Chapter 1. Introduction

I. THE LAW OF SALES UNDER NATIONAL LAW

1. The substantive law of Sales is treated both as a distinct legal discipline and as a subset of general Contract law.¹ In any event, the contract for the sale of goods is surely the single most important contract type.

2. As regards those sales contracts which are made and performed within a purely national context, the applicable substantive sales law is the national law of the country concerned. As regards those sales contracts made and performed in an international context, the rules of national law would seem too provincial for the transborder purpose: a supranational sales law is surely to be preferred. Until recently, however, most States had no supranational rules available for application in the international context;¹ so the courts of such States were obliged to make do with the national rules, in both national and international contracts of sale.

3. The United Nations Convention on Contracts for the International Sale of Goods (hereinafter: the Convention and/or the CISG) is the first truly international sales law to be accepted by broad segments of the international community of nations. The Convention was signed on 11 April 1980, at a diplomatic conference attended by 62 States.

4. According to the CISG Convention Preamble,¹ the States who signed the new treaty did so bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a new International Economic Order. The signatories also considered that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States. Finally, these States were also of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.

5. The Convention entered into force on 1 January 1988 (twelve months after the date of deposit of the tenth instrument of ratification).¹ As of that date, 'international sales' became subject to the Convention² in the following States: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, United States of America, Yugoslavia and Zambia.

6. By mid-1992, instruments of ratification had also been deposited by the following States: Australia, Austria, Bulgaria, Byelorussian SSR, Canada, Chile, Czechoslovakia, Denmark, Federal Republic of Germany, Finland, German Democratic Republic, Guinea, Hungary, Iraq, Mexico, Netherlands, Norway, Romania, Spain, Sweden, Switzerland, the USSR and the Ukrainian SSR . . .

VI. MAJOR SIGNIFICANCE

7. On the basis of this impressive and steadily growing list of ratifications, the new CISG Convention may well be regarded as the most significant piece of substantive contract legislation in effect at the international level. Though still young when judged by the yardstick of international treaties, the Convention has already earned its place in the contractual segment of the International Encyclopedia of Laws.

8. Before proceeding in this monograph with a more detailed examination of the CISG Convention and its component parts, the Convention will be considered in historical perspective and in relation to the problems of private international law.

9. In the case of a purely national contract of sale, (e.g.) a contract between two residents of State X for the sale of goods located in and to be delivered in that State, that State's own body of sales law is likely to be well-suited to such local needs. If a dispute regarding the sale later develops and litigation ensues, the courts of X will have good reason to apply the law of X to resolve a local problem where all connecting links point to the locality concerned.

10. In cases involving an 'international' contract of sale -- (e.g.) a contract for the sale of goods between two merchants, A and B, having their places of business in two different States, X and Y -- the potential problems are considerably more complex. Quite apart from the difficult procedural problem of identifying the court or courts competent to decide disputes between parties in cases like this,¹ there is also the important problem of selecting the applicable substantive law: both the rules which regulate the process of sales contract formation and the rules which determine the obligations of the respective parties, their remedies for breach, etc.

III. PRE-CISG: CHOOSING THE APPLICABLE LAW

11. Prior to the advent of the CISG Convention, very few States had made treaty commitments to apply any international sales law rules. The Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF), both done at the Hague in 1964, had only been ratified by a small number of States.¹

12. In most States, therefore, prior to the advent of the CISG, international questions regarding contract formation, party obligations, and remedies for breach could only be regulated by national rules of law. To decide which national law to apply -- the law of the seller's State, the buyer's State or that of some third State -- forum courts revert to their own (national) choice-of-law rules, i.e. the rules known as private international law or conflict of laws rules.

13. To take a more concrete example, suppose that in 1987, prior to the entry into effect of the CISG Convention in France and the United States, a contract for the sale of goods (swimsuits) is entered into between a French seller and an American buyer. Suppose further that an action for damages is later brought before a French court involving an alleged breach of that contract (delivery of defective, poorly sewn swimsuits), but that the contract itself provides no rules or remedies regarding its possible breach. In this pre-CISG situation, and given the fact that France never adhered to the 1964 ULIS/ULF Conventions,¹ the French court would first apply its own rules of private international law in order to determine which substantive, gap-filling sales law (French sales law, American sales law, or the law of some third country) to apply in order to resolve the merits of the case.

14. Continue to consider the example above. Though not an adherent to the 1964 Hague Conventions (ULIS/ULF), France has long been a party to the 1955 Hague Convention on the Law Applicable to International Sales of Goods. And since the main choice-of-law rule under this 1955 Convention is that the 'seller's law' applies,¹ the French court would be likely to apply French substantive sales law to decide the merits of the case concerned. As regards the substance of the case, at least, this obviously represents a national (French) solution to an international problem. And it may be noted that an American court, confronted with a similar pre-CISG situation, could do no better; it could only have chosen to apply national (French or American) law.²

15. These days, as regards international sales contracts entered on or after 1 January 1988 -- the date the CISG Convention entered into effect in France and the United States -- both French and American courts are bound to resolve international sales problems by more appropriate, truly international means.

16. The Convention is binding, pacta sunt servanda, for the national courts of CISG Contracting States. The same is true of arbitral tribunals which decide disputes pursuant to the laws of such Contracting States. Where the parties to an international sale have agreed to arbitrate disputes, the arbitrators will often apply the law applicable by virtue of the forum-territory's choice-of-law rules,¹ and in international sales, this is now likely to be the CISG.²

17. The significance of the Convention as the applicable law is more fully explained in the Overview provided in Chapter 2 below.

Chapter 2: Convention Overview

18. The CISG Convention contains a total of 101 separate Articles. These individual provisions have been organized within the Convention's four main Parts (I - IV). The purpose of this Chapter is to provide an overview of these four Parts.

19. Part I of the CISG contains the rules which define the Convention's 'Sphere of Application and General Provisions.' Part I, in turn, is subdivided into two chapters. Chapter 1 of Part I defines the Convention's 'Sphere of Application.' In order to define which sales are within the scope of the CISG treaty, the individual rules in this Chapter (Articles 1-6) demarcate which sales are 'international,' which kinds of international 'sales of goods' are within the Convention ambit, etc.

20. Article 1 contains the two main rules of application. First, and most importantly, the CISG applies to contracts for the sale of goods between parties whose places of business are in different States, (a) when the States are 'Contracting States.

22. The conclusion reached in the foregoing illustration does not, however, mean that the advent of the CISG has obviated the need for all private international law rules in the international sales arena. Indeed, CISG Article 1(1)(b) itself presupposes the continued application of such rules, in that the Convention applies to contracts of sales of goods between parties whose places of business are in different States when the rules of private international law lead to the application of the law of a (single) Contracting State. This rule is discussed in greater detail in §1 of Chapter 3 below.

23. The Convention applies to contracts for the sale of 'goods.¹ Although the Convention does not provide a positive definition of this term, certain specialized kinds of sales transactions are expressly excluded from the CISG ambit (e.g.): 'consumer sales,' sales by auction and forced sales, sales of ships, etc.² Nor does the Convention apply to contracts of 'manufacture' where the buyer supplies the raw materials or to 'mixed' transactions where the sale of goods is but a minor element.³ In cases like these, where the CISG does not apply, recourse must be made to national law (via the applicable rules of private international law).

24. As already indicated, the main substantive provisions of the CISG concern sales contract formation (Part II) and the rights and obligations of the seller and buyer arising from such a contract (Part III). Conversely, the CISG does not regulate issues of sales contract 'validity' or the rights of third parties (property rights). Then again, such lines are not always easily drawn.¹

25. The Convention does not apply to the liability of the seller for death or personal injury caused by the goods, whereas product liability for damage to buyer's property is a topic quite clearly within the Convention regime.¹

26. A final, yet extremely important feature of the Convention's scope is that the parties remain free to 'contract out' of the CISG or any of its individual provisions. The CISG thus respects the freedom-of-contract rule, and those States which ratify the Convention are obligated to give priority to (otherwise valid) contract provisions. The Convention provides 'only' the gap-filling rules.¹

II. GENERAL PROVISIONS

27. Chapter II of CISG Part I contains a series of 'General Provisions.' Among these are important rules regarding interpretation.¹ As regards interpretation of the Convention itself, Article 7 requires that courts and arbitrators pay due regard to the Convention's international character and to the need to promote uniformity in its application and the observance of good faith in international trade; Article 7 also contains a rule for the settlement of matters which lie at the Convention outskirts: matters which are 'governed by' the Convention but not 'expressly settled' in it. Article 8 is concerned not with the interpretation of the Convention itself, but rather with the interpretation of 'statements' made (and conduct exhibited) by parties who enter contracts governed by the Convention; depending on the circumstances such statements are to be interpreted pursuant to either a subjective or an objective test.

28. Another important General Provision concerns usages of trade. The parties to a CISG contract are, of course, bound by any usage to which they have expressly agreed;¹ they are also bound by their prior conduct, that is by any practices which they have established between themselves. Beyond this, CISG merchants will often agree to apply trade usages by implication, in particular such widely and regularly observed trade usages which such CISG contracting parties 'ought to know.'²

29. Taken together, Parts II and III constitute the substantive core of the CISG Convention. Each part may be properly regarded as an independent unit, in that Contracting States can ratify either Part II, Part III, or both.¹

30. Part II of the Convention regulates the 'Formation of the Contract,' i.e. the international contract of sale. The Convention deals largely with contract formation in traditional terms: offer and acceptance are the two key elements in the contract formation process.

31. To constitute an offer, a proposal must meet the Convention requirements for definiteness; usually such a proposal will be addressed to one or more specific persons.¹

32. A CISG offer becomes effective upon receipt (when it 'reaches' the offeree);¹ until then, even an 'irrevocable' offer may be withdrawn. Once received, irrevocable offers (inter alia, those which fix a time for acceptance, may not be revoked during the time period concerned, although an offeree's rejection will terminate an otherwise irrevocable offer. Other (revocable) offers may be withdrawn after receipt but prior to the dispatch of an acceptance by the offeree.²

49. Part IV of the Convention contains a number of important 'Final Provisions,' inter alia, the right of signatory States to make certain declarations (reservations) to specified articles and/or parts of the CISG. These include the right of States to declare that they wish to be bound only by the Convention's Part II (Contract Formation) or Part III (Sale of Goods) rules,¹ the right of States to declare that they will not be bound by the 'private international law' rule in subparagraph (1)(b) of Article 1,² and a rule which permits States to recognize only sales contracts and modifications if in writing.³

50. The following Chapters of this Encyclopedia monograph contain a more detailed analysis of the 101 Articles of the Convention. The analysis is organized under the following heads: Scope and General Provisions, the subject matter of CISG Part I, is discussed in Chapter 3 below; CISG Part II, Sales Contract Formation, is discussed in Chapter 4; Obligations, Risk and Remedies, all governed by CISG Part III, are discussed in Chapter 5; and the Final Provisions of CISG Part IV are reviewed in Chapter 6.

Chapter 3: Convention Scope and General Provisions

51. Part I of the Convention is entitled: 'Sphere of Application and General Provisions.' Chapter I of Part I (consisting of Articles 1-6) deals with the first of these important Convention topics, the CISG Sphere of Application.

52. Article 1 of the CISG determines when the Convention applies, i.e. when courts in States which have ratified the Convention are to apply the Convention rules (as opposed to the sales and contract rules of national law). As a general rule, the Convention applies in the two situations set forth paragraph 1 (a and b). According to this paragraph:

53. In all cases, Paragraph 1 requires a sales contract between parties whose places of business are in 'different States.' If, in a given situation, those different States happen to be Contracting States (States which have acceded to the Convention), then the Convention applies by virtue of subparagraph (1)(a). Thus, if a contract for the sale of swimsuits is entered into in 1992 between a seller in France and a buyer in California (France and the United States being different CISG 'Contracting States'), both French and American courts would be bound by Article 1(1)(a) of the CISG treaty to apply the CISG as the gap-filling regime. In this situation, the CISG applies without any recourse to rules of private international law; indeed, there is no conflict among national laws.¹

54. Subparagraph (1)(b) of Article 1 becomes relevant when the subparagraph (1)(a) criterion is not met, i.e. when one or both parties to the contract concerned do not reside in CISG Contracting States. In such event, the Convention becomes applicable nonetheless if the rules of private international law (choice or conflict of laws) lead to the application of the law of a (single) Contracting State. Thus, if a contract for the sale of swimsuits is entered into in 1992 between a seller in France and a buyer in England, French courts would be not bound by Article 1(1)(a) to apply the CISG as the gap-filling regime: the contract is between parties in different States, but because England is not (as of 1992) a Contracting State, the different States concerned are not different 'Contracting States.' (Of course, English courts are not bound to apply the Convention either.) But, in France at least, the Convention is likely to apply nonetheless, because France has long been a party to the 1955 Hague Convention on the Law Applicable to International Sales of Goods.¹ And since the main choice-of-law rule under this 1955 Convention is that the 'seller's law' -- in this case French law -- applies,² and since this seller's sales law as regards international sales is now the CISG, the Convention applies by virtue of subparagraph (1)(b) of Article 1.

55. The 'private international law' rule in Article 1(1)(b) was not supported by all those involved in the drafting of the CISG. This led to the declaration set forth in Article 95, whereby a Contracting State may declare that it will not be bound by subparagraph (1)(b) of Article 1 of the Convention.¹ Thusfar, the United States and China have availed themselves of this declaration.² The courts in these countries will therefore select the applicable sales law using in cases where only one party resides in a Contracting State by traditional rules of private international law.³

56. The general Article 1 criterion for Convention application, the element common to both the subparagraph (1)(a) and (1)(b) situations, is thus that the parties to the contract have their places of business in different States. However, paragraph 2 of Article 1 creates an exception to the general rule:

If the parties concerned neither know nor ought to know that they reside in different States, they have no reason to know that the contract which they enter is 'international;' in such event they should hardly expect the CISG to be the applicable law. In this case, it will be appropriate to 'disregard' the fact that the parties actually do reside in different States. By disregarding this fact, and thus the criterion common to the application of subparagraphs (1)(a) and (1)(b), courts will effectively prevent the application of CISG Article 1, and therefore the Convention will not apply to the transaction concerned.¹

57. Whereas paragraph 2 of Article 1 may be said to narrow the application of the Convention, paragraph 3 is designed as a non-restricting rule. This provision provides:

Because the Convention only applies in international situations, i.e. where the parties have their places of business in different States, the vast majority of CISG contracts will be 'commercial' in nature, in that both parties to the contract are likely to be 'merchants' in the usual sense. But this need not be the case for the Convention to apply, and the fact that the civil-commercial distinction is relevant in some national systems is of no significance as regards the applicability of the CISG. What is relevant in this connection, and as developed more fully below, is that most 'consumer'-type transactions are excluded from the Convention by virtue of Article 2(a).

