Rechtswissenschaftliche Fakultät Institut für Zivilrecht

Rechtswissenschaftliche Fakultät

Institut für Zivilrecht

Wintersemester 2017

KU UN-Kaufrecht – Uniform Sales Law

The United Nations Convention on Contracts for the

International Sale of Goods (CISG)

José Angelo Estrella Faria

Part I: Basic Principles, Scope of Application and Interpretation of

the CISG

– Geographic scope of application

• Notion of contract of sales

• Location of parties

• Choice of CISG as applicable law

• Exclusion of CISG as applicable law

– Material scope of application

• Material scope of application: “grey zone” contracts

• Commissioning and services contracts

• Excluded matters

– Interpretation of the CISG

• Rules of interpretation

• Gap-filling



Part II: Contract Formation, Essential Elements and Gap-Filling

under the CISG

– Contract formation: offer and acceptance

• Basic rules on contract formation

• Conditions for effectiveness of an offer

• Open-price contracts

• Revocability of offer and acceptance

• Expression of acceptance

• Counter-offer and modified acceptance

– Contract interpretation and gap-filling

• Contract interpretation: subjective and objective elements

• Binding nature of usages and custom



Territorial scope of application – Article 1

“Article 1

“(1) This Convention applies to contracts of sale of goods between

parties whose places of business are in different States:

(a) when the States are Contracting States; or

(b) when the rules of private international law lead to the application

of the law of a Contracting State.

“(2)The fact that the parties have their places of business in different

States is to be disregarded whenever this fact does not appear either from

the contract or from any dealings between, or from information disclosed

by, the parties at any time before or at the conclusion of the contract.

“(3) Neither the nationality of the parties nor the civil or commercial

character of the parties or of the contract is to be taken into consideration

in determining the application of this Convention.

Part I: Basic Principles, Scope of Application and Interpretation

of the CISG

Territorial scope of application – Article1

– “Contracts of sale of goods”

• “Sales contract” is understood as the exchange of

goods for money, regardless of whether domestic law

treats it as “commercial” or “civil” contract, including

– partial sales (instalments),

– direct sales to buyer’s customers,

– sale of goods to be installed on land,

– sale of goods not intended to be resold

• “Goods” not defined, but generally covers all

moveable, tangible goods regardless of their shape and

whether they are solid, used or new, inanimate or alive.


of the CISG

Territorial scope of application – Article1

– …. between parties whose places of business are in

different States:

• when the States are Contracting States (at the time of

the sale) or

• when the rules of private international law (of the

forum) lead to the application of the law of a

Contracting State (However, 7 States made

reservations to this provision: Armenia, China, Czech

Republic, Saint Vincent and the Grenadines, Singapore,

Slovakia, United States)


of the CISG

Choice of CISG as applicable law

– Generally possible in arbitration

• As contract provisions incorporated by reference or

• As “rules of law” applicable by the tribunal

– Apart from express incorporation by reference, choice of

CISG generally not possible in court proceedings, at least

not before courts that have to apply either

• the 1980 Rome Convention on the Law Applicable to

Contractual Obligations or

• the 1955 Hague Convention on the Law Applicable to

International Sales


of the CISG

Exclusion of CISG as applicable law – Article 6

“Article 6

“The parties may exclude the application of this Convention or,

subject to article 12, derogate from or vary the effect of any of its

provisions.”


of the CISG

Exclusion of CISG as applicable law – Article 6

– Parties may avoid the CISG entirely (exclusion) or specific

provisions in whole (derogation) or in part (variation), but

may not displace a form requirements in States that made

a declaration under Article 95

– Express exclusion can be effected in the contract itself or

by incorporation of general conditions that expressly

exclude the CISG

– Implicit exclusion also possible, notably when the parties

choose the law of a non-contracting State as the

applicable law

– However, when parties choose the law of a contracting

State (e.g. “German law”, “Austrian law”) CISG applies

unless parties expressly refer to domestic law only (e.g.

