THE CONVENTION OF CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG)

Prof. Dr. John J.A. Burke

INTERNATIONAL COMMERCIAL SALES TRANSACTION

4 main contracts Sales Contract Insurance Payment Carriage Documentary Credit Bill of Exchange Incoterms

ORIGINS OF CISG

     Predecessors to CISG: 1964 Uniform Law on International Sale of Goods and the Uniform Law on the Formation of Contracts for International Sale of Goods (ULIS and ULFIS respectively).

Predecessors were not widely adopted. Led to 1980 UN Convention On International Sale of Goods.

The CISG (a/k/a the Vienna Sales Convention) is a product (over two decades) of the United Nations Commission on International Trade Law (UNCITRAL).

http://www.cisg.law.pace.edu/ . Electronic Library on the CISG

MEMBERS AND LANGUAGES

CISG Adopted 74 States [May 2010] 6 Official Languages UK, Ireland, Kazakhstan non members Arabic, Chinese, Russian, English, French, Spanish English and French were drafting languages Parties Select Law Default

NON-UNIFORMITY

     Aim of CISG is uniform set of contract rules.

However, significant impediments exist.

Reservations permitted by Article 12.

Domestic interpretation of “autonomous” terms. [Being phased out by trend to cite foreign law] Language problems and access to foreign decisions.

RESERVATIONS – ARTICLE 12 & PART IV

 No reservations are permitted except as authorized (Art 98) but CISG provides for several reservations.

 States may elect to opt out of certain CISG provisions.

 E.g., Sweden and Scandinavian countries opted out of Part II (formation of contract) under Art. 92.1 and the Scandinavian States opted out of CISG entirely for Inter Scandinavian trade under Art. 94.1.

RESERVATIONS – CONTINUED

 In contracts between Scandinavian and non-Scandinavian states, the CISG w/out reservations may apply under Art. 1(1)(b).

 The U.S., China, Singapore, Czech Republic and Slovakia, however, have exercised an Art. 95 reservation and have avoided the effect of Art. 1(1)(b)

HOW TO READ CISG

 First recourse is words of text and its underlying purposes and objectives.

 Second, terms must be read autonomously.

 Third, domestic and foreign case law.

 Fourth, all other - unofficial commentaries, Digest and scholarly articles.

SECONDARY SOURCES OF INTERPRETATION

 Commentary to the CISG, e.g., Peter Schlechtriem and John Honnold.

   Law review and scholarly articles and books. Leete and Murray from United States are very good.

Case law developed by domestic courts interpreting the CISG.

 Example of available resources for cases: CLOUT – Case Law on UNCITRAL Texts, and UNILEX – Centre for Comparative and Foreign Law Studies in Rome.

THREE TIERED STRUCTURE OF PARTIES’ OBLIGATIONS

 CISG is set of default rules displaced, with few exceptions, by the private agreement of the parties.

 Pattern of order of obligations is as follows: (1) the parties’ contract, (2) the custom in the trade, and (3) the CISG as gap filler.

PART ONE – SPHERE OF APPLICATION

General Provisions

CHAPTER 1.

SPHERE OF APPLICATION – ARTICLE 1

 CISG applies to international contracts of sales of goods.

 These terms are loaded with meaning.

 Art. 1(1)(a) is main rule identifying a specific class of contracts, where parties have places of business in contracting states.

 Art. 1(1)(b) is a supplementary rule identifying a second class of contracts, when private international law rules lead to application.

PARTIES’ PLACE OF BUSINESS

 Permanent place of business is required.

 Natural person: habitual residence.

 Legal person: Open to participate in trade and degree of independence. Need not be headquarters.

 Multiple offices: refer to Article 10.

 Office having closest connection to K performance .

and its

GENERAL PROVISIONS – PLACE OF BUSINESS - ARTICLE 10

 CISG does not define place of business. But it does not mean headquarters of enterprise; it must be an established business office.

 Art. 10(a) deals with problem of when party has several places of business. The test of “closest relationship to contract and its performance” is used.

 The default rule is that if the party does not have a place of business, then the party’s habitual residence is used to determine in which state the party is located.

ARTICLE 1(1)(B)

 Art. 1(1)(b) leads to the application of the Convention in cases when the rules of private international law would apply the CISG.

 Art. 1(1)(b) enlarges sphere of CISG since parties need not have their places of business in K states.

 But K must have “connection” with Contracting State, or satisfy another “conflicts of law” test.

 another law to a different part of that contract.

 Forum may apply CISG to one part of contract and Peter Winship – See his table

ARTICLE 2 – EXCLUDED TRANSACTIONS

 Consumer transactions, unless seller did not know nor ought to have known purpose of purchase.