58. The fact that a given sale of 'goods' falls within the scope of the Convention pursuant to Article 1 does not necessarily mean that the CISG applies to that sale. Articles 2-5 of the Convention exclude a number of (otherwise 'international') sales transaction types from the CISG scope.

59. Article 2 of the CISG provides that the Convention does not apply to the kinds of 'sales' specified in Article 2, paragraphs (a)-(f). Thus, according to Article 2(a), the Convention does not apply to sales:

Many States have enacted special statutes designed to protect the rights of consumers who buy goods for 'personal, family or household use,' etc.¹ By virtue of the applicable private international (choice of law) rules, such consumer-protection statutes are also applied to protect the interests of consumers who purchase goods outside their home State, e.g. either when travelling abroad or when purchasing by mail. By virtue of Article 2(a), the CISG will not displace the operation of these local consumer rules, even when the transaction is 'international' in the Article 1 sense.

Thus, if a buyer who resides in CISG State A buys goods for 'personal, family or household use' from a seller whose place of business is in CISG State B, the CISG will not apply,² unless such seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use.³

60. In addition to the subsection (a) exclusion applicable to 'consumer sales,' subsections (b)-(f) of Article 2 provide that the Convention does not apply to sales:

The exclusion of sales by auction (b) and on execution (c) are attributed to the special character of such sales and to the special nature of the national rules which will continue to apply. The exclusion of stocks, shares, etc. (d) makes the Convention applicable to tangible 'goods' as opposed to intangible rights; international securities and currency transactions are often governed by special, mandatory rules. The exclusion of ships, vessels, etc. (e) is also attributable to the special (registration) rules often applicable to these kinds of goods; there is, however, some disagreement as to where (or whether) to draw the line between (e.g.) an excluded 'ship' or 'vessel' and a (smaller) 'boat.'¹

61. Article 3 of the CISG seeks to draw the line between true sales of goods and transactions where the supplier's obligation is to render manufacturing or other services. Article 3 provides as follows:

Paragraphs (1) and (2) of Article 3 concern the distinction between true sales of goods transactions, to which the CISG applies, and contracts for the supply of manufacturing services or other services, to which it does not. In the case of a 'mixed' transaction, the Convention seeks to draw a line on the basis of the 'substantial' or 'preponderant' part. Thus, where a seller undertakes to supply goods to be manufactured, such a 'sale' falls within the CISG scope unless the buyer undertakes to supply a substantial part of the materials necessary for such manufacture or production; though the 'substantial' line in paragraph (1) seems hardly precise, a seller's supply of (e.g.) 10 per cent - 20 per cent of the total raw materials needed is presumably insufficient to hold the transaction within the CISG scope.¹ By contrast, according to the rule in paragraph (2), where a supplier undertakes to supply a mixture of goods and services, the CISG will not apply unless the sales element is clearly the 'preponderant' part: using a financial means of measurement, this must mean more than 50 per cent of the total value of the obligations concerned.

62. Article 4 of the Convention distinguishes between the substance of international sales law (governed by the CISG) and questions of validity, property and delict (outside the CISG scope). Article 4 provides as follows:

Article 4 may be seen as an ex tuto provision which serves to reinforce that which already follows by (e contrario) implication from the substantive content of Parts II and III of the Convention rules. The CISG governs only the formation of the contract of sale (Part II) and the rights and obligations of the seller and the buyer arising from such a contract (Part III).

63. The fact that the Convention is 'not concerned with' (a) the validity of the contract or of any of its provisions means that national rules of law remain decisive (e.g.) as regards the effectiveness of a disclaimer or limitation of liability in a seller's standard form contract. To be more specific, if a seller in Sweden sells goods to a buyer in France, then, as regards the rights and obligations of the seller and the buyer arising from such a contract, the CISG applies. However, if that seller's contract is a standard form which purports to disclaim all liability arising from seller's breach, the question of the validity of that disclaimer is beyond the CISG scope. As regards the validity question, the national rules continue to apply. And since the applicable rules of private international law in such a situation would point to Swedish national law,¹ the purported disclaimer will only be effective if it satisfies the 'reasonableness' requirement set forth in the 'general clause' of the Contracts Act.² An additional complication is that the theoretical line between validity and substance may not always be clear in practice.³

68. This leaves a narrow, yet commercially significant product liability question within the CISG regime: the seller's liability to the buyer for damage to the buyer's property caused by the seller's delivery of defective goods, for example, the sale and delivery of a corrosive chemical in leaky containers which leads to damage to the floor of buyer's warehouse. Goods which would otherwise be regarded as 'defective' in a product liability context are also describable as goods which do 'not conform' under Article 35 of the CISG.¹ And delivery of non-conforming goods renders a CISG seller liable for all 'loss . . . suffered by the other party as a consequence of the breach.'²

69. Because such claims for buyer's property damage traditionally have been regulated by national rules of delict (tort, negligence, strict product liability, etc.), the question remains whether the application of these older rules will be displaced (to this extent) by the new CISG regime,¹ or whether the two kinds of rule-sets will begin to 'compete.'² Thusfar, most commentators seem to have opted for the latter solution, but the question must ultimately be resolved by the various national courts.³

70. Article 6 of the CISG reaffirms the well-known principle of contractual freedom and the status of the Convention as a supplementary regime. Article 6 provides as follows:

71. The Convention serves to displace national sales and sales contract formation law, but like the national rule-sets so displaced, the CISG is a supplementary regime which fills contractual gaps. The parties to an international contract of sale may 'contract out' of the CISG -- in whole or in part. Therefore, if a seller in New York and a buyer in China agree that their contract shall be governed by the English Sale of Goods Act, then English sales law will displace the CISG (which would otherwise apply as between seller and buyer in different Contracting States).¹

Careful contract drafting is advised: a clause stating that 'German law applies' would not serve to displace the CISG, because the CISG is part of German law.²

72. Again, as regards contracting out, where the parties do not elect to displace the CISG regime in its entirety, they will often contract out to a more limited extent, (e.g.) where the contract contains a limitation of the seller's liability for non-conforming goods.¹ In such event the parties' rights and obligations will be governed by a combination of express contractual provisions and supplementary Convention rules.²

73. In those situations where the CISG would not automatically apply,¹ there is clearly no need for the parties to contract out of the Convention regime; in such situations, the relevant national sales and sales contract formation rules (as determined by the choice of law rules of private international law) will automatically apply. Then again, to avoid such 'provincial' solutions, the parties to an international sale may wish to compromise on the CISG (e.g.) by contracting in with respect to the sale of a 'ship.'²

74. Chapter II of Part I of the CISG is headed General Provisions. Among these are important rules regarding interpretation -- both interpretation of the Convention and of Convention contracts.

75. Article 7 contains two rules regarding the interpretation of the Convention itself; the first of these provides as follows:

76. The Convention is a supranational statute. And according to the applicable rules of public international law, the first duty of the courts of CISG Contracting States is to respect the letter of the law.¹

77. For those cases where interpretation is required, Article 7(1) requires courts and arbitrators to have regard to the international character of the Convention and to the need to promote uniformity in its application and the observance of good faith in international trade. Although UNCITRAL's new 'CLOUT' information system will be helpful, a truly 'international' CISG interpretation will often be difficult, because no international court has been made competent to interpret the CISG,¹ and because the awards rendered by international arbitral tribunals are not regularly published. The CISG legislative history is voluminous, but often inconclusive.² Still, it should be emphasized that judges and arbitrators are bound by Article 7(1) to look beyond local precedents and local modes of thought.

78. Article 7 also contains a rule for the settlement of matters which lie at the Convention outskirts. Paragraph 2 of Article 7 provides:

79. Paragraph 2 deals with matters which are 'governed by' the Convention but not 'expressly settled' in it. It is submitted that one such matter might be whether to extend the definition of 'writing' in Article 13 to more modern means of communication not listed therein.¹ In other cases, the identification of such Convention 'gaps' will involve more difficult -- and controversial -- questions of interpretation, and the process may either call such gaps into being or may bury the gaps.² It is at least clear that certain questions -- such as those relating to the validity of the sales contract, third party rights, etc. -- are not governed by the Convention and can therefore only be settled by resort to national rules of law.³

80. Assuming that a given matter is adjudged within the area defined by Article 7(2), the court or arbitrators must then settle the question in conformity with CISG general principles.¹ If no relevant principle can be found, the matter must then be settled in conformity with the otherwise applicable law: (i.e.) using the same national rules that apply to matters which lie wholly outside the CISG scope.²

89. Paragraph 2 of Article 9 lays down the requirements for the implied incorporation of a given usage in the particular international trade. To be applicable, the usage must be one 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.

90. An international custom which fulfills the Article 9 criteria takes precedence over the Convention's supplementary rules: both the contract formation rules of Part II as well as the gap-filling rights and obligations as defined in Part III. Thus, whether a buyer who fails initially to discover a non-conformity can later allege breach may well depend on a trade usage regarding a duty to inspect (caveat emptor).¹ Trade usage may also affect (e.g.) an international buyer's right to reject the goods, and thus avoid the contractual obligations of both parties.²

111. Articles 18-22 of CISG Part II deal with the subject of acceptance.

112. Paragraph (1) of Article 18 defines the acceptance content:

113. According to the rule in paragraph (1), an acceptance may consist of a statement or of other conduct (such as shipping the goods); in either case, the key to an acceptance is the offeree's indication of assent. On the other hand, since the CISG does not impose upon the offeree a general duty to reply, silence or inactivity does not 'in itself' amount to acceptance. Therefore, the offeror cannot bind the offeree in advance merely by stating that silence will be treated as an indication of the offeree's of assent. If, on the other hand, the offeree initiates a transaction by soliciting an offer, he (the offeree) may bind himself in advance by indicating that an offer received will be deemed accepted absent contrary indication by the offeree within a specified period.¹

II. TIME ACCEPTANCE TAKES EFFECT

114. Paragraph (2) of Article 18, which determines the time at which the acceptance becomes effective, provides as follows:

By virtue of the rules set forth in paragraph (2), an acceptance becomes effective upon the timely arrival of the offeree's indication of assent.¹ To be effective, the acceptance must arrive, and it must arrive in time.

115. An important consequence of the 'receipt theory' of acceptance, as adopted by the CISG in Article 18(2), is that the sender-offeree bears the risk of transmission: the risk of non-arrival of the acceptance. In order to bring about the legal consequences associated with the acceptance of an offer, notice of the acceptance must in some manner reach the offeror.

116. In accordance with the principle that the offeror is the master of the offer, the acceptance must reach the offeror within the time which the offeror has fixed.¹ If no time is fixed, the CISG default rule is that the acceptance must reach its destination within a 'reasonable' time, taking due account of all the circumstances; thus, an offer sent by telefax will require a more prompt reply than an offer sent by post. Absent contrary indication, an oral offer requires an immediate acceptance.

117. As regards the time at which acceptance takes effect, paragraph (3) of Article 18 provides for the cases where the offeree assents by performing an act:

In many cases, the offeror will call upon the offeree to 'indicate assent' by a statement of intention: a notification which serves as a promise by the offeree to act at some future point in time. Sometimes, however, the offeror will request, or at least impliedly condone, that the offeree accept without notice, by merely performing an act, (e.g.) to ship goods ordered by the offeror; a similar understanding may follow from a 'course of dealing' between the parties¹ or from a broader trade usage. In such cases, assuming the act is performed within the time fixed by the offeror or within a reasonable time, the acceptance becomes effective at the moment the act is performed. It follows that the offeror cannot revoke even a revocable offer if the purported revocation reaches the offeree after the act requested has been performed.²

III. MIRROR IMAGE AND BATTLE OF FORMS

118. The offeror is the master of the offer. Article 19 of the CISG serves to link this golden CISG rule both to the 'mirror-image' concept of acceptance and to the much-discussed commercial phenomenon known as the 'battle of forms.' Article 19(1) provides as follows:

119. Article 19(1) conforms with traditional theory: because contractual obligations arise out of expressions of mutual agreement, an acceptance must match the offer. According to the general CISG rule, a reply purporting to be an acceptance which does not reflect the terms of the offer constitutes not an acceptance, but a rejection and counter-offer instead.

120. Not every reply to an offer will 'purport to be an acceptance.' Sometimes, for example, a reply which makes inquiries or suggests the possibility of additional terms is intended to explore the willingness of the offeror to bargain (accept terms more favorable to the offeree), while leaving open the possibility that the offeree may later accept the offeror's original terms.¹ If such an 'independent communication' is a reasonable interpretation of the offeree's intent,² it will not constitute a rejection coupled with a counter offer.

121. Article 19(1) provides that a reply purporting to be an acceptance which does not reflect the terms of the offer constitutes a rejection and counter-offer. Article 19(2) carves out a limited exception to this 'mirror-image' rule:

Besides creating this exception to the Article 19(1) rule, paragraph (2) raises the issue of the 'battle of forms.'

E. The Battle of Forms

122. An international contract of sale is not always the product of a formal negotiation. In many, perhaps a majority of cases, the parties communicate by exchanging brief (e.g. telex or telefax) communications, and these are often coupled with a subsequent exchange -- even a 'battle' -- of standard business forms. In such cases, the offeree's reply is likely to signal a purported acceptance, but the standard terms contained in the acceptance (e.g. seller's invoice) are not likely to match those of the offer (e.g. buyer's purchase order).

