Drafting CISG Contracts and Documents and Compliance Tips for Traders
January 2004
Prepared by John P. McMahon [*]
Introduction
- Suggested procedures, contract clauses, documents
Suggestions regarding:
Part I. Sphere of Application and General Provisions
- Art. 1. Applying the CISG by contract
- Art. 2. Applying the CISG to contracts excluded by Art. 2
- Art. 3. Mixed contracts for goods and services
- Art. 6. Excluding the Convention or parts of it
- Art. 7. Filling gaps in the contract and the Convention
- Arts. 8, 11. Dealing with external evidence of intent
- Art. 9. Dealing with the applicability of trade usages
- Art. 10. Specifying place of business for CISG purposes
- Art. 11. Requiring a written contract
- Art. 13. Specifying the form of notices and writings for purposes of the contract and the CISG
Part II. Formation of the Contract
- Art. 14. Preventing an indication from constituting an offer
- Art. 16. Revocable and irrevocable offers
- Art. 18. Dealing with acceptance by performing an act
- Art. 19. Dealing with acceptances containing additional or different terms
- Art. 21. Offeror's notice that late acceptance is effective or ineffective
Part III. Sale of Goods
- Arts. 25, 49, 64. Modifying the meaning of fundamental breach
- Art. 26. Notice of avoidance for breach
- Art. 27. Undelivered communications
- Art. 28. Ruling out or requiring a judgment or arbitral award mandating performance
- Art. 29. Modifying and terminating contracts
- Arts. 30-32, 60, 66-69. Convention provisions governing delivery and acceptance
- Art. 35. Convention requirements concerning conformity of the goods
- Art. 39. Buyer's notice of lack of conformity
- Art. 43. Buyer's notice of right or claim of third party
- Art. 44. Buyer's excused failure to give notice
- Art. 46. Buyer's request for substitute goods
- Art. 47. Fixing additional time for performance
- Art. 48. Seller's right to cure
- Art. 50. Remedy of price reduction
- Art. 65. Seller's notice of specifications
- Art. 71. Notice of suspension of performance
- Art. 72. Notice of intent to declare contract avoided
- Art. 73. Avoidance of contracts for delivery of goods by installments
- Art. 74. Defining or limiting compensatory damages
- Art. 77. Mitigation of damages
- Arts. 78, 84(1). Dealing with interest
- Art. 79. Dealing with force majeure and hardship
- Art. 88. Notice of intention to sell
INTRODUCTION
This part of the Guide presents contract clauses and documents suggesting an approach to dealing with contract issues and tips for contract administration when the CISG applies. It provides a starting point, not legal advice. You must determine whether the procedures, contract clauses and documents included here suit your situation, before adopting them.
We will re-evaluate, revise and expand what we say here from time to time. You are welcome to suggest refinements and additional contract terms and documents. If we adopt your suggestion, we will give you a "by-line."
The focus here is on procedures, clauses and documents suggested by the provisions of the CISG. This is not a manual on sales contract drafting. There are numerous sources of model contracts and clauses and of guidance on using them. Legal publishers, for example, Business Laws, Inc.; West Publishing Co.; The Lawyers Co-Operative Publishing Co.; Warren, Gorham & Lamont; Kluwer Law International; and Clark, Boardman, Callaghan, publish sales contract forms and clauses. Often, their products include checklists that will help you avoid overlooking something that ought to be covered. Some are available on disk, so they are easy to use. Visit the publishers' web sites or request their catalogues to obtain more information. There are free and fee based sources of contract forms on the Internet. The free forms are likely to be too basic for your needs. For a list of web sites where you will find contract forms, among others, see <http://www.findlaw.com/16forms/collections.html>.
Other sources of suggestions for drafting contracts falling under the Convention include:
Albert Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Volume 1 International Contract Manual, Kluwer (1991);
Contract Checklists, Albert Kritzer, Editor, Volume 3, International Contract Manual, (1991);
The International Chamber of Commerce has published a model contract designed for the international sale of manufactured goods intended for resale in general commerce. It is available from the ICC in a package that includes explanatory notes and a disk containing both the notes and the contract making them easy to search, annotate and edit. For commentary on the ICC form, see James M. Klotz, Critical Review of the ICC Model International Sale Contract (1997). Mr. Klotz concludes that the ICC form will fit very few transactions without serious consideration and revision.
There is an annotated export contract at the end of Professor Kritzer's Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods. It consists of a contract for the international sale of goods with comments and suggestions in the margin. Professor Kritzer's suggestions follow the order dictated by the form contract included in his text.
This material follows the outline of the Convention. We will not cover all of its provisions. You can use the "find" command of your browser to locate suggestions relating to a particular article, for example a form of notice of lack of conformity under "Article 39." Clicking on the lead reference to the article will take you to the IICL CISG Database annotated text of the Article. The annotated texts contain links to, among other materials, the relevant section of the UNCITRAL Secretariat's Commentary on a 1978 draft of the Convention. The Commentary contains useful practical information on what the Convention's Articles were meant to achieve and how they are to operate in practice. It can help you decide whether you can live with the Convention's rules or ought to modify them by appropriate language in your contract.
PART I. SPHERE OF APPLICATION AND GENERAL PROVISIONS
Article 1 - Suggestions regarding Applying the CISG by Contract.
Generally, the CISG applies only to contracts for the sale of goods between parties whose relevant places of business are in different Contracting States or when the rules of private international law lead to the application of the law of a Contracting State. Nations adhering to the Convention may exclude the latter basis of applicability, so you will have to check for declarations and reservations. For information on declarations generally, go to the Table of Contracting States.
Under the Convention, the fact that the parties to the contract have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. Consequently, you should consider identifying the parties' places of business in the contract in a way that makes evident the applicability or non-applicability of the Convention.
"XYZ Corp. of ________________ [insert address, including country] and
ABC S.A. of __________________ [insert address, including country]
agree as follows:"
See further discussion and forms under Article 10.
The CISG is the product of a long process of development by legal and commercial experts. At this writing it has been adopted by 62 nations. When you are negotiating a sales contract choice of law clause, even if the Convention would not apply to your sales contract, it could be a suitable neutral ground between the law of your contract partner's home and your domestic law. The ICC model contract incorporates the CISG with the intention that the Convention apply whether or not the countries of the seller and buyer have ratified it. Consider adopting the CISG as part of your contract, where it would not apply otherwise. You should be able to make the CISG part of your contract by using a choice of law clause. Domestic law will govern the validity of such a clause, but under usual conflicts of law rules, most often, choice of law clauses are enforceable.
The language of Article 7 of the Convention suggests the following clause:
"Questions concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms stated in this document shall be settled in conformity with those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms stated in this document."
The wording usually used in choice of law clauses suggests the following:
"Issues concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms set out in this document shall be governed and controlled by those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms agreed by the parties."
"This contract shall be governed by and construed in accordance with those provisions of United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms set forth in this document."
If you do not want to adopt some of the Convention's provisions, you would modify the suggested clause to exclude those that you do not wish to adopt.
"Questions concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms stated in this document shall be settled in conformity with those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms agreed by the parties. Article(s)... [insert Article number(s) of the Convention is (are) excluded"
"Issues concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms set out in this document shall be governed and controlled by those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms agreed by the parties. Article(s)... [insert Article number(s) of the Convention]... is (are) excluded."
"This contract shall be governed by and construed in accordance with those provisions of United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms agreed by the parties in this document. Article(s)... [insert Article number(s) of the Convention]... of the Convention is (are) excluded.
To avoid any question about the meaning of the choice of law clause, consider excluding articles that establish rules that could render the Convention inapplicable. For example, if your contract covers the sale of a vessel or both goods and substantial services, you should consider excluding Articles 2 and 3, respectively.
