UN Convention on International Sale of Goods

The United Nations Convention on Contracts for the International Sale of Goods
Virginia G. Maurer
copy @ cisgw3.law.pace.edu/
CISG Database, Pace Institute of International Commercial Law. Reproduced with permission from 15 Syracuse J. Int'l L. <=amp> Com. (1989) 361-389;
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cisgw3.law.pace.edu/
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Contents
Contents
The United Nations Convention on Contracts for the national Sale of Goods, Virginia G. Maurer [*] I. Introduction . . . . . . . . . . . . . . . . . . . . . . II. The Scope and Coverage of the COnvention . . . III. Formation of the Sales Contract . . . . . . . . . . A. Statute of Frauds . . . . . . . . . . . . . . B. Approach to Offer and Acceptance . . . . . C. Firm Offers . . . . . . . . . . . . . . . . . . D. Acceptance . . . . . . . . . . . . . . . . . . E. The Battle of the Forms . . . . . . . . . . . IV. The Risk of Loss . . . . . . . . . . . . . . . . . . A. Goods to Be Transported . . . . . . . . . . B. Good Not to Be Transported . . . . . . . . V. Performance . . . . . . . . . . . . . . . . . . . . . A. Fundamental Breach . . . . . . . . . . . . B. Good Faith . . . . . . . . . . . . . . . . . . C. Excuse of Performance . . . . . . . . . . . VI. Remedies . . . . . . . . . . . . . . . . . . . . . . A. Buyers' Remedies . . . . . . . . . . . . . . B. Sellers' Remedies . . . . . . . . . . . . . . C. Damages . . . . . . . . . . . . . . . . . . . D. Restitution . . . . . . . . . . . . . . . . . . VII. Conclusion . . . . . . . . . . . . . . . . . . . . . FOOTNOTES . . . . . . . . . . . . . . . . . . . . . . Inter1 1 3 5 5 6 7 8 8 9 10 12 12 14 15 15 16 16 17 17 18 19 19 20 20
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The United Nations Convention on Contracts for the International Sale of Goods, Virginia G. Maurer [*]
I. Introduction On January 1, 1988 the United Nations Convention on Contracts for the International Sale of Goods (CISG)1 became a part of American law. The Convention was drafted by the United Nations Commission on International Trade Law (UNCITRAL)2 at the Vienna Conference in 1980.3 It is likely to be adopted by most of the
United Nations Convention on Contracts for the International Sale of Goods, U.N. Doc. A/CONF.97/18 Annex I (1980) [hereinafter CISG]. The official English text of the Convention appears at 52 Fed. Reg. 6262 (1987). See also J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (1982) [hereinafter Honnold]; N. Galston and H. Smit, International Sales: The United Nations Convention on Contracts for the International Sale of Goods (1986) [hereinafter Galston and Smit]; P. Volken and P. Sarcevic, International Sale of Goods (1986) [hereinafter Volken and Sarcevic]; Note, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 265 (1984). 2 G.A. Res. 2205 (XXI), 21 U.N. GAOR Annex (Agenda Item 92), U.N. Doc. A/C.6/L.572 (1965). The United Nations Commission on International Trade Law was established by the General Assembly in 1966 to promote harmonization and unification of the law of international trade. The Commission consists of 36 member nations elected by the General Assembly. For an excellent and concise history of UNCITRAL's work in the international sale of goods area, see Patterson, United Nations Convention on Contracts for the International Sale of Goods: Unification and the Tension Between Compromise and Domination, 22 Stan. J. Int'l L. 263 (1986) [hereinafter Patterson]. See generally, Honnold, supra note 1, at 54-56; Honnold, The United Nations Commission on International Trade Law: Mission and Methods, 27 Am. J. Comp. L. 201 (1979); UNCITRAL's First Decade, 27 Am. J. Comp. L. 201-563 (1979). 3 G.A. Res. 33/93, U.N. Doc. A/CONF.97/1 (1978), reprinted in United Nations Conference on Contracts for the International Sale of Goods, Official Records xiii, U.N. Doc. A/CONF.97/19, U.N. Sales No. E.81.IV.3 (1981). The Convention was called by the General Assembly to consider UNCITRAL's proposed draft convention. See Patterson, supra note 2, at 272-273.
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United States' major trading partners.4 Because the CISG is a new element of American sales law, it is important for the American attorney to recognize the purposes of the law and the effects of the treaty on commercial sales transactions. In addition, the CISG approach to transactions law contrasts in certain important ways with more familiar Anglo-American solutions to transaction analysis problems, highlighting the historical and institutional bases of American trade law.5 The Convention represents a major effort at unification of international trade law across economic, legal, developmental, and political barriers. The goal of the Convention is to reduce the uncertainty inherent in contracting for the sale of goods among international traders who do not understand or accept one another's substantive trade law. Reducing uncertainty in trade law should reduce the costs of international transactions and promote efficient world trade.6 To this end, the treaty establishes a common
Patterson, supra note 2, at 273. Under the terms of the CISG, it was necessary for ten states to ratify or accede to the Convention for it to be effective. Presumably, most of the twenty-one nations that signed the treaty will ratify it. In addition, it seems likely that many of the sixty-two nations that participated in the Vienna Convention will do so. 5 See, e.g., infra notes 113-115 and accompanying text. Several authors have analyzed the specific differences and similarities, both of function and substance, between the CISG and the Uniform Commercial Code. See, e.g., Dore and DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 Harv. Int'l L.J. 49 (1982); Lansing and Hauserman, A Comparison of the Uniform Commercial Code to UNCITRAL's Convention on Contracts for the International Sale of Goods, 6 N.C.J. Int'l L. and Com. Reg. 63 (1980); Note, The United Nations Convention on Contracts for the International Sale of Goods: Contract Formation and the Battle of the Forms, 21 Colum. J. Transnat'l L. 529 (1983). 6 I. Szask, A Uniform Law on International Trade Law 3 (1976); Note, After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods, 22 Colum. J. Transnat'l L. 575, 576 (1984); Note, Unification and Certainty: The United Nations Convention on
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body of national law for certain international sales transactions. It also provides a common basis for interpreting contract provisions, and it provides substantive law for filling the gaps left by contract drafters.7 In addition, the CISG addresses the choice of law problems that vex drafters of international sales contracts.8
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tion.11 It is possible, nevertheless, to identify the potential areas of ambiguity and uncertainty, based on the American experience with construction of the Uniform Commercial Code (UCC). Like the UCC, the CISG was designed to harmonize the trade law of separate legal jurisdictions. Although international trade practices differ significantly from interstate trade practices, the basic dynamic of selling and shipping goods from one place to another -- whether in international or interstate trade -- poses certain common and inherent problems. These problems include: 1) How is a contract formed? 2) Who bears the risk of loss of the goods at various points in the transaction? 3) What kind of performance is necessary to trigger the party's obligation to perform? 4) What remedies are available for a buyer who receives defective goods? To a great extent, trade practice turns on the expected legal resolution of these fundamental issues. It is possible, however, to identify the areas of likely conflict under the CISG by analogy to the resolution of conflicts under the UCC. This paper provides a descriptive analysis of the most significant aspects of the CISG, with particular attention to those ambiguities most likely to defeat the Convention's goal of providing certainty and uniformity in trade law. The paper first explains the coverage of the CISG and the scope of its use in international sales transactions. The paper then identifies four areas of potential conflict between buyers and sellers of goods in international trade and anaCISG, supra note 1, art. 7(1). Article 7(1) states: In the interpretation of this Convention, regard is to be had to its international character and the observance of good faith in international trade. See Patterson, supra note 2, at 277, citing with approval the United States Supreme Court opinion in Air France v. Saks, 470 U.S. 392, 400-405 (1985) (the Court's responsibility is to give the specific words of the treaty a meaning consistent with the shared expectations of the contracting parties.); See generally, 1 K. Zweigert and H. Kotz, An Introduction to Comparative Law 22-23 (1987) [hereinafter Zweigert and Kotz].