“ABGB”, “Code Civil, articles 1582 et suivants”)


of the CISG

Material scope of application – Article 2

“Article 2

“This Convention does not apply to sales:

“(a) of goods bought for personal, family or household

use, unless the 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;

“(b) by auction;

“(c) on execution or otherwise by authority of law;

“(d) of stocks, shares, investment securities, negotiable

instruments or money;

“(e) of ships, vessels, hovercraft or aircraft;

“(f) of electricity.”


of the CISG

Material scope of application – Article 2

– CISG Art. 2(a) generally excludes consumer contracts, but

CISG does not use the term “consumer”

– Sales of goods in auctions and forced sales remain

subject to their specific regimes under domestic law

– Negotiable instruments, stocks, shares: often qualified as

instruments incorporating intangible assets (rights) and

are subject to specific regulatory concerns

– Ships, vessels, hovercrafts, aircraft: often treated by

domestic laws as immoveable property (However, CISG

covers sales of components and parts)

– Electricity (intangible)


of the CISG

Material scope of application: “grey zone” contracts

– CISG does not apply to distribution agreements or

framework agreements, but can apply to contracts for the

sale of goods concluded under a distribution agreement

– Franchise agreements also fall outside the Convention’s

sphere of application.

– Courts and scholars still divided as to whether CISG

applies to barter transactions

– Turn-key contracts are not governed by the Convention


of the CISG

Commissioning and services contracts – Article 3

“Article 3

“(1) Contracts for the supply of goods to be manufactured or

produced are to be considered sales unless the party who orders

the goods undertakes to supply a substantial part of the materials

necessary for such manufacture or production.

“(2) This Convention does not apply to contracts in which the

preponderant part of the obligations of the party who furnishes the

goods consists in the supply of labour or other services.”


of the CISG

Commissioning and services contracts – Article 3

– The mere fact that the supply of goods requires or is combined

with the provision of services such as where the seller

undertakes to install, dismantle or maintain the goods, to train

personnel, or to design the goods, does not preclude CISG

application as long as these additional obligations are only

ancillary to the primary obligation to deliver “goods”

– “Preponderance” test: the economic value of the obligations

relating to the supply of labour and services must exceed the

economic value of the obligations regarding the goods

– Thus, as a rule, CISG does not apply where the obligation

regarding the supply of labour or services amounts to more than

50% of the value of the seller’s obligations

– Supply of intellectual work (e.g. a market study, a custom-made

software) does not become sale of “goods” merely because the

results are recorded on a tangible medium (e.g. a printed report,

a DVD), although “off the shelf” products (e.g. standard Software)

may fall under the CISG for relevant matters (e.g. conformity of

goods, performance, damages)


of the CISG

Excluded matters – Article 4

“Article 4

“This Convention governs only the formation of the contract of sale

and the rights and obligations of the seller and the buyer arising

from such a contract. In particular, except as otherwise expressly

provided in this Convention, it is not concerned with:

“(a) the validity of the contract or of any of its provisions or of any

usage;

“(b) the effect which the contract may have on the property in the

goods sold.”


of the CISG


– The applicable domestic law governs, for instance:

• Capacity to contract,

• Agency

• Illegality

• The consequences of mistake, duress and fraud

• Misrepresentation and negligence

– Domestic law also determines when the buyers becomes

the owner of the goods, i.e. whether:

• By contract (“consensual transfer”, or “French

system”)

• By delivery (“transfer by tradition”, or “German

system”)


of the CISG


“Article 5

This Convention does not apply to the liability of the seller for

death or personal injury caused by the goods to any person.”

• Debate as to whether CISG covers redress claims for death or

personal injury (e.g. of buyer’s customers) by virtue of Article

74 (damages)

• No doubt that CISG covers claims for property damage

caused by non-conforming goods


of the CISG

Rules of interpretation – Article7

“Article 7

“(1) In the interpretation of this Convention, regard is to be had to

its international character and to the need to promote uniformity in

its application and the observance of good faith in international

trade.

