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Reproduced with permission of 69 Iowa Law Review (October 1983) 209-240

Contracts for the International Sale of Goods:
Applicability of the United Nations Convention

Bradley J. Richards

      [Introduction]

  1. Historical Development of Unification
    A. Development of the Uniform Law on the International Sale of Goods
    B. Development of the United Nations Commission on International Trade Law
  2. Policy and Interpretation Bases of the CISG
  3. International Sale of Goods
    A. The "Place of Business" Determination
    B. Conflict-of-Law Application
    C. The Nature of the Parties
  4. Goods
    A. Uniform Commercial Code
    B. Uniform Law on the International Sale of Goods
    C. CISG Provisions
  5. Transactions Combining Assembly, Service, and Goods
    A. Part I: Buyer Supplying Materials - Assembly
         1. Uniform Commercial Code
         2. Uniform Law on the International Sale of Goods
         3. CISG
    B. Part II: Seller Supplying Labor or Service
         1. Uniform Commercial Code <
         2. CISG
  6. Exclusion
    A. Uniform Commercial Code
    B. Uniform Law on the International Sale of Goods
    C. CISG
  7. Conclusion

[INTRODUCTION]

The sale of goods is a fundamental international business transaction.[1] Most countries have national legislation regulating sales of goods,[2] and all but a handful actively promote sales of goods with other states.[3] Similarities outweigh differences among various national rules, and trade practices in the world are surprisingly consistent.[4] The differences that exist, however, prompted specialists in the field of international trade law to devote fifty years to producing a uniform law applicable to the international sale of goods.[5] A uniform law would nullify the remaining differences between national trade statutes and provide traders and commercial enterprises with an environment more conducive to international trade.[6] Consequently, international trade could be strengthened.[7] [page 209]

Until recently, no uniform law has gained widespread acceptance.[8] On April 10, 1980, however, the United Nations Convention on Contracts for the International Sale of Goods [9] (CISG or Convention) was adopted. The CISG has been signed by more than twenty countries,[10] including the United States.[11] The Convention is based on wide participation by U.N. member states in the United Nations Commission on International Trade Law [12] and is built on the successes of past agreements.[13] [page 210]

The President will seek ratification [14] by the United States Senate in the near future,[15] and many commentators predict that ratification will occur.[16] The predictions are based on the United States' participation in drafting the CISG,[17] the country's success with the Uniform Commercial Code (U.C.C.),[18] and a realization that adoption of a uniform law would be in the interests of the United States.[19] If ratified by the Senate, the CISG, by operation of the supremacy clause,[20] will override the U.C.C. in the context of the international sale of goods.[21] The CISG also may have persuasive authority beyond the sale of goods situation, much as the U.C.C. Article 2 provisions have guided courts in contexts beyond the sale of goods.[22]

Assuming the CISG is adopted, attorneys will need to determine the circumstances in which it applies to their clients. In attempting to enable attorneys to make that determination, this Note will examine the scope of the provisions of the United Nations Convention. The analysis begins [page 211] with a highlight of the historical events that preceded the United Nations' promulgation of the CISG.[23] The historical perspective will provide important information about provisions that preceded and affected the sphere of application of the CISG. Following the discussion of the historical background of the Convention, the policy basis of the Convention will be discussed.[24] Fundamental to the discussion will be the principles cited by the Convention as governing interpretation of the Convention provisions. Next, the Note will examine four difficulties that may arise in making a determination of Convention applicability:[25] (1) the characteristics of an international sale,[26] (2) the definition of "goods,"[27] (3) assembly and mixed services-goods contracts,[28] and (4) exclusion of the Convention provisions.[29] The difficulties will be analyzed within the context of hypothetical factual problems. The analysis accompanying the problems will include reference to the U.C.C. whenever comparison elucidates ambiguities or provides contrast to CISG provisions. Finally, the analysis will be used to draw conclusions with respect to each problem.

I. HISTORICAL DEVELOPMENT OF UNIFICATION

A. Development of the Uniform Law on the International Sale of Goods

International unification of private trade law first was attempted by the Netherlands in the late nineteenth century.[30] The initial attempt was unsuccessful,[31] however, and progress was limited to regional unification in Scandanavia and the British Commonwealth.[32] The Netherlands reconvened conferences at the Hague from the turn of the century until 1928 to discuss various substantive areas in need of unification.[33]

Meanwhile, the International Law Association appointed a committee on sales law during its 1924 meeting in Stockholm.[34] The committee was appointed to draft a uniform sales law for consideration at the 1926 Vienna Conference.[35] The committee decided to submit the work to a [page 212] diplomatic conference with wide representation, and the matter was placed on the agenda of the 1928 Hague Conference.[36] During the same period the International Institute for the Unification of Private Law (UNIDROIT) studied the unification of the law of sales.[37] A 1929 proposal for a uniform law for the sale of goods led to the formation of a drafting committee, which produced a final draft in 1935.[38] The 1935 draft was circulated to member states and returned with comments.[39] Based on the comments, a second draft was promulgated in 1939.[40] The second World War interrupted unification efforts, however, and revision of the 1939 draft was not considered until 1951.[41]

The 1951 Hague Conference of the Unification of Sales Law was attended by twenty-one nations and gave renewed impetus to the unification project.[42] The Conference modified the 1939 UNIDROIT draft and established a commission to make further changes.[43] That task was completed in 1956 and the text that resulted became known as the 1956 draft of the Uniform Law on the International Sale of Goods.[44] The text again was sent to member states for comments. A 1963 revision went through the same process, and a conference was convened in April 1964 at the Hague to finalize the uniform law.[45] [page 213]

The twenty-eight states that participated in the Conference produced a uniform law in three weeks, building on the form and substance of prior drafts.[46] The resulting Uniform Law for the International Sale of Goods (ULIS)[47] contained many provisions that were unacceptable to the United States and other common-law countries.[48] Thus, an annex to the Final Act of the Conference asked UNIDROIT to establish a committee to decide further steps to be taken if the ULIS was not signed by a sufficient number of states by May 1, 1968.[49] The ULIS became effective in 1972, however, when five states deposited their ratifications.[50] With no support from the United States and weak support from the United Kingdom,[51] the ULIS has not been a very effective tool in international trade.[52] Ironically, the failure stems largely from lack of input into the final draft. Although the 1964 text was the product of forty years of European scholarship, it failed to consider adequately the needs of the developing nations, the United States, and Eastern Europe.[53]

B. Development of the United Nations Commission on International Trade Law

World-wide representation sufficient to meet the varying needs of individual states was available in the United Nations.[54] A 1965 Hungarian resolution calling for the creation of the United Nations Commission on International Trade Law (UNCITRAL) was adopted by the General [page 214] Assembly.[55] The resolution established a representative group capable of developing a uniform law for the international sale of goods that would be acceptable to most states.[56] Thirty-six states are members of UNCITRAL and represent the special interests of the world community, including the developing states, the Western bloc, the Eastern bloc, and both civil- and common-law regimes.[57]

UNCITRAL established a Working Group, which included a cross-section of the Commission's membership, to revise the ULIS and facilitate wider acceptance of the uniform law.[58] The Working Group considered each provision of the ULIS and solicited comments from member governments concerning objectionable language.[59] The Working Group then formulated a proposed text [60] and commentary,[61] and submitted the draft to the entire membership for approval.[62] The Commission members unanimously approved the text and the instrument was referred by the United Nations General Assembly to a diplomatic conference that convened in Vienna.[63]

From March 10 to April 11, 1980, the representatives of sixty-two states gathered in Vienna to consider the draft.[64] They unanimously adopted the CISG [65] and opened the instrument for signature until September 30, 1981.[66] The Conference also amended an earlier Convention [page 215] on the Limitation Period in the International Sale of Goods to make it consistent with the CISG and to promote simultaneous ratification of the Conventions.[67]

The widespread support for the CISG foreshadows the ultimate success of the long-standing effort to unify important aspects of international trade law. Clive Schmitthoff, a British expert on international trade law, expressed the universality trend in 1957 in terms that are equally applicable today: "We are beginning to rediscover the international character of commercial law and the circle now completes itself: the general trend of commercial law everywhere is to move away from the restrictions of national law to a universal, international conception of the law of international trade."[68] The concept of internationalism has, at least for now, prevailed.

II. POLICY AND INTERPRETATION BASES OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

The concept of internationalism supports universal use of the CISG provisions. Thus, universality is both an impetus and a core characteristic of the CISG. The importance of universality makes it perhaps the most fundamental policy applicable to interpretive questions of the Convention.

Article 7 of the Convention supports this proposition. Article 7(1) provides that the international character of the Convention, the need to promote uniformity in Convention application, and the need to observe good faith in international trade dealings must be considered the most significant criteria in construing the CISG in any particular situation.[69] This rule of construction effectuates the three major purposes acknowledged by the drafters of the Convention: (1) reduction of the frequency of forum-shopping; (2) reduction of the need to resort to the rules of private international law; and (3) establishment of a sales law appropriate for international transactions.[70] Thus, the CISG must be interpreted in a manner that furthers the goals of an international uniform law.[71]

Article 7(2) goes beyond article 7(1) to settle questions affecting matters that are within the scope of the Convention, but are not expressly [page 216] settled by it.[72] Article 7(2) allows the CISG to adapt to changing circumstances [73] by settling new questions "in conformity with the general principles on which [the Convention] is based."[74] Professor John Honnold, the chairman of the United States delegation to the UNCITRAL Convention negotiations, has identified -- but not limited the Convention to -- three general principles: (1) protecting a party who has relied on the conduct of the other party; (2) a duty to communicate information needed by the other party; and (3) a duty to mitigate damages.[75] Only in the absence of any applicable principles does the Convention authorize resort to law other than the CISG.[76]

III. INTERNATIONAL SALE OF GOODS

Article 1 of the CISG explicitly preconditions the Convention's applicability to an international sale of goods. The article provides that the Convention will apply "to contracts for sale of goods between parties whose places of business are in different States," when the states have signed and ratified the CISG or when the rules of private international law lead to the application of the law of a state that has signed and ratified the Convention.[77] Article 1 also provides that the requirement that parties have their places of business in different states must be apparent from external signs and that neither the nationality nor the commercial character of the parties will be taken into consideration in determining Convention applicability.[78] Article 1 thus defines "international sale" by identifying transnational characteristics that will differentiate an international sale from [page 217] an intranational sale. These characteristics give rise to two problems in determining when a transaction is an international sale and, therefore, when the Convention provisions apply. The first problem is defining the phrase "place of business". The second problem is based upon the conflict-of-law difficulties that may arise if the "rules of private international law" lead to application of the Convention. Concomitant to these two application problems is the need to focus on the nature of the parties to discern the international character of the transaction. These problems can be illustrated through analysis of the following hyopthetical situation:

Problem 1

Electro, a United States corporation, contracts with Radio Producers, a Brazilian manufacturer, to have Radio Producers manufacture hand-held radios for the United States market. All negotiations are conducted between Electro and Radio Producers' United States marketing representative, who rents a permanent single-person office in Delaware. The United States signed and ratified the Convention, but Brazil refused to be a party to it.