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The success of this effort is as yet unclear. There is no international court with jurisdiction over disputes arising in trade that would be addressed by the treaty. Rather, the treaty is adopted by positive authority as the internal trade law of each signatory nation, to be applied and interpreted by the judiciary of each nation.9 Thus, the treaty must be used to resolve conflict before one knows whether unification has been achieved or uncertainty reduced. The treaty has been adopted by countries with substantially different traditions of procedure and legal authority.10 The success of the treaty, therefore, will depend upon the extent to which ambiguities will be resolved in a common manner. This will depend, in turn, on the willingness of the national courts of each signatory nation to draw on other signatory nations' judicial experience with the treaty, as well as their willingness to recognize the multilateral nature of the treaty and the desirability of harmonized interpretaContracts for the International Sale of Goods, 97 Harv. L. Rev. 1984, 1985 (1984) [hereinafter Unification and Certainty]. 7 Honnold, supra note 1, at 125-133 (1982); Volken, The Vienna Convention: Scope Interpretation, and Gap-Filling, in Volken and Sarcevic, supra note 1, at 19; Cf. Unification and Certainty, supra note 6, at 1991 (indicating disagreement among delegates as to the ability of CISG to provide gap filling principles). 8 See Rohwer and Coe, The 1980 Vienna Convention on the International Sale of Goods and the UCC -- Peaceful Coexistence? in D. Campbell and C. Rohwer, Legal Aspects of International Business Transactions 224, 232-234 (1984) [hereinafter Rohwer and Coe]. 9 CISG, supra note 1, art. 99(2). Article 99(2) provides that when a State accepts or ratifies the treaty, this Convention . . . enters into force in respect of that State . . . Id. 10 See Unification and Certainty, supra note 6, at 1984.
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lyzes the manner in which these areas are addressed by the CISG. The analysis draws on experience under the UCC and speculates on the potential similarities and differences in resolution of the conflicts under the CISG. The four areas are: 1) formation of the contract; 2) risk of loss; 3) performance; and 4) remedies. The goal of this analysis is to inform the negotiating and decision process in sales transactions and to illuminate underlying premises of the CISG's approach to transactions.
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the CISG applies only as to issues expressly covered by the Convention. As to issues not covered by the CISG, states must revert to their choice of law rules to find applicable substantive law.16 Under the UCC, an American court seeking such law would look to its version of UCC 1-105, which states: Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this Act applies to transactions bearing an appropriate relation to this State.17 Where the parties to the contract have specified the applicable foreign law, American courts have scrutinized the contractual choice of law provision for some nexus between the transaction and the law identified in the contract.18 Where the contract is silent as to choice of law, the appropriate relation test may be invoked. In a domestic commercial sales transaction context, this provision has had limited significance, since the UCC is universally, if not uniformly, adopted within the United States.19 In the context of a transaction covered by the CISG, but unaddressed by the CISG, the appropriate relation test may emerge as a significant choice of law provision.20 Both the CISG and the UCC may apply to a disIn addition, the courts of signatory states to the CISG may look to the Hague Convention on the Law Applicable to Contract for the International Sale of Goods (Choice of Law Convention), which provides courts in signatory states with rules for determining the law applicable to sales contracts between parties from different states. However, the areas covered by the Choice of Law Convention are, for the most part, those covered by the CISG. 17 U.C.C. ? 1-105 (1978). 18 See Rohwer and Coe, supra note 8, at 230-232. 19 U.C.C. article 2, which governs contracts for the sale of goods, has been adopted in forty-nine states, the District of Columbia and the Virgin Islands. See Uniform Commercial Code XLII (West 1978). 20 See Rohwer and Coe, supra note 8, at 232.
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II. The Scope and Coverage of the COnvention The CISG is a self-executing treaty; its provisions become effective as a source of legal rights without need of implementing domestic legislation.12 In the United States, federal treaties preempt inconsistent state law.13 Thus, for the American lawyer, the first salient question of scope and coverage is whether the CISG displaces the state UCC law in a given transaction. Article 1 of the CISG provides that the Convention applies to contracts 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.14 Under Article 6, however, the parties may exclude the application of this Convention or . . . derogate from or vary the effect of any of its provisions.15 Thus, the parties have the capacity to modify by contract the application of the CISG. A further complication of scope and coverage lies in the fact that
CISG, supra note 1, art. 99. Self-executing treaties require no further federal legislation to be effective throughout the United States. See Patterson, supra note 2, at 276; Volken and Sarcevic, supra note 1, at 21. 13 U.S. Const. art. VI; Zschernig v. Miller, 389 U.S. 429 (1968). 14 CISG, supra note 1, art. 1. See Honnold, supra note 1, at 77-84. 15 CISG, supra note 1, art. 6.
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pute arising out of an international sales transaction in an American court.

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The CISG 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.21 In fact, the CISG does not cover several common issues of sales law that are covered under the UCC. For example, CISG Article 4(a) specifically excludes from coverage the validity of the contract or of any of its provisions or of any usage.22 Article 5 excludes application of the Convention to the liability of the seller for death or personal injury caused by the goods by any person.23 In addition, the CISG is silent as to liability for commercial fraud and capacity of the contracting party. In addition, Article 7(2) provides that: 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.24 Since the CISG supplies substantive law only in the area where the UCC, or other local law, is displaced, the Convention does not eliminate the incentive to forum shop.25 To identify the relative advantage of forums, it is useful to review the substantive areas of law covered by the CISG. In general, the CISG does not apply to sales of goods bought for consumption by the buyer, unless the seller did not know that the
CISG, supra note 1, art. 4. The Convention is divided into four parts. Part I covers the application of general rules of interpretation. Part II deals with the formation of the contract. Part III covers the substantive obligations of the buyer and seller. Part IV concerns ratification of the treaty. 22 CISG, supra note 1, art. 4(a). 23 Id. art. 5. 24 CISG, supra note 1, art. 7. 25 See Rohwer and Coe, supra note 8, at 225.
