Guides for Business Managers and Counsel: Applying the CISG
Revised May 2010
Prepared by John P. McMahon [*]
B. What is the CISG? What is its purpose and when does it come into play?
C. Which countries are Contracting States? How do we find out who they are?
D. Does the CISG deprive us of freedom of contract? Do we have to deal on the basis of the CISG's
rules or can we agree with our suppliers and purchasers on whatever contract terms suit us?
E. Should our purchase orders, sale confirmations or contract forms say that the CISG does not apply?
If we want to exclude application of the CISG, how should we do it?
F. Does the CISG mean we must change the way we make deals with our purchasers and suppliers?
1. The U.S. perspective
G. What are the important differences between domestic sales contract law and the rules set out in the CISG?
1. The U.S. perspective
- Rules governing the bargaining process
- Battles of the forms
- Revocability of offers
- Absence of a "perfect tender" rule
- The effect of financial hardship
H. Because of the way our "just on time" inventory control, production or sales programs work,
there is no leeway for late delivery or delivery of non-conforming goods. Where do we stand under the CISG?
I. Is there anything we have not asked about that we should know and watch out for?
1. The U.S. perspective
- Price reduction
- Notice of non-conformity
- Anticipatory breach
- Right to cure
- Force majeure
- Limitation periods
- Delivery terms
- Attorneys' fees as damages
A. CISG research guide
B. CISG news
1. The CISG-Advisory Council
2. Selected CISG Cases
3. CISG-Advisory Council Opinions
6. Conferences and programs
This segment of the CISG Database of the Institute of International Commercial Law of the Pace University School of Law provides a "heads up" for sales and purchasing managers and their advisors. Using questions and answers, it will acquaint them with how The United Nations Convention on Contracts for the International Sale of Goods affects them. It will bring selected developments concerning the interpretation and application of the Convention and sources of information concerning such developments to the attention of traders and their counselors.
The Institute of International Commercial Law, the authors and the editors are not and should not be taken as offering or furnishing legal advice or services. Our purpose is to provide buyers, sellers and their advisors with access to general information concerning an important subject. To determine whether what is said is applicable to and correct in your situation, you should consult an attorney or other qualified professional.
In practical terms, the United Nations Convention on Contracts for the International Sale of Goods (the "Convention" or "CISG") is a binding agreement or contract between nations. It establishes a set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different countries. By adopting it, a nation undertakes to the other nations that have adopted it that it will treat the Convention's rules as part of its law.
1. What is the purpose of the CISG?
The purpose of the CISG is to make it easier and more economical to buy and sell raw materials, commodities and manufactured goods in international commerce. Without the Convention, there is greater room for uncertainty and disputes. The sales law of one country often differs from that of another. In international transactions, there is often doubt about which nation's law controls. Where there is doubt about the rules that apply, the parties cannot be sure of their rights and obligations. Such uncertainty breeds inefficiency and ill will.
The CISG contains rules governing the making and interpretation of international contracts for the sale of goods. It also provides rules governing obligations and remedies of the parties to such transactions.
The CISG does not deprive sellers and buyers of the freedom to mold their contracts to their specifications. Generally, you are free to modify the rules established by the Convention or to agree that the Convention is not to apply at all.
2. When does the CISG come into play?
The kind of contract and where the parties have their relevant places of business determine the applicability of the CISG.
The CISG can apply to contracts between domestic corporations, if their relevant places of business are in different Contracting States. See Asante Technologies, Inc. v. PMC-Sierra, Inc. (United States, Northern District, California, 27 July 2001), which concerns a contract between two Delaware corporations.
The CISG does not apply to contracts to provide services alone. Generally, it does not apply to sales of goods bought for personal, family or household use. For example, ordinarily, it would not apply to the sale of a camera or clothing to a foreign tourist. It does not apply to sales of ships, vessels, or aircraft or to contracts covering the sale of electricity.
Unless your contract says that the CISG will not apply or the parties otherwise so indicate, the CISG can apply automatically to your transactions with foreign buyers or suppliers of raw materials, commodities and manufactured goods. The CISG governs contracts for the sale of goods that are between sellers and buyers whose relevant places of business are in different countries that have made the CISG part of their law, called "Contracting States." This is the general rule in the United States. There are circumstances where it may not apply to such transactions. It can also govern other transactions. For example, the U.S. has made an Article 95 declaration. Such a declaration excludes Article 1(1)(b). In Contracting States that have not made an Article 95 declaration, under Article 1(1)(b) the CISG will apply when rules of private international law, that is, choice-of-law rules, lead to the application of the law of a Contracting State.
For additional details on the basic rules of applicability of the Convention, see the Editorial analysis of CISG Article 1.
You should remember that the nationality of the buyer and seller, the place where the buyer takes delivery, and whether the goods are to move from one country to another country do not matter. The CISG will apply when the seller and the buyer have their relevant places of business in different Contracting States.
3. Does the Convention cover contracts to sell electricity?
Sales of electricity are expressly excluded.
4. Does the CISG apply to mixed contracts covering goods and services?
The Convention applies to mixed contracts unless "the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services." To avoid uncertainty, it would be best to reach agreement on what law applies and include a contract clause specifying the law that is to control the parties' relationship.
5. Does the CISG apply to contracts for the purchase of software?
It seems that a contract to sell off-the-shelf software is covered by the CISG. However, the Convention does not mention software. To avoid uncertainty, it would be best to reach agreement on what law applies and include a contract clause specifying the law that is to control the parties' relationship.
See S. Green and D. Saidov, Software as Goods and J. Lookofsky, Software and the CISG, and the annotated text of Article 1 CISG.
6. Does the CISG apply when we sell to our foreign distributor?
The Convention can apply to the sale-of-goods aspects of a distributorship agreement, but does not apply to exclusivity or other non-sale aspects of distributorship agreements. They are governed by the otherwise applicable law. See Helen Kaminski v. Marketing Australian Products, Southern District, New York, 21 July 1997).
C. Which countries are "Contracting States?" How do we find out who they are?
At this writing, there are 74 Contracting States. To identify them, go to the Table of Contracting States, or to the website of the United Nations Commission on International Trade Law (UNCITRAL). The United Nations Treaty Section publishes a list of Contracting States, which is available to subscribers on the Internet. The nations on the list include most of the major U.S. trading partners. They account for over three-quarters of all goods moving in international trade. In addition to the United States, among them are Mexico, Canada, China, Japan, Germany, France, and Russia.
The CISG came into effect for Japan on August 1, 2009. See Articles 1 and 100 to determine whether it applies to your contract.
Is the CISG in effect for Hong Kong?
See Cour de Cassation, 1st Civil Chamber, Case No. 04-17726 (France, 2008) (no); CNA Int'l Inc. v. Guangdon Kelon Electronical Holdings (U.S.D.C. N.D. Ill.) (2008) (yes); and Innotex Precision, Ltd. v Horei Image Products, Inc. (U.S.D.C. E.D. Ark.) (2009) (no).
D. Does the CISG deprive us of freedom of contract? Do we have to deal on the basis of the CISG's rules or can we agree with our suppliers or purchasers on whatever contract terms suit us?
The CISG does not deprive you and your contract partners of freedom of contract. As a matter of fact, its provision on this subject is less restrictive than that of the Uniform Commercial Code (UCC). The court expressed the situation well in Ajax Tool Works, Inc. v. Can-Eng Manufacturing (Northern District, Illinois, 29 January 2003). "The CISG does not preempt a private contract between parties; instead, it provides a statutory authority from which contract provisions are interpreted, fills gaps in contract language, and governs issues not addressed by the contract."
Under Article 6 of the Convention, you are free to modify the rules established by the Convention or to agree that the Convention is not to apply at all. For additional information on this subject, see the annotated text of CISG Article 6.[*] See also the UNCITRAL digest of Article 6 case law.
* The annotated texts cited in this Guide contain hyperlinks to the drafting and history of each Article of the Convention; citations to interpretive case law and bibliography references; texts of cases and references; analyses of words, phrases and concepts; and other relevant material.
E. Should our purchase orders, sale confirmations or contract forms say that the CISG does not apply?
The answer to this question depends very much on your situation. You should consult your professional advisor regarding it.