Professor Albert Kritzer comments: "When the Convention applies to your contract, either by the terms of your contract as above, or by the terms of the Convention itself, it is important to recognize that the Convention does not address certain questions that arise frequently in the area of sales law. Unlike, for example, the U.S. Uniform Commercial Code, the CISG does not contain provisions on letters of credit, methods of perfecting security interests in goods and other commercial subjects, many of which can also be relevant to sales of goods. It is helpful to address such subjects by identifying the applicable gap-filling law. See the discussion under Article 7 below for suggested attention to this subject."
Article 2 - Suggestions Regarding Applying the CISG to Contracts Excluded by Article 2. The CISG does not apply to the types of sales contracts listed in Article 2. There does not seem to be any particular reason why the gap-filling contract rules of the CISG would not suit international contracts for the sale of ships, vessels and aircraft. While well-drafted contracts for the sale of vessels will be written in sufficient detail to leave little room for supplementation by the provisions of the CISG, there may be gaps that the Convention would fill. It is unlikely the Convention would be well suited for international contracts for the sale of stock, investment securities and negotiable instruments. You should consider, too, whether there are mandatory rules of national law that prevent the application of the Convention to the categories of contracts excluded by Article 2.
The choice of law clause suggested under Article 1 could be used to adopt the Convention as the law of contracts for the sale of ships, vessel and aircraft. Article 2 would be excluded.
"Questions concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms contained in this document shall be settled in conformity with those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms stated herein. Article 2 of the Convention is excluded."
"Issues concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not resolved by the terms set out in this document shall be governed and controlled by those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms stated herein. Article 2 of the Convention is excluded."
"This contract shall be governed by and construed in accordance with those provisions of United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms set out in this document. Article 2 of the Convention is excluded."
Article 3 - Suggestions regarding Mixed Contracts for Goods and Services. Under Article 3, the Convention does not apply to contracts for the supply of goods to be manufactured or produced if the party who orders the goods is to supply a substantial part of the necessary materials. Further, it does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services.
Professor Albert Kritzer comments: "The CISG does not address issues that should be dealt with in contracts for services. You should consider preparing a separate contract for the services aspects of a mixed transaction."
If you want the Convention to apply even though the buyer is to supply a substantial part of the materials or to a mixed contract, it would be advisable to state that the contract falls under the Convention and that Article 3 of the Convention is excluded.
"Questions concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not settled by the terms set out in this document shall be settled in conformity with those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms stated herein. Article 3 of the Convention is excluded."
"Issues concerning the formation of this contract and the rights and obligations of Seller and Buyer that are not resolved by the terms stated in this document shall be governed and controlled by those provisions of the United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms set forth in this document. Article 3 of the Convention is excluded."
"This contract shall be governed by and construed in accordance with those provisions of United Nations Convention on Contracts for the International Sale of Goods that do not conflict with the terms agreed by the parties in this document. Article 3 of the Convention is excluded."
Article 6 - Suggestions regarding Excluding the Convention or Parts of it. Article 6 permits the parties to exclude the application of the Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions.
Clauses intended to exclude the application of the Convention altogether must be drafted with care. The commentators suggest clauses that specifically rule out the application of the Convention, e.g., "the law of France, excluding the CISG "or "Article 2 of the U.C.C. as enacted in New York." 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, and B. Blair Crawford, Drafting Considerations under the 1980 Convention on Contracts for the International Sale of Goods, 8 J. Law & Com. 187, 192-194 (1988), both of which are available on this data base.
Exclusion of parts of the Convention may be achieved by adopting contract terms that conflict with those in the Convention or by excluding the unwanted provisions of the Convention.
"Article(s)... of the Convention on Contracts for the International Sale of Goods shall not apply to this Contract."
"Article(s)... of the Convention on Contracts for the International Sale of Goods is (are) excluded."
"The terms stated in this document shall govern the rights and obligations of the parties, notwithstanding any provision of the Convention on Contracts for the International Sale of Goods to the contrary."
"Any provision in this document which conflicts with any provision of the Convention on Contracts for the International Sale of Goods shall be deemed to be a derogation from or variance of the effect of Convention's provisions within the meaning of its Article 6."
When excluding provisions of the Convention, often, it will be wise to do more that state that a designated part of the CISG does not apply to this Contract. You should consider whether you will have to fill the gap created by the exclusion. See by way of example, our suggestion regarding Article 27.
Article 7 - Suggestions regarding Filling Gaps in the Contract and the Convention. The CISG is a gap-filler. When a contract deals with an aspect of the transaction or its fallout, it trumps the Convention. When the contract does not, the Convention applies. Inevitably, there will be questions that neither the contract nor the CISG answer. In such cases, Article 7 of the Convention provides that questions concerning matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.
Is this a satisfactory way of achieving the degree of certainty and predictability that is desirable in commercial affairs? A clause incorporating domestic law or an accepted compilation of contract rules and principles should help to achieve a greater degree of certainty and predictability.
"Questions which are not expressly answered in this Contract or in the United Nations Convention on Contracts for the International Sale of Goods are to be settled in conformity with those provisions of the Uniform Commercial Code as adopted in the State of ... ... .. that do not conflict with the provisions of this Contract or the Convention."
"Questions which are not expressly settled in this Contract or in the United Nations Convention on Contracts for the International Sale of Goods are to be settled in conformity with those provisions of the Contract Law of the People's Republic of China adopted and promulgated on March 15, 1999, that do not conflict with the provisions of this Contract or the Convention."
"Questions which are not expressly settled in this Contract or in the United Nations Convention on Contracts for the International Sale of Goods are to be settled in conformity with those rules stated in the Unidroit Principles of International Commercial Contracts that do not conflict with the provisions of this Contract or of the Convention."
Professor Albert Kritzer suggests:
"Questions which are not expressly settled in this Contract or in the United Nations Convention on Contracts for the International Sale of Goods are to be settled in conformity with those rules stated in the Principles of European Contract Law that do not conflict with the provisions of this Contract or of the Convention."
He points out that "the Unidroit Principles and the European Principles are, respectively, equivalents of 'restatements' for international commercial contracts and international contracts. The text of the Unidroit Principles may be found at <http://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016>. The text of the Principles of European Contract Law may be found at <http://www.cbs.dk/departments/law/staff/ol/commission_on_ecl/index.html>."
Article 8 and Article 11 - Suggestions regarding Dealing with External Evidence of Intent. Under Article 11, a contract of sale need not be concluded in or evidenced by a writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Article 8 provides that, in determining intent or reasonable understanding, due consideration is to be given to all relevant circumstances of the case, including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. These provisions create the potential for overriding the clear words of a signed written contract by testimony and other evidence showing that the written contract is not consistent with what is purportedly the real agreement between the seller and buyer. See MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostina, S.p.A.,. This situation suggests the use of a merger or integration clause suited to contracts falling under the Convention.
"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 that 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."
"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 that are not set out in it; that there is nothing contained in it that has not been agreed; that evidence of prior expressions of intent, understandings or agreements may not be used to explain what is said in this document and that evidence contradicting what is said in this clause is inadmissible."
"This document contains the entire agreement of the parties. There is nothing contained in it that has not been agreed. The parties intend and agree that evidence of other or different terms may not be considered."
See also the suggestions regarding Article 9.
Article 9 - Suggestions regarding Dealing with the Applicability of Trade Usages. Under Article 9, the parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 8(3) requires consideration of usages to determine intent or the understanding a reasonable person would have had. When there is a dispute, parties tend to discover trade usages and "experts" who will vouch for their existence, as the need arises. Should they apply when you may not have considered them at the time you entered into your contract?
"Article 8(3) and Article 9 (2) of the Convention on Contracts for the International Sale of Goods do not apply to this Contract. The parties have not agreed to any usage or made any usage applicable to their contract. Practices which the parties have established between themselves and course of performance shall not be considered in determining their understanding, their intent or their rights and obligations."
"Article 8(3) and Article 9 (2) of the Convention on Contracts for the International Sale of Goods do not apply to this Contract. The parties have not agreed to any usage or made any usage applicable to their contract. When the terms stated in this document are unclear, evidence of practices which the parties have established between themselves may be considered in determining their understanding, their intent or their rights and obligations."