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buyer intended the goods for consumer use.26 It also does not apply to the sales of securities, negotiable instruments or money27 or to the sale of ships, aircraft or electricity.28 It also does not apply to contracts for the sale of future goods not to be manufactured by the seller, or to contracts where the preponderant part of the obligation consists of the supply of labor or services.29 The CISG does apply to other contracts of sale of goods between parties whose places of business are in different states, when the states are Contracting States.30 An exception is carved out where it does not appear from the contract or from dealing between the parties before the conclusion of the contract that their parties have their places of business in different states.31 Two criteria must be met for the Convention to apply automatically: the places of business of the contracting parties must be in different states, and those states must be Contracting States. So, for example, if a non-American party has a place of business in a non-Contracting State, the CISG will not apply, and the UCC or the domestic law of the non-Contracting State will apply. If the non-American contractCISG, supra note 1, art. 2(a). Article 2(a) states: 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 . . . Id. See Honnold, supra note 1, at 85-90. 27 CISG, supra note 1, art. 2(d). Article 2(d) excludes sales of stocks, shares, investment securities, negotiable instruments or money. Id. 28 See id. art. 2(e) and (f). Subsection (e) excludes sales of ships, vessels, hovercraft or aircraft. Subsection (f) excludes sales of electricity. Id. 29 See id. art. 3(2). Article 3(2) states: This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists on the supply of labour or other services. Id. 30 Id. art. 1. 31 See id. art. 1(2). Article 1(2) states: 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. Id.
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ing party has a place of business in a Contracting State, then the CISG will apply automatically unless the parties have specifically excluded its application.32 Where a party has more than one place of business, the party's place of business for Convention purposes is the place that has the closest relationship to the contract and it's performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract.33
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State declares the provision of the Convention with respect to the formal writing of a contract to be inapplicable because it conflicts with domestic law. A state may do this under Article 96.37 III. Formation of the Sales Contract A. Statute of Frauds Article, 11 of the CISG rejects the formal requirement for a writing to prove a contract for the sale of goods. Article 11 states: 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.38 This approach is consistent with that of most civil law countries and also with the British Sale of Goods Act.39 The UCC does impose the formal requirement of a writing to prove a contract for the sale of goods for more than $500,40 although certain acts may take the transaction out of the statute.41 In the negotiation of the CISG, representatives of
37 CISG, supra note 1, art. 96. Article 96 provides: A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision . . . 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. 38 CISG, supra note 1, art. 11. 39 See Honnold, supra note 1, at 152-154 (1982); Zweigert and Kotz, supra note 11, at 64. 40 U.C.C. ? 2-201. 41 Id. The merchants exception to section 2-201 permits enforcement of an oral contract for the sale of goods, otherwise subject to the Statute of Frauds, if a written confirmation has been received by the party as to whom the contract is to be enforced, and that party has reason to know the contents of the memorandum and has not objected to its contents within 10 days after it was received. U.C.C. ? 2-202 (1978). In addition, a contract that does not satisfy the Statute of Frauds may be enforceable if the goods are to be specifically 22
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Even if the contracting parties' place of business are not in Contracting States, under Article 1(1)(b) of the CISG, the Convention may apply if the forum is in a Contracting State and the forum determines that the law of a Contracting State will apply.34 Under Article 95, however, signatory states may opt out of this Convention provision and restrict the application of the CISG to contracts where parties have places of business in different signatory states.35 The United States has opted out of this Convention provision.36 In forum states where the provision does apply, however, the Convention may be applied where the parties from different states have designated the law of a Contracting State as their governing law. The additional quirks of scope and coverage come into play -- and reduce certainty and uniformity -- when (1) the courts of a nonContracting State take jurisdiction in a dispute and apply it's own law or the law of a non-Contracting State; and (2) a Contracting
Volken, The Vienna Convention: Scope, Interpretation, and Gap-Filling, in Volken and Sarcevic, supra note 1, at 25-29. 33 CISG, supra note 1, art. 10. 34 CISG, supra note 1, art. 1(1)(b). See Rohwer and Coe, supra note 8, at 230-233. 35 CISG, supra note 1, at art. 95. Article 95 provides: Any State may declare . . . that it will not be bound by subparagraph (1)(b) of article 1 of this Convention. Id. 36 Rohwer and Coe, supra note 8, at n.55.
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the Soviet Union sought to preserve the requirement of a writing, which that country regards as necessary to protect its domestic rules for making foreign trade contracts. Thus, the Soviet Union may exercise rights under Article 96 to opt out of Article 11 and impose formal requirements for international sales contracts. The United States has not done so. B. Approach to Offer and Acceptance In contrast to the UCC, the CISG takes a relatively formal view of contract formation. Under the UCC, a contract for the sale of goods may be made in any manner sufficient to show agreement, so long as the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.42 Intent, of course, can be a source of legal controversy. Under Article 8 of the CISG, intent is determined from an objective analysis of what a reasonable person would have intended, given the relevant circumstances, the course of dealing, trade usage and the subsequent conduct of the party. The functional approach to contract -- of giving legal recognition to a transaction that appears to be regarded by the parties as a contract, without need of formal analysis of offer and acceptance -- characterizes the UCC. The CISG, in contrast, adopts a more formal analysis of contracting behavior,
manufactured for the buyer and are not suitable for sale to others, and the seller has made a substantial beginning of their manufacture or commitments for their procurement, U.C.C. ?2-201(3)(a); the party against whom the contract is to be enforced has admitted in pleadings, testimony or otherwise in court proceedings that a contract exists, U.C.C. ? 2-201(3)(b); or payment has been made and accepted or goods have been received and accepted, U.C.C. ?2-201. 42 U.C.C. ? 2-204 (1978). This language is broad, authorizing courts to weigh and balance a wide variety of facts which might be relevant in showing `agreement'. See Note, supra note 5, at 532; Sono, Formation of International Contracts Under the Vienna Convention: A Shift Above the Comparative Law, in Volken and Sarcevic, supra note 1, at 111.