123. In order to help resolve cases like those just described, CISG Article 19 sets forth a limited exception to the traditional mirror-image rule and regulates the exception by a materiality test. The CISG default rule, presumably reflecting the will of 'normal' parties, is that immaterial modifications, etc., do not serve to break the deal: a purported acceptance which contains additional or different terms which do not materially alter the terms of the offer constitutes a true acceptance, and the terms of the contract become the terms of the offer with the modifications contained in the acceptance. Only if the offeror, without undue delay, objects to the (immaterial) discrepancy will the offeree's reply be deemed a rejection; in this case, unfortunately, the CISG permits speculation at the expense of the offeree.¹

124. CISG Article 19 is not the first sales statute attempting to deal with the battle of forms, and it represents but a conservative exception to the mirror-image rule.¹ As regards materiality, Article 19(3) provides the following definition:

Paragraph (3) sets forth a non-exhaustive ('among other things') list of provisions deemed material in the Article 19 sense, but one need hardly go beyond those items specifically listed to see that paragraph (3) defines materiality in the broadest of terms; indeed, it seems difficult to even 'imagine variations that would not be material.'² Therefore, most battle-of-forms cases under the Convention are likely to fall within the Article 19(1) version of the traditional mirror-image rule. On the other hand, a reply containing an additional term (as opposed to a modification) which conforms to international trade usage will not constitute a 'material addition' even if it deals with a topic listed in paragraph (3).³

125. It must also be emphasized that Article 19 does not provide machinery capable of solving all problems likely to arise within the context of a 'battle-of-forms.' One sales situation which has frequently challenged national courts concerns cases where the provisions of the forms exchanged do not entirely match (e.g. where only one party's form limits liability for breach or provides for arbitration of disputes), but where the seller and/or buyer proceed to perform their main obligations (to deliver and pay) without regard to the contractual discrepancy and its potential consequences. In such cases, some sort of CISG 'contract by conduct' must be said to exist,¹ but the terms of that contract are likely to be the subject of some dispute. One possibility is to look to the standard terms of the party who got in the battle's 'last shot;' another, sometimes more fair approach is to look to the CISG gap-filling substantive rule.² In any event, the CISG itself is not likely to provide a mechanical or clear-cut solution.³

126. As noted previously, a CISG acceptance must reach the offeror within the time which the offeror has fixed.¹ Article 20(1) of the CISG provides as follows:

If the time for acceptance is of a fixed length, it is important to fix the point in time at which that period begins to run. As regards periods fixed by instantaneous means of communication, the time begins to run from the moment that the offer reaches the offeree. As regards non-instantaneous means of communication (telegram or letter), however, the CISG default rule is that the period begins to run from the moment the communication is handed in for dispatch or from the date shown on the letter;² to this extent Article 20(1) stands in contrast to the rule that the acceptance first becomes effective when it reaches the offeree,³ and the combined operation of the two rules may not always lead to reasonable results.⁴

127. A less controversial rule regarding the effect of official holidays or nonbusiness days on the period of acceptance is set forth in Article 20(2).¹

VI. EXCEPTIONS TO TIMELY ACCEPTANCE RULE

128. As noted previously with respect to the general Article 18(2) rule, an acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or within a reasonable time. Article 21 of the CISG provides the following two exceptions to the rule:

129. According to Article 18(2), a late acceptance is of no effect, and the offer to which the acceptance seeks to reply will lapse. However, under the exception set forth in Article 21(1), a late acceptance is nevertheless effective as such if the offeror promptly notifies the offeree to that effect. In such event, the acceptance becomes effective upon its receipt (and before the subsequent notice by the offeror).¹

130. Article 21(2) deals with a somewhat more complex situation: the 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. In this case the CISG adopts the Scandinavian rule:¹ the late acceptance is effective as such unless the offeror promptly informs the offeree that he considers his offer as having lapsed.

131. The CISG rule regarding withdrawal of an offer has been previously discussed.¹ As regards withdrawal of an acceptance, Article 22 provides as follows:

It follows from Article 22 that an acceptance may not be withdrawn after it has become effective: once the acceptance is in effect, the contract is too,² so 'withdrawal' after this point will constitute a breach by the offeree.

132. According to Article 23 of the CISG: 'A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.' According to the main rule in Article 18(2), an acceptance becomes effective at the moment the indication of assent reaches the offer.¹

133. Part II of the Convention concludes with Article 24 which defines the point in time when a declaration of intention (offer, acceptance, etc.) is considered to 'reach' the addressee:

Chapter 5: Obligations, Risk and Remedies

134. Part III of the CISG, entitled 'Sale of Goods,' contains the substantive rules of greatest practical significance for international sales. Part III is subdivided into five separate chapters.

135. CISG Part III, Chapter 1 (consisting of Articles 25-29) is entitled General Provisions. Certain of these general provisions relate to the remedies of avoidance and specific performance; these provisions serve as adjuncts to the more specialised remedial rules in Chapters II and III regarding seller's and buyer's breach. Chapter I of Part III also contains other general provisions, applicable to both parties, regarding delays in notification and contract modification.

II. AVOIDANCE AND FUNDAMENTAL BREACH

136. The first general provision in Chapter I of Part III relates to the rules which permit an injured party to 'put an end to the contract,' i.e. the remedy of avoidance. In most cases of seller's and buyer's breach, as later provided in Chapters II and III, the CISG requires a 'fundamental breach' before permitting an injured party to avoid.¹ Article 25 supplements these avoidance rules by providing the necessary definition of the pivotal term:

137. Article 25 defines fundamental breach in terms of (foreseeable) 'substantial detriment.' For example, as regards the buyer's right to avoid upon seller's late delivery, the Convention requires that the delay amount to a fundamental breach.¹ Therefore, in order to avoid, the buyer must suffer a detriment which substantially (perhaps even more than 'materially') deprives him of what he is entitled to expect under the contract.² In addition, the detriment must also be one which this seller (or a reasonable) seller ought to foresee. Whether a party suffers a 'substantial' detriment in a given case and whether such detriment is 'foreseeable' requires a concrete evaluation of the case concerned.³ For the present, it may be noted that the uncertainty which sometimes surrounds a party's right to avoid by reason of fundamental breach has been ameliorated somewhat by the establishment of a so-called Nachfrist rule.⁴ It may also be noted that the buyer's right to avoid for non-conforming goods has been restricted somewhat by the seller's right to cure.⁵

138. Like Article 25, Article 26 is a general provision relating to the right of an injured party (seller or buyer) to avoid. Because avoidance can have serious consequences for the party in breach (requiring, e.g. that a breaching seller retake possession on foreign soil), Article 26 provides that '[a] declaration of avoidance of the contract is effective only if made by notice to the other party.' It also follows that the contract is avoided as of the point in time when the notice is given. However, assuming the injured party is entitled to avoid, (e.g.) by reason of a fundamental breach, one Article 26 notice will suffice: unlike some legal systems, the Convention does not first require a 'warning' notice which declares an intention to avoid.¹

139. Article 27 of the Convention deals with delays or errors in transmission:

Assuming that a given communication is made in accordance with Part III of the Convention and by means 'appropriate in the circumstances,' such communication is generally effective 'upon dispatch.' Thus, as a general Part III rule, and in contrast with the rules applicable to certain communications in Part II,¹ Article 27 places the risk of delay or error in transmission upon the addressee. Therefore, a buyer who sends a notice advising the seller that the goods delivered are defective will retain his rights to remedial relief.² There are, however, a number of exceptions to this general Part III rule.³

IV. SPECIFIC PERFORMANCE

140. As noted previously, and as more fully developed later in connection with the discussion of remedies for breach, the Convention accepts the logic of Civil law systems with respect to specific performance: if a promisor fails to perform his promise, the most natural means of enforcement is to simply require that he perform as promised: deliver, deliver substitute goods, cure defective delivery or (in the case of buyer's breach) pay the price agreed.¹ But Article 28 sets forth an important general proviso in this regard:

141. A court (or arbitral tribunal) asked to 'require performance' under the Convention must engage in a 2-step process. First, it must determine whether the remedial rules in Chapters II or III of Part III so permit.¹ Then, the court must proceed to test the 'safety-valve' in the Article 28. Thus, even if a court holds that the applicable (Chapter II or III) Convention rule would require a non-performing seller to (re)deliver or cure, it must also consider whether such specific relief would be available pursuant to its own national sales law, i.e. the law of the forum State.² If specific relief is not so available, the forum court is 'not bound' to require performance under the Convention. It remains to be seen whether Article 28 will tend to maintain national conceptions of the proper role for specific performance or whether the Convention will be interpreted with the need for international uniformity in mind.³

V. MODIFICATION AND TERMINATION

142. As noted previously, a CISG contract of sale need not be concluded in or evidenced in writing and is not subject to any other requirement as to form.¹ Article 29 eliminates 'formal' requirements as regards contract modification and contract termination. The general rule is set forth in paragraph (1): 'A contract may be modified or terminated by the mere agreement of the parties.'

143. For one thing, Article 29(1) supplements the Article 11 rule:² unless otherwise agreed,³ a contract to modify or terminate a CISG agreement need not be in writing.

144. Beyond this, Article 29(1) is said to counter certain national conceptions which might otherwise apply. Thus, under rules traditionally applicable in Common law jurisdictions, a 'one-sided' modification of a sales contract was not binding by virtue of 'the mere agreement of the parties.' If, for example, a buyer promised to pay the seller more than the price originally agreed, but got nothing in return, that buyer's promise was not binding under Common law: the seller could not demand something for nothing; 'consideration' was required to make the buyer's promise bind. Now, as regards international contracts subject to the CISG, 'lack of consideration' is no CISG defense.

145. On the other hand, dispensing with the consideration requirement does not dispense with the real problem which often underlies the one-sided modification kind of case. It is still necessary to distinguish between modifications arrived at by threats and extortion ('economic duress') on the one hand, and good faith (honest, acceptable business standards) on the other.¹ Article 29 states only that, once entered, a CISG sales contract may be modified by the 'mere agreement' between the parties, but the question of whether a promise to modify is valid and binding in the concrete case -- or whether the modification has been extorted by a bad-faith exercise of economic duress -- lies quite outside the Convention scope. So this side of the Article 29 problem must be left to the proper national law.²

146. Paragraph (2) of Article 29 permits the parties to derogate from the form-free default rule in paragraph (1):

147. Chapter II of CISG Part III (Articles 30-52) contains the supplementary Convention rules regarding the Obligations of the Seller and provides the buyer with various remedies in the event of seller's breach. Many of the special (seller-related) rules in this Chapter II of Part II must be read in conjunction with the General Provisions set forth in the previous Chapter (1)¹ as well as with those set forth in Chapter V (Provisions Common to the Obligations of the Seller and of the Buyer).²

148. The various obligations of the CISG seller are summarized in Article 30:

149. Under Article 30, and as more fully defined in the provisions which follow, the CISG seller must deliver the (right) goods (at the right place and at the right time) as required by the contract and this Convention. Because the Convention respects the parties' freedom to define their own obligations, etc.,¹ CISG rules such as those regarding the proper place and time for seller's performance serve only to fill in such contractual gaps as may exist.

III. DELIVERY OF THE GOODS AND HANDING OVER OF DOCUMENTS

150. Section I of Chapter II (Articles 31-34) concerns 'Delivery of the goods and handing over of documents.' The first rule in this section deals with the place of delivery which is particularly important not only as regards the seller's delivery obligation as such, but also as regards the operation of the Convention rules regarding the 'Passing of Risk.'¹

B. Place of Delivery

151. Article 31 sets forth the default rules which define the place of delivery in a contract governed by the CISG, (i.e.) the gap-filling rules which apply absent an express contractual provision or international usage to the contrary.¹

152. In as much as the precise demarcation of the place of delivery is a key function of the INCOTERMS regime, the CISG default rules in Section I of Chapter II should also be read in light of such INCOTERMS as may apply. In many cases the INCOTERMS will be made applicable by virtue of an express contractual provision: one which would incorporate the relevant INCOTERM place-of-delivery term by reference.¹ Another, less likely possibility is that the INCOTERMS become operational by virtue of an international trade usage.²

153. The general CISG place-of-performance default rule is contained in Article 31, paragraph (a):

154. When the CISG applies, the buyer and seller will have their places of business in different States.¹ In the typical case, such a contract will contemplate the transport of the goods via a 'carrier,' (i.e.) an independent third party not under seller's or buyer's direct control: even if the contract does not expressly refer to the use of a carrier, the distance which separates the parties and/or their practices may carry the necessary implication.² In typical cases like these, the seller fulfills his delivery obligation by handing over the goods to the first such carrier.

155. Paragraphs (b) and (c) are designed to provide default rules for those relatively few cases where an international sales contract does not contemplate carriage by an independent carrier; in these cases, the obligation to delivery consists:

156. Where paragraph (a) does not apply, and the goods are specific goods in a specific place such as a particular painting currently on exhibit in a given art gallery (or in equivalent situations),¹ the default rule in paragraph (b) requires the seller to place the goods at the buyer's disposal at that specific place. In other (paragraph c) cases (i.e.) those contemplating neither carriage nor specific goods in a specific place, etc., the seller's obligation is to place the goods at the buyer's disposal at the seller's place of business.

157. In cases which concern the carriage of goods, Article 32 provides a series of default rules which supplement the seller's primary delivery obligation.¹ The most important of these concerns goods not clearly identified to the contract: as regards these, the seller must give the buyer notice of the consignment specifying the goods.²

158. Article 33 concerns the time of delivery. As always, any express contractual provision will take precedence over the supplementary rule;' here the default solution is a 'reasonableness' test:

159. If the contract involves carriage, the seller will often dispatch the goods on terms whereby documents controlling their disposition (e.g. a negotiable bill of lading) will not be handed over to the buyer except against payment of the price.¹ Article 34 sets forth certain supplementary rules which relate to this situation.²

160. Section II of Chapter II (Articles 35 - 44) covers a topic of great practical importance: 'Conformity of the goods and third party claims'.

161. A substantial portion of all sales litigation relates to claims by the buyer that the goods are defective, in that they do not conform to the contact. As regards international sales subject to the CISG, Article 35 lays down the supplementary rules.