Article 10 - Suggestions regarding Specifying Place of Business for CISG Purposes. If a party has more than one place of business, for purposes of the CISG, the party's place of business is that which has the closest relationship to the contract and its performance. To avoid questions, your contract should specify the place of business that bears such relationship to the transaction.
"Seller's place of business in ... [city and country] ... and Buyer's place of business in ... [city and country] ... have the closest relationship to the contract and its performance for purposes of the United Nations Convention on Contracts for the International Sale of Goods."
It should be recalled that, for the CISG to apply, the designated places of business must be in different countries. Moreover, where a country, e.g., the United States, has filed an Article 95 declaration, as a general rule, unless both countries mentioned in the clause are Contracting States, the CISG will not apply.
Article 11 - Suggestions regarding Requiring a Written Contract. Under Article 11, unless Article 12 applies, a contract of sale need not be concluded in or evidenced by a writing and is not subject to any other requirement as to form. This opens the door to assertions that mere negotiations have ripened into an enforceable contract. You should consider whether it would be appropriate to include a requirement for a signed writing when you communicate terms that could be treated as an offer capable of acceptance or a response to an offer that could be treated as an acceptance.
"There shall be no contract until each of us has accepted and signed a writing stating that it contains all of the terms or incorporates by reference to another writing all of the terms of a binding contract between us."
It should be noted that the People's Republic of China has declared that it does not consider itself bound by Article 11 and that the Russian Federation, among other Contracting States, has made a declaration under Articles 12 and 96.
Article 13 - Suggestions regarding Specifying the Form of Notices and Writings for Purposes of the Contract and the CISG. Having been drafted before fax and e-mail became the staples of business communication, Article 13 says merely that for purposes of the Convention "writing" includes telegram and telex. If the parties wish to permit or prohibit fax and e-mail as a means of written communication, they should eliminate doubt by saying so.
"For the purpose of this Agreement and the Convention on Contracts for the International Sale of Goods, unless otherwise specified in this Contract, "writing" includes telegram, telex, fax and e-mail."
"For the purpose of this Agreement and the Convention on Contracts for the International Sale of Goods, unless otherwise specified in this Contract, "writing" excludes fax and e-mail."
PART II. FORMATION OF THE CONTRACT
Article 14 - Suggestions regarding Preventing an Indication from Constituting an Offer. Under Article 14, a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provisions for determining the quantity and the price. To avoid ambiguity, if you do not intend to make an offer you should say so.
"This is an indication of interest, not an offer to buy."
"This is an indication of interest, not an offer to sell."
"There shall be no contract concluded until each of us has accepted and signed a writing stating that it contains all of the terms or incorporates by reference to another writing all of the terms of a binding contract between us."
Article 16 - Suggestions regarding Revocable and Irrevocable Offers. Under the Convention, generally, until a contract is concluded, an offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance. Under Article 16(2), however, an offer cannot be revoked if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable or 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. If an offeror wishes to maintain control of its offer, it should consider stating expressly that the offer is revocable.
"This offer is open for acceptance until ... [insert time and date] ... We reserve the right to revoke the offer before then. Article 16(2) of the United Nations Convention on Contracts for the International Sale of Goods does not apply to this Contract."
Article 18 - Suggestions regarding Dealing with Acceptance by Performance of an Act. Under certain circumstances, the offeree may accept an offer by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice of acceptance to the offeror. The acceptance is effective at the moment the act is performed. You should consider whether it is advisable to be bound by an acceptance without notice.
"This offer shall be deemed to have been rejected unless we receive your notice of acceptance in writing on or before ... [insert date]...."
"This offer shall be deemed to have been rejected unless you accept by a notice in writing. Article 18(3) of the Convention on Contracts for the International Sale of Goods does not apply to this offer."
"This offer shall be deemed to have been rejected unless you accept by a notice in writing received by us no later than the 5:00 P. M. on ... [insert date].... Article 18(3) of the Convention on Contracts for the International Sale of Goods is excluded."
Article 19 - Suggestions regarding Dealing with Acceptances Containing Additional and/or Different Terms. Generally, under the Convention a reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. Under Article 19(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 the offeror does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
"A reply to this offer which purports to be an acceptance but contains additional or different terms shall be deemed to be a rejection. Article 19(2) of the Convention on Contracts for the Sale of Goods shall not apply to this offer."
"Notice of Objection to Additional [and/or Different] Terms
Your reply to our offer of ... [insert date] ... purports to be an acceptance, but contains additional [and/or different] terms. Please accept this as our notice under Article 19(2) of the United Nations Convention on Contracts for the International Sale of Goods that we object to the discrepancy and regard your reply as a rejection of our offer and a counteroffer, which we reject."
"Notice of Objection to Additional [and/or Different] Terms
Your reply to our offer of ... [insert date] ... purports to be an acceptance, but contains additional [and/or different] terms. We object to the discrepancy and regard your reply as a rejection of our offer and a counteroffer, which we reject."
Date: _______________"
Article 21- Suggestions regarding Offeror's Notice that Late Acceptance is Effective or Ineffective. Under the CISG, an acceptance of an offer is not effective if it does not reach the offeror within the time fixed by the offeror. This could mean that when an acceptance is late, neither party is bound, even though the offeree intended to accept. Article 21 deals with two versions of this situation.
Article 21(1) deals with an acceptance which is dispatched late. Such an acceptance becomes effective if without delay the offeror orally so informs the offeree or dispatches a notice to that effect. Consider sending a written notice, even if you inform the offeree orally.
"NOTICE THAT ACCEPTANCE IS EFFECTIVE
Date:
To:
On ... [date] ... we received your acceptance of our offer of ... [date] ... Although the acceptance is late, please take notice that, pursuant to Article 21(1) of the Convention on Contracts for the International Sale of Goods, your acceptance is effective."
NOTICE THAT LATE ACCEPTANCE IS EFFECTIVE
Date:
To:
On ... [date] ... we received your acceptance of our offer of ... [date] ... Please take notice; although it arrived late, it is effective as an acceptance."
Article 21(2) deals with delays in delivery of a timely acceptance. It says that, if a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that it considers its offer as having lapsed or dispatches a notice to that effect.
Date:
To:
On ... [date] ... we received your acceptance of our offer of ... [date] ... Your acceptance arrived late. Please take notice that, pursuant to Article 21(2) of the Convention on Contracts for the International Sale of Goods, we consider our offer to have lapsed and regard your acceptance to be ineffective."
Date:
To:
On ... [date] ... we received your acceptance of our offer of ... [date] ... Your acceptance arrived late. We regard our offer as having lapsed and your acceptance to be ineffective."
PART III. SALE OF GOODS
Part III of the Convention deals with the performance of contracts for the international sale of goods, i.e., the obligations of the parties and remedies. This part of the Convention is not sufficiently detailed and comprehensive to eliminate the need for carefully crafted clauses suited to your transaction. It does not eliminate the need to consider whether to incorporate a standard set of trade terms such as INCOTERMS 2000 (ICC Publication No. 560, 1999).
Article 25, Article 49 and Article 64 - Suggestions regarding Modifying the Meaning of Fundamental Breach. Under the Convention, a breach of contract by one party is fundamental if it results in such detriment to the other party as substantially to deprive it of what it is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. You will want to consider whether your circumstances require strict compliance with contract obligations such as the quantity, quality and description of the goods, the date of delivery, or the terms of payment, and, if they do, say so in your contract. Consider whether a provision requiring strict compliance with the Contract should apply to the entire contract or to a specific part of its performance.
"Article 25 of the Convention on Contracts for the International Sale of Goods is excluded. Non-compliance with any provision of this contract shall be regarded as a fundamental breach."
"Non-compliance with any provision of this clause shall be regarded as a fundamental breach."
"A party's failure to perform when due any of its obligations shall be a fundamental breach, regardless of whether such party is able to remedy its failure to perform after the date for performance."
