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Reproduced with permission of 15 Brooklyn Journal of International Law (1989) 23-43

The New U.N. Convention on International Sales Contracts: An Overview

Robert S. Rendell [*]

  1. Introduction
  2. The Sales Convention
    1. Application
    2. Freedom of Contract
  3. Contract Formation
    1. The Statute of Frauds
    2. Offer and Acceptance
    3. The Battle of the Forms
  4. Rights and Liabilities of Sellers and Buyers
    1. Obligations of the Seller
      1. Delivery
      2. Seller's Duty to Deliver Conforming Goods
      3. Third Party Claims
      4. Buyer's Remedies for Seller's Breach
    2. Obligations of the Buyer
      1. Buyer's Duty of Payment
      2. Seller's Remedies for Buyer's Breach
    3. Consequences of Declaring Contract Avoided
    4. Damages
  5. Events Prior to Performance: Risk of Loss, Force Majeure and Anticipatory Breach
    1. Risk of Loss
    2. Force Majeure
    3. Anticipatory Breach
  6. Conclusion

I. INTRODUCTION

On January 1, 1988, the United Nations Convention on Contracts for the International Sale of Goods (Sales Convention or Convention)[1] took effect. To date, seventeen nations have ratified the Convention.[2] Other countries are expected to ratify it in the near future. This Article examines each of the Sales Convention's principal provisions and concludes that it provides a useful uniform body of law for resolving international contract disputes. This Article also concludes that American practitioners should have no difficulty working with the Convention, even though its approach is slightly different than that of the Uniform Commercial Code. [page 23]

II. THE SALES CONVENTION

Article 1 states the general rule that the Sales Convention applies to contracts for the sale of goods between parties whose "places of business" are in different states which are parties to the Convention (Contracting States).[3] The nationality of the parties is not relevant in determining the applicability of the Sales Convention; place of business is the crucial factor.

The Sales Convention does not define a party's "place of business." Article 10, however, provides that if a party has more than one place of business, the place of business for the purposes of the Convention is that which has the "closest relationship" to the contract and its performance.[4] Further, if a party does not have a place of business, reference will be made to his habitual residence.[5] For example, assume a United States company sells goods to a French company which has a principal office in Paris and a branch office in Brussels. If the purchase is concluded out of the Paris office, the Sales Convention would apply since the French company would be deemed to have its place of business in France, a Contracting State. However, if the Brussels branch office of the French company concludes the purchase, the Sales Convention would not apply since the company would be deemed to have its place of business in Belgium, which is not presently a Contracting State.[6]

The Convention only applies to sales transactions.[7] Since the term "sale" is not deemed, some interpretation problems may arise. Presumably, the Convention does not cover license agreements, franchise agreements, service contracts, and sales commission agreements. Also excluded are contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services.[8] This means that construction contracts and other types of technical service contracts are probably not covered. Article 3 also provides that contracts for the supply of goods to be [page 24] 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.[9]

The scope of the Convention is further limited by article 2, which specifically exempts the following classes of goods and sales from coverage:

  1. [g]oods bought for personal, family or household use;
  2. [a]uction sales;
  3. [s]ales by authority of law, whether by execution, or otherwise;
  4. [s]tocks, shares, investment securities, negotiable instruments, or money;
  5. [s]hips, vessels, hovercraft, or aircraft; or
  6. [e]lectricity.[10]

Even if the Sales Convention applies, it cloes not govern all issues that may arise under an international sales contract. Article 4 states that the Sales Convention does not determine the validity of the contract or the effect that the contract may have on property rights in the goods sold.[11] Generally, the Sales Convention governs the formation of the contract and the rights and obligations of the seller and the buyer. In addition, it does not apply to the liability of the seller for death or personal injury caused by the goods.[12]

B. Freedom of Contract

The Sales Convention governs a sales contract between parties with their places of business in different Contracting States unless the parties opt out of the Convention by specifically excluding it in their contract.[13] The following is a sample choice of law clause that will exclude application of the Sales Convention:

"The parties intend to exclude the application of the United Nations Convention on Contracts for the International Sale of Goods to this contract. Accordingly, this contract shall not be subject to the United Nations Convention on Contracts for the International Sale of Goods, but rather the contract shall be [page 25] governed by and construed in accordance with the law of the State of Texas."[14]

Article 6 also allows the parties to derogate from or vary the effect of any of the Convention's provisions.[15] Thus, the parties may decide to have the Sales Convention govern their contract, but elect a different rule for such limited purposes as delivery, warranties, or breach of contract.