162. Before proceeding to examine this important provision, however, it should be noted that the CISG, hereunder Article 35, governs only contractual rights.¹ As regards misrepresentation and similar torts, rules which govern delictual obligations under national law will sometimes serve to supplement -- and complicate -- the new international Convention law.² Thus, even if no contractual commitment is established in the Article 35 sense, applicable tort law may still provide a misrepresented buyer with (at least) reliance-interest damages for negligent misrepresentation.³

163. Paragraph (1) of Article 35 is a specific (though perhaps somewhat redundant) 'restatement' of the familiar Convention principle whereby the agreement of the parties takes precedence over supplementary CISG provisions designed to fill the gaps:¹

D. Supplementary Convention Obligations

164. As under most national rule-sets, so too under the CISG: caveat emptor is no longer the supplementary rule. Paragraph (2) of Article 35 sets forth a series of four implied Convention obligations which apply '[e]xcept where the parties have agreed otherwise.'¹ Subparagraphs (a) and (b) are most important.

165. Goods are often ordered by general description without any indication to the seller as to purpose.¹ In such cases, subparagraph (1)(a) will be relevant; the goods must be fit for the purposes for which goods of the same description would ordinarily be used.

166. In some cases, at or prior to the conclusion of the contract, the seller will have been made aware of the particular purpose to which the goods will be put. If so, the seller assumes an implied obligation that the goods are fit for such purpose, in that the buyer may reasonably rely on the seller's skill and judgement in this respect. If, on the other hand, the buyer did not so rely, or it was unreasonable for him to so rely, no obligation as to fitness for the particular purpose is to be implied.

167. In many cases, the implied obligations set forth in subparagraphs (1)(a) and (1)(b) will overlap: a given buyer's particular purpose may well correspond to the purpose such goods are generally put. If so, any failure to comply with the 'reasonable reliance' test in subparagraph (1)(b) will be inconsequential as regards the establishment of a contractual breach.

168. The implied Convention obligations set forth in subparagraphs (1)(a) and (1)(b) clearly resemble the obligation to supply what Common lawyers call (a) 'merchantable' goods and (b) goods 'fit for the purpose.' But, unlike the corresponding English and American rules, the CISG subsumes the unmerchantable, unfit-for-purpose and similar qualities under the heading of goods which do 'not conform'; the seller cannot on this basis alone be held in breach of any implied Convention 'condition' or 'warranty'.¹ The CISG merchant automatically incurs an implied obligation to supply merchantable and fit goods, but no remedial consequences can be deduced solely on the basis of the quality implications of Article 35.²

169. Article 35, subparagraph (1)(c) imposes a further implied obligation regarding conformity to the 'qualities of goods which the seller has held out to the buyer as a sample or model.' Subparagraph (1)(d) requires that the goods be 'contained or packaged in the manner usual for such goods [or] in a manner adequate to preserve and protect the goods.'

170. The seller's obligations set forth above with respect to Article 35(1)-(2) apply irrespective of the seller's 'state of mind,' in that the seller is liable for defects whether or not he or she 'knew or could have been aware' of a given nonconformity at the time of contracting.¹ The Convention gap-filling rule is that the seller is liable without fault.²

171. Absent express contractual provision to the contrary (a warranty limitation, disclaimer, or the like),¹ the CISG seller automatically accepts the Convention catalogue of implied obligations with respect to merchantability, fitness for purpose, etc., set forth in Article 35(2). Only Article 35(3) of the Convention represents a limited remnant of the classical caveat emptor rule. According to this provision:

Whereas the CISG does not impose a pre-contractual duty to inspect,² a buyer who in fact undertakes such an inspection and thus becomes aware (e.g.) that the goods offered for sale are not fit for a particular intended purpose is assumed to purchase such goods as he finds them; the same is true of a buyer who 'could not have been unaware' of such lack of conformity.³ In such clear-cut situations, where the buyer buys with wide-open eyes, it seems fair to maintain a caveat emptor-type rule: 'what you see is what you get,' subparagraphs (2)(a)-(2)(d) notwithstanding.⁴

G. Disclaimer and Limitation of Liability

172. A subject of great practical significance is the seller's ability to disclaim or limit his or her Article 35 liability by contract. The implied obligations set forth in Article 35(2) apply by default, but only absent contractual provision to the contrary: '[e]xcept where the parties have agreed otherwise.' This ability to agree otherwise is in accord with the general Article 6 freedom-of-contract rule: the parties may 'derogate from or vary the effect of any [Convention] provisions.' For example, a contract term whereby the seller 'accepts no responsibility whatsoever that the goods are fit for any particular purpose, whether or not such purpose has been made known to him . . .' will ordinarily serve to displace the obligation set forth in Article 35(2)(b).

173. On the other hand, a given disclaimer need not always be given the (draftsman's) intended effect. First, a given clause will only be effective if deemed 'incorporated' as a part of the contract of sale. One practically important subset of the incorporation problem relates to the fact that disclaimer clauses are likely to be hidden amidst the 'boilerplate' language in a seller's standard form, and courts will not always read burdensome fine-print clauses as 'part of the deal.' Moreover, according to the 'battle of forms' rule in CISG Part II, a 'reply to an offer which purports to be an acceptance but contains [material] additions, limitations or other modifications [e.g., a limitation of liability] is a rejection of the offer and constitutes a counter-offer;' and if the parties 'consummate' a CISG sale in this 'unmarried state', the Convention provides no clear solution to the remedial problem.'¹

174. To take effect, even an incorporated clause must be 'interpreted' as covering the given case. In this connection, the Convention's reasonable-man standard will hardly effect a shift in the patterns previously established under national law:¹ disclaimers of liability will continue to be narrowly construed by national courts, particularly as regards liability for negligence.²

175. Even where a given clause passes the incorporation and interpretation hurdles just described, the validity issue remains. The validity of the contract, hereunder the validity of a limitation or disclaimer of the implied obligations set forth in Article 35(2) is an issue which lies outside the CISG; the Convention is simply 'not concerned with' the validity of the contract or of any of its provisions.¹

176. So, as regards the validity question, the national rules must continue to apply. For example, under Swedish national law, a purported liability disclaimer will only be effective -- even as between merchants -- if it passes a 'reasonableness'-test.¹ And whereas (e.g.) the UK Unfair Contract Terms Act would not authorize such overt censorship in an international case,² a national court will sometimes reach the same kind of result by employing more covert means, (e.g.) interpret its way 'around' an incorporated clause.³

177. In some cases, the line between validity and substance may be unclear. Even assuming (e.g.) that American law applies as regards validity in a given contractual setting, it seems that § 2-316(2) of the Uniform Commercial Code, which requires that certain warranty disclaimers make (conspicuous) mention of 'merchantability,' should not be construed as a 'validity' provision to be applied in a CISG context.¹ On the other hand, whether a given disclaimer in a CISG contract is 'unconscionable' and therefore invalid would be a validity determination which properly depends on American law (UCC § 2-302).²

178. The CISG is, to be sure, 'not concerned with' validity. Then again, the Convention serves not just as a gap-filler but also as a yardstick:¹ it 'aims at justice between the parties . . .'² Its remedial system, considered to be a fair solution in the average case, is relevant as regards rules of validity which strive to maintain a reasonable balance between contractual obligations and remedial relief. Of course, the CISG does not represent the only fair regime, but the alternative set forth in the parties' contract should provide each party with the potential for minimum adequate remedial relief. Where an express contractual remedy provides, not for minimum adequate remedies, but for damages that are 'unconscionably low,' the reasonableness-tests of national law will activate the supplementary CISG remedial rule.³

H. Time of Conformity Determination

179. Article 35 deals with the conformity issue itself. Article 36 provides a more technical rule defining the point in time at which conformity is judged. The general rule is set forth in paragraph (1):

180. The general rule set forth in Article 36(1) is a necessary implication of the rules on risk of loss or damage which follow in Chapter IV of Part III.¹ According to Article 36(1) a seller who delivers (e.g. hands over to a carrier)² goods which -- at that point in time -- are unfit for ordinary purposes remains liable for breach even if the breach relates to a latent defect first discovered later.³ If, on the other hand, the goods are fit when delivered, but are later damaged by the carrier's negligent act, the buyer's only recourse will be against the carrier.

181. Paragraph (2) of Article 36 provides a supplement to the general rule:

Goods are not fit for ordinary or particular purposes unless they are fit when delivered and remain fit for a 'reasonable' time, the period during which such goods normally remain fit. And it follows from Article 36(1) that the seller's implied obligations as to quality set forth in Article 35(2) remain in effect beyond the point in time when delivery takes place. Article 36(2) applies (not as regards the Article 35(2) gap-filling obligations, but) when the parties 'have agreed otherwise,' (e.g.) where the seller guarantees that the goods will remain fit for a specified period of time. Article 36(2) also covers a less common situation: where defects arise because the seller commits a negligent act after delivery takes place.

I. Seller's Right to 'Cure' Defects

182. A CISG seller who delivers defective goods will ordinarily become liable for breach in accordance with the Convention's remedial scheme (as defined in Section III of Chapter II).¹ By providing a seller who delivers early (before the contract date) with a certain right to 'cure' defects in the goods so delivered, Article 37 gives the seller a chance to limit the damage done and thus to limit the extent of remedial relief otherwise available to the injured buyer. According to this provision:

183. As indicated previously in connection with Article 25,¹ and as developed more fully below in the discussion of buyer's remedies for seller's breach,² a buyer is entitled to avoid a CISG contract if seller's failure to perform amounts to a fundamental breach. In cases where the breach involves the early delivery of goods which do not conform (with respect to quality or quantity), Article 37 provides a willing and able seller with effective means to limit the injured party's right to avoid. Unless it becomes 'clear' that the seller will not or cannot cure (without causing the buyer unreasonable inconvenience or expense), the buyer cannot avoid until the contract delivery date has passed;³ and if the defective delivery is effectively 'cured' in time, the buyer will not suffer a detriment which substantially deprives him of what he was entitled to expect.⁴

184. Article 37 should also be considered in conjunction with Article 48 which provides the seller with a (more limited) right to cure 'even after the date of delivery.'¹

185. As discussed more fully below, Section III of Chapter II provides an injured buyer with various remedies for seller's breach.¹ As regards claims arising from delivery of goods which allegedly do not conform, it is important that the seller learn of the nature of buyer's claim in due time.² For this reason, Article 39 of the Convention conditions buyer's right to remedial relief in general upon the giving of (timely) notice to the seller as regards the non-conformity concerned.³

K. Examination of Goods

186. Obviously, a buyer can first give notice of a defect when he or she becomes (or ought to become) aware that the defect exists, and Article 38 lays down the rules for buyer's timely examination of the goods. Paragraph (1) sets forth the general rule:

187. Article 38 describes only the time for buyer's examination, not the intensity thereof. It is assumed, however, that the examination required is one which is reasonable in the circumstances, not one which would reveal every possible defect. Arguably, a buyer not having the requisite technical expertise and special equipment could not be expected to effect an examination for hidden defects discoverable only by such technical means,¹ so a middleman who purchases goods in sealed containers would not normally be expected to undertake (or secure) a laboratory analysis of the contents prior to resale.² More generally, the nature of the examination required will depend, inter alia, on international usages in the trade concerned.³

188. As regards the most common kind of international sales case, Article 38(2) provides:

The general rule in Article 38(1) applies, inter alia, if the contract involves carriage: examination is to be effected 'within as short a period as is practicable in the circumstances.' However, in cases involving carriage, the circumstances dictate a special application of the rule; 'examination may be deferred until after the goods have arrived,' because inspection is presumed to first become practicable at this point in time. Article 38(2) is supplemented by a rule which deals with cases where the goods are redirected in transit or redispatched.¹

L. Consequences of Failure to Notify

189. Against the background of Article 38, which provides a general (short-as-practicable) time frame for the inspection of delivered goods, Article 39 sets forth the consequences of buyer's failure to give notice of a discoverable defect. Paragraph (1) provides the general rule:

190. Under Article 38, the buyer's inspection must take place as soon as practicable after delivery. If the buyer then discovers that the goods do not conform in some specific respect, Article 39(1) requires that he notify the seller of such non-conformity within a reasonable time. If he does not provide the seller with such timely and specific notice, he loses 'the right to rely' on the lack of conformity: as a starting point, at least, the buyer loses the right to assert all the various remedies otherwise provided under the Convention for seller's breach (the right to require performance, to avoid, to claim damages or a proportionate reduction, etc.);¹ this starting point is, however, modified in cases where buyer can provide a 'reasonable excuse' for his failure to notify in accordance with Article 39(1).²

191. A buyer who fails to discover (and give notice regarding) a discoverable defect loses the right to rely thereon: he who 'ought to have discovered' a defect, but did not, is treated as one who does discover, but fails to notify (on time).¹ There is, however, no Article 39 obligation to discover hidden (latent) defects, i.e. defects not discoverable by ordinary means (a 'reasonable' inspection pursuant to Article 38). If a buyer inspects in accordance with Article 38, but first discovers a latent defect at some later point in time, he must provide the seller with the necessary Article 39 notice within a reasonable time thereafter.²

192. Paragraph (2) of Article 39 supplements the general (reasonable time) rule by providing an absolute cut-off rule, a maximum time period after which no buyer may assert a claim in respect of non-conformity:

193. Because Articles 38 and 39(1) require timely inspection and notification as regards discoverable defects, Article 39(2) has particular significance for latent defects. Although a buyer retains the right to rely on latent defects which first become evident after the passage of some time, Article 39(2) helps protect the seller against stale claims which may be of doubtful validity;¹ here as elsewhere, the Convention represents a compromise solution.² Once the goods are actually handed over to the buyer, the CISG two-year period begins to run; a buyer who fails to give notice of a non-conformity before the expiration of this period loses the right to rely thereon, however latent and undiscoverable the defect may be.

194. The contract of the parties takes precedence over the Convention's supplementary rules,¹ so the two-year time limit ordinarily applicable by virtue of Article 39(2) will not apply if the parties' contract expressly sets forth a cut-off period of shorter or longer duration.² The special proviso in Article 39(2) relates (not to such contractual cut-off clauses, but) to contractual periods of guarantee (e.g.) whereby the seller 'guarantees' conformity of the goods for a one-year or three-year period;³ whether such a clause is 'inconsistent with' (and thus overrides) the two-year cutoff period in Article 39(2) is a matter to be interpreted by the court or arbitral tribunal concerned.⁴

195. A buyer who gives notice within the time period defined in Article 39(2) may also be required to take additional steps to preserve his rights. Under Articles 8 and 10 of the Prescription Convention, the buyer must commence judicial proceedings against the seller within four years of the date the goods were actually handed over.¹ Nations not yet bound by the Prescription Convention will apply the limitation period dictated by the applicable rules of private international law.