"Time is of the essence. Seller's failure to deliver goods conforming in every respect to the quantity, quality and description specified in this contract by the date for delivery fixed by this clause shall be deemed to be a fundamental breach."
"Buyer's failure to pay the price by the date fixed by this clause shall be deemed to be a fundamental breach."
"Compliance in every respect with this clause is essential. If Seller does not receive a confirmation from ... [insert name of bank]... of buyer's letter of credit on or before the date and in the terms stated in this clause, Seller shall be entitled to avoid this Contract."
Article 26 - Suggestions regarding Notice of Avoidance for Breach.
Article 26 provides that a declaration of avoidance of the contract, the Convention's term for termination or cancellation for breach, is effective only if made by notice to the other party. Article 26 does not require that the notice be in writing, but you should consider protecting the record by giving written notice or confirming oral notice in writing.
Date:
To:
Re: ... [identify contract]...
You have committed a fundamental breach of our contract of ... . [date] ... in that ... ..... [describe breach] ... . Please take notice that, pursuant to Article 26 and ...... [Article 49 for Buyer's notice or Article 64 for Seller's notice] ... of the Convention on Contracts for the International Sale of Goods, we declare the contract avoided. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract]...
You have committed a fundamental breach of our contract of ... . [date] ... in that ... ..... [describe breach] ... . Please take notice that we declare the contract avoided. We reserve all other rights and remedies available to us."
"CONFIRMATION OF NOTICE OF AVOIDANCE
Date:
To:
Re: ... [identify contract]...
This will confirm the telephone conversation between our ... [insert name and title] and your ... [insert name and title] at ... [insert time] ... on [insert date] in which we notified you of our declaration of avoidance. You have committed a fundamental breach of our contract of ... [date] ... in that ... [describe breach] ... Pursuant to Article 26 and ... [Article 49 for Buyer's notice or Article 64 for Seller's notice] ... of the Convention on Contracts for the International Sale of Goods, we have declared the contract avoided. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract]...
This will confirm the telephone conversation between our ... [insert name and title] and your ... [insert name and title] at .... [insert time] ... on [insert date] in which we notified you of our declaration of avoidance. You have committed a fundamental breach of our contract of ... [date] ... in that ... [describe breach] ... We have declared the contract avoided. We reserve all other rights and remedies available to us."
Consider whether it would be preferable to deal with such matters in writing exclusively. Oral notices leave room for conflicting recollections.
Article 27 - Suggestions regarding Undelivered Communications.
Under Article 27 of the CISG, unless otherwise expressly provided in Part III of the Convention, any notice, request or other communication given or made in accordance with Part III and by means appropriate in the circumstances is effective despite a delay or error in the transmission of the communication or its failure to arrive. Do you consider it acceptable to have a communication that you do not receive have the same consequences as if you receive it? Given the speed and reliability of modern means of communications and the need for certainty in commercial matters, you should consider whether to exclude this provision.
"Article 27 of the Convention on Contracts for the International Sale of Goods is excluded. Any notice, request or other communication required by this Contract or Part III of the Convention shall be effective only if and when it reaches the addressee."
"Article 27 of the Convention on Contracts for the International Sale of Goods does not apply to this Contract. Any notice, request or other communication required by this Contract or Part III of the Convention shall be effective only if and when it reaches the addressee."
Article 28 - Suggestions regarding Ruling Out or Requiring a Judgment or Arbitral Award Mandating Performance. Under the Convention, often, a party is entitled to require performance of an obligation by the other party, but, under Article 28, a court is not bound to enter a judgment requiring performance unless the court would do so under its own law in respect of similar contracts of sale not governed by the CISG. Under some national or local laws, money damages are the preferred remedy and the courts will not mandate performance unless the contract states that such remedy is available. Further, under some national arbitration laws, arbitrators may award specific performance, if at all, only when an arbitration clause or submission agreement empowers them to do so. Because Article 28 leaves the issue uncertain, the parties may wish to authorize or prohibit a judgment or arbitral award requiring performance. Provisions authorizing or requiring such judgments or awards would not be effective in the face of mandatory rules or laws to the contrary. Such obstacles may be avoidable by a forum-selection clause or an arbitration clause requiring litigation or arbitration in a place where specific performance is available, but enforceability of the judgment or award would have to be considered.
"Article 28 of the United Nations Convention on Contracts for the International Sale of Goods is excluded. A court rendering a judgment relating to this Contract shall mandate performance of the obligations of a party when the other party so requests and such remedy is available to such party under the provisions of this Contract or Part III of the Convention."
"Notwithstanding any provision of the Convention on Contracts for the International Sale of Goods to the contrary, a court may render a judgment for money damages only. Seller and Buyer waive any right they may have to request or receive a judgment mandating performance of the other party's obligations under this Contract."
"The arbitrators may render an award for money damages only. The parties withhold from them the power to render an award mandating performance of their obligations under this Contract."
"Article 28 of the United Nations Convention on Contracts for the International Sale of Goods is excluded. The arbitrators shall have the power to mandate performance of the obligations of a party when the other party so requests and such remedy is available to the requesting party under this Contract or Part III of the Convention."
Article 29 - Suggestions regarding Modifying and Terminating Contracts.
Under the CISG, a contract may be modified or terminated by the oral or written agreement of the parties. A written agreement is more likely to prevent misunderstandings. You should consider whether the termination should provide for the survival of any pre-termination claims, rights or obligations.
"Agreement to Terminate Contract
Date:
The undersigned agree that the Contract between them of ... [date] ... is cancelled and that all rights and obligations of the parties arising out of such agreement are waived and discharged."
"Agreement to Terminate Contract
Date:
The undersigned agree that the Contract between them of ... [date] ... is cancelled and that all executory rights and obligations of the parties arising out of such agreement are waived and discharged. The undersigned agree that such cancellation is without prejudice to ... [describe claims, rights or obligations] ... which shall survive the termination of the contract.
"Addendum No ___ to Contract Dated ___.
Date:
The undersigned agree that the Contract between them of ... [date] ... is amended and modified as follows ... [insert amendments] ... All other terms and conditions remain in effect."
Under Article 29(2), a written contract requiring that any modification or termination by agreement be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by conduct from asserting such a provision to the extent that the other party has relied on that conduct. Consider whether to use a clause that rules out waiver by conduct.
"This Contract may not be modified or terminated except by an agreement in writing signed by the party to be bound by the written modification or termination."
"This Contract may not be modified or terminated except by an agreement in writing signed by the party to be bound by the written modification or termination. Article 29(2) of the United Nations Convention on Contracts for the International Sale of Goods notwithstanding, conduct shall not constitute a waiver of this provision and reliance on conduct shall not preclude assertion of this provision."
"This Contract may not be modified or terminated except by an agreement in writing signed by the party to be bound by the written modification or termination. Conduct shall not constitute, or be construed as, a waiver of this provision. Reliance on conduct shall not affect the application of this provision. Article 29(2) of the United Nations Convention on Contracts for the International Sale of Goods is excluded."
Article 30, Article 31, Article 32, Article 60, Article 66, Article 67 and Article 69 - Suggestions regarding Convention Provisions Governing Delivery and Acceptance. As mentioned, the CISG does not contain definitions of the usual trade terms or provisions governing the permutations and combinations of seller's and buyer's obligations with respect to delivery, documentation, import and export details, and acceptance common in international sales transactions. So, under the CISG, continue to incorporate Incoterms to establish details of performance appropriate to your transaction. For guidance on the proper use of Incoterms, see Jan Ramberg, "ICC Guide to Incoterms 2000- Understanding and Practical Use," ICC Pub. No. 620 (1999). Often, Incoterms are incorporated by using one of the Incoterms in the contract's price provision and simply saying "Incoterms 2000," "Incoterms 2000 are incorporated herein," or "Incoterms 2000 shall apply to this Contract" elsewhere in the contract. It is good practice to state the version of Incoterms that is to apply.