 Sales of ships, vessels, aircraft, etc.

 Investment instruments.

 Electricity.

ARTICLES 2 & 3 –TYPES OF SALES EXCLUDED

      Judicial/Execution Sales Auctions Services “Maquiladora” Future goods if buyer furnishes “substantial part” of product.

Barter/ Swapping of goods.

ARTICLE 4 & 5 – ISSUES EXCLUDED

     Matters of validity (e.g. duress, illegality, incapacity and the like) Transfer of title.

Torts involving death or personal injury.

Excluded issues are domestic law matters.

OPTING OUT - ARTICLE 6

 Parties may elect to opt-out entirely from the CISG.

 [Explicit or, implicit exclusion] in some jurisdictions  Parties may derogate from provisions  Parties may opt-in.

 This is controversial .

GENERAL PROVISIONS – INTERNATIONAL CHARACTER AND GOOD FAITH – ARTICLE 7

 Supra-national interpretation of terms.

 Obligation of good faith.

 Authorizes decision making by analogy with express CISG rules and its underlying principles.

 Gap Filling  Principles of International Commercial Contracts [UNIDROIT]

GENERAL PROVISIONS – STATEMENTS AND CONDUCT OF PARTY – ARTICLE 8

 CISG adopts “subjective test” as to meaning of a party’s statement or conduct provided it was obvious to the other party.

 If the other party could not have known the “subjective intent” of the other party, CISG uses the “objective test,” or the reasonable person standard.

 Courts are required to look at total circumstances of situation in determining questions of intent. If there is any question about intent, a full fact finding proceeding is required.

GENERAL PROVISIONS – USAGES – ARTICLE 9

   Parties are bound by usages to which they have agreed or that they have established between them.

This requires actual knowledge or a duty to have known about them. Raises issue of validity.

More important, parties are bound by widely known trade usages particular to their trade. These usages are impliedly made part of the parties’ contract and the formation of the contract.

Usages (not defined) are actions or modes of behavior regularly observed in the course of business transactions in a certain area.

GENERAL PROVISIONS – STATUTE OF FRAUDS – ARTICLE 11

 CISG eliminates requirement.

any writing or formality  Contract may be oral and proved by any means.

 CISG expresses here, as elsewhere, its preference for “equity” over certainty.

GENERAL PROVISIONS – WRITING – ARTICLE 13

 Writing is not defined.

 Contemporary approach is “writing” requirement is satisfied if the terms are capable of being recorded and reproduced in any medium.

 UNIDROIT adopts that approach, Art. 1.10 and PECL, Art. 1:301(6).

Contract Formation

OFFER

Elements Specific Person Unless contrary is clear Class of Persons Sufficiently definite Intent to be bound Indicates goods Formula for price Articles 8 & 9 But see Article 55

OFFER – ARTICLE 14

  “Sufficiently definite” means that the contract must identify the goods and make it possible to determine the price and the quantity.

Is Article 55 in apparent contradiction?

 That Article provides for open price term.

 To avoid problem, specify method or opt out of Article 14.

OFFER – ARTICLE 15 - WITHDRAWAL

 An offer is effective when it “reaches” the offeree.

 “Reaches” is synonymous with delivery (Art. 24).

 Art. 15(2) permits offeror to withdraw the offer.

OFFER – ARTICLE 16- REVOCATION

 An offer may be revoked if it is reaches the offeree before he has sent an acceptance.

 But, if an offer is irrevocable, it cannot be revoked.

 Irrevocable offer: (1) created by express statement, or (2) reasonable reliance.

 Subsection (2)(b) introduces uncertainty into the revocation process.

ACCEPTANCE – ARTICLE 18

3 Methods Statement Performance Conduct Articles 8 & 9

ACCEPTANCE – ARTICLE 18

 acceptance is effective when it reaches the offeror, a notice requirement.

 Except Reverses common law “mailbox” rule dispatch.



acceptance.

for subsection (3), an where acceptance is effective on

Silence or inactivity alone is not

BATTLE OF THE FORMS – ARTICLE 19

 Applies when seller and buyer exchange standard forms to contract, and the contracts contain different terms.

 Substantially adopts the mirror image rule.

 If reply contains additions, limitations or modifications, the reply is a rejection and a counter-offer.

 If latter are minor and offeror does not dispute, K is formed on basis of latter.

BATTLE OF THE FORMS – ARTICLE 19

 If, however, the additional or different terms materially alter the terms of the offer, then there is no contract.

 Note that CISG does not deal with problem when parties have begun to perform although their writings are different.