196. By virtue of Articles 38 and 39, a buyer who fails to notify the seller of a given defect may lose the right to rely thereon. Conversely, a seller who is (or should be) aware of the defect concerned ought not be permitted to enjoy the protection which these provisions provide. For this reason, Article 40 provides:

R. Obligation to Deliver Goods Free of Third Party Claims

197. One cannot rightly sell what one does not own, and a fundamental Convention obligation set forth in Article 30 is that the seller 'transfer the property in the goods.' Elaborating this theme, the first sentence of Article 41 provides:

198. A seller who sells goods she does not own commits a clear breach of the obligation laid down in Article 41; the same is true where the goods delivered are encumbered by a security interest held by a third party. In either case, the seller's knowledge regarding the third party claim at the time of contracting is irrelevant.¹ Beyond this, the Convention protects the buyer even against third party claims, in that the mere assertion by a third party of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides.² If the claim is frivolous, and/or if the seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach.³ On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually perform her Convention obligation to supply unencumbered goods by taking appropriate legal action (instituting or defending a lawsuit).⁴ Damages for breach will be available in either event.⁵

199. The Convention, hereunder Article 41, governs only the rights and obligations of the seller and buyer; it is 'not concerned with the effect which the contract may have on the property in the goods sold.'¹ In accordance with this principle, Article 41 makes the seller liable for claims which third parties may assert against the buyer; the question of whether a third party's rights are cut off by virtue of a buyer's good-faith purchase from a seller under a contract otherwise regulated by the CISG lies outside the Convention scope.

200. Under the general rule set forth in Article 41, the seller must deliver goods which are free from any third party right or claim. 'However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by article 42.'¹ As regards such rights and claims based on patents, copyrights or trademarks, the first paragraph of Article 42 provides:

201. As is true with regard to third party claims generally, a seller who sells goods encumbered by third-party patent, copyright or trademark rights commits a breach of an implied Convention obligation. Beyond this, Article 42 protects the buyer against third party claims, in that the mere assertion of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides.¹ If the claim is frivolous, and/or if seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach.² On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually remedy his failure to supply claim-free goods by taking appropriate legal action (instituting or defending a lawsuit).³ Damages for breach will be available in either event.⁴

202. Unlike the corresponding rule in Article 41, the seller's knowledge regarding a third party right or claim at the time of contracting may be relevant when industrial or intellectual property rights are involved. In the international context, where an (alleged) infringement will usually take place outside the seller's territory, the Convention limits the implied obligation of the seller to deliver unencumbered goods.

First, the seller's Article 42 obligation is limited to cases where the seller, at the time of contracting, 'knew or could not have been unaware' of the right or claim concerned. It has been suggested that the seller 'could not have been unaware' of a third-party claim based on a patent application or grant which had been published in the country in question, inter alia, outside seller's own territory.¹

Second, the obligation is limited by the specification of which State's industrial or intellectual property laws are relevant in this regard: (a) the State of resale or use, if contemplated by the parties at the conclusion of the contract; in other cases (b) the buyer's State of business.

203. Paragraph (2) of Article 42 places a further limit on the seller's obligation in two situations where the buyer clearly ought to bear the risk of a conflicting right or claim: (a) where a buyer contracted with knowledge of the risk and (b) where the buyer provided the specifications, etc., which created the conflict with the third-party right or claim concerned.¹

204. As in cases where an alleged breach relates to non-conforming goods (Article 35), a buyer alleging breach of an obligation under Articles 41-42 must give the seller timely and specific notice thereof. Article 43(1) provides:

If the buyer becomes aware of a conflicting third-party right or claim, Article 43(1) requires that he notify the seller thereof within a reasonable time. If he does not provide the seller with such timely and specific notice, he loses 'the right to rely' on the provisions of Article 41 or 42. As a starting point, at least, the buyer loses the right to assert all the various remedies otherwise provided under the Convention for seller's breach (the right to require performance, to avoid, to claim damages or a proportionate reduction, etc.);¹ this starting point is, however, modified in cases where buyer can provide a 'reasonable excuse' for his failure to notify in accordance with Article 39(l).²

205. By virtue of Article 43(1) a buyer who fails to notify the seller of a given third party right or claim may lose the right to rely thereon. Conversely, a seller who is aware of the right or claim concerned ought not be permitted to enjoy the protection which this rule provides. For this reason, Article 43(2) provides:

In contrast with the slightly more buyer-friendly rule in Article 40,¹ Article 43(2) precludes the seller from relying on buyer's failure to notify only in cases where the seller actually knew of the right or claim of the third party; a showing that the seller could not have been unaware will not suffice.

S. Excuse for Failure to Notify of Section II Breach

206. Articles 39(1) and 43(1) provide that buyers who fail to notify of an alleged breach in respect of the various Convention obligations set forth in CISG Part III, Section II of Chapter II (Articles 35, 41, 42) lose the right to rely on such breach. As a starting point, Articles 39(1) and 43(1) relate to the full range of Convention remedies otherwise available.¹ Article 44 provides an exception to these rules:

A buyer who has a 'reasonable excuse' for his failure to notify does not lose all of the right to rely: such buyer, while losing the right to require performance and the right to avoid, retains the right to a proportionate reduction in price as well as a limited right to claim damages (i.e. except for loss of profit, which is lost by virtue of the failure to notify).² The two-year cut-off rule in Article 39(2) remains unaffected by Article 44.

207. The difficult question is what constitutes a 'reasonable' excuse. The legislative history of the Convention suggests that Article 44 was drafted to meet what representatives from developing countries saw as the drastic consequences of a failure to notify under Article 39(1), and it has been suggested that buyers in less developed regions may be among those likely to enjoy the benefits of a 'reasonable excuse.'¹

V. REMEDIES FOR BREACH OF CONTRACT BY THE SELLER

208. Section III of Chapter II (Articles 45-52) is entitled 'Remedies for Breach of Contract by the Seller.' For every breach by the seller of an enforceable CISG sales contract, there must be some remedy.¹ Article 45(1) summarises the remedies which the Convention makes available to the buyer for seller's breach:

1. See the Overview, supra No. 40 et seq. See also generally Lookofsky, J., 'Remedies for Breach under the CISG,' Ch. 43 in Commercial Damages (Knapp ed., New York, 1991).

209. The buyer's rights referred to in subparagraph (a) of Article 45(1), and detailed in Articles 46 to 52, concern the right to require (specific) performance and the right to avoid; subparagraph (b) refers to the rules in Chapter V of CISG Part III (Provisions Common to the Obligations of the Seller and of the Buyer) which concern the extent and measurement of damages for breach. Whether a given breach entitles a buyer to relief within one or more of these three fundamental categories will generally depend both on the particular circumstances and on the applicable CISG rule(s).

210. Article 45(1) does more than merely catalogue the various CISG provisions regarding buyer's remedies for seller's breach. Article 45(1) is the source of the buyer's right to claim damages for breach.¹ According to Article 45(1)(b), '[i]f the seller fails to perform any of his obligations under the contract or this Convention, the buyer may . . . (b) claim damages as provided in articles 74 to 77.' Since these last-named articles concern only the extent and measurement of damages, and since the buyer may claim damages thus measured for any breach, Article 45(1) surely represents a no-fault liability rule: assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself, without more. (The limited 'exemptions' made available to the seller under Article 79 do not water Article 45(1)(b) down to a rule of liability based on culpa or fault).²

211. As indicated previously,¹ the right to demand specific performance (require that the seller perform) is not compatible with the right to avoid (demand an end to the obligations of both parties),² but there is no mutual exclusivity as between the right to demand either specific performance or termination (on the one hand) and the right to demand damages (on the other). Article 45(2) confirms the point: 'The buyer is not deprived of any rights he may have to claim damages by exercising his right to other remedies.'

212. In some legal systems, where seller's failure to deliver generally permits the buyer to avoid (terminate) the contract, the seller may apply to a court for a delay of grace (délai de grâce) which in effect establishes a new delivery date.¹ Under the Convention, however, avoidance is usually available only upon a showing of fundamental breach.² Therefore, Article 45(3) provides:

F. Specific Performance

213. If a seller fails to perform his promise, the primary Convention remedy permits the buyer to require that he perform as promised: (1) deliver, (2) deliver substitute goods, or (3) cure defective delivery. Dealing with the first of these options, Article 46(1) provides:

Paragraph (1) is designed to deal with the situation where seller's breach consists of a total failure to perform. In such event, the buyer may demand performance unless he has resorted to an inconsistent remedy, i.e. avoidance: by definition, a party who 'terminates' a contract puts an end to both parties' right to demand specific relief.¹

214. In addition to the express limitation set forth in paragraph (1), it has been suggested that the right to require performance be interpreted in conjunction with an injured party's Convention obligation to mitigate damages,¹ as well as the requirement that the Convention be interpreted with regard to the need to promote good faith in international trade:² to compel specific performance (e.g.) after a market change might permit the buyer to speculate at the seller's expense.³ However, because the Convention version of the mitigation rule applies expressly as a limitation on the right to recover damages, and because of the legislative history rejecting an amendment thereto,⁴ there is considerable support for the view denying the application of mitigation as a limitation of the right to claim performance.⁵

215. Article 46(1) cannot be read without reference to Article 28.¹ A court or arbitral tribunal asked to require that seller perform must not only determine whether the letter of Article 46 so permits.² Even if a court holds that, under the Convention remedial scheme, buyer can require that seller 'perform' his obligations, it must also consider whether such specific relief would be available pursuant to its own national sales law, i.e. the law of the forum State.³ If specific relief is not so available, the forum court is 'not bound' to require performance under the Convention.⁴

The foregoing 2-step process, involving both an analysis of the Convention and an analysis under forum law, surely applies to cases falling under Article 46(1), i.e where seller does not deliver at all. Arguably, it also applies to those forms of specific performance described in paragraphs (2) and (3).⁵

216. Paragraph (2) of Article 46 deals with the situation where goods are delivered which do not conform:

Typically, the non-conformity referred to in paragraph (2) will relate to a breach of seller's obligations under Article 35; but the right to require specific performance in the form of re-delivery also extends to breaches which relate to the seller's obligation to deliver unencumbered goods under Article 41.¹ In either case, delivery of substitute goods may entail a severe, potentially disproportionate financial burden for the seller.² For this reason, Article 46(2) conditions a buyer's right to require re-delivery on a par with the right to avoid the contract entirely: re-delivery requires a showing of fundamental breach.³ Therefore, the buyer must suffer a detriment which substantially (perhaps even more than 'materially') deprives him of what he is entitled to expect under the contract; the detriment must also be one which this seller (or a reasonable) seller ought to foresee.⁴ In addition, the request for re-delivery must be made in conjunction with (or shortly after) a notice which specifies the nature of the lack of non-conformity.⁵

In order to require re-delivery, the buyer must be prepared to return the goods already received. In most cases, the buyer 'loses the right to . . . require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.'⁶

217. To require a seller to re-deliver is to require him to perform his obligations as promised.¹ Therefore, it is submitted -- though hardly settled -- that Article 28 may work to limit Article 46(2).² So, even assuming that the various Convention redelivery requirements (fundamental breach, etc.) are met, a forum court is 'not bound' to require such performance under the Convention if this form of specific relief would not available pursuant to the corresponding national law of the forum State.³

218. Under the Convention, and depending on the circumstances, a defective delivery may be 'cured' either because the buyer demands this remedy or because the seller exercises his right to repair.¹ Paragraph (3) of Article 46 deals with the buyer's right to require that seller remedy a defective delivery by repair:

In many situations, it will be more convenient and less expensive to repair goods delivered (rather than return and re-ship). For this reason, the Convention does not condition buyer's right to demand that seller repair upon 'fundamental breach.' In fact, the starting point in Article 46(3) is that [. . .] any breach of seller's obligation to deliver conforming goods entitles the buyer to demand this kind of specific performance. On the other hand, a concrete evaluation of the situation is always required: seller need not repair if this would be 'unreasonable' having regard to all the circumstances. It would, for example, seem unreasonable to require a distant seller to utilize his own facilities or to travel a great distance to repair a minor defect,² especially in light of buyer's general duty to take appropriate measures to minimize loss suffered,³ as well as the other Convention remedies at buyer's disposal.⁴

Arguably, the right to demand repair is a species of the more general right to demand performance as promised.⁵ If so, Article 28 may work to limit the operation of Article 46(3).⁶

219. Under the general Convention rule,¹ buyer is entitled to avoid (terminate) only by reason of seller's fundamental breach. However, in cases of non-delivery, the buyer may also avoid 'if the seller does not deliver the goods within [an] additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 . . .'² Inspired by the corresponding Nachfrist concept in German law, CISG Article 47(1) provides for the fixing of such an additional period:

Once the seller is late in performing, the buyer may have reason to doubt whether the seller will perform before the breach becomes truly serious, thus entailing a substantial detriment which would entitle the buyer to avoid; indeed, the buyer may have reason to doubt how the Convention requirement of fundamental breach will be applied in a given case.³ For this reason, the CISG gives the buyer the right to fix an additional period of time, after which the buyer may avoid without having to consider whether the total delay has reached 'fundamental' proportions.⁴ On the other hand, the requirement that the period so fixed be 'reasonable' may tend to introduce a new element of uncertainty. In any event, the buyer's need for the delivery of the goods without further delay should be the dominate consideration in determining whether the period fixed is reasonable or not.⁵

The Nachfrist notice is designed to give the seller in breach a second delivery chance; once sent, the buyer must await seller's reaction. During the period fixed, buyer may not resort to any remedy he might otherwise have by virtue of the breach.⁶

In this connection it may also be noted that seller's non-compliance with a Nachfrist notice is sanctioned only in the case of non-delivery; only in this kind of Nachfrist situation will the buyer be entitled to avoid.⁷ Thus, although the broad wording of Article 47(1) would seem to comprise any breach, the practical application of the provision is limited to cases involving non-delivery.⁸

H. Seller's Right to Cure After the Delivery Date

220. By providing a seller who delivers before the contract date with a certain right to 'cure' defects in the goods so delivered, Article 37 gives the seller a chance to limit the damage done and thus to limit the extent of remedial relief otherwise available to the injured buyer.¹ Article 48(1) supplements this early-delivery rule with a more limited right for the seller to cure defects after the delivery date:

221. Mistakes will happen, inter alia, in international trade: (some) of the goods delivered may not conform to the contract; a third party's interest may appear to conflict; the documents may be defective in some respect; etc. In most situations, an effective remedy by the seller of her failure to perform in full -- even where such 'cure' takes place after the contractual delivery date -- will be preferable to an avoidance of the contract: surely for the seller, and perhaps even for the buyer. To exercise her right under Article 48(1), however, the seller must produce a cure which is quick, convenient and certain as seen from buyer's point of view.

