attach great importance to requirements such as these, and in order to make the Convention acceptable for those States, Article 12 of the CISG provides as follows:

'Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.'

95. As a starting point, the rules in Articles 11, 29 and CISG Part II do 'not apply' where a party has its place of business in a State whose domestic legislation requires contracts of sale to be concluded in or evidenced by writing and which therefore ratifies the CISG subject to an Article 96 declaration.[1]

1. Regarding Articles 12 and 96 see infra No. 332.

96. However, the effect of an Article 96 declaration is limited, in that only the declaring State's formal writing requirement remains applicable to international sales subject to the CISG. Where only one of the parties to an international sales contract resides in such a declaring State, the forum court must resolve a conflict of laws; a forum court asked to apply the formal requirements of the declaring State (as opposed to Article 11) should do so only when its rules of private international law lead to the application of the declaring State's law.[1]

1. See, e.g., the decision of Hoge Raad (Netherlands), 7 November 1997, NIPR 1998, nr. 91, also reported in UNILEX, where the applicable (Dutch) PIL rules led (not to the law of Russia, which has made an Article 96 declaration, but rather) to the seller's (Dutch) law and thus the CISG. Rule in Art. 11. Accord: Honnold J., op. cit. (1999) at pp. 139 ff. [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]

VII. Definition of 'Writing'

97. CISG Article 21(2), concerning late acceptance, and Article 29(2), concerning contract modification, both make use of the term 'writing'.[1] Article 13 defines this term as follows:

'For the purposes of this Convention 'writing' includes telegram and telex'.

1. See infra Nos. 128 and 146.

98. According to Article 13, the term writing 'includes' telegram and telex. On the other hand, Article 13 does not define the term to exclude such increasingly popular means of communication as telefax transmissions or electronic data [page 60] exchange; these should also be treated as 'writings' under Article 13.[1] This 'matter' - though not expressly settled in the Convention - is arguably 'governed' by it, and an expansive reading of the term writing to include more modern, yet clearly analogous; means of communication might arguably be said conform with the 'general principle' on which the Convention (at least Article 13) is based.[2] It may be noted in this connection that Articles 21(2) and 29(2) do not require that a writing be signed.

1. Honnold J., op. cit. (1999) at 141 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. Regarding Article 7(2) and decision-making by analogy, see supra No. 79. Compare Oberster Gerichtshof, 2 July 1993 (l Ob 525-93), reported in UNILEX, rejecting the argument that a telefax used to declare avoidance of a domestic leasing contract should be considered valid by analogy to CISG Article 13.
[page 61]


Chapter 4. Sales Contract Formation

99. Assuming that the sales contract in question falls within the CISG sphere,[1] then questions relating to the formation of that contract will usually be governed by CISG Part II (Articles 14-24).

A limitation as to the applicability of CISG Part II derives from Article 92, in that a CISG Contracting State may declare that it will 'not be bound' by CISG Part II. And although the Scandinavian States (Denmark, Finland, Norway and Sweden) have all made Article 92 declarations,[2] it may in the present context be noted that the effect of the said declarations is not to deprive CISG Part II of all relevance for parties residing in the States concerned.[3]

1. See supra No. 51 et seq.
2. Two main arguments were advanced by those Scandinavian jurists who advocated that reservations be made with respect to CISG Part II. First, as regards the revocability of offers, the Part II rules were said to be unduly influenced by the corresponding Common law rules: in particular, the right to revoke a CISG offer was perceived as something foreign to Scandinavian law. Second, it was feared that CISG Part II - which regulates only contract formation, but not contract validity - might create uncertainty as to whether a valid sales contract had been made. Neither argument seems convincing upon closer analysis: see Lookofsky, J., Understanding tire CISG in Scandinavia (Copenhagen 1996), §3-1.
3. For a more complete discussion of the effect of the Article 92 declarations see infra No. 328.

§ 1. THE OFFER

I. Minimum Requirements

100. The offer is the starting point - and often also the focal point - in the contract formation process. In order to qualify as a CISG offer (capable of being accepted), a proposal must meet certain minimum requirements. Paragraph 1 of Article 14 provides as follows:

'(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.'

A. Definiteness & Intention to be Bound. Offer Addressed to Specific Persons

101. Article 14(1) indicates that the key elements of a CISG offer are definiteness and the offeror's intention to be bound, and the latter is best regarded as the primary criterion.[l] [page 62]

The CISG offeror is properly regarded as the 'master' of his offer, in that the offer is to be interpreted according to the offeror's intent, at least in cases where the offeree knew or could not have been unaware what that intent was.[2] Absent clear evidence of this, however, weight will be placed on the understanding that a 'reasonable person' in the position of the offeree would have had.[3]

According to the second sentence of Article 14(1), a proposal is sufficiently definite if it (a) 'indicates the goods' and (b) 'expressly or implicitly fixes or makes provision for determining' the quantity and price. For example, a purchase order which identifies standard software and the compensation to be paid will satisfy these minimum requirements,[4] just as an order for chinchilla pelts of 'middle or better quality' at price 'between 35 and 65 German marks' has been held sufficiently definite under Article 14.[5]

Conversely, a proposal which fails to satisfy the requirement of definiteness cannot qualify as a CISG offer, nor can it qualify as a counter-offer under Article 19(1).[6] But if a given CISG offer seems incomplete at first blush, custom and usage may serve to fill it out. In a Hungarian case, a seemingly nebulous oral offer by a German seller was held sufficiently definite under Article 14(1), in that the quality, quantity and price of the goods were impliedly fixed by the parties' prior course of dealing in accordance with Article 9(2): the seller repeatedly had delivered goods ordered by the buyer, who had regularly and without objection paid the price after delivery.[7]

As regards the requirement that the proposal must 'indicate the goods', it may be noted that the Convention provides a mechanism whereby the seller can fill the gap left by a buyer who fails to make specifications as otherwise required by the contract.[8]

If a particular proposal addressed to one or more specific persons is sufficiently definite, it will qualify as an offer; proposals not so addressed must be evaluated in accordance with Article 14, paragraph 2.[9]

1. Some commentators see both definiteness and specificity as subsets of the requirement of intention to be bound: see, e.g. Honnold, J., Uniform Law Sales (1999) at p. 147 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. Regarding Article 8(1), see supra No. 81 et seq.
3. Article 8(2). See, e.g., the decision of Oberster Gerichtshof (Austria), 20 March 1997, No. 2 Ob 58197m, ZfRV 1997, 204-207, also reported [at <http://cisgw3.law.pace.edu/cases/970320a3.html> and] in UNILEX.
4. See the decision of LG München, 8 February 1995, No. 8 HKO 24667/93, CLOUT Case 131, also reported [at <http://cisgw3.law.pace.edu/cases/950208g4.html> and] in UNILEX.
5. See the decision of the Austrian Supreme Court (Oberster Gerichtshof) of 10 November 1994, CLOUT Case 106, also reported [at <http://cisgw3.law.pace.edu/cases/941110a3.html> and] in UNILEX.
6. See infra No. 118 et seq. and the decision of OLG Frankfurt am Main (Germany), 4 March 1994, No. 10 U 80/93, reported [at <http://cisgw3.law.pace.edu/cases/940304g1.html> and] in UNILEX, where a Swedish buyer's order was held to constitute a rejection of the German seller's offer under (German domestic law and) CISG Article 19(1), whereas it was not sufficiently definite to constitute a counter-offer under Article 14 (also corresponding to German law). Although the court seems to have avoided express consideration of the Swedish Article 92 declaration, the declaration would not have affected the outcome in a case like this: see infra No. 328.
7. See, e.g. the decision of the Court of Budapest of 24 March 1992, reported [at <http://cisgw3.law.pace.edu/cases/920324h1.html> and] in UNILEX; see also Vida in IPRax 1993 at 263. Regarding Article 9(2) see supra No. 89 et seq.
8. Regarding Article 65 see infra No. 264.
9. See infra No. 103.
[page 63]

B. Problem of Price-Gap

102. The most controversial Article 14(1) question relates to the requirement of definiteness. To be sure, a proposal is sufficiently definite if it ... fixes or makes provision for determining ... the price, but is it possible to make an e contrario deduction, such that a proposal which leaves the price term 'open' is not sufficiently definite and therefore not a (valid) CISG offer? If the e contrario deduction is permissible, and if one party has its place of business in a State where open price terms are invalid under domestic law,[1] then a court could declare a contract with an open price term invalid under the applicable (domestic) law.[2]

The problem has not been clarified - and may even have been exacerbated - by CISG Article 55 which provides a gap-filling reference to the price 'generally charged' in cases '[w]here a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price'.[3] Although the wording and the legislative history of Article 55 seem inconclusive, it at least seems clear that Article 55 does not negate the notion that open price terms might sometimes be invalid,[4] just as we should reject the converse contention that a price gap is necessarily fatal to an offer under Article 14.[5]

A sound starting point for courts and arbitrators would be to try and discern the intention of the parties in the concrete case,[6] so as to determine whether or not they themselves actually wanted their open-price-term agreement to bind. Not only is the intention of the parties the overriding principle of Article 14,[7] but Article 6 lets the parties derogate from nearly any CISG provision, including - it would seem Article 14.[8] To determine the parties' intention, we refer to the flexible principles set forth in Article 8;[9] if, on this basis, it appears that the parties (expressly or impliedly) 'intended' to be bound by their agreement, including the open price term, then that intention should prevail. A domestic rule, such as Article 1591 of the French Civil Code, should not be allowed to override the clearly contrary intention of the parties to an international sale.[10]

1. This is, for example, the case under French domestic law.
2. See the discussion in Farnsworth, E.A., 'Formation of Contract,' in International Sales (Galston and Smit ed., New York 1984) at pp. 3-8 [available at <http://www.cisg.law.pace.edu/cisg/biblio/farnsworth1.html>] (seeing this as the unfortunate implication). See also Murray, L, 'An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods,' Vol. 8 Journal of Law and Commerce 11 (1988), 13-17 [available at <http://www.cisg.law.pace.edu/cisg/biblio/murray.html>]. Compare Witz, C., Les premières applications jurisprudentielles du droit uniforme de la vente internationale (Paris 1995) at 61 f.
3. Emphasis added. See infra No. 240.
4. Compare Honnold's position in the first (1981) edition of Uniform Law at 164 (Article 55 'precludes argument' that price gap can be fatal under Article 14); compare the 3rd edition (1999) at 150-157 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] re. the possibility of a fatal gap by virtue of domestic law.
5. Clearly, CISG Article 14 does not say or imply that a proposal is invalid (for indefiniteness) if it fails to fix the price.
Some observers see Article 55 as a rule tailored to the special needs of the Scandinavian States (who are 'not bound' by Article 14 or any other rule in CISG Part ll): see, e.g., Bergem & Rognlien, Kjopsloven (Oslo 1991) pp. 591 ff. But the legislative history of Article 55 hardly warrants the conclusion that the validity of an open price term contract depends on whether the parties reside in States which have ratified Part II, in that all States which ratify CISG Part III must be bound by the same Article 55, whatever it means: see Lookofsky, Understanding the CISG in Scandinavia (1996) §3-3. See also infra No. 240. Regarding the 'Scandinavian' Article 92 declarations, see infra No. 328. [page 64]
6. Accord: Hager, G. in Schlechtriem, P., Commentary (1998) p. 462.
7. Supra No. 100 et seq.
8. Accord: Hager, G. op. cit.
9. Supra No. 81 et seq.
10. Accord Witz, Premières Applications pp. 68-70. See also Magnus in Staudinger, Kommentar, Art. 14, Rd. Nr. 34 and authors cited there. See also Article 2.2 of the UNIDROIT Principles indicating that the position taken here is an internationally acceptable interpretation of the Article 14 rule; re. CISG Article 7(1) see supra No. 76.
Allowing the parties to a CISG contract to contract out of contrary domestic validity rules accords with generally accepted PIL principles, e.g., Article 3(1) and 3(3) of the 1980 Rome Convention on the Law Applicable to Contractual Matters.

C. Invitation to Make Offers Distinguished

103. The CISG distinguishes between an offer, which binds the offeror, and an invitation that others make offers, which does not. Paragraph (2) of Article 14 provides:

'(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.'

Paragraph (2) of Article 14 reaffirms the starting point in. Paragraph 1: a proposal not addressed to one or more specific persons is to be interpreted - presumptively as an invitation to make offers.[1] However, a proposal clearly evidencing an intention to be bound should be treated as a true offer (which is subject to the various rules which apply to offers and their acceptance in CISG Part II).

1. The converse - that a proposal addressed to one or more specific persons is considered to be an offer - does not necessarily follow from paragraph (2). For a contrary view, 'paraphrasing' paragraph (2), see Murray, J., op. cit. No. 102 at p. 18.

II. Time Offer Takes Effect; Right to Withdraw

104. Assuming a proposal meets the requirements for an offer set forth in CISG Article 14, the next step is to determine when that offer takes effect. This point in time is significant as regards the offeror's right to 'withdraw' an offer prior to the time of its receipt by the offeree. Article 15 provides as follows:

'1. An offer becomes effective when it reaches the offeree.

2. An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.'

According to Article 15, paragraph (I), an offer becomes effective when it 'reaches' the offeree. Whereas an offer made orally may be said to 'reach' the recipient immediately (as soon as it is made), a written communication first reaches the offeree when it is actually 'delivered' to the offeree or to his place of business.[1] [page 65]

According to paragraph (2) of Article 15, an offer may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Note that this is true even if the offer is 'irrevocable,' a term defined in Article 16 below.

It should be emphasized that Article 15(2) applies only to an offer which because it has not even 'reached' the offeree (the recipient) - cannot be described as having 'become effective'; such an offer can be 'withdrawn'. The right to 'revoke', dealt with in CISG Article 16, concerns the right of the offeror to call back an offer which has reached the offeree and which has therefore become effective.

1. The term 'reach' is defined in Article 24: see infra No. 133.

III. Offeror's Right to Revoke

105. Once an offer, not effectively withdrawn, has reached the offeree, the issue is the offeror's right to revoke (call back) his offer.

In some legal systems, the default rule is that every offer received is deemed to be irrevocable (binding), at least for a reasonable time;[1] in other (e.g. Common law) systems, the starting point is that offers do not generally bind the offeror until such time as the offeree actually accepts the offer.[2]

Article 16 of the CISG, which represents a compromise between these domestic extremes, provides as follows:

'1. Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

2. However, an offer cannot be revoked:
a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or
b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.'

1. This is the view taken in Scandinavia: see paragraph 1 of the Uniform Contracts Acts.
2. This is the traditional Common law view and the view still held in England. Regarding the American view see infra No. 106.

A. Revocability is General Rule

106. The starting point in Article 16, paragraph (1) is that CISG offers are revocable, in that, an offer (which, having reached the offeree, has become effective) may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. .

Although paragraph (1) seems to accord with, the view traditionally taken in some Common law systems, two comparative points may be noted. The first point is that the CISG rule in Article 16(1), that an offer may be revoked before an acceptance is dispatched, does not imply that a CISG contract is concluded when the acceptance is dispatched.[1] [page 66]

The second, particularly important point is that Article 16(1) represents but a starting point which must be read in conjunction with the two significant modifications contained in Article 16, paragraph (2); both of these modifications (exceptions to the revocability rule) find analogues in the corresponding American law of contracts and sales.[2]

1. Note that under the Common law view, an acceptance made by a non-instantaneous means of communication is effective upon dispatch, thus concluding the contract, whereas the rule in CISG Article 23 is closer to the Civilian view: see infra No. 132.
2. See §2-205 of the Uniform Commercial Code and §87 of the Restatement (2d) of Contracts.

B. Modification: Offer Indicating Irrevocability

107. The first exception to the Article 16(1) rule derives from the already familiar principle that the offeror is the master of the offer. This is confirmed by subparagraph 2(a): an offer to enter an international contract of sale which itself 'indicates ... that it is irrevocable' cannot be revoked. The offeror may make the requisite indication of irrevocability either by 'stating a fixed time for acceptance' or by some other means.

The clear and simple main message of subparagraph 2(a) thus is that the CISG offeror is bound by his word. If, for example, the offeror makes his offer on 1 February and states that the offer 'will be held open' until a given date (e.g. until 15 February), this represents a clear indication of irrevocability - in effect, a promise that the offer will be held open - and the offer cannot be revoked during the time stated, even if the offeror should later change his mind.

C. Offer Fixing Time for Acceptance

108. At least one aspect of subparagraph (2)(a) has provoked some doctrinal debate.[1] The issue is whether an offer which merely 'fixes a time for acceptance' should - for that reason alone - be interpreted as irrevocable.

Suppose, for example, that the offeror states that the offeree's 'acceptance must be received before March 1st'. Some might read this phrase as relating only to the time frame for acceptance; others might say the offeror - by providing the time frame for acceptance - has (also) indicated that the offer is irrevocable during the stated period.

It is submitted each that case must be decided on its own facts, i.e., each individual offer should be interpreted on its own terms. Depending on the circumstances and the larger contractual context, the fact that an offer contains a statement relating to the time for acceptance may - or may not - be interpreted as (also) implying a promise not to revoke.[2]

1. Regarding the controversy see, e.g. Honnold, J., Uniform Law (1999) at pp. 162-163 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]; Farnsworth, EA, op. cit. at pp. 3-11; Schlechtriem, Commentary (1998) at 120-122, and Murray, J., op. cit. (No. 102) at pp. 24-25. [page 67]
2. See Article 8, supra No. 81 et seq. Compare Schlechtriem, op. cit. at 121 (expressing the view that the fixing of a time for acceptance should give rise to a rebuttable presumption of irrevocability) and Murray, J., op. cit. at p. 25 (advising that offerors desiring to retain the right to revoke should expressly so state).

D. Modification: Action in Reliance

109. Subparagraph (2)(b) of Article 16 provides a further modification of the starting point set forth in paragraph (1). An offer may not be revoked if it was reasonable for the offeree to act in reliance on the offer, and the offeree has in fact. acted in reliance on it.

For example, the rule might be applied in a situation where B 'relies' on an (otherwise revocable) offer made by S, in that B (before accepting S's offer) offers to 're-sell' the same goods to C. If S revokes his offer to B after C effectively accepts the offer by B, but before B effectively accepts the offer by S, the key issue is whether it was reasonable for the offeree (B) to have so acted in reliance on the offer by S; for if the reliance was not reasonable, S will have rightly revoked his offer under the rule in Article 16(1), and B's (late) acceptance will have had no effect.

In American law, where courts often have had occasion to apply a very similar rule, reliance similar to the kind just described is likely to preclude the revocation of an otherwise revocable offer, provided the reliance was reasonably foreseeable by the offeror.[1] Although the CISG version of the rule deserves an 'autonomous' (Article 7) interpretation, it would seem that the foreseeablity of reliance (by the offeror) should at least be regarded a relevant factor pointing to the reasonableness of an offeree's act of reliance under Article 16(2)(b). Thus, it would hardly seem reasonable for a CISG offeree to conduct an 'extensive' - and expensive - 'investigation' concerning the advisability of acceptance, unless such an investigation was reasonably foreseeable by the offeror.[2]

1. Unlike subparagraph (2)(b) of Article 16, which asks whether the offeree has reasonably relied, the key issue under §87(2) of the Restatement (2d) of Contracts, is whether the offeror should reasonably expect his offer to induce reliance.
2. Compare Secretariat's Commentary, A/CONF./97/5. Comment 8 to Article 14 of the 1978 Draft.

IV. Effect of Rejection

110. In most domestic systems, a rejection serves to 'kill' the offer. Article 17 of the CISG provides a rule which accords with this idea: 'An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror'.

Article 17 was designed for a simple, limited purpose: the protection of the reasonable expectations of the offeror. Having received a rejection from the offeree,[1] the offeror should be free to take his business elsewhere. Indeed, even if the offeror was originally bound by an irrevocable offer, the offer dies when the rejection is received.

1. As regards a purported acceptance which varies from the content of the original offer, see Article 19 and infra No. 118 et seq. [page 68]

§2. ACCEPTANCE UNDER ARTICLES 18-22

111. Articles 18-22 of CISG Part II deal with the subject of acceptance.

I. Acceptance: Indication of Assent

112. Paragraph (1) of Article 18 tells us which kinds of statement constitute a true acceptance:

'(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance'.

113. According to the rule in paragraph (1), an acceptance may consist of a statement or of other conduct, e.g., shipping goods which the buyer has offered to buy. Whatever the form, for a statement or conduct to constitute an acceptance, it must provide some indication of the offeree's assent.

On the other hand, since the CISG does not impose upon the offeree a general duty to reply, silence or inactivity does not - in itself - amount to acceptance. Therefore, the offeror cannot bind the offeree in advance merely by stating that silence will be treated as an indication of the offeree's assent. Then again, if the offeree initiates a transaction by soliciting an offer, he - the offeree - may bind himself in advance by indicating that an offer received will be deemed accepted absent contrary indication by the offeree within a specified period.[1]

1. See the decision of Cour de Cassation (France) of 27 Janury 1998 (180 P), also reported in UNILEX (applying the principle set forth in Article 18(1) in case where buyer had requested that goods purchased be modified and had accepted them without reservation). See also the decision of OLG Köln (Germany), 22 Februrary 1994 (22 U 202193), RIW 1994,972-973, also reported in UNILEX (silence, linked to other circumstances, constituted an acceptance). Regarding the decision (reported in Danish) in Ugeskrift for Retsvæsen 1998 at p. 1092 (where the offeree's silence did not constitute an acceptance), see Lookofsky, J., 'Alive and Well in Scandinavia: CISG Part II,' 18 Journal of Law & Commerce 289-299 (1999) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky1.html>].

II. Time Acceptance Takes Effect

A. When Assent Reaches Offeror

114. Paragraph (2) of Article 18, which determines the point in time at which an acceptance (under the first paragraph) becomes effective, provides as follows:

'(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication [page 69] employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.'

By virtue of the rules set forth in paragraph (2), an acceptance becomes effective upon the timely anival of the offeree's indication of assent.[1] In other words, to be effective, the acceptance must arrive, and it must arrive 'in time'.

1. As to when such a communication 'reaches' the offeror, see Article 24, discussed infra in No. 133. Once the acceptance becomes effective, a contract is formed pursuant to Article 23: see infra No. 132.

B. Receipt Theory

115. An important consequence of the 'receipt theory' of acceptance, as adopted by the CISG in Article 18(2), is that the sender of the acceptance (the offeree) must bear the risk of transmission, i.e., the risk that the acceptance may never really arrive, e.g., if the acceptance is lost in the mail. In other words, absent contrary prior agreement, the offeree's notice of acceptance must in some manner actually reach the offeror, in order to bring about the legal consequences generally associated with the acceptance of a CISG offer.

C. Acceptance Within Time Fixed or Reasonable Time

116. In accordance with the principle that the offeror is the master of the offer, the acceptance must reach the offeror within the time which the offeror has fixed.[l] If no time has been fixed, the CISG default rule is that the acceptance must reach its destination within a 'reasonable' time, taking due account of all the circumstances. Thus, an offer sent by telefax will require a more prompt reply than an offer sent by post. Absent contrary indication, an oral offer requires an 'immediate' acceptance.

1. Regarding the time at which such a period begins to run, see Article 20 and infra No. 126.

D. Assent By Performance of Act

117. As regards the time at which acceptance takes effect, paragraph (3) of Article 18 provides for cases where the offeree assents by performing an act:

'(3) ... if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.' [page 70]

In many cases, the offeror will call upon the offeree to 'indicate assent' by a statement of intention, i.e., a notification which serves as a promise by the offeree to act at some future point in time.

Sometimes, however, the offeror will request - or at least impliedly condone that the offeree accept without actually making such a statement. For example, the offeror may request or condone that the offeree accept by performing an act, e.g. shipping the goods ordered by the offeror. A similar understanding may follow from a 'course of dealing' established between the particular parties concerned or from a broader usage among merchants within the particular trade.[1]

In all such cases, assuming the act is performed within the time fixed by the offeror or within a reasonable time, the offeree's acceptance becomes effective at the moment the act is actually performed.[2] And from this it follows that the offeror cannot revoke (even an otherwise revocable offer) if the purported revocation reaches the offeree after the act requested has been performed.[3]

1. Regarding these concepts under Article 9 see supra No. 87 et seq.
2. See, e.g., the decision of OLG Frankfurt am Main, 23 May 1995 (5 U 209/94), reported in UNILEX (delivery by seller may constitute acceptance by performance).
3. This conforms with the corresponding principle laid down in Article 16(1): see supra No. 105 et seq. Regarding the non-notice situation described in Article 18(3), see Murray, J., op. cit., (No. 102), pp. 30-33.

III. Mirror Image and Battle of Forms

A. Introduction

118. The offeror is the master of the offer. Article 19 of the CISG serves to link this golden CISG rule both to the 'mirror-image' concept of acceptance and to the much-discussed commercial phenomenon known as the 'battle of forms'. Article 19(1) provides as follows:

'A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.'

B. Non-Matching Reply is Rejection and Counter-Offer

119. Article 19(1) conforms with traditional theory: because contractual obligations arise out of expressions of mutual agreement, an acceptance must 'match' the offer. So the CISG starting point is that a reply purporting to be an acceptance which does not reflect the terms of the offer constitutes - not an acceptance, but - a rejection and counter-offer.[1]

1. See, e.g., OLG Hamm (Germany), 22 September 1992 (1997/91), reported in UNILEX (buyer requested wrapped bacon; seller's reply to deliver unwrapped bacon was rejection and counter-offer). See also, the decision of OLG Frankfurt am Main (Germany), 23 May 1995 (5 U 209/94), also reported in UNILEX (delivery by seller of quantity less than that ordered by buyer constituted rejection and counter-offer). [page 71]

C. Independent Communication Not Rejection

120. Not every non-conforming reply will 'purport to be an acceptance' of the offer in question. Sometimes, for example, a reply which makes inquiries or suggests the possibility of additional terms is intended to explore the willingness of the offeror to bargain (accept terms more favourable to the offeree), while leaving open the possibility that the offeree may later accept the offeror's original terms.[1] If such an 'independent communication' is a reasonable interpretation of the offeree's intent,[2] it will not constitute a rejection coupled with a counter offer.

1. See Secretariat's Commentary, A/CONF./97/5, Comment 4 to Article 17(1) of the 1978 Draft.
2. Regarding Article 8 see supra No. 81 et seq.

D. Limited Exception to Mirror-Image Rule

121. Although paragraph (1) of Article 19 provides that a reply purporting to be an acceptance which does not reflect the terms of the offer constitutes a rejection and counter-offer, Article 19, paragraph (2) carves out an exception to the general 'mirror-image' rule:

'However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.'

Application of the exception created by paragraph (2) of Article 19 is likely to arise within the context of a so-called 'battle of forms'.

E. The Battle of Forms

1. Introduction

122. An international contract of sale is not always the product of a formal negotiation. In many typical cases, the parties communicate by exchanging brief (e.g telex or telefax) communications, and these are often coupled with a subsequent exchange (though not necessarily a 'battle') of standard forms of agreement. In these and similar cases, the offeree's reply will very likely signal some sort of 'purported' acceptance, but not all the standard terms contained in the acceptance (e.g. seller's invoice) are likely to match those contained in the offer (e.g. buyer's purchase order). Should the non-conforming reply be treated as an acceptance? [page 72]

2. Materiality Test

123. In order to help resolve cases like those just described, CISG Article 19 sets forth a seemingly limited exception to the traditional mirror-image rule and regulates the exception by a materiality test. The effect of this exception (which itself works as a gap-filling (default) rule, presumably reflecting the will of most contracting parties) is that the existence of immaterial inconsistencies do not block the deal: that is, a purported acceptance which contains additional or different terms which do not materially alter the terms of the offer constitutes a true acceptance, and the terms of the contract become the terms of the offer with the modifications contained in the acceptance. Only if the offeror, without undue delay, objects to the (immaterial) discrepancy will the offeree's reply be deemed a rejection.[l]

1. Because CISG Article 19(2) may permit speculation at the expense of the offeree, one commentator has dubbed this an 'objectively absurd' rule: see Murray, J., op. cit. (No. 102) at pp. 42-43.

3. Materiality Defined

124. CISG Article 19 is not the first sales statute which attempts to provide a sensible solution to the non-conforming acceptance (and the battle of forms). Judged by its wording, and when compared to some bolder domestic formulations, Article 19 might seem to represent a limited and conservative exception to the general mirror-image rule.[l] In particular, as regards materiality, paragraph (3) of Article 19 provides the following definition:

'Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.'

Although paragraph (3) sets forth a non-exhaustive ('among other things') list of provisions deemed material in the Article 19 sense, the broad-ranging list of specifically listed items have made it difficult for some commentators to even 'imagine variations that would not be material'.[2]

Then again, first impressions can prove deceptive upon closer analysis. For one thing, some prominent German scholars treat Article 19(3) as merely establishing a rebuttable presumption of materiality,[3] and German case law has already shown that, e.g. a clause requiring 'notice-of-defects' within 30 days after the date of the invoice may be non-material under Article 19(2), notwithstanding the fact that the buyer's failure to notify within the stated time period effectively insulates the seller from all liability claims based on non-conforming goods.[4] [page 73]

An important related point is that it is not possible to understand Article 19 in isolation from other Convention provisions. For example a reply containing an additional term (as opposed to a modification) which conforms to international trade usage will not constitute a 'material addition' even if it deals with a topic listed in paragraph (3).[5]

1. Accord: Nicholas, B., 'The Vienna Convention on International Sales Law,' 105 Law Quarterly Review 201,217 (1989). Regarding a far more extensive (and controversial) domestic provision (§2-207 of the American Uniform Commercial Code) see White and Sununers, Handbook of the Law Under the Uniform Commercial Code, §1-3.
2. Farnsworth, E., op. cit. (No. 102, note 2) at pp. 3-16. See also, e.g., decision of OLG München (Germany), 8 February 1995, No. 7 U 1720/94, reported [at <http://cisgw3.law.pace.edu/cases/950208g1.html> and] in UNILEX (significant reduction of time for delivery was material modification of seller's offer). See also Cour de Cassation, 16 July 1998 (1309 P), reported [at <http://cisgw3.law.pace.edu/cases/980716f1.html> and] in UNILEX (clause conferring jurisdiction on French court, contrary to rule in Art. 5(1) of Brussels Convention, was material alteration).
3. These scholars emphasize that terms relating to the subjects listed in Article 19(3) are considered (sont considérés) material; the provision does not say that they must be so considered: see Magnus in Staudinger, Kommentar, Art. 19, Rd. Nr. 16 and authors cited there.
4. See the decision of Landgericht Baden-Baden of 14 August 1991, RIW 1992,62, also reported in 12 Journal of Law & Commerce 227 (1993) and [at <http://cisgw3.law.pace.edu/cases/910814g1.html> and] in UNILEX.
5. Accord: Honnold, Uniform Law (1999) at p. 187. Regarding trade usage under Article 9 see supra No. 87 et seq.

4. Cases Not Resolved By Article 19

125. Finally, it should be emphasized that Article 19 does not provide machinery capable of solving all problems likely to arise within the context of a 'battle-of forms'. One typical sales situation which has frequently challenged national courts concerns cases where the forms exchanged do not entirely match (e.g., the seller's form limits liability for breach, while the buyer's form provides for the opposite result), but where the parties nonetheless proceed to perform their main obligations (to deliver and pay) without regard to the contractual discrepancy and its potential consequences. In such cases, some sort of CISG 'contract by conduct' must be said to exist,[1] but the terms of that contract may later become the subject of some dispute. One possible solution (perhaps in formal accordance with Article 19) would be to give preference to the standard terms of the party who got in the battle's 'last shot'; in other cases, a more fair solution would be to let the conflicting terms cancel each other out and then look to the substantive solution supplied by the CISG gap-filling rule.[2] Standing alone, Article 19 is not likely to provide a clear-cut and clearly equitable solution, at least not in every case.[3]

1. Regarding an acceptance by conduct under Article 18 see supra No. 117. See also the Filanto case (cited supra in No. 53).
2. If, for example, one form disclaims liability for breach and the other does not, the CISG gap filling rule is to allow the injured party full (expection) damages for breach. Regarding Article 74 see infra No. 289 et seq.
3. For a good discussion of the problems presented, see Honnold, J., op. cit. pp. 182-192.
[page 74]

IV: Time Period for Acceptance: Default Rules

126. As noted previously, a CISG acceptance must reach the offeror within the time which the offeror has fixed.[1] Paragraph (1) of Article 20 provides as follows:

'A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree.'

If the time period for acceptance is of a fixed length, it is important to fix the point in time at which that period begins to run. As regards periods fixed by instantaneous means of communication, the time begins to run from the moment that the offer reaches the offeree. As regards non-instantaneous means of communication (telegram or letter), however, the CISG default rule is that the period begins to run from the moment the communication is handed in for dispatch or from the date shown on the letter;[2] to this extent Article 20(1) stands in contrast to the rule that the acceptance first becomes effective when it reaches the offeree,[3] and the combined operation of the two rules may not always lead to reasonable results.[4]

1. Regarding Article 18(2) see supra No. 114.
2. As always, the offeror - who remains the master - can set forth another solution in the offer itself.
3. Regarding Article 15(1) see supra No. 104.
4. For a fuller discussion see Murray, J., op. cit., (No. 102), pp. 20-23.

V. Official Holidays, etc.

127. A less controversial rule regarding the effect of official holidays or non-business days on the period of acceptance is set forth in Article 20(2).[1]

1. Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows.

VI. Exceptions to Timely Acceptance Rule

A. The Rule and the Exceptions

128. As noted previously with respect to the general Article 18(2) rule, an acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or within a reasonable time. Article 21 of the CISG provides the following two exceptions to the rule: [page 75]

'(1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect.

(2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect.'

B. Notification by Offeror Accepting Late Acceptance

129. According to Article 18(2), a late acceptance is of no effect, and the offer to which the acceptance seeks to reply will lapse. However, under the exception set forth in Article 21(1), a late acceptance is nevertheless effective as such if the offeror promptly notifies the offeree to that effect. In such event, the acceptance becomes effective upon its receipt (and before the subsequent notice by the offeror).[1]

1. This differs from the result which obtains in systems which treat a late acceptance as a counter-offer: see Secretariat's Commentary, A/CONF./97/5, Comment 3 to Article 19(1) of the 1978 Draft.

C. Acceptance Timely in Normal Circumstances

130. Article 21(2) deals with a somewhat more complex situation: the late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time. In this case the CISG drafters chose to follow the Scandinavian rule:[l] the late acceptance is effective as such unless the offeror promptly informs the offeree that he considers his offer as having lapsed.