There has been a tendency among many companies that regularly buy or sell abroad to provide in their contracts that the CISG does not apply. Generally, this has been so more because the Convention was new and not fully tested than because its provisions are not workable. The Convention is no longer new and opportunities to evaluate the manner in which the CISG has been tested and interpreted are readily available.
- At this writing there are over 2,500 judicial and arbitral rulings on the CISG noted on this site. See the Cases on the CISG.
- There is also a large and growing body of texts and law journal commentaries on the CISG. See Bibliography. At this writing it contains over 8,000 citations. Visit also Full Texts of Scholarly Writings. It contains over 1,200 such texts, including LL.M. and Ph.D. theses that are not as readily available elsewhere.
Can you be sure that, if a question or dispute arises, the CISG would not give you or your client a more favorable result?
1. If we want to exclude application of the CISG, how should we do it?
The experts suggest language that specifically rules out the application of the Convention, e.g., "the law of North Carolina, excluding the CISG" or "Article 2 of the UCC as enacted in New York" or "the law of France, excluding the CISG." The reason for this is that the CISG is the law of North Carolina, New York and France. The issue is discussed, and a variety of suggested clauses may be found, in Peter Winship, "Changing Contract Practices in Light of the United Nations Sales Convention: A Guide for Practitioners", 29 International Lawyer (1995) 525-554; and B. Blair Crawford, "Drafting Considerations under the 1980 Convention on Contracts for the International Sale of Goods", 8 Journal of Law and Commerce (1988) 187-205. See also Asante Technologies, Inc. v. PMC-Sierra, Inc. (United States, N.D. California 27 July 2001) and St. Paul Insurance Company v. Neuromed Medical Systems & Support (United States, S.D. NY 26 March 2002). Citations to numerous cases from other countries are provided in the UNCITRAL digest of Article 6 case law.
F. Does the CISG Mean We Must Change the Way We Make Deals With Our Purchasers or Suppliers?
Yes, the CISG means we must change aspects of the way we make deals with our purchasers and suppliers.
For buyers and sellers who have designed their contracting procedures around the law applicable to U.S. domestic contracts, the CISG makes important changes. The CISG makes it easier to become bound by an enforceable contract. It makes it possible to contradict and supersede the clear words of a signed written contract by testimony and other evidence showing that the written contract is not consistent with the real agreement between the seller and buyer. See CISG-AC Opinion No. 3.
MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostina, S.p.A., 144 F. 3rd 1384 (United States, 11th Cir., 29 June 1998), shows the importance of the latter aspect of the Convention's rules. The parties' representatives met at a trade fair. They agreed on the price, quality, quantity, delivery and payment terms of an agreement to purchase ceramic tiles. The buyer's representative had signed the front of the seller's standard order form on which the agreed terms had been entered. The back of the form contained clauses which, if considered to be part of the contract, would have resulted in a judgment in favor of the seller. Just beneath the line for the purchaser's signature was part of the printed form in which the buyer's representative acknowledged that he was aware of and approved of them. The acknowledgment even referred to some of the clauses relevant to the case by number. The buyer offered evidence that the parties had intended that the clauses on the back of the form were not to be part of their agreements. The evidence included affidavits signed by a former executive of the seller who confirmed the buyer's assertion and by a translator, employed by the seller, who witnessed what had occurred. The court concluded that such evidence must be considered.
The court said that its ruling would not mean that written contracts could always be contradicted in CISG cases, because the circumstances were unusual in that two witnesses who had represented the seller in the negotiations corroborated the buyer's evidence. Nonetheless, you should keep in mind that the potential for overriding written terms by evidence of inconsistent intent exists under the Convention. The court suggested the use of a type of contract provision that lawyers call a "merger" or "integration" clause. The purpose of a merger or integration clause is to extinguish any and all prior agreements and understandings not expressed in the written contract. But, under the court's ruling, it would seem that evidence of inconsistent intent would have been admissible even if there had been a merger clause among those printed on the back of the seller's form.
The reasoning of the court in MCC-Marble suggests that, to suit Convention cases, a merger or integration clause should read somewhat along these lines:
"The parties agree and declare that it is their intention that this document contains their entire agreement, that there are no agreements, understandings or arrangements which are not set out in it, that there is nothing contained in it that has not been agreed and that evidence contradicting what is said in this clause is inadmissible."
For additional information on techniques for protecting the integrity of your written contract, see E. Allan Farnsworth, The Interpretation of International Contracts and the Use of Preambles, Revue de Droit des Affaires Internationals / International Business Law Journal (2002) No. 3-4, 271-279.
G. What are other important differences between domestic sales contract law and the rules set out in the CISG?
(b) Rules governing the bargaining process
(c) Battles of the forms
(d) Revocability of offers
(f) Absence of a "perfect tender" rule
(g) The effect of financial hardship
Article 2 of the Uniform Commercial Code (1952) has been adopted in all but one of the states of the United States. It provides the rules of law that govern the making and performance of domestic contracts for the sale of raw materials, commodities and manufactured goods. At this writing, 2003 and 2005 revisions of Article 2, which would change some of what is said in this Guide, have not been enacted by any of the States.
The following are important differences between Article 2 and the CISG of which you should be aware and that you should keep in mind.
(b) Rules governing the bargaining process
First, there are differences in the rules governing the bargaining process.
The CISG undoes one of the changes the UCC made in traditional American sales contract law. Under the CISG, generally, if a communication accepting an offer contains additional or different terms, the communication operates as a rejection rather than an acceptance. This approach is quite different from that of the UCC and can create problems given the way business is most often done.
Rarely do negotiations consist of no more than an offer followed by a flat statement of acceptance. Often, the party receiving the offer will accept with certain changes or additions. Further, sellers and purchasers tend to use contract or purchase order forms containing detailed clauses favoring the side of the trade in which they are involved. The exchange of such forms as offers and acceptances or "confirmations" gives rise to what is called the "battle of the forms." These usual ways of doing business create difficulties under the rules that determine whether negotiations have ripened into a binding contract.
Under Anglo-American common law, if an acceptance of an offer contained different or additional terms, it was treated as a rejection and a counter-offer. So an "acceptance" which was not the "mirror image" of an offer did not give rise to a contract.
The drafters of the UCC attempted to avoid the strict common law doctrine and establish rules for dealing with the battle of the forms. Under the UCC, unless an acceptance is stated to be conditional on the offeror's consent to additional or different terms, an expression of acceptance operates as such, with additional incidental terms becoming part of the contract unless the offeror has limited acceptance to the terms of the offer or objects to them. (UCC 2-207). Absent objection, whether an additional term, an arbitration clause for example, is part of the contract depends upon whether it is considered to be "material." If the additional term is found to be "material," it is not part of the contract, but there is a contract.
Article 19 of the CISG contains rules of offer and acceptance that are close to the common law rule. Article 19 provides as follows:
"(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.
"(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
"(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially."
Under Article 19 of the CISG, additional or different terms in an acceptance prevent a contract from arising unless they are not material and the offeror does not object to them. Under the UCC, a stipulation for arbitration in an acceptance would not keep a contract from arising. There would be a contract and a question; that is, does the contract contain an arbitration clause? The answer would turn on whether such a clause is "material." Under the CISG, it is likely that there would be no contract.
See the annotated text of Article 19 CISG for citations to and texts of battle-of-the-forms cases and literature.
Next, it should be noted that the CISG treats offers as irrevocable more readily than does the UCC. Under Anglo-American common law, an offeror was free to revoke an offer, even if she had said that the offer would remain open for acceptance during a specified period of time. The UCC changed that rule. Even under the UCC, however, the offeror's right and power to withdraw an offer is restricted only if the offer is in a signed writing which by its terms gives assurances that it will be held open and, even then, the period of irrevocability does not exceed three months. Under the CISG, there is no writing requirement, no time limit, and an offer that states a fixed time for acceptance can be regarded as irrevocable even though it does not state that it will be held open for that period. See Article 16(2)(a). A seller who makes an offer on the basis that it expires at the close of business on Friday may think that she is protecting herself against having to withdraw the offer to keep it from being accepted on Monday. Under the CISG, she is doing that, but she may be depriving herself of the right to withdraw the offer before the close of business on Friday. Further, under the CISG an offer cannot be revoked "if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer." See Article 16(2)(b). So, an offeror who decides to do business with someone else while an irrevocable offer is alive may find itself facing a claim by an offeree who accepts the offer despite a communication from the offeror announcing that the offer is withdrawn.