222. The 'subject to' reference in Article 48(1) to Article 49 is less than clear. However, where time is not of the essence, the seller should have the chance to cure even a seriously non-conforming delivery: in this situation, most commentators therefore agree that the seller's right to cure is not defeatable by a buyer's exercise of his right to avoid for a fundamental breach.¹

223. The remainder of Article 48, paragraphs (2)-(4), contains default rules regarding proposals and notice by the seller regarding cure.¹

224. Article 49 provides an injured buyer with the right to avoid and thus terminate the contract by putting an end to the performance obligations of both parties.¹

225. Under some national statutes of sale, a 'perfect tender' rule prevails, whereby any breach (however insignificant) entitles the injured party to 'avoid' the contract.¹ In international sales, however, particularly far-reaching consequences and extensive waste may follow in the wake of termination, and the general Convention rule is therefore that avoidance requires a showing of a fundamental breach. According to Article 49(1)(a):

Under paragraph (1) the buyer needs to establish a fundamental breach, (i.e.) a 'substantial deprivation.'² To take a concrete example, suppose the contract provides for the delivery of certain specialized goods (not easily obtainable elsewhere) on a specified date. The buyer is, of course, entitled to expect delivery on time.³ If, however, the seller delivers two days later than the contract date, and if the buyer is thereby prevented from performing an existing obligation to (re)sell the goods under a contract with a third party, the buyer has surely suffered a substantial deprivation under Article 25. The buyer will then be entitled to avoid, provided that the seller (or a 'reasonable' seller) had reason to know that the contract breach would have this 'substantial' effect.⁴

If the buyer requires more certainty than that provided by the CISG gap-filling rule, he or she should insist on a contractual term providing (e.g.) that 'time is of the essence.'

226. Article 49(1)(a) entitles the buyer to 'declare' the contract avoided. Such a declaration of avoidance is effective only if made by notice to the seller¹

227. As discussed previously, a seller who effectively exercises his right to cure a non-conforming delivery can steer clear of the potential (avoidance) effects of an otherwise fundamental breach.¹ On the other hand, the Convention also contains rules which extend the buyer's right to avoid in cases where the seller delivers only a part of the goods or where only a part of the goods delivered is in conformity with the contract: in such cases, the buyer may avoid as to such part if the breach is fundamental with respect to the part.²

228. As regards cases of delay and non-delivery, the Convention provides injured buyers with an alternative to fundamental breach. Article 49(1)(b) provides that the buyer may declare the contract avoided:

The buyer may have reason to doubt (1) whether a delayed delivery will ever arrive and (2) whether a given breach is 'fundamental' under Article 49(1)(a); for these reasons, CISG Article 47(1) gives the buyer the right to fix an additional period of time, after which the buyer may avoid without having to consider whether the total delay has reached 'fundamental' proportions.¹ And if the seller does not deliver the goods within the additional period of time so fixed (or if seller declares that he will not comply),² Article 49(1)(b) gives the buyer the right to avoid.

229. If the buyer first elects to avoid after the goods have been delivered, he must do so (as regards late delivery) within a reasonable time after learning that delivery has been made or (in other cases) within a reasonable time after learning of the breach.¹

230. If the buyer avoids the contract with justification, both parties are released from their obligations under it, subject to any damages which may be due. In addition, each party may claim restitutionary from the other party of whatever has been supplied or paid under the contract.¹

231. In cases involving the delivery of non-conforming goods, the buyer may be entitled to a restitution measure of monetary relief even where he is not entitled to avoid. Article 50 provides, inter alia:

The proportionate price reduction (actio quanti minoris) is a remedy well-known in Civilian, but not in Common law systems. In the case of avoidance, the buyer is entitled to full restitution of the price;¹ the proportionate price reduction is measured by the quality-gap and capped by the buyer's restitution interest: the reduction is proportional to the reduced value due to the defect.² The proportionate price reduction constitutes an alternative to avoidance, though it is available even where the buyer would otherwise be entitled to avoid; if the seller successfully remedies a given non-conformity in accordance with Article 37 or 48, however, the buyer may not reduce the price.³ The proportionate reduction is also an alternative to an award of damages,⁴ and since the Convention basis of liability is essentially strict in either case,⁵ the (potentially more extensive) damages remedy is often to be preferred.⁶

232. Articles 46-50, discussed above, regulate the buyer's remedies for seller's breach, inter alia, the important rights to demand performance or to avoid the contract. Article 51 concerns the applicability of these provisions to certain situations where the seller performs in part. According to paragraph (1) of Article 51:

In some respects, paragraph (1) sets forth a rule which would seem hardly necessary to (re)state. If, for example, a seller delivers two-thirds of the quantity agreed but fails to deliver one-third, the buyer's right to require performance under Article 46 would obviously apply only to the third not delivered; similar considerations would apply in the case of re-delivery or repair.¹

233. As regards avoidance, paragraph (1) of Article 51, represents an amplification of Article 49(1): the general rule for part-performance is avoidance in part. Against this background, paragraph (2) of Article 51 re-states the obvious:

234. The seller must deliver the goods as required by the contract.¹ If the contract provides that the goods must be delivered on a fixed date or within a given period, delivery at an early date will constitute a breach. In this situation, Article 52(1) provides that the buyer may take delivery or refuse to take delivery. Assuming, however, that the breach is not fundamental,² a buyer who refuses delivery will have to accept re-delivery when made at the proper time.

235. The buyer is not obligated to accept (or pay) for more than what he has agreed to accept. If the seller delivers more than that provided for in the contract, the buyer may refuse to take delivery of the excess quantity;¹ however, if the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate.²

236. Chapter III of Part III (Articles 53-65) defines the Obligations of the Buyer and provides the seller with a catalogue remedies for buyer's breach. Many of the special (buyer-related) rules in this Chapter III of Part II must be read in conjunction with the General Provisions set forth previously in Chapter I¹ as well as with those set forth in Chapter V (Provisions Common to the Obligations of the Seller and of the Buyer).²

237. The main obligations of the CISG buyer are summarized in Article 53:

III. PAYMENT OF THE PRICE

238. Section I of Chapter III provides more detailed provisions regarding the payment of the price.

239. Payment of the price is clearly the buyer's main obligation under the contract and under the Convention as well. Payment is likely to be tied to means appropriate in an international context. Article 54 provides:

If, for example, the contract requires payment by letter of credit, the failure to take steps to open the letter (and thus assure timely payment) will surely constitute a breach. And, as discussed more fully below, the buyer's failure to perform his obligations under the contract or this Convention will entitle the seller to exercise the remedial rights set forth in Section III of Chapter III.¹ Thus, the seller may avoid the contract if the breach is fundamental; she may also issue a Nachfrist notice, which provides for an additional performance period and permits subsequent avoidance for failure to comply.²

240. CISG Part II requires that a proposal be 'definite' if it is to be considered an offer under the Convention rules. Under Article 14, a proposal is sufficiently definite, inter alia, if it 'expressly or implicitly fixes or makes provision for determining the . . . price." Article 14 must be reconsidered in connection with Article 55:

Article 55 provides a gap-filling reference to the price 'generally charged' in cases '[w]here a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price.'² Some commentators read Article 14 as carrying the implication that a contract which does not fix or determine the price is invalid; others read Article 55 as negating any such implication.³ Article 55 was inserted, it seems, largely for the benefit of the Scandinavian countries who intended not to be bound by CISG Part II;⁴ and the 'invalidity' proponents have argued that Article 55 is only significant in Scandinavian Contracting States.⁵ In any event, the courts of the individual CISG Contracting States will need to determine for themselves whether the validity of a CISG contract with an open price term depends on Article 14 or on the applicable national law. It is submitted that, although Article 55 hardly resolves the validity issue, Article 14 does not require any e contrario invalidity inference to be drawn. Therefore, the court concerned should discern the true intention of the parties in each individual case (via Article 8):⁶ if they intended to be bound without a price clause, and assuming that such an agreement would be valid under the applicable national law,⁷ then the parties' intention should be permitted to prevail. And if the open-price contract is then held valid, the gap should be filled by the (Article 55) price 'generally charged.'

241. Article 56 provides the following rule of CISG contract interpretation: 'If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight.'

242. The contract ordinarily determines the place of payment. As to cases where the contract is silent,¹ Article 57(1) provides:

The place of payment may be significant in an international context, inter alia, if currency export restrictions are involved. The place of payment, as determined by the contract or the Convention's gap-filling rules, will also often be of indirect significance as regards the determination of whether a given forum court enjoys (extraterritorial) jurisdiction to decide disputes which relate to the buyer's obligation to pay.³

243. The buyer is obligated to pay at the time designated in the contract.¹ For cases where the contract is silent, Article 58(1) provides the general gap-filling rule:

244. In a bilateral contract, unless otherwise agreed, the parties are to exchange their performance obligations at the same point in time: payment and delivery are constructive conditions concurrent.¹ The seller has no obligation to extend credit, so the buyer must pay when the seller makes the goods available, either by placing the goods or the documents controlling them at the buyer's disposal. Conversely, the buyer need not pay until the goods are made available.²

245. In an international sales context, the contract will ordinarily involve carriage of the goods.¹ For such cases, where the parties deal at a distance, Article 58(2) provides the necessary modification to the 'construction conditions concurrent' rule in paragraph (1):

Where the contract involves 'carriage' (by an independent carrier), paragraph (2) permits the seller to protect its interests while proceeding to dispatch the goods: absent contrary contractual provision, and at seller's election, the terms of carriage may provide that an exchange of goods (or documents) against payment will take place when the goods are handed over to the buyer.

246. Article 58 deals with the time, not the place for exchange. In the paragraph (2) situation, when the seller elects to ship under terms whereby the goods (or documents) are to be handed over to the buyer against payment, the CISG default rule calls for payment to be made where the handing over takes place.¹ On the other hand, the seller may not wish to ship under such terms without some assurance that the ultimate exchange will proceed as planned.² In practice, the contract will often require the buyer to arrange for the issuance of a letter of credit in seller's favor; in this case, payment will be made (in exchange for documents) in seller's locale, by the local (confirming) bank concerned.³

247. The buyer has no obligation to make (full) payment for goods which do not conform to the contract.¹ Before making payment, and before accepting delivery, the buyer is entitled (though not obligated) to examine the goods.² Article 58(3) provides:

In the Article 58(2) situation, when the seller elects to ship under terms whereby the goods (or documents) are to be handed over to the buyer against payment, the seller must preserve the buyer's right to inspect, e.g. by arranging for buyer's access to the goods at the point of destination.

The right of inspection under paragraph (3) is but a gap-filling rule, so (it goes without saying that) the buyer has no right to inspect if the parties agree on delivery or payment procedures inconsistent therewith. The quotation of the price on CIF terms is a common example of an agreement inconsistent with inspection prior to payment³

248. Under some national rules, a party may not recover damages for delayed payment without first having made a formal demand (mise en demeure).¹ There is no corresponding principle in the CISG. 'The buyer must pay the price on the date fixed or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.'²

249. Section II of Chapter III consists of one provision: a rule which breaks down buyer's obligations as regards delivery into two main elements. According to Article 60:

Paragraph (a) concerns preliminary acts. Sometimes, for example, it will be up to the buyer to arrange for carriage. In other cases, the buyer will need to designate the destination, so that the seller can arrange for timely shipment.

The buyer's obligation to take over the goods in paragraph (b) is significant, inter alia, where the seller's delivery obligation involves placing the goods at buyer's disposal:¹ the buyer who fails to take over the goods in time will bear the risk of accidental loss or damage after that time.² In cases involving carriage, buyer's failure to take over the goods (from the carrier) is a breach, and the buyer will be liable in damages for the seller's extra expenses vis-à-vis the carrier in this regard.

V. REMEDIES FOR BREACH OF CONTRACT BY THE BUYER

250. Section III of Chapter III is entitled 'Remedies for breach of contract by the buyer.' For every breach by the buyer of an enforceable CISG sales contract, there must be some remedy.¹ Article 61(1) summarizes the remedies which the Convention makes available to the seller for buyer's breach:

251. The seller's rights referred to in subparagraph (a) of Article 61(1), and detailed in Articles 62 to 65, concern the right to require (specific) performance and the right to avoid; subparagraph (b) refers to the rules in Chapter V of CISG Part III (Provisions Common to the Obligations of the Seller and of the Buyer) which concern the extent and measurement of damages for breach. Whether a given breach entitles a seller to relief within one or more of these three fundamental categories will generally depend both on the particular circumstances and on the applicable CISG rule(s).

252. Article 61(1) does more than merely catalogue the various CISG provisions regarding seller's remedies for buyer's breach. Article 61(1) provides the basis of liability: the source of the seller's right to claim damages for breach.¹ According to Article 61(1)(b), '[i]f the buyer fails to perform any of his obligations under the contract or this Convention, the seller may . . . (b) claim damages as provided in articles 74 to 77.' Since these last-named articles concern only the extent and measurement of damages, and since the seller may claim damages thus measured for any breach, Article 61(1) surely represents a no-fault liability rule: assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself, without more. The limited 'exemptions' made available to the buyer under Article 79 do not water down Article 61 to a fault rule based culpable breach.²

253. As indicated previously,¹ the right to demand specific performance (require that the buyer pay the price agreed) is not compatible with the right to avoid (demand an end to the obligations of both parties),² but there is no mutual exclusivity as between the right to demand either specific performance or termination (on the one hand) and the right to demand damages (on the other). Article 61(2) confirms the point:

254. In some legal systems, where a buyer's failure to pay generally permits the seller to avoid (terminate) the contract, the buyer may apply to a court for a delay of grace (délai de grâce) which, in effect establishes a new payment date.¹ Under the Convention, however, avoidance is usually available only upon a showing of fundamental breach.² Therefore, Article 61(3) provides:

F. Specific Performance

255. If a buyer fails to perform his promise to pay, to take delivery, etc. the Convention permits the seller to require that he perform as promised. Article 62 provides:

The seller may demand performance unless he has resorted to an inconsistent remedy, i.e. avoidance: by definition, a party who 'terminates' a contract puts an end to both parties' right to demand specific relief.¹

256. In certain circumstances other Convention provisions in Section VI of Chapter V will affect the seller's right to compel buyer's performance. Not only must the seller take appropriate steps to preserve goods in his possession;¹ if the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, the seller who is bound to preserve the goods must take reasonable measures to sell them,² (while retaining the right to claim damages), i.e. not merely keep them for the buyer while demanding payment of the price.