A. The "Place of Business" Determination

Under the terms of article 1, determination of each party's place of business is a necessary precondition to application of the CISG. If the parties' places of business are located in the same state, the Convention by its terms does not apply to their transactions. Conversely, if the parties' places of business are located in different states, the Convention may apply to their transactions.[79]

The phrase "place of business" was a component of the early drafts of the Uniform Law of Sales.[80] A Special Commission at the 1964 Hague Conference commented that the "place of business" is a "subjective condition" for determining a transaction's international character, because it depends on the nature of the parties to the transaction rather than on the contract itself.[81] The ULIS looked beyond the subjective place of business condition and included three objective conditions for determining the location of a party's place of business. The conditions focused on the contract and its performance. The purpose of the objective conditions was to limit the scope of operations of the Uniform Law and to ensure that it applied only to transactions of a truly "international" character.[82] [page 218]

The drafters of the CISG retained only the subjective condition of the place of business of each transacting party,[83] attempting to effectuate the three purposes of the Convention previously articulated. Thus, article 1(1)(a) allows application of the CISG if the transacting parties have their places of business in different states, both of which are "Contracting States" -- states that have both signed and ratified the Convention.[84]

Despite the importance of the place-of-business determination, the Convention does not specifically define the phrase.[85] More than one delegation to UNCITRAL argued that a specific definition should be included. [86] The lack of a specific definition arguably suggests that the Convention intended place of business to refer to any location at which business activities are conducted.[87] This broad definition creates ambiguity because many firms and individuals conduct extensive business activities in several states or are incorporated in one country but are regarded as nationals by another.[88]

The CISG solution to the problem of multiple places of business is found in article 10.[89] Article 10 provides that if a party has more than one place of business, the applicable place of business is that which has [page 219] the closest relationship to the contract and its performance. Professor Honnold interprets article 10 as a definitional provision [90] that results in place of business being "construed to mean a permanent and regular place for the transacting of general business, [not including] a temporary place of sojourn during ad hoc negotiations."[91]

In Problem 1, an agreement is concluded in the United States between an American company and the United States representative of a Brazilian firm. Application of the place of business criteria to determine whether the CISG applies to the transaction raises two issues: first, whether the marketing representative's permanent United States office ought to be considered a place of business of the Brazilian manufacturer; second, if the manufacturer's American office is considered a place of business, which of the Brazilian manufacturer's places of business should be considered the place of business affecting Convention applicability?

If Professor Honnold's comments are applied to the first issue, it is not clear whether the permanent American office of the Brazilian manufacturer would be a place of business. Certainly, if the office was only a temporary office opened for the purpose of negotiations, the office would not be considered a place of business under Professor Honnold's definition. Thus, place of business could be interpreted to encompass the permanent foreign office of a company's marketing representative because the office is not a "temporary place of sojourn"; some of the company's business will be transacted at the location. Professor Honnold's definition, however, refers to a place where a party transacts "general business." An alternative interpretation of this definition is that "place of business" refers to locations at which the primary business activity of the enterprise is conducted. A permanent marketing office will transact business of a manufacturing concern, but it is not used to manufacture goods. Therefore, the marketing representative's office would not be considered a place of business. These interpretations result in two antithetical definitions. Either any place of transacting business that is not a "temporary sojourn" should be considered a place of business, or the only places to be considered places of business of a manufacturer are those locations where manufacturing occurs. Arguably, somewhere between these two extremes lies the appropriate definition of place of business relevant for purposes of Convention applicability. A court will be charged with looking at all the facts to determine whether a particular location should be considered a place of business.

In Problem 1, if a court considers all the relevant facts and determines that the Brazilian place of business is the only place of business applicable, the second issue would easily be resolved. Because the Brazilian [page 220] place of business is the only place of business posited, the Brazilian place of business a fortiori will have the closest relationship to the contract and its performance. The two parties to the contract thus would have their places of business in different states, meeting the initial requirement for Convention applicability. Under article 1(1)(a), however, the Convention would not apply because both states are not Contracting States -- the Problem assumes Brazil has not signed the Convention.

If the American place of business of the Brazilian manufacturer is considered a separate place of business, the issue of which place of business should be considered the place of business for purposes of Convention applicability arises. To make that determination, the court must decide which place of business has the closest relationship to the contract and its performance. In Problem 1, if a court concludes that the American place of business has the closest relationship to the contract and its performance, the Convention would not apply -- the parties to the contract would not have their places of business in different states. Nevertheless, because the contract in Problem 1 will be performed in Brazil, a court easily could conclude that the Brazilian place of business should apply, leading to the same conclusion reached when the American office was considered a place of business. The contract would fail an article 1(1)(a) test for Convention applicability because both states are not Contracting States. Convention applicability, nevertheless, might not be avoided in these circumstances if the provisions of article 1(1)(b) apply.

B. Conflict-of-Law Application

Article 1(1)(b) provides that the Convention will be applied to parties whose places of business are in different states, though those states are not Contracting States, "when the rules of private international law lead to the application of the law of a Contracting State."[92] The inclusion of the article in the final text of the CISG was hotly debated.[93] One major objection was that it requires difficult conflict-of-law applications [94] and allows the Convention to be applied by a forum notwithstanding the lack of party contact with a Contracting State.[95] Article 95 of the CISG, which allows any Contracting State to delete article 1(1)(b),[96] was enacted to meet objections to the conflict-of-law provision.[97] The United States is [page 221] likely to exercise the article 95 option upon ratification of the Convention [98] because it would give greater effect to the U.C.C.[99] and greatly simplify application of the CISG.[100]

The option provided by article 95 could offer a solution to the Problem 1 Convention-applicability issue. In Problem 1, Brazil is hypothesized to be a nonsignatory of the CISG. Assuming arguendo that the United States has ratified the Convention with the article 95 deletion of article 1(1)(b) and that the application of the relevant choice-of-law rules would lead to the application of American law, a United States court would not apply the CISG. Application of the Convention, as ratified by the United States, would be limited to contracts between parties having their places of business in different Contracting States.[101] In Problem 1, Brazil is not a Contracting State; thus, if the Brazilian place of business is the relevant place of business, the parties would not have their places of business in different Contracting States and a United States forum would not apply the Convention. If the Brazilian manufacturer's American place of business is the relevant place of business, the Convention still would not apply because the parties would not have their places of business in different States.

In the States that choose to retain article 1(1)(b), a conflict-of-law "imbroglio" may result.[102] In Problem 1, the United States has ratified the Convention but Brazil has not. Article 1(1)(b), if in force in the United States, would require a United States court to apply the CISG if the court determines that the Brazilian firm's relevant place of business is Brazil and if the United States choice-of-law rules would call for the application of the law of a third Contracting State,[103] a possible but unlikely situation.[104] [page 222] The Convention may be criticized because even if the United States were not a signatory, an American court under article 1(1)(b) theoretically could apply the Convention by using its own choice-of-law rules to apply the law of a third Contracting State.[105]

C. The Nature of the Parties

When courts determine the parties' places of business and any conflict-of-law applications, they must focus on the parties to the transaction. The fact that the parties have their places of business in different states must be visible from external signs.[106] Article 1(2) provides that the fact that the parties have their places of business in different states will be disregarded whenever this characteristic of internationality does not appear from the contract, from the dealings between the parties, or from the information disclosed by the parties.[107]

Article 1(3) of the CISG provides another clarification of the nature [page 223] of an international sale. The article states that neither the nationality nor commercial status of the parties has any bearing on the existence of an international sale.[108] Thus, a contract between two American firms that is to be negotiated and performed within the United States possibly could be subject to the Convention's terms if one of the parties has a place of business in another country and the contract is to be performed in that country.[109] Thus, article 1(3) may apply when a party representing a foreign firm is only temporarily present in the United States -- as with a representative conducting ad hoc negotiations -- or when an American citizen is acting as an agent for a foreign principal.[110]

Article 1 thus requires that a transaction have international characteristics to be subject to the Convention. To determine the existence of an "international sale," the court must first determine whether the parties have their places of business in different states. If one party has more than one place of business, article 10 provides that the "closest relationship to the contract and its performance" test will determine which place of business will be used for the purpose of determining Convention applicability. After determining the parties' respective places of business, the Convention requires that one of two requirements be met. Article 1(1)(a) requires that the states in which the parties have their places of business must be Contracting States for the Convention to apply. If that requirement is not met and the article 95 option is not taken, the Convention may be applied pursuant to article 1(1)(b) when the forum's conflicts rules direct the court to apply the law of a Contracting State. The limitations in subsections 2 and 3 also will affect the determination by requiring the international character of the transaction to be visible from external signs and the nationality and commercial status of the parties to have no bearing on whether the sale is international.

IV. "GOODS"

Article 2's definition of "goods" that are covered by the CISG poses a Convention interpretation problem. The definition of goods in article 2 is a residuary definition, which lists certain objects of international trade that are not considered goods for the purposes of Convention applicability.[111] Among the excluded items are consumer goods, stocks, [page 224] ships, and electricity. The limited number of excluded items creates ambiguity in the definition of goods and may lead to interpretation difficulties.[112] The analysis of the following problem illustrates the ambiguities inherent in the article 2 definition of goods.

Problem 2

A Japanese paper manufacturer contracts to purchase timber from a supplier in the American Northwest; the wood is to be cut and shipped in accordance with the buyer's specifications.