While many United States companies may initially be inclined to exclude the application of the Convention, foreign parties may insist upon the Convention. The Convention may also prove to be a useful means of avoiding disputes over which law, United States or foreign, should govern an international sales contract. As stated above, if an international sales contract is silent on the selection of governing law, the Convention will apply.[16]

Assuming that the Convention applies to an international sales contract, the practices of the parties and commercial usages will still be given effect. Article 9 provides that the parties are bound by any usage to which they have agreed, and by any practices that they have established between themselves.[17] In addition, the parties are considered to have 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.[18] To the extent that the parties' established practices or commercial usages are deemed to be incorporated in the agreement, they will prevail over any inconsistent provision in their Sales Convention under the principle that the parties may derogate from the Convention's provisions.[19]

III. CONTRACT FORMATION

A. The Statute of Frauds

Before discussing the specific rules relating to contract [page 26] formation, it should be noted that the Sales Convention rejects the legal requirement that contracts must be in writing to be enforceable in a court of law.[20] Thus, the Statute of Frauds is not incorporated in the Convention. Article 11 provides that a contract of sale need not be concluded in or evidenced by writing, and is not subject to any other requirement as to form.[21] The Convention thus joins many civil law countries and Great Britain, which have been moving away from imposing formal written requirements on commercial contracts.[22]

Article 12 allows a Contracting State to ratify the Sales Convention with a reservation that article 11 will not apply.[23] To date, the People's Republic of China, Argentina, and Hungary have made such a reservation. Thus, the Statute of Frauds will continue to apply in transactions involving buyers or sellers in these countries. The United, States did not make a similar reservation.

B. Offer and Acceptance

The Sales Convention adopts the Americarl concept of offer and acceptance.[24] A proposal for concluding a contract will be treated as an offer if it is "sufficiently definite" and indicates the intention of the offeror to be bound in case of acceptance.[25]5 Article 14 provides that a proposal is sufficiently definite if it identifies the goods and expressly or implicitly fixes or makes a provision for determining the quantity and the price.[26]

Articles 15 and 16 govern when an offer may be withdrawn or revoked.[27] An offer, even if irrevocable, may be withdrawn by a communication that reaches the offeree ahead of the offer. Article 16 states the general rule that an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.[28] There are two instances where an offer will be [page 27] deemed irrevocable and article 16 will not apply: (1) if the offer indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; and (2) if the offeree has reasonably acted in reliance on the offer.[29] An offer, even if irrevocable, will be terminated when a rejection reaches the offeror.

Acceptance is governed by article 18, which provides that a statement or other conduct by the offeree indicating assent to an offer operates as an acceptance.[30] An example of conduct which may be treated as an acceptance is dispatch of the goods or payment of the purchase price. Silence or inactivity does not in itself amount to acceptance. If the offeror fixes a period of time for acceptance, the offeree's acceptance must reach the offeror within this time period in order to be effective. However, late acceptances will nevertheless be effective with the written or oral approval of the offeror.[31] Under article 22, an acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.[32]

C. The Battle of the Forms

Article 19 addresses the perennial problem known as the "battle of the forms" -- the exchange between the buyer and seller of non-conforming printed purchase order forms and acknowledgement of sale forms.[33] Under the Sales Convention, 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.[34] However, if the additional or different terms do not "materially alter" the terms of the offer, the reply by the offeree will be considered an acceptance unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect.[35] If the offeror does not object, a contract is formed which includes the terms in the offer and any modifications contained in the acceptance. [page 28]

Under the Sales Convention, an offeror who receives an acceptance with additional or different terms has several options. He can ship the goods to the buyer, in which case the additional or different terms will be incorporated in the contract either because shiprnent constituted an acceptance of the counter-offer (where the additional or different terms are material), or because the additional or different terms were not material and he failed to object. Alternatively, he can object to the additional or different terms, in which case the burden of response will be placed back on the original offeree. If the offeror remains silent, and the additional or different terms are not material, his offer will be deemed to have been accepted and a contract will be formed. The terms of the contract will include the non-material additional or different terms contained in the acceptance. The buyer could then sue the seller for non-performance.

An offeror who receives an acceptance with additional or different terms must therefore determine wheither or not they are material alterations. Article 19(3) provides the following examples of terms which, if modified or added, would materially alter the contract, price, payment, quality and quantity of goods, place and time of delivery, extent of one party's liability to the other, and dispute settlement, such as arbitration.[36] This list, however, is not intended to be exhaustive.

IV. RIGHTS AND LIABILITIES OF SELLERS AND BUYERS

A. Obligations of the Seller

Under the Convention, the general rule is that the seller must deliver the goods, hand over any documents relating to them, and transfer the property in the goods.[37] Articles 31 through 34 amplify this general rule and articles 35 through 39 provide rules concerning the seller's duty to deliver conforming goods. It is important to emphasize that these rules will only apply to the extent the sales contract does not contain specific provisions governing the seller's obligations.[38] As noted earlier, article 6 allows the parties to derogate from or vary the effect of the Convention.[39] [page 29]