and is reminiscent of the First Restatement of Contracts approach to contract analysis.43 Under the CISG an offer must be addressed to a definite person and it must be sufficiently definite and indicate the intention of the offeror to be bound in case of acceptance.44 To meet the sufficiently definite test, the offer must indicate the goods and also either fix the quantity and price or explicitly or implicitly provide for determining the quantity and price.45 This language is only slightly narrower than that of UCC 2-204(3), which permits open and indefinite terms, subject to the requirement that the court have a reasonably certain basis for giving a remedy.46 Presumably, under the
43 Restatement of Contracts ?? 19-74. Note, for example, the similarity with the Restatement in the approach taken in 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. See generally, Farnsworth, Contracts During the Half-Century Between Restatements, 30 Clev. St. L. Rev. 371 (1981); Note, supra note 5, at 533 (The Convention's offer-and-acceptance formality is mitigated, fortunately, by provisions which make practices between the parties and trade usages relevant in the determination of the parties' intent to enter into a contract.). 44 CISG, supra note 1, art. 14. Subsection 8(3) of article 8 provides that due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. In addition, article 9 explicitly permits the parties to agree upon usages and practice, and it applies to contract formation and interpretation those usages which the parties knew or ought to have known and which in international trade [are] widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Id. art. 9. 45 CISG, supra note 1, art. 14. It is not necessary, however, for the seller to have identified the goods to the contract. In fact, the Commentary to the Convention contemplates requirements contracts. United Nations Conference on Contracts for the International Sale of Goods -- Official Records, U.N. Doc. A/Conf.97/19, at 21, comments 11-13 to art. 12. 46 U.C.C. ? 2-204(3) provides: Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to 27
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CISG, a price would be fixed implicitly if the goods were subject to a catalog price or a widely-ascertainable market price. Similarly, the UCC provides that when a contract is formed with the price left open, the price will be a reasonable price at the time of delivery.47
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C. Firm Offers Under Article 16 (2) of the CISG an offer is effective when received, but it may be withdrawn before receipt. If the offer has been received, however, it 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.48 Under subsection (a), a dispute could arise as to whether the offeror effectively indicated that the offer was irrevocable. Under subsection (b), a dispute could arise as to the reasonability of the offeree in relying on the offer being irrevocable. The potential for misunderstanding, under both subsections, is exacerbated by the different domestic laws on firm offer among the signatories. For example, under traditional common law contract principles, an
make a contract and there is a reasonably certain basis for giving an appropriate remedy. 47 U.C.C. ? 2-305(1) (1978) provides: The parties if they so intended can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. 48 CISG, supra note 1, art. 16(2).
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offer is revocable at any time before acceptance is dispatched, unless the offeror has promised not to revoke the offer and that promise has been met with consideration. Under some circumstances, reliance may substitute for consideration. Where, for example, a subcontractor submits an offer to a contractor and knows the offer will be relied on in a bid, the subcontractor may not revoke the offer while the contractor is relying on it. In addition, the Uniform Commercial Code permits merchants to make a firm offer in a signed writing and it is effective only for a reasonable period of time, not to exceed three months.49 Under most civil law contract principles, an offer may be irrevocable during the time necessary to make a response, or at least it is irrevocable if the offeror reasonably relies on the offer.50 In the alternative, the offeror may be liable in tort for wrongful revocation of an offer, even if the revocation is effective in contract law.51 Thus, traders in different signatory states will have different experiences with domestic law of firm offer and, presumably, different concepts of what constitutes reasonable reliance. This is likely to occasion confusion and misunderstanding about when an offer can be revoked. Nevertheless, the language of Article 16(2) represents a great improvement over previous efforts to codify a common international trade law on firm offers.52
49 U.C.C. ?2-205 provides that: An offer by a merchant to buy or sell goods in a signed writing by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. 50 See Galston and Smit, supra note 1, at 3-10, 3-12; Honnold, supra note 1, at 172-175 (1982). 51 Honnold, supra note 1, at 145-150. 52 Id. at 142-145. 34
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D. Acceptance Under Article 18 of the CISG, acceptance may take the form of a statement made or by other conduct indicating assent. An acceptance is effective when it reaches the offeror.53 Conduct indicating assent constitutes acceptance effective at the moment the act is performed, and under Article 18(3) such conduct seems to create a contract even if the offeror does not learn of the conduct.54 In contrast, UCC 2-206 permits the offeror to treat the offer as lapsed if beginning of performance is a reasonable means of acceptance and the offeror is not notified within reasonable time of the offeree's performance.55 Under the CISG, the burden is passed on to the offeror to ascertain whether the offeree has accepted the offer through the performance of an act. E. The Battle of the Forms Not infrequently, an offeree's purported acceptance contains terms at variance with the terms of the offer. Typically, the offer and acceptance are made on standard forms, each containing the terms most favorable to the drafter of the form. Each party hopes that in the event of a breakdown in the transaction, the terms contained in
CISG, supra note 1, art. 18(1) and (2). Article 18(1) and (2) provides: (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or incapacity 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 indicates otherwise. 54 CISG, supra note 1, art. 18(3). See Honnold, supra note 1, at 186-188. 55 U.C.C. ? 2-206 (1978).
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his forms will be regarded by the court as the terms of the contract. This classic fact pattern can result in what is called the battle of the forms, and it is handled somewhat differently by the CISG and the UCC. Under the common law, a variation from the terms of the offer in a purported acceptance resulted in a rejection and counter-offer.56 The UCC alters the common law mirror image rule and treats a reply that purports to be an acceptance as an acceptance, even if it varies the terms of the offer, unless the acceptance is expressly made conditional on assent to the additional or different terms. The additional terms are construed as proposals for addition to the contract. Between merchants, these terms become part of the contract unless they materially alter the contract or are specifically objected to within a reasonable time after notice is received.57 Article 19 of the CISG, however, takes a different approach. A reply that purports to be an acceptance, but contains terms that materially alter the terms of the offer constitutes a counter-offer and does not serve as an acceptance.58 Thus, a major difference in approach lies in
Restatement (Second) of Contracts ?59. See Vergne, The Battle of the Forms Under the 1980 United Nations Convention on Contracts for the International Sale of Goods, 33 Am. J. Comp. L. 233, 243 (1985). 57 U.C.C. ? 2-207(1) and (2) (1978) provides: (1) A definite and seasonable expression of acceptance or written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different to from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. See Vergne, supra note 56, at 244-245. 58 CISG, supra note 1, art. 19(1).
56 39
37
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the result that, under the UCC, a purported acceptance that materially alters the terms of the offer results in a contract on the offeror's terms. Under the CISG, however, a purported acceptance that materially alters the terms of the offer results in no contract. The reply is regarded as a counter-offer and may be accepted by the original offeror. Commentators have suggested that the CISG approach conforms more closely to both the mirror image rule and to western European civil code than does the UCC.59
41
IV. The Risk of Loss The CISG provides basic rules for fixing the risk of loss or damage to goods.63 Like the UCC, the CISG addresses the specific fact situations that inhere in the sale of goods. When goods are in transit, and particularly when goods are transferred in transit among different modes of transport, it may be exceedingly difficult to fix in time the incidence of damage or loss. Roman law placed the transfer of the risk of loss at the conclusion of the contract.64 Some western civil law countries have retained this rule, or have placed the time of transfer of the risk at the time of the transfer of ownership.65 It is highly practical to fix the time of transfer of the risk of loss or damage at a clearly ascertainable point, independent of the facts that give rise to the loss. Usually, this would be either at the time the goods are handed over to the carrier by the seller,and subject to inspection by the seller at that point, or when the goods are delivered by the carrier to the buyer, and subject to the inspection by the buyer at that point.66 It would be efficient to permit the parties to determine the better risk bearer, and recognize the allocation of risk made by the parties. In
Vergne, supra note 56; Note, supra note 5, at 548-556. See generally, Ersi, Problems of Unifying Law on the Formation of Contracts for the International Sale of Goods, 27 Am. J. Comp. L. 311 (1979). 60 CISG, supra note 1, art. 19(2). 61 Id. art. 19(3). 62 Honnold, supra note 1, at 191 (1982). 63 The risk of loss provisions are found in Chapter IV, articles 66 through 70 of the Convention. See Roth, The Passing of Risk, 27 Am. J. Comp. L. 291 (1979); Note, After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods, 22 Colum. J. Transnat'l L. 575 (1984). 64 Hoffman, Passing of Risk in International Sales of Goods, in Volken and Sarcevic, supra note 1, at 268. 65 Id. 66 Id. at 269-70.