Article 35 - Suggestions regarding Convention Requirements Concerning Conformity of the Goods. Article 35 (2) provides that, unless the parties have agreed otherwise, the goods do not conform to the contract unless they meet four categories of requirements.
"[T]he goods do not conform with the contract unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or mode;
(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to prepare and protect the goods."
For general comments on this provision, see John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, paragraphs 222-240 (3rd ed. 1999).
A seller that wishes to exclude this provision should use a disclaimer that tracks the language used in Article 35(2). In preprinted purchase order or confirmation forms it would be advisable to use a font and color that makes the disclaimer stand out. Consider drawing attention to the limitation of warranties in or near the signature area of the form. While the Convention says that its requirements apply unless the parties have agreed otherwise, restrictions in national or local laws on the validity and reach of warranty disclaimers may affect the validity of an agreement excluding the application of part or all of Article 35(2).
Article 39 - Suggestions regarding Buyer's Notice of Lack of Conformity.
Under Article 39, a buyer loses the right to rely on a lack of conformity of the goods if it does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after it has discovered it or ought to have discovered it. There are cases that have manifested an inclination to require that the buyer describe the lack of conformity with precision and to treat a failure to satisfy this requirement as precluding reliance on the lack of conformity. A mere notice of breach or assertion that there is a lack of conformity may not suffice. Buyers should consider whether to modify this provision by contract clause and how to comply with the notice provision when presented with goods that do not conform to the contract.
"Articles 39 and 44 of the United Nations Convention on Contracts for the International Sale of Goods are excluded. Buyer shall have the right to rely on a lack of conformity of the goods and reduce the purchase price or claim damages, including loss of profit, regardless of whether Buyer gives Seller notice of the lack of conformity."
"Notice of Lack of Conformity
Date:
To:
Re: ... [identify contract]...
Please take notice that the ... [name the goods] ... that you delivered under the contract between us of ... [insert date] ... do not conform to the contract. The ... [name of the goods] ... fail to conform to the contract in that ... [describe the lack of conformity in detail]...."
You should note that, under Article 46, the buyer must request repair or substitute goods within a reasonable time after giving its Article 39 notice.
Article 39 sets a two-year outside limit on the time within which a buyer must give notice of a lack of conformity. Sellers should consider whether to reduce the two-year period by contract provision. Buyers should consider whether to increase the period beyond two years.
"Article 39(2) of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Buyer shall lose the right to rely on a lack of conformity of the goods if it does not give notice to Seller at the latest within ... [insert time period] ... from the date the goods were actually handed over to Buyer."
The CISG does not contain a statute of limitations, so you should consider agreeing upon the time within which a court action or arbitration must be brought, if such agreement is permissible under the law governing the contract. The governing law may preclude modifications of the applicable time bar in the sales contract. The 1974 Convention on the Limitation Period in the International Sale of Goods establishes a four-year limitation period for claims arising out of contracts for the international sale of goods to which it applies. It came into effect in 1988. The provisions of the Limitation Period Convention which determine its applicability to contracts and issues were brought into line with the CISG by a 1980 protocol. See generally, Peter Winship, The Convention on the Limitation Period in the International Sale of Goods: The United States Adopts UNCITRAL's First Born, 28 Int'l Lawyer 1071 (1994). The text of the Limitation Period Convention, information concerning nations which have adopted it and selected commentaries are available on this data base.
Consider whether adopting a contract provision that applies the Limitation Period Convention to contracts to which it does not apply would be appropriate.
"Articles 7 to 29 of The 1974 Convention on the Limitation Period in the International Sale of Goods shall apply to claims of the Buyer and the Seller against each other arising from this Contract or relating to its breach in any court or arbitral proceeding relating to this Contract."
But, be aware that the Limitation Period Convention does not permit contracts of sale to which it applies to modify the limitation period. It does, however, permit the parties to exclude its application and permits stipulations that arbitration must be commenced within a shorter period of limitation.
"The Convention on the Limitation Period in the International Sale of Goods shall not apply to claims arising from this Contract."
"The Convention on the Limitation Period in the International Sale of Goods is excluded and shall not apply to claims arising from this Contract or relating to its breach."
If the Limitation Period Convention applies by contract and the parties wish to adopt a shorter or longer limitation period, consider whether its Article 22, which prohibits modification of the limitation period, should be excluded.
"Articles 7 to 21 and Articles 23-29 of The 1974 Convention on the Limitation Period in the International Sale of Goods shall apply to claims of the Buyer and the Seller against each other arising from this Contract in any court or arbitral proceeding relating to this Contract."
Further, the limitation period may, be modified after it has begun to run.
"Articles 7 to 29 of The 1974 Convention on the Limitation Period in the International Sale of Goods shall apply to claims of the Buyer and the Seller against each other which have arisen out of the Contract between us dated ...[insert date of contract] ... in any court or arbitral proceeding relating to this Contract."
If the Limitation Period Convention does not apply, the domestic statute of limitations applicable to claims arising out of the contract may permit clauses modifying the applicable limitation period. For example, UCC section 2-725 permits a provision in the contract of sale to reduce the period of limitation to not less than one year. (The CISG does not govern the validity of any of the provisions of a contract to which it applies, Article 4(a)).
"Any proceeding to enforce a claim for breach of this Contract must be commenced within ... ... [insert time period] ..... of the date upon which the claim accrued."
"Any proceeding to enforce a claim for breach of or a right arising out of this Contract must be commenced within ... [insert time period] ... of the date upon which the breach occurred or the right accrued."
You should consider whether it would be appropriate and permissible to establish different time bar periods for actions to compel performance as opposed to actions for damages.
"Any proceeding to require performance of any obligation arising out of this Contract must be commenced within ... [insert time period] ... of the date upon which non-performance occurred. Any proceeding to enforce a claim for damages for breach of this Contract must be commenced within ... [insert time period] ... of the date upon which the breach occurred."
Article 43 - Suggestions regarding Buyer's Notice of Right or Claim of Third Party. A buyer expects to receive goods that are free of liens, security interests and claims of ownership by third parties and of infringement of patents or other proprietary rights. Under CISG Article 41 the seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. Article 42 governs rights or claims of third parties based on industrial property or other intellectual property. Under Article 43, a buyer risks losing the right to rely on the provisions of Articles 41 and 42 if it does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after it has become aware or ought have become aware of the right or claim, unless the seller knew of the right or claim and the nature of it. Buyers should be aware of the need to comply with Article 43's notice provision and to do so with particularity. Consider whether to modify Article 43(1) by a provision in your contract and how to comply with the notice provision when a right or claim of a third party is discovered or presented.
"Article 43 of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Buyer shall have the right to rely on a breach of Article 41 or Article 42 of the Convention regardless of whether Buyer gives Seller notice specifying the nature of the right or claim of a third party."
Date:
To:
Re: ... [identify contract]...
Please take notice that we have become aware that ... [name of third party] asserts a right or claim to the ... [name the goods] ... that you delivered under the contract between us of ... [insert date] ... [name of the third party] ... asserts that ... . [describe nature of the right or claim]...."
Article 43 grants the buyer a reasonable time within which to give notice of a right or claim of a third party. Sellers should consider whether to establish a time within which buyers must give notice of a third party claim.
"Buyer shall lose the right to rely on a breach of Articles 41 and 42 if it does not give notice to Seller specifying the nature of the right or claim of the third party no later than ... [insert time period] ... from the date when Buyer became aware or ought to have become aware of the right or claim."
Article 44 - Suggestions regarding Buyer's Excused Failure to Give Notice.
Article 44 of the Convention provides that, if there is a reasonable excuse for a failure to give the notice required by Articles 39(1) and 43(1), the buyer may reduce the price in accordance with Article 50 or claim damages, except for loss of profit. A seller should consider whether it is appropriate to exclude this provision.
"Article 44 of the Convention on Contracts for the International Sale of Goods is excluded."
Article 46 - Suggestions regarding Buyer's Request for Substitute Goods.