1. See Article 4(2) of the (Uniform Scandinavian) Contracts Act.

VII. Withdrawal of Acceptance

131. The CISG rule regarding withdrawal of an offer has been previously discussed.[l] As regards withdrawal of an acceptance, Article 22 provides as follows: 'An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.'

It follows from Article 22 that an acceptance may not be withdrawn after it has become effective: once the acceptance is in effect, the contract is in effect in its entirety,[2] so any attempt to 'withdraw' the acceptance after this point will constitute a breach by the offeree. [page 76]

1. Regarding Article 15 see supra No. 104.
2. Regarding Article 23. see infra (text directly below).

§3. ACCEPTANCE EFFECTIVE; CONTRACT CONCLUDED

132. According to Article 23 of the CISG:

'A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.'

And according to the main rule in Article 18(2), an acceptance becomes effective at the moment the indication of assent reaches the offeror.[1]

1. Assuming the acceptance reaches the offeror within the time fixed. etc. Regarding Article 18, see supra No. 112 et seq.

§4. DECLARATION OF INTENTION: DEFINITION OF 'REACH'

133. Part II of the Convention concludes with Article 24 which defines the point in time at which a declaration of intention (offer, acceptance, etc.) is considered to 'reach'[1] the addressee:

'For the purposes of this part of the Convention, an offer, declaration of acceptance or any other indication of intention reaches the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.'

1. The definition of this term has significance in relation to Articles 15, 16, 17, 18, 20, 21 and 22. [page 77]


Chapter 5. Obligations, Risk and Remedies

§1. SALE OF GOODS: FIVE CHAPTERS IN CISG PART III

134. Part III of the CISG, entitled 'Sale of Goods,' contains the substantive rules of greatest practical significance for international sales. Part III is subdivided into five separate chapters.

§2. GENERAL PROVISIONS

I. Introduction

135. Chapter I of CISG Part III, consisting of Articles 25-29, is entitled 'General Provisions'.

Some of these general provisions, which relate to the remedies of avoidance and specific performance,[1] serve as adjuncts to the more specialised remedial rules in Chapters II and III of Part III regarding seller's and buyer's breach.

Chapter I of Part III also contains other general provisions, applicable to both parties, regarding delays in notification and contract modification.[2]

1. See infra, No. 136 et seq. and No. 140 et seq.
2. See infra, Nos. 139 and No. 146.

II. Avoidance and Fundamental Breach

A. Fundamental Breach Defined

136. The first - and certainly the most important - general provision in Chapter 1 of Part III relates to the rules which permit an injured party to 'put an end to the contract,' i.e. the remedy of avoidance.

In most cases the relevant CISG rules (set forth in Chapters II and III of Part III) require that a breach be 'fundamental' before an injured party will be permitted to avoid.[1] Article 25 supplements these rules by providing the necessary definition of the term 'fundamental breach':

'A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.'

1. Regarding Article 49 (avoidance for seller's breach) see infra No. 224 et seq.; regarding Article 64 (avoidance for buyer's breach) see infra No. 259 et seq. [page 78]

B. Substantial Detriment

137. Article 25 defines fundamental breach in terms of (foreseeable) 'substantial detriment.' For example, as regards the buyer's right to avoid upon seller's late delivery, the Convention requires that the delay in question amount to a fundamental breach. [1] Therefore, in order to avoid in such a case, the buyer (the injured party) must allege and prove that he has suffered a detriment which substantially (perhaps even more than 'materially') deprives him of what he is entitled to expect under the contract.[2] In addition, the detriment must also be one which the breaching party (in this example: the seller) reasonably ought to foresee.

Whether the injured party suffers a 'substantial' detriment as a result of a given breach and whether such detriment is 'foreseeable' by the other party requires a concrete evaluation of the circumstances of the particular case, and even the breach of a 'secondary' obligation can amount to a fundamental breach.[3] On the other hand, it should also be noted that avoidance is generally regarded as an exceptional CISG remedy, to be exercised restrictively.

A closer examination of the right to avoid will be undertaken in connection with the more specific rules regarding seller's and buyer's breach.[4] For the present, it may be noted that the uncertainty which may sometimes surround the elastic fundamental breach standard has been counterbalanced to some degree by the establishment of a supplementary 'Nachfrist' avoidance rule, in that the issuance of a (reasonable) Nachfrist warning may obviate the injured party's need to demonstrate a 'fundamental' breach.[5] It may also be noted that the buyer's right to avoid by reason of the delivery of non-conforming goods is restricted by the seller's right to cure.[6]

1. Article 49: see infra No. 224 et seq.
2. It has been suggested that a 'substantial' deprivation may be more than what Common lawyers would consider as 'material' under their corresponding domestic law. See Ziegel, J., 'The Remedial Provisions of the Vienna Sales Convention,' in International Sales (Galston and Smit ed., New York 1984) §9.03[2] [a], [b] [available at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel6.html>] and Flechtner, H., 'Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.' Vol. 8 Journal of Law and Commerce 53, 75 (1998) [available at <http://www.cisg.law.pace.edu/cisg/biblio/flecht.html>]. The application of similar terminology in the Convention provisions dealing with anticipatory breach tends to support this argument: see Flechtner at id. and infra No. 280 et seq.
3. See, e.g. the decision of Oberlandesgericht a.M. (5 U 164/90) of 17 September 1991 (CLOUT Case No. 2 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]): fundamental breach of duty to preserve exclusivity.
4. Regarding avoidance for seller's fundamental breach under Article 49, see infra No. 224. Regarding Article 64 (avoidance for buyer's breach) see infra No. 259 et seq.
5. The CISG rule owes its nickname to the corresponding, but substantially different rule in German domestic law: regarding seller's non-delivery and Articles 47(1) and 49(1) (b), see infra Nos. 219 and 225. Regarding buyer's non-payment and Articles 63(1) and 64(1)(b), see infra Nos. 258 and 259.
6. Regarding Article 48, see infra No. 220 et seq.

C. When Avoidance Declaration Effective

138. Like Article 25, Article 26 is a general provision relating to the right of either injured party (seller or buyer) to avoid.

Because avoidance can have serious consequences for the party in breach (requiring, e.g. that a breaching seller retake possession of the goods on foreign [page 79] soil), Article 26 provides that a declaration of avoidance of the contract is effective only if made by notice to the other party. It also follows that the contract is avoided as of the point in time when the notice takes effect, i.e. 'upon dispatch'.[1]

On the other hand, assuming the injured party is entitled to avoid, e.g. by reason of a fundamental breach or, e.g. the breaching party's failure to duly comply with a reasonable Nachfrist notice, a single Article 26 notice will suffice: unlike some domestic systems, the Convention does not first require a 'warning' notice which declares in advance the injured party's intention to avoid.[2]

1. See infra No. 139. Depending on the circumstances, a declaration of avoidance may be revoked, i.e., even after it takes effect. See id. with note 4.
2. See A/CONF./97/5, Secretariat's Commentary to Article 24 of the 1978 draft. As already indicated, the Convention permits the issuance of a Nachfrist warning which may serve to obviate the need to establish a fundamental breach. Regarding seller's non-delivery and Articles 47(1) and 49(1) (b), see infra Nos. 219 and 225. Regarding buyer's non-payment and Articles 63(1) and 64(1) (b), see infra Nos. 258 and 259.

III. Delay or Error in Transmission

139. Article 27 of the Convention deals with delays or errors in transmission:

'Unless otherwise expressly provided in this Part [III] of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.'

Assuming that a given communication is made in accordance with Part III of the Convention and by means 'appropriate in the circumstances', such communication is generally effective 'upon dispatch'. Thus, as a general Part III rule, and in contrast with the rules applicable to certain communications in Part II,[1] Article 27 places the risk of delay or error in transmission upon the addressee. If, for example, the buyer sends a notice advising the seller that the goods delivered are defective, but that notice is lost during transmission, the buyer retains his rights to remedial relief.[2] There are, however, a number of exceptions to this general Part III rule.[3] If a seller refuses to accept a buyer's (rightful) avoidance declaration, the buyer may be entitled to revoke it.[4]

1. Regarding Article 18(2), see supra No. 114.
2. See Article 39 (infra No. 189 et seq.) and, e.g., Honnold, J. Uniform Law for International Sales, (3rd ed. 1999) at pp. 216-217 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
3. Regarding Article 47(2), see infra No. 219 with accompanying note; regarding Article 48(4), see infra No. 223 with accompanying note; regarding Article 63(2), see infra No. 258 with accompanying note; regarding Article 65(1)-(2), see infra No. 264 with accompanying note; regarding Article 79(4), see infra No. 306.
4. See Schlechtriem, Commentary (1998) p. 197 and Huber in Schlechtriem, id. at 365. The question of whether a declaration of avoidance is binding upon the declaring party is a matter 'governed but not settled' by the Convention, and Schlechtriem (id.) persuasively uses the general estoppel prinple (supra No. 79 at n. 12) to settle it.
[page 80]

IV. Specific Performance

A. Specific Performance and Forum Law

140. As noted previously, and as more fully developed later in connection with the discussion of remedies for breach, the Convention accepts - as a starting point the logic of Civil law systems with respect to specific performance: if a promisor fails to perform his promise, the most natural means of promise 'enforcement' is to simply require that he perform the promised act: e.g. require that the seller deliver that which has not yet been delivered or (re) deliver goods which conform to the contractual description, or (in the case of buyer's breach) require that the price agreed be paid.[l] But Article 28 sets forth an important general proviso in this regard:

'If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.'

In contrast with Civil law systems, Common law systems have traditionally placed the remedy of specific performance in a low position on the remedial scale, and Article 28 - which was primarily designed to accommodate the Common law view - is evidence of the compromise which the Convention's remedial system represents.

1. See generally supra No. 44. Re. Article 46 (seller's breach), see infra No. 213 et seq., re. Article 62 (buyer's breach) see infra No. 255 et seq.

B. Award of Specific Performance: 2-Step Process

141. Article 28 requires that a court (or arbitral tribunal) which is asked to 'require performance' under the Convention engage in a 2-step process. First, it must determine whether the remedial rules in Chapters II or III of Part III themselves would make specific performance available to the injured party in the particular case.[l] Then, if the answer to the first question is yes, the court must proceed to apply the 'safety-valve' test in Article 28.

So, even when a court holds that the applicable (Chapter II or III) Convention rule would require a non-performing party to perform, the court must also consider whether such specific relief would be available pursuant to the domestic sales law of the forum State.[2] And if specific relief would not be so available under the domestic rules, the forum court is 'not bound' to require performance under the Convention.

On the one hand, it may be said that Article 28 tends to maintain domestic conceptions of the proper rule for specific performance, even though the Convention in other respects must be interpreted with the need for international uniformity in [page 81] mind.[3] Then again, it should be remembered that the rule of Article 28 in practice will be severely limited: on the one hand, although the provision might sometimes hamper the effort of a seller still in possession to recover the price, monetary damages will always remain a viable altemative;[4] and an injured buyer will hardly ever seek to enforce the seller's performance by judicial means, in that the remedy of (avoidance) and damages will nearly always be preferred.[5]

1. Re. Article 46 (seller's breach), see infra No. 213 et seq. Re. Article 62 (buyer's breach), see infra No. 255 et seq.
2. Regarding the application of Article 28 in a Common law jurisdiction, see Lookofsky, Understanding the CISG in the USA (1995) §6-4. See also generally Kastely, 'The Right to Require Performance in International Sales,' 63 Wash. L. Rev. 607 [available at <http://www.cisg.law.pace.edu/cisg/biblio/kastely1.html>] and Huber in Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) at 198 ff. Regarding specific performance in Civil and Common law systems, see Treitel, G., Remedies for Breach of Contract (Oxford 1988) Chapter 3.
3. Regarding Article 7(1), see supra Nos. 75 et seq.
4. Re. the seller's right to secure specific performance see infra No. 255 et seq. Re. the seller's right to damages see infra Nos. 252 and 287 et seq.
5. Re. buyer's right to damages under Article 45 see infra Nos. 210 and 287 et seq..

V. Modification and Termination

A. No Formal Requirements

142. As noted previously, a CISG contract of sale need not be concluded in or evidenced in writing, just as CISG contracts are not subject to any other requirement as to form.[1]

Following up on this theme, Article 29 eliminates 'formal' requirements as regards CISG contract modification and contract termination. The general rule is set forth in paragraph (1):

'A contract may be modified or terminated by the mere agreement of the parties.'

1. Regarding Article 11, see supra No. 92 et seq.

143. Article 29(1) thus serves to extend the Article 11 rule: unless the parties otherwise agree, a contract to modify or terminate a CISG agreement need not be in writing.'[1]

1. Regarding the modification in paragraph (2), see discussion infra No. 146.

B. Relationship to Consideration Under Common Law

144. Beyond this, Article 29(1) would seem to counter certain other domestic conceptions which might otherwise apply. Thus, under rules traditionally applicable in Common law jurisdictions, a 'one-sided' modification of a sales contract was not binding by virtue of 'the mere agreement of the parties.' If, for example, a buyer [page 82] promised to pay the seller more than the price originally agreed, but got nothing in return, that buyer's promise was not binding under the traditional Common law rule: the seller could not demand something for nothing, since some kind of 'consideration' was required to make the buyer's promise bind. Indeed, in England and certain other Common law jurisdictions, this is still the case.

Now, however, as regards international contracts subject to the CISG, 'lack of consideration' is not a defense available to the promisor who would allege that his CISG promise (to pay more) should not bind.

145. On the other hand, dispensing with the consideration requirement has not dispensed with the real problem which sometimes lurks in the one-sided modification kind of case. Article 29 states only that a CISG sales contract, once entered, may be modified by the 'mere agreement' between the parties, but the question of whether a promise to modify is valid and binding in the concrete case - or whether the modification has been extorted by a bad-faith exercise of economic duress - lies quite outside the Convention scope. Therefore, it is still necessary to distinguish between modifications arrived at by threats and extortion ('economic duress') on the one hand, and good faith (honest, acceptable business standards) on the other.[1] And it is submitted that this side of the Article 29 problem must be left to the applicable domestic law.[2]

1. See generally Lookofsky, J., Consequential Damages in Comparative Context (Copenhagen 1989) at pp. 34-39.
2. Accord: Schlechtriem, Commentary (1998) p. 212 with note 13 (citing Lookofsky, 'Loose Ends and Contorts in International Sales,' 39 Am. J. Comp. L 403 (1991) at p. 412 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>]) and note 14 (citing the views expressed by Lookofsky in the previous (1993) edition of this Encyclopedia monograph). Re. questions of validity and CISG Article 4 see also supra No. 62 et seq.
Under American domestic (validity) law, a seller's outright refusal to deliver without additional compensation has been held to constitute a threat made in violation of the duty to deal in good faith: see Roth Steel Products v. Sharon Steel Corp., 705 F. 2d 134 (6th Cir. 1983) - a case which shows that the issues of duress, good faith and unconscionability all go hand in hand. English precedents include the Atlantic Baron case [1979] Q.B. 705, Atlas Express Ltd. v. Kafco Ltd. [1989] 3 WL.R 389, and Williams v. Roffey Bros, Ltd. [1990] 2 WL.R 1153, C.A. Re. the corresponding German law, see Schlechtriem, op. cit. p. 212 with note 14. In Danish contract doctrine economic duress is described as a very difficult problem requiring a concrete solution in each individual case: see Lynge Andersen and Nørgaard, Aftaleloven (2d. ed. Copenhagen 1993) at pp. 151-153.
Without direcly imposing an obligation on the parties to deal fairly, the CISG provides, in Article 7(1), that the Convention is to be interpreted so as to 'promote the observance of good faith in international trade': see supra Nos. 77 and 79. See generally Lookofsky, op. cit. (1991) pp. 412-413.

C. Contract Requiring Written Modification or Termination

146. Paragraph (2) of Article 29 permits the parties to derogate from the form-free default rule in paragraph (1):

'(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise [page 83] modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.'

The first sentence of Article 29(2), which conforms with the general freedom-of-contract rule in Article 6, clearly applies to clauses which seek to deny contractual effect to subsequent oral agreements and modifications.[1] The starting point is thus that such 'no oral modification clauses' are to be given effect, at least with the proviso that such clauses, if abusive or unreasonable, may be prohibited by domestic validity rules.[2]

A more difficult question is to determine what constitutes 'reliance-inducing' conduct under the 'estoppel' safety-valve established by the second sentence of Article 29(2), just as the proper construction (interpretation) of a given 'no oral modification' clause may give rise to a difficult question regarding the relationship between that sentence and the general rule in Article 6.[3]

1. Accord: Schlechtriem, Commentary (1998) at 213. Compare so-called 'merger clauses' which are designed to deprive prior or contemporaneous oral agreements of contractual effect: re. such clauses and 'parol evidence' see supra No. 86 with note 6.
2. Schlechtriem at id.
3. See Honnold, Uniform Law (1999) at 230 ff. [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]. See also Schlechtriem, op. cit. at 215 (need to apply flexible approach means that courts will enjoy considerable discretion). See generally Hillman, R., 'Article 29(2) of the United Nations C.I.S.G.: A New Effort at Clarifying the Legal Effect of 'No Oral Modification' Clauses,' 21 Cornell International Law Journal 449 (1989). Regarding estoppel as a general CISG principle see supra No. 79 with notes 7 and 12 [available at <http://www.cisg.law.pace.edu/cisg/biblio/hillman2.html>].

§3. OBLIGATIONS OF THE SELLER AND BUYER'S REMEDIES FOR BREACH

I. Introduction

147. Chapter II of CISG Part III (Articles 30-52) sets forth the supplementary (gap-filling) Convention regime regarding the obligations of the seller, just as these rules provide the buyer with various remedies in the event of seller's breach.

Many of the 'special' (seller-related) rules in this part of the Convention must be read in conjunction with other CISG rules: not only the Part III General Provisions previously discussed,[1] but also the other 'general' (common) provisions set forth in Chapter V (Provisions Common to the Obligations of the Seller and of the Buyer).[2]

1. Regarding Articles 25-29, see supra No. 135 et seq.
2. Regarding Articles 71-88, see infra No. 278 et seq.

II. Summary of Seller's Obligations

148. The various obligations of the CISG seller are summarized in Article 30: '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.' [page 84]

149. Under Article 30, and as more fully defined in the provisions which follow, the CISG seller 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.,[1] it must always be remembered that the primary purpose of CISG rules such as those regarding the proper place and time for seller's performance is to fill in such contractual gaps as may exist in the agreement actually reached between the parties in the concrete case.

1. Regarding Article 6, see supra No. 70 et seq.

III. Delivery of the Goods and Handing Over of Documents

A. Introduction

150. Section I of Chapter II (Articles 31-34) concerns 'Delivery of the goods and handing over of documents.' The first rule in this section deals with the place of delivery, which is particularly important not only as regards the seller's delivery obligation as such, but also as regards the operation of the Convention rules regarding the 'Passing of Risk'.[1]

1. Regarding Chapter IV of Part III (Articles 66-70), see infra No. 265 et seq.

B. Place of Delivery

1. Gap-Filling Rules

151. Article 31 sets forth the default rules which define the place of delivery in a contract governed by the CISG, i.e. the gap-filling rules which apply absent an express contractual provision or international usage to the contrary.[1]

1. Regarding Article 6, see supra No. 70 et seq.; regarding Article 9, see supra No. 87 et seq.

2. INCOTERMS

152. In as much as the precise demarcation of the place of delivery is a key function of the Incoterms regime, the CISG default rules in Section I of Chapter II should also be read in light of such Incoterms as may apply by virtue of the parties' agreement or by virtue of custom. In many cases the Incoterms will be made applicable by virtue of an express contractual provision, e.g. a term which incorporates the relevant Incoterm place-of-delivery term by reference.[1] Another possibility is that the Incoterms may become operational by virtue of the parties practices between themselves or (less likely) by virtue of a wider international trade usage.[2]

1. For example, a contract term expressly providing that the seller is to deliver the goods: 'C.I.F. (INCOTERMS).' Re. the ICC Incoterms 2000, see the Report of the United Nations Secretary General: A/CN.9/479 of 10 April 2000. See also infra No. 267.
2. Re the parties' practices see supra No. 88. Regarding the rather strict requirements of CISG Article 9(2), see supra No. 89 et seq.
[page 85]

3. Contracts of Carriage: Delivery to First Carrier

153. The general CISG place-of-performance rule is set forth in Article 31, paragraph (a):

'If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
a) if the contract of sale involves carriage of the goods - in handing the goods over to the first carrier for transmission to the buyer ...'

154. In virtually all cases where the CISG applies, the buyer and seller will have their places of business in different States.[1] And in the great majority of these cases, the parties' contract will contemplate the 'carriage' of the goods (from one state to another) via a 'carrier', i.e. an independent third party not under seller's or buyer's direct control.[2] In these numerous and typical cases, Article 31(a) provides that the seller fulfils his delivery obligation by handing over the goods to the first such carrier.

1. Regarding Article 1, see supra No. 52 et seq.
2. Indeed, even if the contract does not expressly refer to the use of a carrier, the distance which separates the parties and/or their practices may carry the necessary implication. Accord Honnold, J., Uniform Law (1999) at 239.

4. Cases Not Involving Carriage

155. Paragraphs (b) and (c) of Article 31 are designed to provide default rules for those less common cases where an international sales contract does not contemplate carriage by an independent carrier. In these cases, the obligation to delivery consists:

'b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at a particular place - in placing the goods at the buyer's disposal at that place;

c) in other cases - in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.'

156. Where paragraph (a) does not apply, and the goods are specific goods in a specific place, such as a particular painting currently on exhibit in a given art gallery, the default rule in paragraph (b) requires the seller to place the goods at the buyer's disposal at that specific place. The same delivery rule expressly applies to 'unidentified goods to be drawn from a specific stock or to be manufactured or produced ...' [page 86]

In other (paragraph c) cases, i.e., those contemplating neither carriage nor specific goods in a specific place, etc., the seller's obligation is to place the goods at the buyer's disposal at the seller's place of business.

5. Notice of Consignment

157. In cases which actually involve carriage of the goods, Article 32 provides three default rules which supplement the seller's primary delivery obligation.[1]

The first of these supplementary obligations concerns goods not clearly identified to the contract, in that the seller must give the buyer notice of the consignment specifying the goods.[2] The second and third supplementary obligations are designed to help ensure that the necessary carriage contracts will be concluded and that the appropriate insurance in respect of the carriage will be obtained.[3]

1. As set forth in Article 31(a): see supra No. 153.
2. Article 32(1) provides: '(1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.' 3. Article 32(2)-(3) provides:
'(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation.
(3) If the seller is not bound to effect insurance in respect of the carriage of goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance.'

C. Time of Delivery

158. Article 33 concerns the time of delivery:

'The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract.'

As always in the CISG context, any express contractual provision will take precedence over the supplementary rule.[1] Absent an express provision regarding the date or time period fixed by or determinable from the contract, the CISG default solution as regards the time of delivery is keyed to the familiar, yet elastic 'reasonableness' test, in that the reasonable interests and expectations of both parties must be taken into account.

1. Regarding Article 6, see supra No. 70 et seq. [page 87]

D. Contracts of Carriage: Documents

159. If the contract involves carriage, the seller will often dispatch the goods on terms whereby documents controlling their disposition (e.g. a negotiable bill of lading) will not be handed over to the buyer except against payment of the price.[1] Article 34 sets forth certain supplementary - and hardly controversial - provisions which relate to this situation.[2] These seemingly superfluous rules were made necessary by reason of the CISG drafting technique.[3]

1. Regarding Article 58, see infra No. 243 et seq.
2. Article 34 provides as follows: 'If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.' 3. The first sentence of Article 34 confirms the rule in Article 6: see supra No. 70 et seq. Regarding the second sentence and the cure rule applicable to the goods themselves see infra No. 182 et seq. Regarding the drafting technique see Honnold, Uniform Law (1999) at p. 250.

IV. Conformity of the Goods and Third Party Claims

160. CISG Part III, Chapter 2, Section 2 (Articles 35-44) covers a topic of great practical importance: 'Conformity of the goods and third party claims.'

A. Conformity of the Goods

161. A substantial portion of all sales litigation relates to claims by buyers that the goods are in some sense 'defective', i.e., in that they do not conform to that which has been agreed. As regards international sales subject to the CISG, Article 35 lays down the supplementary rules.

B. Distinction Between Contractual and Delictual Claims

162. Before proceeding to examine the important rules laid down in Article 35, it should again be emphasized that the Convention governs only contractual rights.[1] Depending on the circumstances in the particular case, the forum court may find that certain domestic law rules providing remedies for the breach of non-contractual duties can supplement - and complicate - the international regime.[2]

For example, even in a case where a seller cannot be said to have assumed (or breached) any contractual (promissory) commitment in the Article 35 sense, the applicable domestic law of tort (delict) might still provide the buyer with damages for losses suffered by reason of reliance on negligent misrepresentation,[3] just as the buyer's claim for rescission arising by reason of a fraudulent misrepresentation regarding the quality of the goods could serve to supplement the CISG avoidance [page 88] rules.[4] Similarly, courts might allow a 'product liability' claim grounded in domestic rules of tort (negligence) to 'compete' with a CISG claim for damages grounded in the seller's no-fault liability for damage to buyer's property when the seller has delivered non-conforming goods.[5]

1. Re. Article 4 see supra No. 62 et seq.
2. Supra No. 65.
3. Professor Honnold (Uniform Law (1999) at 254) [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] states that earlier 'technical distinctions', e.g. between 'promises' and 'representations' have been 'softened' by more recent case law. With utmost respect, it would seem that the Howard Marine case, [1978] Q.B. 574, cited by Honnold (at id. with note 7) to support his position, clings with a vengeance to these very distinctions. In Howard Marine the English Court of Appeal, by a 2-1 majority, found for the lessee of the barge, as the misrepresenting lessor failed to carry his (reversed) burden of proof on the negligence issue pursuant to the Misrepresentation Act 1967. Also in American tort law, the 'tendency is clearly to treat the misrepresentation action as a separate matter from the contract': see Prosser and Keeton, Law of Torts (St. Paul 1984) at pp. 763-764. The basis of liability is sometimes fraud, sometimes negligence, sometimes strict: id. § 107. Re. the measure of damages see id. at p. 768 and the Restatement (Second) of Torts §552C. Regarding Danish case law see Lookofsky, J., Consequential Damages in Comparative Context (1989) at p. 159, discussing the case reported in Ugeskriftfor Retsvæsen 1977.876 V.L.D. (pre-contractual misrepresentation re. rate of investment return; reliance interest damages - though presumably appropriate - denied as undocumented in the concrete case); see also Nørregaard, J., in Ugeskrift for Retsvæsen (1978) at pp. 281-282 and Lynge Andersen, et. al., Aftaler and mellemmoend (Copenhagen 1987) at pp. 149-150.
4. See supra No. 63 with note 9.
5. See generally supra No. 69.

C. Conformity With Express Contractual Requirements (Description, Guarantee, etc.)

163. The Convention, to repeat, is concerned with contractual claims. According to Article 35(1):

'The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.'

Paragraph (1) of Article 35 is a specific - though perhaps somewhat redundant - 'restatement' of the familiar principle whereby the obligations of the parties to a CISG contract are, in the first instance, defined by their own agreement.[1]

In one simple yet illustrative CISG case,[2] a Turkish company had promised to deliver 1,000 tons of fresh cucumbers to a buyer doing business in Germany, but the seller allegedly delivered less than that amount. Since the CISG applied, the seller was obligated to deliver goods of the quantity required by the contract, and so delivery of less than 1,000 tons constituted a contractual breach.[3]

Another illustration of the Article 35(1) principle involved a German seller's obligation to sell steel bars in lots to a Syrian buyer.[4] The contract expressly permitted a weight variation of 5 per cent, but some of the bars delivered fell outside this range, so the seller was held to have breached its obligation to deliver steel bars which, as of the passing of risk, conformed to the quality and description required [page 89] by the contract.[5]

Since Article 35(1) requires that the seller (always) deliver goods of the quality and description 'required by the contract', the seller must, inter alia, deliver goods which conform with an express (contractual) guarantee - e.g. if the seller 'guarantees' that the goods sold (a machine) will run for a 'minimum of 10,000 working hours'. Indeed, for purposes of Article 35(1), there may be little difference between such a performance 'guarantee' and the seller's mere 'description' of the performance-characteristics of the goods.[6]

On the other hand, an agreement as to quality within the purview of Article 35(1) need not take the form of express words. If, prior to the conclusion of a contract for the sale of marble, the buyer provides the seller with a 'model' marble slab, thus indicating the buyer's expectations, and the seller does not indicate his unwillingness or inability to deliver goods of that kind, then the characteristics of the slab will impliedly become part and parcel of parties' contract under Article 35(1), i.e., their (implied) agreement with respect to the quality of the goods.[7]

1. Re. Article 6, see supra No. 70 et seq.
2. See the decision of Oberlandesgericht Düsseldorf, 8 January 1993, published in German in RIW 1993, 325 and IPRax 1993, 412; also reported in [at <http://cisgw3.law.pace.edu/cases/930108g1.html> and] UNILEX.
3. However, since timely notice of non-conformity was not given pursuant to Articles 38(1) and 39(1), the buyer lost the right to rely on the alleged breach. Re. this aspect of the case see infra Nos. 186 et seq.
4. ICC case No. 6653/1993, published in French, with a commentary by Arnaldez, in 4 Journal du droit international 1040, 1047 (1993); also reported [at <http://cisgw3.law.pace.edu/cases/936653i1.html> and] in UNILEX.
5. The conformity determination is usually made as of the passing of risk, even though the lack of conformity first becomes apparent at a later point in time: regarding Article 36, see infra No. 179 et seq.
6. For this reason, it is difficult to see the need for the 'special' guarantee rule set forth in paragraph (2) of Article 36: see infra No. 181. In any case, an express 'guarantee' with respect to durability (etc.) may be significant if interpreted as a contractual deviation from the usual 2-year period in paragraph (2) of Article 39: see infra No. 194.
7. See the decision of OLG Graz (Austria), 9 November 1995, reported [at <http://cisgw3.law.pace.edu/cases/951109a3.html> and] in UNILEX. As noted in the decision, the same result can be reached by analogy with Article 35(2)(c), a rule directly applicable where the seller provides the sample or model: see infra No. 169.

D. Supplementary Convention Obligations

1. Introduction: Implied Obligations, Express Disclaimers, etc.

164. Paragraph (2) of Article 35 sets forth a series of four implied obligations as to the quality of the goods which the Convention, as a starting point, imposes on every CISG seller. As under most modern domestic rule-sets, so too under the CISG: caveat emptor ('let the buyer beware') is no longer the supplementary rule, because today's international buyer is entitled to expect the goods to possess certain basic qualities, even if the contract does not expressly so state.[l] Indeed, it would seem that caveat venditor has become the supplementary CISG rule.[2]

Before proceeding to discuss the significant impact of the individual implied obligations set forth in Article 35(2), however, it should be noted that these duties are not to be implied in cases where the parties have (validly) 'agreed otherwise'. [page 90] That is to say, an express ('caveat emptor') provision in the contract - e.g. whereby the seller 'undertakes no obligations whatsoever in respect of the goods fitness for ordinary and/or particular purposes' - will serve to displace (negate) the obligations otherwise implied by subparagraphs (a) and (b) of Article 35(2), provided that the express provision (disclaimer etc.) is valid under the applicable domestic rules of law.[3]

1. See Secretariat Commentary, Comment 13 at 94 (re. Article 33 of the 1978 Draft).
2. Although the Convention does not obligate the buyer to undertake a pre-contractua1 inspection of the goods, a limited caveat emptor-type exception applies under Article 35(3): see infra No. 171.
3. See supra Nos. 63 and 72 and infra Nos. 172 et seq.

2. Fitness for Ordinary Purposes

165. Subparagraphs (a) and (b) of Article 35(2) contain the implied obligations which are of greatest practical importance:

'2. Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: a) are fit for the purposes for which goods of the same description would ordinarily be used;
b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement ...'

As regards the first test of non-conformity - set forth in subparagraph (a) - it may be noted that goods often are ordered by denotation of their general description, i.e., without any indication to the seller as to the buyer's particular purpose (intended special use).[1] In such cases, subparagraph (1)(a) will be especially relevant, since (absent agreement to the contrary), the seller always (automatically) undertakes an implied obligation that the goods sold will - at the minimum - be fit for the purposes for which goods of the same description would ordinarily be used. For this reason, the highest French court has held that ceramic 'ovenware' which was not resistant to high oven temperatures was not fit for ordinary (baking) purposes.[2]

Within the context of international trade, resale must be considered an 'ordinary' use,[3] so a CISG buyer who purchases for resale is entitled to expect goods which are resaleable in the ordinary course of business. What is resaleable will then depend upon the reasonable expectations of the ultimate purchasers. If, for example, a furniture merchant purchases sofas for resale to consumers, the goods are not fit for ordinary purposes if the cushions slide forward when the consumers sit down.[4]

When it comes to (perishable) food products, consumption by (ordinary) consumers must of course be considered an ordinary purpose (use). Ordinary does not mean 'perfect', however, and the German Supreme Court (BGH) has held that New [page 91] Zealand mussels sold by a Swiss seller to a German buyer were fit for 'ordinary' purposes, notwithstanding the fact that the mussels delivered contained cadmium at a level higher than that recommended by the German Federal Department of Health;[5] indeed, the quality requirements imposed by public law in the buyer's country are not even relevant in the context of Article 35(2) unless the seller had good 'reason to know' of their existence.[6] In another German case, for example, the delivery of goods (paprika) not complying with the minimum standards of German public law constituted a breach of the seller's implied obligations under Article 35(1).[7]

The kind of goods which are sometimes described as 'durable' goods (washing machines, industrial machinery, automobiles, etc.) are not fit for their 'ordinary' purposes unless they remain durable (usable) for an 'ordinary' period of time. A (new) refrigerator with a life-span of only a few weeks or months of use would clearly not be fit for the ordinary purposes to which refrigerators are usually put (long-term use). The precise period is, of course, a difficult determination which will vary depending on the nature of the particular goods, and the CISG could not be expected to provide guidance on this point.[8]

1. See A/CONF./97/5, Secretariat's Commentary to Article 33 of the 1978 Draft Convention.
2. See the decision of the French Cour de Cassation, 17 December 1996, CLOUT Case 206, also reported [at <http://cisgw3.law.pace.edu/cases/961217f1.html> and] in UNILEX.
3. See A/CONF./97/5, Secretariat's Commentary to Article 33 of the 1978 Draft Convention.
4. See the decision of Pretura della giurisdizione di Locamo-Campagna, Switzerland, 27 April 1992, reported [at <http://cisgw3.law.pace.edu/cases/920427s1.html> and] in UNILEX. In this case, however, the buyer lost the right to rely on the non-conformity because of failure to provide timely notification under Article 39: see infra No. 186 et seq.
5. See BGH, 8 March 1995, affirming the decision of OLG Frankfurt am Main, 20 April 94, RIW 1994, 593, CLOUT case 84 (A/CN.9/SER.C/ABSTRACTS/6/Corr. 1), also in UNILEX and [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]. Significantly, the cadmium in the mussels delivered would pose a risk only to persons who consumed great quantities. Moreover, the maximum level fixed by the Department was the subject of a recommendation, as opposed to a binding directive. In its decision, the OLG had emphasized, inter alia, that a Canadian proposal to amend the Article 35 conformity definition so as to require the delivery of 'average quality' goods was rejected by the drafters of the eISG. The BGH, however, left open the question of whether the goods must be of 'average' quality or merely 'merchantable' under Article, since the buyer had not established (in the court below) that the mussels delivered contained more cadmium than New Zealand mussels in general. For a commentary, see Schlechtriem in IPRax 1996 at 12. Regarding 'reason to know' of administrative agency standards under American domestic law, compare White & Summers, Uniform Commercial Code §9-8 with note 26.
6. Id. See also Medical Marketing International Inc. v. Internazionale Medico Scientifica S.r.l., 1999 WL 311945 (ED. La.), 1999 US Dist LEXIS 7380, also reported [at <http://cisgw3.law.pace.edu/cases/990517u1.html> and] in UNILEX: the medical equipment supplied by the Italian seller did not comply with American public law; citing (and distinguishing) the 1995 BGH decision (see preceding note), the arbitrators found that, due to special circumstances, the seller knew or should have known of the regulations at issue.
7. See the decision of LG Ellwangen, 21 August 1995, reported [at <http://cisgw3.law.pace.edu/cases/950821g2.html> and] in UNILEX (court emphasized parties' prior commercial dealings).
8. See also infra Nos. 180-181.
[page 92]

3. Fitness for Particular Purposes

166. Prior to the conclusion of the contract, the seller may have been made aware of the particular purpose to which the goods will be put. If so, the seller assumes an implied obligation under Article 35(2)(b) that the goods are fit for such purpose, in that the buyer may reasonably rely on the seller's skill and judgment in this respect.