Arguably, the 'duty' which obligates a contracting party to mitigate could be interpreted as a general Convention principle, particularly when combined with a Convention interpretation promoting the observance of 'good faith.'³ However, because the Convention version of the mitigation rule applies expressly as a limitation on the right to recover damages,⁴ and because of the legislative history rejecting an amendment thereto,⁵ there is considerable support for the view denying the application of mitigation as a limitation of the right to claim performance.⁶

257. Article 61(1) cannot be read without reference to Article 28.¹ A court or arbitral tribunal asked to require that buyer perform must not only determine whether the letter of Article 61 so permits. Even if a court holds that, under the Convention remedial scheme, seller can require that buyer must 'perform' his obligations, it must also consider whether such specific relief would be available pursuant to its own national sales law, i.e. the law of the forum State.² If specific relief is not so available, the forum court is not bound' to require performance under the Convention.³ In particular, as regards Common law fora, Article 28 will assume significance in cases where the seller demands performance while still in possession of the goods.

258. Under the general Convention rule,¹ the seller is entitled to avoid (terminate) only by reason of the buyer's fundamental breach. However, in cases where the buyer does not pay or take delivery, the seller may also avoid if the buyer does not perform within an additional period of time fixed by the seller in accordance with paragraph (1) of Article 63.² This rule provides:

Once the buyer is late in performing, the seller may have reason to doubt whether the buyer will perform before the breach becomes truly serious, thus entailing a substantial detriment which would entitle the seller to avoid; indeed, the seller may have reason to doubt how the Convention requirement of fundamental breach will be applied in a given case.³ For this reason, the CISG gives the seller the right to fix an additional period of time, after which the seller may avoid without having to consider whether the total delay has reached 'fundamental' proportions.⁴

The Nachfrist notice is designed to give the buyer in breach a second chance to perform; once sent, the seller must await buyer's reaction. During the period fixed, seller may not resort to any remedy he might otherwise have by virtue of the breach .⁵

H. Avoidance

259. The general Convention rule applies to sellers and buyers alike: avoidance requires a showing of a fundamental breach.¹ According to Article 64(1)(a):

Under some national statutes of sale, time is automatically deemed 'of the essence,' in that any delay in performance (however insignificant) entitles the injured party to 'avoid' the contract, and the delay need not even relate to the buyer's main obligation to pay the price.² In international sales, however, Article 64(1)(a) follows the general Convention rule: seller can avoid only if buyer's failure to perform amounts to a fundamental breach. This applies to all of buyer's obligations under the contract and the Convention, not only to pay, but also (e.g.) to apply for a letter of credit or a bank guarantee to facilitate the payment of the price.³

The seller is, of course, entitled to expect payment on time.⁴ If, however, the buyer tenders payment two days later than the contract date, the difficult question -- one on which national courts may well disagree -- is whether the seller has thereby suffered a 'substantial' deprivation under Article 25. If the answer is yes, the seller will be entitled to avoid, provided that the buyer (or a 'reasonable' buyer) had reason to know that such a breach would have this 'substantial' effect.⁵

A seller who would require greater certainty than that provided by the CISG gap-filling regime is well advised to insist on a contract term providing that, as regards payment, 'time is of the essence' (or some similar term).

260. Article 64(l)(a) entitles the seller to 'declare' the contract avoided. Such a declaration of avoidance is effective only if made by notice to the buyer.¹

261. As regards cases involving non-payment or a failure to take delivery, the Convention provides an injured seller with an alternative to fundamental breach. Article 64(1)(b) provides that the seller may declare the contract avoided:

The seller may have reason to doubt (1) whether the buyer in breach will ever pay or take delivery and (2) whether a given breach is 'fundamental' under Article 64(l)(a). For these reasons, CISG Article 63(1) gives the seller the right to fix an additional period of time, after which the seller may avoid without having to consider whether the total delay has reached 'fundamental' proportions.¹ And if the buyer does not make payment or take delivery within the additional period of time so fixed (or if buyer declares that she will not comply)² Article 64(1)(b) gives the seller the right to avoid.³

262. If the seller first elects to avoid after the buyer has paid the price, he must do so (as regards late performance) within a reasonable time after learning that performance has been made or (in other cases) within a reasonable time after learning of the breach.¹

263. If the seller avoids the contract with justification, both parties are released from their obligations under it, subject to any damages which may be due. In addition, each party may claim restitution from the other party of whatever has been supplied or paid under the contract.¹

264. A buyer may wish to enter a binding contract to purchase goods even though she is, at the time of contracting, as yet undecided about the precise specifications: size, colour, etc. In this case, the contract will provide that the buyer will provide such specifications in due course. If the buyer then fails to make such specification either on the date agreed upon or within a reasonable time after receipt of seller's request, the Convention permits the seller to make the specification himself.¹ The seller must then inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If the buyer fails to do so, the specification made by the seller is binding.²

Such specifications will be significant if, as is likely, the buyer proceeds to breach the contract in other respects: by failing to pay, take delivery, etc. Once the goods are specified, the contract cannot be declared 'void for vagueness,'³ and the seller who is entitled to avoid⁴ will (e.g.) be able to resell to another buyer and use the resale price as a means of calculating damages for breach.⁵

265. Chapter IV of CISG Part III (Articles 66-70) regulates the question of Passing of Risk, i.e. the question of which party is to bear the risk that the goods may be 'accidentally' damaged or lost.

Here as elsewhere, the Convention provides supplementary, gap-filling rules designed for cases where the contract itself does not otherwise provide. And it must be emphasized that the international contract of sale will often resolve the question of risk by the incorporation of a simple trade term, such that the Convention regime will be effectively displaced.¹

266. Before the Convention lays down the gap-filling rules which determine the point in time when the risk of loss passes from the seller to the buyer, it sets forth a basic proposition which helps define the legal effect of the passing of risk. Article 66 provides:

Chapter IV of CISG Part III (Articles 66-70) speaks of, but does not actually define 'the risk,' but it is a well-known fact of life that goods are sometimes damaged or destroyed by fire, storms, theft, vandalism, etc. Before the seller contracts to sell goods which she owns, it is obvious that she, as the owner in possession, is the only logical candidate to bear such risks: if the goods are lost, the loss is hers.

Nor will the mere fact that the seller enters an agreement to sell the goods ordinarily work to 'transfer' the risk.¹ At some point in time, however, after the seller has done what the contract requires of her to 'deliver' the goods, the buyer must accept the fact that the risk of such losses has passed to him.

The fact that both parties are likely to carry insurance designed to protect against the economic consequences of such risks does not dispense with the need to determine which of the two parties actually 'carries' the risk when the loss or damage occurs: it is that party which must bear the burden of asserting a claim against the insurer, suffer depletion of current assets while waiting for settlement, etc.

The gap-filling determination of the precise point in time at which the risk passes from the seller to the buyer is the main purpose of Chapter IV of CISG Part III. The simple message in Article 66 is that once the risk has in fact passed, in accordance with the contract and the Convention, the buyer must pay the price agreed for the goods, and the rule applies even though the goods delivered are damaged beyond repair, indeed even if they never actually arrive. In other words, once the risk has passed to the buyer, the seller has done all she promised to do, and the buyer must proceed to perform his part of the deal, intervening 'acts of God,' etc., notwithstanding.

If, on the other hand, the loss or damage suffered is due to an act or omission of the seller, the buyer need not pay even if the 'risk' has passed in the technical sense.² Another way of stating this is that the ordinary application of the rules regarding the passing of risk applies only to 'accidental' loss or damage: a figure of speech which covers both 'acts of God' and the acts of mortal third parties (thieves, vandals, etc.), but which does not cover the acts or omissions of the seller herself. Similarly, if the loss or damage is due to the buyer's own act or omission, he will be the one to bear this 'risk.'

267. The most important of the Convention's risk rules are those which regulate the passing of risk when the contract of sale involves carriage of the goods.¹ As a practical matter, however, even these rules are not likely to play a central role in most contracts actually drafted for the international sale of goods. So, before considering the workings of the Convention's gap-filling risk regime, some attention should be given to the realities of sales contract life.

According to the general freedom-of-contract rule the parties may 'derogate from or vary the effect of any [Convention] provisions,'² inter alia, the provisions in Chapter IV of CISG Part III regarding the Passing of Risk. And although perhaps only a minority of international sales contracts set forth rules which would displace the Convention regime regarding (e.g.) sales contract formation or remedies for sales contract breach, a very large percentage of such contracts contain trade terms (CIF, C&F, FOB, FAS, CPT, CIP, etc.) clearly designed to regulate the passing of risk.

The International Chamber of Commerce, a federation composed of merchant organizations from around the world, has set forth a comprehensive set of definitions for the various trade terms (Incoterms) now in use.³ In many international sales contracts, where the parties refer expressly to a particular trade term defined by the ICC, (e.g.) 'CIF (Incoterms),' the risk question will be defined by the official definition, simply because the definition has been incorporated into the contract by reference to the term. Even if the contract simply uses a common trade term (without referring specifically to Incoterms), its meaning will often be well-known by virtue of widespread trade usage.⁴

In the case of more traditional trade terms, such as CIF., C & F, and FOB, the risk passes to the buyer when the goods are actually put 'on board' the vessel.⁵ Under more modern terms designed especially for containerized transport, such as CPT⁶ and CIP,⁷ the buyer bears all risks at an even earlier point: from the time they are delivered into the custody of the first carrier.

268. It is also important to note that, in practice, many international sales are 'documentary sales,' whereby the seller hands the goods over to a carrier and receives, in exchange, a bill of lading (or equivalent). This bill, together with other relevant documents, is then tendered to the buyer (or to the buyer's bank)¹ in return for payment of the price. If the contract is a 'shipment' contract,² the holder of the bill of lading normally bears the risk of loss or damage from the time the goods are placed on board; in the case of a 'destination' contract,³ the risk remains with the seller until the carrier arrives at the destination. The CISG Convention, while recognizing documentary sales practices as a fact of commercial life, does not purport to define or regulate them, so in this particular respect, the Convention is not designed to function even as a gap-filling regime; any contractual gaps regarding documentary sales practices (hereunder: questions relating to payment against documents, insurance, etc.) will usually be filled in by the customs of the trade or by the otherwise applicable national law.⁴

269. Most international sales contracts involve carriage of the goods. For such cases, but only insofar as the contract does not contain a trade term which prevails,¹ Article 67(1) of the CISG Convention provides the gap-filling rule:

In most sales contracts involving carriage of the goods, the seller is not bound to hand them over at any 'particular place,' so in most such carriage cases the risk passes to the buyer when the goods are 'handed over' to the first carrier.² In other words, in most carriage cases, transit risks fall on the buyer, and practical considerations accord with this general CISG rule: the buyer will be in a better position to inspect goods damaged by transit related risks and make claims against the carrier or insurer concerned.³

Goods are only 'handed over to the first carrier' if the carrier is a third party; if the seller delivers using means of transportation and personnel under his own control,⁴ the goods are not 'handed over [to a] carrier' in the Article 67(1) sense,⁵ and the risk does not pass until the buyer actually 'takes over the goods.'⁶ If the seller arranges for carriage by two successive (independent) carriers, the risk usually passes when the goods are handed over to the first of these; however, if the seller is contractually bound to hand the goods over at the transshipment point, the risk passes first at that 'particular place.'

270. Article 67(1) concludes with the observation that the seller's retention of documents controlling the disposition of the goods does not affect the passage of the risk. However, since a trade term (Incoterm, etc.) will almost always be included in a documentary sales contract,¹ Article 67(1) will not control the risk issue in such transactions at all.²

271. In certain situations, the buyer will deserve some assurance that goods damaged or lost were actually the goods which the seller intended buyer to receive: (e.g.) where the seller regularly ships large quantities of fungible goods, the buyer should only bear the risk if it is clear that the goods damaged in a given shipment were 'his.' Therefore, Article 67(1) operates only with respect to 'identified' goods; the risk does not pass to the buyer unless and until the goods are clearly 'identified' to the contract: by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.¹ Thus, in sales involving the carriage of bulk goods, a particular buyer only bears the risk as to his undivided share in the bulk if that share has somehow been 'identified' to the contract in question.²

272. Article 68 deals with the special problem of goods sold while in transit. The main risk rule and its exception are as follows:

As in other international sales involving carriage of the goods, the contract will often contain a trade term which allocates the risk of loss.¹ The gap-filling general rule set forth in the first sentence of Article 68, whereby the risk passes at the time of contracting, was intended by its proponents to protect buyers in developing countries,² but it has been criticized by Western experts as 'unworkable' in most cases:³ particularly when damage during transport results from an event difficult to pinpoint in time (water seepage, etc.), the principle set forth in the second sentence (which passes the risk, retroactively, at the time the goods were handed over to the carrier) seems preferable,⁴ but this exception governs only where (arguably vague) 'circumstances' so indicate.⁵ It is at least clear that the seller ought not profit by a failure to disclose events which would lead to the passing of risk.⁶

273. Articles 67 and 68 both provide gap-filling rules in cases involving carriage of the goods. Article 69 provides the residual, gap-filling rules:

Because most international sales contracts involve carriage of the goods, the field of application of Article 69 will be limited in practice.