A. Uniform Commercial Code

The U.C.C. definition of goods provides a contrast to the CISG definition. Section 2-105(1) of the U.C.C. defines goods in terms of movables.[113] The U.C.C. definition is not sufficient to determine whether uncut timber should be classified as a good because a tree is not movable within the standard definition of the term "goods."[114] U.C.C. section 2-107(2), however, provides that "[a] contract for the sale apart from the land ... of timber to be cut is a contract for the sale of goods within this Article whether the subject matter is to be severed by the buyer or by the seller ...."[115] [page 225] This language would enable Problem 2 to be solved easily in most jurisdictions. The language provides that a sale of uncut timber is a sale of goods, whether the buyer or the seller severs the trees. Thus, the contract is one for the sale of goods.[116]

B. Uniform Law on the International Sale of Goods

The Special Commission that commented on the 1956 draft of the Uniform Law of Sales stated that the law applied essentially to specific goods that normally form the object of commercial operations.[117] The comment was based on a definition that differed from the CISG provision only in the number of items specifically excluded from coverage.[118] The simplicity of the article and explanation dissatisfied the United States delegation. The delegation suggested that doubts could arise over whether the law would apply "to a transaction in which the goods (objets mobiliers corporels)[119] become immobile before the performance of the contract."[120]

To pinpoint the ambiguity, the United States delegation used U.C.C. sections 2-105(1) and 2-107 as examples of comparable rules that resolve the problem in clear language,[121] underscoring the relationship between the ULIS definition by exclusion and the U.C.C. affirmative definition of goods. The United States delegation comment also is significant because it used the French phrase "objects mobiliers corporels" as a parenthetical definition following the word "goods."[122] A rough translation of the phrase is based upon the same conception of goods as that defined in U.C.C. section 2-105.[123]

The interpretation difficulty addressed by the sale of uncut timber illustrated in Problem 2 was not resolved by the negotiating that occurred at the 1964 Hague Convention. The United Kingdom delegation proposed a palliative in the form of an amendment to exclude "growing crops [page 226] and other things attached to or forming part of land which are to be severed in pursuance of the contract of sale."[124] The United Kingdom suggestion was not adopted by the Conference for unstated reasons. Thus, it is impossible to conclude that the drafters intended either to exclude or include such sales from ULIS application.[125]

C. CISG Provisions

Interpretation of the CISG requires an understanding of the early ULIS clarifications and ambiguities. Like article 5 of the ULIS, article 2 of the CISG gives no clear definition of a good.[126] The Phillipine delegation to the UNCITRAL Conference argued that an affirmative definition ought to be included.[127] Ambiguity exists because the CISG definition merely lists items that are not considered goods for the purposes of the Convention. This negative phrasing might pose interpretation problems for the attorney accustomed to applying the definitions of U.C.C. sections 2-105 and 2-107.

If an item is not excluded by the CISG definition, interpretation problems arise.[128] For example, timber is not an excluded item;[129] thus, a Problem 2 contract providing for the shipment of wood products clearly could be a sale of goods within the CISG. Difficulties arise, however, when, as in Problem 2, the timber is uncut at the time that the agreement is made. Nevertheless, most jurisdictions in the United States would classify this type of contract as a sale of goods within U.C.C. section 2-107.[130]

As noted earlier, universality is the primary policy concern in problems dealing with Convention applicability. Universality is furthered if [page 227] the Convention text is widely applied and contracts for all but excluded materials are considered sales of goods. In addition, the Draft Commentary notes that one purpose of the CISG is to reduce the necessity of resorting to private international law rules.[131] Thus, the more transactions to which the Convention applies, the less the parties will need to resort to conflict-of-law rules.

An argument favoring application of the CISG to the uncut timber issue in Problem 2 thus would be based on several factors. First, timber is severable from real estate, and the agreement anticipates severance. Second, nothing in article 2 of the CISG would exclude uncut timber. Finally, a clear policy exists that favors applying the Convention broadly to effectuate its purpose of promoting international trade through uniform law. Therefore, the CISG should be applied.

V. TRANSACTIONS COMBINING ASSEMBLY, SERVICE, AND GOODS

Article 3 of the CISG excludes from Convention applicability certain transactions that include both goods and services.[132] One type of mixed contract is that in which the buyer agrees to supply materials to the seller -- an assembly contract.[133] Problem 3 raises the issue of what test should be applied to determine whether the contract is one of assembly rather than sale of goods. A second type of mixed contract occurs when a seller agrees to supply labor or service to the buyer in addition to supplying goods -- a mixed services-goods contract.[134] Problem 4 examines the test used to determine if a contract should be considered a contract for the sale of goods and thus be subject to the application of other Convention provisions.

A. Part 1: Buyer Supplying Materials -- Assembly

Problem 3

A Korean manufacturer contracts to produce home computers for a United States company. The United States firm will supply most of the technical components (microchip technology) and all plans and specifications, but the Korean manufacturer will provide the console and other nontechnical components. [page 228]

1. Uniform Commercial Code

The Convention separates assembly contracts from mixed services-goods contracts. Under the U.C.C., however, courts have not treated the two situations differently.[135] The Uniform Commercial Code does not mention assembly contracts in which the buyer supplies material to the seller, who will sell the goods manufactured to the buyer. U.C.C. section 2-102 provides that "[u]nless the context otherwise requires, this Article applies to transactions in goods."[136] The tendency of the courts to treat the mixed services-goods and assembly contract similarly is illustrated by the Second Circuit's opinion in North American Leisure Corp. v. A. & B. Duplicators, Ltd.[137] The court held that a company that reproduced recordings from a master tape supplied by the buyer and reduced the material to fit onto cassettes supplied by the seller was not selling a good to the buyer.[138] The court said that the appropriate test is to look to the "essence" of the agreement to see if the service element predominates.[139] This language is similar to that employed to determine U.C.C. applicability in mixed services-goods contracts, developed more fully under Part 2 below. To solve Problem 3, therefore, a court applying the U.C.C. must determine whether the predominant element of the contract is the sale or the production of home computers. One criticism of this approach is that the test focuses on the service supplied by the seller when it should focus on the degree of relationship of the materials supplied by the buyer to the contract as a whole. Arguably, if the United States firm supplies most of the components to the Korean manufacturer in Problem 3, the essence of the contract would be the Korean firm's manufacturing process, and the predominant element would be the Korean firm's service to the United States company.

2. Uniform Law on the International Sale of Goods

The Uniform Law of Sales specifically excludes service contracts from its jurisdiction.[140] The ULIS provides that it does not apply if the buyer [page 229] supplies an "essential and substantial part of the materials necessary" to the manufacture of the product.[141] Before the 1964 Hague Conference convened, various governments submitted observations and proposed amendments to the 1956 draft. The comment of the International Chamber of Commerce suggested that the phrase "essential raw materials" be used in the text.[142] This suggestion would cause the Uniform Law to be excluded simply because the buyer or a third party supplied accessory goods.[143] The delegation from Greece, however, noted that an item "essential" to the manufacture may have little actual value and thus, minor importance to the contract as a whole.[144] A commentary written for the final ULIS draft by the chairman of the Conference clarifies the purpose of the provision, noting that

"[i]t is, indeed, clear that the Uniform Law should apply to the sale of goods to be manufactured to the buyer's order just as much as to the sale of completed goods. This solution ... avoids difficulties raised by the legal analysis of certain contracts. There is, however, no sale when one of the parties is merely obligated to assemble components which are sent to him by the other or to work up raw materials which are entrusted to him."[145]

The ULIS thus endeavors to exclude assembly contracts by not recognizing agreements in which the buyer supplies an "essential and substantial part" of the components used to make a product.

3. CISG

Article 3(1) of the CISG was adopted from the complementary ULIS provision.[146] The most significant wording change was to delete "essential" from the text. Thus, the drafters retained language that suggests that a quantitative judgment must be made: The CISG will be excluded only if the buyer supplies a substantial amount of the raw materials necessary for the manufacture of the product.[147] [page 230]

The Draft Commentary does not clarify the test that will determine applicability. It does, however, make two useful comments. First, it notes that the phrase at the beginning of article 3(1)[148] legitimates sales of goods made to a buyer's order as well as ready-made goods.[149] Second, the commentary analytically compares contracts in which the buyer agrees to supply materials to contracts in which the seller agrees to supply labor or services.[150] The analytical comparison is useful because a buyer who provides substantially all the materials necessary for production of a good transforms the seller into the role of a laborer who merely assembles the product. A problem arising within the context of article 3(1) should thus be considered generally within the context of mixed goods-services transactions.[151]

Problem 3 involves a Korean manufacturer agreeing to build home computers using American microchips. The CISG solution to Problem 3 requires consideration of both the quantitative judgment that must be made and the drafters' intent to exclude service contracts from the operation of the Convention. Despite deletion of "essential" from the CISG, the nature of the materials supplied will be a factor in deciding whether a "substantial" amount of materials will be supplied.[152] The American firm certainly will supply the essential components, because microchips are integral to modern computers. In addition, the American firm agrees to supply other technical components, leaving the seller to provide only nontechnical parts. These factors militate against applying the CISG.[153]

B. Part 2: Seller Supplying Labor or Service

Problem 4

A United States energy firm contracts with a Chadian governmental agency to construct a nuclear power plant near the Chadian capital of N'Djamena. [page 231] American engineers will be sent to assist in the construction and some American parts will be supplied, though local workers and materials will be used whenever possible.

1. Uniform Commercial Code

The test that has developed under the U.C.C. to define mixed services-goods contracts is similar to the CISG test found in article 3(2). It thus provides a developed analytical framework that may be applied to Convention problems. U.C.C. section 2-102, which defines the scope of the article, fails to refer to mixed contracts in which the seller agrees to supply labor.[154] Therefore, a recurring problem for attorneys and courts has been deciding whether to treat indivisible mixed contracts as contracts for the sale of goods or contracts for the sale of services.[155] Most jurisdictions would apply a variant of the "predominant-thrust" test articulated in Bonebrake v. Cox.[156] That test is "whether [the contracts'] predominant factor, their thrust, their purpose ... is the rendition of service ... or is a transaction of sale."[157]

The Bonebrake test has two components. First, an objective determination must be made to find the predominant factor in the contract. This determination often is made by referring to the most costly part of the contract.[158] In Problem 4, American engineers will assist in the construction of a nuclear power plant for Chad. Nevertheless, the greatest part of the cost in the construction of the plant is likely to be the reactor. This cost would make the construction of the reactor the predominant factor in the contract. Thus, the contract would be interpreted as a sale of goods transaction. In the second component of the Bonebrake test a subjective determination must be made to find the purpose of the contract. This is done by determining the parties' intent regarding the contract's purpose.[159] In Problem 4 the intent of the parties is not clear, but may be inferred from the desire of the parties to have Chad purchase a nuclear [page 232] power facility and the United States manufacturer to assist Chad in installing the finished product. Thus, the purpose of the contract would be to sell goods and the agreement should be interpreted as a contract for the sale of goods.