In one relevant example, a French seller and a Portuguese buyer had concluded a contract for the sale and dismantlement of a second-hand aircraft hangar. The French court held that the seller had breached the contract by delivering certain elements which were not fit for the particular purpose which the buyer had made known to the seller (reassembling of the hangar the same way as it was originally assembled). In this case, once the buyer's particular purpose was made known to the seller, the buyer was entitled to expect goods fit for that purpose.[1]

In other cases, however, where the buyer either does not make his particular purpose known, or does not rely on the seller's skill and judgment, or if it is unreasonable for the buyer to so rely, no "obligation as to fitness for the buyer's particular purpose will be implied.

1. See the decision of Cour d'Appel de Grenoble, Chambre Commerciale, 26 April 1995, reported [at <http://cisgw3.law.pace.edu/cases/950426f2.html> and] in UNILEX.

167. In many cases, the implied obligations set forth in subparagraphs (l)(a) and (l)(b) will overlap: a given buyer's particular purpose may well correspond to the purpose such goods are generally put. If so, any failure to comply with the 'reasonable reliance' test in subparagraph (l)(b) will be inconsequential as regards the establishment of a contractual breach in relation to subparagraph (l)(a).

4. Conditions and Warranties Under Domestic Law Distinguished

168. The implied Convention obligations set forth in subparagraphs (l)(a) and (l)(b) clearly resemble the obligation to supply what Common lawyers call (a) 'merchantable' goods and (b) goods 'fit for the purpose.' But, in contrast with the corresponding English and American rules, the CISG subsumes the delivery of unfit-for-purpose goods under the heading of goods which do 'not conform' with the contract. And since the CISG seller cannot be said to have breached a 'condition' or 'warranty' (in the Common law sense),[1] no remedial consequences can be deduced solely on the basis of the quality implications of Article 35.[2]

1. Such Common law terminology is foreign to the Convention. Regarding 'implied conditions' (now, outside England, referred to as 'implied terms') see the Sale of Goods Act UK, §§ll ff, and compare the corresponding 'implied warranties' in the American UCC §§2-313, 2-314, and 2-315.
2. Regarding the buyer's right to recover damages for seller's non-conforming delivery, see infra No. 208 et seq.; re. the right to avoid in the event of such breach see infra Nos. 225 et seq. As already indicated (supra No. 64), the Convention addresses only inter partes problems: thus, CISG Article 35 regarding conformity of the goods displaces, e.g. an American seller's warranties vis-à-vis his buyer, but the Convention contains no counterpart to UCC §2-318.
[page 93]

5. Sample or Model; Packaging

169. Article 35, subparagraph (l)(c) imposes a further obligation upon the seller regarding conformity to the 'qualities of goods which the seller has held out to the buyer as a sample or model'. By virtue of this - somewhat redundant - CISG provision, if a seller of computer software provides his buyer with a sample of same, the seller is (impliedly) obligated to deliver goods which conform to the sample.[l]

Subparagraph (l)(d) of Article 35 requires that the goods be 'contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.' For example, as regards the first of these criteria, a CISG seller who is - or should be - aware of the buyer's intention to purchase goods (foodstuffs) which can be resold in France, in conformity with French law, must deliver goods which are wrapped in the manner required by French law.[2]

As previously noted, neither of these Article 35(2) duties is to be implied in cases where the parties to the CISG contract have (validly) 'agreed otherwise'.[3]

1. See the decision of LG München (Germany), 8 February 1995, No. 8 HKO 24667/93, reported [at <http://cisgw3.law.pace.edu/cases/950208g4.html> and] in UNILEX. Some might prefer to reach the same result by the application of Article 35(1), in that the sample provided will usually serve to indicate the quality 'required by the contract', i.e., without the need to resort to a gap-filling rule: re. the American legal logic of an 'express warranty' created by a sample or model under UCC §2-313(c) see White & Summers, Uniform Commercial Code §9-6. Regarding the situation where a CISG buyer provides the sample or model see supra No. 163 with note 6.
2. See the decision of Cour d'Appel de Grenoble (France), Chambre Commerciale, 13 September 1995, published in French in Journal de droit international, 4, 1996,948-960, and commented upon by Witz, id. at 961-968; also reported [at <http://cisgw3.law.pace.edu/cases//950913f1.html> and] in UNILEX. See also, e.g., the COMPRIMEX award of 29 April 1996 reported [at <http://cisgw3.law.pace.edu/cases/960429m1.html> and] in UNILEX.
3. See supra No. 164.

E. Seller's Knowledge of Defect Irrelevant

170. The seller's implied obligations are not generally dependent upon the seller's 'state of mind.' In other words, the seller is obligated to deliver goods which meet the requirements set forth in Article 35(2)(a)-(d) whether or not the seller 'knew or could have been aware' of a given non-conformity at the time of contracting.[1]

Indeed, the seller's state of mind is also essentially irrelevant when it comes to the Convention's supplementary remedial rules: the CISG seller is liable in damages on a no fault basis, inter alia, for breach of the implied obligation to deliver conforming goods.[2]

1. Compare the corresponding qualification as regards third party claims based on industrial or intellectual property in Article 42, discussed infra No. 200 et seq. Re. the seller's knowledge of buyer's particular purpose' see supra No. 166.
2. See infra No. 210. Regarding the limited effect of an Article 79 'exemption', see infra No. 298 et seq.
[page 94]

F. Caveat Emptor and Pre-Contractual Inspection of Goods

171. As already indicated, the CISG seller is automatically (by default) deemed to accept the Convention catalogue of implied obligations with respect to fitness for purpose, etc., set forth in Article 35(2) - at least in the absence of an express contractual provision to the contrary (a warranty-limitation, disclaimer of liability, or the like).[1]

Then again, Article 35(3) of the Convention represents a limited remnant of the classical caveat emptor rule. According to this provision, the seller is not liable under subparagraphs (2)(a)-(d) for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

So, although the CISG does not impose any pre-contractual duty to inspect,[2] a buyer who in fact undertakes such an inspection and thus becomes aware, e.g. that the goods offered for sale are not fit for a particular intended purpose is assumed to purchase such goods as he finds them; the same is true of a buyer who' could not have been unaware' of such lack of conformity.[3] In such clear-cut situations, where the buyer actually 'sees' the defective condition of the goods offered for sale, it seems fair to maintain a caveat emptor-type rule ('what you see is what you get'), i.e., the otherwise implied obligations in subparagraphs (2)(a)-(2)(d) notwithstanding.[4]

1. As regards disclaimers and liability limitations, etc. see infra No. 172 et seq.
2. Regarding Article 38, see infra No. 189 et seq.
3. This test is arguably more buyer-friendly than the familiar 'ought to know' standard. See, e.g., the decision of Tribunal Cantonal Valais (Switzerland), 28 October 1997, CLOUT Case 219 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] (buyer who had tested tractor before purchase must have been aware of patent defects).
4. Although paragraph (3) does not expressly apply to an Article 35(1) express promise of quality, the same principle might well be applied by analogy. Compare Schwenzer in Schlechtriem, Commentary (1998) p. 286 with note 14, citing sources that indicate disagreement on the relationship between Articles 35(1) and 35(3). See also the decision of OLG Köln (Germany), 21 May 1996, No. 22 U 4/96, CLOUT Case 168 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], where the documents incorrectly indicated that the car sold was first registered in 1992 and that the mileage was low; even if the buyer (a car dealer) 'could not have been unaware' of the non-conformity, the seller - who, acting fraudulently, had breached his obligation under Article 35(1) - could not rely on Article 35(3).

G. Disclaimer and Limitation of Liability

1. Introduction

172. A subject of great practical significance is the seller's ability to disclaim or limit the extent of liability for breach. [page 95]

As already emphasized, the implied obligations set forth in Article 35(2) apply by default, i.e., 'except where the parties have agreed otherwise'. This provision is in accord with the general Article 6 freedom-of-contract rule, in that the parties may 'derogate from or vary the effect of any [Convention] provisions.' On the one hand, such a derogation may take the form of a 'guarantee' from the seller (e.g. as to quality) which may serve to improve the remedial position buyer which the buyer would ordinarily enjoy pursuant to the CISG gap-filling regime.[l]

Of equal, if not greater practical importance are clauses whereby the seller seeks to reduce the commitments which ordinarily follow from the Convention scheme. For example, an express contract term in the seller's standard form whereby seller 'accepts no responsibility whatsoever that the goods are fit for any particular purpose, whether or not such purpose has been made known to him ...' will ordinarily serve to displace the obligation set forth in Article 35(2)(b). But this will only hold true if the clause in question is held incorporated into the overall contract, if it is interpreted in accordance with the draftsman's intent, and if domestic rules of validity do not get in the way. These conditions are the subject of the discussion which follows.

1. See supra No. 163.

2. Incorporation of Disclaimer

173. As already indicated, a given disclaimer or limitation of liability will not always achieve the (draftsman's) intended effect. For one thing, a given clause will only be effective if the clause can be described as incorporated into the contract, i.e., as a part of the overall contract of sale. One practically important subset of the incorporation problem relates to the fact that disclaimer clauses are likely to be hidden amidst the 'boilerplate' language in a seller's standard form, and courts will not always read surprising and/or unreasonably burdensome fine-print clauses as 'part of the deal.' Moreover, according to the 'battle of forms' rule in CISG Part II, a 'reply to an offer which purports to be an acceptance but contains [material] additions, limitations or other modifications [e.g., a limitation of liability] is a rejection' of the offer and constitutes a counter-offer;' and if the parties 'consummate' a CISG sale in this 'unmarried state', the Convention provides no clear solution to the remedial problem.[l]

1. See Article 19 (supra No. 122 et seq.) and (with respect to the language quoted above) Honnold, J., Uniform Law for International Sales (1st edition 1982) note 31, pp. 194-195; compare id. (3rd ed. 1999) pp. 182 ff.
According to Article 2.20(1) of the UNIDROIT Principles of International Commercial Contracts (International Institute for the Unification of Private Law, 1994), 'No term contained in standard terms which is of such a character that the other party could not reasonably have expected it is effective unless it has been expressly accepted by that other party.' As with similar domestic law constructs, this UNIDROIT 'Formation' provision is best characterized as a validity (reasonableness) rule: see Lookofsky, J., 'The Limits of Commercial Contract Freedom,' 46 American Journal of Comparative Law 485, 495-508 (1998) [available at <
http://www.cisg.law.pace.edu/cisg/biblio/lookofsky2.html>].
[page 96]

3. Interpretation of Disclaimer

174. Even an incorporated clause will only achieve its intended effect if it is interpreted as 'covering' the situation concerned. In this connection, the Convention's 'reasonable-man' standard (in Article 8) will surely be applied along lines which accord with those previously established under domestic law.[1] For this reason, disclaimers of liability will continue to be construed narrowly (contra preferentem) by national courts, i.e. 'against' the draftsman unless the draftsman can prove, e.g. that it was the intent of both parties that the seller should not be liable even if (grossly) negligent in the performance of his contractual duties, express or implied.[2]

1. Regarding Article 8, see supra No. 81 et seq.
2. See supra No. 79 and (e.g. from American practice) Salt River Project Agricultural Improvement and Power District v. Westinghouse Electric Corporation, 143 Ariz. 368, 694 P. 2d 198 (1985) (party asserting effectiveness of disclaimer must show 'provision was a part of the bargaining and negotiating process ... an intentional relinquishment of a known right').

4. Validity of Disclaimer

175. Even where a given clause passes the incorporation and interpretation hurdles just described, the validity issue remains. As previously noted, the validity of the contract, hereunder the validity of a limitation or disclaimer of the implied obligations set forth in Article 35(2), is an issue which lies outside the CISG; and since the Convention is simply 'not concerned with' the validity of the contract or of any of its provisions, the validity of a disclaimer must be settled in accordance with the applicable domestic law.[1]

1. Regarding Article 4(a) see supra No. 62 et seq.

5. Examples of the Application of Domestic Validity Rules

176. For example, under Swedish (and other Scandinavian) domestic law, a purported liability disclaimer will only be effective - even as between CISG merchants - if it passes a 'reasonableness' - test;[1] when the 'reasonableness' of a disclaimer in a CISG contract is tested under American domestic law, the relevant question is whether the disclaimer is unconscionable (UCC §2-302).[2] German courts have tested the validity of CISG liability disclaimers along similar lines.[3] And whereas, e.g. the UK Unfair Contract Terms Act would not authorize similar overt censorship in an international case,[4] an English or other national court might well reach the same kind of result by employing more covert judicial means, in that courts are able to 'interpret' their way 'around' an unfair - albeit incorporated and technically valid - disclaimer clause.[5]

1. Regarding the 'general clause' (§36) of the Uniform Scandinavian Contracts Acts, see generally Lookofsky, J., 'The Limits of Commercial Contract Freedom: Under the UNIDROIT 'Restatement' and Danish Law', XLVI American Journal of Comparative Law (1998) pp. 485-508 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky2.html>]. [page 97]
2. I.e., assuming that the relevant rules of private international law point to American law. See generally Lookofsky, J., 'Loose Ends and Contorts in International Sales,' 33 Am. J. Comp. L 403 (1991), p. 410 ff. [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>].
3. See the decision of OLG Köln (Germany), 21 May 1996, No. 22 U 4/96, CLOUT Case 168, also reported [at <http://cisgw3.law.pace.edu/cases/960521g1.html> and] in UNILEX (contract documents incorrectly indicated that car first registered in 1992 and that mileage was low; Italian seller who, acting fraudulently, had breached Art. 35(1) duty to deliver confirming goods could not rely on clause excluding liability for lack of conformity, since clause was invalid under German domestic law).
4. - This point was duly noted by Honnold in the 2d (1991) edition of Uniform Law at p. 314, but the discussion (originally in section 235) has not been included in the 3rd/1999 edition: see id. pp. 260-261. Of course, the English domestic law on point remains of limited relevance in the present context unless and until England ratifies the CISG.
5. See supra No. 174 and, e.g. the English Court of Appeals' interpretation of the disclaimer in the Howard Marine case: see 2 All ER at 1147 [1978]: a 'clause of this kind is to be narrowly construed.'

6. Validity v. Substance

177. In future, courts may have to struggle with the fact that the line between (domestic) validity and (CISG) substance is not always clear.

To take one clear example, under both German and Austrian law an unusual clause does not become 'part of the contract' if the other party did not have reason to expect it under the 'circumstances', especially as regards the 'appearance' of the contract.[1] This provision functions as a validity rule and should (when otherwise applicable) supplement - and not be displaced by - the CISG substantive regime.[2]

On the other hand, under §2-316(2) of the American Uniform Commercial Code, a warranty disclaimer is without effect unless it is conspicuous and mentions the word 'merchantability'. And while it might well be argued that this too is a validity rule (in some respects similar to the German and Austrian ones just noted), the 'merchantability' requirement is so closely tied to American substantive law (DCC §2-313) that it renders the rule highly inappropriate - and arguably also ineffective - in the CISG context.[3]

1. AGBG §3 and compare the similar provision in §864a of the Austrian Civil Code.
2. See Bernstein & Lookofsky, Understanding the CISG in Europe (1997) at 129 and Schlectriem, Commentary (1998) at 103 f.
3. The same conclusion was reached by Honnold in the 2d (1991) edition of Uniform Law (p. 311) on the hardly persuasive ground that UCC §2-316(2) and CISG Article 8 both 'address the same issue' (the discussion of these provisions is not included in Honnold's 3rd/1999 edition: see id. pp. 260-261). Regarding 'merchantability' under American and English substantive law see supra No. 168.

7. Convention as Validity 'Yardstick'

178. The CISG is (generally) 'not concerned with' validity. Then again, the Convention serves not just as a gap-filler but also as a yardstick: [1] it 'aims at justice between the parties...'[2] Its remedial system, considered to be a fair (substantive) solution in the average case, is also relevant as regards the proper application of validity rules which strive to maintain a reasonable balance between contractual obligations and remedial relief. [page 98]

Of course, the CISG does not represent the only fair regime, but a given alternative set forth in the parties' contract should, at the minimum, provide each party with the potential for minimum adequate remedial relief. And if the contract in question provides, not for minimum adequate remedies, but, e.g. for damages that are 'unconscionably low,' the reasonableness-tests of domestic law, acting in tandem with the CISG's general principle of good-faith, should serve to (re)activate the supplementary CISG remedial rule.[3]

1. See Schlechtriem, P., 'The Seller's Obligations under the United Nations Convention on Contracts for the International Sale of Goods' in International Sales (Galston and Smit ed., New York. 1984) at 6-6 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem10.html>] (re. clauses imposed through the use of standard terms, etc.).
2. Hellner, J., 'The Vienna Convention and Standard Form Contracts' in International Sale of Goods: Dubrovnik Lectures (Yolken Sarcevic ed., New York. 1986) at p. 351 [available at <http://www.cisg.law.pace.edu/cisg/biblio/hellner.html>].
3. The general CISG good faith-principle (supra No. 77 et seq.) clearly underpins the award rendered by the Arbitration Institute of the Stockholm Chamber of Commerce on 5 June 1998, CLOUT Case 237 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]. In this case, an American seller and Chinese buyer had concluded a contract for the sale of a press for the production of frame rails for light trucks. The seller, who first had received buyer's notice of defects some 3 years after delivery, was held liable in damages, notwithstanding the fact that the contract expressly provided the buyer with an 18-month warranty period. The contract also contained a clause excluding consequential or incidental damages, but the text of the award in UNILEX does not reveal the nature or extent of the damages awarded.

H. Time of Conformity Determination

1. Introduction

179. As discussed in the foregoing (No. 164 et seq.) Article 35 sets forth the conditions which must be satisfied in order for the goods to 'conform' to the contract and the CISG. Article 36 provides a rule which defines the point in time at which the conformity of the goods is to be judged.

2. The General Rule

180. The general rule is set forth in Article 36, paragraph (1):

'The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.'

This rule is tied to the rules regarding the 'passing of risk' set forth in Articles 66 et seq.[1] And it is logical that the CISG conformity determination takes place as of the passing of 'risk', in that, according to Articles 66 et seq., the risk passes at the point in time when the seller delivers the goods, i.e. performs his primary obligation under the CISG contract of sale.

Although the 'risk' (of accidental loss or destruction) usually passes to the buyer when the seller hands the goods over to a carrier (for transmission to the buyer),[2] [page 99]

Article 36(1) makes it clear that the seller remains liable for any non-conformity existing at that particular point in time, i.e., even if the non-conformity in question first becomes discoverable by the buyer at a later point in time.[3] And in this connection it is important to note that goods will generally not be considered fit for ordinary and/or special purposes unless they are of such quality that they remain fit for such purposes for a reasonable period of time after delivery.[4] If, however, the goods are fit (conforming) when delivered, but are later damaged by the carrier's or some other third person's negligent act, the seller will have performed his obligations, and the buyer's only recourse will be against the carrier or such other person.

1. See infra No. 265 et seq.
2. Id.
3. Regarding time limitations which may preclude the buyer from asserting non-conformity discovered after delivery, see Articles 38-44, discussed infra No. 189 et seq.
4. Compare infra No. 181 regarding lack of conformity which 'occurs' after delivery.

3. Subsequent Non-Conformity

181. Paragraph (2) of Article 36 purports to provide a supplement to the general rule:

'The seller is also liable in accordance with the contract and this Convention for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.'

As already emphasized in connection with the discussion of Article 35 above, CISG goods are not considered fit for ordinary or particular purposes unless they are fit and remain fit (for such purposes) for a 'reasonable' time, i.e., the period during which such goods normally/usually remain fit, assuming normal use. Article 36(1) shows that the relevant time for the entire non-conformity determination is the time at which the goods are delivered; conversely, it is not the point in time at which the non-conformity 'appears' (becomes apparent). For example, if the seller delivers washing machines which - due to a latent defect - are not capable of running more than a few weeks, such machines should be described as non-conforming as of the date of their delivery (even though this non-conformity might first be discovered later, when the machines break down).

Article 36(2) expressly covers situations where, due to seller's breach, a given non-conformity occurs after delivery. This would seem to be a rule of extremely limited application which will render the seller liable in certain unusual situations not covered by the rule in paragraph (1). It would, for example, cover the situation where the seller - during the course of an attempt to cure a given non-conformity in goods previously delivered - bungles the job, thus giving rise to a (second) non-conformity (which did not 'exist' at the time of delivery). [page 100]

Apart from such cases, the main thrust of the rule in Article 36(2) seems difficult to understand.[1] Article 36(2) seems mainly directed at a breach of a guarantee (that the goods will remain fit or will retain specified qualities or characteristics). But in those cases where the seller breaches a guarantee of this kind, the breach already 'occurs' at the time of delivery, in that a seller who delivers washing machines which are guaranteed to last 3 years commits a breach at the moment he delivers goods not capable to lasting 3 years.[2] And since such 'guaranty' -breaches should be seen as falling within the general rule in Article 36(1), there was hardly any real need for the 'clarifying' guaranty-provision in the paragraph (2) rule.[3] Hopefully, this provision will not cause more trouble than it was designed to avoid.

1. Accord: Schwenzer in Schlechtriem, Commentary (1998) at 292.
2. See supra No. 165. See also, e.g., the COMPRIMEX award of 29 April 1996 reported [at <http://cisgw3.law.pace.edu/cases/960429m1.html> and] in UNILEX (seller liable for non-conformity - inadequate packaging - which existed when the risk passed, even though the non-conformity first became apparent later on).
3. See A/CONF./97/5, Secretariat's Commentary to Article 34(2) of the 1978 Draft Convention, indicating that the drafters found it necessary to 'clarify' the rule in Article 36(1).

I. Sellers Right to 'Cure' Defects

1. Cure in Context

182. A CISG seller who delivers non-conforming (e.g., defective) goods will ordinarily become liable for breach in accordance with the Convention's remedial scheme (as defined in Section III of Chapter II).[1] However, by providing a seller who delivers early with a certain right to 'cure' (remedy) deficiencies and/or non-conformities in the goods so delivered, Article 37 gives the seller in this situation the right to exercise a kind of 'damage-limitation' and also limit the extent of remedial relief otherwise available to the injured buyer. According to this provision:

'If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.'

1. See infra No. 208 et seq. See also the more general remedial rules set forth in Chapter I (supra No. 136 et seq.) and Chapter V (infra No. 278 et seq.).

2. Article 37, Fundamental Breach and Avoidance

183. As indicated previously in connection with Article 25,[1] and as developed more fully below in the discussion of buyer's remedies for seller's breach,[2] a buyer is entitled to avoid a CISG contract if seller's failure to perform amounts to a 'fundamental' breach. In cases where the seller delivers earlier that the date required by [page 101] the contract and the Convention (i.e., 'before the date of delivery'), and it becomes apparent that the goods do not conform (with respect to quality or quantity), Article 37 provides a seller in this particular situation with the means to limit the injured buyer's right to avoid. For, given these circumstances, unless it becomes 'clear' that the seller will not cure (or cannot cure without causing the buyer unreasonable inconvenience or expense), the buyer cannot avoid until the actual delivery date has passed;[3] and the same is true if the non-conformity is effectively 'cured' before the delivery date, for the buyer cannot then be said to suffer a detriment which substantially deprives him of what he was entitled to expect.[4]

1. Supra No. 136 et seq.
2. Regarding avoidance under Article 49, see infra No. 224 et seq.
3. See Honnold, Uniform Law at p. 269, noting that Article 37 also restricts avoidance under Article 72 re. anticipatory breach (this provision is discussed infra No. 283 et seq.).
4. See discussion infra No. 225.

184. Article 37 should also be considered in conjunction with Article 48 which provides the seller with the right to cure 'even after the date of delivery.'[l]

1. See discussion infra No. 220 et seq.

J. Notice of Non-Conformity Required

185. As discussed more fully in the sections below, the CISG provides an injured buyer with a full catalogue of remedies for seller's breach.[l]

Of course, there can be no remedy unless there is proof of a breach. And when the buyer seeks to allege that the goods (at the time of delivery) do not conform to the contract, it is important - and only fair - that the seller be made aware of the precise nature of buyer's claim, inter alia, to provide seller with an opportunity to investigate and possibly himself remedy (cure)[2] the non-conformity or (if the seller intends to refute the claim) to allow the seller to document his own position, etc. For these reasons, Article 39 of the Convention conditions the buyer's right to remedial relief upon the giving of timely and sufficient notice to the seller as regards the particular non-conformity concerned.[3]

1. Infra No. 208 et seq.
2. As regards cure see Articles 37 (supra No. 182 et seq.) and 48 (infra No. 220 et seq.).
3. As regards Article 39, see infra No. 189 et seq.

K. Examination of Goods

1. Timely Examination

186. Obviously, a buyer can first give the seller notice of a given non-conformity at that point in time when the buyer becomes (or ought to become) aware that the non-conformity exists. Usually, this awareness will coincide with the buyer's examination upon delivery, and Article 38 lays down the rules which define the concept of timely examination. [page 102]

Paragraph (1) of Article 38 sets forth the general rule: 'The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.'

2. Nature of Examination

187. Article 38(1) describes only the time for buyer's examination, not the intensity thereof. It is to be assumed, however, that this question is a 'matter' which is 'governed' by the Convention, and that the examination required is one which is reasonable in the circumstances, not one which would reveal every possible defect.[l] More generally, the nature of the examination required will depend, inter alia, on international usages in the trade concerned.[2] Arguably, a buyer not having the requisite technical expertise and special equipment could not be expected to effect an examination for hidden defects discoverable only by such technical means,[3] so a middleman who purchases goods in sealed containers would not normally be expected to undertake (or secure) a laboratory analysis of the contents prior to resale.[4]

The developing CISG case law indicates a certain measure of disagreement on this important question, however, and some courts have taken a rather demanding (i.e. seller-friendly) stance as regards the nature of the examination required. In one case, the German buyer of 48 pairs of shoes was held to have lost all remedial rights by failing to undertake a thorough examination at the time of delivery.[5] In another instance, a buyer who gave notice of defects 24 days after delivery of adhesive foil covers lost all remedial rights, since the buyer had not processed a sample immediately upon delivery (which, in the court's view, was 'practicable in the circumstances'); while acknowledging that Articles 38 and 39 are less severe than the corresponding provisions in German domestic law, the court still found that this CISG buyer could have given notice within 10 to 11 days.[6]

1. Regarding 'general principle' requiring reasonable conduct see supra Nos. 79-80.
2. See A/CONF./97/5, Secretariat's Commentary No. 3 to Article 36 of the 1978 Draft Convention. See also infra No. 190-191.
3. See A/CONF./97/5, Secretariat's Commentary No. 3 to Article 36 of the 1978 Draft Convention.
4. See, e.g., the decision of LG Paderborn (Germany), 26 June 1996, No. 7 0147/94, reported [at <http://cisgw3.law.pace.edu/cases/960625g1.html> and] in UNILEX, where seller delivered PVC containing a lower percentage of a certain substance than the percentage agreed in the contract: in this situation, the buyer had not lost its right to rely on the lack of conformity by failing to examine the PVC before receiving customers' complaints, since the defective composition could only be discovered by special chemical analysis which buyer was not bound to have made. Accord: BGH (Supreme Court of Germany), 25 June 1997, NJW 1997, 3311, reported [at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] in UNILEX (exact nature of defect first discoverable after processing).
5. Since improper sewing, measurement and poor color quality could not be considered latent defects, the buyer's duty to examine and discover ('discoverable') defects upon delivery was not discharged by a superficial examination of a few (conforming) pairs; consequently, the court held that notice of non-conformity given to the seller 16 days after delivery, when the buyer's customers began to complain of non-conformities not revealed by the prior inspection, was too late. The apparent severity of this particular decision is ameliorated by the fact that the seller had been 'forewarned' by customer complaints concerning a first lot of shoes delivered previously, so he had special reason to promptly and carefully examine all shoes delivered in the second lot. See the decision of LG Stuttgart of 31 August 1989, published in German in IPRax 1990 at 317, reported [at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] in UNILEX, and as CLOUT Case 4).
6. See the decision of OLG Karlsruhe (Germany), of 25 June 1997, RIW 1998 pp. 235-237, CLOUT Case 230, also reported [at <http://cisgw3.law.pace.edu/cases/970625g1.html> and] in UNILEX.
[page 103]

3. Contract of Carriage: Examination May Be Deferred

188. As regards a common kind of international sales case, paragraph (2) of Article 38 provides:

'If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.'

The main (general) rule in paragraph 1 of Article 38 (discussed in the foregoing sections) applies, inter alia, if the contract 'involves carriage'. In these, as in other cases, the examination is to be effected 'within as short a period as is practicable in the circumstances.'

However, in cases involving carriage, the 'circumstances' will often dictate the application of the special rule in paragraph 2, for in these (carriage) cases, 'examination may be deferred until [as short a period as is practicable in the circumstances] after the goods have arrived'. In other words, inspection is presumed to first become 'practicable' at this point in time.

Article 38(2) is supplemented by a rule which provides for a further extension in some cases where the goods have been redirected in transit or redispatched.[1]

1. Paragraph (3) provides: 'If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.'

L. Notice of 'Discoverable' Defects & Consequences of Failure to Notify

1. The General Rule

189. Against the background of Article 38, which provides a general (short-as-practicable) time frame for the inspection of delivered goods, Article 39 sets forth the general rule regarding the consequences of buyer's failure to give notice of a 'discoverable' defect.

Paragraph (1) of Article 39 provides the general rule:

'The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.'

2. Notice of 'Discoverable' Defects & Consequences of Failure to Notify

190. Under Article 38, and as previously discussed, the buyer must undertake a reasonable examination of the goods as soon as practicable after delivery. Then, if such (reasonable and timely) examination reveals that the goods do not conform in [page 104] some specific respect, Article 39(1) requires that the buyer provide the seller with specific notice of such non-conformity within a reasonable time.