For additional information on this subject, see the annotated text of Article 16 CISG.
Unlike the UCC, the CISG does not require that contracts for the sale of goods be in writing. Under the CISG, oral contracts of sale not evidenced by a document or combination of documents, that is, agreements made in conversations on the phone or in a meeting are enforceable.
Article 2 of the UCC contains what lawyers call "a statute of frauds." Under 2-201 of the UCC, with certain exceptions listed in 2-201(3), contracts of the kind to which the CISG will usually apply are not enforceable unless there is some writing signed by or for the party against whom enforcement is sought and the writing is sufficient to indicate that a contract of sale has been made between the parties. As between "merchants," if one party sends a writing confirming the contract to the other, if the writing is sufficient to bind the sender and if the recipient does not object in writing within ten days after receipt, the UCC's statute of frauds requirement is satisfied. UCC 2-201(2). But, generally, under the UCC, unless the existence of a contract is admitted, or there has been payment or delivery and acceptance, oral contracts for the sale of goods for the price of $500 or more are not enforceable.
Article 11 of the CISG shuns such formalities. It provides that a contract of sale need not be concluded in or evidenced by a writing and may be proved by any means, including witnesses. Under Article 12, however, Article 11 may not apply where a party to the contract of sale has its place of business in a Contracting State whose law requires contracts of sale to be concluded in or evidenced by a writing and which has made an Article 96 declaration that Article 11 does not apply. Some Contracting States have made this declaration. For example, China, the Russian Federation and Argentina have done so. For information on declarations generally, go to the Table of Contracting States. The Convention can prohibit purchasers and sellers from disregarding the effect of Article 12. Consequently, if an oral contract falls under the CISG, it is necessary to determine whether Article 12 is in play.
For additional information on this subject, see the annotated texts of Article 11 CISG, Article 12 CISG and Article 96 CISG.
(f) Absence of a "perfect tender" rule
Turning to the Convention's rules governing performance of contracts for the international sale of goods, an important difference between domestic law in the United States and the CISG is the elimination of the "perfect tender" rule. This is an area where the differences between the CISG and the UCC can create substantial problems for a buyer that has a CISG contract to purchase goods and a UCC contract to sell them. Such a buyer has back-to-back transactions governed by very different rules regarding rejection of the goods and cancellation for breach.
- Under the UCC, a buyer is entitled to reject a tender of delivery under a one-delivery contract of sale that fails in any respect to conform to the contract. Section 2-601, and comment 2 to 2-106. This is the "perfect tender" rule. Under it, a buyer may reject the goods and cancel the contract even if a defect in tendered goods or documents is not serious and the buyer would receive substantially the performance and the goods for which it had bargained. (The U.C.C. establishes a different standard for installment contracts, 2-612, and revocation of acceptance, 2-608. In some circumstances, its provision on cure, 2-508, may give the seller an opportunity to remedy a non-conforming tender. Under UCC 1-203, every contract imposes an obligation of good faith in its performance or enforcement. In a minority of cases, the courts have viewed this obligation as limiting the right to invoke the perfect tender rule.)
- The CISG imposes a much stricter standard for rejection and cancellation, which it refers to as "avoidance." Under the Convention's provisions, effectively, a buyer cannot reject defective goods and cancel unless a non-conformity substantially deprives the buyer of what it was entitled to expect under the contract and, even then, only if the seller foresaw, or a party in its position would have foreseen, such a result. This follows from Article 49(1) which permits a buyer to avoid the contract only if the seller's failure to perform amounts to a "fundamental breach," as that term is defined in Article 25. See the annotated texts of Article 25 CISG and Article 49 CISG, and see CISG Advisory Council Opinion No. 5 - The Buyer's Right to Avoid the Contract in Case of Non-Conforming Goods or Documents.
- The buyer cannot even demand substitute goods unless the non-conformity constitutes a fundamental breach. See Article 46(2). See the annotated text of Article 46 CISG.
The remedy for CISG buyers or sellers who do not want their ability to reject the goods or cancel a contract restricted is to take advantage of the freedom-of-contract principle underlying Article 6. For example, a seller who wants strict adherence to its Terms of Payment clause can state "Non-compliance with any provisions of this clause shall be regarded as a fundamental breach of contract." A buyer to whom strict compliance with the delivery schedule is imperative should have the phrase "time is of the essence" in the contract.
(g) The effect of financial hardship
Writing about UCC-2-615, which deals with occurrences making performance as agreed impracticable, the leading academic experts on UCC Article 2 state that, under all but a few decisions of courts in the U.S., hardship resulting from post contract changes in market prices does not relieve the affected party from its obligation to perform its contract as written. See, for example, White & Summers, 1 Uniform Commercial Code 251 et seq. (5th edition 2006) ("In our judgment an increase in price, even a radical increase in price, is the thing that contracts are designed to protect against." Id. At 254); J.M. Perillo, Hardship and Its Impact on Contractual Obligations: A Comparative Analysis, in : Saggi, Conferenze e Seminari 20, Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell at footnotes 26 and 28 (1996).
Under the CISG, this may not be so. In Scaform International v. Lorraine Tubes, S.A. (June 2009), Belgium's court of last resort dealt with a case in which a steel tube seller's cost for raw material increased by 70%. The court interpreted and applied CISG Article 79, which deals with impediments beyond a party's control and Article 7. According to the partial translation on this data base, the court said:
"Changed circumstances that were not reasonably foreseeable at the time of the conclusion of the contract and that are unequivocally of a nature to increase the burden of performance of the contract in a disproportionate manner, can, under circumstances, form an impediment in the sense of [Article 79]."
Invoking Article 7 sections (1) and (2), the court applied Section 2 of the UNIDROIT Principles of International Commercial Contracts and ruled that the seller was entitled, and the buyer obligated, to renegotiate.
The issues addressed by Belgium's highest court are discussed at length in CISG-AC Opinion No. 7 (2007). The Council's conclusions parallel those of the court.
Professors Kritzer and Eiselen suggest that it would be prudent to negotiate price adjustment clauses establishing standards and mechanisms for dealing with sudden and unexpected market fluctuations. It would be prudent to provide for currency fluctuations too.
H. Because of the way our "just on time" inventory control, production or sales programs work there is no leeway for late delivery or delivery of non-conforming goods. Where do we stand under the CISG?
Under the CISG, purchasers to whom time is of the essence or absolute conformity of the goods with contract specifications is important must bargain for contract terms that give them the right to reject and cancel for any delay or non-conformity. They should use clauses specifying that any delay in performance or any lack of conformity of the goods shall be a fundamental breach within the meaning of the CISG. Adopting the language of Article 25 of the CISG, such a clause could say that any non-conformity or delay shall be deemed to have resulted in such detriment to the buyer as substantially to deprive the buyer of what the buyer is entitled to expect under the contract and that the buyer shall be entitled to avoid the contract. For example, a buyer for resale under a back-to-back contract governed by Article 2 of the UCC, which adopts the perfect tender rule, would want to bring its CISG contract into line with its obligations to its buyer. Under the Convention's provisions, effectively, a buyer cannot reject defective goods and cancel unless a non-conformity substantially deprives the buyer of what it was entitled to expect under the contract and, even then, only if the seller foresaw, or a party in its position would have foreseen, such a result. This follows from Article 49(1) which permits a buyer to avoid the contract only if the seller's failure to perform amounts to a "fundamental breach," as that term is defined in Article 25. The buyer cannot demand substitute goods unless the non-conformity constitutes a fundamental breach. See Article 46(2). The drafters of the Convention chose not to adopt the perfect tender rule found in the UCC and some other domestic sales contract laws.