1. Delivery

If the contract does not specify the place of delivery in the case of contracts involving carriage of goods, the seller is required under article 31 to hand the goods over to the first carrier for transmission to the buyer.[40] If the contract does not provide for the carriage of goods, the seller satisfies his delivery obligation by placing the goods at the buyer's disposal at the seller's place of business. Article 32 provides that if under the contract the seller is required to arrange for carriage of the goods, he must make "appropriate" transportation arrangements for delivery at the place fixed by the contract.[41]

Article 33 governs the time for delivery. If the contract does not specify a fixed date for delivery, but specifies a time period during which delivery should occur, delivery may be made any time within that period, unless circumstances indicate that the buyer is to select a date. If the contract is silent on the time for delivery, the seller may deliver within a "reasonable time" after execution of the contract.[42]

In most international sales contracts, delivery is accomplished by transfer of documents of title, in particular a bill of lading.[43] Article 34 recognizes this general practice, and provides that the seller is bound to hand over documents relating to the goods at the time and place and in the form required by the contract.[44] Many international sales contracts also incorporate by reference various INCOTERMS [45] such as "FOB," "CIF," or "C&F."[46] These trade terms contain their own delivery rules, which supercede inconsistent provisions in the Convention.

2. Seller's Duty to Deliver Conforming Goods

Article 35, one of the most important in the Convention, provides that 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 [page 30] contract.[47] Under article 35(2) the goods will not be deemed to conform to the contract unless they satisfy the following implied warranties:

  1. fitness for the purposes for which goods of the same description would ordinarily be used;
  2. fitness for any particular purpose expressly or impliedly made known to the seller at the time of the execution of the contract;
  3. possession of the qualities which the seller held out to the buyer as a sample or model; and
  4. packaging in the manner usual for such goods or in the manner adequate to preserve and protect the goods.[48]

It may be expected that sellers will attempt to disclaim the implied warranties of article 35(2) by express disclaimer provisions in the sales contract. The Convention does not contain a provision relating to the effect or form of such disclaimers, and it is unclear whether a domestic law which restricts these disclaimers will continue to apply in a country that has ratified the Convention. However, since the Convention does not apply to contracts for the sale of consumer goods, this question may be of limited scope.[49]

Under article 36, the seller is liable for any lack of conformity that exists at the time when risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.[50] Under the Convention, however, the seller has the right to cure any defect in goods delivered before the date for delivery [51] or, under certain limited circumstances, after delivery of the goods.[52] The seller's right, to cure defects in the goods is important to prevent a "fundamental breach" of the contract by the seller, which would enable the buyer to "avoid" the contract.[53]

A buyer who receives non-conforming goods may lose his right to assert that lack of conformity if he does not satisfy his duty to examine the goods. Article 38 provides that the buyer [page 31] must examine the goods within as short a period as is "practicable in the circumstances."[54] The buyer must then give notice to the seller of any defects within a "reasonable time" after he has discovered them or ought to have discovered them. In any event, this must be done within two years from the date the goods were handed over to the buyer.[55] Failure to provide this notice will result in the loss by the buyer of his right to rely on lack of conformity in a contract dispute with the seller.[56]

3. Third Party Claims

Under article 41, the seller is required to deliver goods which are free from any right or claim of third parties.[57] This requirement would typically be found as a representation and warranty in a sales contract.[58] If the goods do not satisfy this requirement, the seller will be in breach of contract and will have to reimburse the buyer for any expenses or losses arising out of such third party claims.[59] However, as noted earlier, the Convention does not apply in resolving a third party's claims to the goods.[60]

4. Buyer's Remedies for Seller's Breach

Generally, the Convention provides three remedies to the buyer when the seller fails to perform his obligations under the contract:

  1. he may compel performance by the seller as provided in article 46;[61]
  2. in the case of a fundamental breach as defined in article 25, he may reject the goods and declare the contract avoided (i.e., terminated) pursuant to articles 47 through 491;[62] or
  3. he may accept the goods and claim damages as provided in [page 32] articles 74 through 77.[63]

Article 45(2) makes it clear that the remedial approach of the Convention does not call for an election of remedies.[64] The buyer may claim damages resulting from the seller's breach even if he takes steps to compel performance by the seller or avoids the contract because of a fundamental breach by the seller.[65]

Article 46(1) provides that the buyer may compel specific performance by the seller unless the buyer has resorted to another remedy that is inconsistent with specific performance.[66] This is based upon the civil law theory that a party to a contract may compel performance by the other party. However, article 46(1) must be read together with article 28, which states that a court is not bound to enter judgment for specific performance unless the court would do so under its own law in cases involving similar contracts of sale that are not governed by the Convention. Thus, the remedial provisions of the Convention are subject to the forum state's limitations on granting specific performance in contract disputes. For example, assume that an American seller has failed to perform his obligations under a contract with a French buyer, and the French buyer seeks to compel performance under article 46(1) by bringing suit in an American court. Under article 28, the American court would apply its own rules on specific performance and would not be required to grant this remedy unless the French buyer can demonstrate that it does not have an adequate remedy at law.