“(2) Questions concerning matters governed by this Convention

which are not expressly settled in it are to be settled in conformity

with the general principles on which it is based or, in the absence

of such principles, in conformity with the law applicable by virtue of

the rules of private international law.”


of the CISG

Rules of interpretation – Article 7(1)

– Partial relevance of general rules on treaty interpretation

(Vienna Convention on the Law of Treaties, Articles 31-33)

– The “international character” of the CISG requires courts

and arbitrators to consider comparative law and avoid

“homeward trend”

– Need for uniformity calls for consideration of foreign

decisions (but does not elevate them to binding

precedents)

– Observance of “good faith in international trade” is a rule

of interpretation of the CISG but not a source of individual

obligations for contract parties („Auslegungsgrundsatz“

but no „Rechtsgrundsatz“)


of the CISG

Gap-filling – Article 7(2)

– Matters covered but not fully addressed by the CISG

(“internal” gaps) must first be resolved in the light of the

CISG own general principles, for example

• Party autonomy and freedom of form

• Observance of good faith in international trade

• Estoppel

• Preservation of contract

• Full compensation of damages

• Duty to mitigate losses

– Filling of “internal gaps” by reference to domestic law only

a last-resort option

– Matters outside the scope of the CISG (“external” gaps) to

be addressed in accordance with the applicable law


of the CISG

Basic rules on contract formation – Articles 23, 15 and 24

Article 23

A contract is concluded at the moment when an acceptance of an offer

becomes effective in accordance with the provisions of this Convention.

Article 15

(1) An offer becomes effective when it reaches the offeree.

[…]

Article 18

[…]

(2) An acceptance of an offer becomes effective at the moment the indication

of assent reaches the offeror.

Article 24

For the purposes of this Part of the Convention, an offer, declaration of

acceptance or any other indication of intention “reaches” the addressee when

it is made orally to him or delivered by any other means to him personally, to

his place of business or mailing address or, if he does not have a place of

business or mailing address, to his habitual residence.


under the CISG

Basic rules on contract formation – Articles 23, 15 and 24

– “Classical paradigm” of contract formation at a distance (inter

absentes), applying the “reception” rule for the effectiveness of

communications

– CISG also applies to contracts concluded by other means (with

specified closing date, by electronic means, calls form tenders,

internet auctions or in commodity exchanges)

– CISG does not govern pre-contractual liability (culpa in

contrahendo)

– CISG does not deal with avoidance of contract or its clauses for

violation of public policy rules (e.g. unconscionability, illegality,

immorality).

– Unanswered commercial letters of confirmation

(„Kaufmännisches Bestätigungsschreiben“) do not suffice if they

are not acknowledged as a trade custom in both parties’

countries


under the CISG

Conditions for effectiveness of an offer – Article 14

Article 14

(1) A proposal for concluding a contract addressed to one or more specific

persons constitutes an offer if it is sufficiently definite and indicates the

intention of the offeror to be bound in case of acceptance. A proposal is

sufficiently definite if it indicates the goods and expressly or implicitly fixes or

makes provision for determining the quantity and the price.

(2) A proposal other than one addressed to one or more specific persons is to

be considered merely as an invitation to make offers, unless the contrary is

clearly indicated by the person making the proposal.


under the CISG

Conditions for effectiveness of an offer – Article 14

– Quantity may be expressed as a range or variable (“700 to

800 tons”, “up to 250,000 pounds”), if range is acceptable

in the trade concerned or reasonably understood by the

other party (“three truck loads of eggs”, “20 truck loads of

tinned tomato concentrate” understood to mean that the

trucks should be filled to their full capacity) or may be

even open-ended (“a greater number of Chinchilla furs”)

where buyer accepts delivery without objection

– Offer does not need to include all the terms of the

proposed contract, in particular where the Convention has

default rules (e.g. quality, place of delivery, the period of

delivery, the mode of transportation)

– Offers to the public are treated as invitations to treat

(invitatio ad offerendum), and not as binding offers


under the CISG

Open-price contracts – Article 55

Article 55

Where a contract has been validly concluded but does not expressly or

implicitly fix or make provision for determining the price, the parties are

considered, in the absence of any indication to the contrary, to have impliedly

made reference to the price generally charged at the time of the conclusion of

the contract for such goods sold under comparable circumstances in the trade

concerned.


