Sales of Goods

UN Convention CISG
United Nations Convention on
Contracts for the International Sale of
Goods
Parties to CISG
Transactions covered under CISG
contracts for the international sale of
goods
Both of the states must be contracting parties, or
The rules of private international law must lead
to the application of a contracting state

Seller: State A
Buyer: State B
Contract entered into at State C (CISG)
Seller breaches in State C
Buyer sues in State B
State B choice of law clause points to State
C law applying

Since State C is CISG, and contract is

international, CISG would apply

 Opting In, Opting Out

Parties to an international contract may
opt out of its application, or modify its
application
Need factual evidence to support opt out
see Case 10-1, ASANTE TECHNOLOGIES

Parties may opt in to the CISG,

Using a choice of law clause to opt in.
This depends on whether the State law
allows the domestic law to be excluded

Sales
Sale: The exchange of goods for an amount
of money or its equivalent
CISG: does not define sales but speaks of
obligations
Seller: deliver the goods, hand over any
documents relating to them and transfer the
property in the goods, as required by the
contract and this Convention
Buyer: is to pay the price
Note: US UCC passing of title from the seller
to the buyer for a price

Goods
Good: a movable, tangible object.
CISG: goods do not include
Things bought for personal use, or
Local shopkeepers selling to foreigners
Domestic consumer protection laws

Bought at an auction (sales on execution/authority of law), or

Uniqueness of the transaction
Auctions when was the contract formed?
Others forced sales lack of negotiated terms

Stocks, shares, investment securities, negotiable instruments,

money
Special domestic laws govern the sales

Oceangoing vessels or aircraft

Special domestic laws govern the sales

Mixed Sales
Goods and Services
Example: Sale of a Good (photocopy
machine) with 2 year Service (maintenance
and cleaning)
CISG: it is a good unless the preponderance
part of the obligations of the seller is the
supply of labor or other services
Reminder: preponderance would be more than 50%
Goods manufacturing: it is goods unless the Buyer
undertakes to supply a substantial part of the
materials
Vietnam shoe manufactures goods or services?

Contractual Issues Excluded from

CISG
CISG only covers
Formation
Remedies
Excludes:
Illegality and Incompetency
Third Party Claims, Personal Injury

Preemption to take precedence over

If CISG applies, domestic law is preempted
Establishes uniform rules for international
sales contracts

Interpreting CISG
Words of CISG must be interpreted
International character of CISG
Need to promote uniform application of
CISG
Observance of good faith

Implies: plain meaning or plain

meaning rule be used
Legislative history
May be used, due to wide use of this
practice

Interpreting CISG (contd)

General Principles
Two suggested principles found throughout the
CISG
A party to a contract has the duty to communicate
information needed by the other party
Parties have the obligation to mitigate damages
resulting from a breach

Rules of Private International Law

Two basic camps: statutes and case law
Allowing individual states to enact PIL drafters
wanted to avoid states adopting ad hoc interpretive
aids

Interpreting Sales Contracts

Statements and Conduct of Parties
meeting of the minds or common
intent
Subjective intent approach
Courts will turn to this first if this is easily
ascertained

Objective intent approach

When not clear, courts will look to this approach

Interpreting Sales Contracts (contd)

Negotiation (intent)
due consideration given to all relevant
circumstances
Includes negotiations leading up to the contract,
practices the parties have established between
themselves, and parties conduct after they agree the
contract
this negates common law jurisdictions parol evidence rules
Parties may opt out using an integration clause which
ignores all prior or contemporaneous agreements, which is
adopting the parol evidence rule making the written
contract the only evidence
Parties may also opt out to exclude parties conduct after
they agree the contract

Interpreting Sales Contracts (contd)

Practices and Usages
Parties are bound by any practices which they
have established between themselves
Court can consider any usages that the parties
agreed to
Example: use of INCOTERMS

Court can consider common Trade Usage

a usage of which the parties know or ought to have
known and which in international trade is widely known
to, and regularly observed by parties to contracts of the
type involved in the particular trade concerned
See case 10-2: TREIBACHER on the definition of consignment

Interpreting Sales Contracts (contd)

Form
Written requirement?
Sales contract need not be evidenced in
writing and is not limited to what form it
may be proved by witnesses
Emails, purchase orders, etc

Compromise:
States may (at time of ratification) exclude CISG
and use domestic law for form and written
requirements for party has its place of business in
that state

Formation of Contract
Offer
A proposal by one person to another indicating an intention
to enter into a contract under specified terms
Must show intention to be bound
Example newspaper advertisement

Defineteness
Offer must describe the goods with sufficient clarity that the
parties know what is offered for sale, its quantity and price
Price may be determined by price generally charged at the time and
circumstances involved
See examples of rush orders etc.