Not all courts would agree that the contract should be interpreted as a sale of goods. Some United States courts have refused to apply the U.C.C. to construction contracts in which the seller installed or built the facility.[160] Nevertheless, courts have fashioned an exception to the construction contract exclusion when the goods to be installed are specially manufactured.[161] Arguably, nuclear reactors are specially manufactured goods; they are extremely limited in number and are constructed according to rigid, technical design specifications. Consequently, despite the mixed character of this contract, United States courts applying the U.C.C. test probably would interpret the agreement as a sale of goods. The predominant factor in the agreement is the sale of the reactors. The predominant purpose of the agreement is to supply Chad with a nuclear power facility. Moreover, the contract is portrayed accurately as the sale of a specially manufactured good.[162]

2. CISG

Article 3(2)[163] of the CISG has no counterpart in a prior convention or uniform law. The "predominant-part" requirement of article 3(2) is similar to the "predominant-thrust" test of Bonebrake in that both standards require a quantitative judgment. Nevertheless, the tests differ because the former requires an objective judgment as to whether the labor or goods part of the contract predominates and the latter additionally requires a subjective analysis of what purpose the agreement serves.[164] Problem 4 illustrates the ambiguity that exists between the two tests. If the United States firm was to supply all the construction workers to construct the nuclear power plant project, the total value of those services could exceed the value of the technical reactor components. Thus, the predominant part of the agreement arguably would be the seller's services. Notwithstanding that analysis, the predominant thrust of the agreement arguably is [page 233] the sale of goods, because the purpose is to supply Chad with a nuclear power plant.

The Commentary to the Draft Convention fails to resolve this interpretation problem. The commentary provides that if the "predominant part" of the obligation of the seller consists in the supply of labor or other services, such as in a "turn-key" contract, the contract is not subject to the provisions of the Convention.[165] The commentary further asserts that "applicable national law" will resolve questions regarding whether the obligations can be severed to form two separate contracts, of which only the goods portion would be governed by the Convention.[166]

Turn-key contracts are familiar to attorneys in the United States. They exist when a builder completes work on a building to the point at which the buyer can occupy it.[167] The nuclear power plant construction in Problem 4 would not fit within the traditional concept of a turn-key contract, because the basis for the contract is the nuclear reactor rather than the building. Moreover, the use of the turn-key concept to define or distinguish the factual situation in Problem 4 in effect would be similar to drawing a legal conclusion without making supporting arguments. The problems focuses on the distinction between goods and services. Turn-key contracts are clearly in the services category. Thus, to decide whether a contract is a sale of goods on the basis of whether it is a turn-key contract is to define away the interpretation problem.

The concept of "severability" could provide a more useful interpretation tool. Severability involves separating the goods component from the construction component of a contract and applying law to the two components separately.[168] Severability is an especially appropriate tool for analyzing contracts for the construction of complete buildings because the agreements often contain separate elements.[169] Severability would allow a court to apply the CISG to that part of the agreement that provides [page 234] for the sale of equipment. The agreement to provide United States engineers would remain subject to the law applied by the forum.[170]

Forums refusing to separate the labor and goods elements could resolve Problem 4 more comprehensively through the use of the predominant part or predominant-thrust test. Under either of these tests the contract in Problem 4 could be classified as a goods transaction.[171] Given the small number of United States laborers, a quantitative judgment would weigh heavily in favor of a finding of a sale of goods. Moreover, the clear intent or purpose of the agreement is to sell to Chad the ability to generate electricity with nuclear power. [172] Thus, the solution to Problem 4 will not depend on whether the forum accepts severability. If the court applies the predominant-thrust test, the contract will be a sale of goods.

VI. EXCLUSION

Article 6 of the CISG allows the parties to an agreement to exclude application of the Convention.[173] The issue that is likely to prove most difficult is whether the parties implicitly may exclude the CISG from application to their transaction by providing an alternative sales law.[174]

Problem 5

A German automobile manufacturer contracts with General Motors to ship diesel engines for use in GM military vehicles. The contract contains standard contract terms consistent with the law of the State of Michigan (U.C.C.). The CISG is not mentioned in the contract.

A. Uniform Commercial Code

The Code resolution of the implied-exclusion issue provides a useful analytical comparison to the untested Convention provision. Section 1-105(1) of the U.C.C. allows the parties to an agreement to choose the law to be applied to their transaction.[175] If a court finds that the parties [page 235] agreed on the applicable law and the transaction bears a reasonable relation to the jurisdiction selected, the court should accept the parties' choice.[176] It is not clear whether the parties' choice of law must be explicit to have effect.[177] Strong arguments may be made that the parties may implicitly agree on the choice of law and that courts should interpret the choice in light of all the circumstances.[178]

B. Uniform Law on the International Sale of Goods

The 1956 draft of the ULIS included a provision permitting parties to "entirely exclude the application of the present law provided that they indicate the municipal law to be applied to their contract. Such indication must be an express term of the contract or arise by necessary implication from its provisions."[179] The Special Commission that commented on the 1956 text stated in its report that the intent of article 6 was to harmonize the text and provide greater flexibility to the parties.[180] The Commission Report further stated that a "term merely specifying a particular jurisdiction should not alone and in the absence of all special circumstances be regarded as excluding the Uniform Law."[181] The 1956 draft ULIS thus focused on the intent of the parties as evidenced by the terms of their agreement, but required that the intent be perfectly clear in the contract.[182]

The final draft of the ULIS simplifies the exclusion language. The draft states that the parties are free to exclude the law entirely or partially, expressly or impliedly.[183] The major independent commentary on the ULIS emphasizes the importance of this provision as evidence of the nonmandatory character of the law. [184] The commentary also notes that the text leaves the parties completely free to exclude application of the [page 236] law.[185] Another commentator has suggested that the parties may exclude the Uniform Law without providing an alternative regime, if they are not apprehensive of the difficulties they will create thereby.[186]

C. CISG

The parties may have less flexibility under the United Nations Convention. Article 6 of the CISG is phrased simply: "[t]he parties may exclude the application of this Convention ...."[187] Commentators Dore and DeFranco interpret the phrase to disallow implied exclusion.[188] Their reasoning is based upon the failure of the drafters to follow the lead of the ULIS and upon language in the Draft Commentary noting that "reference to 'implied' exclusion might encourage courts to conclude, on insufficient grounds, that the Convention had been wholly excluded."[189]

Disallowance of an implied exclusion is suspect for three reasons. First, the drafters of the CISG could have included the word "explicitly" in the text to clarify that implied exclusions would be insufficient. Their failure to include the word in the text creates ambiguity that easily could have been avoided. Second, the Draft Commentary does not eliminate the possibility of implied exclusion;[190] it merely states that the drafters did not want to give courts too much latitude in interpreting an agreement. The implication of the Commentary thus must be limited to an intention to reduce the scope of exclusions and to require courts to determine clearly that an exclusion has occurred. Third, comments made during the course of United Nations discussions on the ULIS and the Draft Convention more accurately portray the intent of the drafters.

During discussions on the ULIS text in 1971, the United Kingdom submitted a study to UNCITRAL's Secretary-General. Tunisia, a consultant to the United Kingdom on the project, expressed the opinion that the exclusion provision should be deleted because the principle of autonomy of the parties had lost much of its importance.[191] Tunisia was concerned that retaining the provision would allow the stronger party to impose its will [page 239] on the weaker party and that the aim of a uniform law would be denigrated.[192] The United Kingdom distinguished between implied and express exclusion, and between partial and entire exclusion.[193] The United Kingdom further emphasized that free negotiations were still the basis for international trade and freedom of contract was imperative.[194] The thrust of the United Kingdom report was that exclusion should be allowed under the ULIS so that parties' freely negotiated contract terms will be honored, but that adhesion contracts should be avoided.

During discussion on the CISG draft the Committee considering the draft exclusion article refused to approve a proposal requiring that the Convention be excluded only by an express stipulation of the parties. The representatives submitting the proposal supported it by asserting that parties should not be able to set aside the Convention by "mere implication."[195] Another suggestion was that any exclusion that occurred should be based on the fact that a specific replacement law existed in the contract.[196] The proposals generally were opposed because "it may be perfectly clear that the parties do not wish the Convention to apply even though this intention was not stated expressly."[197] The Committee decided to make no changes in the substance of the rule and voted to retain the draft that was eventually accepted as the final text of the CISG.[198] Thus, the Committee did not rule out exclusion by implication.[199]

This apparently limited acceptance of implied exclusions exacerbates the interpretation difficulties that exist when the parties provide for an alternative law to apply to their agreement, but fail to exclude the CISG.[200] In Problem 5 the parties formed a contract using terms consistent with UCC application. Thus, it is easy to infer they intended for the UCC to apply to their transaction. The drafters of the CISG indicated they were not opposed to implied exclusion if it occurred under limited circumstances,[201] but they failed to cast a rule that would clarify their position.[202] The Draft Commentary adds to the problem by appearing [page 238] to question whether courts should consider implied exclusions.[203]

The decision therefore must rest on an interpretation of the agreement between the parties and upon public policy concerns.[204] The parties in Problem 5 are both automobile manufacturers. Thus, both parties are sophisticated and would be unlikely to conclude a contract without the assistance of counsel. This factor favors application of the CISG, because legal counsel would be careful to clarify the law applicable to the transaction. An opposing factor is the clear contractual reference to Michigan law and the use of standard contract terms designed to be consistent with the U.C.C.

Furthermore, opposing policy concerns exist. The purpose of the CISG is to universalize application of a uniform law of sales.[205] Of overriding importance, however, is the public policy of party autonomy. The Tunisian concern that adhesion contracts will result if parties can exclude the CISG is not a problem here because both parties wield sufficient power to effectively negotiate their respective positions and to have their positions represented in the parties' final agreement. The freedom of contract concern thus is a persuasive policy argument for interpreting the agreement in Problem 5 as excluding application of the CISG.

VII. CONCLUSION

A uniform law for the international sale of goods is finally a reality. Persons trading international goods need to be cognizant of the United Nations Convention on Contracts for the International Sale of Goods. The Convention has gained wide acceptance and is likely to become operational. American attorneys will need to be aware of the CISG to advise clients. The application provisions are an important beginning. This Note has highlighted five difficulties that exist within the CISG scope provisions.