I. Is there anything we have not asked about that we should know and watch out for?
(a) Price reduction
(b) Notice of non-conformity
(c) Anticipatory breach
(d) Right to cure
(e) Force majeure
(f) Limitation periods
(g) Delivery terms
(h) Attorneys' fees as damages
If you are a buyer, you will like the Convention's price reduction provision; if you are a seller, you may want to revise your current limitation of liability clause to eliminate it. CISG Article 50 provides to buyers who have received non-conforming goods a remedy adapted from civil law jurisdictions. When goods do not conform to the contract, the buyer who accepts such goods may unilaterally reduce the price in the same proportion as the value at the time of delivery of the goods as delivered bears to the value conforming goods would have had at that time. There are situations in which Article 50 can provide better relief than that obtainable by pursuing a damages claim, for example, in the case of a falling market or where a damages claim is precluded by a force-majeure defense. For further explanations of the manner in which Article 50 operates, see the annotated text of this article. It enables you to access case law and law journal commentaries on this subject.
There is a CISG provision deserving the close attention of buyers who receive non-conforming goods. They must provide timely and sufficiently specific notice of the non-conformity or they are apt to lose all CISG remedies. The pertinent CISG provision is Article 39. For U.S practitioners, a potential problem with this article is that its section (1) seems similar to its UCC counterpart, but in many jurisdictions has been interpreted much more strictly. See the annotated text of Article 39 CISG for an analysis of close to 100 cases on this point and access to a law journal commentary on this subject and CISG Advisory Council Opionion No. 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39.
As the penalty for non-compliance with Article 39 is loss of all remedies under the CISG, there are three aspects of Article 39 that all would do well to recognize. They have to do with timeliness of the buyer's notice of non-conformity, the specificity of the buyer's notice, and latent defects.
(1) Although its language seems similar to that of the UCC, Article 39(1) requires the buyer to notify the seller of any non-conformity of the goods within a time frame that some courts have construed very tightly. For details, see Camilla Andersen, "Reasonable Time in Article 39(1) of the CISG", Pace Review of the Convention on Contracts for the International Sale of Goods (Kluwer 1998) 63-176.
(2) The buyer's notice must specify the nature of the lack of conformity. Some courts have construed this requirement very tightly. Several German cases are illustrative:
- A District Court case, Landgericht München 3 July 1989 (German text and English translation available), involved fashion goods. The buyer's notice called attention to "poor workmanship and improper fitting of the goods." The court regarded this as an inadequate specification of the nature of the lack of conformity.
- Another ruling involved frozen bacon, Landgericht München, 20 March 1995 (additional data on this case available). The buyer's notice said, "the goods are rancid." The court found this insufficiently specific.
- The truffles were "soft" was the notice provided in Landgericht Bochum, 24 January 1996 (additional data on this case available). The court held this to be an inadequate notice that they contained worms, despite the buyer's allegation that most professional truffle-vendors would know that softness implied a probable worm infestation.
- A high-water mark may have been reached in a 1997 Appellate Court rejection of a notice stating that five rolls of acrylic blankets were missing, Oberlandesgericht Koblenz, 31 January 1997 (additional data on this case available). This court felt that buyer did not specify how he wished the seller to cure this defect, in the spirit of Article 39. The court stated that although this notice was timely, an insufficiently specific notice should be regarded as no notice.
- In a November 1999 decision, Bundesgerichtshof, VIII ZR 121/98 (text of case and English translation available), the German Supreme Court dealt with the claim preclusion effect of Article 39(1) and the notice issue. The courts below had held that the buyer had lost its right to rely on a lack of conformity because its Article 39(1) notice had not been given within a reasonable time after the buyer ought to have discovered the non-conformity. The Supreme Court found that, in the circumstances, the reasonable period included time in which to decide what to do next, time to consult an expert and obtain the expert's views and a "regular" one-month period. Germany's highest court dealt with the sufficiency of the buyer's notice by stating that, where machinery and technical equipment are concerned, "only an explanation of the symptoms can be demanded, not an explanation of the underlying cause." See the commentary on this case by Prof. Peter Schlechtriem, one of the leading experts on the CISG. He both praises and criticizes the decision. He commends the court for rejecting an overly onerous standard of specificity for notices under Article 39(1). He questions the soundness of combining the Article 38(1) period allowed for examination and the Article 39(1) period allowed for notice of lack of conformity into one. He criticizes the court's reference to a "regular" one-month Article 39(1) period, showing by example that one-month may be too long in many situations. (See also the case law Annex to CISG Advisory Council Opinion No. 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39 and Bundesgericht 4C.198/2003/grl, November 13, 2003, a decision of the Swiss Federal Supreme Court, which suggests that a difference in meaning between the English and French texts of Article 39(1) and the German translation of Article 39(1) may account for the very tight specificity requirement applied in some of the decisions of German courts).
(3) Unlike the UCC, Article 39(2) provides an absolute cut-off time, even in the case of latent defects that the buyer could not have discovered within that time frame.
Article 44 offers a certain measure of relief for the buyer who has a "reasonable excuse" for not providing the requisite notice of lack of conformity. But, as Article 44 was added to the Convention at the urging of delegates from developing countries whose buyers may be less sophisticated, it may not adequately protect more sophisticated purchasers in many circumstances. See the annotated text of Article 44 CISG.
Article 40 is another notice-of-lack-of-conformity "safety valve". For additional information on this provision, see the annotated text of Article 40 CISG. Article 40 was tested in a 1998 arbitration before the Stockholm Chamber of Commerce (English text of this case available). This was a proceeding in which U.S. counsel was able to obtain relief for his client whose 4,000-ton rail press suffered a "complete distortion" after the Article 39 notice period had expired. The failure was "due to a minor hardware change." The buyer successfully invoked Article 40, which says:
"The seller is not entitled to rely on the provisions of Articles 38 and 39 [Article 38 has to do with time for examination of the goods, Article 39 with notice of lack of conformity] if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer."
In many common commercial situations, a seller or a buyer has to be confident that the other will perform. What may a buyer do if it learns that its seller's usual source of supply has been cut off or that its seller has delivered defective goods to others? What may a seller do if it learns of reports that its buyer had failed to take delivery under contracts with others or that its buyer's usual bank had terminated the buyer's loan and letter of credit facility, or that a buyer had lost its contract with a major customer? Under the CISG, a party who has reasonable grounds to think that the other party will not perform is in a more difficult position than it would be in under Article 2 of the UCC.
Article 71 of the CISG deals with the concept of insecurity with respect to performance. Although Article 71 provides for suspension of performance on the grounds of insecurity regarding the other side's performance, the standard is restrictive. The standard is whether it has become apparent that the other party will not perform a substantial part of its obligations. Professor Honnold asserts that this means that there must be "objective grounds showing substantial probability of non-performance." J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention sec. 388 (3rd ed. 1999). Consequently, suspension of performance and the right to demand adequate assurances of performance may not be readily available under the CISG. A party that wants to be able to demand assurances of due performance if it has reasonable grounds for insecurity with respect to the performance of the other should bargain for contract language that modifies the Article 71 standard.
More importantly, Article 71 does not say that the party suspending performance may cancel or "avoid" the contract if the other party fails to provide adequate assurance of performance. Avoidance is permitted only if it is clear that the other party will commit a "fundamental breach." Article 72(1). Thus, a party that wants the right to cancel the contract if the other party wrongfully fails to furnish adequate assurance of due performance will need to bargain for contract terms that specify that any wrongful failure to furnish adequate assurance shall be a fundamental breach within the meaning of the CISG or shall be deemed to have resulted in such detriment to the buyer as substantially to deprive the buyer of what the buyer is entitled to expect under the contract and that the buyer shall be entitled to avoid.
For additional information on this subject, see Yinhao Yang, Suspension Rules under Chinese Contract Law, the UCC and the CISG: Some Comparative Perspectives, and the annotated texts of Article 71 CISG and Article 72 CISG.
Consistent with its approach to the consequences of deficiencies in performance, the CISG gives the seller the right to cure many types of deficiencies in the performance of its contract obligations. This right must be exercised in a certain way. In some circumstances, a buyer is bound by the seller's offer to cure, if it does not respond within a reasonable time.
Three articles of the Convention deal with the seller's right to cure:
- Article 34 permits a seller to remedy a tender of defective documents up to the time fixed for handing them over, so long as the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense.