under the CISG

Open-price contracts – Article 55

– Liberal interpretation: a contract for sale of goods whose

price is not fixed or determinable pursuant to article 14 is

nonetheless effective owing to the subsidiary method of

price determination set forth in article 55 (cases often

involved contracts whose performance had been

commenced by the parties)

– Restrictive interpretation: Gives precedence to article 14

over article 55, concluding that the contract had not been

formed since no price had been specified by the parties

– “Neutral” interpretation: the validity of a contract without a

price is governed by the applicable domestic law, in

accordance with CISG article 4

– In any event, the intent of the parties is the paramount

factor


under the CISG

Revocability of offer and acceptance – Articles 15 and 22

Article 15

[..]

(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal

reaches the offeree before or at the same time as the offer.

Article 16

(1) Until a contract is concluded an offer may be revoked if the revocation

reaches the offeree before he has dispatched an acceptance.

(2) However, an offer cannot be revoked:

(a) if it indicates, whether by stating a fixed time for acceptance or otherwise,

that it is irrevocable; or

(b) if it was reasonable for the offeree to rely on the offer as being irrevocable

and the offeree has acted in reliance on the offer.

Article 22

An acceptance may be withdrawn if the withdrawal reaches the offeror before

or at the same time as the acceptance would have become effective.


under the CISG

Revocability of offer and acceptance – Articles 15 and 22

– CISG reaches a compromise between binding (Germanic

and Scandinavian jurisdictions) and non-binding nature of

offer (Romanic civil law and common law jurisdictions)

– Fixed time for acceptance (option contract) entails a

rebuttable presumption of irrevocability

– 16(2) reflects principle of estoppel


under the CISG

Acceptance – Article 18

Article 18

(1) A statement made by or other conduct of the offeree indicating assent to

an offer is an acceptance. Silence or inactivity does not in itself amount to

acceptance.

(2) An acceptance of an offer becomes effective at the moment the indication

of assent reaches the offeror. An acceptance is not effective if the indication

of assent does not reach the offeror within the time he has fixed or, if no time

is fixed, within a reasonable time, due account being taken of the

circumstances of the transaction, including the rapidity of the means of

communication employed by the offeror. An oral offer must be accepted

immediately unless the circumstances indicate otherwise.

(3) However, if, by virtue of the offer or as a result of practices which the

parties have established between themselves or of usage, the offeree may

indicate assent by performing an act, such as one relating to the dispatch of

the goods or payment of the price, without notice to the offeror, the

acceptance is effective at the moment the act is performed, provided that the

act is performed within the period of time laid down in the preceding

paragraph.


under the CISG

Expression of acceptance – Article 18

– An offeree’s silence or inactivity does not amount to an

acceptance, but prior course of dealing may require offeree to

promptly reject an offer so that delay in objecting may constitute

acceptance

– Examples of conduct found to indicate assent include:

• buyer’s acceptance of or payment for goods, or issuance of

bank transfer as an advance payment

• seller cashing a cheque, accepting a bank guarantee, or

starting-up of production of the goods;

• buyer’s or a third party’s taking delivery of goods;

• issuance of letter of credit or signing invoices to be sent to a

financial institution with a request that it finance the

purchase;

• drawing up and issuing a pro forma invoice or sending

invoices and packing lists, sealing and sending back the

purchase order

• a handshake by the representatives of the parties


under the CISG

Counter-offer and modified acceptance – Article 19

Article 19

(1) A reply to an offer which purports to be an acceptance but contains

additions, limitations or other modifications is a rejection of the offer and

constitutes a counter-offer.

(2) However, a reply to an offer which purports to be an acceptance but

contains additional or different terms which do not materially alter the terms of

the offer constitutes an acceptance, unless the offeror, without undue delay,

objects orally to the discrepancy or dispatches a notice to that effect. If he

does not so object, the terms of the contract are the terms of the offer with the

modifications contained in the acceptance.