Just as some courts have taken an unusually demanding (i.e. seller-friendly) stance with respect to the nature (intensity) and timeliness of the examination required by Article 38(1),[1] the same is true as regards the nature (specificity) and timeliness of the notice with respect to any non-conformity which the requisite examination reveals.[2]

As regards the requirement that the buyer 'specify' the non-conformity, a German court has held that a buyer of certain wearing apparel was held to have lost all remedial rights, since the notifications allegedly sent to the seller/manufacturer re. 'poor workmanship and improper fitting' did not specify the nature of the alleged non-conformities with sufficient precision.[3]

As regards the requirement that the requisite notice be given within a 'reasonable time' it should first be emphasized that what is reasonable will often depend on the nature of the goods in question and the custom regarding notice in that particular trade. So, just as it may be reasonable to require that the buyer of perishable goods examine them immediately, it may also be reasonable to require immediate notice of the examination results.[4]

Custom notwithstanding, some courts have taken a seemingly rigid view in defining what constitutes a 'reasonable' time under Article 39(1). In one German case, it was found that the buyer could have processed a sample of the (non-perishable) goods immediately upon their delivery and (therefore) could have discovered and given notice of defects within 10 to 11 days after delivery. For this reason, notice given 24 days after delivery was deemed too late, thus depriving the buyer of all remedial rights.[5]

Other courts, who see no real need to put (all) buyers of (non-perishable) non-conforming goods in a remedial 'straightjacket', have sought to find a compromise solution to the Article 39(1) conundrum, one which takes account of the wide range of corresponding (timely notice) conceptions under domestic law. Thus, a Swiss court has held notice of non-conformity to be timely if given within one month after delivery, describing this period as a good compromise between the German and the (far more lenient) American views.[6] This seems at least to be a step in the right (Article 7) direction, although one might question whether the Convention provides national courts with the authority to reduce the inherently flexible Article 39(1) standard to a single mathematical formula, even if such a formula might be said to advance 'certainty' (i.e. 'uniform application' in the mathematical sense).[7]

According to Article 39(1), and as already indicated, if the buyer does not provide the seller with the requisite notice within the allowable time, he loses 'the right to rely' on the lack of conformity. In other words, the starting point of the Convention is that the buyer loses the right to assert any and all of the various remedies otherwise provided under the Convention for seller's breach (the right to require performance, to avoid, to claim damages or a proportionate reduction, etc.).[8]

This starting point is, however, modified by two other CISG rules. The first of these 'safety valves' is set forth in Article 40 which provides that a seller who is (or should be) aware of given non-conformity (which the buyer has been unable to detect) cannot enjoy the protection which Articles 38 and 39 provide.[9] Moreover, [page 105] pursuant to Article 44, a buyer may seek to provide the court or arbitral tribunal with a 'reasonable excuse' for his failure to notify, thereby seeking (partial) refuge from the severity of the Article 39(1) rule.[10]

1. See supra No. 187 with note 5 et seq.
2. If the notice requirements posed by some German courts (to German and foreign buyers alike) with respect to Article 39(1) sometimes seem overly harsh, it may be because these courts have not taken sufficient note of the difference between the CISG 'reasonable time' standard in Article 39(1) and the corresponding ULIS rule which required that notice be given 'promptly'.
3. See, e.g. the decision of Landgericht München I of 3 July 1989 (17 HKO 3726/89), CLOUT Case No. 3 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>].
4. See, e.g., the decision of OLG Saarbrücken, 3 June 1998, reported in OLGR Saarbrücken 1998, 398 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], and in UNILEX (in the international flower trade it is reasonable for the buyer to inspect and give notice of a lack of conformity to the seller on the same day that the goods are received.)
5. Notwithstanding the fact that the parties had a longstanding business relationship: see the decision of OLG Karlsruhe (Germany), of 25 June 1997, RIW 1998 pp. 235-237, CLOUT Case 230, also reported [at <http://cisgw3.law.pace.edu/cases/970625g1.html> and] in UNILEX. Compare OLG München (Germany), 11 March 1998, CLOUT Case 232, also reported [at <http://cisgw3.law.pace.edu/cases/980311g1.html> and] in UNILEX (notice given 4 months after delivery of textiles held untimely/unreasonable under Article 39 and also in violation of express contract clause requiring written notice of defects within 14 days of delivery). See also supra, note 2.
6. See the decision of Obergericht Kanton Luzern (Switzerland), 8 January 1997, CLOUT Case 192, also reported [at <http://cisgw3.law.pace.edu/cases/970108s1.html> and] in UNILEX.
See also the decision of Cour d'Appel de Versailles (France), 29 January 1998, No. 56, reported [at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] in UNILEX, where buyer sent notice of non-conformity two weeks after provisional test of 2 high-tech machines at seller's premises. One month after second test, buyer sent notice refusing to take delivery until certain modifications were made. Buyer sent further letters specifying defects six months after delivery of first machine and eleven months after delivery of second. Held: all these notices satisfied the requirements of Art. 39.
7. Compare Andersen, C., 'Reasonable Tune in Article 39(1) of the CISG - Is Article 39(1) Truly a Uniform Provision?', 1999 Review of the CISG (1998), also available at: http://www.cisg.1aw.pace.edu/cisg/biblio/andersen.html.
8. Regarding the various remedies generally available to buyer for seller's breach, see infra No. 208 et seq. (re. Section III of Ch. II) and infra No. 278 et seq. (re. Ch. V).
9. Regarding seller's 'bad faith' under Article 40, see infra No. 196.
10. Regarding excuses under Article 44, see infra No. 206 et seq.

3. Latent Defects Under Article 39(1)

191. A buyer who fails to discover (and give timely notice regarding) a discoverable defect loses the right to rely thereon. In other words, a buyer who, 'ought to have discovered' a defect (i.e., could have done so during the course of a 'reasonable' examination), but did not, is treated the same as a buyer who actually discovers a defect, but fails to notify the seller of same defect (on time).[l]

There is, on the other hand, no Article 39 obligation upon the buyer to discover 'latent' defects, (defined for present purposes as) defects which are so well-hidden that they are not discoverable by ordinary means (the 'reasonable' inspection always required by Article 38). Therefore, if a buyer conducts a reasonable inspection, but first discovers a 'latent' defect at some later point in time - perhaps even several months after delivery - he is then required to provide the seller with the necessary Article 39 notice within a reasonable time after that, i.e., after the [page 106] discovery of the latent non-conformity is actually made.[2]

1. See, e.g. the decision of Landgericht. Stuttgart of 31 August 1989 (3 KfHO 97/89; CLOUT Case No. 4) [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] where the non-conformity was held to be a 'patent' defect (since the buyer was aware of defects in a previous shipment, careful examination of the subsequent shipment was required).
2. See A/CONF./97/5, Secretariat's Commentary, comment No. 3 to Article 37 of the 1978 Draft Convention. See also, e.g., the decision of Hoge Raad (Netherlands), 20 February 1998, Nederlands Internationaal Privaatrecht (NIPR), 1998, Dr. 214 (also reported [at <http://www.cisg.law.pace.edu/cisg/text/casecit.html> and] in UNILEX): Dutch buyer of Italian floor tiles resold them to customers; seven months after delivery, but just before summer vacation, the buyer received complaints from a customer regarding the quality of the tiles (which had allegedly worn down and whose surface had become dull and dark); the Supreme Court held that the buyer should have inspected the goods immediately after receiving the customer's complaints, i.e. in July (instead of waiting until mid-August), and should have given notice to the seller shortly afterwards. See also the decision of LG Düsseldorf (Germany), 23 June 1994, reported [at <http://cisgw3.law.pace.edu/cases/940623g1.html> and] in UNILEX (buyer could not reasonably be expected to discover possible defects before he had installed the aircraft engines and put them into operation).

M. Absolute (Two- Year) Cut-Off Rule

192. Paragraph (2) of Article 39 supplements the general (reasonable time) rule in paragraph (1) by providing an absolute cut-off rule, i.e., a maximum time period after which no buyer may assert a claim in respect of non-conformity. Paragraph (2) provides:

'In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.'

N. Application of Two-Year Rule to 'Latent' Defects

193. Because Articles 38 and 39(1) require timely inspection and notification as regards 'discoverable' defects, Article 39(2) has particular significance for 'latent' defects, i.e., defects not reasonably discoverable upon delivery pursuant to Article 38. Although a buyer, as a starting point, retains the right to rely on latent defects which first become evident after the passage of some time, Article 39(2) helps protect the seller against stale claims which may be of doubtful validity.[l]

The CISG two-year period begins to run as soon as the goods are actually handed over to the buyer, and a buyer who fails to give notice of a non-conformity before the expiration of this period loses the right to rely thereon. Therefore, a buyer who first discovers and gives notice of a latent defect after the expiration of this period (and who has not secured a guarantee which effectively extends the period) can claim no remedy, however 'undiscoverable' the non-conformity in question might have been. [page 107]

The severity of the rule may be tempered if the seller has' guaranteed' the goods for a period longer that 2 years;[2] if not, a disappointed buyer may, in exceptional cases, be able seek refuge in the 'safety-valve' provision set forth in Article 40.[3]

The 2-year period adopted by the Convention drafters might seem seller-friendly to some, but it actually represents an international compromise when seen against the background of some domestic solutions.[4]

1. See A/CONF./97/5, Secretariat's Commentary No. 6 to Article 37 of the 1978 Draft Convention.
2. See infra No. 194.
3. See infra No. 196.
4. Compare, e.g. the one-year cut-off rule in the Article 54 of the Danish Sales Act (Købeloven) and §2-607(3) of the American Uniform Commercial Code (no specific cut-off apart from 'reasonable time').

O. Express Contractual Cut-Offs and Periods of Guarantee

194. Express contract provisions, agreed to by the parties, (always) take precedence over the CISG (supplementary) rules.[1] Therefore, the two-year time limit ordinarily applicable by virtue of the default rule in Article 39(2) will not apply if the parties' contract expressly - and validly - lay down a different notice rule in their contract, e.g., a so-called 'cut-off' period which would require that the buyer give notice within a shorter period oftime.[2]

The special proviso in the last part of Article 39(2) relates (not to 'cut-off' clauses, but rather) to contractual periods of guarantee, i.e. a clause whereby the seller guarantees conformity of the goods for a one-year period or three-year period.[3] The problem of whether a given guarantee clause is 'inconsistent with - and thus overrides - the gap-filling two-year period in Article 39(2) is a question of (CISG) contract interpretation to be decided by the court or arbitral tribunal concerned in accordance with Article 8.[4]

1. Regarding Article 6, see supra No. 70 et seq.
2. An unreasonably short cut-off period would be subject to a validity-attack: regarding unreasonable liability disclaimers and limitations, etc., see supra No. 172 et seq.
3. Such a guarantee will often be coupled to a clause setting forth the seller's right or duty to repair or replace defective goods.
4. See A/CONF./97/5, Secretariat's Commentary No. 7 to Article 37 of the 1978 Draft Convention (with examples indicating that a shorter, one-year guarantee would be unlikely to affect the two-year CISG limit) and compare Honnold, Uniform Law at p. 281 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] (who finds the exception at the end of para. (2) relevant only in those rare instances when the contract guarantees performance for a longer period than two years).

P. Relation to Prescription Convention and Other Statutes of Limitation

195. A buyer who gives notice within the time period defined in Article 39(2) may also be required to take additional steps to preserve his rights. Under Articles 8 and 10 of the United Nations Prescription Convention, the buyer must commence judicial proceedings against the seller within four years of the date when the goods [page 108] were actually handed over.[1] Nations not (yet) bound by the Prescription Convention will apply the relevant limitation period (statute of limitations) period dictated by the applicable rules of private international law.[2]

1. See the Convention on the Limitation Period in the International Sale of Goods, concluded on 14 June 1974 and amended by the Protocol of 11 April 1980). As of June 1999 the Convention had entered in force in Argentina, Belarus, Cuba, the Czech Republic, Egypt, Guinea, Hungary, Mexico, Poland, Republic of Moldova, Rumania, Slovakia, Slovenia, Uganda, the United States of America, Uruguay, and Zambia.
2. See, e.g., the decision of Cour de Justice Genève (Switzerland), to 10 October 1997, reported [at <http://cisgw3.law.pace.edu/cases/971010s1.html> and] in UNILEX and commented upon by Witz in Recueil Dalloz, 1998, Somm. 316.

Q. Seller Aware of Defect

196. By virtue of Articles 38 and 39, a buyer who fails to notify the seller of a given non-conformity will, in the great majority of cases, lose the right to rely thereon.

However, a seller who is or should be aware of the defect concerned ought not to be permitted to enjoy the protection which these inspection and notice provisions provide. For this reason, Article 40 provides:

'The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.'

Although the rule is generally regarded as a 'safety valve' designed to function in exceptional circumstances, the rule - may be regarded as an expression of the 'general principle' which requires both CISG parties to act in good faith.[1]

A prime example of the application of Article 40 has been provided by the decision of an arbitral tribunal rendered in Sweden in 1998.[2] In this case, the tribunal held that the buyer could rely on a non-conformity first discovered some 3 years after delivery of the machinery in question, upon the rationale that the seller in question 'could not have been unaware' that improper installation of a certain substitute machine part could lead to a serious malfunction; in fact, the seller had not only done nothing to eliminate the risk; the seller was found to have 'consciously disregarded' facts related to the cause of the malfunction. The tribunal further held that, by failing to provide adequate installation instructions or supervise the installation of the machine, the seller had breached its duty to disclose the non-conformity in question, and that - by virtue of the safety valve in Article 40 - the buyer was not time-barred from presenting its claim for damages.

1. Regarding the proper interpretation of the Convention having due regard, inter alia, to 'good faith' see Article 7(1) and No. 75 et seq. Regarding 'good faith' as a general principle pursuant to Article 7(2) see supra No. 79.
2. See the award rendered by the Arbitration Institute of the Stockholm Chamber of Commerce on 5 June 1998, reported in UNILEX.
[page 109]

R. Obligation to Deliver Goods Free of Third Party Claims

1. Introduction; Article 41

197. According to Article 30, the CISG seller must 'transfer the property in the goods.' Elaborating this theme, the first sentence of Article 41 provides: 'The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim.'

198. A seller who sells goods which she does not own (and is not authorized to sell) commits a clear breach of the obligation laid down in Article 41; the same is true where the goods delivered are encumbered by a non-disclosed security interest held by a third party. In either case, the seller's knowledge regarding the third party claim at the time of contracting is irrelevant.[1] Beyond this, the Convention protects the buyer even against third party claims, in that the mere assertion by a third party of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides.[2] If the claim is frivolous, and/or if the seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach.[3] On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually perform her Convention obligation to supply unencumbered goods by taking appropriate legal action (instituting or defending a lawsuit).[4] Damages for breach will be available in either event.[5]

In one application of the Article 41 rule, an Austrian court held that a seller does not comply with the obligation to deliver goods which are free from any right or claim by third parties if, after the formation of the contract, the delivery of the goods is made subject to a restriction of export limitations; under these circumstances, the buyer was held entitled to damages.[6]

1. Regarding the somewhat different rule in Article 42, see infra No. 200.
2. Regarding Articles 45-52, see infra No. 208 et seq.
3. See Honnold, Uniform Law (1999) pp. 288-289 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]. Regarding Article 49, see infra No. 224 et seq.
4. Regarding specific performance, see Article 46(1) (infra No. 213 et seq.) and 28 (supra No. 140 et seq.).
5. Assuming a loss suffered in consequence. Regarding Articles 74 et seq., see infra No. 289 et seq.
6. See the decision of Oberster Gerichtshof, 6 February 1996, RdW 1996, 203-205, also reported [at <http://cisgw3.law.pace.edu/cases/960206a3.html> and] in UNILEX.

2. Third Party Rights Distinguished

199. The Convention governs only the rights and obligations of the seller and buyer; it is 'not concerned with the effect which the contract may have on the property in the goods sold.'[1] In accordance with this principle, Article 41 makes the seller liable for claims which third parties may assert against the buyer, but the [page 110] question of whether a third party's rights are cut off by virtue of a buyer's good-faith purchase from a seller under a contract otherwise regulated by the CISG lies outside the Convention scope.

1. Regarding Article 4, see supra No. 62 et seq.

3. Article 42: Claims Based on Industrial or Intellectual Property

200. Under the general rule set forth in Article 41, the seller must deliver goods which are free from any third party right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by Article 42.[1] As regards such rights and claims (based on patents, copyrights or trademarks), paragraph (1) of Article 42 provides:

'The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:
a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or
b) in any other case, under the law of the State where the buyer has his place of business.'

1. See Article 41, second sentence.

201. Clearly, a seller who sells goods (which she knowns are) encumbered by third-party patent, copyright or trademark rights commits a breach of the implied Convention obligation set forth in Article 42.

Beyond this, Article 42 protects the buyer against third party claims, in that the mere assertion of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides.[1] If the claim is frivolous, and/or if seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach.[2] On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually remedy his failure to supply claim-free goods by taking appropriate legal action (instituting or defending a lawsuit).[3] Damages for breach will be available in either event.[4]

1. Regarding the similar rule in Article 41, see supra No. 198. Regarding the remedies set forth in Articles 45-52 see infra No. 208 et seq.
2. Regarding the similar rule in Article 41, see supra No. 198. Regarding Article 49, see infra No. 224 et seq.
3. Regarding specific performance, see Article 46 (infra No. 213 et seq.) and 28 (supra No. 140 et seq.).
4. Assuming a loss suffered in consequence. Regarding Articles 74 et seq., see infra No. 289 et seq. [page 111]

4. Seller's Knowledge of Third Party Right or Claim

202. Unlike the corresponding rule in Article 41, the seller's knowledge regarding a third party right or claim at the time of contracting may be relevant when industrial or intellectual property rights are involved. In the international context, where an (alleged) infringement will usually take place outside the seller's territory, the Convention limits the implied obligation of the seller to deliver unencumbered goods.

First, the seller's Article 42 obligation is limited to cases where the seller, at the time of contracting, 'knew or could not have been unaware' of the right or claim concerned. It has been suggested that the seller 'could not have been unaware' of a third-party claim based on a patent application or grant which had been published in the country in question, inter alia, outside seller's own territory.[l]

Second, the obligation is limited by the specification of which State's industrial or intellectual property laws are relevant in this regard: (a) the State of resale or use, if contemplated by the parties at the conclusion of the contract; in other cases (b) the buyer's State of business.

1. See A/CONF./97/5, Secretariat's Commentary No. 6 to Article 40 of the 1978 Draft Convention and Schlechtriem, P., Uniform Sales Law (Vienna 1986) at p. 74 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]. But Professor Honnold (Uniform Law at p. 295 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]) doubts whether the Article 42 standard ('close to actual knowledge') is really that strict. See also Schwenzer in Schlechtriem, Commentary (1998) at 339-340.

5. Buyer's Risk

203. Paragraph (2) of Article 42 places a further limit on the seller's obligation in two situations where the buyer clearly ought to bear the risk of a conflicting right or claim: (a) where the buyer contracts with knowledge of the risk and (b) where the buyer himself provides the specifications, etc., which created the conflict with the third-party right or claim concerned.[l]

1. According to Article 42(2), the obligation of the seller under the Article 42(1) does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.

6. Consequences of Failure to Notify

204. As in cases where an alleged breach relates to non-conforming goods (Article 35), a buyer alleging breach of an obligation under Articles 41-42 must give the seller timely and specific notice thereof. Article 43(1) provides:

'The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim.' [page 112]

If the buyer becomes aware of a conflicting third-party right or claim fails to provide the seller with timely and specific notice of same, the buyer loses 'the right to rely' on the provisions of Articles 41 or 42. As a starting point, at least, the buyer loses the right to assert all the various remedies otherwise provided under the Convention for seller's breach (the right to require performance, to avoid, to claim damages or a proportionate reduction, etc.);[l] this starting point is, however, modified in cases where buyer can provide a 'reasonable excuse' for his failure to notify in accordance with Article 39(1).[2]

1. Regarding the various remedies generally available to buyer for seller's breach, see infra No. 208 et seq. (re. Section III of Ch. II) and infra No. 278 et seq. (re. Ch. V).
2. Regarding excuses under Article 44, see infra No. 206 et seq.

7. Seller Aware of Third Party Right or Claim

205. By virtue of Article 43(1) a buyer who fails to notify the seller of a given third party right or claim may lose the right to rely thereon. Conversely, a seller who is aware of the right or claim concerned ought not be permitted to enjoy the protection which this rule provides. For this reason, Article 43(2) provides that the seller is not entitled to rely on the provisions of the preceding paragraph (1) if he knew of the right or claim of the third party and the nature of it.

In contrast with the slightly more buyer-friendly rule in Article 40,[1] Article 43(2) precludes the seller from relying on the buyer's failure to notify only in cases where the seller actually knew of the right or claim of the third party; a showing that the seller 'could not have been unaware' will not suffice.

1. Supra No. 196.

S. Excuse for Failure to Notify of Section II Breach

1. Nature of the Exception

206. Articles 39(1) and 43(1) provide that buyers who fail to notify of an alleged breach in respect of the various obligations of the seller set forth in CISG Part III (Articles 35, 41, 42) generally lose the right to rely on such breach. As a starting point, Articles 39(1) and 43(1) relate to the full range of Convention remedies otherwise available.[1] Article 44 provides an exception to these rules:

'Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.'

A buyer who has a 'reasonable excuse' for his failure to notify does not lose all elements of the 'right to rely': such a buyer, while losing the right to require performance and the right to avoid, retains the right to a proportionate reduction in price [page 113] as well as a limited right to claim damages (i.e. except for loss of profit, which is lost by virtue of the failure to notify).[2]

It should be emphasized that the (absolute) two-year cut-off rule in Article 39(2) remains unaffected by Article 44. In this sense, the rule differs from Article 40 - a provision which has been applied to extend the buyer's protection beyond that two-year period.[3]

1. See supra Nos. 190 and 204.
2. As regards Article 50, see infra No. 231. As regards damages, hereunder lost profits, see infra No. 287 et seq.
3. See supra No. 196 citing a case where a buyer was allowed to 'rely' on a non-conformity first discovered some 3 years after delivery of the goods in question.

2. Reasonable Excuse

207. The difficult Article 44 question is what constitutes a 'reasonable' excuse. The legislative history of the Convention suggests that Article 44 was drafted to meet what representatives from developing countries saw as the drastic consequences of a failure to notify under Article 39(1), and it has been suggested that buyers in less developed regions may be among those likely to enjoy the benefits of a 'reasonable excuse.'[1] And although Article 44, by its own terms, applies to all CISG buyers, even experienced merchants, it can presumably be expected to provide 'safety valve' relief only in exceptional circumstances.[2] Then again, the developing CISG case law shows that safety-valve rules like those in Articles 40 and 44 will indeed be applied, from time to time, at least in cases where they are needed to avoid otherwise unjust results.[3]

1. See Honnold, Uniform Law (1999) at p. 283 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. The decision of Gerechtshof 's-Hertogenbosch (Netherlands), 15 December 1997, reported [at <http://cisgw3.law.pace.edu/cases/971215u1.html> and] in UNILEX, is in accord: the buyer could have appointed an expert to take and examine a sample of the goods (furs) at time of delivery, so the buyer's failure to discover the non-conformity before processing by a third party was not deemed to constitute a 'reasonable excuse'.
3. Regarding the application of the 'safety valve' in Article 40 see supra No. 196 (Chinese merchant was allowed to 'rely' on a non-conformity first discovered some 3 years after delivery of the goods in question).

V. Remedies for Breach of Contract by the Seller

A. Introduction

208. Section III of Chapter II (Articles 45-52) is entitled 'Remedies for Breach of Contract by the Seller.'

These remedial rules form the core of the Convention regime. For every breach by the seller of an enforceable CISG sales contract, there must be some remedy.[1] Article 45(1) summarizes the remedies which the Convention makes available to the buyer for seller's breach: [page 114]

'If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may:
a) exercise the rights provided in articles 46 to 52;
b) claim damages as provided in articles 74 to 77.'

1. See the Overview, supra No. 40 et seq. See also generally Lookofsky, J., 'Remedies for Breach under the CISG,' Ch. 43 in Commercial Damages (New York, 2000).

B. Performance, Avoidance and Damages for Breach

209. The buyer's remedial rights, which are referred to in subparagraph (a) of Article 45(1), and more carefully detailed in Articles 46 to 52, concern the right to require specific performance and the right to avoid.

Subparagraph (b) of Article 45(1) refers to the rules in Chapter V of CISG Part III (Provisions Common to the Obligations of the Seller and of the Buyer) which concern the extent and measurement of damages for breach.

Whether a given breach entitles a buyer to relief within one or more of these three fundamental remedial categories will always depend both on the particular circumstances and on the applicable CISG rule(s).

C. No-Fault Liability Based on Breach

210. On the other hand, it should be emphasized that Article 45 does not merely provide a 'catalogue' of the buyer's various CISG remedies for seller's breach. In particular, Article 45(1) constitutes the very source of the buyer's right to claim damages for breach.[1] According to Article 45(I)(b): 'If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may ... claim damages as provided in articles 74 to 77.'

Since the buyer may thus claim damages for any breach (failure to perform), and since (as will be seen) Articles 74-77 concern only the extent and measurement of damages, Article 45(1) clearly represents a no-fault liability rule: i.e., assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself, without more. (The limited 'exemptions' made available to the seller under Article 79 do not water Article 45(1)(b) down to a rule of liability based on culpa or fault).[2]

1. See A/CONF./97/5, para. I of the Secretariat's Commentary to Article 41 of the 1978 Draft Convention.
2. See Lookofsky, J., 'Fault and No-Fault in Danish, American and International Sales Law. The Reception of the 1980 United Nations Sales Convention', 27 Scandinavian Studies in Law 109 (1983) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky4.html>]. The fears previously expressed by Nicholas, B. ('Force Majeure, and Frustration', 27 Am. J. Comp. 1. 231, 1979) [available at <http://www.cisg.law.pace.edu/cisg/biblio/nicholas.html>] have thus proved unfounded: regarding the developing case law under Article 79 see infra No. 298 et seq.
[page 115]

D. Relationship Among Remedies

211. As indicated previously,[1] the right to demand specific performance (require that the seller perform) is not compatible with the right to avoid (demand an end to the obligations of both parties),[2] 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). Article 45(2) confirms the point: 'The buyer is not deprived of any rights he may have to claim damages by exercising his right to other remedies.'

1. Supra No. 43.
2. By definition, a party who 'terminates' a contract puts an end to both parties' right to demand specific relief.

E. No Grace Period in CISG Context

212. Under some domestic legal systems, a (serious) delay in delivery does not necessarily give the buyer the right to avoid the contract, in that the seller may apply to a court for a delay of grace (délai de grâce) which - if granted - effectively establishes a new delivery date.[1] Under the Convention, however, the buyer's right to avoid for fundamental breach cannot be defeated by such a délai de grâce.[2] Indeed, Article 45(3) expressly provides that no period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to any remedy for breach of contract.

1. Regarding, e.g. the French domestic rules, see Treitel, G., Remedies for Breach of Contract (Oxford 1988), p. 323.
2. Regarding Article 49(1)(a), see infra No. 225 et seq. Regarding the Nachfrist-type warning system under Article 49(1)(b), see No. 228 et seq.

F. Specific Performance

1. Right to Require (Specific) Performance

213. If a seller fails to perform his promise, the Convention permits the buyer to require that the seller perform as promised: (1) deliver, (2) deliver substitute goods, or (3) cure defective delivery. Dealing with the first of these options, Article 46(1) provides:

'The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.'

Paragraph (1) of Article 46 is designed to deal with the situation where seller's breach consists of a total failure to perform. In such an event, the buyer may demand performance unless he has resorted to an inconsistent remedy, i.e. avoidance.[1]

1. See supra No. 211. [page 116]

2. Specific Performance and the Duty to Mitigate Damages

214. In addition to the express ('inconsistency') limitation set forth in paragraph (1) of Article 46, it has been suggested that the right to require performance should be interpreted in conjunction with an injured party's Convention obligation to mitigate damages,[1] as well as the requirement that the Convention be interpreted with regard to the need to promote good faith in international trade,[2] in that a buyer's right to compel specific performance - for example after a market change - might permit the buyer to speculate at the seller's expense.[3] However, because the Convention version of the mitigation rule applies expressly as a limitation on the right to recover damages, and because of the legislative history rejecting an amendment to that (Article 77) rule,[4] there is considerable support for the views of those who would deny the application of mitigation as a limitation of the right to claim performance.[5] As regards the CISG case law on this subtle (and largely theoretical) question, however, 'the jury is still out'.[6]

1. Regarding Article 77, see infra No. 294 et seq.
2. Regarding Article 7(1), see supra No. 75 et seq.
3. See Honnold, Uniform Law (1999), pp. 100-101 and 309-310 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
4. See Walt, S., 'For Specific Penonnance Under the United Nations Sales Convention,' Vol. 26 Texas International Law Jounal 211, 217 (1991) [available at <http://www.cisg.law.pace.edu/cisg/biblio/walt.html>].
5. See Stoll in Schlechtriem, Commentary (1998) at pp. 587-588 and Walt, S., op. cit. at pp. 214-216. Regarding mitigation and the seller's right to demand payment of the price under Article 62, see A/CONF./97/5, para. 3 of the Secretariat's Commentary to Article 73 of the 1978 Draft Convention, and infra No. 255.
6. Specific performance is a little-used remedy in the sales international context, and as of April 2000, no Article 46(1) cases had been reported in CLOUT or UNILEX.

3. Specific Performance Limited by Forum Law

215. In any event, Article 46(1) must always be read in light of Article 28.[1] That is to say, a court or arbitral tribunal asked to require that a seller perform need not necessarily make such an order when the requirements of Article 46(1) are satisfied.[2] For even in this situation, the court or tribunal must consider whether specific relief would be available pursuant to the domestic sales law of the forum State.[3] And if the court or tribunal finds that specific relief would not be available under the corresponding domestic law, the court or tribunal is 'not bound' to require performance under the Convention.[4]

The foregoing 2-step process, involving both an analysis of the Convention and an analysis under forum law, surely applies to cases falling under Article 46, paragraph (1), i.e. where the seller does not deliver at all. Arguably, it should also apply to those forms of specific performance described in paragraphs (2) and (3).[5]

1. Supra No. 140 et seq.
2. I.e. asuming buyer has not resorted to an inconsistent remedy.
3. Regarding specific performance in Civil and Common law systems, see Treitel, Remedies, Chapter 3.
4. Since there are as yet (as of April 2000) no Article 28 cases reported in CLOUT or UNILEX, it remains to be seen whether courts and arbitrators will exercise their Article 28 discretion so as to maintain domestic conceptions or whether the Convention will be interpreted with the need [page 117] for international uniformity in mind. Regarding Article 7(1), see supra No. 75. See also Kastely, 'The Right to Require performance in International Sales,' 63 Wash. L Rev. 607 [available at <http://www.cisg.law.pace.edu/cisg/biblio/kastely1.html>].
5. See discussion of these provisions below.

4. Require Delivery of Substitute Goods

216. Unlike Article 46(1), paragraph (2) of Article 46 deals with the situation where the goods have been delivered. The problem here is that the goods delivered 'do not conform':

'If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.'

Typically, the lack of conformity referred to in Article 46(2) will relate to a breach of the seller's obligations under Article 35, but the buyer's right to require specific performance in the form of re-delivery also extends to breaches which relate to the seller's obligation to deliver unencumbered goods under Article 41.[1]

In any case, to require delivery of substitute goods may entail a severe and potentially 'disproportionate' financial burden for the seller.[2] For this reason, Article 46(2) conditions a buyer's right to require re-delivery in much the same way as it conditions a buyer's right to avoid the contract entirely: like avoidance, re-delivery requires a showing of fundamental breach.[3] Therefore, the buyer must suffer a detriment which substantially - perhaps even more than 'materially' - deprives him of what he is entitled to expect under the contract, and the detriment must also be one which this seller (or a reasonable) seller ought to have foreseen.[4] In addition, the request for re-delivery must be made in conjunction with (or shortly after) a notice which specifies the nature of the lack of non-conformity.[5]

In order to require re-delivery, the buyer must be prepared to return the goods already received. In most cases, the buyer loses the right to require that the seller deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.[6]

1. See Walt, S., op. cit. supra No. 214, pp. 216-217 (reviewing the inconclusive legislative history). Regarding Article 41, see supra No. 197 et seq.
2. See A/CONF./97/5, para. 12 of Secretariat's Commentary to Article 42 of the 1978 Draft Convention (costs to the seller of shipping substitute goods and of disposing of goods already delivered may exceed buyer's loss due to given non-conformity).
3. Regarding Article 49(1), compare infra No. 225 et seq.
4. Regarding Article 25, see supra No. 136 et seq.
5. See Article 39, supra No. 189.
6. Regarding this Article 82(1) rule and the exceptions set forth in Article 82(2), see infra No. 313 et seq.
[page 118]

5. Right to Demand Re-delivery Limited by Forum Law

217. To require a seller to re-deliver is to require him to perform his obligations as promised.[1] Therefore, it is submitted - though, as yet, hardly settled - that Article 28 may work to limit Article 46(2).[2] So, even assuming that the various Convention re-delivery requirements (fundamental breach, etc.) are met, a forum court ought 'not [be] bound' to require such performance under the Convention if this form of specific relief would not be available pursuant to the corresponding domestic law of the forum State.[3]

1. Accord: Walt, S., op. cit., p. 217 (order of specific performance may, under Article 46(2), require seller to deliver substitute goods).
2. For a contrary view, see Honnold, Uniform Law (1999) at pp. 310-311 (arguing that Articles 46(2) and (3) should be regarded as lex specialis qualifying the general provisions of Article 28).
3. See supra No. 140 et seq.

6. Buyer's Right to Require that Seller Remedy Non-conformity (Cure)

218. Under the Convention, and depending on the circumstances, a seller's non-conforming delivery may ultimately be remedied ('cured') for one of two reasons: either because the buyer demands (and is granted) this remedy or because the seller exercises his own right to repair.[1] It should therefore be emphasized that paragraph (3) of Article 46 deals (solely) with the buyer's right to require that seller remedy a defective delivery by repair:

'If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.'

In many situations, it will be more convenient and less expensive for the seller to repair the goods delivered (than to return the non-conforming goods to the country of origin and re-ship new goods from there). This fact helps explain why the Convention does not condition the buyer's right to demand that seller repair upon a showing of a 'fundamental breach.' In fact, the starting point in Article 46(3) is that any breach of the seller's obligation to deliver conforming goods entitles the buyer to demand this particular kind of specific performance.[2]

On the other hand, a concrete evaluation of the situation is always required, in that the seller need not repair whenever this would be 'unreasonable' having regard to all the circumstances. It would, for example, seem unreasonable to require a distant seller to utilize his own facilities or to travel a great distance to repair a minor defect, especially in light of the buyer's general duty to take appropriate measures to minimize loss suffered as a consequence of seller's breach,[3] but also in light of the other Convention remedies at the buyer's disposal.[4] [page 119]

Since the right to demand repair is (at least arguably) a species of the more general right to demand performance as promised,[5] Article 28 should also work to limit the operation of Article 46(3).[6]

1. Regarding seller's right to cure, see supra No. 182 (re. Article 37) and infra No. 220 et seq. (re. Article 48).
2. See, e.g., the decision of Cour d'Appel de Versailles (France), 29 January 1998, No. 56, reported in UNILEX (buyer sent letter to seller's agent two weeks after provisional test of machinery had been performed at seller's premises, informing seller of non-conformities found and specifying improvements to be made before a new test was made; court held that buyer, in conjunction with Art. 39 notices of non-conformity, had required seller to remedy defects in compliance with Art. 46(3).
3. Accord: Honnold, op. cit. at p. 309. Regarding Article 77, see infra No. 294 et seq.
4. If buyer engages a third party to repair, the cost will be chargeable to the seller as damages for breach. Regarding Article 74, see infra No. 289 et seq.
5. Accord: Walt, S., op. cit. at 217 ('form that specific performance takes depends on the circumstances').
6. Regarding Article 46(2), see supra No. 217. But see Honnold, op. cit. at 310-311 (arguing that Articles 46 (2) and (3) should be regarded as lex specialis qualifying the general provisions of Article 28).

G. Nachfrist Warning: Fixing an Additional Performance Period

219. Under the main Convention rule which governs the buyer's right to avoid, the buyer is entitled to avoid only by reason of the seller's fundamental breach.[1] This rule covers cases of non-delivery, late delivery and non-conformity as well.

However, in cases of non-delivery (only), the buyer may also avoid for another reason, i.e., if the seller does not deliver the goods within an 'additional period of time' fixed by the buyer,[2] and CISG Article 47(1) describes the kind of additional period which may be fixed: 'The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.'