- Article 37 deals with deliveries of non-conforming goods before the delivery date fixed by the contract. In such a case, a seller has the right to replace non-conforming goods or remedy any lack of conformity in the goods delivered, so long as it does so by the delivery date and the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense.
- Article 48 gives a seller the right to remedy "any failure to perform" its obligations after the date for delivery, if it can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. This right to remedy applies to a breach by failure to deliver on time. Article 48 establishes a procedure for the seller to follow, if it wishes to exercise such right. The seller should request the buyer to make known whether it will accept performance within a time specified by the seller. If the buyer does not answer within a reasonable time, the seller has the right to perform and the buyer has the obligation to accept performance within the time indicated in the seller's request. Article 48(3) provides that a notice by the seller that it will perform within a specified time period is assumed to include a request that the buyer consent or refuse its consent. This means that a buyer who does not respond to a notice that the seller will deliver late will be in breach if it refuses to accept delivery. The parties are free to modify the Convention's rules on the seller's right to cure. A buyer to whom time is of the essence should bargain for contract language that modifies or eliminates Article 48.
For additional information on the seller's right to cure, see the annotated texts of Article 34 CISG, Article 37 CISG and Article 48 CISG.
Article 79 deals with force majeure. The reach of Article 79 is unclear. The first clause of Article 79(1) refers to a seller's or a buyer's "failure to perform any of his obligations. ..." Professor Honnold concludes, however, that this broad language "does not apply to defective performance such as the supply of non-conforming goods." J. Honnold, Uniform Law For International Sales under the 1980 United Nations Convention sec. 426 (3rd ed. 1999).) This opinion is not unanimous. The different views on this subject are discussed in a decision by Germany's highest court. See Bundesgerichtshof, VIII ZR 121/98, 24 March 1999 (case text, English translation of it, and translated text of a comment on this case by Peter Schlechtriem are available).
To benefit from Article 79, the defaulting party must prove that its failure to perform was due to an impediment beyond its control. Further, it must prove that it could not reasonably have been expected to have taken the impediment into account at the time it entered into the contract, or, after it was bound by the contract, to have avoided or overcome the impediment or its consequences. If the failure to perform is due to a failure by a third party whom the breaching party engaged to perform the whole or a part of the contract, in addition, the breaching party must prove that the third party would be exempt from liability under the same standard. Professor Honnold shows that usually the exemption does not apply to the failure of a seller's supplier to perform. The seller must have engaged the supplier to perform a part of the seller's contract with the buyer. Id. at sec. 433-434.
For more on the CISG's counterpart to force majeure, see section G.1 "The effect of financial hardship", above, CISG-AC Opinion No. 7: Exemption of Liability for Damages under Article 79 of the CISG, and the Annotated Text of Article 79 on this database.
Article 79 exempts the defaulting party only from liability for damages. It does not eliminate other CISG remedies such as avoidance, i.e., cancellation for breach, or reduction in price. For example, if, because of an impediment beyond its control, a buyer fails to pay or post a letter of credit when due, the seller may not have the right to claim damages, but it may have the right to cancel the contract, if there is a fundamental breach or it follows the procedures established by Article 63. Under Article 63, the seller may fix an additional period of time of reasonable length for payment. If the buyer does not pay within the additional period of time fixed by the seller or declares that it will not do so within that period, under Article 64(1)(b), the seller may declare the contract avoided. Under Article 47 and Article 49, a buyer has similar rights with respect to its seller's non-or late delivery.
See the annotated texts of Article 47 CISG, Article 49 CISG, Article 63 CISG and Article 64 CISG.
Unlike Article 2 of the Uniform Commercial Code, the CISG does not contain a provision limiting the time within which a buyer must begin a court action or arbitration.
There is, however, a treaty fixing the limitation period applicable to the types of contracts covered by the CISG, the Convention on the Limitation Period in the International Sale of Goods and its 1980 Protocol. They came into effect for the United States in 1994. The Limitation Convention governs disputes arising out of contracts for the sale of goods entered into by a buyer and seller having their relevant place of business in different countries that are parties to the Convention. Some nations that have adopted the CISG have not adopted the Limitation Convention. The latter Convention establishes a limitation period of four years, which is the period fixed by 2-725 of the UCC. The four-year period begins on the date on which the claim accrues. Most claims accrue on the date on which the goods were actually handed over to the buyer. This rule would apply to claims premised on express or implied warranties. Under Article 11 of the Limitation Convention, if there is an express undertaking relating to the goods "which is stated to have effect for a certain period of time," the limitation period begins on the earlier of the date on which the buyer gives notice of non-compliance or the date on which the period of the undertaking expires. Under the Convention, claims for fraud committed before the conclusion of the contract or during its performance would accrue on the date on which the fraud was or could have been discovered.
While buyers and sellers may by contract exclude the application of the Limitation Convention altogether, the four-year limitation period cannot be shortened, except by an otherwise enforceable clause stipulating that arbitration must be commenced within a shorter period. Likewise, the parties cannot extend it except during the running of the limitation period by a declaration in writing signed by the creditor. Consequently, it would seem that, taken alone, a supplier's efforts to correct a problem would not extend the limitation period.
Remember, however, that the notice provision of Article 39 of CISG could have the effect of barring claims before the time fixed by the Limitation Convention has run. Under Article 39, the "buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. … In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer. …" Taken alone, this would mean that, under the Convention, a buyer would have a remedy for a defect only if it met Article 39's requirements, even in cases where it did not discover the defect in time to meet the two-year deadline. However, as noted earlier, two articles of the Convention ameliorate the impact of Article 39. Article 40 precludes a seller from relying on Article 39 "if the lack of conformity relates to facts of which [the seller] knew or could not have been aware and which he did not disclose to the buyer." Article 44 limits the impact of Article 39 by preserving the buyer's right to reduce the purchase price pursuant to Article 50 or claim damages, other than damages for loss of profit, if it has a reasonable excuse for its failure to give the notice required by Article 39.
For more information on the Limitation Convention, go to the database homepage on this Convention.
For international traders, Incoterms are more suitable than the delivery terms recited in the UCC. The CISG does not contain definitions of delivery terms. Incoterms specify important variations and details that are not covered by the CISG. So, under the CISG, continue to have Incoterms address passage of risk and the delivery conditions you want. In fact, if you do not want Incoterms to apply, you may have to exclude them. Two U.S. courts have ruled that they are incorporated through Article 9(2); see BP Oil International v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333 (5th Cir. 11 June 2003), and St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH, (S.D.NY 26 March 2002).
For guidance on the proper use of Incoterms, your best bet continues to be one of the publications authored by Jan Ramberg. See the reference to his work below, under "Books".
(h) Attorneys' fees as damages
Do the damages recoverable under CISG Article 74 include attorneys' fees spent to recover them?
In the United States, apparently not. See Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc. (United States, N.D. IL 29 August 2001), reversed 313 F.3d 385 (7th Cir. 19 November 2002), cert. denied December 1, 2003. The district court had ruled that a party prosecuting a claim for damages for breach of a contract governed by the CISG was entitled to recover attorneys' fees as damages resulting from the breach. Under what is called the "American Rule," generally, absent an agreement providing otherwise, the cost of engaging counsel to prosecute a claim for breach of contract is not recoverable. Noting that this is the minority view internationally, the district court concluded that attorneys' fees are a foreseeable consequence of a breach within the meaning of CISG Article 74. On appeal, the United States Court of Appeals for the Seventh Circuit reversed. It reasoned that the principles for determining when a losing party must reimburse the other party for attorneys' fees are part of procedural, not substantive law. It concluded that there is no support in the background of the Convention or in the cases decided under it for reading the word "loss" in Article 74 as intended to include attorneys' fees. On appeal, the U.S. Supreme Court invited the Solicitor General to file a brief expressing the views of the federal government. In a brief in which the Legal Adviser of the Department of State joined, the Solicitor General asserted that "the court of appeals correctly held that the term 'loss' in Article 74 of the Convention does not include attorneys' fees" and supported denial of the petition for certiorari on that and other grounds. The decisions of both lower courts and the briefs filed in the Supreme Court are published on this data base. Look under the case history section of the case presentation.