Paragraphs 2 and 3 of Article 46 apply the general rule of compelling performance in certain situations. If the goods tendered do not conform to the contract, the buyer may require delivery of substitute goods, but only if the lack of conformity constitutes a fundamental breach of contract. Alternatively, if the non-conformity does not constitute a fundamental breach, the buyer may require the seller to remedy the lack of conformity by repair, unless repairing the defects would be unreasonable under the circumstances.[67]

Another remedy which an aggrieved buyer may take [page 33] advantage of is provided in article 49(1),[68] which enables the buyer to avoid the contract if the seller has committed a "fundamental breach"[69] of his obligations. The Convention does not furnish any specific examples of a fundamental breach,[70] but instead article 25 defines this critical term in a general manner: 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.[71] A breach, however, will not be considered fundamental if the party in breach did not foresee, and should not have foreseen, such a result.[72] Certainly, a material lack of conformity or late delivery could constitute a fundamental breach.[73] In the case of the seller's failure to effect delivery on time, the buyer has the option to fix an additional reasonable period of time for performance by the seller.[74] If the seller does not deliver the goods within this additional time period, there will be a fundamental breach, and the buyer may avoid the contract.[75]

Article 26 states that a declaration of avoidance of the contract is effective only if made by notice to the other party.[76] Article 49(2) contains detailed rules as to when the buyer must declare the contract avoided.[77] As noted above, the seller may cure any defect in the goods after the date for delivery, even if such defect would have resulted in a fundamental breach of the contract.[78]

Generally, a buyer who rightfully declares that a contract is avoided will be excused from performing his obligations under [page 34] the contract. Thus, he may reject or return the goods to the seller,[79] recover any payment of the purchase price he has made under the contract, and claim damages from the seller for his breach.[80]

B. Obligations of the Buyer

1. Buyer's Duty of Payment

Article 53 states the general rule that the buyer must pay the purchase price for the goods and take delivery of them as required in the contract.[81] A contract may be binding under the Convention even if it does not expressly or implicitly fix or make provisions for determining the purchase price.[82] In such a case, article 55 provides that the purchase price of the goods will be the price generally charged at the time of the conclusion of the contract for like or similar goods sold under comparable circumstances in the trade concerned.[83]

If the contract does not specify the place of payment, the buyer must pay the seller at the seller's place of business, or the place where the handing over of the goods or documents takes place.[84] International sales contracts should specify that payment be made outside the buyer's country in order to protect the seller against the risks of local currency inconvertibility. If the contract does not specify the time of payment, the buyer must pay when the seller places either the goods or documents at the disposal of the buyer.[85] However, unless the contract calls for a documentary sale, the buyer is not required to pay the purchase price until he has had an opportunity to examine the goods.[86] There is no provision in the Convention governing the currency of payment or the consequences of payment in a currency other than the currency specified in the contract.

2. Seller's Remedies for Buyer's Breach

Under the Convention, three remedies for breach of [page 35] contract are available to an aggrieved seller:

  1. he may compel performance by the buyer as provided in article 62;[87]
  2. in a case of a fundamental breach by the buyer, he may declare the contract avoided (i.e., terminated) pursuant to article 64;[88] or
  3. he may claim damages as provided in articles 74 through 77.[89]

As is the case with buyer's remedies, article 61(2) makes it clear that the remedial approach of the Convention does not call for an election of remedies.[90] The seller may claim damages resulting from the buyer's breach even if he takes steps to compel performance or avoids the contract because of a fundamental breach by the buyer.[91]

Under article 62, the seller may require the buyer to pay the price or take delivery unless the seller has resorted to a remedy that is inconsistent with this provision.[92] Clearly, the buyer may be sued for the purchase price if he has accepted the goods by taking delivery.[93] Furthermore, under article 62 the seller can also compel an unwilling buyer to accept the goods and thereby become liable for the purchase price.[95] However, this provision must be read together with article 28, which states that a court is not bound to enter judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by the Convention.[95]

Article 64(1) enables the seller to avoid or terminate the contract if the buyer has committed a "fundamental breach" of his obligations.[96] For example, a refusal by the buyer to pay the purchase price is a fundamental breach, relieving the seller from [page 36] his obligation to deliver the goods.[97] If the buyer has not performed his obligations to pay the price or take delivery of the goods, the seller may, under article 63(1), fix an additional reasonable period of time for performance by the buyer.[98] If the buyer does not pay the price or take delivery of the goods within this additional time period, it is deemed to be a fundamental breach, and the seller may avoid the contract linder article 64.[99]

Generally, if a seller rightfully declares a contract avoided, he will be excused from performing his obligations under the contract and will not be required to deliver the goods.[100] In addition, he may claim damages from the buyer lifter disposing of the goods.[101]