Those who drafted the main CISG avoidance rule, which gives the buyer the right to terminate only in the event of a 'fundamental' breach, envisioned situations where the buyer might have reason to doubt whether the seller would perform before a given delay in delivery becomes truly serious (i.e., a 'substantial detriment' which would entitle the buyer to avoid); indeed, the buyer might have reason to doubt how the Convention requirement of fundamental breach would be applied to the circumstances of a given case.[3]

For these reasons - and having been inspired by the similar (but not fully corresponding) Nachfrist provisions in German law - the CISG drafters gave the buyer the right to fix an additional period of time, after which the buyer may avoid without having to determine whether the total delay actually has reached 'fundamental' proportions.[4] On the other hand, the flexible requirement that the period so fixed be 'reasonable' may tend to introduce a new element of uncertainty, especially since a variety of factors must enter into the calculation of whether the period fixed is to be judged 'reasonable' or not.[5]

The Nachfrist notice is designed to give the seller in breach a second delivery chance; once sent, the buyer must await the seller's reaction. During the period fixed, buyer may not resort to any remedy he might otherwise have by virtue of the breach.[6] [page 120]

As already emphasized, the seller's non-compliance with a given Nachfrist notice is sanctioned only in the case of non-delivery; only in this kind of Nachfrist situation will the buyer be entitled to avoid.[7] Thus, although the broad wording of Article 47(1) would seem to comprise any breach, the practical application of the provision is limited to cases involving non-delivery.[8]

1. Article 49(l)(a), infra No. 225.
2. Article 49(l)(b), infra No. 228.
3. Regarding Article 25, see generally supra No. 136 et seq.
4. Regarding Article 49(1)(b), see infra No. 228.
5. See, e.g., the decision of OLG Celle (Germany), 24 May 1995, No. 20 U 76/94, reported [at <http://cisgw3.law.pace.edu/cases/950524g1.html> and] in UNILEX (since the additional period fixed was not unreasonable, buyer could declare contract avoided with respect to the non-delivered items). See also the factors noted by Huber in Schlechtriem, Commentary (1998) at 396 (length of the contractual period of delivery, buyer's recognizable interest in rapid delivery, nature of the seller's obligation, nature of 'impediment' to timely delivery).
6. Article 47(2) provides: 'Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.' 7. Regarding Article 49(1)(b), see infra No. 228.
8. Accord: Honnold, Uniform Law (1999) pp. 313-314 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

H. Seller's Right to Cure After the Delivery Date

1. Introduction

220. By providing a seller who delivers before the contract date with a certain right to 'cure' non-conformities (defects) in the goods so delivered, Article 37 gives the seller a chance to limit the damage caused by the breach and also to limit the scope of remedial relief otherwise available to the injured buyer.[1] Article 48(1) supplements this early-delivery rule with a more limited right for the seller to cure defects after the delivery date:

'Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.'

1. See supra No. 182.

221. Mistakes will happen, inter alia, in international trade: (some) of the goods delivered may not conform to the contract, a third party's interest may appear to conflict, the documents may be defective in some respect, etc. In most such situations, an effective remedy by the seller of her failure to perform in full - even where such 'cure' takes place after the contractual delivery date - may be preferable to an avoidance of the contract: this will surely be the case for the seller, and it [page 121] may also even be true for the buyer. To exercise her right under Article 48(1), however, the seller must produce a cure which is quick, convenient and certain as seen from buyer's point of view.

2. Relation Between Cure and Avoidance Under Article 49

222. Article 48(1) starts with a 'subject to Article 49' reference which is not completely clear on its face, and neither the legislative history nor (as yet) the CISG case law has clarified the relationship between these important provisions.

On the other hand, there does seem to be an emerging consensus that, in most cases, the seller should be allowed to remedy even serious defects in accordance with Article 48(1), i.e., even in cases where a given non-conforming delivery might otherwise seem to fall within the scope of the fundamental breach rule in Article 49. The reason for this is the existence of a 'dynamic' relationship among Articles 25, 48(1) and 49, the idea being that when a given non-conformity can be cured without great inconvenience to the buyer, then that non-conformity should not be regarded as a fundamental breach.

So, except in cases where a given breach remains 'incurable' (by reasonable means), most commentators agree that a seller's good-faith offer to cure ought not be defeated by the buyer's right to avoid for a fundamental breach.[1]

1. See Huber in Schlechtriem, Commentary (1998) pp. 406-410 and Honnold, Uniform Law (1999) pp. 319-322 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]. See also the decision of Pretura di Locarno-Campagna (Switzerland), 27 April 1992, No. 6252, reported [at <http://cisgw3.law.pace.edu/cases/920427s1.html> and] in UNILEX where a Swiss buyer re-sold living-room furniture to a local customer who then complained that the goods were defective (sitting on sofas caused cushions to slide forward); the Swiss buyer was held not entitled to avoid, inter alia, because he had refused to accept an offer by his Italian seller to cure the non-conformity by replacing the upholstery.

3. Proposals and Notice by Seller Regarding Cure

223. The remainder of Article 48, paragraphs (2)-(4), contains a series of logical rules regarding proposals and notice by the seller regarding cure.[1]

1. The text of Article 48(2-4) is as follows: '(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.
(3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.
(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.' For a more detailed analysis of these provisions see, e.g., Huber in Schlechtriem, Commentary pp. 411-413 and Honnold, Uniform Law at 322-324 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
[page 122]

I. Buyer's Right to Avoid for Seller's Breach

224. Article 49 provides an injured buyer with the right to avoid and thus terminate the contract, i.e., put an end to the performance obligations of both parties.[1]

1. See Article 81, infra No. 310.

1. Avoidance for Fundamental Breach

225. Under some domestic statutes of sale, a 'perfect tender' rule prevails, whereby any breach (however insignificant) entitles the 'injured' party to 'avoid' the contract.[1]

In international sales, however, particularly far-reaching consequences and extensive waste may follow in the wake of contract avoidance (termination), and so the general Convention rule is that avoidance requires a showing of a particularly serious breach. According to Article 49(1)(a), the buyer may declare the contract avoided: 'if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract ...'

Under paragraph (1)(a) the buyer needs to establish a fundamental breach, which in CISG parlance translates as a 'substantial deprivation.'[2]

For example, a seller who delivers goods unfit for ordinary purposes (or for the buyer's particular purpose, if known to the seller) will not only have breached his obligation to deliver conforming goods; he will - at least in the case of an 'incurable' defect - also have committed a fundamental breach.[3]

To take another example, involving the CISG seller's obligation to deliver on time,[4] suppose the contract provides for the delivery of certain highly specialized goods (not easily obtainable elsewhere) on a clearly specified date, e.g., January 31st. If the seller delivers two weeks later than the contract date, and if the buyer is thereby prevented from performing an existing obligation to (re)sell the same goods to a designated third party, the buyer has almost surely suffered a substantial deprivation under Article 25. The buyer will then be entitled to avoid, provided that the original seller (or a 'reasonable' seller) had reason to know that the contract breach would have this 'substantial' effect.[5]

It must, however, be emphasized that avoidance in an international sales context is regarded as a particular severe - and therefore 'exceptional' - remedy, and many courts have indeed showed great reluctance to allow a buyer injured by a breach to avoid and thus put an end to the whole CISG contractual relationship.[6]

If the buyer requires more certainty than that provided by the flexible, gap-filling rule in Article 49(1), then that buyer would be well-advised to insist on a contractual term which expressly conditions the duty to pay for goods received upon punctual and/or conforming delivery.

Finally, it should be noted that a buyer not otherwise entitled to avoid the sales contract due to non-conformity pursuant to CISG Article 49(1)(a) might, at least in exceptional circumstances, be held entitled to 'rescind' the contract pursuant to the applicable domestic law regarding the effects of misrepresentation, fraud, duress and the like.[7] [page 123]

1. Regarding, e.g. English and American law, see Lookofsky, J., Consequential Damages in Comparative Context (1989), Part 4.3.1.=
2. Regarding Article 25, see supra No. 136 et seq.
3. See, e.g., the decision of Cour d'Appel de Versailles (France), 29 January 1998, No. 56, reported [at <http://cisgw3.law.pace.edu/cases/980129f1.html> and] in UNILEX (buyer who could not use defective machines as expected entitled to avoid). See also the decision of LG Ellwangen, 21 August 1995, reported [at <http://cisgw3.law.pace.edu/cases/950821g2.html> and] in UNILEX (paprika not meeting minimum standards of German food law). Regarding Article 35(2)(a)-(b) see supra Nos. 164 et seq. Regarding the relationship between Article 49(1)(a) and 'curable' defects under Article 48 see supra No. 222 and, e.g., the decision of Pretura di Locarno Campagna (Switzerland), 27 April 1992, No. 6252, reported [at <http://cisgw3.law.pace.edu/cases/920427s1.html> and] in UNILEX where a Swiss buyer re-sold living-room furniture to a local customer who then complained that the goods were defective (sitting on sofas caused cushions to slide forward); the Swiss buyer was held not entitled to avoid, inter alia, because he had refused to accept an offer by his Italian seller to cure the non-conformity by replacing the upholstery.
4. Article 33: see infra No. 158 et seq.
5. Regarding this Article 25 requirement, see supra No. 136 et seq. See, e.g., the award of the ICC Court of Arbitration (Paris), No. 8128/1995, reported [at <http://cisgw3.law.pace.edu/cases/958128i1.html> and] in UNILEX (CISG seller knew buyer was obligated to deliver goods to third party and that, in case of late delivery, buyer had to pay a contractual penalty).
6. See, e.g., the decision of the German Supreme Court (Bundesgerichtshof), 3 April 1996, NJW 1996, 2364, CLOUT Case 171, also reported [at <http://cisgw3.law.pace.edu/cases/960403g1.html> and] in UNILEX (avoidance is remedy of 'last resort'; breach not fundamental since buyer failed to show resale of non-conforming cobalt sulfate would be unreasonably difficult). See also, e.g., the decision of the Swiss Supreme Court (Schweizerisches Bundesgericht), 28 October 1998, CLOUT Case 248 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] (German sellers delivered frozen meat containing excessive fat and worth 25 per cent less than conforming goods to Swiss buyer/wholesaler; considering buyer's ability to process or re-sell goods at lower price, court held non-conformity not significant enough to entitle buyer to avoid).
7. Regarding the potential for overlap between the Convention and domestic validity rules, see generally supra No. 63; but see, e.g., the decision of LG Aachen (Germany), 14 May 1993, RIW 1993, 760-761, also reported [at <http://cisgw3.law.pace.edu/cases/930514g1.html> and] in UNILEX (application of CISG precluded recourse to domestic law regarding mistake as to the quality of the goods). Under American domestic law, avoidance might be allowed for a fraudulent misrepresentation without concern for its materiality, (see Farnsworth, Contracts at 252), whereas under CISG Article 49(1)(a), a fundamental breach is the sine qua non for avoidance (Huber in Schlechtriem, Commentary n. 5 at 416). The Hague Sales Conventions of 1964, which preceded the CISG, expressly excluded the buyer's right of recourse to domestic law in the case of non-conforming goods (ULIS Article 53), except in cases of fraud (ULIS Article 89), but the CISG contains no similar provision: see Huber op. cit. at 370 with n. 86.

2. Declaration of Avoidance

226. Article 49(1)(a) entitles the buyer to 'declare' the contract avoided. Such a declaration of avoidance is effective only if made by notice to the seller. While there are no specific requirements as to form or content, the buyer's declaration must at least make it clear that the seller no longer can count on buyer's performance in respect of the sales contract concerned.[l]

1. Accord Huber in Schlechtriem, Commentary (1998) at 425. Regarding Article 26, see supra No. 138. Regarding the risk of transmission under Article 27, and the related question of whether a declaration of avoidance may be revoked, see supra No. 139. [page 124]

3. Relationship to Cure; Avoidance as to Part

227. As discussed previously, a seller who effectively exercises his right to cure a non-conforming delivery can steer clear of the potential (avoidance) effects of an otherwise fundamental breach.[1] On the other hand, the Convention also contains rules which extend the buyer's right to avoid in cases where the seller delivers only a part of the goods or where only a part of the goods delivered conform with the contract: in such cases, the buyer may avoid as to such part if the breach is fundamental with respect to the part.[2]

1. Supra Nos. 182 et seq. and 220 et seq.
2. Regarding Article 51(1), see infra No. 232.

4. Avoidance for Non-Compliance with Nachfrist Notice

228. In the case of non-delivery by the seller, the Convention provides injured buyers with an alternative to fundamental breach. Article 49(1)(b) provides that the buyer may declare the contract avoided:

'in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.'

The buyer may have reason to doubt (1) whether a delayed delivery will ever arrive and (2) whether a given breach is 'fundamental' under Article 49(1)(a); for these reasons, CISG Article 47(1) gives the buyer the right to fix an additional period of time, after which the buyer may avoid without having to consider whether the total delay has reached 'fundamental' proportions.[1] And if the seller does not then deliver the goods within the additional period of time so fixed (or if seller declares that he will not comply),[2] Article 49(1)(b) gives the buyer the right to avoid.

Note that, unlike the rule in Article 49(1)(a), which permits avoidance by the buyer for (any) fundamental breach by the seller, the rule in Article 49(1)(b) applies only 'in case of non-delivery'.

1. See supra No. 219.
2. Regarding anticipatory breach, see generally infra No. 279 et seq.

5. Limitations Regarding Goods Delivered

229. If the buyer first elects to avoid after the goods have been delivered, he must do so (as regards late delivery) within a reasonable time after learning that delivery has been made or (in other cases) within a reasonable time after learning of the breach.[l]

1. See Article 49, subparagraphs (2)(a) and (2)(b)(i). As regards the time for avoidance after a Nachfrist notice or a seller's request under Article 48(2), see subparagraphs 49(2)(b)(ii)-(iii). See also supra No. 219. [page 125]

6. Consequences of Avoidance

230. If the buyer avoids the contract with justification, both parties are released from their obligations under it, subject to any damages which may be due. In addition, each party may claim restitution from the other party of whatever has been supplied or paid under the contract.[l]

1. Regarding Article 81, see infra No. 310 et seq. Regarding the buyer's right to revoke a declaration of avoidance see supra No. 139.

J. Proportionate Reduction in Price

231. In cases involving the delivery of non-conforming goods, the buyer may be entitled to a restitution measure of monetary relief even where he is not entitled to avoid. Article 50 provides, inter alia:

'If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.'

The proportionate price reduction (actio quanti minoris) is a remedy well-known in Civilian, but not in Common law systems. The proportionate price reduction constitutes an alternative to avoidance for non-conformity under Article 49, though it is also available in cases where the buyer would not be entitled to avoid.

In the case of avoidance, the buyer who returns (seriously) non-conforming goods is entitled to full restitution of the contract price, if previously paid;[1] in the case of a proportionate price reduction, where the buyer keeps the non-conforming goods (either because he cannot or will not avoid), the buyer is compensated for the 'quality-gap': he receives a reduction in the contract price proportional to the reduced value of the goods due to the defect.[2]

Note that if the seller successfully (and fully) remedies a given non-conformity in accordance with Article 37 or 48, the buyer may not reduce the price.[3]

It is also important to note that the proportionate reduction will often constitute an alternative to an award of damages for breach (non-conforming delivery),[4] and since the Convention basis of liability is essentially strict in either case,[5] the (potentially more extensive) damages remedy will often be preferred.[6]

1. Regarding Article 81(2), see infra No. 312.
2. See, e.g., the decision of OLG Graz (Austria), 9 November 1995, 6 R 194/95, reported [at <http://cisgw3.law.pace.edu/cases/951109a3.html> and] in UNILEX. See also Lookofsky, J., Consequential Damages in Comparative Context (1989) pp. 134-136.
3. The same applies if the buyer refuses to accept performance by the seller in accordance with Article 37 or 48: see Article 50, second sentence, and supra Nos. 182 and 220.
4. Regarding Articles 74 et seq., see infra No. 289 et seq. Note, however, that it may be possible to combine proportionate price reduction and damages claims, provided the claimant does not thereby claim 'double compensation' for the same items of loss: see Huber in Schlechtriem, Commentary (1998) at 444. [page 126]
5. See supra No. 210. Regarding exemptions for defects under Article 79, see infra No. 298. For an imaginative example of a defect attributable to a force majeure-type performance impediment (thus precluding an award of damages but not a proportionate reduction), see Honnold, J., Uniform, Law (1999) at pp. 391-392.
6. Apart from the fact that consequential damages are only available as damages (under Article 74), the Article 50 formula may prove advantageous in cases where the buyer accepts delivery in a falling market: see generally Bergsten & Miller, 'The Remedy of Reduction in Price,' 27 Am. J. Comp. L. 255 (1979).

K. Partial Non-Conformity and Remedies for Breach

232. Articles 46-50, discussed above, regulate the buyer's remedies for seller's breach, inter alia, the important rights to demand performance or to avoid the contract. Article 51 concerns the applicability of these provisions to certain situations where the seller performs, but only in part. According to paragraph (1) of Article 51:

'If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform.'

In some respects, Article 51(1) sets forth a rule which would seem hardly necessary to (re)state. If, for example, a seller delivers two-thirds of the quantity agreed but fails to deliver one-third, the buyer's right to require performance under Article 46 would obviously apply only to the third not delivered; similar considerations would apply in the case of re-delivery or repair.[1]

1. See supra No. 213 et seq.

L. Avoidance: in Part or in Full

233. As regards avoidance, paragraph (1) of Article 51, represents an amplification of Article 49(1): the general rule for part-performance is avoidance in part. Against this background, paragraph (2) of Article 51 re-states the obvious:

'The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the [entire] contract.'

M. Delivery Before the Date Fixed

234. The seller must deliver the goods as required by the contract.[l] If the contract provides that the goods must be delivered on a fixed date or within a given period, delivery at an earlier date would, without more, constitute a breach. In this situation, Article 52(1) provides that the buyer may take delivery or refuse to take delivery. Assuming, however, that the breach is not fundamental,[2] a buyer who refuses delivery will have to accept re-delivery when made at the proper time. [page 127]

1. Article 30, supra No. 148.
2. Regarding Article 49(1)(a), see supra No. 225.

N. Delivery of Excess Quantity

235. The buyer is not obligated to accept (or pay) for more than what he has agreed to accept. If the seller delivers more than that which is provided for in the contract, the buyer may refuse to take delivery of the excess quantity;[1] however, if the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate.[2]

1. In certain circumstances, e.g. where the contract and the excess quantity are shipped under a single negotiable bill of lading, the non-comforming tender of delivery may constitute a fundamental breach: see Honnold, Uniform Law (1999) at p. 348 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. Article 52(2).

§4. OBLIGATIONS OF THE BUYER AND SELLER'S REMEDIES FOR BREACH

I. Introduction

236. Chapter III of CISG Part III (Articles 53-65) defines the Obligations of the Buyer and provides the seller with a catalogue of remedies for buyer's breach. Many of the special (buyer-related) rules in this Chapter I of Part III must be read in conjunction with the General Provisions set forth previously in Chapter I of Part III,[l] as well as with those rules set forth in Chapter V (Provisions Common to the Obligations of the Seller and of the Buyer).[2]

1. Regarding Articles 25-29, see supra No. 135 et seq.
2. Regarding Articles 71-88, see infra No. 279 et seq.

II. Summary of Buyer's Obligations

237. The main obligations of the CISG buyer are summarized in Article 53: 'The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.'

III. Payment of the Price

A. Introduction

238. Section I of Chapter III provides more detailed provisions regarding the payment of the price. [page 128]

B. Steps to Enable Payment of the Price

239. Payment of the price is clearly the buyer's main obligation under the contract and under the Convention as well. Payment is likely to be tied to means appropriate in an international context. Article 54 provides:

'The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.'

If, for example, the contract requires payment by letter of credit, the failure to take steps to open the letter (and thus assure timely payment) will clearly constitute a breach. And, as discussed more fully below, the buyer's failure to perform his obligations under the contract or this Convention will entitle the seller to exercise the remedial rights set forth in Section III of Chapter 3.[1] For one thing, the seller may avoid the contract if the breach is fundamental; alternatively, she may issue a Nachfrist notice, which provides for an additional performance period and permits subsequent avoidance for failure to comply.[2]

1. See discussion infra No. 250 et seq.
2. Regarding Article 64, see infra No. 259 et seq.

C. Contract With 'Open' Price Term

240. As previously emphasized in connection with the contract formation rules in CISG Part II, the Convention requires that a proposal be 'definite' if it is to be considered an 'offer' (capable of acceptance). Under Article 14, a proposal is sufficiently definite, inter alia, if it 'expressly or implicitly fixes or makes provision for determining the ... price.'[1]

Article 14 must now be reconsidered in connection with Article 55, which provides:

'Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.'

Article 55 provides a gap-filling reference to the price 'generally charged' in cases '[w]here a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price.'[2] [page 129]

The relationship between this provision and Article 14 has been the subject of some controversy. Although some commentators have read Article 14 as carrying the implication that a contract which does not fix or determine the price is invalid, others have read Article 55 as negating any such implication.[3] Clearly, Article 55 has relevance for the Scandinavian Contracting States who have all declared themselves 'not bound' by Article 14;[4] some have even argued (though not persuasively) that Article 55 is only significant in cases where one of the parties resides in a Scandinavian State.[5]

Although it hardly seems possible to declare all open-price term contracts valid by virtue of Article 55, it seems equally inappropriate to declare every open price term contract invalid on the basis of Article 14. Rather, as previously suggested, the court concerned should try to discern the true intention of the parties in each individual case (via Article 8):[6] if it appears that they intended to be bound without a price clause, then the parties' intention should be permitted to prevail.[7] And since the parties' open-price-term contract would then be held valid, the gap should be filled by the (Article 55) price 'generally charged.'

1. See supra No. 102.
2. Emphasis added.
3. See, e.g. Farnsworth, E.A., 'Formation of Contract,' in International Sales (Galston and Smit ed., New York 1984) at pp. 3-8 [available at <http://www.cisg.law.pace.edu/cisg/biblio/farnsworth1.html>].
4. Regarding the Article 92 declaration, see infra No. 328 (noting the possible applicability of CISG Part II in Scandinavian States by virtue of Article 1(1)(b)).
5. According to the Secretariat Commentary to the 1978 Draft, Article 51 of the Draft (a rule which is somewhat differently worded, but generally corresponds to Article 55 of the Convention) has effect only if one of the parties has his place of business in a Contracting State which has ratified or accepted Part III but not Part II and if that State accepts open-price contracts as valid: see para. 2 of the Commentary to Article 51 of the Draft; but see supra No. 102 with note 5. Compare Murray, J., 'An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods,' Vol. 8 Journal of Law and Commerce 11, 13-17 [available at <http://www.cisg.law.pace.edu/cisg/biblio/murray.html>].
6. See supra No. 81 et seq.
7. See supra No. 102.

D. Price Fixed by Weight

241. Article 56 provides the following rule of CISG contract interpretation: 'If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight.'

E. Place of Payment

242. The contract ordinarily determines the place of payment.[1] As to cases where the contract is silent on this particular point, Article 57(1) provides:

'If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller:
a) at the seller's place of business;[2] or [page 130]
b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place.'

The place of payment may be significant in an international context, inter alia, if currency export restrictions are involved. More important from a practical point of view is the fact that the place of payment, as determined by the contract or the Convention's gap-filling rule in Article 57, often determines whether a given forum court enjoys (extraterritorial) jurisdiction to decide disputes which relate to the international buyer's CISG obligation to pay the price.[3]

1. See generally Sevón, L., in Dubrovnic Lectures (Sarcevic and Volken ed., New York, 1986) [available at <http://www.cisg.law.pace.edu/cisg/biblio/sevon1.html>].
2. According to Article 57(2): 'The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract.' 3. Regarding the 'place of performance' of the 'obligation in question' under Article 5(1) of the EC Jurisdiction and Judgments Convention, see Lookofsky, J., Transnational Litigation and Commercial Arbitration (1992), Ch. 2.2.2(A). The European Court's landmark 1976 decision in Tessili (id. at 33) has not been disturbed by the advent of the CISG, but it is now the CISG which often determines the place of performance of the obligation in question in international sales cases: for numerous cases applying Article 57 in this jurisdictional context, see generally [cisgw3 database] CLOUT and UNILEX. While some might rightly criticize the workings of Article 5(1) of the Jurisdiction & Judgments Convention in general, the 'regional harmonization' of procedural law by the application of CISG Article 57 seems hardly 'inconsistent' with the loftier goals of CISG Article 7; for a contrary view see Honnold, Uniform Law (1999) at 362 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] and compare the critique of Hager in Schlechtriem, Commentary (1998) at 466.

F. Time of Payment

243. The buyer is obligated to pay at the time designated in the contract.[l] For cases where the contract is silent, Article 58(1) provides the general gap-filling rule:

'If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents.'

1. See Articles 53 (supra No. 237) and 59 (infra No. 248).

244. In a bilateral contract, unless otherwise agreed, the parties are to exchange their performance obligations at the same point in time: i.e., payment and delivery are constructive conditions concurrent.[l] The seller has no obligation to extend credit, so the buyer must pay when the seller makes the goods available, either by placing the goods or the documents controlling them at the buyer's disposal. Conversely, the buyer need not pay until the goods actually are made available.[2]

1. Compare, e.g. sect. 28 of the Sale of Goods Act (UK).
2. Regarding inspection of the goods, see paragraph (3) infra No. 247.
[page 131]

G. Contracts Involving Carriage

245. In an international sales context, the contract will ordinarily involve carriage of the goods.[1] For these cases, where the parties deal at a distance, Article 58(2) provides the necessary modification to the 'construction conditions concurrent' rule in paragraph (1):

'If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.'

Where the contract involves 'carriage' (by an independent carrier), Article 58(2) permits the seller to protect its interests while proceeding to dispatch the goods: absent contrary contractual provision, and at seller's election, the terms of carriage may provide that an exchange of goods (or documents) against payment will take place when the goods are handed over to the buyer.

1. Regarding seller's obligation to deliver under Article 31, see supra No. 153 et seq.

246. Article 58 deals with the time, not the place for exchange. In the paragraph (2) situation, when the seller elects to ship under terms whereby the goods (or documents) are to be handed over to the buyer against payment, the CISG default rule calls for payment to be made where the handing over takes place.[1] On the other hand, the seller may not wish to ship under such terms without some assurance that the ultimate exchange will proceed as planned.[2] In practice, the contract will often require the buyer to arrange for the issuance of a letter of credit in the seller's favour; in this case, payment will be made - in exchange for documents - in the seller's locale, by the local (confirming) bank concerned.[3]

1. See Article 57(1)(b), supra No. 242.
2. Paragraph (2) protects the seller against having to deliver without receiving payment; it does not protect, e.g. against the risk of buyer's insolvency which may first become apparent when the goods arrive in buyer's State.
3. The CISG does not deal with letters of credit. As to whether the seller may require buyer to pay by letter of credit absent agreement, see Honnold, Uniform Law (1999) pp. 365-366 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

H. Buyer's Right to Inspect Before Payment

247. The buyer has no obligation to make (full) payment for goods which do not conform to the contract.[l] Before making payment, and before accepting delivery, the buyer is entitled (though not obligated) to examine the goods.[2] Article 58(3) provides:

'The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.' [page 132]

In the Article 58(2) situation, when the seller elects to ship under terms whereby the goods (or documents) are to be handed over to the buyer against payment, the seller must preserve the buyer's right to inspect, e.g., by arranging for buyer's access to the goods at the point of destination.

The right of inspection under Article 58(3) is only a gap-filling rule, so (it goes without saying that) the buyer has no right to inspect if the parties agree on other delivery or payment procedures. The quotation of the price on CIF terms is a common example of an agreement inconsistent with inspection prior to payment.[3]

1. See, e.g. Article 50, supra No. 231.
2. Contrast the obligation of the buyer to inspect within as short a period as possible as practicable following delivery under Article 38: see supra No. 186 et seq.
3. INCOTERMS, CIF, provides that the buyer must pay the price and accept the documents tendered by the seller if they are in conformity with the contract of sale.

I. Payment Due Without Request or Formality

248. Under some domestic rules, a party may not recover damages for delayed payment without first having made a formal demand (mise en demeure ).[1] There is no corresponding principle in the CISG. In fact, the buyer must pay the price on the date fixed or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.[2]

1. See, e.g. Herbots, J., The Belgian Law of Contracts, par. 404, in International Encyclopedia of Contracts.
2. Article 69.

IV. Taking Delivery

249. Section II of Chapter III consists of but one provision: Article 60. This rule, which breaks down buyer's obligations as regards delivery into two main elements, provides:

'The buyer's obligation to take delivery consists:
a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and
b) in taking over the goods.'

Paragraph (a) concerns preliminary acts. Sometimes, for example, it will be up to the buyer to arrange for carriage. In other cases, the buyer will need to designate the desired destination, so that the seller can arrange for timely shipment to the right place.

The buyer's obligation to take over the goods in paragraph (b) is significant, inter alia, where the seller's delivery obligation involves placing the goods at buyer's disposal:[l] the buyer who fails to take over the goods in time will bear the risk of accidental loss or damage after that time.[2] In cases involving carriage, the buyer's failure to take over the goods (from the carrier) will constitute a breach, [page 133] and the buyer may well be liable for the damages which result, e.g., so as to provide the seller with compensation for extra costs paid to the carrier in this regard.

1. See Article 31, paragraphs (b) and (c), supra No. 155 et seq.
2. Regarding Article 69, see infra No. 273 et seq.

V. Remedies for Breach of Contract by the Buyer

A. Introduction

250. Section III of Chapter III is entitled 'Remedies for breach of contract by the buyer.'

For every breach by the buyer of an enforceable CISG sales contract, there must be some remedy.[1] Article 61(1) summarizes the remedies which the Convention makes available to the seller for buyer's breach:

'If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may:
a) exercise the rights provided in articles 62 to 65;
b) claim damages as provided in articles 74 to 77.'

1. See the Overview, supra No. 40 et seq..

B. Performance, Avoidance and Damages for Breach

251. The seller's rights referred to in subparagraph (a) of Article 61(1), and detailed in Articles 62 to 65, concern the right to require (specific) performance and the right to avoid; subparagraph (b) refers to the rules in Chapter V of CISG Part III (Provisions Common to the Obligations of the Seller and of the Buyer) which concern the extent and measurement of damages for breach. Whether a given breach entitles a seller to relief within one or more of these three fundamental categories will generally depend both on the particular circumstances and on the applicable CISG rule(s).

C. No-Fault Liability Based on Breach

252. Article 61(1) does more than merely catalogue the various CISG provisions regarding seller's remedies for buyer's breach. Article 61(1) provides the basis of the buyer's liability; it is, in other words, the very source of the seller's right to claim damages for buyer's breach.[1] According to Article 61(1)(b), '[i]f the buyer fails to perform any of his obligations under the contract or this Convention, the seller may ... (b) claim damages as provided in articles 74 to 77.' Since Articles 74 to 77 concern only the 'extent' and/or 'measurement' of damages, and since Article 61(1)(b) bluntly states that the seller may claim damages thus measured for any breach, Article 61(1) represents a no-fault liability rule. So, assuming that the [page 134] injured party has suffered some loss, the basis of Convention liability in damages is the breach itself, without more. The limited 'exemptions' made available to the buyer under Article 79 do not water Article 61 down to a fault rule based on culpable breach.[2]

1. See A/CONF./97/5, para. 1 of the Secretariat's Commentary to Article 57 of the 1978 Draft Convention.
2. Regarding Article 79, see infra No. 298 et seq. Compare also supra No. 210.

D. Relationship Among Remedies

253. As indicated previously,[1] 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). Article 61(2) confirms the point: 'The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies.'

1. Supra No. 43.

E. No Grace Period in CISG Context

254. In some legal systems, where a buyer's failure to pay would otherwise permit the seller to avoid (terminate) the contract, the buyer may apply to a court for a delay of grace (délai de grâce) which, in effect establishes a new payment date.[1] Under the Convention, however, avoidance is usually triggered by a fundamental breach.[2] Therefore, Article 61(3) provides: 'No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.'

1. Regarding, e.g. the French domestic rules, see Treitel, Remedies for Breach of Contract at p.323.
2. Regarding Article 64(1)(a), see infra No. 259 et seq. Regarding the Nachfrist warning under Article 64(1)(b), see No. 261 et seq.

F. Specific Performance

1. Right to Require (Specific) Performance

255. If a buyer fails to perform his promise to pay, to take delivery, etc. the Convention permits the seller to require that he perform as promised. Article 62 provides:

'The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.' [page 135]

The seller may demand performance unless he has resorted to an inconsistent remedy. The 'inconstent' remedy is avoidance, since, by definition, a party who rightly avoids (terminates) a contract puts an end to both parties' right to demand specific relief.[1]

1. See supra No. 43.

2. Other Convention Limitations

256. In certain circumstances other Convention provisions will affect the seller's right to compel buyer's performance, e.g., to take delivery or pay the price. Not only must the seller take appropriate steps to preserve goods in his possession;[1] if the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, the seller who is otherwise bound to preserve the goods must also take reasonable measures to sell them.[2]

Arguably, the 'duty' which obligates a contracting party to mitigate could be interpreted as a general Convention principle, particularly when combined with a Convention interpretation promoting the observance of 'good faith.'[3] However, because the Convention version of the mitigation rule applies expressly as a limitation on the right to recover damages,[4] and because of the legislative history rejecting an amendment to expand the express scope of the mitigation rule,[5] there is considerable support for the view denying the application of mitigation as a limitation of the right to claim performance.[6]

1. Article 85: infra No. 321.
2. Article 88(2): infra No. 323. See also Hager, Schlechtriem, Commentary (1998) p. 485.
3. See Honnold, Uniform Law (1999) pp. 460-462 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]. Regarding Article 7, see supra. No. 75 et seq.
4. Regarding Article 77, see infra No. 294 et seq.
5. See Walt, S., op. cit. (No. 214) at pp. 215-216.
6. See A/CONF./97/5, para. 3 of the Secretariat's Commentary to Article 73 of the 1978 Draft Convention and Walt, op. cit.

3. Specific Performance Limited by Forum Law

257. Article 61(1) cannot be read without reference to Article 28.[1] A court or arbitral tribunal asked to require that buyer perform must not only determine whether the letter of Article 61 so permits.

Therefore, even if a court holds that, under the Convention remedial scheme, the seller can require that buyer 'perform' his obligations, it must also consider whether such specific relief would be available pursuant to its own domestic sales law, i.e. the law of the forum State.[2] If specific relief is not so available, the forum court is 'not bound' to require performance under the Convention. In particular, as regards Common law fora, Article 28 may assume significance in cases where the seller demands performance while still in possession of the goods.[3]

1. Supra No. 140 et seq.
2. Regarding specific performance in Civil and Common law systems, see Treitel, Remedies for Breach of Contract, Chapter 3. [page 136]
3. It remains to be seen whether Article 28 will tend to maintain domestic conceptions of the proper rule for specific performance or whether the Convention will be interpreted with the need for international uniformity in mind. Regarding Article 7(1) see supra No. 75 et seq. See also generally Kastely, 'The Right to Require Performance in International Sales,' 63 Wash. L. Rev. 607 [available at <http://www.cisg.law.pace.edu/cisg/biblio/kastely1.html>].