In its Opinion No. 6 Calculation of Damages under CISG Article 74, the CISG-Advisory Council reached the same conclusion, but for different reasons.
A. CISG Research Guide
A leading article on researching the CISG is Claire M. Germain, "The United Nations Convention on Contracts for the International Sale of Goods: Guide to Research and Literature", Review of the Convention on Contracts for the International Sale of Goods (Kluwer Law International 1995) 117-145.
There are many studies of the CISG as a whole and of the many aspects of its provisions. You might try the following:
- Holdsworth, Judith L., Practical Application of the United Nations Convention on Contracts for the International Sale of Goods (CISG)
- Volumes 4-5, International Contract Manual, S. Eiselen and A. H. Kritzer, Thompson West (2008). These volumes update Prof. Kritzer's Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1991-1994). This work explains both the UCC and the CISG.
- Guide to the International Sale of Goods Convention (Looseleaf, 2 volumes. Compilation of studies on numerous CISG topics. W. A. Hancock, Editor.) Published by Business Laws, Inc.
In addition to the IICL CISG Datbase of which this Guide is a part, the following are websites containing useful information on the Convention and related subjects.
- There is an Autonomous Network of CISG Websites with materials on the CISG in websites produced by universities and law firms in Africa, Arab States, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Israel, Japan, Mexico, Spain, Latin America and Switzerland.Unilex is a helpful source for case abstracts, case texts and bibliography citations on the CISG and the UNIDROIT Principles of International Commercial Contracts. This service is available on the Internet <http://www.unilex.info/> and in a printed text marketed by Transnational Publishers of Ardsley, NY.
In addition, there is:
- International Chamber of Commerce, <http://www.iccwbo.org/>.This site contains the ICC's international arbitration rules and information on its publications, services and products, including a form contract for the international sale of manufactured goods for resale designed with the provisions of the CISG in mind. The form is available on disk.
- The U.S. Department of State's Private International Law site <http://www.state.gov/s/l/c3452.htm>. This database contains information on international legal developments affecting commercial transactions and the intentions of the United States regarding them. It also contains the texts of the CISG, the 1978 United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and other treaties affecting commercial matters and lists of the countries which are parties to those treaties.
CISG News is an electronic newsletter devoted to developments regarding the CISG and the legal aspects of contracts for the international sale of goods with links to this and other parts of the cisgw3 database of the Institute of International Commercial Law of the Pace University School of Law, and other Internet sites.
On September 26, 2003, the CISG-AC ("Advisory Council on the United Nations Convention on Contracts for the International Sale of Goods (CISG)") announced its first opinion, Electronic Communications under the CISG.
Its former Secretary, Dr. Loukas Mistelis, Centre for Commercial Law Studies, Queen Mary, University of London, described the CISG-AC as a private initiative to respond to the need to address some controversial, unresolved issues relating to the CISG which merit interpretative guidance and to promote a uniform interpretation of the CISG. Dr. Mistelis has said: "The primary purpose of the CISG-AC is to issue opinions relating to the interpretation and application of the Convention on request or on its own initiative. Requests may be submitted to the CISG-AC, in particular, by international organizations, professional associations and adjudication bodies. The first opinion is a response to an informal request by the International Chamber of Commerce for the Council to reflect on issue of electronic communications and the ability of the CISG to respond to such challenges."
The founding members of the CISG-AC were Professor Dr. Eric E. Bergsten, Emeritus of Pace University, formerly Secretary General of UNCITRAL, Professor Dr. Michael Joachim Bonell, University of Rome La Sapienza, formerly Secretary General of UNIDROIT, the late Professor E. Allan Farnsworth, Columbia University, New York, Professor Dr. Alejandro Garro, Columbia University, Professor Sir Roy Goode, University of Oxford, Professor Dr. Sergei N. Lebedev, Moscow Institute of International Relations, Professor Dr. Jan Ramberg, Emeritus, Stockholm University, the late Professor Dr. Dr. h.c. Peter Schlechtriem, Emeritus, University of Freiburg, Professor Hiroo Sono, Kyushu University and Professor Dr. Claude Witz, Universität des Saarlandes and Université Robert Schuman, Strasbourg. The Council has elected four new members: Prof. Michael Bridge, London School of Economics, Prof. John Y. Gotanda, Villanova Law School, Prof. Dr. M. del Pilar Perales Viscasillas, Universidad Carlos III, Madrid, and Prof. Dr. Ingeborg Schwenzer, University of Basel.
In October, 2007, the Council elected Prof. Bergsten to serve as Council Chair and chose Professor Sieg Eiselen, Department of Private Law, University of South Africa, to serve as its Secretary.
- In two extensively reasoned decisions, U.S. courts of first instance have reached opposite conclusions on the issue of whether the CISG is in effect in Hong Kong. CNA Int'l Inc. v. Guangdon Kelon Electronical Holdings (yes); Innotex Precision, Ltd. v Horei Image Products, Inc. (no). In Electrocraft Arkansas, Inc. v. Super Electric Motors, Ltd., the court initially followed CNA Int'l, but later invited the parties to address the issue in the light of Innotex.
- Scaform International v. Lorraine Tubes, S.A.S., June 19, 2009, a decision of Belgium's Hof van Cassatie, concerns the application of CISG Articles 79 and 7 to a case in which a steel tube seller's cost for raw material increased by 70%. The court interpreted and applied CISG Article 79 and Article 7. The court said that an unforeseen disproportionate increase in the burden of performance may be an Article 79 impediment and ruled that the seller was entitled, and the buyer obligated to renegotiate.
- Bundesgerichtshof VIII ZR 67/04, March 2, 2005, a decision of Germany's Federal Supreme Court concerns the application of the CISG to a failure of the goods to comply with public law regulations governing their marketing. For additional information on the significance of this case, see Professor Schlechtriem's commentary.
- Bundesgericht 4C.198/2003/grl, November 13, 2003, a decision of the Swiss Federal Supreme Court, points out an important difference in meaning between the English and French texts of Article 39(1) and the German translation of Article 39(1).
- In Amco Ukrservice & Promriladamco v. American Meter Company the issue was whether the CISG barred joint venture contract related claims because the contract lacked price and quantity terms. "Although the CISG may have governed discrete contracts for the sale of goods that the parties had entered pursuant to the joint venture agreements, it does not apply to the agreements themselves."
- Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., 313 F.3d 385 (7th Cir. 2002), reversing 2001 WL 1000927 (United States, N.D. IL 2001), cert. denied, December 1, 2003 concerns the recovery of attorneys' fees as CISG damages for breach. The parties' Supreme Court briefs and friends of the court briefs are on this data base with links in the case history section of the case presentation. The Supreme Court invited the Solicitor General to file a brief expressing the views of the federal government. In a brief in which the Legal Adviser of the Department of State joined, the Solicitor General asserted that "the court of appeals correctly held that the term 'loss' in Article 74 does not include attorneys' fees" and supported denial of the petition for certiorari on that and other grounds. The government brief contains significant comments on the meaning of Article 7(1) as it applies to the decisions of foreign courts and the place of such decisions in the interpretive process.
- Chicago Prime Packers, Inc. v. Northam Food Trading Co. applies CISG Article 38, buyer's examination, Article 39, notice on non-conformity, and Article 78, prejudgment interest, and follows Zapata's declaration that attorneys' fees are not Article 74 damages.
- In BP Oil International v. Empresa Estatal Petroleos de Ecuador, the United States Court of Appeals for the Fifth Circuit follows St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH, below, in thinking that INCOTERMS are incorporated through Article 9(2).
- Chateau des Charmes Wines Ltd. v. Sabate USA, Sabate S.A. examines the impact of the Convention's articles on formation and modification on a seller's contention that forum-selection clauses in its invoices were part of an oral contract.
- Chicago Prime Packers, Inc. v. Northam Food Trading Co. contains an informative analysis of Article 38's buyer's examination requirement and Article 39's notice of lack of conformity requirement.
