CLASS 3: INTERNATIONAL SALE I

Transnational Commercial Law Course

Časlav Pejović
 SALE OF GOODS

• What distinguishes trade in goods and services?

• What is the contract of sale?
• What are the essential elements of a sale contract?
• Is barter a sale contract?
• Commercial, civil and, consumer sale
• Domestic and international sales
• Who is the seller?
 SPECIFIC FEATURES OF INTERNATIONAL
SALES
• Complexity
• Risks (transfer of risk issues)
• Remedies
• Delivery and documentary sale
• Payment
• Currency risks
• Conflict of Laws and jurisdiction issues
MECHANISM OF INTERNATIONAL SALE
 UNIFICATION OF LAW
• Convention on Applicable Law in International Sale, 1955/1985
• Convention on Limitation (Time Bar) in International Sale of Goods, New York,
1974
• The UN Convention on Contracts for the International Sale of Goods (CISG),
1980
• INCOTERMS 2020
• CISG adopted in 94 countries; 80% of global trade
• Question: Why many Muslim states have not adopted the CISG?
• Japan ratified the CISG in 2009. Why so late?
 CISG – STRUCTURE

• General provisions (Articles 1-13)

• Formation of contracts (Articles 14-24)
• Performance of contract and remedies (Articles 25-88)
• Final provisions (Articles 89-101)
 CISG - SCOPE OF APPLICATION

1. Territorial limitation - it governs only international sales;

2. Applies only to the commercial sale of goods; various
exemptions
3. CISG does not apply to certain questions – validity,
transfer of property
4. The parties are free to exclude the application of the CISG
ARTICLE 1 GEOGRAPHIC SCOPE OF APPLICATION

• 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.
 TERRITORIAL SCOPE - COMMENTS

• •Article 1(a) introduces an autonomous system of the application of

the CISG – makes the conflict of law rules obsolete
• •Article 1(b) acknowledges the application of the conflict of law rules
• •Causes of problems with Article 1(b)
• •Article 95 as a solution (US, China, Singapore, Laos…)
• •Question: What is the meaning of the “place of business”? Is it
related to the place of incorporation?
 EXAMPLE

• An English buyer (i.e., with the place of business in the UK) mails an inquiry
to an American beer producer. After receiving the offer, the American seller
accepts the offer in its NY office. The contract requires delivery of the beer to
the warehouse of the buyer. Later, the buyer refuses to accept the goods
because of non-conformity (different brand), and the seller demands
payment.
• Conflict of law rules leads to the application of American law. Would an
American court apply CISG to this case? How about the English court in an
identical situation where American law is applicable? And, if Swiss is
applicable?
 EXAMPLE

• Company A as the buyer from Fukuoka, orders certain goods

from Tokyo located company B, as the seller with the obligation of
B to deliver the goods to company C based in Shanghai.
• Question(s): Does CISG apply? Can the parties agree on the
application of the CISG in their contract? Can they select a
foreign law, e.g., English law? How about foreign jurisdiction?
 ARTICLE 2 - EXEMPTIONS FROM COVERAGE

• 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.
 EXEMPTIONS FROM COVERAGE -
COMMENTS
• Consumer sales
• Sales commonly subject to special regulation such as:
• auction sales, sales on execution or otherwise by authority of law,
sales of stocks, shares, investment securities, negotiable instruments,
or money, sales of ships, vessels, or aircraft, and sales of electricity

• Question: How about intangible goods that are increasingly sold

online, such as software? Is there a difference between software sold
on discs and the one downloaded online?
ARTICLE 4 - EXEMPTIONS OF CERTAIN ISSUES

• 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.
 EXEMPTIONS OF CERTAIN ISSUES -
COMMENTS
• Validity of contracts (consideration and causa)
• Transfer of property (different systems)
• Liability for death or personal injury (The CISG should not compete
with domestic rules on product liability – it is not a contractual issue)
• Art.5(1) is not a product liability exclusion; its scope is limited to death
and personal injury as consequences of defective goods
• Question: How about product (tort) liability for property damage? Can
concurrent claims exist?
 TRANSFER OF PROPERTY UNDER THE
JAPANESE CIVIL CODE
• Article 176 The creation and transfer of real rights shall take
effect solely by the manifestations of intention of the relevant
parties.
• Article 178 The transfers of real rights concerning movables
may not be asserted against third party, unless the movables are
delivered.
ARTICLE 6 - EXCLUSION OF APPLICATION OF CISG

