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

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

excerpt from

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

Joseph Lookofsky

Article 4
Issues Excluded from Convention Scope: Validity, Property and Delict

A. Contractual Validity, Domestic Law & Concurrent Remedies
B. Convention Not Concerned with Property in Goods
C. Delictual Obligations Not Governed by CISG

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

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

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

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

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

A. Contractual Validity, Domestic Law & Concurrent Remedies

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

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

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

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

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

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

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

B. Convention Not Concerned With Property in Goods

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

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

C. Delictual Obligations Not Governed by CISG

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

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

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

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

Pace Law School Institute of International Commercial Law - Last updated April 1, 2005
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