59 42
40
Under the CISG, if the purported acceptance contains additional or different terms that do not materially alter the terms of the offer, then the reply serves as an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect60 Then, as under the UCC, if the offeror does not object, there is a contract on the terms of the offer as modified by the acceptance. Unlike the UCC, however, the CISG specifically identifies those terms that materially alter the terms of the offer. Such terms include among other things, price, payment, quality, quantity, time and place of delivery, extent of one party's liability to the other or the settlement of disputes under the contract.61 However exhaustive this list may appear, there is still room to construe material in light of trade practice and course of dealing. Inevitably, materiality, too, will be determined in the light of commercial practice or good faith,62 as that is understood by judges in different countries and legal traditions.
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fact, that approach is taken in both the UCC and the CISG. Typically, the risk is allocated by the parties through the use of UCC terms for shipment or delivery contracts67 in domestic transactions, or by reference to INCOTERMS68 in international transactions. In the absence of an allocation of risk by the parties, however, the CISG provides a rule of risk allocation, depending on whether the goods are to be transported, are in transit at the time of the sale, or are to be sold without transport. The effect of the rule of risk allocation in each of these fact situations is that the buyer is not discharged from his obligation to pay the contract price of the goods if the risk of loss has passed to him under the rule. An exception is made for loss or damage due to an act or omission of the seller.69 In addition, breach of the contract causes the risk of loss to remain on the seller.70 Similarly, the seller's failure to disclose damage or loss known at the time of the conclusion of the contract causes the seller to retain the risk of loss or damage.71
U.C.C. ?2-509(1) provides: (1) Where the contract requires or authorizes the seller to ship the goods by carrier (a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered . . . ; but (b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery. 68 See International Chamber of Commerce, International Rules for the Interpretation of Trade Terms, I.C.C. Pub. No. 350 and International Chamber of Commerce, Guide to Incoterms (1980). The International Chamber of Commerce has promulgated accepted meanings of specific trade terms, such as FAS (free alongside ship), CIF (cost, insurance, freight), and CandF (cost and freight). 69 CISG, supra note 1, art. 66. 70 Id. art. 79. Article 79 provides: If the seller has committed a fundamental breach of contract, article 67, 68 and 69 [on risk of loss] do not impair the remedies available to the buyer on account of the breach. 71 Id. art. 69. Article 69 provides, in salient part: Nevertheless, if at the time of
67
A. Goods to Be Transported Article 67 of the CISG provides the following rule on risk of loss or damage: (1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. (2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.72 This provision reflects the general approach of the UCC, in which the risk of loss passes when the seller has completed his obligation with respect to physical transfer of the goods. Under 2-319 of the UCC, if the seller is obligated under the contract terms to put the goods into the hands of a carrier, then the risk of loss passes to the buyer when the seller puts the goods in the hands of a carrier.73 If the seller is obligated to deliver the goods to a carrier at a particular port, then the risk of loss passes when the seller completes this delivery alongside the ship.74 Finally, if the seller is obligated to dethe conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damages and did not disclose this to the buyer, the loss or damage is at the risk of the seller. 72 Id. art. 67. 73 U.C.C. ?2-509(1); U.C.C. ?2-319(1). 74 U.C.C. ?2-509(1); U.C.C. ?2-319(2).
44
45
46
47
48
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liver the goods to their final destination, then the risk of loss passes when the seller delivers the goods to that destination.75
49
passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place.78 This provision is, in part, a reciprocal of article 67.79 The articulation, however, is not complete. Article 69(2) appears on its face to address fact situations where the goods are to be sold without being moved by the seller or from the seller's place of business. It would apply where, for example, the goods were to be moved by the buyer from a warehouse operated by a third party, and it would pass the risk of loss at the time delivery is due and the buyer is aware that the goods are placed at his disposal at that place. This fact situation was contemplated by the drafters.80 Article 67 appears to cover shipment contracts, where the seller is obligated to turn goods over to a third party carrier either at the seller's place of business (first sentence of article 67(1)) or at a distant point to be then transported by carrier to the buyer (second sentence of article 67(1)). Article 69 appears to cover destination contracts. Thus, if the seller is obligated to deliver the goods to the buyer's place of business or to a place where the buyer is to take over the goods, Article 69 would apply. It has been pointed out in commentary, however, that the CISG is silent on the problem of goods sent to a buyer under a shipping term such as Ex Ship Buyer's Port. Under INCOTERMS, this term designates that the seller's liability ends when the goods are off-loaded at the port and placed at the disposal of the buyer. Article 69(2) would produce the same result. Arguably, however, a liberal reading of Article 67(1) (second sentence) would make that provision applicable and cause the risk of loss to pass to the buyer at a later point. That result can be avoided by reading literally the language of Article 67(1) that refers to the seller's obligation, not the carrier's obligation, to hand
CISG, supra note 1, art. 69. See supra note 78 and accompanying text. 80 Note, supra note 63, at 598-599.
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There are difficulties, however, with the first carrier rule, particularly where the seller is obligated to transport the goods to the particular place and does so by transporting the goods in its own trucks. Commentators have observed that in this fact situation, the buyer, in effect, assumes the risk of loss even when the goods are in the hands of the seller.76 As a practical matter, the time of the damage to the goods will be indeterminable if the nature of the damage is breakage, seepage, freezing, overheating, theft or other covert injury, and the buyer will bear the risk. This is a practical, albeit probably unintended, effect of the rule. Similarly, if the seller contracts with a carrier to transport the goods to the particular place, and the goods are damaged in a manner not easily ascertainable, the buyer will bear the risk of loss as a practical matter, even though the intent of the CISG appears to be otherwise. Both of these problems underline the importance of avoiding shifting the risk of loss of goods, whether by treaty or by contract, while they are actually in transit.77 Article 67 does not appear to cover destination contracts, in which the seller is obligated to deliver physical possession of the goods to the buyer. Article 69, however, provides: (1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal . . . (2) However, if the buyer is bound to take over the goods to a place other than a place of business of the seller, the risk
U.C.C. ?2-509(1)(b). Honnold, supra note 1, at 374-375; Note, supra note 63, at 593. 77 See Honnold, supra note 1, at 376-377 (1982); 2 K. Zweigert and H. Kotz, An Introduction to Comparative Law 187-207 (1977).