C. Consequences of Declaring Contract Avoided

As previously noted, when a party commits a fundamental breach, the other party does not waive the right to damages under articles 75 and 76 by avoiding the contract.[102] There are, however, other consequences of avoiding the contract. For instance, article 81 provides that avoidance of the contract releases both parties from their obligations, subject to any damages that may be due.[103] Avoidance, however, does not affect dispute settlement provisions in the contract (e.g., an arbitration clause), or a party's duty to take steps to preserve the goods.[104] If the seller has delivered all or a portion of the goods, or if the buyer has made full or part payment on a contract that has been avoided, the aggrieved party may claim restitution for whatever he has supplied or paid under the contract. This right of restitution, which goes beyond the remedies provided in the Uniform Commercial Code, may be exercised by either party to a contract, and is not limited to the aggrieved party.[105] A buyer may lose his right to declare a contract avoided if, under article 82, it is impossible for him to make restitution of the goods [page 37] substantially in the condition in which he received them.[106]

D. Damages

Articles 74 through 76 relate to the calculation of damages. As a general rule, damages for breach of contract consist of the loss, including loss of profit, suffered by a party as a consequence of the breach.[107] These damages, however, are limited to losses that, at the time of the conclusion of the contract,[108] the party in breach foresaw or ought to have foreseen as possible consequences of the breach. This general rule is designed to place the aggrieved party in the same position as if the party in breach had performed his obligations under the contract.

If the aggrieved party has declared the contract avoided because there has been a fundamental breach, he may still collect damages calculated under articles 75 and 76. If, following avoidance, the buyer has bought goods in replacement, or the seller has resold the goods, the aggrieved buyer or seller may recover the difference between the contract price and the price in the substitute transaction, including any further damages recoverable under article 74.[109] Assuming the aggrieved party has not made a purchase or resale following avoidance, he may recover the difference between the contract price and the current price at the time of avoidance.[110] Current price is defined as the price prevailing at the place where delivery of the goods should have been made.[111] The Convention imposes a duty on the aggrieved party to mitigate the loss. If he fails to mitigate, he may suffer a reduction in damages.[112]

The Convention is silent on the effect of including a liquidated damages clause in the contract. Presumably, the parties may include a liquidated damages clause since they are free, under article 6, to derogate from or vary the effect of any of the Convention's provisions.[113] The validity of such a clause would [page 38] be tested under the domestic law governing the contract, which is determined by applying choice of law principles.

V. EVENTS PRIOR TO PERFORMANCE: RISK OF LOSS, FORCE MAJEURE AND ANTICIPATORY BREACH

A. Risk of Loss

The Convention contains five articles dealing with the passage of the risk of loss from the seller to the buyer. However, if the sales contract specifies a trade term that is governed by the INCOTERMS (such as F.O.B. or C.I.F.),[114] the risk of loss rules found in the INCOTERMS would, under article 6 or 9, prevail over the Convention's rules.[115] Since INCOTERMS are commonly utilized in international sales contracts, and since the Convention applies only in situations that are not covered by the INCOTERMS or the terms of the contract,[116] the Convention's provisions in this area will have limited applicability.

Under article 67(1) if the contract involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk of loss passes to the buyer when the goods are handed over to the first carrier.[117] "Handing over" the goods implies the physical transfer of possession of the goods; passage of title is irrelevant. That the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of risk. The "first carrier" rule of article 67(1) places the transit risk on the buyer who should insure against the risk.[118] Under article 66, once risk has passed to the buyer, loss of or damage to the goods does not discharge the buyer from his obligation to pay the price, unless the loss or damages is due to an act or omission of the seller.[119]

The first carrier rule is subject to an important qualification. Under article 67(2), risk does not pass to the buyer until the goods are clearly identified by markings on the goods, by shipping documents, or by notice given to the buyers.[120] In cases [page 39] not governed by a specific rule in the Convention or by a provision in the contract, article 69 provides that the risk passes to the buyer when he takes over the goods or when they are placed at his disposal.[121]

An interesting issue arises in a situation where a seller ships materially non-conforming goods that are lost at sea after the risk has passed to the buyer. The question is whether the buyer may still assert his remedies under the Convention by declaring the contract to be avoided. Article 70 providesl that if the seller has committed a fundamental breach of contract, the Convention's passing of the risk rules do not impair the remedies available to the buyer.[122] Thus, the buyer can still terminate the contract even though the risk of loss may have passed to him prior to transit under the first carrier rule of article 67(1).

B. Force Majeure

Article 79 provides that a party is not liable for a failure to perform his contractual 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 foreseen this impediment at the time of the conclusion of the contract or to have avoided or overcome its consequences.[123] The Convention does not define "impediment" or list examples such as fire, strike, war, or other acts of God. Special rules apply where a party's failure to perform is caused by the failure of a subcontractor or supplier. The party failing to perform must give notice of the impediment and its effect on his ability to perform.

