1 A. CISG United Nations Convention on Contracts for the International Sale of Goods United Nations...

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A. CISGA. CISG United Nations United Nations Convention on Convention on

Contracts for the International Contracts for the International Sale of GoodsSale of Goods• In effect sinceIn effect since January 1, 1988 January 1, 1988

• Current state partiesCurrent state parties: 62,: 62, including including CanadaCanada MexicoMexico

ChinaChina RussiaRussia

FranceFrance United States United States

GermanyGermany

Web site: Web site: http://www.uncitral.org/http://www.uncitral.org/

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B. COVERAGE OF CISGB. COVERAGE OF CISG

International contractsInternational contracts: buyer : buyer and seller must have their places of and seller must have their places of business in different states.business in different states.• Both states must be contracting parties Both states must be contracting parties

to the convention, to the convention, oror• The rules of private international law The rules of private international law

must lead to the application of the law must lead to the application of the law of a contracting state. of a contracting state.

ExceptionException: A contracting state may declare : A contracting state may declare that it will apply the CISG only when the that it will apply the CISG only when the buyer and seller are both from contracting buyer and seller are both from contracting states.states.

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Opting in and outOpting in and out • The parties to a contract may exclude or The parties to a contract may exclude or

modify the CISG’s application by a modify the CISG’s application by a choice of law clause.choice of law clause.

• Whether parties can exclude a domestic Whether parties can exclude a domestic law and adopt the CISG in its place law and adopt the CISG in its place depends on the rules of the state where depends on the rules of the state where the case is heard.the case is heard.

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Merchants: Merchants: CISG applies only to CISG applies only to commercial sales transactions commercial sales transactions between merchants between merchants • CISG Art.1: buyers and sellers must both CISG Art.1: buyers and sellers must both

have “places of business.”have “places of business.”• CISG Art. 2(a): the Convention does not CISG Art. 2(a): the Convention does not

apply to sales of goods bought for apply to sales of goods bought for personal, family, or household use.personal, family, or household use.

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Subject Matter of CISGSubject Matter of CISG: : • The formation of contracts.The formation of contracts.• The remedies available to buyers and The remedies available to buyers and

sellers.sellers.

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Subject Matter Not CoveredSubject Matter Not Covered: : • The validity of contracts.The validity of contracts.• The competency of the parties.The competency of the parties.• The rights of third parties.The rights of third parties.• Liability for death or personal injury.Liability for death or personal injury.• Sales to consumers.Sales to consumers.• Sales of servicesSales of services

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• Sales commonly subject to special Sales commonly subject to special regulation:regulation:

Auction sales,Auction sales, Sales on execution or otherwise by authority Sales on execution or otherwise by authority

of law, of law, Sales of stocks, shares, investment Sales of stocks, shares, investment

securities, negotiable instruments, or moneysecurities, negotiable instruments, or money Sales of ships, vessels, hovercraft, or Sales of ships, vessels, hovercraft, or

aircraft, and aircraft, and Sales of electricity.Sales of electricity.

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C. CISG COMPAREDC. CISG COMPARED

General sources of CISG rulesGeneral sources of CISG rules: : French French Civil CodeCivil Code, the French , the French Commercial CodeCommercial Code, and similar civil , and similar civil law codes.law codes.

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C. CISG COMPAREDC. CISG COMPARED

Distinctive CISG provisions:Distinctive CISG provisions:• InterpretationInterpretation• Firm offersFirm offers• Time of acceptanceTime of acceptance• Acceptance with additional termsAcceptance with additional terms• DefinitenessDefiniteness• FormalitiesFormalities• RemediesRemedies

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D. INTERPRETATIOND. INTERPRETATION

Interpretation of a CISG ContractInterpretation of a CISG Contract is based on—is based on—• the parties’ intent, andthe parties’ intent, and• all relevant circumstances.all relevant circumstances.

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Parties’ IntentParties’ Intent• Subjective Intent Subjective Intent of a speaker is of a speaker is

admissible if the other party knew or admissible if the other party knew or could not have been unaware of the could not have been unaware of the speaker’s intent. speaker’s intent.

Objective IntentObjective Intent is used when a speaker’s is used when a speaker’s intent is not clear to the other party.intent is not clear to the other party.

• Objective intent is determined according to the Objective intent is determined according to the understanding that a reasonable person of the understanding that a reasonable person of the same kind as the other party would have had in same kind as the other party would have had in the same circumstances.the same circumstances.

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Relevant CircumstancesRelevant Circumstances: : courts are courts are to give due consideration … to all relevant to give due consideration … to all relevant circumstances, including: circumstances, including: • negotiations negotiations leading up to the leading up to the

contract.contract.• practicespractices the parties have established the parties have established

between themselves.between themselves.• conductconduct of the parties after they agree of the parties after they agree

to the contract.to the contract.

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• Rationale for using all relevant circum-Rationale for using all relevant circum-stancesstances: to do away with the technical rules : to do away with the technical rules that domestic courts sometimes use to that domestic courts sometimes use to interpret contracts. interpret contracts.