76 75
54
50
51
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the goods over to a carrier. A parallel construction of Article 69(2), however, would make that provision inapplicable where the buyer's carrier, not the buyer, is to take over the goods. This ambiguity underscores the need to use INCOTERMS to obviate this practical construction problem.81 B. Good Not to Be Transported Article 69(1) provides that if the goods are to be picked up by the buyer at the seller's place of business, the risk is allocated to the buyer when the goods are placed at his disposal. This language requires factual evidence of buyer's and seller's knowledge. In contrast, UCC 2-509(3) addresses this fact situation by passing the risk of loss to the buyer on his receipt of the goods if the seller is a merchant . . .82 This language appears to provide a more easily ascertainable moment in time for risk-shifting. It also provides an opportunity for the buyer to inspect the goods before taking receipt, and that opportunity provides greater certainty as to who bore the risk of loss or damage if loss or damage has occurred. Article 69(2), which appears to be an exception to article 69(3), provides for the risk of loss where the buyer takes over the goods at a place other than the place of business of the seller, such as a bailee or warehouse. The risk of loss passes when delivery is due and the buyer is aware that the goods are placed at his disposal. Thus, it turns on factual knowledge of the buyer. In contrast, UCC 2-509(2) provides a far more easily ascertainable standard for identifying the risk of loss.83 The CISG language appears to provide an unnecessarily subjective approach to determining risk of loss, particularly in comparison with the UCC language. It seems
81 82
prudent for traders to specify an allocation of risk provision in their sales contract so as to avoid the possible complications of the CISG approach. V. Performance
58
55
56
57
Most of the provisions of the CISG on contract performance are familiar to the American commercial lawyer because they resemble the analogous UCC provisions. The seller is obliged to deliver the goods, hand over any documents and transfer the property in the goods, as required by the contract and the CISG.84 If the seller is not bound to deliver the goods at a particular place, then he is obligated to hand the goods over to the first carrier for transmission to the buyer or to place the goods at the buyer's disposal.85 If the seller is obligated under the contract to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation.86 The seller must deliver the goods at the contractually agreed time, or within a reasonable time if no time is specified.87 Necessary documents must be handed over to the buyer as required by the contract.88 Under the CISG, the seller must provide goods which, in addition to meeting contract specifications, meet standards of the CISG which are similar to the implied warranty of merchantability under
84 CISG, supra note 1, art. 30. See Enderlein, Rights and Obligations of the Seller Under the UN Convention on Contracts for the International Sale of Goods, in Volken and Sarcevic, supra note 1. 85 CISG, supra note 1, art. 31. 86 Id. art. 32(2). 87 Id. art. 33. 88 Id. art. 34.
59
60
See Note, supra note 63, at 599 n.68. U.C.C. ?2-509. 83 Id. See also Note, supra note 63, at 583-585.
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the UCC.89 The goods must be fit for ordinary purposes, must conform to a model or description, and be packaged or contained in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.90 In addition, the seller must meet a standard similar to the UCC's implied warranty of fitness for a particular purpose.91 The seller is liable for any lack of conformity that exists at the time the buyer assumes the risk of loss, even if the lack of conformity does not become apparent until after the risk of loss has shifted.92 However, if the seller has delivered non-conforming goods before the due date of delivery, the seller may cure93 a breach of conformity up until the due date of delivery by delivering any missing parts, making up deficiencies in quantity, or delivering replacement goods.94
61
ered [the lack of conformity] or ought to have discovered it.99 In any event, the buyer must notify the seller of the lack of conformity within two years after receiving the goods, unless that period is inconsistent with the period of guarantee specified in the contract. The opportunity for late discovery of non-conformity permits the buyer to assert claims against the seller based on hidden defects in the goods, or defects not reasonably discoverable on immediate inspection. A major distinction between the CISG and the UCC approach to performance lies in the fact that under the CISG there is no explicit perfect tender rule100 permitting the buyer to reject the goods for lack of conformity. The buyer under the CISG may, in effect, reject the goods only if their non-conformity amounts to a fundamental breach of the contract. Otherwise, the buyer is left to remedies for
Id. art. 39(1). See Patterson, supra note 2, at 284-294 for a discussion of the nature of the compromise that his provision represents between developing and developed nations. In brief, nations that primarily buy industrial goods regard the sanction for failing to notify the seller of non-conformity of the goods to be too harsh -- such a buyer loses the right to rely on non-conformity of the goods as a defense to non-payment. Moreover, buyers of technically complex machinery perceive that defects in goods may not be readily ascertainable, that sufficient time for inspection, testing and operations must be provided to detect latent defects in goods. Sellers of such goods, on the other hand, perceive the need for finality in sales, particularly with geographically distant buyers whom they fear may unreasonably withhold approval of the goods to gain a strategic advantage in price. The role of a trade treaty is to balance these concerns and provide reasonable certainty of expectations. Article 39, requiring notice within a reasonable time, normally not to exceed two years, reflects this compromise. Id. The critical tension in judicial decisions under article 39 will be the commercial standards which the forum court employs -- those of more industrial or less industrial nations -- in determining whether the buyer gave notice of nonconformity within a reasonable period. Id. at 301-302. 100 U.C.C. ?2-503(1) provides, in part: Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery . . . . Tender that is rejected for non-conformity may be cured by the seller pursuant to U.C.C. ?2-508.
99 62
The buyer's obligations are also similar in many respects to those of the buyer under the UCC. The buyer is obligated to pay the price of the goods95 and to take delivery of the goods.96 In addition, the buyer is obligated to examine the goods within as short a period as is practicable in the circumstances,97 and this examination may be deferred until shipped goods arrive at their destination.98 In order to preserve his right to rely on a lack of conformity of the goods, the buyer must give notice to the seller specifying the nature of lack of conformity within a reasonable time after he has discovId. art. 35. Id. 91 Id. 92 Id. art. 36. 93 Id. art. 37. 94 Id. 95 Id. art. 53. Sevn, Obligations of the Buyer Under the UN Convention on Contracts for the International Sale of Goods, in Volken and Sarcevic, supra note 1, at 203. 96 CISG, supra note 1, art. 53. 97 Id. art. 38(1). 98 Id. art. 38(2).
90 89
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breach of contract. In contrast, under 2-601 of the UCC, the buyer is entitled to reject or accept the goods if the goods or the tender of delivery fail in any respect to conform to the contract . . .101 This provision is designed to take account of the relatively difficult position of the seller in an international transaction when goods are rejected by the buyer for a minor defect or imperfect tender of delivery. Given the significant asymmetry of power between the seller and the buyer at that point, the remedies available under the CISG appear sufficient to protect the legitimate needs and interests of the buyer. A. Fundamental Breach The concept of fundamental breach is central to the CISG. Article 25 provides: A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.102 This definition of fundamental breach appears to permit judgment as to whether avoidance of the contract is necessary to protect the non-breaching party. Remedies available to the buyer turn on whether the seller's breach was fundamental. Under article 49, for example, the buyer may declare the contract avoided if the seller's failure to perform amounts to a fundamental breach.103 Similarly, a fundamental breach by the buyer is a basis for the seller avoid101
ing the contract under article 64.104 If the non-conformity of goods constitutes a fundamental breach of the contract, the buyer may require that the seller provide substitute goods.105 Avoidance of the contract releases both parties from their obligations under the contract, leaving them subject to any damages.106 In contrast, the UCC does not require that a breach of a sales contract be so severe as to substantially deprive the non-breaching party of the benefit of his contract in order to permit avoidance of the contract. A buyer may reject non-conforming goods, subject only to the requirement that he permit timely re-tender of conforming goods. If the buyer accepts the goods, he can revoke acceptance and avoid his own performance only if its non-conformity substantially impairs its value to him, and either (1) he has accepted the goods knowing of the non-conformity but on the reasonable assumption that the non-conformity would be cured, or (2) his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.107 Article 26 provides that a contract may be effectively avoided only if notice is made to the other party. This relatively simple rule represents a significant improvement over the Hague Convention on Sales, which permitted the ipso fact avoidance, whereby the breaching party could continue to perform at his own peril, ignorant of the fact that the non-breaching party had avoided the contract.108 The drafters of the CISG sought to produce a rule that looked at the severity of the breach, in the light of the foreseeable consequences of the breach, rather than at the subjective knowledge of the parties at the time of contract, which was the approach
Id. art. 64. Id. art. 46(2). 106 See Vilas, Provisions Common to the Obligations of the Seller and the Buyer, in Volken and Sarcevic, supra note 1, at 255-59. 107 U.C.C. ?2-608 (1978). 108 See Patterson, supra note 2, at 294-296.