Most importantly, article 79 provides that an event of force majeure, an impediment under the Convention, only relieves the party in breach from liability for damages; it does not excuse him from performing his contractual obligations.[124] Thus, if the party's failure constitutes a fundamental breach, the other party may still avoid the contract even though the failure is attributable to an unforeseen impediment. The aggrievled party may not be able to collect damages, but his right to avoid the contract is not affected by article 79.[125] The parties may agree upon their [page 40] own force majeure clause which would supersede any inconsistent provision in article 79.[126]

C. Anticipatory Breach

The anticipatory breach provisions of the Convention cover both suspension of contractual obligations and avoidance of the contract. Under article 71 a party may suspend the performance of his obligations if it becomes apparent that the other party will not perform a substantial part of his obligations as a result of (1) a serious deficiency in his ability to perform or in his creditworthiness; or (2) his conduct in preparing to perform or in performing the contract.[127] However, a party giving notice of suspension must continue with performance if the other party provides adequate assurance of his performance. If prior to the date for performance of the contract it is clear that one of the parties will commit a fundanlental breach of contract, the other party may, under article 72, declare the contract avoided.[128] The party taking such action must, if time allows, give reasonable notice in order to permit the other party to provide adequate assurance of his performance. Article 73, which applies equally to the seller and buyer, contains special rules regarding avoidance in installment contracts.[129]

VI. CONCLUSION

The balance of the Convention is concerned with the procedures for ratification, reservations by ratifying States, and entry into force.[130] Of particular interest to private parties is article 100, which provides that the Convention 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 with respect to the relevant Contracting State.[131] In applying this provision, one must recall that the Convention will enter into force for different countries on different dates, depending upon when they ratify the Convention.[132] Article 100 [page 41] also provides that the Convention applies only to contracts concluded on or after the date when the Convention enters into force with respect to the relevant Contracting State.[133] Thus, the Convention does not apply retroactively to existing contracts of residents of a Contracting State which has ratified the Convention.

The impact that the Convention will have on international contracts in the United States and throughout the world is yet to be determined. Undoubtedly, lawyers and international businessmen will initially be reluctant to use the Convention and will continue to insist upon their traditional governing law clauses. The Convention, however, will be a convenient way of resolving disputes involving international contracts. As the Convention is utilized more for this purpose, lawyers and businessmen will become more comfortable with it and will voluntarily elect to have the Convention apply to their contracts.

American lawyers should have no difficulty with the Convention. While civil law in form (i.e., a statement of general principles without an excessive number of detailed rules), the Convention is basically common law in substance. In fact, one may view the Convention as a triumph of the Uniform Commercial Code's approach to contract law. There are, of course, certain exceptions. Most importantly, there is no Statute of Frauds in the Convention,[134] and the United States has not taken a reservation with respect to the absence of a Statute of Frauds. Thus, oral contracts are possible between residents of Contracting States. In addition, the "battle of forms" may be resolved differently under the Convention than under the Uniform Commercial Code.[135] However, these differences should not preclude American lawyers from using the Convention, which is a well-balanced, carefully drafted international agreement. [page 42]


APPENDIX
Countries Which Have Ratified the Sales Convention as of
December 15, 1988
Original Ratifying Countries
Argentina
Egypt
France
Hungary
Italy
Lesotho
People's Republic of China
Syria
United States
Yugoslavia
Zambia
Countries Which Have Subsequently Ratified the Convention
Country
Effective Date
Austria
January 1, 1989
Finland
January 1, 1989
Mexico
January 1, 1989
Sweden
January 1, 1989
Australia
April 1, 1989
Norway
[page 43]
August 1, 1989


FOOTNOTES

* B.A. 1962, Princeton University; J.D. 1965, L.L.M. 1966, Harvard Law School. The author is a partner in the law firm of Johnson & Swanson of Dallas, Texas, where he is Chairman of the firm's International Practice Group. He specializes in the areas of international finance, banking, and corporate law. Prior to joining Johnson & Swanson, the author practiced with Rogers & Wells in New York City. He served from 1973 to 1977 as Deputy General Counsel of the Export-Import Bank of the United States in Washington, D.C. and served for two years in the Office of International Tax Counsel of the United States Treasury Department. The author was Chairman of the Section on International Law and Practice of the American Bar Association during 1986-87. He is currently on the Council of the American Bar Association's Section on Corporation, Ballking, and Business Law and is an Adjunct Faculty Member at the Southern Methodist University School of Law.

1. U.N. Convention on Contracts for the Int'l Sale of goods, U.N. Doc. A/Conf.97/18 Annex I (1980) [hereinafter CISG], reprinted in U.N. Conference on Contracts for the Int'l Sale of goods, Official Records 176-78, U.N. Doc. A/Conf./9719, U.N. Sales No. E.81.IV.3 (1981); 19 I.L.M. 668 (1980).