If delivered goods do not conform to the contract, under Article 46(2), in essence, the buyer may require delivery of substitute goods if the lack of conformity substantially deprives it of what it is entitled to expect under the contract. A seller should consider whether it would be appropriate to contract out of an obligation to provide substitute goods. A buyer should consider whether it would be appropriate to make substitute goods more readily available.
"Article 46 of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Buyer may not require delivery of substitute goods."
"Article 46 of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Buyer may require delivery of substitute goods if the goods delivered by Seller fail to conform in any respect to the quality and description specified in this Contract."
Article 47 - Suggestions regarding Fixing Additional Time for Performance.
Under the Convention the general rule is that only a fundamental breach justifies avoidance, i.e., cancellation or termination, for breach. Under Articles 47 and 49, the buyer and, under Articles 63 and 64, the seller may, by fixing an additional period of time of reasonable length for performance, obtain the right, in some circumstances, to declare the contract avoided, i.e., cancelled, if the other party fails to perform before the expiration of the additional period. These provisions are designed to apply where there has been a delay in performance that may or may not constitute a fundamental breach. You will recall that under the Convention, generally, time is not of the essence and under Article 25 a delay in performance is a fundamental breach only when it would substantially deprive the injured party of what it is entitled to expect under the contract.
Date:
To:
Re: ... [identify contract] ...
You have failed to ... [state the obligation which the other party failed to perform] by ... [insert date]... as required by our Contract of ... [insert date].... Please take notice that pursuant to ... [Article 47 for Buyer's notice to Seller - Article 63 for Seller's notice to Buyer] of the Convention on Contracts for the International Sale of Goods, we hereby fix an additional period for performance expiring on ... [insert date] ... If you fail to perform your obligations by that date, we will declare the contract avoided."
The notice must clearly fix a deadline. The period fixed must be reasonable in the circumstances. Relevant circumstances include the consequences of delay to the injured party and the feasibility of the breaching party performing within the period allowed. The notice should clearly state the consequences of failing to perform within the period so fixed. According to the UNCITRAL Secretariat Commentary, a statement to the effect that the party giving notice hopes, wants or trusts there will be performance during the period fixed is not sufficient to support avoidance of the contract.
Article 48 - Suggestions regarding Seller's Right to Cure. Subject to Article 49's provisions on a buyer's right to declare the contract avoided, under Article 48, even after the date for delivery, the seller may, in certain conditions, remedy at its own expense any failure to perform its obligations. Among other things, the seller must be able to cure without unreasonable delay and without causing unreasonable inconvenience to the buyer. If the seller requests the buyer to make known whether it will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in its request. A notice by the seller that it will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known its decision, but it would seem to be better practice to request a response. Consider whether a right to cure after the date for delivery is consistent with the commercial purpose of the contract.
"Article 48 of the Convention on Contracts for the International Sale of Goods is excluded. Time is of the essence. Any failure to perform may be remedied up to the date for delivery, but may not be remedied after the date for delivery. The second sentence of Article 50 of the Convention on Contract for the International Sale of Goods shall not apply to this Contract. Buyer's refusal to permit Seller to remedy any failure to perform shall not be or be treated as a failure to mitigate the loss resulting from Seller's breach."
"The goods delivered and the delivery must conform in every respect with the requirements of this Contract. After the date of delivery, Buyer is not obligated to permit Seller to remedy any failure to perform. Buyer may reject any offer to remedy any failure to perform after the date of delivery. The second sentence of Article 50 of the Convention on Contract for the International Sale of Goods shall not apply to this Contract. Buyer's refusal to permit Seller to remedy any failure to perform shall not be or be treated as a failure to mitigate the loss resulting from Seller's breach."
"Article 48 of the Convention on Contracts for the International Sale of Goods does not apply. Buyer is not obligated to accept performance after the date for delivery. The second sentence of Article 50 of the Convention does not apply. Buyer's refusal to permit Seller to remedy any failure to perform shall not be or be treated as a failure to mitigate the loss resulting from Seller's breach"
"We have received your Notice of Lack of Conformity dated ... [insert date].... Pursuant to Article 48 of the Convention on Contracts for the International Sale of Goods, we intend to remedy the lack of conformity by ... [describe what seller will do and when it will be done].... You will not be requested to advance any expenses relating to our remedying the lack of conformity. Please make known whether you will accept our performance. If you fail to reply by.... [insert date, allowing a reasonable time in the circumstances]..., we will perform in the manner and in the time described above."
"We refer to your request of ... [insert date]...that we make known whether we will accept the performance described in your request. We will not accept such performance, because such performance would cause us unreasonable inconvenience in that ... [describe basis for asserting reasonable inconvenience]..."
"We refer to your request of ... [insert date]...that we make known whether we will accept the performance described in your request. We will not accept such performance, because we would be obliged to incur the expense of ... [describe the occasion for the expense]..., but you have not offered to reimburse us."
Article 50 - Suggestions regarding Price Reduction. Under Article 50, if the goods do not conform with the contract, even if the price has already been paid, the buyer has the right to reduce the price. However, if the seller remedies any failure to perform its obligations in accordance with Article 37 or Article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price. Consider whether price reduction is acceptable in the circumstances. Exclude Article 50, if it is not. If you derogate from or vary Articles 37 or 48 consider excluding the second sentence of Article 50. See suggestions regarding Article 37 and Article 48.
Article 65 - Suggestions regarding Seller's Notice of Specification.
Where a seller's performance is to be preceded by the buyer's specification of the form, measurements or features of the goods, Article 65 permits the seller to make the specification if the buyer fails to do so. Article 65(2) requires that the seller inform the buyer of the details of the seller's specification and fix a reasonable time within which the buyer may make a different specification.
"NOTICE OF SELLER'S SPECIFICATION
AND
OPPORTUNITY TO MAKE A DIFFERENT SPECIFICATION
Date:
To:
Re: ... [identify contract]...
Please take notice that, because you failed to.....[ insert description of requirement]... by ...[insert date]...., pursuant to Article 65(1) of the Convention on Contracts for the International Sale of Goods, we have made the specification in accordance with such of your requirements as are known to us. The details of the specification we have made are as follows: .... [insert details of the Seller's specification].... You may make a different specification no later than... [insert date which is reasonable in the circumstances].... If you fail to do so, pursuant to Article 65(2) of the Convention on Contracts for the International Sale of Goods, our specification will be binding."
When it looks like there will be a problem, to set the stage for invoking Article 65, a seller should consider the extra precaution of requesting compliance before the contract deadline expires. Article 65(1) requires such a request if the contract does not fix a date by which the buyer must make the specification.
"Please note that under our Contract of ... [insert date] ... you are to specify the ... [insert description of requirement] ... Please let us have your specification at your earliest convenience. It is important that we receive it no later than [insert date which is reasonable in the circumstances]...."
"Please note that under our contract of ... [insert date]... you are to specify the ... [insert description of requirement].... Please let us have your specification at your earliest convenience. It is important that we receive it no later than [insert date which is reasonable in the circumstances]... If you fail to do so, pursuant to Article 65(1) of the Convention on Contracts for the International Sale of Goods, we will make the specification in accordance with such of your requirements as are known to us."
"Please note that under our contract of ... [insert date]... you are to specify the ... [insert description of requirement] ... by ... [insert date].... If you fail to do so, pursuant to Article 65(1) of the Convention on Contracts for the International Sale of Goods, we will make the specification in accordance with such of your requirements as are known to us."
Article 71 - Suggestions regarding Notice of Suspension of Performance. Article 71 permits a party to suspend performance of its obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of its obligations as a result of the circumstances specified in Article 71. A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of its performance.
Date:
To:
Re: ... [identify contract]...
"It has become apparent that you will not perform your obligation to ... [describe substantial part of obligations] ... .under our contract dated ... ... ...as a result of .....[describe circumstances falling within Article 71(1) (a) or (b)]. Please take notice that, as permitted by Article 71 of the Convention on Contracts for the International Sale of Goods, we are suspending performance of our obligations."