Specific Offerees
One or more specific persons i.e. Not a newspaper
advertisement,
Invitation to Treat

Formation of Contract
(contd)
Effectiveness of an offer
Revocation
Offers are revocable at any time before the offeree has
dispatched an acceptance, UNLESS offer is stated to be
irrevocable
CISG: by any means
Common law: by the same means sent

Firm Offers
Offer that offeror promises to keep open for a fixed period of
time
CISG: enforceable
Common law, must be supported by consideration
Promise does not need to be signed, nor in writing, no time limitation.
Enforceable if irrevocable or offeree can reasonably rely on
conduct that implies that the offer is firm

Formation of Contract
(contd)
Acceptance
Statement or conduct by the offeree indicating
assent that is communicated to the offeror
Agreement to enter into a contract proposed by an offeror

Silence obviously not a statement and does not

meet the conduct requirement
unless agreed to by offeree by statement or conduct
this is such a good deal I assume that you have
accepted unless I hear otherwise
unless you hear otherwise from me within three
days of your order I will ship the product to you at
$100/pc

Formation of Contract
(contd)
Acceptance (contd)
Time of acceptance

Within time period specified

If no time period, then reasonable time
If oral, acceptance must be immediate
CISG adopts the receipt theory/rule
acceptance valid upon receipt
As opposed to postal rule/dispatch rule/mailbox
rule where acceptance is valid upon dispatch

Formation of Contract
(contd)
Acceptance (contd)
Acceptance by conduct
If offeror asks for performance of an act
acceptance is effective when act is
performed.
Offer: Ship me 10 widgets at $10/pc
Acceptance: Seller ships widgets without
confirming order

Offer, trade usage, or the practice of the

parties must make it clear that offeree is not
required to notify offeror

Formation of Contract
(contd)
Acceptance (contd)
Withdrawal
Acceptance valid upon receipt:
Offeree may withdraw its acceptance any time
before or simultaneous with its receipt
As opposed to mailbox rule

Rejection
Rejection of offer is effective upon receipt
A rejection and acceptance is sent by offeree on
the same day which one is given effect?

Formation of Contract
(contd)
Acceptance with Modifications
Battle of the Forms
Seller sends offer to sell (Offer Letter)
Buyer sends acceptance (Purchase Order)
CISG if inconsistencies are material, the
would-be acceptance is a counteroffer
Material: price, payment, quality of goods, place
and time of delivery, extent of liability of parties,
settlement of disputes, etc.

If not material, becomes part of contract

unless Offeror promptly rejects.

General Standards of
Performance
Both parties are entitled to get from
their contract what they expect
If fail to perform accordingly = breach
If one party fundamentally breaches the
other may
Avoid the contract
Make demand for specific performance

Fundamental Breach
Failure to substantially deliver what the
other party reasonably anticipated receiving

General Standards of
Performance
Fundamental Breach (contd)
Avoidance:
Notification by the party that he is canceling the
contract
Notify other party
Return the goods

Only affects obligation to perform, does not

cancel
Any provision in the contract re: settlement of disputes
(arbitration, choice of law, choice of forum, etc)
Any other provisions re: rights and duties of the parties
(trade secrets, confidentiality, intellectual property, etc.)

General Standards of
Performance
Fundamental Breach (contd)
Specific Performance
CISG allows specific performance
Courts not obligated, unless allowed to under
domestic laws
Common law: fairly narrow application, disobedience has
serious consequences:contempt of court with fine or
imprisonment
Specific or ascertained goods (UK), goods are unique, or
other proper circumstances (US)
Civil law: broader application and not so serious
consequences: no fines or imprisonment allows
Party is entitled to require performance, not limited by
the nature of the goods involved

Sellers obligation
Deliver the goods
Hand over any documents relating to
them
Ensure the goods conform with the
contract

Sellers obligation (contd)

Place for delivery
As agreed to in contract, or
The first carriers place of business (if carriage of goods)
Place where both parties knew the goods were located, or
manufactured or produced

If contract requires seller to arrange shipping but does not

specify carrier, transportation must be:
Appropriate in the circumstances, and made according to usual terms
for such transportation

Insurance: if seller is not required to arrange insurance seller

must (at buyers request) provide buyer with all available
information to allow buyer to obtain insurance.
Seller also must, at time of delivery to carrier:
Identify to the carrier the buyer and the goods
Give notice to buyer of consignment of goods to the carrier

Sellers obligation (contd)

Time for Delivery
On the date fixed in the contract or if no date, then
reasonable time.
If a time period is specified (1 June 15 June) then seller
can deliver any time during that period
Unless buyer specifies that buyer chooses the time