G. Nachfrist Warning, Fixing an Additional Performance Period

258. Under the general Convention rule, the seller is entitled to avoid (tenninate) only by reason of the buyer's fundamental breach.[1] However, in cases where the buyer does not pay or take delivery, the seller may also avoid if the buyer does not perform within an additional period of time fixed by the seller in accordance with paragraph (1) of Article 63.[2] This rule provides:

'The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations.'

Once the buyer is late in performing, the seller may have reason to doubt whether the buyer will perform before the breach becomes truly serious, thus entailing a substantial detriment which would entitle the seller to avoid; indeed, the seller may have reason to doubt how the Convention requirement of fundamental breach will be applied in a given case.[3] For this reason, the CISG gives the seller the right to fix an additional period of time, after which the seller may avoid without having to consider whether the total delay has reached 'fundamental' proportions.[4]

Once a Nachfrist notice is sent, the seller must await the buyer's reaction. During the period fixed, seller may not resort to any remedy he might otherwise have by virtue of the breach.[5]

1. Article 64(1)(a): infra No. 259.
2. Article 64(l)(b), infra No. 261.
3. Regarding Article 25, see generally supra No. 136 et seq. Compare also supra No. 219.
4. Regarding Article 64(l)(b), see infra No. 261.
5. Article 63(2) provides:
'Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.'

H. Avoidance

1. Seller's Right to Avoid for Buyer's Breach

259. The general Convention rule applies to sellers and buyers alike: avoidance requires a showing of a fundamental breach.[1] According to Article 64(I)(a):

'The seller may declare the contract avoided:
a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract ...' [page 137]

Under some domestic statutes of sale, time is automatically deemed' of the essence,' in that any delay in performance (however insignificant) entitles the injured party to 'avoid' the contract, and the delay need not even relate to the buyer's main obligation to pay the price.[2] In international sales, however, Article 64(l)(a) follows the general Convention rule: seller can avoid only if buyer's failure to perform amounts to a fundamental breach. This applies to all of buyer's obligations under the contract and the Convention, not only to the obligation to pay, but also, e.g. to an obligation to apply for a letter of credit or a bank guarantee to facilitate the payment of the price.[3

The seller is, of course, entitled to expect payment on time.[4] If, however, the buyer tenders payment one or two days later than the contract date, it is far from certain that the seller has thereby suffered a 'substantial' deprivation under Article 25. And even if he has, the seller will only be entitled to avoid if the buyer (or a 'reasonable' buyer) had reason to know that such a breach would have this 'substantial' effect.[5]

On the other hand, it should be emphasized that even the breach of an 'ancillary' duty will sometimes be regarded as fundamental, i.e., sufficiently serious to provide the seller with grounds to avoid.[6]

A seller who would require greater certainty than that provided by the CISG gap-filling regime (which generally conditions avoidance on a 'fundamental' breach) is well advised to insist on a contract term which spells out the remedial rights of the seller in the event the buyer, e.g. fails to make payment on or before the date required by the contract.

1. Regarding buyer's avoidance for seller's breach under Article 49, see supra No. 224 et seq.
2. Regarding English law, see, e.g. Lookofsky, J., Consequential Damages in Comparative Context (1989), p. 126 with note 105.
3. Regarding Article 54, see supra No. 239.
4. See Articles 53 (supra No. 237) and 58-59 (No. 243 et seq.).
5. Regarding this Article 25 requirement, see supra No. 136 et seq.
6. See, e.g., the decision of the French Court of Appeal (Grenoble), 22 February 1955, CLOUT Case 154, also reported in UNILEX (French seller sold jeans to American buyer with contract stipulating that jeans would be re-sold in South America; buyer's re-sale of goods in Spain and refusal to reveal true destination was fundamental breach giving seller right to avoid).

2. Declaration of Avoidance

260. Article 64(1)(a) entitles the seller to 'declare' the contract avoided. Such a declaration of avoidance is effective only if made by notice to the buyer.[l]

1. See Article 26, supra No. 138. Regarding the risk of transmission under Article 27, and the related question of whether a declaration of avoidance may be revoked, see supra No. 139.

3. Avoidance for Non-Compliance with Nachfrist Notice

261. As regards cases involving non-payment or a failure to take delivery, the Convention provides an injured seller with an alternative avoidance by reason of to fundamental breach. Article 64(1)(1) provides that the seller may declare the contract avoided: [page 138]

'if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed.'

The seller may have reason to doubt (1) whether the buyer in breach will ever pay or take delivery and (2) whether a given breach is 'fundamental' under Article 64(1)(a). For these reasons, CISG Article 63(1) gives the seller the right to fix an additional period of time, after which the seller may avoid without having to consider whether the total delay has reached 'fundamental' proportions.[1] And if the buyer does not make payment or take delivery within the additional period of time so fixed (or if buyer declares that she will not comply),[2] Article 64(1)(b) gives the seller the right to avoid [3]

1. See supra No. 136.
2. Regarding anticipatory breach generally, see infra No. 279 et seq.
3. See, e.g., the award by the ICC Court of Arbitration (Paris), No. 7197/1992, reported [at <http://cisgw3.law.pace.edu/cases/927197i1.html> and] in UNILEX (buyer did not fulfil its obligation to open documentary credit within additional period of time granted by seller; seller would then have been entitled to avoid under Art. 64(I)(b) if it had given notice of avoidance pursuant to Art. 26). Note that a seller who has received the price will rarely face irreparable loss from buyer's delay in taking delivery: see Honnold, Uniform Law (1999) at pp. 387-388 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

4. Limitations Regarding Goods Delivered

262. If the seller first elects to avoid after the buyer has paid the price, he must do so (as regards late performance) within a reasonable time after learning that performance has been made or (in other cases) within a reasonable time after learning of the breach.[1]

1. See Article 64, subparagraphs (2)(a) and (2)(b)(i). As regards the time for avoidance after a Nachfrist notice, see subparagraph 64(2)(b)(ii).

5. Consequences of Avoidance

263. If the seller avoids the contract with justification, both parties are released from their obligations under it, subject to any damages which may be due. In addition, each party may claim restitution from the other party of whatever has been supplied or paid under the contract.[1]

1. Regarding Article 81, see infra No. 310 et seq.

I. Seller's Right to Supply Specifications

264. A buyer may wish to enter a binding contract to purchase goods (e.g. sweaters) even though she is, at the time of contracting, as yet undecided about the precise specifications of the goods she intends to buy: sizes, colours, etc. In this [page 139] case, the contract can provide that the buyer will provide such specifications in due course. If the buyer then fails to make such specification either on the date agreed upon or within a reasonable time after receipt of seller's request, the Convention permits the seller to make the specification himself.[1] The seller must then inform the buyer of the details thereof and must also fix a reasonable time within which the buyer may make a different specification. If the buyer fails to do so, the specification made by the seller is binding.[2]

Such specifications will be significant if, as is likely, the buyer proceeds to breach the contract in other respects, e.g., by failing to pay, take delivery, etc. Once the goods are specified, the contract cannot be declared 'void for vagueness,'[3] and the seller who is entitled to avoid [4] will then be able to resell to another buyer and use the resale price as a means of calculating damages for breach.[5]

1. In accordance with the requirements of the buyer that may be known to him: see Article 65(1).
2. Article 65(2).
3. Regarding Article 14 (offer 'sufficiently definite if it indicates the goods'), see supra No. 102.
4. Regarding Article 64, see supra No. 259 et seq.
5. Regarding Article 75, see infra No. 291.

§5. PASSING OF RISK

I. Introduction

265. Chapter IV of CISG Part III (Articles 66-70) regulates the question of Passing of Risk, i.e., the question of which party is to bear the risk that the goods may be 'accidentally' damaged or lost.

Here as elsewhere, the Convention provides only supplementary (gap-filling) rules designed for cases where the contract itself does not otherwise provide. And it must be emphasized that many international contracts of sale will expressly resolve the question of risk by the incorporation of a simple trade term; in such event, the Convention risk-of-loss regime will be effectively displaced.[1]

1. See infra No. 267. See also supra No. 152

II. Legal Effect of the Passing of Risk

266. The Convention not only lays down the gap-filling rules which determine the point in time when the risk of loss passes from the seller to the buyer; by way of introduction, it also sets forth a basic proposition which helps define the legal effect of the passing of risk. Article 66 provides:

'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, unless the loss or damage is due to an act or omission of the seller.'

It is a well-known fact of life that goods are sometimes damaged or destroyed by fire, storms, theft, vandalism, etc. During the period before the owner of certain [page 140] goods enters a contract to sell the same goods to another, it is obvious that owner (in possession) is the only logical candidate to bear the risk of accidental loss; so, if the goods are in fact lost, the loss must lie 'where it falls', i.e., with the owner in possession.

Nor will the mere fact that the seller enters an agreement to sell the goods ordinarily work to 'transfer' the risk of accidental loss.[1] At some point in time, however, after the seller has done what the contract requires - i.e., to 'deliver' the goods - the buyer must accept the fact that the risk of such losses has passed to him.

Note that the mere fact that the seller and/or the buyer are likely to carry insurance designed to protect against the economic consequences of the 'risks' discussed here does not dispense with the need to determine which of the two parties actually 'carries' the risk when a given loss occurs, in that one of the parties must bear the burden of asserting a claim against the insurer, suffer some depletion of current assets while waiting for settlement, etc.

The gap-filling determination of the precise point in time at which the risk passes from the seller to the buyer is the main purpose of Chapter IV of CISG Part III. The simple message in Article 66 is that once the risk has in fact passed, in accordance with the contract and the Convention, the buyer must pay the price agreed for the goods, and the rule applies even though the goods delivered are damaged beyond repair; indeed, once the risk has passed, the buyer must pay even if the goods never arrive. The explanation is simple: once the risk has passed to the buyer, the seller has done everything she ever promised to do, and the buyer must proceed to perform his part of the deal, intervening 'acts of God,' etc., notwithstanding.

If, on the other hand, the loss or damage suffered is due to an act or omission of the seller, the buyer need not pay, i.e., even if the 'risk' has passed in the technical sense.[2] Another way of stating this is that the ordinary rules regarding the passing of risk apply only to 'accidental' loss or damage: a figure of speech which covers both 'acts of God' and the acts of mortal third parties (thieves, vandals, etc.), but which does not cover the acts or omissions of the seller herself. Similarly, if the loss or damage is due to the buyer's own act or omission, he will be the one to bear this 'risk.'

1. For a limited exception, see Article 68 (infra No. 272).
2. This Article 66 rule stands in apparent contrast with the rule applicable in documentary sales (whereby the buyer must first pay against documents and then bring an action against the seller), but Article 66 is not concerned with documentary sales. See Berman, J. and Ladd, M., 'Risk of Loss or Damage in Documentary Transactions Under the Convention on the International Sale of Goods,' 21 Cornell International Law Journal 423, 427 (1988).

III. Use of Trade Terms (CIF, C&F, FoB, FaS, CPT, CIP, etc.)

267. The most important of the Convention's risk rules are those which regulate the passing of risk when the contract of sale involves carriage of the goods.[l] However, as a practical matter, even these rules are not likely to play a central rule in most real-life contracts for the international sale of goods. The reason for this lies in the fact that the parties may 'derogate from or vary the effect of any [page 141] [Convention] provisions,'[2] inter alia, the CISG provisions regarding the Passing of Risk. And although perhaps only a minority of international sales contracts set forth rules which would displace the Convention regime regarding, e.g. sales contract formation or remedies for sales contract breach, a very large percentage of such contracts contain trade terms (CIF, C&F, FoB, FaS, CPT, CIP, etc.) clearly designed to regulate the passing of risk.[3]

The International Chamber of Commerce, a federation composed of merchant organizations from around the world, has set forth a comprehensive set of definitions for the various trade terms (Incoterms) now in use.[4] In many international sales contracts, where the parties refer expressly to a particular trade term defined by the ICC, e.g. 'CIF (Incoterms),' the risk question will be defined by the official definition, simply because the definition has been incorporated into the contract by reference to the term. Even if the contract simply uses a common trade term (without referring specifically to Incoterms), its meaning will often be well known by virtue of widespread trade usage.[5]

In the case of more traditional trade terms, such as CIF, C&F, and FOB, the risk passes to the buyer when the goods are actually put 'on board' the vessel.[6] Under more modern terms designed especially for containerized transport, such as CPT [7] and CIP,[8] the buyer bears all risks at an even earlier point: from the time they are delivered into the custody of the first carrier.

1. Regarding Article 67, see infra No. 269 et seq.
2. Regarding Article 6, see supra No. 70 et seq.
3. Compare the judgment of Tribunale di Appelo di Lugano (Switzerland), 15 January 1998, reported [at <http://cisgw3.law.pace.edu/cases/980115s1.html> and] in UNILEX. In this case, since contract contained the Incoterm 'CIF', risk passed under that contract term when goods handed over to the carrier, so the court's reference to CISG Art. 67 seems out of place.
4. See the latest edition of the Incoterms (updated by the ICC at regular intervals). See also supra No. 152.
5. Regarding Article 9, see supra No. 87.
6. Or at least pass the 'ships rail.'
7. Carriage Paid to ... (named place of destination).
8. Carriage and Insurance paid to ... (named place of destination).

268. It is also important to note that, in practice, many international sales are 'documentary sales,' whereby the seller hands the goods over to a carrier and receives, in exchange, a bill of lading (or equivalent). The bill of lading, together with other relevant shipping documents, is then tendered to the buyer (or to the buyer's bank)[l] in return for payment of the price. If the contract is a 'shipment' contract,[2] the holder of the bill of lading normally bears the risk of loss or damage from the time the goods are placed on board; in the case of a 'destination' contract,[3] the risk remains with the seller until the carrier arrives at the destination. The CISG Convention, while recognizing documentary sales practices as a fact of commercial life, does not purport to define or regulate them. So any contractual gaps regarding documentary sales practices (hereunder: questions relating to payment against documents, insurance, etc.) will usually have to be filled in by the customs of the trade or by the otherwise applicable domestic law.[4]

1. For example, in a transaction financed by a letter of credit.
2. I.e. a contract of CIF, C&F, FoB vessel port of shipment, of FaS terms.
3. I.e. if the contract trade term is ex ship or free carrier point of destination. [page 142]
4. See generally Berman, J. and Ladd, M., op. cit. Regarding trade usages under Article 9, see supra No. 87 et seq.; regarding gaps and the applicable domestic law under Article 7(2), see supra No. 80.

IV. Contracts Involving Carriage: the CISG Gap-Filling Rule

269. Most international sales contracts involve carriage of the goods. For such cases, but only insofar as the contract does not contain a trade term which prevails,[1] Article 67(1) of the CISG Convention provides the gap-filling rule:

'If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk.'

In most sales contracts involving carriage of the goods, the seller is not bound to hand them over at any 'particular place,' so in most such carriage cases the risk passes to the buyer when the goods are 'handed over' to the first carrier.[2] In other words, in most carriage cases, transit risks fall on the buyer, and practical considerations accord with this general CISG rule: the buyer will be in a better position to inspect goods damaged by transit related risks and make claims against the carrier or insurer concerned.[3]

Goods are only considered as 'handed over to the first carrier' if that carrier is a third party; if the seller delivers using means of transportation and personnel under his own control,[4] the goods are not 'handed over [to a] carrier' in the Article 67(1) sense,[5] and the risk does not pass until the buyer actually 'takes over the goods.'[6] If the seller arranges for carriage by two successive (independent) carriers, the risk usually passes when the goods are handed over to the first of these; however, if the seller is contractually bound to hand the goods over at the transshipment point, the risk passes first at that 'particular place.'

1. See supra No. 267 et seq.
2. Regarding the seller's delivery obligation see supra No. 153 et seq. Compare, e.g. FOB and similar shipment terms (discussed supra No. 267), which require that the goods actually be placed 'on board.'
3. In documentary sales (supra No. 268) the buyer will normally be in possession of documents controlling and insuring the goods. See generally Honnold, Uniform Law (1999) at p. 400 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
4. See Hager in Schlechtriem, Commentary (1998) at p. 506.
5. See id.
6. Or when the goods are placed at the buyer's disposal. Regarding Article 69, see infra No. 273 et seq.

270. Article 67(1) concludes with the observation that the seller's retention of documents controlling the disposition of the goods does not affect the passage of the risk. However, since a trade term (Incoterm, etc.) will often be included in a [page 143] documentary sales contract,[1] Article 67(1) will not be likely to control the risk issue in such transactions.[2]

1. See supra No. 267.
2. See Berman, H. and Ladd, M., op. cit. at pp. 428-429 and supra No. 268. Compare Honnold, Uniform Law at pp. 406-407.

V. Goods Not Identified to the Contract

271. In certain situations, the buyer will deserve some assurance that the goods which have been damaged or lost were actually the same goods which the seller intended the buyer to receive: e.g. where the seller regularly ships large quantities of fungible goods, the buyer should only bear the risk if it is clear that the goods damaged in a given shipment were 'his.' Therefore, Article 67(1) operates only with respect to 'identified' goods; the risk does not pass to the buyer unless and until the goods are clearly 'identified' to the contract: by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.[1] Thus, in sales involving the carriage of bulk goods, a particular buyer only bears the risk as to his undivided share in the bulk if that share has somehow been 'identified' to the contract in question.[2]

1. Article 67(2).
2. According to Professor Honnold (op. cit. at 408), a buyer should not be held to have agreed to share loss involving an unidentified 'bulk' absent express contractual provision to the contrary. However, if (as in Honnold's example at id.) buyer A agrees to buy one-half of the oil in a given (identified) shipment, and the whole cargo is destroyed, it is hard to see why A should not impliedly be held to bear half the total risk: for in such event it is clear that the goods destroyed included those intended for A.

VI. Goods Sold in Transit

272. Article 68 deals with the special problem of goods sold while in transit. The main risk rule and its exception are as follows:

'The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage ...'

The first point to note in this regard is that the sales contract for goods sold in transit will often contain a trade term which itself allocates the risk of loss, thus displacing the CISG gap-filling rule.[1]

The gap-filling rule set forth in the first sentence of Article 68, whereby the risk passes at the time of contracting, was intended by its proponents to protect buyers in developing countries,[2] but the rule has been criticized by Western experts as 'unworkable' in most cases:[3] particularly when damage during transport results from an event difficult to pinpoint in time (water seepage, etc.), the principle set [page 144] forth in the second sentence (which passes the risk, retroactively, at the time the goods were handed over to the carrier) seems preferable,[4] but this exception governs only where (arguably vague) 'circumstances' so indicate.[5] It is at least clear that the seller ought not to profit by a failure to disclose events which would lead to the passing of risk.[6]

1. See supra No. 267.
2. See Honnold, op. cit. at p. 410.
3. See Berman, H. and Ladd, M., op. cit. at p. 430.
4. This was originally the rule in the 1978 Draft Convention: See A/CONF./97/5, para. 1 of Secretariat's Commentary to Article 80 (purely practical concerns).
5. See Berman, H. and Ladd, M., op. cit. at p. 430, distinguishing between 'circumstances' and contract terms (the exception, like the rule, applies only where no trade term applies). Compare Honnold, op. cit. at pp. 410-411 (endorsement of insurance policy to buyer as 'circumstance').
6. The third sentence of Article 68 provides:
'Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.'

VII. Passage of Risk in Other (Non-Carrier) Cases

273. Articles 67 and 68 both provide gap-filling rules in cases involving carriage of the goods. Article 69 provides the residual gap-filling rules, i.e., for cases not covered by Articles 67 and 68. Article 69 provides as follows:

'(1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery.

(2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place.

(3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract.'

VIII. Buyer to Take Goods at Seller's Place of Business (Ex Works)

274. Because most international sales contracts involve carriage of the goods, the field of application of Article 69 will be limited in practice.

Article 69(1) provides the rule for cases not involving carriage, provided the buyer is not bound to take over the goods at a place other than seller's place of business. Thus, where the buyer is obligated to take over the goods at seller's place, the risk generally passes when the buyer actually takes over the goods; if the buyer [page 145] does not take over (available) goods on time, the risk passes at that point in time when the buyer commits this breach.[1] If the contract permits the buyer to collect the goods within a given period, the risk will not pass until the period has expired, even if the goods were held available during that period.[2]

1. Regarding Article 60(b), see supra No. 249.
2. Accord: A/CONF./97/5, paras. 3-4 of Secretariat's Commentary to Article 81 of the 1978 Draft Convention (noting that the seller is in the best position to protect the goods, etc.) and Honnold, J., op. cit. at p. 414. In Scandinavian domestic sales law, a different default risk rule, more like the one in Article 69(2), infra No. 275, applies.

IX. Buyer to Take Goods at Another Place

275. If the buyer is bound to take over the goods at a place other than seller's place of business, e.g. at a warehouse, the risk passes under Article 69(2) when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. Therefore, if the contract permits the buyer to collect the goods within a given period, and the goods are available, the risk will pass before the period has expired; in this case, the seller is in no better position to protect against the loss.[1]

1. See A/CONF./97/5, paras. 5-6 of Secretariat's Commentary to Article 81 of the 1978 Draft Convention and compare supra, preceding note.

X. Identification Required

276. Like Article 67, Article 69 presupposes identification of the goods.[1] If the contract relates to goods not then identified, the goods are first considered to be placed at the disposal of the buyer when such identification takes place: by marking, notice, etc.[2]

1. See supra No. 271.
2. See Article 69(3) and Compare Article 67(2). The identification must, of course, accord with seller's rights and obligations under the contract.

XI. Seller's Fundamental Breach: Affect on Risk

277. If the seller has committed a fundamental breach of contract, Articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach.[1] Therefore, in the case of fundamental breach, although the risk has passed, the buyer may be able to insist on the delivery of substitute goods,[2] or to avoid the contract,[3] i.e. avail herself of remedies which would not ordinarily be available as regards goods lost or damaged as a result of Acts of God, etc. Nor will the fact that the buyer is unable to make restitution necessarily constitute a bar to avoidance in such a case.[4] [page 146]

1. Article 70.
2. Regarding Article 46(2) see supra No. 216.
3. Regarding Article 49 see supra No. 224 et seq.
4. Regarding Article 82 see infra No. 313 et seq.

§6. PROVISIONS COMMON TO THE PARTIES' OBLIGATIONS

I. Introduction

278. Chapter V of CISG Part III (Articles 71-88) is entitled Provisions Common to the Obligations of the Seller and the Buyer. This Chapter supplements both the General Provisions in Chapter I of Part III and the more specialized remedial rules in Chapters II and III. The provisions in Chapter V deal with such varied topics as anticipatory breach, damages for breach, liability exemptions, the effects of avoidance, and the preservation of the goods.

II. Anticipatory Breach and Instalment Contracts

A. Introduction

279. The Convention defines the point in time at which the seller and buyer are to perform their respective obligations.[l] Prior to this time, there can be no breach, and thus no remedy for breach in the usual sense.

On the other hand, when one party clearly repudiates his obligation to perform, the other party can no longer be expected to remain ready to perform a one-sided deal; therefore, in domestic law, such injured party's duties are, at the minimum, considered discharged.[2] Even short of an outright repudiation, the serious possibility of one party's non-performance and the accompanying threat of injury to the other will, in certain circumstances, necessitate legal protection.[3]

Articles 71-73, collected in Section I of Chapter V under the heading 'Anticipatory breach and instalment contracts,' are designed to deal with this same problem in the international sales context, and the CISG solutions indeed resemble those of many domestic contract and sales laws. Depending on the circumstances, a party faced with prospective non-performance, the real possibility of a serious breach, may be entitled either to suspend his own performance (Article 71) and/or to avoid his own obligations altogether (Article 72). In addition, Article 73 provides a special (instalment contract) application of the avoidance rule.

1. Regarding Article 33, see supra No. 158; regarding Article 58, see supra No. 243.
2. Compare, e.g. Farnsworth, E.A., Contracts (1999) §8.20. A more difficult question is whether such a 'breach by anticipatory repudiation' gives the injured party an immediate action for damages. The CISG provides no clear answer: see infra No. 284. Regarding American law, see Farnsworth at id.
3. Regarding domestic solutions, see generally Treitel, Remedies for Breach of Contract, pp. 79-381.
[page 147]

B. Right to Suspend Performance: Generally

280. Article 71(1) sets forth the general rule which entitles a party to suspend his performance when faced with an anticipatory breach:

'A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
a) a serious deficiency in his ability to perform or in his creditworthiness; or b) his conduct in preparing to perform or in performing the contract.'

As regards a (potentially injured) party's right to suspend performance, Article 71(1) requires that it become 'apparent' (il apparait) that the other party will not perform a 'substantial part' (une partie essentielle) of his obligations. Although these terms cannot be measured with anything approaching mathematical precision, a comparison with the rules set forth in Article 72 indicates that the Convention makes it somewhat easier to suspend than avoid: as regards the nature of the non-performance, a promisee's prospective failure to perform a 'substantial part' of its obligations, although obviously significant, is presumably intended to denote something less than a 'fundamental breach';[1] as regards the degree of certainty, an 'apparent' non-performance is designed to indicate a slightly lesser probability than one which is 'clear.'[2]

Beyond this, Article 71(1) requires that the prospect of non-performance be the result of either (a) a serious deficiency in the promisor's performance-ability or creditworthiness, or (b) his conduct in preparing to perform or in performing the contract. The buyer's late payments in respect of other contracts might provide evidence as regards the first criterion; the seller's continued use of defective raw materials in other contracts might provide evidence of the second.[3]

1. See generally Leser in Schlechtriem, Commentary (1998) at p. 524. See, e.g., the decision of LG Berlin, 15 September 1994, No. 52 S 247/94, reported in UNILEX (buyer could suspend performance when it became apparent that seller would not deliver conforming goods; non-performance under Art. 71(1) need not necessarily amount to a fundamental breach).
2. Accord: Honnold, Uniform Law (1999) at p. 429 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]. Regarding the Article 72 requirements, see infra No. 283 et seq.
3. See A/CONF./97/5, para. 6 of Secretariat's Commentary to Article 62 of the 1978 Draft Convention. See also the decision of Rechtbank van Koophandel, Hasselt (Belgium), 1 March 1995, AR 3641/94, reported in UNILEX (seller could suspend delivery of second order by reason of buyer's serious (7-month) delay in payment of first order).

C. Goods Dispatched: Stoppage in Transit

281. Under principles generally applicable under domestic law, a seller's rights in respect of buyer's prospective inability to perform include the right to stop goods already shipped.[1] Article 71(2) contains the CISG version of this rule:

'2. If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing [page 148] over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them.'

Paragraph (2) extends the general protection against potential injury provided by paragraph (1), but paragraph (2) is concerned with the special problem of the seller who has dispatched the goods before the indications of prospective non-performance become manifest. The provision applies not only where the buyer holds a bill of lading or similar instrument, but also where the sales contract extends credit until some time after buyer's receipt of the goods.[2]

In line with the general CISG principle that the Convention is concerned with the inter partes sales relationship,[3] Article 71(2) relates only to the rights in the goods as between the buyer and the seller.[4] The seller's right to effectuate stoppage vis-à-vis carriers and warehousemen will depend on the contract of carriage or bailment (and on the relevant domestic law), just as the rights which creditors or good-faith purchasers may have under the applicable domestic law remain unaffected by this Convention rule.[5]

1. See, e.g. Article 39 of the Danish Sale of Goods Act, cited by Leser in Schlechtriem, Commentary (1998) at 529.
2. See A/CONF./97/5, para. 10 of Secretariat's Commentary to Article 62 of the 1978 Draft Convention.
3. Regarding Article 4, see supra No. 64.
4. Article 71(2), second sentence.
5. See generally Honnold, Uniform Law (1999) pp. 432-434 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

D. Notice. Adequate Assurance of Performance

282. A party suspending performance, whether before or after dispatch of the goods, i.e. under paragraph (1) or (2), must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.[l]

1. Article 71(3). See also the decision of Amtsgericht Frankfurt am Main (Germany), 31 January 1991, IPRax 1991, 345, also reported [at <http://cisgw3.law.pace.edu/cases/910131g1.html> and] in UNILEX (seller's failure to give notice of suspension gave buyer right to recover damages).

E. Right to Avoid for Prospective Fundamental Breach

283. Article 72(1) sets forth the general rule which entitles a party to avoid the contract when faced with an anticipatory breach:

'If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.'

As regards the right to declare the contract avoided, Article 72 requires that it be 'clear' (il et manifeste') that the other party will commit a fundamental breach of contract. [page 149]

As already indicated, the requirements for avoidance, which effectively terminates the performance obligations of both parties,[1] are somewhat more strict than those associated with the right to suspend.[2] In any event, the right to avoid under Article 72 should be exercised with caution, particularly in light of the availability of suspension under Article 71: a party who fails to perform by virtue of an avoidance not justified under Article 72 will itself commit a (perhaps fundamental) breach.

1. See supra No. 46 and infra No. 310.
2. See supra No. 2130. See also the decision of OLG Düsseldorf (Germany), 14 January 1994, [at <http://cisgw3.law.pace.edu/cases/940114g1.html>] upholding the decision of Landgericht Krefeld, 28 April 1993, NJW 1994, 1101 [at <http://cisgw3.law.pace.edu/cases/930428g1.html>], both decisions also reported [at <http://cisgw3.law.pace.edu/cases/950215g1.html> and] in UNILEX (seller had right to avoid 2nd shoe contract since it had become 'clear' that buyer, who had not yet performed under prior contract, would not pay). Compare the decision of the Bundesgerichtshof (Supreme Court of Germany) of 15 February 1995, RIW 1995, 505, IPRax 1996, 182, also reported [at <http://cisgw3.law.pace.edu/cases/950215g1.html> and] in UNILEX (leaving open the question of whether buyer could have avoided when manufacturer stopped its deliveries to seller).

F. Damages for Prospective Fundamental Breach?

284. While Article 72(1) clearly gives the injured party the right to avoid in the face of a prospective fundamental breach, the Convention contains no specific rule as regards an immediate action for damages in this situation. Although it has been suggested that Articles 75 and 76 may authorize such an action immediately upon avoidance,[1] Section II of Chapter V deals with damages for breach,[2] and CISG damages are based on the failure of a party 'to perform ... his obligations under the contract or this Convention.'[3] Therefore, if an action for damages under Articles 74-76 is to be based upon a 'breach by anticipatory repudiation,' we might say that a CISG promise to perform in the future 'by implication includes an engagement not deliberately to compromise the probability of performance .. .'[4] The CISG protects the expectation interest of the promisee in general,[5] and the promisee should be entitled that his performance expectation be protected against anticipatory repudiation as well.[6] Such a flexible interpretation of the rules on damages would also require that the promisee take steps to mitigate the loss occasioned by a promisor's prospective failure to perform.[7]

1. See Honnold, Uniform Law (1999) at p. 439 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. Articles 75 and 76 are special applications of the general Article 74 rule: see infra No. 289 et seq.
3. See Articles 45 (supra No. 208) and 61 (supra No. 250).
4. This was the Common law reasoning of Judge Learned Hand in Equitable Trust Co. v. Western Pac. Ry., 244 F. 485, 502 (SD.N. Y. 1917), aff'd, 250 F. 327 (2d Cir.), cert. denied, 246 US 672 (1918).
5. Regarding Article 74, see infra No. 289.
6. This would accord with the American rule: see Farnsworth, Contracts (1999) §8.20.
7. Accord: A/CONF./97/5, para. 4 of Secretariat's Commentary to Article 63 of the 1978 Draft Convention; Leser in Schlechtriem, Commentary (1998) at 541.

G. Notice. Adequate Assurance of Performance

285. As in the case of suspension of performance under Article 71, the party intending to declare the contract avoided under Article 72 must, if time permits, [page 150] give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.

This rule does not apply, however, if the other party has declared that he will not perform his obligations,[1] in that such a 'repudiation' would, in itself, make the prospect of a forthcoming fundamental breach (abundantly) 'clear.'

1. Article 72, paragraphs (2)-(3).

H. Instalment Contracts: Avoidance for Fundamental Breach

286. Article 73 of the Convention provides a special set of rules applicable to sales contracts involving the delivery of goods by instalments. Depending on the circumstances, a breach by one party as regards a single instalment may serve to indicate a prospective non-performance of greater dimension and thus affect the other party's avoidance rights as regards the contract overall.

First, according to Article 73(1), if a seller's or buyer's failure to perform any of its obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment (alone).

Moreover, if the seller's or buyer's failure to perform any of its obligations in respect of any instalment gives the other party 'good grounds' to conclude that a fundamental breach of contract will occur with respect to future instalments, that other party may declare the contract avoided for the future, provided that he does so within a reasonable time.[1]

Article 73(3) contains a special rule regarding buyer's instalment contract rights: a buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.

1. Article 73(2). See, e.g., the decision of Handelsgericht Zürich (Switzerland), 5 February 1997, SZIER 1, 1998,75-77, also reported in UNILEX. See also the decision of Schiedsgericht der Borse für Landwirtschaftliche Produkte - Wien, 10 December 1997, reported in UNILEX (2 separate contracts considered unitary transaction under Art. 73(2); lack of conformity in first instalments gave buyer 'good grounds' to avoid with respect to future instalments).

III. Damages for Breach

A. Introduction

287. Section II of Chapter V supplements the remedial rules in Chapters II and III. Those chapters deal primarily with the remedies of specific performance and avoidance. Chapter V deals with provisions common to buyers and sellers alike, in particular with the important topic of damages for breach. [page 151]

B. CISG Liability: Basis, Extent and Exemptions

288. Before proceeding with an examination of the damages rules in Chapter V, it should be remembered that Chapters II and III of CISG Part III also contain significant provisions as regards damages for breach. In particular, Articles 45(1) and 61(1) do more than merely catalogue the various CISG provisions regarding buyer's and seller's breach. These rules provide the basis of Convention liability; they are the very source of the buyer's and seller's respective rights to claim damages for breach.[1]

According to Articles 45(1) and 61(1), if the seller or buyer fails to perform any of its obligations under the contract or this Convention, the other party may...'claim damages as provided in articles 74 to 77.' As indicated below, these articles concern only the extent or the measurement of damages, the question being 'how much' compensation the injured party should receive; in other words Articles 74 to 77 operate on the assumption that the breaching party is liable on the basis of either Article 45(1) or 61(1). And since Articles 45(1) and 61(1) allow the injured party to claim damages for any breach, these provisions represent no-fault liability rules: assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself; there is no requirement that the party claiming damages must establish a 'culpable' breach.