Article 71 does not require a demand for assurance of performance, but you should consider whether it would be appropriate to include such a demand in the notice, if there is a form of assurance that you would regard as adequate.
Date:
To:
Re: ... [identify contract]...
"It has become apparent that you will not perform your obligation to ... [describe substantial part of obligations] ... under our contract dated ... as a result of ... [describe circumstances falling within Article 71(1) (a) or (b)]. Please take notice that we are suspending performance of our obligations. We request that you provide adequate assurance of your performance. We will regard ... [describe reasonable acceptable form(s) of assurance] ... as adequate assurance of your performance."
Article 71 does not give the suspending party the right to declare the type of assurance that will be adequate, but mentioning acceptable forms of assurance in the notice of suspension may be useful, so long as what is said is appropriate and reasonable in the circumstances.
Article 71 does not state the consequences of a failure to provide adequate assurance of performance. It seems that, absent a contract term providing otherwise, a party suspending performance would not be entitled to declare the contract avoided unless it is clear that the other party will commit a fundamental breach.
"If a party is entitled to suspend and suspends its performance pursuant to Article 71 of the Convention on Contracts for the International Sale of Goods, the other party's failure to provide adequate assurance of its performance shall be a fundamental breach of contract."
"If a party is entitled to suspend and suspends its performance, the other party's failure to provide adequate assurance of its performance shall be a fundamental breach of contract."
Article 72 - Suggestions regarding Notice of Intent to Declare Contract Avoided. When it is clear from the circumstances that one party will commit a fundamental breach of the contract, if time allows, the other party must give reasonable notice of its intent to declare the contract avoided in order to permit the provision of adequate assurance of performance.
Date:
To:
Re: ... [identify contract] ...
"It has become clear that you will not perform your obligation to ... [describe prospective breach of a kind which would constitute a fundamental breach within the meaning of Article 25] ... . under our contract dated ... ... . Such failure to perform will constitute a fundamental breach. Please take notice that we intend to declare the contract avoided, unless you provide adequate assurance of your performance no later than... [insert a date that is reasonable in the circumstances]... We will regard..... [describe acceptable, reasonable form(s) of assurance]... as adequate assurance of your performance."
Consider whether the circumstances call for combining an Article 71 notice of suspension of performance and an Article 72 notice of intent to declare the contract avoided.
"NOTICE OF SUSPENSION OF PERFORMANCE AND
OF INTENTION TO DECLARE CONTRACT AVOIDED
Date:
To:
Re: ... [identify contract]...
It has become clear that you will not perform your obligation to ... [describe prospective breach of a kind which would constitute a fundamental breach within the meaning of Article 25] ... under our contract dated ... [insert date] ... Such failure to perform will constitute a fundamental breach. Please take notice that we are suspending performance of our obligations and intend to declare the contract avoided, unless you provide adequate assurance of your performance no later than ... [insert a date that is reasonable in the circumstances]... We will regard ... [describe acceptable, reasonable form(s) of assurance] ... as adequate assurance of your performance."
Article 72 does not give the notifying party the right to declare the type of assurance that will be adequate, but mentioning acceptable forms of assurance in the notice may be useful, so long as what is said is appropriate and reasonable in the circumstances.
It should be noted that Article 72 does not require a notice if the other party has declared that it will not perform its obligations. Whether it would be appropriate to
to send such a notice anyway depends on the circumstances of the case. Failure to declare the contract avoided when it is clear that there will be a fundamental breach may create questions for resolution in litigation or arbitration which would not arise if there is a declaration of avoidance.
Article 73 - Suggestions regarding Avoidance of Contracts for Delivery of Goods by Installments. Under Article 73(1), where a contract provides for delivery of goods by installments, the injured party may not declare the contract avoided with respect to an installment unless the failure of the other party to perform any of its obligations in respect of such installment constitutes a fundamental breach of contract with respect to that installment. Consider whether such a rule suits your commercial transaction.
"Article 73(1) of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Failure of either party to perform any of its obligations in respect of any installment shall constitute a fundamental breach of contract with respect to that installment."
"Article 73(1) of the United Nations Convention on Contracts for the International Sale of Goods does not apply. Buyer may reject any installment that does not conform in every respect to the contract quantity, quality and description or is delivered late."
"Article 73(1) of the United Nations Convention on Contracts for the International Sale of Goods is excluded. Delivery of each installment must conform in every respect with the requirements of this Contract."
Date:
To:
Re: ... [identify contract] ...
You have committed a fundamental breach of our contract of ... [date] ... in respect of the installment delivered on ... [insert date] ... in that ... [describe a breach that meets the standard in Article 25] ... Please take notice that, pursuant to Article 73(1) of the Convention on Contracts for the International Sale of Goods, we declare the contract avoided with respect to that installment. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
Our Contract dated ... [insert date] ... declares that time is of the essence. You have committed a fundamental breach of our contract of ... [date] ... in that you have not delivered the installment due ... [on or by] ... [insert date] ... Please take notice that we declare the contract avoided with respect to that installment. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
This will confirm the telephone conversation between our ... [insert name and title] and your ... [insert name and title] at ... [insert time] ... on [insert date] in which we notified you of our declaration of avoidance with respect to the installment delivered on ... [insert date] ...
You have committed a fundamental breach with respect to that installment in that ... [describe a breach that meets the standard in Article 25]... We have declared the contract avoided with respect to that installment pursuant to Article 73(1) of the United Nations Convention on Contracts for the International Sale of Goods. We reserve all other rights and remedies available to us."
Article 73(2) permits the injured party to declare an installment contract avoided if the other party's failure to perform any of its obligations in respect of any installment gives the injured party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments. Avoidance must be declared within a reasonable time. See the section regarding Articles 25, 49 and 51.
Date:
To:
Re: ... [identify contract]...
"The installment delivered on ... [insert date] ... under our contract of ... [date] ... fails to conform to the contract in that ... [describe the problem] ... This failure to perform your obligations has given us good grounds to conclude that a fundamental breach will occur with respect to future installments in that ... [describe detriment which substantially deprives you of what you are entitled to expect under the contract] .... Please take notice that, pursuant to Article 73(2) of the Convention on Contracts for the International Sale of Goods, we declare the contract avoided. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
"The installment delivered on ... [insert date] ... under our contract of ... [date] ... fails to conform to the contract in that ... [describe the problem] ... This failure to perform your obligations has given us good grounds to conclude that a fundamental breach will occur with respect to future installments in that ... [describe detriment which substantially deprives you of what you are entitled to expect under the contract] .... Please take notice we declare the contract avoided. We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
This will confirm the telephone conversation between our ... [insert name and title] and your ... [insert name and title] at ... [insert time] ... on [insert date] in which we notified you of our declaration of avoidance. As stated in that conversation, the installment delivered on ... [insert date] ... under our contract of ... [date] ... fails to conform to the contract in that ... [describe the problem]... This failure to perform your obligations gave us good grounds to conclude that a fundamental breach will occur with respect to future installments in that ... [describe detriment which substantially deprives you of what you are entitled to expect under the contract] ... . Please take notice that, pursuant to Article 73(2) of the Convention on Contracts for the International Sale of Goods, we have declared the contract avoided. We reserve all other rights and remedies available to us."
Finally, under Article 73(2) a buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract. This provision applies only when the installments are interdependent in some way. It seems the unstated purpose of the injured party would not be sufficient. According to the UNCITRAL Secretariat Commentary, failure to make the declaration regarding past or future deliveries at the same time as the declaration of avoidance of the current delivery constitutes a waiver of the right to make such declaration.
Date:
To:
Re: ... [identify contract]...