Turning over of documents

At time and place for deliver, seller must turn over
any documents relating to the goods that the
contract requires.
If delivered early, seller has the right to cure any missing
documents if it doesnt cause the buyer unreasonable
inconvenience or expense

Sellers obligation (contd)

Conformity of Goods
Seller must deliver goods which are of the
quantity, quality, and description required by the
contract and which are contained or packaged in
the manner required by the contracts

Determining Conformity
Third-Party Claims
Waiver
Time for examining goods
Notice of Defects
Curing Defects

Sellers obligation (contd)

Conformity of Goods (contd)
Determining Conformity
Fit for the purposes that the goods ordinarily used
Fit for any particular purpose, expressly or impliedly, made
known to the seller
Except where buyer did not rely, or unreasonable for him to rely, on
sellers skills or judgment

Possess the qualities of goods that seller gave buyer as sample

or model
Contained or packaged in the same manner usual for such
goods, or in a manner adequate to preserve and protect goods.

Third-Party Claims
Goods do not conform if subject to 3 rd Party Claims ownership,
intellectual property rights patents, trademarks, copyright

Sellers obligation (contd)

Conformity of Goods (contd)
Waiver
Parties may expressly waive conformity
Parties may impliedly waive conformity
If buyer knew or could not have been unaware that the goods were
nonconforming

Time for examining goods

Buyer obligated to inspect within as short a period as is
practicable
If shipped, examination can be deferred until after goods arrive at
destination
If buyer must redirect/redispatch goods, then when goods arrive at
destination
Seller must have known or ought to have known the possibility of
the redirection

Sellers obligation (contd)

Conformity of Goods (contd)
Notice of Defects
Buyer must inform seller of defects with a reasonable
time after delivery
If defect discovered later, seller must promptly notify seller in
order to preserve his rights

Regardless Seller will not be responsible for a defect that

arises more than 2 years after delivery
Unless: Seller knew or ought to have known of nonconformity
and did not disclose it to buyer or contract establishes a longer
period of guarantee

Curing Defects
If seller delivers early, he may correct any defects up to
agreed upon delivery date

Buyers Obligations
Payment of the Price
Buyer obliged to take whatever preliminary steps
required to make payment in accordance with the
contract and any relevant laws/regulations
Buyer must pay price at the time and place in
contract
If no time specified, at the time when the goods or the
documents are delivered
Unlike Civil law countries, no request/formality required by Seller
to require payment, subject to inspection of goods

If no payment place specified

If delivery place then payment at delivery place
If no delivery place, then payment at sellers place

Buyers Obligations
Taking Delivery
Buyer obligated to cooperate with seller to facilitate
transfer and actually take over the goods
Buyer who fails to cooperate will be responsible for any
resulting costs
Buyer failing to take delivery assumes risk for any
damage to the goods after that time
carpet delivery example: Seller delivered carpet to Buyer at
specified time and place, buyers shop was closed, seller left
carpet at Sellers shop. Rain ruined the carpets. Court found
buyer responsible for loss
hay purchase example: Seller sold bale of hay to buyer, buyer
to pick up hay bale, hay bale destroyed by fire. Buyer
responsible for loss as didnt pick up hay in a reasonable time

Passing of Risk
Passage of Risk determines who is
responsible for the loss prior to
delivery, during transit or inspection,
or after delivery
Agreement of the Parties
CISG allows parties to allocate risk
among themselves
CISG does not define any terms, may
use domestic terms or international
terms
Commonly used INCOTERMS (FOB, CIF)

Passing of Risk (contd)

Means of Delivery- by carrier or by seller
Goods transported by carrier CISG
distinguishes type of carrier contract

Shipment contracts
Transshipment contracts
In-Transit contracts
Destination contracts

Regardless of contract used, risk of loss will

not pass until the goods are clearly
identified by markings, shipping documents,
notice given to the buyer or otherwise

Passing of Risk (contd)

Means of Delivery - Goods
transported by carrier (contd)
Shipment contracts
Seller required to deliver the goods to a
carrier for shipment and does not require
the seller to deliver them to a particular
place, the risk of loss passes when the
goods are handed over to the first carrier
FCA Paris example

Passing of Risk (contd)

Means of Delivery - Goods
transported by carrier (contd)
Transshipment contracts
Seller required to deliver the goods to a
carrier at a named place, carrier will then
carry the goods to the buyer, risk of loss
passes to the buyer when the goods are
handed over to carrier at the first place
Example FAS M/V Ocean Trader

Passing of Risk (contd)