105 104 67
63
64
65
68
66
U.C.C. ?2-601 (1978). CISG, supra note 1, art. 25. 103 Id. art. 49.
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taken by the Hague Convention.109 While the severity of a breach, and the extent to which it impairs contract expectations, may be perceived differently against the background of domestic law, the CISG approach appears superior as an international code. B. Good Faith Article 7(1) provides that in interpreting the Convention there shall be regard for promoting the observance of good faith in international trade.110 Unlike the UCC, however, the CISG does not attempt to define what behavior constitutes evidence of good faith, and the CISG falls short of declaring good faith to be a necessary part of each party's performance. The UCC's good faith requirement is clearly broader in principle: Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.111 The uncertain meaning of the CISG good faith provision undoubtedly will provide opportunity for national courts to impose local concepts of business ethics and, therefore, for lack of uniformity in interpretation.112 C. Excuse of Performance Article 79 of the CISG provides: (l) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time
109
of the conclusion of the contract or to have avoided or overcome it, or its consequences.113 Article 79 further provides that the party who fails to perform because of an impediment must give notice to the other party of the impediment and its effect on its ability to perform, or else stand liable for damages resulting from the lack of notice.114 This broad provision reflects a compromise between the force majeure doctrine of the civil law countries and the relatively narrower excuse for non-performance found in the common law doctrine of impossibility.115 Section 2-615 of the UCC provides a somewhat stricter standard, excusing failures to deliver goods if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.116 Thus, the CISG looks to the unexpected and permits excuse for performance where an unexpected contingency occurs, while the UCC standard appears to permit non-performance where the contingency that prevents performance was anticipated, and the risk of that contingency was not on the party whose performance was prevented. The term impediment is not defined in the CISG. Undoubtedly, the national courts that resolve conflicts under this provision will draw heavily upon their own approaches to impossibility. To the extent this happens, the goals of certainty and uniformity of international trade law are compromised.117
CISG, supra note 1, art. 79(1). Id. art. 79(4). 115 See Zweigert and Kotz, supra note 77, at 187-207; Unification and Certainty, supra note 6, at 1993. 116 U.C.C. ?2-615 (1977). 117 Unification and Certainty, supra note 6, at 1992 n.54.
114 113 74
69
70
75
76
71
72
73
Honnold, supra note 1, at 212-213. Id. art. 7(1). See Unification and Certainty, supra note 6, at 1991 n.41. 111 U.C.C. ?1-203. 112 Unification and Certainty, supra note 6, at 1991.
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VI. Remedies A. Buyers' Remedies If the seller fails to perform his obligations, the buyer has a selection of possible remedies. The buyer may require specific performance of the contract, unless he has resorted to a remedy that is inconsistent with specific performance. If the non-conformity of the goods constitutes a fundamental breach of the contract, the buyer may require delivery of substitute goods. Even if the breach is not fundamental, the buyer may require the seller to repair the nonconforming goods, unless it would be unreasonable to require the seller to do so.118 The availability of specific performance would come as a surprise to the unsuspecting common law merchant. Historically, the common law has regarded specific performance as an equitable remedy, available only where monetary damages would prove an inadequate remedy. Under UCC 2-716, a buyer may seek specific performance where the goods are unique or in other proper circumstances, or, in some circumstances, the buyer may seek replevin of the goods.119 Civil law systems tend to make specific performance more readily available to the buyer.120 The general rule of article 46 favoring specific performance is closer to the civil law approach. However, article 28 permits the forum court not to apply the remedy of specific performance if it would not do so under the substantive law of the forum state.121 Thus, the availability of
CISG, supra note 1, art. 46(3). See generally, Gonzalez, Remedies Under the U.N. Convention for the International Sale of Goods, 2 Int'l Tax and Bus. Law 79 (1984). 119 U.C.C. ? 2-716. 120 Honnold, supra note 1, at 227. 121 CISG, supra note 1, art. 28 states: If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to
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specific performance will vary, depending on the law of the forum state, posing the possibility of surprise for either common law or civil law merchants. In addition, the CISG evidences a solicitude for the interests of the seller in curing defective performance of the contract. The buyer has the option of fixing an additional period of time for the seller to perform his obligations, and during that period he may not resort to any other remedy for the breach, unless he receives notice that the seller will not perform.122 He may, however, claim damages for the delay. Failure of the seller to perform within the extended period entitles the buyer to avoid the contract, even if the breach was not fundamental.123 In addition, the seller may cure a nonfundamental breach even after the date of delivery if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer.124 Unless the buyer has avoided the contract and notified the seller, the seller may notify the buyer that he will perform within a specified period of time. Such a notice is assumed to include a request that the buyer make known whether he will accept performance. If the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. During this peenter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention. Id. 122 Id. art. 47. 123 Id. art. 49. Article 49 provides: (1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with [Article 47] or declares that he will not deliver within the period so fixed. Id. 124 CISG, supra note 1, art. 48.
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riod the buyer may not resort to any remedy inconsistent with the seller's performance.125
82 83
Article 50 provides a buyer's remedy of reduction of the price: If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.126 This remedy is not available to the buyer if the seller has remedied the non-conformity before the date for delivery, or if he has remedied the non-conformity after the date of delivery but under an extension of the time for performance. The concept of price reduction as a remedy derives from German and French, not American, trade law.127 UCC 2-717 provides that the buyer may, upon notifying the seller, deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.128 In effect, article 50 produces the same remedy if the buyer's damages in 2-717 consists primarily of the loss of the benefit of the bargain. Article 50, however, gives the buyer the right to assert its damage in the first instance, at the time the price is paid. B. Sellers' Remedies The seller's remedies parallel those of the buyer. If the buyer fails to perform his obligations under the contract the seller may require the buyer to pay the price, take delivery or perform his obligations
Id. 126 Id. art. 50. 127 See Zweigert and Kotz, supra note 77, at 151; Rohwer and Coe, supra note 8, at 277-278; Unification and Certainty, supra note 6, at 1994. 128 U.C.C. ?2-717.