The Convention thus operates on the basis of an essentially no-fault liability scheme, but this does not mean that CISG liability is absolutely 'strict.' In certain exceptional circumstances, a promisor may be held not liable in damages for his failure to perform, particularly to the extent such non-performance is attributable to unforeseeable and unavoidable circumstances, i.e. the kind of 'impediments' often associated with a force majeure event.[2] For the present, however, it is sufficient to note that the possibility of such an 'exemption' does not water down Convention liability to a regime based culpable breach.[3]

1. Regarding these rules, see supra Nos. 210 and 252.
2. Regarding Article 79, see infra No. 298 et seq.
3. Accord: Huber in Schlechtriem, Commentary (1998) at 368.

C. Expectation Protection: the General Rule

289. Article 74 sets forth the general principle by which the CISG measures liability for breach:

'Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.'

The basic CISG formula is quite simple: damages for breach of contract are designed to compensate (and are thus measured by) the loss suffered by the other [page 152] party as a consequence of breach. Assuming a causal connection between the breach and the loss,[1] the Convention scheme seeks to place the injured party in the position he would have enjoyed 'but for' the breach. Like the remedy of specific performance,[2] substitutionary relief serves to protect the promisee's expectation of full performance, i.e., his or her 'expectation interest.'[3] And because the promisor's breach, without more, entitles the injured party to compensation to this extent, it may be said that the CISG provides a no-fault basis of liability for expectation interest protection. Depending on the circumstances, a lesser/alternative measure of 'reliance interest' protection might also be awarded with reference to the Article 74 rule.[4]

Damages measured by the promisee's expectation are often described in terms of 'direct' and 'indirect' loss. Direct loss refers to loss of bargain: the contract/cover or contract/market differential. For example, a buyer who retains goods which are defective in some (less than 'fundamental') respect may recover damages calculated, inter alia, to compensate the difference between the value of the goods delivered and the value conforming goods would have had.[5] And although all kinds of loss are, in principle, recoverable under the general Article 74 rule, Articles 75 and 76 provide more detailed, lex specialis, rules for measurement of direct loss when the contract is avoided.[6] On the other hand, as discussed below, the contract/cover price differential (and the corresponding lex specialis rule) may not always be adequate to compensate the seller's expectation in the case of the buyer's failure to perform; in such cases, the general Article 74 rule will provide the seller the supplementary expectation protection deserved.[7]

Article 74 is particularly significant as regards the 'indirect' consequences of breach. Such claims for 'consequential damages' can include, e.g. compensation for a buyer, lost profits (pure economic loss) as well as physical damage to buyer's property, just as a seller will also sometimes be entitled to compensation for consequential loss.[8] Also damages sometimes characterized as 'incidental' are easily subsumed under the general Article 74 rule.[9] On the other hand, damages for lost profits may sometimes be limited or denied, inter alia by the Convention's foreseeability and/or mitigation rules.[10]

1. I.e., that the loss is a 'consequence' of the breach.
2. Supra No. 44.
3. See, e.g. Treitel, Remedies for Breach of Contract, pp. 43 and 82.
4. Although the CISG contains no express provision with respect to the Common Law concept of the 'reliance interest' (a concept derived from the German 'negative interest'), the broadly formulated rule in Article 74 may be read as comprising, inter alia, damages based on this form of protection: see Ziegel, J., 'The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives', in International Sales (N. Galston, H. Smit ed.) (New York, 1984). at pp. 9-37 [available at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel6.html>].
5. Another, alternative measurement might be cost to cure the defect: See A/CONF./97/5, paras. 6-7 of Secretariat's Commentary to Article 70 of the 1978 Draft Convention.
6. Regarding Article 75, see infra No. 291; regarding Article 76, see infra No. 293. Avoidance usually requires a 'fundamental' breach: see supra Nos. 225 and 259.
7. See infra No. 292.
8. As regards consequential loss which takes the form of damage to buyer's property (other than the goods themselves), the Convention may not supply the only relevant rule, in that some domestic systems see liability for such product damage as grounded both in contract and in tort. Regarding Article 5, see supra No. 66 et seq. Regarding consequential damages suffered by the seller, see, e.g., the decision of LG Krefeld (Germany), 28 April 1993,[page 153] No. 11 O 210/92, NJW 1994, 1101, also reported [at <http://cisgw3.law.pace.edu/cases/930428g1.html> and] in UNILEX (German seller's damages included interest paid on loans and legal fees as well as losses suffered due to devaluation of Italian currency).
9. Regarding additional costs incurred after the breach in a reasonable attempt to avoid loss, see (re. American domestic law) Farnsworth, E.A., Contracts (1999) § 12.9.
10. See infra Nos. 290 and 294.

D. Foreseeability as a Limitation

290. A major component of Article 74 is the 'foreseeability' limitation familiar to many students of domestic law: damages may not exceed the loss which the breaching party foresaw or ought to have foreseen as a consequence of the breach of contract.[1] Foreseeability under the Convention is measured at the time of the conclusion of the contract in the light of the facts and matters of which the breaching party then knew or ought to have known, the underlying idea being that the 'parties, at that point in time, should be able to calculate the risks and potential liability they assume by agreement.[2]

Although the Convention test seems quite liberal, requiring only that the loss be foreseeable [3] by the defendant [4] at the time of contracting as a 'possible consequence' of breach,[5] full compensation for profits lost will sometimes be precluded either by the mitigation requirement [6] or by domestic standards of proof (and' certainty') applicable with respect to such loss.[7] A more controversial question is whether the foreseeability limitation in Article 74 will function as a sufficient surrogate for other domestic law standards designed, inter alia, to prevent compensation for 'disproportionate' loss.[8] Here as elsewhere, Courts must coordinate the limited catalogue of CISG conceptions with those of domestic law.[9]

1. The CISG 'foreseeability' rule can be traced back to the classic English case of Hadley v. Baxendale: 9 Ex. 341, 156 Eng. Rep. 145 (1854); compare American Restatement Second of Contracts §351; accord Stoll in Schlechtriem, Commentary (1998) at p. 554.
As regards the developing CISG case law see, e.g., Delchi Carrier S.p.A. v. Rotorex Corp., 1994 WESTLAW 495787 (N.D.N.Y.), CLOUT Case 85, aff'd. in part and rev'd in part, and remanded, 71 F.3d 1024 (2d Cir. 1995), CLOUT Case 138 [reported at <
http://www.cisg.law.pace.edu/cisg/text/casecit.html>], where Italian buyer recovered foreseeable consequential and incidental damages deriving from: shipping, customs and incidentals relating to compressors rejected and returned to American seller; obsolete insulation materials and tooling purchased for use with seller's compressors; and labour expenses incurred as result of production line shutdown due to non-conforming delivery, but only to extent such expenses were included in variable costs.
2. Accord Stoll in Schlechtriem, Commentary (1998) at pp. 554-555.
3. As opposed to actually foreseen.
4. As opposed to the classical formulation in Hadley (supra note 1): in the 'contemplation' of both parties. See, e.g., OLG Köln (Germany), 21 May 1996 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] (seller was aware buyer was car dealer at time of conclusion of contract; damages paid by buyer to its customer was therefore foreseeable loss under Art. 74).
5. See, e.g., the decision of the Swiss Supreme Court (Schweizerisches Bundesgericht), 28 October 1998, reported in CLOUT as Case 248 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] (German sellers delivered frozen meat containing excessive fat to Swiss buyer; buyer's loss of clientele was foreseeable consequence of breach, particularly since buyer was wholesale dealer in sensitive market and had no alternative by which it could meet obligations to its buyers). See also, e.g., the decision of Handelsgericht Zürich (Switzerland), 5 February 1997, No. HG 95 0347, reported [at <http://cisgw3.law.pace.edu/cases/970205s1.html> and] in UNILEX (buyer awarded damages for loss of profit and other consequential damages for losses suffered due to exchange rate fluctuation between US dollars (currency of payment) and German marks). Compare (re. American law) Farnsworth, E.A., Contracts (1999) §12.14 with note 21 (foreseeable as probable). [Page 154]
6. See infra No. 294.
7. In American law, only 'reasonable certainty' is now required. See, e.g. Farnsworth, E.A., Contracts (1999) §12.15. In other legal systems, lost profits may be more difficult to prove: see, e.g., Hellner, J., 'Consequential loss and Exemption Clauses', Oxford Journal of Legal Studies 13, 24 (1981). Compare, e.g., the decision of LG Düsseldorf (Germany), 5 March 1996, No. 36 O 178/95, reported [at <http://cisgw3.law.pace.edu/cases/960305g1.html> and] in UNILEX (German buyer denied damages for lost profit caused by Italian seller's non-delivery; buyer failed to provide sufficient evidence that customers were not interested in any other type of shoes). For an example of a compromise verdict, see the decision of Rechtbank van Koophandel, Hasselt (Belgium), 2 May 1995, No. AR 1849/94, also reported [at <http://cisgw3.law.pace.edu/cases/950502b1.html> and] in UNILEX (court determined Chilean seller's lost profits ex aequo et bono, taking into account probability of cover sale at price significantly lower than price agreed in contract with Belgian buyer).
8. For a comparison of §351(3) of the American Restatement 2d of Contracts and the corresponding limitation in the Scandinavian Liability Act, see Lookofsky, J., Consequential Damages in Comparative Context (1989), Pt. 4.4.5.1.
9. Regarding Article 7, see supra No. 75 et seq. Although the Hadley-like rule in CISG Article 74 clearly displaces such domestic sales analogues as UCC §§2-715(2)(a), it could still be argued that the general contract law rule in the American Restatement 2d §351(3) (preceding note) applies, inter alia, to international sales. A similar position could be taken with respect to the 'safety-valve' provisions in the Danish and Swedish Liability Acts which operate to deny 'unreasonably burdensome' awards (etc.) in actions grounded in contract or tort, especially since these provisions are rightly regarded as validity-related rules: see Lookofsky, Understanding the CISG in Scandinavia (1996) p. 97, note 129.

E. The Contract/Cover Differential

291. The Convention contains two specific rules which measure damages for direct loss in situations where an injured buyer or seller exercises the right to avoid the sales contract (for fundamental breach, etc.).[1] The first of these practical provisions, Article 75, provides:

'If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.'

Both buyers and sellers can elect to measure damages by the contract/cover differential. Where the seller's delayed or defective delivery constitutes a 'fundamental breach', the buyer may avoid the contract and arrange for a (reasonable) substitute transaction and measure his damages by the difference in price, as well as any further (e.g. incidental) damages recoverable under Article 74.[2] Technically speaking, there is no 'duty' to cover, but a buyer who, after avoiding a sale, makes no reasonable effort to procure substitute goods by reasonable means may later be barred from compensation for loss which he, by inaction, failed to mitigate.[3] Thus, the buyer's recovery even for direct loss is limited by the general principle of substitution [4] and (more specifically) by the obligation to cover.[5]

Similar principles apply in the wake of the buyer's fundamental breach. If the seller elects to avoid, e.g. because of the buyer's failure to pay, and if, within a reasonable time thereafter, the seller resells the goods concerned, she may recover the [page 155] contract-cover price differential, as well as any further damages recoverable under Article 74.[6] Assuming the second transaction is a substitute for the first, there will be little or no loss if the cover price obtained equals or exceeds the price which the first buyer fails to pay.

1. See supra Nos. 225 and 259.
2. See supra No. 289 et seq. See, e.g., the award of the ICC Court of Arbitration (Paris), No. 8128/1995, reported [at <http://cisgw3.law.pace.edu/cases/958128i1.html> and] in UNILEX (transaction reasonable if buyer acted as prudent and careful businessman; goods bought in replacement should be of same kind and quality, but small differences allowed; short period in which buyer had to cover so as to make timely delivery to third party justified cover price higher than market price).
3. See infra No. 294.
4. See (re. this principle under American domestic law) Farnsworth, E.A, 'Legal Remedies for Breach of Contract', 70 Columbia Law Review 1145, 1188 (1970).
5. To minimize his 'loss on this bargain' and maximize his 'cost avoided,' the buyer must cover his loss by securing a substitute. See generally Farnsworth, E.A, Contracts (1999) §12.9.
6. See, e.g., the decision by LG Berlin (Germany), No. 99 O 123/92, reported [at <http://cisgw3.law.pace.edu/cases/920930g1.html> and] in UNILEX. Also 'incidental' damages, such as the administrative costs of cover, are recoverable under the Article 74 rule: see supra No. 289 et seq.

F. No Cover if Seller's Supply Exceeds Demand

292. A party cannot demand compensation for any loss which could have been prevented by cover.[l] On the other hand, not all loss is preventable by cover.

In particular, a seller's own supply may exceed her own demand. In such market conditions,[2] the seller cannot 'cover' buyer's breach, simply because a subsequent sale of the same goods to another buyer is no substitute for the first transaction: in this situation, there is no causal relationship between buyer's breach and seller's subsequent sale.[3] The loss suffered in such a situation is unavoidable, and the Article 75 contract/cover differential is 'inadequate to put the seller in as good a position as performance would have done.'[4] The profit lost by reason of buyer's breach, best described as a 'direct' loss;[5] can only be recovered by damages under Article 74 which protect the lost-volume seller's justifiable expectation.[6] Domestic sales law recognizes this kind of expectation protection,[7] and the CISG seller's case for recovery appears equally strong.[8]

1. Neither party can recover for avoidable loss: regarding Article 77, see infra No. 294.
2. 'You have always to ask yourself, "what market",' See Farnsworth, Contracts §12.12 with note 28, quoting Lord Dunedin in Charrington & Co. v. Wooder, [1914] AC. 71, 74.
3. See Farnsworth at id.
4. Cf. the American sales act: UCC §2-708(2).
5. Although the CISG does not distinguish between various forms of loss as such, it may be noted that the loss suffered relates not to 'collateral transactions' but rather to the value of the breached transaction itself; accord: Farnsworth op. cit., § 12.0
6. See supra No. 289.
7. Regarding American sales law and UCC §2-708(2), see White and Summers, Uniform Commercial Code §7-8.
8. Article 75 authorizes the recovery of additional damages pursuant to Article 74 which, in turn, authorizes damages for foreseeable 'lost profits'. Both rules apply, inter alia, to buyer's breach. Accord: Ziegel, 'The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives' in International Sales (Galston and Smit ed, New York 1984) at pp. 9-41 [available at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel6.html>] and Flechtner, H., 'Remedies Under the New International Sales Convention: The [page 156] Perspective from Article 2 of the UCC' Vol. 8 Journal of Law and Commerce 53 (1998), 101-102 [available at <http://www.cisg.law.pace.edu/cisg/biblio/flecht.html>] (both opposing the contrary position taken by Professor Hellner).

G. The Contract/Market Differential

293. As an alternative to the contract/cover differential, a more 'abstract' measure of damages available to a party electing to avoid is set forth in Article 76. If there is a 'current' (i.e. market) price for the goods concerned,[1] the party claiming damages may, if he has not covered by purchase or resale under Article 75, recover the difference between the price fixed by the contract and such current price at the time of avoidance. In addition, the injured party may recover further damages under Article 74.[2]

An injured seller or buyer who has in fact entered a substitute (cover) transaction cannot claim market-price damages under Article 76.[3]

Unlike the avoidance analogues of certain domestic law, the Convention does not make a formal distinction between rejected and accepted goods.[4] If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance.[5]

1. According to Article 76(2), the 'current price' is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods.
2. Article 76(1), first sentence.
3. According to Article. 76(1), the market-price formula is available only if the avoiding party 'has not made a purchase or resale under article 75.'
4. Compare, e.g. the American UCC scheme as described by Flechtner, H., op. cit.
5. Article 76(1), second sentence.

H. Mitigation: No Recovery for Avoidable Loss

294. In domestic sales law and under the CISG: a plaintiff cannot recover for those harms that he could have avoided by reasonable action. Within the Convention context, Article 77 applies:

'A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.'

There is no Convention 'duty' to mitigate as such. However, a party who fails to take reasonable measures to mitigate loss cannot recover for the loss which could have been mitigated, and the principle should apply even as regards a prospective failure to perform: once a party has reason to know that performance by the other party will not be forthcoming, he is expected to take such affirmative steps as are [page 157] appropriate in the circumstances to avoid loss.[1] And as in domestic law, so under the CISG: the avoidability principle determines the point in time at which we calculate the contract-cover and contract-market price differentials.[2]

Also losses otherwise recoverable under the more general Article 74 rule are limited by the mitigation principle. If, for example, the seller delays delivery of goods intended to serve as a key ingredient or tool in buyer's production, and the buyer makes no reasonable efforts to secure a substitute, any profits lost will not have been suffered solely 'in consequence' of seller's breach. Of course, the extent of avoidability will depend on the buyer's ingenuity, experience, and financial resources (ability to obtain credit quickly, etc.), and what is 'reasonable' mitigation will depend on the court's evaluation of the concrete case.[3]

1. Accord: Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien (Vienna), Austria, arbitral award of 15 June 1994, No. SCH-4366, reported [at <http://cisgw3.law.pace.edu/cases/940615a4.html> and] in UNILEX (CISG seller had right - and presumably also duty - to make cover sale under Art. 77).
2. See supra No. 291 and 293. See also, e.g. the decision of OLG Hamburg (Germany), 28 February 1997, reported [at <http://cisgw3.law.pace.edu/cases/970228g1.html> and] in UNILEX (buyer's substitute purchase at higher price consistent with obligation to mitigate under Art. 77).
3. See, e.g., the decision of Amtsgericht München (Germany), 23 June 1995, reported [at <http://cisgw3.law.pace.edu/cases/950623g1.html> and] in UNILEX (chemical for production of pharmaceuticals; when German buyer's customers complained of non-conformity, Italian seller agreed to cure in Italy; cure delayed, buyer secured more costly cure in Germany; buyer, who had not previously infomied seller of customer's urgent need, had not breached its 'duty to mitigate'). Compare the decision of the German Supreme Court (BGH) of 25 June 1997, NJW 1997, 3311-3313, also reported [at <http://cisgw3.law.pace.edu/cases/970625g2.html> and] in UNILEX (citing Articles 74 and 77 in denying a CISG buyer the right to recover expenses incurred in adapting its equipment to process defective metal, as such expenses unreasonable in relation to purchase price).

295. Sometimes, a given buyer's loss may seem (at least partIy) caused by her own pre-breach, negligent act.[l] And although CISG Article 75 seems designed mainly to post-breach mitigation, the Convention does not bar recognition of the pre-breach (prevention) aspect of avoidability.[2] For example, where the harm caused by seller's delayed delivery of a simple standard part is aggravated by the fact that buyer keeps no such spares on hand, such a failure to take precautionary measures, if judged unreasonable, will prevent the recovery of compensation for avoidable loss.

1. For a discussion comparing American and Scandinavian law on point, see Lookofsky, J., Consequential Damages in Comparative Context (1989) at pp. 166 ff.
2. See Article 74 (supra No. 289) re. the general principle of compensation for loss 'suffered ... as a consequence of breach.' Accord: Stoll in Schlechtriem. Commentary (1998) at 587 (obligee must take reasonable measures to counteract potentially harmful consequences of impending or threatened breach).

I. Interest

296. Section III of Chapter V contains a single - and deceptively 'simple' - provision which deals with the controversial subject of 'interest.' Article 78 provides: [page 158]

'If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.'

297. Some domestic systems take the view that interest is a component of damages;[1] others do not.[2] In most countries, interest (however conceived) is at least compensable; in others, it is not.[3]

Article 78 appears to resolve some, but not all of these conflicting views. Although Article 78, which sets forth a general obligation for the breaching party to pay interest, may well preclude the argument that an award of interest under Article 78 might be declared invalid under the applicable domestic law, such an award would surely be uneforceable in those fora where the applicable domestic law prohibits interest payments.[4]

According to Article 78, a claim for interest is 'without prejudice' to a claim for damages, so an injured party may claim damages or interest or both. Since that part of a loss which interest is designed to cover (compensation for lost use of capital) also may be awarded as damages, an injured party may be left with a choice between Articles 74 and 78 in this particular respect; but in exceptional circumstances, where a party cannot claim damages by virtue of an Article 79 exemption,[5] a claim under Article 78 would obviously be preferred. Similar reasoning might apply in cases where the injured party has reason to doubt that an award of interest under Article 78 would be enforced.

Nearly all Convention commentators agree that since the Convention does not determine the rate of interest, this is a matter for the applicable domestic law.[6]

Although the most common applications of Article 78 relate to situations where a seller claims interest (and/or damages) as a remedy for buyer's breach (late payment), Article 78 clearly authorizes an award of interest for any 'sum that is in arrears.'[7] Thus, a US Federal Court has cited CISG Article 78 as authority for awarding prejudgment interest to an Italian buyer who suffered various losses (profits, etc.) attributed to an American seller's failure to deliver conforming goods;[8] this holding accords with the view of many CISG commentators.[9]

1. Representing compensation for the lost use of capital.
2. In Scandinavia, where a distinction between damages and interest is made, interest is awardable without proof of economic loss.
3. In those countries where interest is forbidden, the mere mention of interest in the agreement will render it invalid. Regarding arbitration agreements, see Hunter and Triebel, 'Awarding Interest in International Arbitration', Vol. 6 Journal of International Arbitration No. 1 p. 8 with note 4 (1989).
4. Regarding Article 4, see supra No. 62 et seq. See also Schlechtriem, P., Internationales UN-Kaufrecht (1996) Rd.Nr. 317 and Ferrari, F., 'Uniform Application and Interest Rates Under the 1980 Vienna Sales Convention,' 24 Georgia Journal of International and Comparative Law 467 (1995) [available at <http://www.cisg.law.pace.edu/cisg/biblio/1ferrari.html>]. In two Austrian arbitrations (Nos. SCH-4318 and SCH-4366, both decided on 15 June 1994 and reported [at <http://cisgw3.law.pace.edu/cases/940615a3.html> and <http://cisgw3.law.pace.edu/cases/940615a4.html> and] in UNILEX) the arbitrator suggested, as dicta, that CISG interest might be awarded even if contrary to domestic law.
5. See infra No. 298 et seq.
6. See supra No. 80. But see Audit, Vente internationale, No. 179 (interest rate must be determined under the Convention itself). See also the cases cited supra in No. 79.
7. Although the Convention does not define the word 'sum' (nor indicate when interest begins to accrue), Article 78 seems broad enough to cover the situation where buyer rightfully avoids, but seller delays refunding the price. However, Article 84(1) contains a special rule on this [page 159] particular point: see the UNILEX report of the decision of OLG München (Germany), 8 February 1995, No. 7 U 1720/94 [also at <http://cisgw3.law.pace.edu/cases/950208g1.html>] (buyer entitled to interest on the sum to be refunded) and the decision of LG Landshut (Germany), 5 April 1995 [at <http://cisgw3.law.pace.edu/cases/950405g1.html>] (court granted buyer interest on price under Art. 84(1) from the date of payment as well as interest under Art. 78 on amount awarded as damages under Art. 74).
8. I.e., although the sum in arrears first became liquidated at the time of the judgment: see Delchi Carrier S.p.A. v. Rotorex Corp., 1994 WESTLAW 495787 (ND.N.Y.), CLOUT Case 85, aff'd. in part and rev'd in part, and remanded, 71 F.3d 1024 (2d Cir. 1995), CLOUT Case 138 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]: the District Court (at No. 14) held that plaintiff was 'entitled to prejudgment interest [at the US treasury bill rate] pursuant to ... Article 78' - a holding apparently not contested on appeal.
9. Accord Stoll in Schlechtriem, Commentary (1998) at 593-594. The 'matter' of whether interest is payable on sums in arrears is clearly 'governed by' the Convention (re. Article 7(2) see supra No. 78 et seq.); if the issue of whether 'sums in arrears' includes unliquidated sums is a matter 'governed but not settled' by the CISG, one might resolve it by reference to the general principle of full compensation in Art. 74: see supra No. 289 and compare Article 7.4.10 of the UNIDROIT Principles of International Commercial Contracts (Rome 1994) (declaring it 'only natural' that the aggrieved party be compensated as of the date of the harm).

J. Liability Exemptions for Failure to Perform

1. Introduction

298. Section N of Chapter V, headed 'Exemptions,' deals with the kinds of problems often discussed in domestic law under such labels as 'impossibility' of performance and force majeure. The main CISG rule, set forth in Article 79(1) provides:

'A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.'

2. Freedom of Contract and the Gap-Filling Rule

299. For those many cases where the contract leaves a gap on the question of a breaching party's liability for breach, Article 79 provides a limited exception to the no-fault starting point set forth in Articles 45(1) and 61(1).[1] Taken together, these three provisions constitute the CISG supplementary regime, i.e., the basis of liability absent contrary agreement.

Of course, before one proceeds to apply the gap-filling rules, one needs to ask whether the basis of a given promisor's liability for non-performance is regulated by the parties' agreement.[2] For although it is rare that the express terms of a sales contract provide for absolute liability (i.e., for any breach, without exemption/exception), many sales contracts contain a force majeure clause or equivalent. Clauses limiting the seller's liability to instances of (grossly) negligent breach are also quite common, especially when coupled with an obligation to repair or replace.[3] [page 160]

1. See supra Nos. 210 and 252.
2. See Article 6, supra No. 70 et seq.
3. The validity of such liability limitations is regulated by the applicable domestic law: see supra Nos. 63 and 79.

3. Requirements for Exemption and the Burden of Proof

300. Article 79(1) sets forth a series of requirements which, when satisfied, provide a liability exemption and thus constitute a modification of the otherwise strict starting point laid down in Articles 45(1) and 61(1).

The burden of proof as regards liability exemption must be lifted by the party who seeks an exemption, and this means that the non-performing party remains liable unless he proves that a series of 'conditions' are fulfilled.

301. First, the non-performing party must demonstrate the existence of an impediment beyond his control.

The Convention does not define the word 'impediment' (empechement), and the legislative history casts little clear light on its 'intended' meaning or scope. From our experience with domestic analogues we know that typical 'impediments' (obstacles) to performance are likely to lead to delay or non-delivery, but a few CISG commentators predicted that certain kinds of obstacles might also 'get in the way' of a seller's obligation to deliver conforming goods [1] In 1999 the Supreme Court of Germany rendered a landmark decision which lends clear and convincing support to this 'expansive' reading of Article 79,[2] thus dealing a severe blow to those (Common lawyers) who - on the basis of a somewhat selective reading of the CISG legislative history, and perhaps overly influenced by their own domestic conceptions - had argued that Article 79 should never apply to cases of non-conformity.[3]

Of course, the fact that we define a given obstacle as a potential 'impediment' to performance does not mean that a given non-performing party thereby qualifies for an Article 79 exemption. For, as the German Supreme Court took pains to emphasize in its 1999 decision, a party can never be granted an Article 79 exemption unless he (also) shows that the 'impediment' in question lies 'beyond his control', and this requirement alone reduces the possibility of a non-conformity exemption to something near nil. For one thing, since a party should always be deemed to be 'in control' of his/her own business and financial condition in general, internal 'excuses' connected with business operations (poor quality control, etc.) or financial management are never 'beyond' that party's control. Moreover, as the Bundesgerichtshof put it: since Article 79 does not alter the basic CISG allocation of risk, the seller must assure that his supplier provides defect-free goods. For this reason, the CISG buyer need not distinguish between cases where his seller is the manufacturer and cases where his seller obtains the goods from others; nor should the risk of non-conformity depend on whether the defect is 'discoverable' by inspection or not.[4]

Similar considerations apply as regards the granting of exemptions in respect of seller's delayed delivery and buyer's delayed payment. As a rule, difficulties in delivery or payment due to financial problems - even when connected to the act of [page 161] public authority in the seller's or buyer's country - are not to be considered impediments 'beyond the [seller's or buyer's] control'; on the contrary, such 'impediments' belong to the non-performing party's own general 'area of risk'.[5]

1. See generally Lookofsky, J., 'Fault and No-Fault in Danish, American and International Sales Law. The Reception of the 1980 United Nations Sales Convention', 27 Scandinavian Studies in Law 109, 135 (1983) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky4.html>]. Regarding more recent domestic legislation in Finland, Norway and Sweden (but not Denmark) pattemed on Article 79, see Lookofsky, J., Consequential Damages in Comparative Context (1989) at pp. 101-102 with notes 146-149. See also Stoll in Schlechtriem, Commentary (1998) at p. 606 with note 44 (referring, inter alia, to Lookofsky's concurring view).
2. See the decision of Bundesgerichtshof (Germany), 23 March 1999, CLOUT Case No. 271 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>], see also the extensive commentary by Schlechtriem in 15/16 Juristen Zeitung, 13 August 1999, http://cisgw3.law.pace.edu/cases/990324gl.html. But see Honnold, Uniform Law (1999) at pp. 477-479 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
3. See, e.g., Honnold, Uniform Law (1999) at 477-478 (contending that the Article 79 exemption cannot apply to defective performance). According to American domestic sales law, a seller is strictly liable for non-conforming goods, so - at least within that (UCC) system - no 'state-of-the-art' exemption applies: see, e.g., Spartanburg County School District Seven v. National Gypsum Co., 842 F.2d 1292 (4th Cir. 1988).
4. See the BGH decision and Schlechtriem's Commentary (both cited supra, note 2). But see Stoll in Schlechtriem, Commentary (1998) at p. 620 (seller not responsible if defect not reasonably discoverable by inspection).
5. See (as regards delayed delivery) the arbitral award rendered by Schiedsgericht der Handelskammer - Hamburg (Germany), 21 March 1996, reported in UNILEX. See also generally Lookofsky, supra note 1, and Bernstein & Lookofsky, Understanding the CISG in Europe (1997) §§6-19 and 6-32.

302. Secondly, the non-performing party who seeks an Article 79 exemption must demonstrate that he or she could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract. This 'foreseeability' requirement is also a key element in the overall Convention allocation of risk.

Indeed, because virtually all potential impediments to performance are 'foreseeable' to some degree, this Article 79 element - like the 'control' element, just discussed - will be very difficult for the breaching CISG promisor to prove.[l]

The party damaged by a foreseeable contingency will, of course, deserve protection if the contract in question contains a force majeure which re-allocates that particular risk.[2] But assuming the parties' contract is silent on the issue of increased cost, the obligor's inability to make a profit on a particular contract will not, in and of itself; lead to a liability exemption under the CISG. This is because price increases, even dramatic ones, are generally foreseeable; put another way, those who sell goods on a long-term basis are in the 'business' of assuming this kind of risk. Granted, at some (extreme) point, we may reach what has been called the 'sacrifice threshold,' i.e., the 'economic force majeure' borderline where Article 79 may afford an oppressed obligor with some measure of relief, but such exceptional (and so far purely theoretical) cases only underscore the general (liability) rule.[3]

1. See A/CONF./97/5, para. 5 of Secretariat's Commentary to Article 65 of the 1978 Draft Convention.
2. For a comparison of the corresponding principle in American and Scandinavian law, see Lookofsky, J., Consequential Damages in Comparative Context (1989), at pp. 78 f. [page 162]
3. See, e.g., the decision of Rechtbank van Koophandel, Hasselt (Belgium). 2 May 1995. No. AR 1849/94, reported [at <http://cisgw3.law.pace.edu/cases/950502b1.html> and] in UNILEX (significant drop in market price of the goods/strawberries after the conclusion of the contract did not constitute 'force majeure' exempting the buyer for non-performance under Art. 79, in that price fluctuations are foreseeable events in international trade which do not render performance impossible but result in economic loss well within the nonnaI risk of commercial activities). See also the decision of the Tribunal of Int'l Commercial Arbitration at the Russian Federation Chamber of Commerce, 17 October 1995, reported as CLOUT Case 142 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]. Compare (regarding analogues in American and Scandinavian law) Lookofsky, J., op. cit., Part 3.2.3.

303. Last, but not least, Article 79(1) requires that the non-performing party demonstrate that he or she could not reasonably be expected to have 'avoided or overcome' the impediment or its consequences. This requirement also represents an imposing barrier to a would-be exemptee, particularly in the common case of generically defined obligations.

Suppose, for example, that the seller's obligation is to deliver coal or wood, and that his obligation to deliver is not limited by contract to any particular source of supply. The fact that the seller's intended source of supply (at the time of contracting) later 'dries up' will not exempt him from liability under Article 79(1), in that he can usually avoid breach by securing an alternative source; so, assuming performance is still practicable, the seller remains liable for breach.[l]

Obviously, the foregoing argument assumes that the failure-of-supplier 'excuse' should be subsumed within the Article 79, paragraph (1) rule. It should be emphasized, however, that some CISG commentators would prefer to treat those 'persons' who supply CISG sellers (with goods or raw materials) as 'third persons' within the ambit of Article 79, paragraph (2).[2]

A much-discussed (but rarely exempting) contingency is a party's financial inability to perform, i.e., insolvency and the like. Even if classified as an 'unavoidable impediment,'[3] a party's inability to finance his performance should not lead to an exemption under Article 79(1), in that such a contingency is one which a (commercial) seller or buyer should reasonably foresee; put another way, a party who voluntarily make a promise to sell or buy goods must generally assume the risk of not being able to finance his performance.[4]

On the other hand, an unanticipated (and not reasonably foreseeable) imposition of exchange controls by public authorities might lead to a liability exemption for the buyer,[5] but only if the particular impediment could not reasonably be overcome, e.g. by arranging for alternative payment means.[6]

1. Accord: A/CONF./97/5, para. 5 of Secretariat's Commentary to Article 65 of the 1978 Draft Convention (party required to provide commercially reasonable substitute). See also Example 65b at id. (delivery of replacement machine tools) and the decision of OLG Hamburg (Germany), 28 February 1997, OLG-Rp Hamburg 1997, 149, reported [at <http://cisgw3.law.pace.edu/cases/970228g1.html> and] in UNILEX (seller not exempt from liability under Art. 79 or under 'force majeure' clause in standard terms, since seller's risk covers non-delivery caused by its supplier; seller only exempt from liability if impossible to find goods of similar quality on market).
2. This, however, would not change the outcome in such cases. See infra No. 304.
3. Cf. A/CONF./97/5, para. 10 of the Secretariat's Commentary to Article 65 of the 1978 Draft Convention (probably not an impediment). Compare supra No. 302.
4. See, e.g., the arbitral award rendered by Schiedsgericht der Handelskammer, Hamburg (Germany), 21 March 1996, reported [at <http://cisgw3.law.pace.edu/cases/960321g1.html> and] in UNILEX (difficulties in delivery due to financial problems of seller or seller's supplier, even when connected to the act of public authority, not [page 163] impediment beyond seller's control, but rather part of seller's area of risk). See also, e.g., (re. American law) Restatement 2d of Contracts §261, Comment e. Thus, although modern legal thinking has largely abandoned the classical distinction between 'objective' and 'subjective' impossibility (i.e. the distinction between 'the thing cannot be done' and 'I cannot do it'), subjective impossibility remains a non-viable excuse: see Lookofsky, J., Consequential Damages in Comparative Context (1989) at pp. 90-91.
5. See, e.g., the award rendered by the ICC Court of Arbitration (Paris), No. 7197/1992, reported [at <http://cisgw3.law.pace.edu/cases/927197i1.html> and] in UNILEX, where a suspension of payment of foreign debts ordered by the Bulgarian Government was not a 'force majeure' contingency which prevented the buyer from opening documentary credit. For one thing, buyer did not prove that failure to open the credit was a consequence of ['due to'] the suspension; in any case, the suspension had already been declared at time of conclusion of contract and was therefore an 'impediment' which buyer could reasonably have foreseen.
6. Accord: A/CONF./97/5, para. 10 of Secretariat's Commentary to Article 65 of the 1978 Draft Convention. In this case, avoidability presumes the availability of alternative measures consistent with the contractual obligation assumed: if the contract requires payment from a particular source, the impediment would not be avoidable by alternative means.