Means of Delivery - Goods transported by
carrier (contd)
In-Transit contracts
If goods are sold in-transit, risk of loss passes to the
buyer at the time the contract is concluded
Contaminated oil example, if seller knows, risk doesnt
pass

Destination contracts
Seller required to arrange transport to named
destination, risk of loss passes to buyer when the
goods are handed over to buyer, or at that place
Example DDP Seattle, Washington

Passing of Risk (contd)

Means of Delivery (contd)
Goods delivered without being transported
When goods are not transported, risk of loss passes
when the goods are handed over to the seller or
otherwise put at the buyers disposal (haybale)
Example EXW Sellers City

Breach of Contract
CISG rules on risk of loss are not concerned
with breach of contract (except tainted intransit contracts) risk of loss passes to buyer
at agreed upon time and place

Remedies
Unique to buyer
Unique to seller
Available to either party

Remedies (contd)
Buyers Remedies - cumulative
Specific performance
Avoidance
Reduce price
Refuse early delivery
Refuse excess quantities

Remedies (contd)
Buyers Remedies (contd)
Specific performance see discussion
before
Deliver substitute goods
Make repairs

Remedies (contd)
Buyers Remedies (contd)
Avoidance
Provide Nachfrist Notice
Generally required for buyer to provide a
reasonable time period before avoiding the
contract

Remedies (contd)
Buyers Remedies (contd)
Reduce price
If buyer not entitle to damages when a seller
delivers nonconforming goods, the buyer will be
entitled to a reduction in price.
Buyer must have accepted non-conforming goods, and
Sell must not be responsible for non-conforming goods
Example force majeure

Refuse early delivery or excess quantities

Buyer is under no obligation to take early
delivery or excess quantities

Remedies (contd)
Buyers Remedies (contd)
Effect of Partial Non-conformity
1000 bags of flower
Delivery, 100 bags vermin infested, unusable

Buyer may seek specific performance, price

reduction or avoid that part of contract in
accordance with the CISG rules for each
Avoiding entire contract (refuse entire
delivery) ONLY if the partial
nonconformance is a fundamental breach

Remedies (contd)
Sellers Remedies cumulative and immediate
Specific performance
Take delivery and pay contract price
Perform any other obligations required by the contract

Avoid contract for fundamental breach or failure to

cure a defect
Same as buyers, failure to cure after Nachfrist Notice

Obtain missing specifications

If buyer doesnt supply specifications by the given
time/date, seller can ascertain specifications and notify
buyer of them, if buyer does not respond, they become
binding on the buyer

Remedies (contd)
Buyers and Sellers Remedies
Suspension of performance
Avoidance in anticipation of
fundamental breach
Avoidance of an installment contract
Damages

Remedies (contd)
Buyers and Sellers Remedies (contd)
Suspension of performance (contd)
May suspend if there is a threat of
nonperformance
May prevent the handover of goods if threat
of nonpayment is found after goods are intransit
Must give immediate notice, and must
continue performance if adequate assurance
of performance is made

Remedies (contd)
Buyers and Sellers Remedies (contd)
Avoidance in anticipation of fundamental
breach
Before a breach, if
Specific goods promised to buyer are wrongfully sold
to a third party
Sellers only employee capable of producing goods
dies or is fired
Sellers manufacturing plant is sold

Should provide immediate notice and allow for

assurances

Remedies (contd)
Buyers and Sellers Remedies
(contd)
Avoidance of an installment contract
May avoid a particular installment
If avoidance of one installment creates good
grounds that further installments will be at
risk, further installments may be avoided
If subsequent installments are
interdependent , a breach of one installment
will allow a party to avoid the entire contract

Remedies (contd)
Buyers and Sellers Remedies (contd)
Damages
A sum equal to the loss, including loss of profit,
suffered by the other party as a consequence
of the breach.
Must be reasonably foreseeable
Hadley v Baxendale

Substitute transaction price

Difference in buy/sell price in transaction

Substitute purchase price

Parties must mitigate their loss

Excuses for
Nonperformance
Force majeure
Not liable for damages if failure to
perform is
Due to an impediment beyond its control
Impediment was not reasonably foreseen
during contracting
Remains unable to overcome the
impediment or its consequences

Other remedies may apply suspension

of performance or avoidance
Note: force majeure clauses can save the
contract

Excuses for Nonperformance

(contd)
Force majeure (contd)
Party must promptly notify the other
party of impediment and its effect on
performance
If claim involves third party performance
(supplier), then third party must be able
to claim impediment
Excuse is only good for as long as
impediment continues to exist
Does NOT apply to commercial
impracticability

Excuses for Nonperformance

(contd)
Dirty Hands
A party may not rely on a failure of the
other party to perform, to the extent
that such failure was caused by the first
partys act or omission