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Reproduced with permission of the American Bar Association from 29 International Lawyer 525-554 (1995)

excerpt from

Changing Contract Practices in the Light of the United Nations Sales Convention: A Guide for Practitioners

Peter Winship [*]


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Goods

The drafters did not define "goods," but the drafting history shows that the drafters conceived of the term as broad and flexible. This intent is most clearly illustrated by the French language text, in which the original legal language (objets mobiliers corporels) was changed to a colloquial business term (marchandises). Commentators have generally concluded that the term "goods" includes tangible movables.

Questions about the borderline between "goods" and other forms of property will be similar to those that arise under domestic law. Thus, whether the "sale" of software, either custom-made or bundled with hardware, is covered by the Convention is an issue, just as it is under the Uniform Commercial Code. If the "seller" of the software adapts the software to the particular needs of a customer, it could be argued that the Convention does not apply because the preponderant part of the "seller's" obligation will be the rendering of services.[20]

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"International" Contracts Covered

Article 1(1) of the Convention sets out the rule on when the Convention is applicable:

Article 1

"(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 [i.e., choice-of-law rules] lead to the application of the law of a Contracting State."

In effect, this paragraph requires that the contract (1) be international, and (2) have some connection with a Contracting State. To avoid surprise, article 1(2) makes an exception when a party is unaware that the other party has its place of business in a different country.

1. When Is a Sales Contract "International"?

For the purposes of the Convention, a contract is international when the seller and buyer have their places of business in different states. Whether the goods sold move from one country to another is irrelevant [CISG article 1(1)(a)].

Several other articles supplement this basic test of internationality. Article 1(2) requires that both parties be on notice that their businesses are in different countries. When a party has more than one place of business, article 10 provides rules of thumb for which place of business is relevant when determining whether the Convention governs the contract.

2. What Connection Must the Sales Transaction Have to a Contracting State?

If each party has its place of business in a Contracting State, the Convention applies by virtue of article l(l)(a). If only one party -- or if neither party -- has its place of business in a Contracting State, the Convention may still be applicable if choice-of-law rules make the law of a Contracting State the applicable law. In this latter case, paragraph (l)(b) makes the Convention rather than domestic sales law the applicable law. Thus, if a French seller sells goods to an English buyer and French law is the applicable law, the relevant sales law will be the Convention.

The United States has declared that it will not be bound by article l(l)(b), a reservation authorized by article 95. As a result, a court sitting in the United States is required to apply the Convention only if the parties before it have their places of business in different Contracting States.

Illustration 2. Seller has its place of business in Texas; Buyer has its place of business in Mexico. If the parties have not excluded the Convention and a dispute is brought before a Texas or Mexican court, the Convention will govern by virtue of paragraph (1)(a) of article 1. Paragraph (1)(b) and the article 95 reservation are irrelevant.

Illustration 3. Seller has its place of business in New York; Buyer has its place of business in England. (The United Kingdom is not yet a party to the Convention.) If the parties do not mention the Convention and a dispute is brought before a New York court, the court is not required to apply the Convention even if choice-of-law rules would make the law of New York applicable. This should also be the result if the dispute is brought before a court in the United Kingdom -- or any other jurisdiction

3. What about an Enterprise with Branches in More Than One Country?

The Convention does not define the concept of a "branch" of a business. If a business enterprise exports goods from one country to independent importers in other countries, a definition of branch is not needed. If a business enterprise establishes a subsidiary in another country, then to decide whether the Convention will apply to the enterprise's international sales contracts requires a determination whether the enterprise is acting through its headquarters or its subsidiary. Article 10(a) provides:

Article 10

"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. . . ."

When an enterprise has multiple branches, therefore, one must inquire which branch has "the closest relationship to the contract and its performance. " Presumably the same inquiry would be made when an enterprise acts in a foreign jurisdiction through an agent permanently resident there. The absence of a definition of "branch" creates difficulties principally when an enterprise's presence in a foreign country is less than permanent.

Illustration. Seller is a New York manufacturer of electrical kitchen equipment. Buyer is a French department store. Seller has a sales agent who resides in the United Kingdom and travels throughout Europe for most of the year. While in Paris, the sales agent and Buyer sign a written agreement that Buyer will buy 1,000 electric orange juicers from Seller. The juicers were manufactured in the United States and, at the time of the sale, sit in a duty-free warehouse in the United Kingdom. If Seller performs the contract from the United States, the Convention will govern. If, on the other hand Seller performs the contract through a "branch" in the United Kingdom, the Convention will not apply automatically. To the extent the sales agent has authority to act without specific approval from U.S. headquarters, the stronger the case that Seller is acting through a U.K. branch that is "the closest relationship to the contract and its performance." Here, of course, the sales agent and Buyer could avoid this difficulty by explicitly agreeing to make the Convention applicable (or to exclude it).

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Go to entire text of Winship commentary


FOOTNOTES

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*James Cleo Thompson Sr. Trustee Professor of Law, Southern Methodist University, Dallas, Texas.

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20. CISG art. 3(2). See generally Arthur Fakes, The Application of the United Nations Convention on Contracts for the International Sale of Goods to Computer, Software, and Database Transactions, 3 Software L.J. 559 (1990); G. Gervaise Davis III, Contract Issues in Software Development, Acquisition, Marketing, and Use, in PLI, 2 Computer Software 1989: Protection and Marketing 359 (1989).

22. CISG art. 1(1)(a).

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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