(3) Additional or different terms relating, among other things, to the price,

payment, quality and quantity of the goods, place and time of delivery, extent

of one party’s liability to the other or the settlement of disputes are considered

to alter the terms of the offer materially.


under the CISG

Counter-offer and modified acceptance – Article 19

– Article 19 (3) comprises a rebuttable presumption of

materiality: modifications are not material if the parties do

not treat them as such or in the light of usages and course

of dealing

– “Battle of forms”, or exchange of conflicting standard

terms and conditions

• Several decisions have included those terms on which

the parties substantially agreed, and replace the

conflicting terms with the default rules of the

Convention (“knock-out” rule);

• Several other decisions have given effect to the

standard terms of the last person to make an offer or

counter-offer that is then deemed accepted by

subsequent performance by the other party (“last-shot”

rule)


under the CISG

Freedom of form and contract modification – Articles 11 and 29

Article 11

A contract of sale need not be concluded in or evidenced by writing and is not

subject to any other requirement as to form. It may be proved by any means,

including witnesses

Article 29

(1) A contract may be modified or terminated by the mere agreement of the

parties.

(2) A contract in writing which contains a provision requiring any modification

or termination by agreement to be in writing may not be otherwise modified or

terminated by agreement. However, a party may be precluded by his conduct

from asserting such a provision to the extent that the other party has relied on

that conduct.


under the CISG

Freedom of form and contract modification – Articles 11 and 29

– Article 11 admits purely oral or contracts concluded

through exchanges other than writing

– However, Article 96 allows Contracting States to declare

that any provisions that allows a contract of sale or its

modification or termination by agreement or any offer,

acceptance, or other indication of intention to be made in

any form other than in writing, does not apply where any

party has his place of business in that State (Argentina,

Armenia, Belarus, Chile, Paraguay, Russia, Ukraine and

Vietnam )

– No place for “parol evidence” rule, but merger clauses are

admissible, except promissory estoppel


under the CISG

Contract interpretation – Article 8

Article 8

(1) For the purposes of this Convention statements made by and other

conduct of a party are to be interpreted according to his intent where the other

party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and

other conduct of a party are to be interpreted according to the understanding

that a reasonable person of the same kind as the other party would have had

in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable

person would have had, due consideration is to be given to all relevant

circumstances of the case including the negotiations, any practices which the

parties have established between themselves, usages and any subsequent

conduct of the parties.


under the CISG

Contract interpretation: subjective and objective elements

– Article 8 (1) recognizes subjective criteria for

interpretation, when the true intent of the parties was

known or could not have been ignored by them

– Where the terms of the contract are clear, they are to be

given their literal meaning, so parties cannot later claim

that their undeclared intentions should prevail

– A party who negotiates or accepts an offer in a foreign

language must bear the risk of understanding the

intricacies of the meaning of the foreign language (article

8)

– Where a contract term is ambiguous, preference is given

to an interpretation against the party that supplied that

term (interpretation contra proferentem)

– Contract terms shall be interpreted so as to give effect to

all the terms rather than to deprive some of them of effect

(favor negotii interpretation)


under the CISG

Binding nature of usages and custom – Article 9

Article 9

(1) The parties are bound by any usage to which they have agreed

and by any practices which they have established between

themselves.

(2) The parties are considered, unless otherwise agreed, to have

impliedly made applicable to their contract or its formation a usage of

which the parties knew or ought to have known and which in

international trade is widely known to, and regularly observed by,

parties to contracts of the type involved in the particular trade

concerned.


under the CISG

Binding nature of usages and custom – Article 9

– The parties’ agreement to a custom or usage may be

expressed by conduct and need not be explicit

– If parties do not want to be bound by the practices

established between themselves, they need to expressly

exclude them

– Examples of estoppel principle:

• a seller may be required to deliver replacement parts

promptly because that had become “normal practice”

between the parties

• a seller may not rely on article 18 (silence does not amount to

acceptance) because the parties had established a practice in

which the seller filled the buyer’s orders without expressly

accepting them

• a buyer who repeatedly signs the faxed copy of the order

confirmation containing standard contract forms may be seen

as tacitly accepting them


under the CISG

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