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so long as the seller has not resorted to other remedies inconsistent with the buyer's performance.129 In addition, the seller may fix an additional period of time, of a reasonable length, for performance by the buyer of his obligation. During that time the seller cannot exercise any remedy for breach of contract.130 If the buyer then does perform, or if the buyer announces he will not perform, the seller can avoid the contract.131 Otherwise, the seller can avoid the contract only for a fundamental breach.132 If the buyer has paid for the goods, but breaches the contract, the seller must act in a timely manner to avoid the contract and give notice.133 C. Damages In addition to contract remedies, the buyer and the seller may be entitled to damages from a breaching party. Article 74 provides the general rule of damages: Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.134 This states the basic rule of consequential damages. It must be
129 130 87
88
84
89
90
85
86
91
CISG, supra note 1, art. 62. Id. art. 63. 131 Id. art. 64. 132 Id. 133 Id. 134 Id. art. 74.
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read in conjunction with article 77, which requires a party who relies on a breach of contract to take reasonable measures to mitigate the loss, including loss of profit, resulting from the breach, or to be treated in the damage award as though he had taken such measures.135
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If the contract has been avoided, the party may have a more specific damage claim. The avoiding buyer who covers in the market place, as well as the avoiding seller who resells the goods, has a right to recover the difference between the contract price and the price in the substitute transaction as well as further damages under article 74.136 Under article 76(1), if the avoiding party has not made a substitute transaction, he may nevertheless claim damages based on the difference between the price fixed by the contract and the current price at the time of avoidance as well as damages under article 74. The problem of identifying the appropriate market for determining such a price is addressed in article 76(2), which refers to the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowances in the cost of transporting the goods.137 D. Restitution In addition to money damages, if the contract has been avoided, the buyer or seller who has performed the contract may claim restitution in an amount equivalent to whatever he has supplied or paid under the contract.138 If the buyer has received the goods and is unable, due to his own act or omission, to make restitution of them
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in substantially the condition he received them, he loses the right to declare the contract avoided.139 The buyer does not lose the right to avoid, however, if the goods have perished or deteriorated as a result of the buyer's exercise of his right of inspection, or if the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.140 Finally, in making restitution, the buyer must account to the seller for all benefits which he has derived from the goods. If he cannot return the goods under an avoided contract, he must account to the seller for the disposition of the goods.141 Similarly, the seller who is bound to refund the price of goods in restitution must pay interest from the date on which the price was paid.142 The remedies of buyer and seller are intended to maintain a balance of fairness between the parties in a long-distance trading relationship and to prevent either party from gaining the capacity to deal with the other in an overbearing manner. For example, specific performance may be a sensible remedy for the seller faced with a recalcitrant buyer who refuses, unreasonably, to take delivery of conforming goods. On the other hand, the seller is required to mitigate damages, so that the buyer is likely to be faced with specific performance only where the seller has no effective way to mitigate through a resale of the goods. In addition to balancing the rights of the parties, this feature of the Convention also balances the civil law and common law approaches to remedies. Similarly, the capacity of either party to fix an additional period of time for performance, and insist on either performance or breach, may reflect the need for greater certainty in dealing at a distance. In general,
139 140 95
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Id. Id. 137 Id. 138 Id.

136
art. art. art. art.
77. 74. 76(2). 81.
Id. Id. 141 Id. 142 Id.
art. art. art. art.
82. 82(2)(c). 84(2)(a). 84(1).
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however, the remedy and damage provisions of the CISG are consistent with the overall approach of the UCC, and the American lawyer should be comfortable with them. VII. Conclusion The Convention of the International Sale of Goods has now become an important part of American commercial law. This piece of the legal puzzle must be understood as a document designed to harmonize and bridge legal, developmental and cultural differences in the international setting. While several of its important provisions are not found in American commercial code law, many Uniform Commercial Code concepts are reflected in the Convention. This is not surprising since the UCC is designed to harmonize differences, albeit less dramatic differences, among the states. Moreover, it is clear that some areas of potential conflict have not been addressed by the Convention. Thus, it is important to understand the scope and coverage of the Convention. In addition, it is useful to identify the most significant provisions of the Convention that depart from the UCC approach. This paper has provided a descriptive analysis of the major aspects of the Convention's scope and coverage. While the CISG addresses the formation of contracts and the rights and obligations of the seller and buyer, it does not address other salient aspects of a sales contract, such as contract validity, product liability, capacity of the parties, or commercial fraud. Thus, the contract drafter must draft around these gaps in coverage, at the same time identifying any unexpected areas covered by the Convention. Similarly, the Convention does not cover contracts for the sale of goods to consumers. In addition, the paper has analyzed the problematic aspects of the provisions on the formation of the contract, allocation of the risk of
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loss, performance, and remedies. The thrust of this analysis has been both to identify significant departures from American commercial law and to identify areas of the Convention that may create difficulty in achieving certainty and uniformity in international trade law. The most problematic areas for an American trader are: 1) the issues of coverage and inclusion and the choice of law appropriate to those areas not covered by the Convention; 2) the ambiguities inherent in a view of contract formation that seeks to identify the time of contract conclusion through an offer and acceptance analysis; 3) the Convention's approach to modifications and alterations of an offer in a purported acceptance; 4) the uncertainties introduced by the first carrier approach to allocation of the risk of loss; 5) the use of substantial performance theory instead of a perfect tender rule; 6) the concept of the fundamental breach; 7) the relatively broader excuse of performance doctrine; and 8) the buyer's right to reduce the price as a remedy in breach. FOOTNOTES * Associate Professor of Business Law and Legal Studies, Graduate School of Business, University of Florida.
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Document Manifest @: http://www.jus.uio.no/pace/the_cisg_virginia.maurer/sisu_manifest.html Title: The United Nations Convention on Contracts for the International Sale of Goods Creator: Virginia G. Maurer Rights: CISG Database, Pace Institute of International Commercial Law. Reproduced with permission from 15 Syracuse J. Int'l L. & Com. (1989) 361-389; Publisher: SiSU on behalf of CISG Database, Pace Institute of International Commercial Law Date available: 1998-10-26 Date: 1989 Version Information Sourcefile: the_cisg_virginia.maurer.sst Filetype: SiSU text 2.0 Source Skin Digest: Digest:
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6a40970175ff21f7f972b9478547df57d2f3ddee6abfb315 e3f99160a3b7cf5c79f4ab61e0c1773d Generated Document (dal) last generated: Thu Sep 16 21:07:48 -0400 2010 Generated by: SiSU 2.6.3 of 2010w30/3 (2010-07-28) Ruby version: ruby 1.8.7 (2010-08-16 patchlevel 302) [i486-linux]
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pute arising out of an international sales transaction in an American court.

Id. Id. 137 Id. 138 Id.

art. art. art. art.

77. 74. 76(2). 81.

Id. Id. 141 Id. 142 Id.

art. art. art. art.

82. 82(2)(c). 84(2)(a). 84(1).

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