Article 1 of the Convention involves an interpretation of what constitutes an "international sale." This Note has discussed the ambiguity of definitions of the place of business and the difficulties inherent in dealing with the article 1(1)(b) conflict-of-law problems.[206] Article 2 requires an interpretation of what constitutes goods for application purposes. Anything not expressly excluded should be considered a good.[207] Article 3 exempts two types of mixed goods-services contracts from Convention [page 239] application, but is unclear about the test to be applied to determine whether a contract is mixed. A two-part test involving a quantitative judgment of the predominant part of the agreement and a subjective judgment of the intent of the parties and the purpose of the agreement should be used.[208] Article 6 allows parties to exclude application of the Convention, but fails to indicate whether explicit exclusion is required. An implied exclusion may be appropriate as long as the purpose of universality of international sales law is furthered.[209] These four articles form the heart of the application provisions of the CISG. If the courts interpret the articles uniformly, the long-standing goal of the existence of a universal international sales law will be met. [page 240]


FOOTNOTES

1. P. VISHNY, GUIDE TO INTERNATIONAL COMMERCE LAW 2.01 (1981).

2. E.g., UNIFORM COMMERCIAL CODE 1978 OFFICIAL TEXT WITH COMMENTS (United States); Sale of Goods Act, 1893, 56 & 57 Vict., ch. 71 (original law in United Kingdom); Swedish Act of June 20, 1905, Relating to the Purchase and Exchange of Goods.

3 Burma and Bhutan are examples of countries that have shunned international trade circles. Bhutan remains isolated. See N.Y. Times, Apr. 29, 1980, at 2, col. 3. Burma, however, has slowly opened its borders to small amounts of foreign commerce. Id., June 14, 1979, at 2, col. 3.

4. Berman & Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 HARV. INT'L L.J. 221, 221 (1978); see also Schmitthoff, The Law of International Trade, Its Growth, Formulation, and Operation, in THE SOURCES OF THE LAW OF INTERNATIONAL TRADE 3, 3 (C. Schmitthoff ed. 1964).

5. See 2 R. DAVID, INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 5-362 (1969).

6. The United Nations Resolution establishing the United Nations Commission on International Trade Law (UNCITRAL) reaffirmed the "conviction that divergencies arising from the laws of different States in matters relating to international trade constitute one of the obstacles to the development of world trade." G.A. Res. 2205, 21 U.N. GAOR Supp. (No. 16) at 99, U.N. Doc. A/6316 (1966), reprinted in [1970] 1 Y.B. UNCITRAL 65, U.N. Doc. A/CN.9/SER.A/1970 (emphasis omitted). Thus, one of the founding purposes of UNCITRAL was to promote international trade. Steps to be Taken For Progressive Development of Private International Law with a View to Promoting International Trade: Background Paper by the Delegation of Hungary, 20 U.N. GAOR Annexes (Agenda Item 92) at 1, U.N. Doc. A/C.6/L.571 (1965), reprinted in [1970] 1 Y.B. UNCITRAL 5, U.N. Doc. A/CN.9/SER.A/1970; see also Sutton, The Hague Conventions of 1964 and The Unification of the Law of International Sale of Goods, 7 U. QUEENSLAND L.J. 145, 145 (1971) (noting that divergent sales laws are an obstacle to the development of international trade).

7. A uniform law would strengthen the international trade system in two ways. First, unification of the law will provide both parties to an agreement with greater certainty about their potential obligations and liabilities because the parties will have a definitive sales law on which they can rely. Certainty is an essential policy underlying contract formation. 1 S. WILLISTON, A TREATISE ON THE LAW OF CONTRACTS 37 (1936). Thus, by creating greater certainty for the parties, contract formation is encouraged.

Second, unification of the law would simplify the international sales order, because the parties and their counsel would refer to one set of rules for most transactions, assuring wide acceptance of a system of uniform rules. Simplification would lower transaction costs and, consequently, contribute to the efficiency of the system.

8. The Uniform Law on the International Sale of Goods (ULIS) enacted at the Hague in 1964 did gain limited acceptance. The ULIS, however, has been ratified or acceded to by only eight states. In addition, the United Kingdom made its ratification subject to the inclusion of a clause that applies the ULIS only to parties that choose it as the law of the contract. Lansing, The Change in American Attitude to the International Unification of Sales Law Movement and UNCITRAL, 18 AM. BUS. L.J. 269, 273 n.14 (1980). Because of this limitation, United Kingdom traders have not made substantial use of the uniform law. Feltham, The United Nations Convention on Contracts for the International Sale of Goods, 1981 J. BUS. L. 346, 346.

9. U.N. Doc. A/CONF.97/18, annex I (1980), reprinted in [1980] 11 Y.B. UNCITRAL 151, U.N. Doc. A/CN.9/SER.A/1980, and in 19 I.L.M. 668 (1980) [hereinafter cited as CISG Text].

10. Winship, New Rules for International Sales, 68 A.B.A. J. 1230, 1230 (1982).

11. Id.

12. The resolution establishing UNCITRAL provided for wide participation, including: twenty-nine States, elected by the General Assembly for a term of six years.... In electing the members of the Commission, the Assembly shall observe the following distribution of seats:

(a) Seven from African States;
(b) Five from Asian States;
(c) Four from Eastern European States;
(d) Five from Latin American States;
(e) Eight from Western European and other States.

The General Assembly shall also have due regard to the adequate representation of the principal economic and legal systems of the world, and of developed and developing countries.

G.A. Res. 2205, 21 U.N. GAOR Supp. (No. 16) at 99, U.N. Doc. A/6316 (1966), reprinted in [1970] 1 Y.B. UNCITRAL 65-66, U.N. Doc. A/CN.9/SER.A/1970.

One of the major criticisms of the ULIS has been lack of representation. Lansing, The Change in American Attitude to the International Unification of Sales Law Movement and UNCITRAL, 18 AM. BUS. L.J. 269, 274 (1980).

13. The UNCITRAL participants used the ULIS text as a starting point, so that the earlier work would not be discarded without retaining effective provisions. Honnold, The Draft Convention on Contracts for the International Sale of Goods: An Overview, 27 AM. J. COMP. L. 223, 225-26 (1979).

14. Typically, international treaties or conventions initially are signed by a government representative. The treaty then must be ratified or confirmed by the government. F. WILCOX, THE RATIFICATION OF INTERNATIONAL CONVENTIONS 31-32 (1935). In the United States, the Senate must ratify all treaties and conventions by vote of at least two-thirds of its members. U.S. CONST. art. II, 2, cl. 2.

15. The text was to be submitted to the President in the summer of 1983. The President probably will seek Senate ratification soon thereafter. Telephone interview with Peter Pfund, Office of the Legal Adviser, U.S. State Dep't (Oct. 20, 1982).

16. See, e.g., Honnold, supra note 13, at 223; Comment, A New Uniform Law for the International Sale of Goods: Is It Compatible with American Interests?, 2 NW. J. INT'L L. & BUS. 129, 130 (1980).

17. Many of the United States disagreements with the ULIS were cured in the Convention. In addition, United States representatives played a substantial part in reworking the final text. Thus, the United States' stake in the project is significant. See generally Comment, supra note 16.

18. Lansing, The Change in American Attitude to the International Unification of Sales Law Movement and UNCITRAL, 18 AM. BUS. L.J. 269, 272 (1980). Current acceptance of the CISG is evident from an endorsement by the American Bar Association House of Delegates. Winship, New Rules for International Sales, 68 A.B.A. J. 1230, 1231 (1982).

19. See generally Comment, supra note 16.

20. Article VI of the United States Constitution provides: "[A]ll Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land ...." U.S. CONST. art. VI, cl. 2.

21. The importance of U.C.C. Article 2, however, will not be diminished. The parties to an agreement still will be free to apply U.C.C. provisions to their agreement. See infra text accompanying notes 175-78. Moreover, the U.C.C. probably will have persuasive authority in United States jurisdictions in cases in which the Convention is ambiguous. In addition, the U.C.C. will remain viable for domestic contracts.

22. See, e.g., Wille v. Southwestern Bell Tel. Co., 219 Kan. 755, 757-58, 549 P.2d 903, 906 (1976) (doctrine of unconscionability); In re McManus, 83 A.D.2d 553, 555, 440 N.Y.S.2d 954, 957-58 (1981) (acceptance in U.C.C. 2-207 applied to securities transaction); Hunt Foods & Indus. v. Doliner, 49 Misc. 2d 246, 248-49, 267 N.Y.S.2d 364, 368-69 (Sup. Ct.), rev'd, 26 A.D.2d 41, 43, 270 N.Y.S.2d 937, 940 (1966) (U.C.C. 2-202 parol evidence rule applied by both courts to securities transaction).

23. See infra text accompanying notes 30-68.

24. See infra text accompanying notes 69-76.

25. See infra text accompanying notes 77-205.

26. See infra text accompanying notes 77-110.

27. See infra text accompanying notes 111-31.

28. See infra text accompanying notes 132-72.

29. See infra text accompanying notes 173-205.

30. Lansing, The Change in American Attitude to the International Unification of Sales Law Movement and UNCITRAL, 18 AM. BUS. L.J. 269, 269-70 (1980).

31. Kopp, The Laws Governing the International Sales of Goods: A Maze Confronting the American Businessman, ILL. CONTINUING LEGAL EDUC., Oct. 1967, at 75, 75-76. The United States remained aloof from the early unification efforts. Id. at 76.

32. Comment, United Nations Commission on International Trade Law: Will a Uniform Law in International Sales Finally Emerge?, 9 CAL. W. INT'L L.J. 157, 160 (1979).

33. Kopp, The Laws Governing the International Sales of Goods: A Maze Confronting the American Businessman, ILL. CONTINUING LEGAL EDUC., Oct. 1967, at 75, 76.

34. Comment, United Nations Commission on International Trade Law: Will a Uniform Law in International Sales Finally Emerge?, 9 CAL. W. INT'L L.J. 157, 160 (1979).

35. Id.

36. Id. at 161.

37. UNIDROIT also is known as the Rome Institute. For a discussion of its structure, see 2 R. DAVID, INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 5-352 to -354 (1969). For a discussion of UNIDROIT's contemporary role in the unification movement, see Bonell, The Unidroit Initiative for the Progressive Codification of International Trade Law, 27 INT'L & COMP. L.Q. 413 (1978).

38. Sutton, The Hague Conventions of 1964 and the Unification of the Law of International Sale of Goods, 7 U. QUEENSLAND L.J. 145, 145 (1971). The proposal was made by Professor Rabel, whose seminal comparative study of the law of sales provided an intellectual underpinning for the unification movement. See Honnold, supra note 13, at 223 n.2.

39. The United States did not become a member of UNIDROIT until 1962. 2 R. DAVID, INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 5-352 (1969).

40. Sutton, The Hague Conventions of 1964 and the Unification of the Law of International Sale of Goods, 7 U. QUEENSLAND L.J. 145, 145 (1971).