2. Initially, 11 nations ratified the Convention: the United States, France, Italy, Egypt, the People's Republic of China, Argentina, Hungary, Lesotho, Yugoslavia, Zambia, and Syria. Since the original Eiffective date, six other nations have also ratified the Convention: Austria, Finland, Sweden, Mexico, Australia, and Norway (as of December 15, 1988). The Convention took effect in Austria, Finland, Sweden, and Mexico on January 1, 1989. The Convention enters into force on April 1, 1989, in Australia, and on August 1, 1989, in Norway. Up-to-date information may be obtained by calling the United Nations Treaty Office at (212) 963-3918 or (212) 963-7958.

3. CISG, supra note 1, at art. 1.

4. CISG, supra note 1, at art. 10.

5. CISG, supra note 1, at art. 10(b).

6. Winship, International Sales Contracts Under the 1980 Vienna Convention, 17 U.C.C. L.J. 55, 62-64 (1984).

7. CISG, supra note 1, at art. 1.

8. CISG, supra note 1, at art. 3.

9. CISG, supra note 1, at art. 3.

10. CISG, supra note 1, at art. 2.

11. CISG, supra note 1, at art. 4. The Convention does not govern the validity of any of the contract's provisions or the validity of any usage. Id.

12. CISG, supra note 1, at art. 5.

13. CISG, supra note 1, at art. 6.

14. CISG, supra note 1, at art. 6.

15. CISG, supra note 1, at art. 6.

16. CISG, supra note 1, at art. 9.

17. CISG, supra note 1, at art. 9.

18. Compare CISG, supra note 1, at art. 6 with CISG, supra note 1, at art. 9. The best way to understand this concept is to study article 6 and article 9 simultaneously.

19. CISG, supra note 1, at art. 9.

20. CISG, supra note 1, at art. 11. This is in direct contrast with the American rule. See U.C.C. 2-201.

21. CISG, supra note 1, at art. 11. See, e.g., U.C.C. 2-201.

22. J. HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED NATIONS CONVENTION 152 (1987) [hereinafter HONNOLD].

23. CISG, supra note 1, at art. 12.

24. CISG, supra note 1, at art. 14.

25. CISG, supra note 1, at art. 14.

26. CISG, supra note 1, at art. 14.

27. CISG, supra note 1, at arts. 15, 16. This is the common law view. The U.C.C. adopts a more liberal view of offer and acceptance. See U.C.C. 2-204.

28. CISG, supra note 1, at art. 16.

29. CISG. supra note 1, at art. 16(2)(a), (b).

30. CISG. supra note 1, at art. 18.

31. CISG. supra note 1, at art. 21.

32. CISG. supra note 1, at art. 22.

33. CISG. supra note 1, at art. 19.

34. CISG. supra note 1, at art. 19.

35. This is contrary to the U.C.C. rule contained in 2-207, which allows for a contract to be formed where the offer and acceptance contain different terms.

36. CISG, supra note 1, at art. 19(3).

37. CISG, supra note 1, at art. 30.

38. CISG, supra note 1, at arts. 31-34, 35-39.

39. CISG, supra note 1, at art. 6.

40. CISG, supra note 1, at art. 31.

41. CISG, supra note 1, at art. 32.

42. CISG, supra note 1, at art. 33.

43. This is similar to the rule contained in U.C.C. 2-323.

44. CISG, supra note 1, at art. 34.

45. In general, INCOTERMS are definitions of trade terms to help facilitate international contract interpretation.

46. The U.C.C. defines these terms in 2-319, 2-320, and 2-321.

47. CISG, supra note 1, at art. 35.

48. CISG, supra note 1, at art. 35(2).

49. CISG, supra note 1, at art. 36. The U.C.C. allows warranty disclaimers of these types in 2-316.

50. CISG, supra note 1, at art. 36. See text accompanying notes 114-22.

51. CISG, supra note 1, at art. 37.

52. CISG, supra note 1, at art. 48.

53. HONNOLD, supra note 22, at 270.

54. CISG, supra note 1, at art. 38.

55. CISG, supra note 1, at art. 39.

56. CISG, supra note 1, at art. 39.

57. CISG, supra note 1, at art. 41. An example of such a third party is a person disputing the seller's ownership or a secured creditor.

58. CISG, supra note 1, at art. 41. See HONNOLD, supra note 22, at 285-86.

59. CISG, supra note 1, at art. 42.

60. CISG, supra note 1, at art. 42. Article 42 covers third party claims arising from patent, copyright, or trademark rights in the goods sold to the buyer. CISG, supra note 1, at art. 42. In general, the seller may be in breach of contract if the buyer's use of the goods infringes these intellectual property rights.

61. CISG, supra note 1, at art. 46.

62. CISG, supra note 1, at arts. 25, 47-49.

63. CISG, supra note 1, at arts. 74-77.

64. CISG, supra note 1, at art. 45(2).

65. CISG, supra note 1, at arts. 45(1)(b), 45(2), 46, 49(1).

66. CISG, supra note 1, at art. 46(1).

67. CISG, supra note 1, at art. 46(2), (3). Declaring the contract avoided for a fundamental breach is an example of a remedy that would be inconsistent with specific performance.