• 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.
• Comment: Principle of autonomy of will prevails – non-mandatory
character of the CISG (except Article 12 – how about articles 7 and 8?)
• “Opting-out” – total exclusion (e.g. by selecting English law)
• “Derogation from” – partial exclusion
 CISG INTERPRETATION

• General principles:
• Party autonomy (Article 6)
• Good faith (Article 7)
• Reasonableness (Article 8)
• Freedom of form (Article 11)
• Favor Contractus (Articles 37, 40, 46, 47…)
• Mitigation (Article 77)
 ARTICLE 7 - GOOD FAITH

• 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.
 GOOD FAITH - COMMENTS
• International character – to avoid a homeward tendency in interpretation: the CISG
to be interpreted “autonomously”
• Courts encouraged to look at cases in other jurisdictions
• UNCITRAL Digest of Case Law:
https://www.uncitral.org/pdf/english/clout/CISG_Digest_2016.pdf
• Good faith serves as an instrument of interpretation of the CISG and does not create
a duty to act in good faith (Is it possible to make this separation?)
• Question: Is the interpretation based on good faith limited to the convention, or
does it also apply to the parties' contract and conduct? Is the standard of good faith
excluded, or is just its mentioning is omitted from the text?
GOOD FAITH AS
AN ILLUSION OF
COMPROMISE
 ARTICLE 8 – REASONABLENESS
• 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.
 REASONABLENESS – COMMENTS
• If parties agree on what they said or wrote but differ as to what it means, interpretation
is called for
• 8(1) “Subjective intent” – according to the party’s “actual” intention, if the other
party “was aware or could not have been unaware” of that intention
• 8(2) “Objective intent“ based on the standard of reasonableness – more important in
practice – how a reasonable person would have understood the statement or conduct
of the other party
• 8(3) Criteria to be considered when interpreting statements and conduct of the parties
• (Civil law approach – contravenes Four Corners rule > Common law: the people rely
on what others say, not on what they meant to say)
 ARTICLE 11 - FORM OF THE CONTRACT

• 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.

• Comment: Civil law prevails. For practical reasons, contracts are

usually in writing
• Question: How about electronic contracts?
PROCESS OF NEGOTIATIONS LEADING TO
A CONTRACT
Stage 1 Stage 2 Stage 3 Stage 4

Negotiations “Point of no return” Offer, or the end of Acceptance

(Freedom of (Pacta sunta servanda negotiations
contract prevails) prevails)

Factor that identifies

“Point of no return” >
Reasonable reliance

(good faith/promissory
estoppel as a balancing
mechanism)
 ARTICLE 14 - OFFER

• 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.
 OFFER - COMMENTS

• Offer – minimum content:

• 1. sufficiently definite, and
• 2. indicates the intention of the offeror to be bound
• Offer is sufficiently definite if it:
• Indicates the goods, and
• Expressly or impliedly fixes or makes provision for determining
the quantity
Invitation to make offer: lacks intention
 INTENTION - COMMENTS
• Distinction between offer and invitation to make an offer is based on the
elusive criterion of intention
• The intention to be bound must be clearly expressed to distinguish the
non-binding preliminary negotiations and binding commitment expressed
by an offer.
• Since there are no particular words that must be used to indicate such an
intention, sometimes a careful examination of the offer may be required to
determine whether such an intention existed

• •Question: How can be established the existence of intention? How

about an advertisement stating: “This advertisement constitutes an offer”?
 EXAMPLE 1

• The buyer sent a telegram to the potential seller with the following
content: “Will you send us the goods [specified kind and quantity]?
Please send us the lowest price.” The seller sent the telegram
stating: “Lowest price for the goods [specified kind and quantity]
900 pounds.” The potential buyer sent a third telegram stating that
he accepted the offer. The seller said that was not the offer.
• Question: Was the seller’s telegram an offer?
 EXAMPLE 2
• Buyer offered to purchase machinery from Seller, which Seller would
manufacture according to designs supplied by Buyer. The offer included a stated
price and stated that the offer would remain open for two months to enable Seller
to determine whether he could make the machinery at that price. Seller
immediately started the process of designing manufacturing procedures and
computing costs of production. Two weeks later, when Seller had spent
substantial sums in computing costs but had not completed this work, Buyer
notified Seller that he could no longer use the machinery and withdrew the offer.
Seller thereupon stopped the work on the cost estimates since it would be
uneconomic to invest further funds in preparing to make machinery that Buyer
would not accept and perhaps could not pay for.
• Has Seller a claim under the CISG?
 EXAMPLE 2