41. Id.

42. Honnold, supra note 13, at 223. The United States sent an observer to the 1951 Hague Conference at the request of the Netherlands government. See Kopp, The Laws Governing the International Sales of Goods: A Maze Confronting the American Businessman, ILL. CONTINUING LEGAL EDUC., Oct. 1967, at 75, 76.

43. Sutton, The Hague Conventions of 1964 and the Unification of the Law of International Sale of Goods, 7 U. QUEENSLAND L.J. 145, 145 (1971).

44. Id. The text of both the 1954 and 1963 drafts are printed in 2 DIPLOMATIC CONFERENCE ON THE UNIFICATION OF LAW GOVERNING THE INTERNATIONAL SALE OF GOODS -- THE HAGUE, 2-25 APRIL 1964, at 3, Supp. (1966) [hereinafter cited as DIPLOMATIC CONFERENCE].

45. Honnold, supra note 13, at 224. The United States waited until the last minute to send a delegation to the Conference. See Report of the United States Delegation to the United Nations Conference on Contracts for the International Sale of Goods, Prepared by John O. Honnold 4 (1980) [hereinafter cited as U.S. Delegation Report] (on file with the Iowa Law Review); see also Kopp, The Laws Governing the International Sales of Goods: A Maze Confronting the American Businessman, ILL. CONTINUING LEGAL EDUC., Oct. 1967, at 75, 78.

46. Honnold, supra note 13 at 224.

47. Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, annex, Uniform Law on the International Sale of Goods, 834 U.N.T.S. 109, 123, reprinted in 13 AM. J. COMP. L. 453, 456 (1964). The ULIS has not gained widespread support. By 1980, the only adherents to the 1964 Sales Convention were Belgium, West Germany, the United Kingdom, Gambia, Israel, Italy, the Netherlands, and San Marino. U.S. Delegation Report, supra note 45, at 4; see also Berman & Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 HARV. INT'L L.J. 221, 265 (1978).

48. See generally, Comment, supra note 16, at 137-45. For example, the risk of loss provision, which passes the risk on "delivery," was criticized by the American delegation because "deliverance" is not a commercially observable event. Thus, no physical act could pass the risk of loss with certainty. Id. at 143.

49. Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, Final Act of the Diplomatic Conference, annex, 834 U.N.T.S. 109, 123, reprinted in 13 AM. J. COMP. L. 477 (1964).

50. Id., annex, Uniform Law on the International Sale of Goods, 834 U.N.T.S. 109, 123, reprinted in 13 AM. J. COMP. L. 453 (1964); see also Comment, supra note 16, at 145.

51. The United Kingdom support was weak because it opted to apply the uniform law only when the parties to the transaction chose to apply the law. See supra note 8.

52. Honnold, supra note 13, at 225.

53. See U.S. Delegation Report, supra note 45, at 5; see also J. HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED NATIONS CONVENTION 53 (1982); Comment, supra note 16, at 134.

54. U.S. Delegation Report, supra note 45, at 5.

55. G.A. Res. 2205, 21 U.N. GAOR Supp. (No. 16) at 99, U.N. Doc. A/6316 (1966), reprinted in [1970] 1 Y.B. UNCITRAL 65-66, U.N. Doc. A/CN.9/SER.A/1970.

56. Broad representation is guaranteed under UNCITRAL's organizational structure. See supra note 12.

57. See id.; see also Farnsworth, Developing International Trade Law, 9 CAL. W. INT'L L.J. 461, 465 (1979); U.S. Delegation Report, supra note 45, at 5.

58. Honnold, supra note 13, at 225-26.

59. P. VISHNY, GUIDE TO INTERNATIONAL COMMERCE LAW 2.77 (1981).

60. Draft Convention on Contracts for the International Sale of Goods, Report of the United Nations Commission on International Trade Law on the Work of Its Eleventh Session, 33 U.N. GAOR Supp. (No. 17) at 10, U.N. Doc. A/33/17 (1978), reprinted in [1978] 9 Y.B. UNCITRAL 14, U.N. Doc. A/CN.9/SER.A/1978. The final proposed text combined formation of the contract and rights of the parties, areas that were previously covered by separate documents (Uniform Law on Formation (ULF) and Uniform Law on International Sales (ULIS)). J. HONNOLD, supra note 53, at 53.

61. Commentary on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/116, annex II (1976), reprinted in [1976] 7 Y.B. UNCITRAL 96, U.N. Doc. A/CN.9/SER.A/1976, and in 16 I.L.M. 1456 (1977).

62. See Lansing, The Change in American Attitude to the International Unification of Sales Law Movement and UNCITRAL, 18 AM. J. BUS. L. 269, 276 (1980). The Commission decided to combine the Sale and Formation Conventions. Id.

63. Comment, supra note 16, at 129; U.S. Delegation Report, supra note 45, at 6.

64. Feltham, The United Nations Convention on Contracts for the International Sale of Goods, 1981 J. BUS. L. 346, 347.

65. U.S. Delegation Report, supra note 45, at 6. The United States delegation recommended that the United States sign and ratify the Convention. Id.

66. Feltham, The United Nations Convention on Contracts for the International Sale of Goods, 1981 J. BUS. L. 346, 347. To become effective, 10 states must ratify the Convention. Currently, 20 states have indicated their intent to ratify it. Winship, New Rules for International Sales, 68 A.B.A. J. 1230, 1231 (1982).

67. See Protocol Amending the Convention on the Limitation Period in the International Sale of Goods, U.N. Doc. A/CONF.97/18, annex II (1980), reprinted in [1980] 11 Y.B. UNCITRAL 162, U.N. Doc. A/CN.9/SER.A/1980, and in 19 I.L.M. 696 (1980).

68. See Schmitthoff, The Unification of the Law of International Trade, 1968 J. BUS. L. 105, 108.

69. Article 7(1) provides: "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." CISG Text, supra note 9.

70. Commentary on the Draft Convention on Contracts for the International Sale of Goods, Prepared by the Secretariat, U.N. Doc. A/CONF.97/5 [hereinafter cited as Draft Commentary], reprinted in Official Records of the United Nations Conference on Contracts for the International Sale of Goods, U.N. Doc. A/CONF.97/19, at 15 [hereinafter cited as Official Records].

71. J. HONNOLD, supra note 53, at 113.

72. Article 7(2) provides:

"Questions concerning 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 or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." CISG Text, supra note 9.

73. J. HONNOLD, supra note 53, at 113.

74. See article 7(2), reproduced at supra note 72.

75. J. HONNOLD, supra note 57, at 140-43.

76. See article 7(2), reproduced at supra note 72.

77. Article 1 provides:

"(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.

"(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.

"(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." CISG Text, supra note 9.

78. See article 1, reproduced at supra note 77.

79. Application will depend on satisfaction of the requirements of article 1(1)(b) of the Convention. See infra text accompanying notes 92-105.

80. See article 2 of the 1956 draft, reprinted in 2 DIPLOMATIC CONFERENCE, supra note 44, at 7.

81. Id. at 28-29; see Reczei, The Area of Operation of the International Sales Conventions, 29 AM. J. COMP. L. 513, 514 (1981). The Commission at the 1964 Hague Conference also stated that the "place of business" determination is based upon the same principle that provides a foundation for the solution of conflict-of-law problems. 2 DIPLOMATIC CONFERENCE, supra note 44, at 28. It is not clear to what principle the Commission refers.

82. 2 DIPLOMATIC CONFERENCE, supra note 44, at 28-29. The ULIS's three objective conditions were designed to avoid a situation in which a transaction occurring wholly within a single state would be international. Id. The three conditions are: "(1) carriage of goods from one country to another; (2) offer and acceptance effected in the territories of different countries; and (3) goods delivered to a country other than the one where offer and acceptance were effected." Reczei, supra note 81, at 514. Any combination of one or more of the objective conditions, in conjunction with the subjective condition, qualifies the transaction as "international." 2 DIPLOMATIC CONFERENCE, supra note 44, at 29.

83. Arguably, the deletion of the three objective conditions, see supra note 82, widened the scope of the law, because transactions occurring wholly within a state would remain subject to the CISG though excluded under the ULIS. But see Reczei, supra note 81, at 518 (arguing that absence of objective conditions merely represents the unanimity of understanding about what is regarded as "international").

84. See article 1, reproduced at supra note 77.

85. See id.

86. See generally Comments by Governments and International Organizations on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/125 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 109, U.N. Doc. A/CN.9/SER.A/1977.

87. This definition is an extension of the prevailing definition of "place of business." Cf. BLACK'S LAW DICTIONARY 1034 (rev. 5th ed. 1979) ("The location at which one carries on his business or employment.").

88. The Commentary for UNCITRAL's Convention on the Limitation Period in International Sale of Goods distinguished an entity's "place of business" from its place of "formal business" (i.e., incorporation). See Commentary on the Convention on the Limitation Period in the International Sale of Goods, U.N. Doc. A/CONF.63/17, at 14 (1978), reprinted in [1979] 10 Y.B. UNCITRAL 145, 150, U.N. Doc. A/CN.9/SER.A/1979.

89. Article 10 provides:

"For the purposes of this Convention:

(a) If a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract;
(b) If a party does not have a place of business, reference is to be made to his habitual residence." CISG Text, supra note 9.

90. Professor Honnold describes article 10 as defining a party's place of business. See J. HONNOLD, supra note 53, at 150. Nevertheless, article 10 is not phrased as a definition, but rather, as a rule of construction in arriving at the solution to the problem of multiple places of business. See article 10, reproduced at supra note 89.

91. J. HONNOLD, supra note 53, at 80-81, 150.

92. See article 1(1)(b), reproduced at supra note 77.

93. Reczei, supra note 81, at 519.

94. See Honnold, supra note 13, at 228. Professor Honnold notes that "this inability to escape from the vagaries of conflicts rules should add impetus to measures for achieving effective international unification also in that area." Id. (footnote omitted).

95. See supra text accompanying note 92.

96. Article 95 provides: "Any state may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention." CISG Text, supra note 9.

97. The socialist countries wanted to further application of their internal sales codes. Article 95 accomplishes this by allowing the scope of the Convention to be limited. Reczei, supra note 81, at 520-21. The German delegation to UNCITRAL voiced an objection to including article 1(1)(b) at all and favored deleting the provision. Comments by Governments and International Organizations on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/125 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 109, 116, U.N. Doc. A/CN.9/SER.A/1977.

98. Dore & DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 HARV. INT'L L.J. 49, 55 n.28 (1982).

99. See id. at 55. The U.C.C., as a form of internal legislation, will benefit from the reduced scope of the CISG. See supra note 97.