68. CISG, supra note 1, at art. 49(1).

69. CISG, supra note 1, at art. 49(1).

70. For an excellent discussion of what is a "fundamental breach," see HONNOLD, supra note 22, at 211-16.

71. CISG, supra note 1, at art. 25.

72. CISG, supra note 1, at art. 25.

73. CISG, supra note 1, at art. 49. The conduct of the breaching party is judged according to an objective standard. Thus, a party commits a fundamental breach if a reasonable person of the same kind and in the same circumstances would have foreseen that the breach would substantially deprive the other party of what he was entitled to expect under the contract.

74. CISG, supra note 1, at art. 47. This is referred to as a "Nachfrist notice," which is a principle derived from German law.

75. CISG, supra note 1, at art. 49.

76. CISG, supra note 1, at art. 26.

77. CISG, supra note 1, at art. 49(2).

78. See text accompanying note 52. Compare this with the U.C.C. rule in 2-508, which allows the seller to make another effort to deliver confomling goods if he provides reasonable notification to the buyer.

79. CISG, supra note 1, at art. 81.

80. CISG, supra note 1, at art. 81.

81. CISG, supra note 1, at art. 53.

82. CISG, supra note 1, at art. 55.

83. CISG, supra note 1, at art. 55.

84. CISG, supra note 1, at art. 57.

85. CISG, supra note 1, at art. 58.

86. CISG, supra note 1, at art. 58.

87. CISG, supra note 1, at art. 62.

88. CISG, supra note 1, at art. 64.

89. CISG, supra note 1, at arts. 74-77.

90. CISG, supra note 1, at art. 61(2).

91. CISG, supra note 1, at art. 61(2).

92. CISG, supra note 1, at art. 62.

93. CISG, supra note 1, at art. 62. A remedy that would be inconsistent with article 62 would be declaring the contract avoided for a fundamental breach.

94. HONNOLD, supra note 22, at 356.

95. CISG, supra note 1, at arts. 28, 62.

96. CISG, supra note 1, at art. 64(1). Thus, if the domestic law of the forum does not permit a seller to compel acceptance by an unwilling buyer, the seller will have to dispose of the goods elsewhere and sue for damages. In any event, forcing a buyer in an international transaction to accept delivery of goods through legal proceedings may not be a practicable remedy for the seller.

97. HONNOLD, supra note 22, at 363.

98. CISG, supra note 1, at art. 63(1). This is referred to as a "Nachfrist notice." See supra note 74.

99. CISG, supra note 1, at arts. 63(1), 64.

100. CISG, supra note 1, at art. 64.

101. CISG, supra note 1, at art. 64.

102. See text accompanying notes 61-70.

103. CISG, supra note 1, at art. 81.

104. CISG, supra note 1, at art. 81.

105. Articles 81(2) and 84 govern the Convention's right of restitution. CISG, supra note 1, at arts. 81(2), 84.

106. CISG, supra note 1, at arts. 81, 82, 84.

107. CISG, supra note 1, at art. 74. Compare article 74 with U.C.C. seller's remedies contained in 2-703 -2-710.

108. CISG, supra note 1, at art 74.

109. CISG, supra note 1, at art 75.

110. CISG, supra note 1, at art 76.

111. CISG,supra note 1, at art 76. This is the same as the U.C.C. rule contained in 2-723.

112. CISG, supra note 1, at art 77. This is consistent with the U.C.C. rule that requires the mitigation of damages. See, e.g., U.C.C. 2-706.

113. CISG, supra note 1, at art 6.

114. INCOTERMS are consistent with article 9 of the CISG which provides that the parties should be bound by any usage they have expressly or impliedly made applicable to their contract. CISG, supra note 1, at art. 9.

115. CISG, supra note 1, at arts. 6, 9.

116. CISG, supra note 1, at arts. 6, 9.

117. CISG, supra note 1, at art. 67(1).

118. CISG, supra note 1, at art. 67(1).

119. CISG, supra note 1, at art. 66.

120. CISG, supra note 1, at art. 67(2).

121. CISG, supra note 1, at art. 69.

122. CISG, supra note 1, at art. 70.

123. CISG, supra note 1, at art. 79.

124. CISG, supra note 1, at art. 79(5).

125. CISG, supra note 1, at art. 79.

126. CISG, supra note 1, at art. 6.

127. CISG. supra note 1, at art. 71.

128. CISG. supra note 1, at art. 72.

129. CISG. supra note 1, at art. 73.

130. CISG. supra note 1, at arts. 89-101.

131. CISG. supra note 1, at art. 100.

132. CISG. supra note 1, at art. 99.

133. CISG, supra note 1, at art. 100.

134. See text accompanying notes 20-23.

135. See U.C.C. 2-207.


Pace Law School Institute of International Commercial Law - Last updated June 26, 2006
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