You have committed a fundamental breach of our contract of ... [date] ... in respect of the installment delivered on ... [insert date] ... in that ... [describe breach meeting the standard in Article 25].... Please take notice that, pursuant to Article 73(1) of the Convention on Contracts for the International Sale of Goods, we declare the contract avoided with respect to that installment. Please take further notice that ... [describe past and/or future delivery or deliveries] ... cannot be used for the purpose contemplated at the time of the conclusion of the Contract, because ... [describe why the past and/or future delivery or delivery cannot be used for the purpose contemplated by the parties at the time of the conclusion of the contract] ... and that, therefore, pursuant to Article 73(3) of the Convention on Contracts for the International Sale of Goods, we declare the contract avoided in respect of such ... [delivery or deliveries].... We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
Our Contract of ... [insert date] ... provides that time is of the essence. You have committed a fundamental breach of the Contract in that you have not delivered the installment due ... [on or by] ... [insert date] .... Please take notice that we declare the contract avoided with respect to that installment. Please take further notice that ... [describe past and/or future delivery or deliveries] ... cannot be used for the purpose contemplated at the time of the conclusion of the Contract, because... [describe why the past and/or future delivery or delivery cannot be used for the purpose contemplated by the parties at the time of the conclusion of the contract]... and that we declare the Contract avoided in respect of such ... [delivery or deliveries] .... We reserve all other rights and remedies available to us."
Date:
To:
Re: ... [identify contract] ...
This will confirm the telephone conversation between our ... [insert name and title] and your ... [insert name and title] at ... [insert time] ... on ... [insert date] ... in which we notified you of our declaration of avoidance with respect to the installment delivered on ... [insert date] ... and ... [describe past and/or future deliveries] ... You have committed a fundamental breach with respect to the installment delivered on ... [insert date] ... in that ... [describe breach meeting the standard in Article 25] ... We have declared the contract avoided with respect to that installment pursuant to Article 73(1) of the United Nations Convention on Contracts for the International Sale of Goods and have informed you that ... [describe past and/or future delivery or deliveries] ... cannot be used for the purpose contemplated at the time of the conclusion of the Contract, because ... [describe why the past and/or future delivery or delivery cannot be used for the purpose contemplated by the parties at the time of the conclusion of the contract] ... and that we have declared the contract avoided in respect of such ... [delivery or deliveries] .... We reserve all other rights and remedies available to us."
Article 74 - Suggestions regarding Defining or Limiting Compensatory Damages. Under Article 74, damages for breach of contract consist of a sum equal to the loss reasonably foreseeable at the time of the conclusion of the contract, including lost profits, suffered by the injured party as a consequence of the breach. It is not unusual for buyers and sellers to agree on liquidated damages, to specify heads of damages that are or are not recoverable, or to preclude the recovery of consequential damages. Often, liquidated damages take the form of an agreed amount per day for each day of delay or further delay after a delay of specified duration or a percentage of the purchase price. Keep in mind that Article 6 permits you freedom of contract regarding damages, but the Convention is not concerned with the validity of liquidated damages provisions. Some national or local laws impose restrictions on liquidated damages clauses that may limit freedom of contract in your situation. Review standard contract forms for appropriate liquidated damages or damages limiting or expanding clauses appropriate for your transaction that are enforceable under the national or local law that may govern the validity of your liquidated damages provision.
In a case in which the United States Supreme Court refused to hear an appeal from a federal appellate court's ruling that the injured party's attorneys' fees are not recoverable as damages for breach under Article 74, the United States Department of State stated its agreement with the appellate court's ruling. There are cases in the courts of other contracting States in which attorneys' fees have been allowed as damages for breach. Consider dealing with the issue in your contract. It is not unusual for contracts to provide that reasonable attorney's fees are recoverable by the party that prevails in a litigation or arbitration relating to the contract. The Convention does not govern the validity of such a clause.
Article 77 - Suggestions regarding Mitigation of Damages. A party relying on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If it fails to so, the party in breach may claim a damages reduction to offset the amount by which the loss should have been mitigated. Consider whether, when a contract derogates from or varies the effect of the Convention's provisions on remedies or avoidance, it would be appropriate for the contract to clarify the impact on the Article 77 rule requiring mitigation of damages.
"Action or inaction that is permitted under the provisions of this Contract or under the Convention on Contracts for the International Sale of Goods shall not be or be treated as a failure to mitigate the loss resulting from a breach."
Remember that while the Convention does not prevent the parties from modifying its provisions on mitigation of loss, it does not validate limitations on the obligation to mitigate. The obligation to avoid where possible the consequences of a wrong implements a public policy against waste. Consider whether clauses that eliminate or unreasonably narrow the obligation to mitigate are enforceable under the national or local laws that may govern the transaction.
Article 78 and Article 84(1) - Suggestions regarding Dealing with Interest.
By design, Articles 78 and 84(1) of the Convention provide little guidance on the assessment of interest. It is good practice for contracting parties to deal with interest. The CISG does not specify the rate at which interest must be paid.
"Interest payable under the terms of this contract or the provisions of the Convention on Contracts for International Sale of Goods shall accrue and be payable at the rate of ... [insert percent] ... per ... [insert period]."
Article 79 - Suggestions for Dealing with Force Majeure and Hardship.
Generally, form contracts contain provisions that forgive a breach that results from consequences beyond the breaching party's control. Under Article 79, a party is not liable for a failure to perform any of its obligations if it proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. If the party's failure is due to the failure of performance by a third party engaged to perform the whole or a part of the contract, the breaching party is exempt from liability only if it is exempt under the terms of Article 79(1) and the third party so engaged would be so exempt if the provisions of Article 79(1) were applied to it. A party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, the breaching party is liable for damages resulting from such non-receipt. Article 79 does not prevent either party from exercising any right other than the right to claim damages under this Convention. See generally, Jennifer M. Bund, Force Majeure Clauses, Drafting Advice for the CISG Practitioner, 17 Journal of Law and Commerce 381 (1998), which is available on this database and which discusses Article 79 and the rules applicable to force majeure in other bodies of law.
Please take notice that we are not able to ... [describe obligation that cannot be performed] ..., because ... [describe event that is causing failure to perform] ... has ... [describe consequences of the event] ...."
Professor Albert Kritzer comments: "Article 79 relief is limited to relief from damages claims. If UCC commercial impracticability applies relief is broader. Do you want broader relief? Also, most people say that Article 79 does not cover hardship situations. Do you want a hardship clause in your contract?"
Article 88 - Suggestions regarding Notice of Intention to Sell. Articles 85 and 86 establish obligations regarding preservation of undelivered or rejected goods. In certain circumstances, Article 88 permits or requires the party who is bound to preserve the goods to try to sell them, but requires reasonable notice of intention to sell.
In the case of a sale under Article 88(1) it seems advisable to state the grounds that justify selling the goods.
Please take notice that, pursuant to Article 88(1) of the Convention on Contracts for International Sale of Goods, we intend to sell the ... [describe the goods and their location] ... on [insert date], because you have failed and refused to pay the cost of preserving them.
Dated.........................."
Please take notice that, pursuant to Article 88(1) of the Convention on Contracts for International Sale of Goods, we intend to sell the ... [describe the goods and their location] ... on [insert date], because you have unreasonably delayed paying the cost of preserving them.
Dated.........................."
Please take notice that, pursuant to Article 88(1) of the Convention on Contracts for International Sale of Goods, we intend to sell the ... [describe the goods and their location]... on [insert date], because there has been an unreasonable delay in taking possession of them.
Dated.........................."
Please take notice that, pursuant to Article 88(1) of the Convention on Contracts for International Sale of Goods, we intend to sell the ... [describe the goods and their location]... on [insert date], because there has been an unreasonable delay in taking them back.
Dated.........................."
Please take notice that, pursuant to Article 88(1) of the Convention on Contracts for International Sale of Goods, we intend to sell the ... [describe the goods and their location]... on... [insert date]..., because there has been an unreasonable delay in paying for them.
Dated.........................."
Remember that the party selling the goods may withhold from the proceeds of sale an amount equal to the reasonable expense of preserving the goods and of selling them, but must account to the other party for the balance, Article 88(3).
Remember, too, that we welcome your suggestions for refinements and new contract terms and documents. Send them to vrogers@law.pace.edu.
- John P. McMahon August 2003
FOOTNOTE
"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).