100. Application would be simplified by extracting the conflict-of-laws problems present in the uniform law. See supra notes 92-95 and accompanying text.

101. Note that a forum in a third state would apply the Convention if it was a Contracting State or if its conflict-of-law provision led to the application of United States law. See J. HONNOLD, supra note 53, at 82-84.

102. The phrase "conflict of laws imbroglio" is borrowed from a critique of the 1964 ULIS written by Professor Nadelmann. Nadelmann, The Uniform Law on the International Sale of Goods: A Conflict of Laws Imbroglio, 74 YALE L.J. 449 (1965). The use of the phrase in this context is appropriate because the "appetite of the VIENNA TEXT [CISG] reveals itself as not much smaller than that of ULIS." Reczei, supra note 81, at 518 (1981).

103. See Comment, United Nations Commission on International Trade Law: Will a Uniform Law in International Sales Finally Emerge?, 9 CAL. W. INT'L L.J. 157, 172-73 (1979).

104. The RESTATEMENT (SECOND) OF CONFLICTS 188(1) (1971) provides that the law of the state that has the "most significant relationship to the transaction and the parties" is applicable in resolving the rights and duties of the parties to a contract with respect to a particular contractual issue. The section articulates various contacts to be taken into consideration by the court in determining the law applicable to an issue, in the absence "of an effective choice of law by the parties." Id. 188(2). The Restatement (Second) also sets forth rules that indicate the state with the most significant relationship in certain situations or with respect to particular issues. Section 191 states that the validity of a contract for the sale of an interest in a chattel will be governed by the law of the place of delivery, unless some other state has a more significant relationship to the transaction. Thus, if it is hypothesized that the goods are to be delivered to a third Contracting State, the Convention would be applied, unless another state has a more significant relationship with the transaction than the Contracting State. Nevertheless, the more likely situation is that the goods would be delivered to Brazil, a non-Contracting State, the CISG therefore being rendered inapplicable. Moreover, the Restatement (Second) has not gained the authoritative stature of other Restatements among legal scholars. See, e.g., Von Mehren, Recent Trends in Choice-of-Law Methodology, 60 CORNELL L. REV. 927, 964 (1975); see also J. MARTIN, CONFLICT OF LAWS 185-86 (1978).

Some commentators have developed alternative approaches to choice-of-law problems. Most of these approaches articulate various methodologies for determining the policies behind a certain law and whether a jurisdiction has a genuine interest in having its law apply in a particular situation. See, e.g., B. CURRIE, Notes on Methods and Objectives in the Conflict of Laws, in SELECTED ESSAYS ON THE CONFLICT OF LAWS 177, 183-87 (1963); Baxter, Choice of Law and the Federal System, 16 STAN. L. REV. 1, 12-15 (1963); Leflar, Conflicts Law: More on Choice-Influencing Considerations, 54 CALIF. L. REV. 1584, 1586-88 (1966).

The application by a United States forum of any of these conflicts rules or theories probably would not result in the law of a third Contracting State being applied to the transaction in Problem 1. The facts of the hypothetical likely would lead a court to conclude that either Brazil, as the place of business of the manufacturer and the place of performance of the contract, or an American state, as the place of business of the American firm and the place where the contract was entered, would have the most significant relationship to the transaction or the greater interest in having its law apply.

105. This would result if the forum state's conflict-of-law provisions led to the application of the law of a third Contracting State.

106. Reczei, supra note 81, at 522 (1981).

107. See article 1(3), reproduced at supra note 77.

108. Id. Nevertheless, nationality may be relevant under article 1(1)(b) if a state "uses nationality as a part of its rules on private international law." J. HONNOLD, supra note 53, at 84 n.7.

109. This will occur only if one of the two previous requirements -- different places of business or conflict-of-law application -- is met.

110. The Netherlands delegation noted the temporary residence problem in its comments to the Draft Convention. Comments by Governments and International Organizations on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/125 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 109, 119, U.N. Doc. A/CN.9/SER.A/1977.

111. Article 2 provides:

"This Convention does not apply to sales:

(a) Of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;
(b) By auction;
(c) On execution or otherwise by authority of law;
(d) Of stocks, shares, investment securities, negotiable instruments or money;
(e) Of ships, vessels, hovercraft or aircraft;
(f) Of electricity." CISG Text, supra note 9.

112. See infra text accompanying notes 113-31.

113. U.C.C. 2-105(1) (1978) ("'Goods' means all things ... which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid ....")

114. "Movables" are defined as "[t]hings which may be carried from one place to another whether they move by themselves or whether they are inanimate objects capable of being moved by extraneous power." BLACK'S LAW DICTIONARY 914 (rev. 5th ed. 1979).

115. U.C.C. 2-107(2) (1978). For other goods attached to realty, the test is whether the good may be severed without material harm thereto. Id. The official comment further notes that goods that fall within the test "are goods within this Article regardless of who is to affect the severance." Id. comment 2.

Previous U.C.C. language required severance by the seller. See U.C.C. 2-107(1) (1962). Most United States jurisdictions nevertheless relied on that provision to hold that transactions involving the sale of timber are sales of goods. See, e.g., Coos Lumber Co. v. Builders Lumber & Supply Co., 104 N.H. 404, 407, 188 A.2d 330, 332 (1963). But cf. Leonard v. American Walnut Co., 609 S.W.2d 452, 455 (Mo. Ct. App. 1980) (standing timber sold on agreement for severance was contract affecting land and did not constitute sale of goods). The situation is complicated considerably if the buyer agrees to cut the timber. Courts in some jurisdictions have been reluctant to apply the U.C.C. to such transactions, especially if the contract does not appear to involve the sale of goods movable at the time of identification to the contract. See, e.g., Barry v. Bank of N.H., 112 N.H. 226, 227-28, 293 A.2d 755, 756 (1972).

Under the previous language, courts had to rationalize treating timber as goods by finding that constructive severance occurred at the time of contracting because the good had become movable and thus, a good. See Groth v. Stillson, 20 Mich. App. 704, 707, 174 N.W.2d 596, 598 (1969).

116. This result would also be supported by U.C.C. 1-102(1), which states: "This Act shall be liberally construed ...." U.C.C. 1-102(1) (1978).

117. 2 DIPLOMATIC CONFERENCE, supra note 44, at 29.

118. The 1956 draft of the uniform law excluded stocks and shares, registered ships, and sales by authority of the law. Id. at 8.

119. See infra text accompanying notes 122-23.

120. 2 DIPLOMATIC CONFERENCE, supra note 44, at 264. For example, the United States delegation referred to contracts to supply a machine and affix it to a building and contracts to erect a building. Id.

121. Id.

122. Id. This identity is significant as a recognition by the United States delegation that the article substitutes for a separate definition of "goods."

123. Cf. Trammer, Time Limits For Claims and Actions in International Trade, in UNIFICATION OF THE LAW GOVERNING INTERNATIONAL SALES OF GOODS 228 (J. Honnold ed. 1966) (does not use "goods" but substitutes the phrase "tangible movables," which more clearly defines the nature of the covered materials).

124. 2 DIPLOMATIC CONFERENCE, supra note 44, at 266.

125. One can infer, however, that the ULIS would cover sales for timber to be severed from realty because (1) they are not expressly excluded, and (2) a proposal for exclusion was considered, but not adopted in the final text. See supra text accompanying note 124.

126. See article 2, reproduced at supra note 111.

127. See Comments by Governments and International Organizations on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/125 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 109, 127, U.N. Doc. A/CN.9/SER.A/1977; see also Sumulong, International Trade Law and the United Nations Convention on the Limitation Period in the International Sale of Goods, 50 PHILIPPINE L.J. 318, 334 (1975) (arguing with reference to Convention on Limitations -- containing comparable provision -- that definition by exclusion implies that task of defining and distinguishing contracts will be left to applicable forum conflicts rules).

128. An excluded item would pose no difficulty. For example, the Draft Commentary states that electricity was excluded "on the ground that in many legal systems electricity is not considered to be goods and, in any case, international sales of electricity present unique problems that are different from those presented by the usual international sale of goods." Draft Commentary, supra note 70, at 41, reprinted in Official Records, supra note 70, at 16.

129. The United Kingdom delegation did not propose a timber exclusion in the CISG negotiations as it had done under the earlier ULIS negotiations. See supra text accompanying note 124.

130. See supra note 116.

131. Draft Commentary, supra note 70, reprinted in Official Records, supra note 70, at 15.

132. Article 3 provides:

"(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." CISG Text, supra note 9.

133. See infra text accompanying notes 135-53.

134. See infra text accompanying notes 154-72.

135. See Wells v. 10-X Mfg. Co., 609 F.2d 248, 255 (6th Cir. 1979) (manufacture of shirt considered service contract when buyer develops design and furnishes fabric, labels, and packaging materials); Curtis Publishing Co. v. Sheridan, 53 F.R.D. 642, 644 (S.D.N.Y. 1971) (publishing of book not a sale of goods when customer supplies materials, though finding of who supplies materials is merely a nondispositive fact to be considered); Wm. H. Wise & Co. v. Rand McNally & Co., 195 F. Supp. 621, 626 (S.D.N.Y. 1961) (contract to print manuscript supplied by publisher "one of work, labor and materials and not one of sale").

136. U.C.C. 2-102 (1978).

137. 468 F.2d 695 (2d Cir. 1972).

138. Id. at 697. But see Carpel v. Saget Studios, Inc., 326 F. Supp. 1331, 1331 (E.D. Pa. 1971) (photographer taking wedding pictures considered to be selling goods); Lake Wales Publishing Co. v. Florida Visitor, Inc., 335 So. 2d 335, 336 (Fla. Dist. Ct. App. 1976) (contract to compile, edit, and publish pamphlets held to be sale of goods).

139. 468 F.2d at 697.

140. Article 6, Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, annex, Uniform Law on the International Sale of Goods, 834 U.N.T.S. 109, 125, reprinted in 1 DIPLOMATIC CONFERENCE, supra note 44, at 336.

141. Id. The Special Commission Comment to the 1956 draft, which contained the same wording, included a statement that a contract remains outside the uniform law if the contractor supplies accessory articles, such as nails to assemble parts made from materials not supplied by the contractor. 2 DIPLOMATIC CONFERENCE, supra note 44, at 48.

142. 2 DIPLOMATIC CONFERENCE, supra note 44, at 266.

143. Id.

144. Id. at 267.

145. Commentary on the Hague Conventions of the 1st of July 1964 on International Sale of Goods and the Formation of the Contract of Sale, 1 DIPLOMATIC CONFERENCE, supra note 44, at 358, 369.