4. Non-performance Due to Failure of 'Third Person'

304. Paragraph (2) of Article 79 deals with the situation where a party's failure to perform is 'due to the failure by a third person whom he has engaged to perform the whole or a part of the contract.' In this case the party claiming the exemption is exempt from liability only if:

'a) he is exempt under the preceding paragraph; and
b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.'

The first point to be noted is that the rule in paragraph (2) only covers situations where a party has engaged a third person to perform the whole or a part of [that party's obligations under] the contract. Since one contracting party (e.g. the seller: S) will not usually enjoy the right to 'delegate' to an independent third person (TP) any of the contractual duties which S has incurred vis-à-vis the other contracting party (in this case, the buyer: B),[l] Article 79(2) would seem to presuppose a situation like this: S, after entering a sales contract with B, and before breaching any obligation thereby incurred, 'engages' an independent 'third person' (TP) to perform (some of) the duties which S has undertaken vis-à-vis B; S then fails to perform his obligation (to make timely and conforming delivery) to B, whereafter S claims an 'exemption', arguing that S's failure to perform is 'due to' the TP's 'failure', i.e., TP's failure to perform its obligations to S.

Read against this background, it is easy to understand why Article 79(2) has become one of the more misunderstood and controversial CISG provisions. Indeed, one might wonder why any 'special' rule was needed to cover this particular kind of 'excuse'. One explanation is the fear that, given the kind of scenario just described, some might lend a sympathetic ear to S' s argument that the conduct of an 'independent' TP lies 'beyond his [S's] control', thus giving rise to an exemption under the general rule in Article 79(1).[2] But this fear seems unfounded: since [page 164] the possibility that such a TP might fail to perform must almost always be 'foreseeable' by S, it is hard to see why the appointment of such a TP should lead to a reallocation of the usual S-B contractual 'risk', i.e., the general CISG liability scheme.

Quite apart from all this, there is still significant disagreement as to the proper scope of the rule, and the 'chaotic discussions' which preceded the rule's adoption in Vienna hardly help to clear things up.[3] For although many have argued that the 'third persons' reference in paragraph (2) should not be interpreted to include general suppliers of the goods or of raw materials,[4] there is also prominent authority to the contrary.[5]

Clearly, in those cases where the 'double force majeure'[6] solution set forth in paragraph (2) applies, S must prove (a) that he could not himself foresee or avoid the 'impediment' to performance and (b) that the impediment was unforeseeable and avoidable by TP. In other words, in those cases where a party's excuse is deemed due to the failure of a 'third person' who falls within paragraph (2), it should be even more difficult for the non-performing party (seller or buyer) to obtain an exemption than if the situation were judged (solely) in accordance with the rule in paragraph (1).[7] Then again, since the general rule in paragraph (1) should itself be construed as a very narrow ('safety-valve') provision,[8] the possibility of differing interpretations of the scope of the phrase 'third person' in paragraph (2) need not lead courts and arbitrators to different results in 'exemption' cases falling within the overall ambit of Article 79.

1. At least not without that other party's (B's) consent. Regarding, e.g. the general American (domestic law) rule, see, Farnsworth, Contracts §1l.10.
2. Compare Stoll's interpretation of the legislative history in Schlechtriem, Commentary (1998) at 615.
3. See Schlechtriem in 15/16 Juristen Zeitung, 13 August 1999, with note 14 (with reference to Vischer); also in English at http://cisgw3.law.pace.edu/cases/990324gl.html.
4. See A/CONF./97/5, para. 12 of Secretariat's Commentary to Article 65 of the 1978 Draft Convention, Honnold, Uniform Law (1999) pp. 487-490 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>] and Tallon in Commentary on the International Sales Law (Bianca & Bonell ed. Milan 1987) at p. 585 [available at <http://www.cisg.law.pace.edu/cisg/biblio/tallon-bb79.html>] (requiring an 'organic link' between the main contract and the subcontract). See also Bernstein & Lookofsky, Understanding the CISG in Europe (1997) §6-19 with sources cited in notes 184-186.
5. See generally Schlechtriem, note 3 supra ('much to be said in favour of considering suppliers and their suppliers as third parties under Art. 79(2)'). See also the award of the ICC Court of Arbitration (Paris), No. 8128/1995, reported in UNILEX (seller not exempted pursuant to Art. 79(2), in that non-delivery caused by seller's supplier was deemed 'part of seller's risk').
6. Re. the corresponding Norwegian epithet see Bergem & Rognlien, Kjøpsoven (1991) s. 669.
7. See Bernstein & Lookofsky, Understanding the CISG in Europe (1997) §6-19 with sources cited in note 188.
8. See supra, Nos. 301-303.

5. Duration of Exemption

305. The exemption provided in Article 79 has effect only for the period during which the impediment exists.[1] Therefore, when a temporary impediment to performance abates, the non-performing party becomes liable once again. On the other hand, since Article 79 does not prevent the other party from exercising any right [page 165] other than to claim damages,[2] a serious delay by one party will entitle the other party to avoid, i.e., put an end to the contract by reason of a fundamental breach.[3]

1. Article 79(3).
2. Article 79(5).
3. See, e.g., regarding buyer's right to avoid, supra No. 225.

6. Notice of Impediment

306. The party who fails to perform must give notice to the other party of the impediment and its effects on his ability to perform.

If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.[l] The requirement that the notice be received (to take effect) represents a reversal of the general CISG transmission-risk rule.[2]

1. Article 79(4). Such liability extends also to cases where a party intends to perform by furnishing a commercially reasonable substitute: see A/CONF./97/5, para. 16 of Secretariat's Commentary to Article 65 of the 1978 Draft Convention.
2. See Article 27, supra No. 139.

7. Exemption Applies Only as Regards Damages

307. Article 79(5) makes it particularly clear that nothing in Article 79 prevents a party from exercising any right other than to claim damages under this Convention. In other words, an 'exemption' - if granted - is only an exemption from liability.

The effect of an impediment on avoidance has already been noted.[l] As regards specific performance, it should be noted that Article 28, and the forum law to which it refers, will usually serve to insulate a non-performing party from a demand that he or she perform (deliver or pay) notwithstanding the fact that performance as agreed is physically impossible.[2] An Article 79 exemption does not preclude a claim to interest,[3] just as a party who receives non-conforming goods remains entitled to a proportionate reduction in price.[4]

1. Supra No. 305.
2. See supra No. 140 et seq.
3. Supra No. 296.
4. Supra No. 231.

8. Non-Performance Caused by Other Party

308. Article 80 sets forth a simple and hardly controversial rule: for clearly, one party may not rely on a failure of the other party to perform to the extent that such failure was caused by the first party's own act or omission. [page 166]

Judging by its placement in Section 4, it seems that Article 80 was intended to serve as an adjunct to the exemptions rule in Article 79, hereunder Article 79(5).[1] For example, a buyer who himself 'frustrates' performance by the seller can neither demand specific performance nor avoid. Then again, Article 80 was hardly needed to reach such an obviously reasonable result.[2]

1. See supra, No. 307.
2. See generally Honnold, Uniform Law (1999) pp. 496-500 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

IV. Effects of Avoidance

A. Introduction

309. Section V of Chapter V provides a series of rules regarding the effects of avoidance. The provisions of this section are common to the obligations of both parties.

B. Release from Obligation

310. The primary effect of (total) avoidance is to relieve both parties of their obligations to perform; i.e. the seller need not deliver the goods, and the buyer need not pay.[1]

Partial avoidance of the contract, for example where the buyer avoids with respect to a portion of the goods not delivered,[2] releases both parties from their obligations as to the part of the contract avoided: (in the example) the seller is released from his obligation to deliver the portion concerned, and the buyer need not pay for that portion.

1. Article 81(1).
2. See Article 51(1). See also Article 73(1) regarding avoidance with respect to a particular instalment.

C. Damages for Breach, Arbitration Clauses, etc.

311. Although avoidance of the contract releases both parties from their performance obligations, it does not eliminate all rights and obligations which arose out of the contract.

For one thing, avoidance does not affect claims for any damages which may be due.[1] Thus, though the party in breach need not deliver or pay, that party remains liable for any loss suffered by the other party as a consequence of the breach.[2]

Nor does avoidance affect any provision of the contract for the settlement of disputes,[3] such as an arbitration clause, choice-of-forum clause or a contractual provision governing the applicable law.[4] The same applies as regards any other provision of the contract governing the rights and obligations of the parties upon the avoidance of the contract, e.g. a clause providing for liquidated damages in the event of [page 167] non-performance. On the other hand, the question of whether such clauses remain binding will also depend on their validity, and validity is always a question for the applicable domestic law.[5]

Article 81 provides a non-exhaustive list of contractual and Convention obligations which continue even after avoidance. The duty of the buyer to take steps to preserve goods which he intends to reject constitutes another example of the kind of obligation not extinguished by avoidance.[6]

1. Article 81(1) and, e.g. the decision of Tribunale di Appello di Lugano (Switzerland), seconda camera civile, 15 January 1998, reported [at <http://cisgw3.law.pace.edu/cases/980115s1.html> and] in UNILEX.
2. See Article 74, supra No. 289. Regarding the breaching party's continuing obligation to pay damages see, e.g., the decision of LG Landshut (Germany), 5 April 1995, reported [at <http://cisgw3.law.pace.edu/cases/950405g1.html> and] in UNILEX.
3. Article 81(1), second sentence.
4. In the case of an international sales contract, such a clause might designate the CISG as the applicable law and/or point to the domestic law which regulates contract validity, etc. See supra No. 70 et seq.
5. Regarding Article 4, see supra No. 63.
6. See generally infra No. 322.

D. Restitution

312. Restitution is another effect of avoidance. According to Article 81(2), a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.[l]

In principle, the party in breach will bear the reasonable expenses which both parties incur in relation to the making of restitution for goods or sums received prior to avoidance; as regards the non-breaching party's expenses, the breaching party is liable in damages for such losses as a consequence of the breach.[2]

The Convention rules on restitution regulate only inter partes rights.[3] In a bankruptcy situation, however, the Convention rules may be thwarted by local rules which create property rights or priorities in goods or sums delivered, etc.[4]

1. See, e.g., the decision of LG Landshut (Germany), 5 April 1995, No. 540644/94, reported [at <http://cisgw3.law.pace.edu/cases/950405g1.html> and] in UNILEX (contract validly avoided by buyer; both parties bound to make restitution concurrently: when buyer placed non-conforming goods at seller's disposal, seller obliged to retake goods and refund price paid).
2. Article 74, supra No. 289. As always, damages are limited by the mitigation principle: see Article 77, supra No. 294.
3. See Article 4, supra No. 62 et seq. See also, e.g., the decision of OLG München (Germany), 8 February 1995, reported [at <http://cisgw3.law.pace.edu/cases/950208g1.html> and] in UNILEX (seller's non-delivery entitled the buyer to restitution of the sum obtained by the seller by executing the stand-by guaranty).
4. See A/CONF./97/5, para. 10 of Secretariat's Commentary to Article 66 of the 1978 Draft Convention.

E. Buyer's Obligation to Return Goods in Condition Received

313. It follows from the general restitution rule that a seller who has delivered the goods either wholly or in part may claim restitution from the buyer of the goods supplied.[1] Article 82(1) sets forth a corollary of the general rule: the buyer loses the [page 168] right to declare the contract avoided if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. At the same time, this principle applies in cases where the buyer demands that the seller perform in natura by re-delivering substitute goods:[2] the buyer loses the right to demand redelivery if he cannot return the goods in the condition received.[3]

1. Article 81, supra No. 312.
2. Regarding Article 46(2), see supra No. 216.
3. Article 82(1).

F. Exceptions to the Return-of-Goods Rule

314. The general rule (that the buyer loses the right to avoid and to demand redelivery if he cannot return the goods in the condition received) is subject to three exceptions.

315. First, the buyer need not return goods substantially in the condition received if the impossibility of making such restitution is not due to the buyer's act or omission.[1] Under this exception, the buyer is relieved of his duty to make restitution not only where the deterioration of the goods is attributable to the seller,[2] but also where the goods are lost or damaged due to force majeure or the act of a third party. It has been suggested, however, that this limitation relieves the buyer of his duty to make restitution only in cases where he has exercised reasonable care in protecting the goods.[3]

1. Article 82(2)(a).
2. As where the goods delivered contain a foreign chemical causing them to decompose.
3. See Honnold, J., Uniform Law (1999) at p. 511 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>], applying the principle set forth in Article 86(1). See also infra No. 322.

316. Secondly, according to Article 82(2)(b), the buyer need not return goods in the condition received if the goods (or - as is more likely - part of the goods) have perished or deteriorated as a result of the examination provided for in Article 38.[1]

1. For an extension of this principle, see the decision of the German Supreme Court (BGH), 25 June 1997, NJW 3311, CLOUT Case 235. also reported in UNILEX (buyer, having processed the goods (stainless steel wire), was unable to make restitution in the condition received; however, buyer did not lose right to avoid, as the non-conformity could only be discovered upon processing which - in this case - had actually augmented value of goods). Regarding Article 38, see supra No. 186.

317. Finally, the buyer need not return the goods in the condition received if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.[1] In this case, however, the buyer must account to the seller for all benefits derived by such sale or consumption.[2]

1. Article 82(2)(c).
2. Regarding Article 84(2), see infra No. 319. [page 169]

G. Retention of Other Remedies Notwithstanding

318. Even though a buyer may have lost the right to declare the contract avoided or to require the seller to deliver substitute goods, all other remedies under the contract and the Convention are retained nonetheless.[1] In particular, the buyer retains the right to claim damages for breach;[2] in the case of non-conforming goods, the buyer may instead advance a claim for a proportionate reduction in price.[3]

1. Article 83.
2. Regarding Articles 74 et seq., see supra No. 288 et seq.
3. See Article 50, supra No. 231.

H. Accounting for Interest and Other Benefits Received

319. The Convention adopts a corollary to the restitutionary principle which is generally accepted in domestic systems of law: to avoid unjust enrichment, a party who is required to make restitution must also account for benefits received.

Thus, if the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.[l] The Convention does not set forth the rate of interest, thus leaving the calculation to domestic law.[2] The interest calculation may vary in cases where the party claiming restitution is not the party in breach.[3]

The benefits received principle applies to the buyer as well: if the buyer must make restitution of the goods or in whole or part, she must account to the seller for all benefits which she has derived from the goods or part of them.[4] The buyer must also account to the seller for all benefits derived in cases where it is impossible for her to make restitution of all or part of the goods substantially in the condition received, but where she nevertheless has declared the contract avoided or required the seller to deliver substitute goods.[5]

1. Article 84(1).
2. Regarding Article 78, see supra No. 296 et seq.
3. If the seller is bound to refund the price paid because he has committed a fundamental breach, it may be more appropriate to calculate interest on the basis of buyer's loss (Article 74) rather than on the restitutionary approach set forth in Article 84(1): see Honnold, J., Uniform Law (1999) at p. 516 and compare id. at p. 518 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
4. Article 84(2)(a).
5. Article 84(2)(b). See also Article 82(2), supra No. 314 et seq.

V. Preservation of the Goods

A. Introduction

320. Sometimes, one party will be in control of goods on the other party's behalf. Section VI of Chapter V, concerning the duty to preserve the goods in such cases, provides rules designed to prevent waste and minimize loss. [page 170]

B. Seller's Duty to Preserve Goods on Buyer's Behalf

321. If the buyer is in delay in taking delivery of the goods and, even though the risk of loss may have passed, the seller is either in possession of the goods or otherwise able to control their disposition,[1] the seller must take such steps as are reasonable in the circumstances to preserve them; the same applies where payment of the price and delivery of the goods are to be made concurrently, and the buyer fails to pay the price.[2]

In either case, in exchange for fulfilling his duty to preserve the goods, the seller in possession acquires a right of retention akin to a 'mechanic's lien,' in that he is entitled to retain the goods until he has been reimbursed for his reasonable expenses by the buyer.[3]

1. The seller may be in possession even after the risk has passed: regarding Article 69. see supra No. 273. Similarly, the seller may retain a document controlling disposition after the risk has passed: regarding Article 67. see supra No. 269.
2. Article 85.
3. Article 85. second sentence. Regarding the possible sale of goods retained, see infra No. 323.

C. Buyer's Duty to Preserve Goods on Seller's Behalf

322. A similar, albeit reverse situation arises in cases where the buyer has received the goods but intends to exercise her right to reject them (either with a view towards avoiding the contract or requiring the seller to re-deliver conforming goods). In such cases, according to Article 86, paragraph (1), the buyer must take such steps as are reasonable in the circumstances to preserve the goods. In return for her efforts, the buyer in possession acquires a right of retention, in that she is entitled to retain the goods until she has been reimbursed for her reasonable expenses by the seller.[1]

If goods dispatched to the buyer have been placed at her disposal at their destination, and she exercises the right to reject them, she must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision - i.e. Article 86, paragraph (2) - does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, her rights and obligations are governed by Article 86, paragraph (1).

1. Article 86(1), second sentence.

D. Deposit in Warehouse; Sale of Goods Preserved

323. A seller or buyer who is bound to take steps to preserve the goods (in accordance with the rules set forth above)[1] may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.[2] [page 171]

Where one party is bound to preserve the goods on the other's behalf,[3] and there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, then the party in possession may sell them by any appropriate means provided that reasonable notice of the intention to sell has been given to the other party.[4] If, however, the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with Articles 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.[5]

A party selling the goods, either by right or by reason of duty, has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.[6]

1. Regarding Articles 85 and 86, see supra No. 321 et seq.
2. Article 87.
3. Regarding Articles 85 and 86, see supra No. 321 et seq.
4. Article 88(l). See, e.g., the decision of Tribunal Cantonal de Vaud (Switzerland) of 17 May 1994, reported [at <http://cisgw3.law.pace.edu/cases/940517s1.html> and] in UNILEX (seller was neither entitled to export nor to sell to a third party the unpaid support base; although Art. 88(1) CISG grants the seller who is under an obligation to preserve the goods the right to sell them, if there is an unreasonable delay by the buyer in taking possession of the goods or in paying the price, a different order can be granted by the court in proceedings for a summary injunction, especially where the goods are not subject to rapid deterioration (re. Art. 88(2), see text infra with following note) and since an authorization by the court to sell the unpaid goods would have been contrary to Swiss rules of civil procedure).
5. Article 88(2). See, e.g., the decision of Tribunal Cantonal de Vaud (Switzerland), cited in the preceding note.
6. Article 88(3).
[page 172]


Chapter 6. Final Convention Provisions

§1. OVERVIEW

324. Part IV of the Convention is entitled 'Final Provisions.' Taken as a whole, these provisions constitute the public international law framework for the CI5G, inter alia, the rules regarding Convention ratification, entry into force, etc.

§2. SIGNATURE, RATIFICATION, ENTRY INTO FORCE

325. As is common for treaties entered into under the auspices of the United Nations, the Secretary-General of the UN was designated as the depository for the CISG.[l] The Convention was opened for signature at the concluding meeting of the CISG Conference and remained open for signature until 30 September 1981.[2] Instruments of ratification, acceptance, approval and accession ('adherence') were thereafter deposited with the Secretary-General.

By 11 December 1986, eleven States had deposited instruments of adherence, and - as among these States - the Convention entered into force on 1 January 1988.[3] The list of ratifications, etc., continues to grow;[4] in the case of each new State, the Convention enters into force one year after the deposit of its instrument of adherence.[5]

1. Article 89.
2. Article 91(1).
3. I.e. one year after the deposit of the tenth instrument of adherence. See Article 99(1).
4. See the Appendix, infra.
5. Article 99(2).

§3. RELATIONSHIP TO 1955 HAGUE CONVENTION

326. According to Article 90, the CISG does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by the CISG.[l] In limited circumstances, this provision may be significant for those (relatively few) States which, prior to ratifying the CISG, had already ratified the 1955 Hague Convention on the Law Applicable to International Sale of Goods.[2]

As noted with respect to the provisions which regulate the. CISG sphere of application, those States which have ratified both the 1955 Convention and the CISG will utilize the 1955 treaty when applying CISG Article 1(1)(b),[3] i.e. to determine when the rules of private international law lead to the application of the law of a ClSG Contracting State.[4] In this respect, the two treaties work in tandem.

As regards the application of CISG Article l(l)(a), the relationship between the CISG and the 1955 Convention seems somewhat less clear.[5] Although Article l(l)(a) makes the CISG generally applicable without recourse to the rules of private [page 173] international law,[6] the 1980 CISG does not, according to Article 90, 'prevail' over the 1955 Convention to the extent that the older treaty contains provisions concerning the matters governed by the CISG. The potential for conflict seems limited, however: when the CISG would apply by virtue of Article 1(1)(a), the 'seller's law' rule in Article 3, the 1955 Convention would usually lead to the application of the CISG as well. In a few limited situations - e.g. where a sales contract calls for delivery in a non-CISG State and a problem arises as to the rules regarding inspection and notification in that State - the two conventions might lead to different results; presumably, in such a situation the 1955 Convention would prevaiI.[7] A primary goal of the 1986 revision of the 1955 Convention is to eliminate such potential conflicts with the CISG.[8]

1. Provided that the parties have their places of business in States parties to such agreement.
2. Belgium, Denmark, Finland, France, Italy, Norway, Sweden and Switzerland have ratified both Conventions. Niger, which has ratified the 1955 Convention has not (as of 1999) ratified the CISG.
3. Assuming, at least, that the State concerned has not made a declaration pursuant to Article 95 which limits the applicability of Article 1(1)(b). See infra No. 331.
4. Supra No. 54.
5. See generally Winship, P., 'Private International Law and the U.N. Sales Convention,' 21 Cornell International Law Journal 487 (1988).
6. See supra No. 53.
7. Under Article 4 of the 1955 Convention, the law applicable to inspection and notification is the place of delivery.
8. The 1986 Covention 'shall not prejudice' the application of the CISG. See generally Winship, P., 'The Scope of the Vienna Convention on International Sales Contmcts,' in International Sales (Galston and Smit ed. 1984) at pp. 1-43 [available at <http://www.cisg.law.pace.edu/cisg/biblio/winship5.html>] and Honnold, J., Uniform Law (1999) pp. 533-535 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

§4. RESERVATION

I. Introduction

327. Part IV of the Convention contains provisions concerning the right of signatory States to make certain specified declarations (reservations) to specified articles and/or parts of the CISG.

No reservations are permitted except those expressly authorized in Part IV: Among the more significant reservations permitted include the right of a State to declare that it will be bound only by the Convention's Part II (Contract Formation) or Part III (Sale of Goods) rules; the right of States having 'closely related legal rules' not to apply the CISG as between them; the right of a State to declare that it will not be bound by the 'private international law' rule in subparagraph (1)(b) of Article 1; and a rule which permits a State to recognize only sales contracts and modifications if in writing. These reservations are discussed in greater detail below.

II. Article 92 Declarations

328. Surely the most far-reaching reservation permitted is that contained in Article 92, whereby a CISG Contracting State may declare at the time of adherence [page 174] that it will not be bound by Part II of this Convention (Contract Formation) or that it will not be bound by Part III (Sale of Goods).

The Article 92 reservation has been made by each of the Scandinavian States (Denmark, Finland, Norway and Sweden), because - at least at the time they ratified the Convention - they found certain Part II rules (regarding sales contract formation) to be unacceptable from a Scandinavian point of view. So far, no other States (except the Scandinavians) have made Article 92 reservations with respect to Part II; and no States have made reservations with respect to Part III.

The effect of the Part II reservations is that each of the (Scandinavian) States is not to be considered a 'Contracting State' within paragraph (1) of Article 1 in respect of matters governed by CISG Part II.[1] Therefore, as regards contracts entered between parties residing in a Scandinavian State and another State, the Part II rules will not apply by virtue of Article 1(1)(a) because - as regards CISG Part II - the Scandinavian State is not a 'Contracting State'.

On the other hand, according to Article 1(1)(b), the CISG also applies 'where the rules of private international law lead to the application of the law of a Contracting State.'[2] Depending on the circumstances, this rule can serve, inter alia, to activate the Convention's Part II in a Scandinavian State.

Suppose, for example, that a seller in France offers goods for sale to a buyer in Denmark, and that before the buyer can post his acceptance, the seller revokes. If the buyer seeks to hold the seller to his original offer, the (French or Danish) court seized must consider whether CISG Part II or domestic contract formation law applies.[3] (Whereas the offer might seem revocable under CISG Article 16,[4] the Uniform Scandinavian rule is that every offer is binding for a reasonable time.)[5]

As already indicated, CISG Part II cannot apply in such a situation by virtue of Article 1(1)(a). In regard to Article 1(1)(b), however, it is significant that both France and Denmark are parties to the 1955 Hague Convention on the Law Applicable to International Sales, thus providing the applicable private international law rule that the 'seller's law' applies.[6] And since France has ratified all of the CISG, including the Part II Formation rules, CISG Part II (the French 'seller's law') should be applied by both French and Danish courts by virtue of CISG Article 1(1)(b).[7]

The general - and no longer controversial - conclusion to be drawn is that Scandinavian Article 92 declarations do not displace the international sales contract formation rules in CISG Part II with (Scandinavian or other) domestic law in those many cases where the rules of private international law point to the law of Contracting State which has not made a similar declaration. In 1998 this analysis was confirmed by the Danish High Court of Appeals.[8]

1. Article 92(2).
2. See supra No. 54.
3. As between these EU States, the question of jurisdiction will be regulated by the Brussels Convention of Jurisdiction and Judgments.
4. Supra No. 105 et seq.
5. See Article I of the Uniform Scandinavian Contracts Acts.
6. See supra No. 54.
7. Neither France nor Denmark has made an Article 95 declaration regarding Article 1(1)(b): see infra No. 331. [page 175]
8. Regarding this decision (reported in Danish in Ugeskrift for Retsvœsen 1998 at p. 1092), see Lookofsky, J., 'Alive and Well in Scandinavia: CISG Part II: 18 Journal of Law & Commerce 289-299 (1999) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky1.html>]. Compare the decision of Oberlandesgericht Rostock, 27 July 1995, OLG Report 1996, 50, reported [at <http://cisgw3.law.pace.edu/cases/950727g1.html> and] in UNILEX, where CISG Part II was not applied in a dispute between a Danish seller and a German buyer (this result seems correct, as the relevant German PIL rules (the 1980 Rome Convention) would point to the law of the Danish seller).
The notion that CISG Part II might sometimes apply in spite of an Article 92 reservation was suggested in 1987 by Evans in Bianca & Bonell in their Commentary at p. 643 [available at <http://www.cisg.law.pace.edu/cisg/biblio/evans-bb92.html>]. In 1989, when Denmark ratified the Convention subject to Article 92, Lookofsky expressed the view that even Scandinavian courts should consider themselves bound (by Article 1) to apply CISG Part II in cases where the 1(1)(b) rule points to the law of a CISG State which has not made such a reservation: see 'Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules', 39 American Journal of Comparative Law, p. 405 (1991) [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>]. In 1995, a prominent German commentator concurred, arguing that only this interpretation of Article 92 could advance the goal of uniform Convention application: See Herber in von Caemmerer & Schlechtriem, Kommentar, Art. 92, Rd.Nrn. 3, with note 2b, citing Lookofsky (preceding note). See also Schlechtriem, Commentary (1998) p. 692.

III. Contracting States with Territorial Units

329. In most States operating under a 'federal' system, the central government is empowered with the treaty-making power to bind the entire federation to the CISG. The effect of the United States ratification, for example, is to bind all 50 'territorial units' (states) within the US.

In a few States, such as Australia and Canada, the federal government does not have this power.[1] Article 93 permits such States, upon ratification, to declare that the CISG is to extend to only some, but not all of its territorial units. In such event, even if the place of business of a party is located in that State, this place of business is considered not to be 'in' a Contracting State unless it is in a territorial unit to which the Convention extends.[2]

1. See Winship, P., op. cit. at pp. 1-45 and Ziegel in 12 Canadian Business Law Journal 366 (1986/1987).
2. Article 93(3).

IV. States Having Closely Related Legal Rules

330. The Scandinavian States (Denmark, Finland, Norway and Sweden) all wished to join the international community in ratifying the CISG. As regards inter-Scandinavian sales, however, these States did not wish to replace their essentially 'uniform' sales laws with the new CISG regime. Article 94 made it possible for the Scandinavian States, at the time of their CISG ratifications, to declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States.[l]

The Article 94 declarations presuppose and indeed require that the Scandinavian States have 'essentially similar' legal rules on matters governed by the CISG Convention. And while it is still true that the Scandinavian rules are similar with regard to the rules which govern contract formation (The Contracts Acts), recent statutory amendments to the Scandinavian sales statutes (the Sales Acts) give good [page 176] reason to question whether the Scandinavian States (still) all have the kind of 'closely related' sales law rules required by Article 94.[2]

1. As regards the Scandinavian Article 92 declarations, see supra No. 328.
2. The controversial new provisions in the revised Sales Acts now effective in Finland, Norway and Sweden - but not in Denmark - limit the seller's liability for 'indirect loss' under domestic law to cases where the breach can be attributed to the seller's fault. Given this disparity, among others, several Scandinavian commentators have suggested that the Article 94 declarations should be withdrawn.

V. 'Private International Law' and Article 1(1)(b)

331. The CISG applies to contracts for the sale of goods between parties having their places of business in different States. More specifically, according to the two main rules of applicability in Article 1(1), the Convention applies (a) when these States are both CISG 'Contracting States' and (b) when the rules of private international law lead to the application of the law of a (single) Contracting State.[1] This latter rule proved controversial and led to the declaration set forth in Article 95 whereby a State may declare upon ratification that it will not be bound by subparagraph (1)(b) of Article 1. China, the United States and Singapore have ratified the CISG subject to this reservation.

If, for example, a seller in the United States sells to a buyer in State X, a non-Contracting State, Article 95 means that the US courts are not bound to apply the Convention rules even if the relevant rules of private international law lead to the application of US law (i.e. the law of a CISG Contracting State).[2] In this situation, if the relevant conflict-of-Iaws rule points to the seller's law, an American court would apply domestic American law, i.e. the Uniform Commercial Code as enacted in the American state concerned.

Also courts in Contracting States which have not made an Article 95 declaration will sometimes need to consider the effect of that declaration when deciding cases involving a party who resides in an Article 95 declaration State. Courts in a Contracting State which has not made an Article 95 declaration (e.g. Germany) should not apply Article 1(1)(b) in respect of any Contracting State that has made an Article 95 declaration (e.g. USA) when the conflict of law rules of the forum point to the law of the declaring State.[3]

Given the number of variables (parties' places of business, situs of forum court, applicable private international law), the number of possible permutations involving Article 1(1)(b) and the Article 95 reservation is large.[4]

1. See generally supra No. 52 et seq.
2. In the United States, private international law is usually governed by local (state) law. See Lookofsky, J., Transnational Litigation and Commercial Arbitration, Ch. 3.3.1.
3. Upon ratifying the Convention the government of Germany declared that it would not apply Article l(l)(b) in respect of any State that had made an Article 95 declaration. This German 'declaration,' while not expressly authorized by CISG Part IV; can be viewed as a statement interpreting the concept of a 'Contracting State' in Article l(l)(b) so as to exclude States which have made Article 95 declarations. See: Schlechtriem. P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tidsskrift vid Stockholms Universitet (1992) pp. 6-7 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>].
4. See generally Winship, P., op. cit. (pp. 1-26 ff.) and the appendix thereto.
[page 177]

VI. Preservation of Formal Requirements

332. Article 11 dispenses with the formal requirement, posed by some domestic laws, that sales contracts be concluded in or evidenced by writing; similarly, CISG Part II contains no writing requirements with respect to the constituent parts of the contract (the offer and the acceptance), and Article 29 dispenses with writing requirements as regards contract modification.[1]

Because some States still attach importance to requirements such as these, Article 12 of the CISG provides that the various Convention rules which permit non-written contracts, modifications, etc., do not apply where any party has his place of business in a Contracting State which has made a declaration under Article 96.[2] Argentina, Belarus, Chile, China, Estonia, Hungary, Lithuania, Ukraine and the Russian Federation have all made such a declaration.

The effect of an Article 96 declaration is that the declaring State is not bound by Article 11, etc. Therefore, that State's formal requirements remain applicable to international sales subject to the CISG. However, where only one of the parties to an international sales contract resides in a such a declaring State, the forum court must resolve a conflict of laws. The forum court asked to apply the formal requirements of the declaring State (as opposed to Article 11, etc.) should do so only when its rules private international law lead to the application of the declaring State's law.[3]

1. See Article 29 which allows a contract of sale to be modified or terminated by the 'mere agreement' of the parties agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing.
2. See, e.g., the decision of the High Court of Arbitration of the Russian Federation, 16 February 1998, reported in UNILEX (contract could not be validly modified by oral agreement). See also supra No. 94 et seq.
3. Accord: Honnold, J., Uniform Law (1999) at pp. 138-140 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].

§5. RELATIONSHIP TO ULF/ULIS

333. A State which adheres to the CISG Convention and is a party to either or both the 1964 Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) and the 1964 Convention relating to a Uniform Law on the International Sale of Goods (ULIS) shall at the same time denounce, as the case may be, either or both these Conventions.[1]

1. Article 99(3). See also supra No. 11.

§6. CONIRACT FORMATION: ENTRY INTO FORCE

334. According to Article 100(1), the CISG applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of Article 1. [page 178]

According to Article 100(2), the CISG applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of Article 1.

§7. SIX AUTHENTIC TEXTS

335. The Convention on Contracts for the International Sale of Goods - 101 articles in all - was done at Vienna, on 11 April 1980 in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic. [page 179]


Pace Law School Institute of International Commercial Law - Last updated April 1, 2005
Go to Database Directory || Go to Bibliography
Comments/Contributions