• On June 1 Buyer delivered the following mail to Seller: “Please

rush price quotation for the following goods [specifying quantity
and quality]. If you do not hear from me within three days after I
receive your quotation, consider your offer as accepted.” Seller
delivered the quotation to Buyer on June 3; Buyer did not
respond until June 10, when he objected to the prices that Seller
had quoted.
• Question: Was the buyer’s mail of June 1 a valid offer?
 ARTICLE 15 - WITHDRAWAL OF OFFER
• Article 15
• (1) An offer becomes effective when it reaches the offeree.
• (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.
• A validly withdrawn offer never becomes effective and cannot be
accepted, even if the offeree becomes aware of the offer.
• Comment: In case of E-commerce, the term ‘reaches’ corresponds to
the point in time when electronic communication has entered the
offerree’s server (The CISG Advisory Council Opinion No. 1)
 ARTICLE 16 - REVOCATION OF 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.
 FIRM OFFER, WITHDRAWAL AND
REVOCATION
• CISG provides that an offer will be irrevocable if:
• Offeror indicates, whether by stating a fixed time or otherwise,
that it is irrevocable, or
• Offeree acts in reliance on the reasonable belief that it is
irrevocable (common law?)
• Comment: A withdrawal that reaches the offeree after the offer
may constitute revocation
• Question: How different are a withdrawal and a revocation?
 JAPANESE CIVIL CODE
• Article 526 (1) A contract between persons at a distance
shall be formed upon dispatch of the notice of acceptance.
• German Civil Code Sect. 130(1): A declaration of intent that is to
be made to another becomes effective, if made in his absence, at
the point of time when this declaration reaches him.
• French Civil Code Art. 1121. – A contract is concluded as soon
as the acceptance reaches the offeror.
• English law: The contract comes into existence at the moment
• when the acceptance was dispatched (“mailbox rule”).

• Q How comes that Japanese law is modeled after English law?

 ARTICLE 18 - ACCEPTANCE
• 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.
 EXAMPLE
• •On June 1 Seller received a letter from Buyer dated May 28
requesting Seller to ship certain goods at a price specified in
Seller’s catalog. Seller did not reply to Buyer’s offer but shipped
the goods on June 2. The average delivery time was two weeks,
and the goods arrived in Buyer’s city in due course on June 16. On
that date, the carrier notified Buyer that the goods had arrived.
Then Buyer notified Seller and the carrier that he would not accept
the goods since Seller had failed to accept Buyer’s offer and added
that, in the meantime, he had procured substitute goods.
• Question: Was the buyer entitled to reject the goods?
 ARTICLE 19 - COUNTER-OFFER
• 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.
 COUNTER-OFFER - COMMENTS

• •The CISG treats an acceptance with "additions, limitations, or other

modifications" as a counteroffer.
• This is so only if :
1) Additional or different terms "materially alter" the terms of the offer, and
2) Offeror fails to object to the change promptly.
• Changes to the following are considered to materially alter the offer: price, mode of
payment, quality and quantity of the goods, place and time of delivery, the extent of
one party’s liability to the other, settlement of disputes
• “Battle of Forms”
 EXAMPLE 1

• •Seller offers to sell a machine tool to Buyer. The offer is on standard terms
“which shall prevail over any terms and conditions in buyer’s order” and
includes a price variation clause for increased costs. Buyer’s order form is a
standard form materially different which states: “we accept your order on
the terms and conditions stated thereon”. Seller signs and returns the slip
together with a letter stating: “We are executing the order on our offer
terms”. The machine is then manufactured, but the Seller sought to invoke
the price variation clause before the delivery. Buyer protested.
• Question: Whose form prevails in this case?
 EXAMPLE 2

• •The seller's general conditions, including a forum selection clause, were

provided as an e-mail attachment to its sales quote. The buyer argued
that the clause was not a part of the contract because the buyer had
never agreed to its inclusion. Even though the general conditions were
available as an e-mail attachment, the buyer argued that it was unaware
of their existence, and even if they were aware, they did not open the
attachment and accept them as part of the contract.
• The court held that under Article 14, the sales quote was an offer.
• Question: Did the quote incorporate the forum selection clause?
 ADDITIONAL READING MATERIALS

• J.O. Honnold, Uniform Law for International Sales (Kluwer 1999)

• P. Schlechtriem I. Schwenzer, Commentary on the UN Convention on the
International Sale of Goods (CISG) 3rd. edn. (Oxford Univ. Press 2010)

• www.uncitral.org/english/clout/
• https://iicl.law.pace.edu/cisg/cisg
• www.unilex.info/dynasite.cfm
• www.cisg-online.ch/