146. See article 3(1), reproduced at supra note 132.

147. In UNCITRAL's tenth session, the committee considered a wording change in what was then subparagraph 2 of article 3. The proposal would have lowered the amount of materials necessary to exclude the Convention to the minimum, i.e., if any part of the materials were supplied by the buyer. Report of the United Nations Commission on International Trade Law on the Work of its Tenth Session, 32 U.N. GAOR Supp. (No. 17), U.N. Doc. A/32/17 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 28, U.N. Doc. A/CN.9/SER.A/1977. Opposition to the proposed change was based on the usefulness of the established phrasing for some legal systems. The Committee thus decided to retain the original text. Id.

148. In the draft CISG, subparagraphs 1 and 2 of article 3 appeared in reverse order from that in the final text. Compare Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/116, annex I (1976), reprinted in [1976] 7 Y.B. UNCITRAL 90, U.N. Doc. A/CN.9/SER.A/1976, with article 3, reproduced at supra note 132.

149. Draft Commentary, supra note 70, at 98, reprinted in Official Records, supra note 70, at 17.

150. Draft Commentary, supra note 70, at 98, reprinted in Official Records, supra note 70, at 17.

151. The analysis considered here thereby becomes applicable by analogy to an analysis of transactions in which the seller supplies labor.

152. Furthermore, Professor Honnold notes that the drafters of the French version of the CISG had difficulty with the concept of "substantial" and resorted to "une parte essentielle." J. HONNOLD, supra note 53, at 92 n.3.

153 A court faced with Problem 3 also might refuse to apply the CISG if it were willing to look at all the circumstances surrounding the contract. A United States firm that contracts with a manufacturer in a country with a low employee wage scale may well be attempting to obtain cheap labor to lower the cost of its product. This perspective puts the contract squarely within the definition of labor agreements, and a court would have good cause for failing to treat it as a sale of goods.

154. U.C.C. 2-102 (1978) ("Unless the context otherwise requires, this Article applies to transactions in goods ....").

155. See generally Comment, Sale of Goods in Service-Predominated Transactions, 37 FORDHAM L. REV. 115 (1968); Note, "Sale of Goods" or "Work, Labor and Materials" -- What is the Distinction?, 43 IOWA L. REV. 95 (1957); Comment, Dual Nature Contracts and the Uniform Commercial Code, 28 MD. L. REV. 136 (1968).

156. 499 F.2d 951, 960 (8th Cir. 1974) (installation and sale of replacement bowling equipment constitutes a sale of goods). The earliest expression of a mixed-contracts test that looked to whether service "predominates" arose in an implied warranty, blood transfusion situation. See Perlmutter v. Beth David Hosp., 308 N.Y. 100, 104, 123 N.E.2d 792, 794 (1954).

157. 499 F.2d at 960.

158. Glover School & Office Equip. Co. v. Dave Hall, Inc., 372 A.2d 221, 223 (Del. Super. Ct. 1977) (applicability of U.C.C. may depend on significance of cost of goods supplied to total contract price); see also M & W Farm Serv. Co. v. Callison, 285 N.W.2d 271, 275 (Iowa 1979) (LP gas tanks supplied without additional charge incidental to sale of LP gas).

159. See, e.g., Colorado Carpet Installation, Inc. v. Palermo, Colo. , , 647 P.2d 686, 688 (Ct. App.), cert. granted, id. at , 647 P.2d at 686 (1982).

160. Gulash v. Stylarama, Inc., 33 Conn. Supp. 108, 111-13, 364 A.2d 1221, 1223-24 (C.P. 1975); Duhon v. Three Friends Homebuilder Corp., 396 So. 2d 559, 561 (La. Ct. App. 1981). Many courts, however, treat a contract to build a plant as a sale of goods. See Cryogenic Equip., Inc. v. Southern Nitrogen, Inc., 490 F.2d 696, 698 (8th Cir. 1974) (liquid nitrogen plant); County Asphalt, Inc. v. Lewis Welding & Eng'g Corp., 444 F.2d 372, 378-79 (2d Cir.) (asphalt plant), cert. denied, 404 U.S. 939 (1971).

161. See Pittsburgh-Des Moines Steel v. Brookhaven Manor Water Co., 532 F.2d 572, 580 n.6 (7th Cir. 1976); Lincoln Pulp & Paper Co. v. Dravo Corp., 436 F. Supp. 262, 276 (D. Me. 1977).

162. The U.C.C. could apply to a mixed transaction if the court determines that the contract was predominantly a sale of services rather than a sale of goods. The U.C.C. has been construed broadly and there is a judicial tendency to find the U.C.C. persuasive in non-U.C.C. transactions. See supra note 22.

163. See article 3(2), reproduced at supra note 132.

164. See supra text accompanying notes 158-59.

165. Draft Commentary, supra note 70, at 41, reprinted in Official Records, supra note 70, at 16. The 1976 draft commentary used the term "turn-key contract." Commentary on the Draft Convention on the International Sale of Goods, U.N. Doc. A/CN.9/116, reprinted in [1976] 7 Y.B. UNCITRAL 98, U.N. Doc. A/CN.9/SER.A/1976. The 1980 draft commentary by the Secretariat substituted the definition of turn-key -- "where the seller agrees to sell machinery and undertakes to set it up in a plant in working condition or to supervise its installation."

166. Draft Commentary, supra note 70, at 41-42, reprinted in Official Records, supra note 70, at 16-17.

167. See Gantt v. Van der Hoek, 251 S.C. 307, 314, 162 S.E.2d 267, 270 (1968).

168. But see J. HONNOLD, supra note 53, at 93 (arguing that whenever there are significant relationships between the goods and services elements of a contract, a single set of rules should apply to the entire contract).

169. Analysis of Comments and Proposals Relating to Articles 1-17 of the Uniform Law on International Sale of Goods (ULIS) 1964: Note by the Secretary-General, U.N. Doc. A/CN.9/WG.2/WP.6 (1971), reprinted in [1971] 2 Y.B. UNCITRAL 37, 41, U.N. Doc. A/CN.9/SER.A/1971.

170. If parties to the contract are able to anticipate the problem, they can elect to exclude the CISG altogether under article 6. See infra text accompanying notes 175-205.

171. This conclusion is based on the fact that United States engineers do not constitute the entire work force, as hypothesized earlier. Given the work of the Chadian laborers, it is unlikely that the cost of the labor would exceed the cost of the reactor. Thus, the sale of the reactor portion of the contract would predominate.

172. If the intent was only for American engineers to supply their labor, the United States firm would not be selling Chad the reactor. In this case, the intent of the parties is clear from the surrounding circumstances.

173. Article 6 provides: "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." CISG Text, supra note 9.

174. See infra text accompanying notes 175-205.

175. U.C.C. 1-105(1) (1978) provides:

"Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this Act applies to transactions bearing an appropriate relation to this state." Id.

176. See U.C.C. 1-105 comment 1 (1978).

177. See Joseph L. Wilmotte & Co. v. Rosenman Bros., 258 N.W.2d 317, 327 (Iowa 1977) ("[S]ince the parties agreed to give ... AAA such power ... decision of AAA to fix New York as the locale for arbitration should be read back into the agreement and the parties themselves should be treated as agreeing on New York ....").

178. Dore & DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 HARV. INT'L L.J. 49, 53 (1982); see Neville Chem. Co. v. Union Carbide Corp., 422 F.2d 1205, 1211 (3d Cir.), cert. denied, 400 U.S. 826 (1970).

179. 2 DIPLOMATIC CONFERENCE, supra note 44, at 7.

180. Id. at 46.

181. Id.

182. The discussion at the 1964 Hague Convention, vis-à-vis this provision referred to the importance of the will of the parties. See the United Kingdom and Israeli positions in 1 DIPLOMATIC CONFERENCE, supra note 44, at 7.

183. Uniform Law on the International Sale of Goods, July 1, 1964, 834 U.N.T.S. 123, 123.

184. 1 DIPLOMATIC CONFERENCE, supra note 44, at 364.

185. Id.

186. 2 R. DAVID, INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 5-139 (1969).

187. See article 6, reproduced at supra note 173.

188. Dore & DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 HARV. INT'L L.J. 49, 53 (1982).

189. Draft Commentary, supra note 70, at 44, reprinted in Official Records, supra note 70, at 17.

190. The draft commentary stresses the nonmandatory nature of the CISG as expressed in article 6. Draft Commentary, supra note 70, at 44, reprinted in Official Records, supra note 70, at 17.

191. Analysis of Comments and Proposals Relating to Articles 1-17 of the Uniform Law on International Sale of Goods (ULIS) 1964: Note by the Secretary-General, U.N. Doc. A/CN.9/WG.2/WP.6 (1970), reprinted in [1971] 2 Y.B. UNCITRAL 37, 43, U.N. Doc. A/CN.9/SER.A/1971.

192. [1971] 2 Y.B. UNCITRAL 37, 44, U.N. Doc. A/CN.9/SER.A/1971.

193. Id.

194. Id.

195. Report of the United Nations Commission on International Trade Law on the Work of its Tenth Session, 32 U.N. GAOR Supp. (No. 17), U.N. Doc. A/32/17 (1977), reprinted in [1977] 8 Y.B. UNCITRAL 11, 29, U.N. Doc. A/CN.9/SER.A/1977.

196. [1977] 8 Y.B. UNCITRAL 11, 29, U.N. Doc. A/CN.9/SER.A/1977.

197. Id.

198. Id.; see article 6, reproduced at supra note 173.

199. Feltham, The United Nations Convention on Contracts for the International Sale of Goods, 1981 J. BUS. L. 346, 348.

200. If parties to a transaction are wary, they will explicitly exclude the CISG so that an interpretation problem does not develop. See Dore & DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 HARV. INT'L L.J. 49, 52 (1982).

201. See supra text accompanying notes 195-98.

202. Ambiguity is evident from the varying positions taken by commentators on the CISG. Commentators Dore and DeFranco argue that implied exclusion is forbidden. Dore & DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 HARV. INT'L L.J. 49, 53-54 (1982). Professor Honnold, however, argues that because UNCITRAL declined to provide that exclusion be express, "normal rules of construction of the contract apply to the question of exclusion or modification of the Convention." J. HONNOLD, supra note 53, at 106.

203. See supra text accompanying note 189.

204. See J. HONNOLD, supra note 53, at 106-07.

205. See supra text accompanying notes 68-69.

206. See supra text accompanying notes 77-110.

207. See supra text accompanying notes 111-31.

208. See supra text accompanying notes 132-72.

209. See supra text accompanying notes 173-205.


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