- Usinor Industeel v. Leeco Steel Products, Inc., 2002 WL 6555540 (United States, N.D. IL 2002), construes CISG Article 4(b) and says that Article 9 of the UCC, not the CISG, governs the effect of a retention of title clause in a contract falling under the Convention when the rights of a secured party are affected. Citing an Australian case, the Usinor court also calls attention to the fact that "courts should consider the decisions issued by foreign courts on the CISG."
- Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F. Supp. 2d 1142 (United States, N.D. CA 2001), applies Article 1 and Article 10 CISG to a contract between two Delaware corporations and deals with removal of a CISG case from state to federal court.
- St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support, GmbH, (United States, S.D.NY 2002), stands for the proposition that, pursuant to CISG Article 9(2), Incoterms definitions should be applied to the contract despite the lack of an explicit Incoterms reference in the contract. The court cited two theses published on the IICL CISG database: Neil Gary Oberman, "Transfer of Risk From Seller to Buyer in International Commercial Contracts: A Comparative Analysis of Risk Allocation Under CISG, UCC and Incoterms", a Laval thesis; and Annemieke Romein, "The Passing of Risk: A comparison between the passing of risk under the CISG and German Law", translated text of a Heidelberg thesis. See also the annotated text of Article 9 CISG.
- Magellan International Corp. v. Salsgitter Handel GmbH, 76 F. Supp. 2d 919 (United States, N.D. IL 1999), concerns the pleading requirements for stating a claim for breach of contract under the CISG for purposes of Fed. R. Civ. P. 12(b)(6), the availability of specific performance, and the unavailability of replevin.
- MCC Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostina, S.p.A., 144 F. 3rd 1384 (United States, 11th Cir. 1998). This leading case deals with the parol evidence rule, the admissibility of evidence of subjective intent and the interpretation of CISG Article 8. For additional information on this subject, see the annotated text of CISG Article 8 and CISG-AC Opinion No. 3.
- Beijing Light Automobile Co., Ltd v. Connell Limited Partnership, Stockholm Chamber of Commerce Arbitration Award of 5 June 1998, (English text available). There have been over 250 cases on the CISG's provisions on notice of lack of conformity of goods, Article 39. This is a leading case on relief from the Convention's notice provisions under Article 40.
- Bundesgerichtshof, VIII ZR 287/98, 3 November 1999 (case text and English translation available). In this case, the German Supreme Court ruled that the Article 39(1) reasonable period included time in which to decide what to do next, time to consult an expert and obtain the expert's views and a "regular" one-month period. See a comment on this case by Prof. Schlechtriem in which he both praises and criticizes the decision and CISG Advisory Council Opionion No. 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39.
- Bundesgerichshof, VIII ZR 121/98, 24 March 1999 (case text and English translation available). This is a leading decision by the Supreme Court of Germany on Article 79, the CISG's counterpart to force majeure.
- Les Verreries de Saint Gobain, SA v. Martiswerk GmbH, Cour de Cassation,16 July 1998 (case text and English translation available). This is a decision by the Supreme Court of France that illustrates the manner in which battles of the forms are being handled under the CISG.
- Oberster Gerichtshof, 2 Ob 191/98x, 15 October 1998 (case text and English translation available). This is a decision by the Supreme Court of Austria that illustrates the manner in which the CISG's reference to usages, Article 9, is being interpreted. For additional information on usages under the CISG, see the annotated text of Article 9 CISG.
3. CISG-Advisory Council Opinions
Electronic Communications under the CISG (2003) - Drafted by Professor Christina Ramberg, the first opinion announced by the CISG-AC addresses the issue of electronic communications in context specific circumstances under numerous articles of the CISG. The Council says that a contract may be concluded or evidenced by electronic communications and that the term "writing" in the CISG includes any electronic communication retrievable in perceivable form. The Council's opinion indicates that, subject to qualifications paralleling those stated in the pertinent CISG article:
- A notice, request or other communication may be given or made electronically whenever the addressee expressly of impliedly has consented to receiving electronic messages of this type, in that format, and to that address;
- The term "dispatch" corresponds to the point in time when the notice has left the sender's server;
- The term 'reaches' corresponds to the point in time when an electronic communication has entered the addressee's server;
- The term "oral" includes electronically transmitted sound in real time and electronic communications in real time; and
- In some articles the term "notice" includes electronic communications, but in others the term "notice" includes electronic communications only if the addressee expressly or impliedly has consented to receiving electronic communications of that type, in that format and to that address.
Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39 (7 June 2004) - Drafted by Professor Eric E. Bergsten, the second opinion announced by the CISG-AC considers the genesis of, the relationship in purpose and operation between, and the judicial interpretation of CISG Articles 38 and 39. It includes as an Annex a non-exhaustive table of cases with the decisions organized under the following issues: "Proper Examination?", "Notice Specific and Satisfactory?", and "Notice Timely?"
Parol Evidence Rule, Plain Meaning Rule, Contractual Merger Clause and the CISG 23 (23 October 2004) - Drafted by Professor Richard Hyland, CISG-AC Opinion No. 3 restates the difference between the CISG and domestic laws with respect the role of and weight to be given to contractual writings and outside evidence.
Contracts for the Sale of Goods to be Manufactured or Produced and Mixed Contracts (Article 3 CISG) (24 October 2004) - Drafted by Professor Pilar Viscasillas, CISG-AC Opinion No. 4 deals with distinguishing contracts for the sale of goods from service contracts under, and the relationship between, the two criteria established by Article 3 of the CISG. 48 footnotes direct the reader to parts of the travaux, commentaries and cases relating to the issues discussed in the opinion.
The Buyer's Right to Avoid the Contract in Case of Non-Conforming Goods or Documents (7 May 2005) - Drafted by Professor Dr. Ingeborg Schwenzer, CISG-AC Opinion No. 5 focuses on what the Council regards as the most important issues relating to a non-conforming tender. It explores the meaning of the provisions of the CISG in the context of the conflicting concerns and interests that have to be balanced.
Calculation of Damages under CISG Article 74 (Spring 2006) -- Drafted by Professor John Y. Gotanda, CISG-AC Opinion No. 6 expresses the views of the Council on a variety of issues arising under Article 74, including burden and standard of proof, lost volume sales, loss of good will, and punitive damages.
Exemption of Liability for Damages under Article 79 of the CISG (12 October 2007) - Drafted by Professor Alejandro M. Garro, CISG-AC No. 7 expresses the views of the Council on issues arising under the CISG's force majeure provision.
Calculation of Damages under CISG Articles 75 and 76 (15 November 2008) - Drafted by Professor John Y. Gotanda, CISG-AC Opinion No. 8 expresses the views of the Council regarding the application of Articles 75 and 76, including the interplay between them and between them and Article 74, dealing with unreasonable substitute transactions (Article 75), and circumstances and considerations affecting the determination of "current price" (Article 76).
Consequences of Avoidance of the Contract (15 November 2008) - Drafted by Professor Michael Bridge, CISG-AC Opinion No. 9 expresses the thoughts of the Council on the fall-out from avoidance, including details not expressly dealt with by the CISG, such as, the place of redelivery and of repayment of the purchase price and the time within which mutual restitution of performance has to take place.
Comments explaining the basis for each opinion are included.
The following publications and papers regarding the Convention are mentioned because their subject matter is particularly timely or interesting. For more, go to the Bibliography.
- E. Allan Farnsworth, The Interpretation of International Contracts and the Use of Preambles, Revue de Droit des Affaires Internationals / International Business Law Journal (2002) No. 3-4, 271-279. Examines the use of entire agreement clauses, no-oral modification clauses, anti-waiver clauses, clauses excluding evidence of trade usage, and clauses adopting the context rule of interpretation to enhance the integrity of a writing expressing the terms of a contract.
- Patrick C. Leyens, "CISG and Mistake: Uniform Law vs. Domestic Law [Mistake as an interpretive challenge under the "validity loophole" of Article 4(a) of the Vienna Convention 1980" (2003).
- Francesco G. Mazzotta, "Commentary on CISG Article 81 and Counterpart Provisions of the Principles of European Contract Law" and "Commentary on CISG Article 82 and PECL Article 9:309" (2003).