274. Article 69(1) provides the rule for cases not involving carriage (Articles 67 and 68), provided the buyer is not bound to take over the goods at a place other than seller's place of business (Article 69(2)). Thus, where the buyer is obligated to take over the goods at seller's place, the risk generally passes when the buyer actually takes over the goods; if the buyer does not take over (available) goods on time, the risk passes at that point in time when the buyer commits this breach.¹ If the contract permits the buyer to collect the goods within a given period, the risk will not pass until the period has expired, even if the goods were held available during that period.²

275. If the buyer is bound to take over the goods at a place other than seller's place of business, e.g. at a warehouse, the risk passes under Article 69(2) when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. Therefore, if the contract permits the buyer to collect the goods within a given period, and the goods are available, the risk will pass before the period has expired; in this case, the seller is in no better position to protect against the loss.¹

276. Like Article 67, Article 69 presupposes identification of the goods.¹ In Article 69, identification is relevant as regards seller's placement of the goods at buyer's disposal: such placement will ordinarily effect a transfer of risk. However, if the contract relates to goods not then identified, the goods are first considered to be placed at the disposal of the buyer when such identification takes place: by marking, notice, etc.²

277. If the seller has committed a fundamental breach of contract, Articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach.¹ Therefore, in the case of fundamental breach, although the risk has passed, the buyer may be able to insist on the delivery of substitute goods,² or to avoid the contracts,³ i.e. avail herself of remedies which would not ordinarily be available as regards goods lost or damaged by virtue of Acts of God, etc. Nor will the fact that the buyer is unable to make restitution constitute a bar to avoidance in such a case.⁴

278. Chapter V of CISG Part III (Articles 71-88) is entitled Provisions Common to the Obligations of the Seller and the Buyer. This Chapter supplements both the General Provisions in Chapter I of Part III and the more specialized remedial rules in Chapters II and III; its provisions deal generally with such topics as anticipatory breach, damages for breach, liability exemptions, the effects of avoidance, and the preservation of the goods.

II. ANTICIPATORY BREACH AND INSTALMENT CONTRACTS

279. The Convention defines the point in time at which the seller and buyer are to perform their respective obligations.¹ Prior to this time, there can be no breach, and thus no remedy for breach in the usual sense. On the other hand, when one party clearly repudiates his obligation to perform, the other party can no longer be expected to remain ready to perform a one-sided deal; therefore, in national law, such injured party's duties are, at the minimum, considered discharged.² Even short of an outright repudiation, the serious possibility of one party's nonperformance and the accompanying threat of injury to the other will, in certain circumstances, necessitate legal protection.³

Articles 71-73, collected in Section I of Chapter V under the heading 'Anticipatory breach and instalment contracts,' are designed to deal with the problem, and the CISG solutions resemble those of national law: depending on the circumstances, a party faced with prospective nonperformance, the real possibility of a serious breach, may be entitled either to suspend his own performance (Article 71) and/or to avoid his own obligations altogether (Article 72). In addition, Article 73 provides a special (instalment contract) application of the avoidance rule.

280. Article 71(1) sets forth the general rule which entitles a party to suspend his performance when faced with an anticipatory breach:

As regards the right to suspend performance, Article 71 requires that it become 'apparent' (il apparait) that the other party will not perform a 'substantial part' (une partie essentielle) of his obligations. Although these terms cannot be measured with anything approaching mathematical precision, a comparison with the rules set forth in Article 72 indicates that the Convention, as is logical, makes it somewhat easier to suspend than avoid: as regards the nature of the nonperformance, a promisee's prospective failure to perform a 'substantial part' of its obligations, although obviously significant, is presumably intended to denote something less than a 'fundamental breach';¹ as regards the degree of certainty, an 'apparent' non-performance is designed to indicate a slightly lesser probability than one which is 'clear.'²

Beyond this, Article 71(1) requires that the prospect of nonperformance be the result of either (a) a serious deficiency in the promisor's performance-ability or creditworthiness, or (b) his conduct in preparing to perform or in performing the contract. The buyer's late payments in respect of other contracts might provide evidence as regards the first criterion; the seller's continued use of defective raw materials in other contracts might provide evidence of the second.³

281. Under principles applicable under national law, a seller's rights in respect of buyer's prospective inability to perform include the right to stop goods already shipped.¹ Article 71(2) contains the CISG version of this rule:

Paragraph (2) extends the general protection against potential injury provided by paragraph (1), but paragraph (2) is concerned with the special problem of the seller who has dispatched the goods before the indications of prospective non-performance become manifest. The provision applies not only where the buyer holds a bill of lading or similar instrument, but also where the sales contract extends credit until some time after buyer's receipt of the goods.²

In line with the general CISG principle that the Convention is concerned with the inter partes sales relationship,³ Article 71(2) relates only to the rights in the goods as between the buyer and the seller.⁴ The seller's right to effectuate stoppage vis-à-vis carriers and warehousemen will depend on the contract of carriage or bailment (and on the relevant national law), just as the rights which creditors or good-faith purchasers may have under the applicable national law remain unaffected by this Convention rule.⁵

282. A party suspending performance, whether before or after dispatch of the goods, i.e. under paragraph (1) or (2), must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.¹

283. Article 72(1) sets forth the general rule which entitles a party to avoid the contract when faced with an anticipatory breach:

Thus, as regards the right to declare the contract avoided, Article 72 requires that it become 'clear' (il et manifesté) that the other party will commit a 'fundamental breach' (contravention essentielle) of contract. As already indicated, the requirements for avoidance, which effectively terminates the performance obligations of both parties,¹ are somewhat more strict than those associated with the right to suspend.² In any event, the right to avoid under Article 72 should be exercised with caution, particularly in light of the availability of suspension under Article 71: a party who fails to perform by virtue of an avoidance not justified under Article 72 will itself commit a (perhaps fundamental) breach.

284. While Article 72(1) clearly gives the injured party the right to avoid in the face of a prospective fundamental breach, the Convention contains no specific rule as regards an immediate action for damages in this situation. Although it has been suggested that Articles 75 and 76 may authorize such an action immediately upon avoidance,¹ Section II of Chapter V deals with damages for breach,² and CISG damages are based on the failure of a party 'to perform . . . his obligations under the contract or this Convention.'³ Therefore, if an action for damages under Articles 74-76 is to be based upon a 'breach by anticipatory repudiation,' it must be argued that a CISG promise to perform in the future 'by implication includes an engagement not deliberately to compromise the probability of performance . . .'⁴ The CISG protects the expectation interest of the promisee in general,⁵ and the promisee would appear entitled that his performance expectation be protected against anticipatory repudiation as well.⁶ Such a flexible interpretation of the rules on damages would also require that the promisee take steps to mitigate the loss occasioned by a promisor's prospective failure to perform.⁷

285. As in the case of suspension of performance under Article 71, the party intending to declare the contract avoided under Article 72 must, if time permits, give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance; this rule does not apply, however, if the other party has declared that he will not perform his obligations,⁶ in that such a 'repudiation' would, in itself, make the prospect of a forthcoming fundamental breach (abundantly) 'clear.'

286. Article 73 of the Convention provides a special set of rules applicable to sales contracts involving the delivery of goods by instalments. Depending on the circumstances, a breach by one party as regards a single instalment may serve to indicate a prospective nonperformance of greater dimension and thus affect the other party's avoidance rights as regards the contract overall.

First, according to Article 73(1), if a seller's or buyer's failure to perform any of its obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment (alone).

However, if the seller's or buyer's failure to perform any of its obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, that other party may declare the contract avoided for the future, provided that he does so within a reasonable time.⁶

Article 73(3) contains a special rule regarding buyer's instalment contract rights: 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.

III. DAMAGES FOR BREACH

287. Section II of Chapter V supplements the remedial rules in Chapters II and III. Those chapters deal primarily with the remedies of specific performance and avoidance. Chapter V deals with provisions common to buyers and sellers alike: with the important topic of damages for breach.

288. Before proceeding with an examination of the rules in Chapter V, it should be remembered that Chapters II and III of CISG Part III also contain significant provisions as regards damages for breach. In particular, Articles 45(1) and 61(1) do more than merely catalogue the various CISG provisions regarding buyer's and seller's breach. These rules provide the basis of Convention liability: the source of the buyer's and seller's respective rights to claim damages for breach.¹

According to Articles 45(1) and 61(1), if the seller or buyer fail to perform any of its obligations under the contract or this Convention, the other party may . . . 'claim damages as provided in articles 74 to 77.' As indicated below, these last-named articles (in Section II of Chapter V) concern only the measurement of damages, i.e. the extent of liability: the question is simply, 'how much' compensation should the injured party receive? Since the injured party may claim such Section II damages for any breach, Articles 45(1) and 61(1) represent no-fault liability rules: assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself, without more; there is no requirement that the party claiming damages must establish a 'culpable' breach.

The Convention thus operates on the basis of an essentially no-fault liability scheme, but this does mean that CISG liability is absolutely 'strict.' In certain exceptional circumstances, a promisor may be held not liable in damages for his failure to perform, particularly to the extent such nonperformance is attributable to unforeseeable and unavoidable circumstances, i.e. the kind of 'impediments' often associated with a force majeure event.² For the present, however, it is sufficient to note that the possibility of such an 'exemption' does not water down Convention liability to a fault rule based culpable breach;³ and the rules in Chapter V (Articles 74-77) are designed to measure the 'extent' of CISG liability upon the (Article 45 and 61) no-fault liability base.

289. Article 74 sets forth the general principle by which the CISG measures liability for breach:

The basic CISG formula here is simple and familiar: damages for breach of contract are designed to compensate (and are thus measured by) the loss suffered by the other party as a consequence of breach. Assuming a causal connection between the breach and the loss,¹ the Convention scheme seeks to place the injured party in the position he would have enjoyed 'but for' the breach. Like the remedy of specific performance,² such substitutional relief serves to protect the promisee's expectation of full performance, his or her 'expectation interest.'³ And because the promisor's breach, without more, entitles the injured party to compensation to this extent, it may be said that the CISG provides a no-fault basis of liability for expectation-interest protection; depending on the circumstances, a lesser measure of 'reliance interest' protection is presumably also available within the rule.⁴

Damages measured by the promisee's expectation are often described in terms of 'direct' and 'indirect' loss. Direct loss refers to loss of bargain: the contract/cover or contract/market differential. For example, a buyer who retains goods which are defective in some (less than 'fundamental') respect may recover damages calculated, inter alia, to compensate the difference between the value of the goods delivered and the value conforming goods would have had.⁵ And although all kinds of loss are, in principle, recoverable under the general Article 74 rule, Articles 75 and 76 provide more detailed, lex specialis, rules for measurement of direct loss when the contract is avoided.⁶ On the other hand, as discussed below, the contract/cover price differential (and the corresponding lex specialis rule) may not be adequate to compensate the seller's expectation in the case of the buyer's failure to perform; in this case, the general Article 74 rule will provide the seller the expectation protection deserved.⁷

Article 74 is particularly significant as regards the 'indirect' consequences of breach. Such claims for 'consequential damages' can entail compensation for lost profits (pure economic loss) as well as physical damage to property.⁸ Also damages sometimes characterized as 'incidental' are easily subsumed under the general Article 74 rule.⁹ On the other hand, damages for lost profits may sometimes be limited or denied by the Convention's foreseeability and/or mitigation rules.¹⁰

290. A major component of Article 74 is the 'foreseeability' limitation familiar to many students of domestic law: damages may not exceed the loss which the breaching party foresaw or ought to have foreseen as a consequence of the breach of contract.¹ Foreseeability under the Convention is measured at the time of the conclusion of the contract in the light of the facts and matters of which the breaching party then knew or ought to have known, the underlying idea being that the parties, at that point in time, should be able to calculate the risks and potential liability they assume by agreement.²

Although the Convention test seems quite liberal, requiring only that the loss be foreseeable³ by the defendant⁴ at the time of contracting as a 'possible consequence' of breach,⁵ full compensation for profits lost will sometimes be precluded either by the mitigation requirement⁶ or by forum court standards of proof applicable with respect to such loss.⁷ A more controversial question is whether the foreseeability limitation in Article 74 will function as a surrogate for other national law standards designed, inter alia, to prevent compensation for 'disproportionate' loss.⁸ Here as elsewhere, Courts must harmonize the limited catalogue of CISG conceptions with those of national law.⁹

291. The Convention contains two specific rules which measure damages for direct loss in situations where an injured buyer or seller exercises the right to avoid the sales contract (for fundamental breach, etc.).¹ The first of these practical provisions, Article 75, provides:

Both buyers and sellers can elect to measure damages by the contract/cover differential. Where the seller's delayed or defective delivery constitutes a 'fundamental breach', the buyer may avoid the contract and arrange for a substitute transaction and measure his damages by the difference in price, as well as any further (e.g. incidental) damages recoverable under Article 74.² Technically speaking, there is no 'duty' to cover, but a buyer who, after avoiding a sale, makes no reasonable effort to procure substitute goods may later be barred from compensation for loss which he, by inaction, failed to mitigate.³ Thus, the buyer's recovery even for direct loss is limited by the general principle of substitution ⁴ and (more specifically) by the obligation to cover.⁵

Similar principles apply in the wake of the buyer's fundamental breach. If the seller elects to avoid, e.g. because of the buyer's failure to pay, and if, within a reasonable time thereafter, the seller resells the goods concerned, she may recover the contract-cover price differential, as well as any further damages recoverable under Article 74.⁶ Assuming the second transaction is a substitute for the first, there will be little or no loss if the cover price obtained equals or exceeds the price which the first buyer fails to pay.

292. A party cannot demand compensation for any loss which could have been prevented by cover.¹ On the other hand, not all loss is preventable by cover.

In particular, a seller's own supply may exceed her own demand. In such market conditions,² she cannot 'cover' buyer's breach, simply because a subsequent sale of the same goods to another buyer is no substitute for the first transaction: in this case, there is no causal relationship between buyer's breach and seller's subsequent sale.³ The loss suffered in such a situation is unavoidable, and the Article 75 contract/cover differential is 'inadequate to put the seller in as good a position as performance would have done.'⁴ The profit lost by reason of buyer's breach, best described as a 'direct' loss,⁵ can only be recovered by damages under Article 74 which protect the lost-volume seller's justifiable expectation.⁶ National sales law recognizes this kind of expectation protection,⁷ and the CISG seller's case for recovery appears equally strong.⁸