- Douglas W. Bateson and Dionysios Flambouras, "International Trade Law and the Greek Shipping Sector (2003). Examines the interplay between the CISG and INCOTERMS 2000.
- Larry A. DiMatteo, "The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings," 22 Yale J. Int'l L. 111 (1997).
- Maja Stanivukovic, "Editorial Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement CISG Article 8." Article 8 is the Convention's provision on intent of the parties. See the annotated text of this article.
- Camilla B. Andersen, "Reasonable Time in Article 39(1) of the CISG", Pace Review of the Convention on Contracts for the International Sale of Goods (Kluwer 1998) 63-176.
- M. Pilar Perales Viscasillas, " 'Battle of the Forms' Under the 1980 United Nations Convention on Contracts for the International Sale of Goods: A Comparison with Section 2-207 UCC and the UNIDROIT Principles", 10 Pace International Law Review 97 (1998).
- Ronald A. Brand, "Professional Responsibility in a Transnational Practice," 17 Journal of Law and Commerce 301 (1999).
- Drafting Contracts under the CISG, H. M. Flechtner, R. A. Brand and M. S. Walter, eds., Oxford University Press (2007). This work had its origins in the University of Pittsburgh's Center for International Legal Education symposium celebrating the 25th Anniversary of the CISG;
- James Klotz, "International Agreements: An Annotated Drafting and Negotiating Guide," Canada Law Book, Inc. (1997) is a user-friendly text that takes cognizance of the CISG.
- Peter Huber & Alastair Mullis, "The CISG: A new textbook for students and practitioners", Sellier European Law Publishers (2007) 408 p.
- Understanding the CISG, J. Lookofsky, Kluwer Law International (2008). This is the third revised edition of Prof. Lookofsky's paperback.
- Volumes 4-5, International Contract Manual, S. Eiselen and A. H. Kritzer, Thompson West (2008). These volumes update Prof. Kritzer's Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1991-1994).
- Sharing International Commercial Law across National Boundaries: Festschrift for Albert H Kritzer, C. B. Andersen, U. G. Schroeter, eds., Wildy, Simmonds and Hill Publishing (2008). This book, which contains 34 papers on the CISG by academics and practitioners, celebrates the work of Prof. Kritzer on the occasion of his 80th birthday.
In many parts of Europe, the German "Kommentar zum Einheitlichen UN-Kaufrecht", 4th ed., edited by Profs. Peter Schlechtriem and Ingeborg Schwenzer (Beck 2004) is the text on the CISG that has been cited most frequently by courts and arbitral tribunals. For those who do not read German, there is a second edition of an English translation of this text: "Commentary on the UN Convention on the International Sale of Goods (CISG)", edited by Peter Schlechtriem and Ingeborg Schwenzer (Oxford University Press 2005).
Another leading text on the CISG is the third edition of Professor John O. Honnold's "Uniform Law for International Sales Under the 1980 United Nations Convention" (Kluwer Law International 1999). Professor Honnold's book is now available on this database, as are the following:
- The commentaries published in International Sales: The United Nations Convention on Contracts for the International Sale of Goods, N.M. Galston & H. Smit eds., Matthew Bender (1984), 264 pages;
- The articles published in Commentary on the International Sales Law: The 1980 Vienna Sales Convention, C.M. Bianca & M.J. Bonell eds., Giuffrè: Milan (1987) 886 pages; and
- Joseph M. Lookofsky, The United Nations Convention on Contracts for the International Sale of Goods, in: Blanpain ed., International Encyclopaedia of Laws - Contracts, Suppl. 29, Kluwer Law International (December 2000) 1-192
The publishers, authors and editors are to be commended for making these works available to those who would not have access to them otherwise.
Prof. Albert Kritzer notes two seminal texts on the Convention and a 2002 text on the CISG that are also of particular interest:
- Peter Schlechtriem, "Uniform Sales Law: The UN Convention on Contracts for the International Sale of Goods" (Manz 1986). This is an English edition of a German text written shortly after the adoption of the CISG at the 1980 Vienna Diplomatic Conference. It benefits from notes taken by Prof. Schlechtriem while serving as a delegate.
- Fritz Enderlein & Dietrich Maskow, "International Sales Law: United Nations Convention on Contracts for the International Sale of Goods Convention; Convention on the Limitation Period in the International Sale of Goods" (Oceana 1992). Many commentaries were written after the 1980 Diplomatic Conference in German, French and other languages. This text calls attention to the views expressed by a number of the early commentators on the CISG. It also provides a helpful overview of the Limitation Convention.
Jan Ramberg, "ICC Guide to Incoterms 2000- Understanding and Practical Use," ICC Pub. No. 620 (1999). The CISG has not eliminated the need to adopt agreed definitions of commonly used trade terms. The latest version of the most commonly used set of trade definitions, Incoterms 2000, ICC Pub. No. 560, is accompanied by a new edition of Prof. Ramberg's explanation of the terms and the way they should be used. The 2000 version of Incoterms does not make major changes in the definitions adopted in Incoterms 1990, but Professor Ramberg's guide does more than describe the terms, so his new edition is useful although the changes in the terms are evolutionary rather than revolutionary. Professor Ramberg explains, succinctly and with effective illustrations, the function of Incoterms in the international trade in goods in the current and developing context and how imposing special meanings on them leads to uncertainty. He places Incoterms in their context, mentioning, inter alia, the CISG, the ICC Model International Sale Contract (ICC Pub. No. 556), and the compatibility of Incoterms with developing systems of e-commerce such as "bolero.net."
The Seventeenth Annual Willem C. Vis International Commercial Arbitration Moot. The 2010 Vis Moot will take place in Vienna from March 26 through April 1. The schedule will be posted in the Moot's segment of this data base. The number of participants has continued to grow each year. Hundreds of practicing attorneys, law school professors and arbitration professionals come to Vienna each year to participate as arbitrators at this event. Information on participating in the Willem C. Vis Moot may be obtained from Professor Eric E. Bergsten, Schimmelgasse 16/14, A-1030 Vienna, Austria; tel. and fax: +43 1 713-5408; e-mail: <email@example.com> or< firstname.lastname@example.org>.
ODR conference. "A Fresh Look at Online Dispute Resolution (ODR) and Global E-Commerce: Toward a Practical and Fair Redress System for the 21st Century Trader (Consumer and Merchant)," March 29-30, U.N. Vienna International Centre. Presented by the Pace Institute of International Commercial Law, UNCITRAL and the Penn State Dickinson School of Law. Experts on the existing legal framework for cross-border e-commerce and mechanisms for online dispute resolution will explore the practical aspects of establishing a future global ODR system for both B2B and B2C disputes. Click here for the program and registration particulars. There is no charge for attendance.
Willem C. Vis International Commercial Arbitration Moot Alumni Association. Students and arbitrators who have participated in the Willem C. Vis International Commercial Arbitration Moots are eligible to join the Moot Alumni Association. The Association publishes the Vindobona Journal of International Commercial Law and Arbitration. Information on membership may be obtained at <http://www.maa.net/>.
© John P. McMahon
* John P. McMahon is an attorney admitted to practice in New York, North Carolina and South Carolina. He received his law degree from the New York University School of Law and a Master of Laws from the Georgetown University Law Center. His office is in Rock Hill, South Carolina.
Mr. McMahon served as Chair of the International Sales and Related Commercial Transactions Committee of the International Law and Practice Section of the New York State Bar Association from 1995 through 2006, having served as co-Chair in 1989 and 1990.
Mr. McMahon is a member of the Editorial Board of the Journal of Maritime Law and Commerce having served as Editor (1990 - 1995), Co-Editor (1989 - 1990), Associate Editor (1970 - 1988) and Case Editor (1970 -1980). His writings include:
"Forum-Selection and Choice of Law Clauses," Chapter IV, Cruise Ships, 10 Benedict on Admiralty (2008);
"Dispute Resolution Clauses for your International Contracts," 9 Purchasing Today, no. 3 at 22 (March 1998);
When the U.N. Sales Convention Applies and Some of the Reasons Why It Matters to You and Your Clients" (1997).
"The Role of Party-Appointed Arbitrators," 49 Dispute Resolution Journal of the American Arbitration Association No. 3 at 66 (September 1994).