Example: CISG does not use the common law’s parol Example: CISG does not use the common law’s parol evidence rule.evidence rule.

CaveatCaveat: The CISG allows parties to derogate from or : The CISG allows parties to derogate from or vary the effect of any of the provisions of the vary the effect of any of the provisions of the Convention. Convention.

• If the parties include a contract term (often called an If the parties include a contract term (often called an integration clause) directing a court to ignore all prior integration clause) directing a court to ignore all prior or contemporaneous agreements, the court will have to or contemporaneous agreements, the court will have to give effect to that term.give effect to that term.

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E. FIRM OFFERSE. FIRM OFFERS

Firm Offer is Irrevocable Firm Offer is Irrevocable if: if: • the offeror indicates, whether by stating the offeror indicates, whether by stating

a fixed time or otherwise, that it is a fixed time or otherwise, that it is irrevocable, or irrevocable, or

• the offeree acts in reliance on the the offeree acts in reliance on the reasonable belief that it is irrevocable.reasonable belief that it is irrevocable.

Firm Offer Does Not Have to beFirm Offer Does Not Have to be: : • in writing (as required by the UCC), orin writing (as required by the UCC), or• supported by consideration or cause.supported by consideration or cause.

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F. TIME OF ACCEPTANCEF. TIME OF ACCEPTANCE

Acceptance is Effective Acceptance is Effective and a and a contract formed only when the contract formed only when the indication of assent reaches the indication of assent reaches the offeror. offeror. • CaveatCaveat: An offeror may : An offeror may notnot revoke an revoke an

offer once it has been dispatched.offer once it has been dispatched.• BasisBasis: French : French Civil Code'sCivil Code's receipt rule. receipt rule.

Compare: UCC provides that an acceptance Compare: UCC provides that an acceptance is effective upon dispatch.is effective upon dispatch.

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G. ADDITIONAL TERMSG. ADDITIONAL TERMS

Additions, limitations, or other Additions, limitations, or other modifications modifications constitute a constitute a “counteroffer.” “counteroffer.” • CaveatCaveat: : This is so only if—This is so only if—

the additional or different terms the additional or different terms materially materially alteralter the terms of the offer, or the terms of the offer, or

the offeror fails to promptly object to the offeror fails to promptly object to changes that are not material.changes that are not material.

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G. ADDITIONAL TERMSG. ADDITIONAL TERMS

• Material alterations Material alterations are changes to the are changes to the following: following:

PricePrice PaymentPayment quality and quantity of the goodsquality and quantity of the goods place and time of deliveryplace and time of delivery extent of one party’s liability to the otherextent of one party’s liability to the other settlement of disputessettlement of disputes

• BasisBasis: : French mirror image French mirror image rule and UCC § 2-207.rule and UCC § 2-207.

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H. DEFINITENESSH. DEFINITENESS

A contract must be sufficiently A contract must be sufficiently definitedefinite so that a court can enforce so that a court can enforce it.it.• A contract is sufficiently definite if A contract is sufficiently definite if

itit: : describes the goods, and describes the goods, and expressly or impliedly fixes or makes expressly or impliedly fixes or makes

provision for determining the quantity.provision for determining the quantity.

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H. DEFINITENESSH. DEFINITENESS

Price should be stated Price should be stated or a means or a means provided for determining it.provided for determining it.• Price not statedPrice not stated: courts imply will the : courts imply will the

price generally charged at the time of price generally charged at the time of the contract for like goods sold under the contract for like goods sold under comparable circumstances in the trade comparable circumstances in the trade concernedconcerned

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I. FORMALITIESI. FORMALITIES

No FormalitiesNo Formalities: The CISG does not : The CISG does not require a contract to be in any require a contract to be in any particular form particular form • A contract may be proven by oral A contract may be proven by oral

testimony regardless of the price testimony regardless of the price involved. involved.

BasisBasis: French : French Commercial Code.Commercial Code.

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J. REMEDIESJ. REMEDIES

Buyer’s Right of AvoidanceBuyer’s Right of Avoidance• Requirements for avoiding a Requirements for avoiding a

contractcontract: : The seller commits a The seller commits a fundamental breachfundamental breach, ,

oror The seller commits a lesser breach and the The seller commits a lesser breach and the

buyer gives the seller a buyer gives the seller a NachfristNachfrist notice notice that the seller rejects or does not comply that the seller rejects or does not comply with during the period it specifies. with during the period it specifies.

• BasisBasis: German : German Civil CodeCivil Code..

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• NachfristNachfrist Notice Notice: the fixing of an : the fixing of an additional period of time of reasonable additional period of time of reasonable length for performance by the seller of length for performance by the seller of his obligations. his obligations.

The period must be definite and the obligation The period must be definite and the obligation to perform within that period must be clear.to perform within that period must be clear.

During the During the NachfristNachfrist period the seller is period the seller is entitled to correct (i.e., “cure”) the non-entitled to correct (i.e., “cure”) the non-conformity at his own expense. conformity at his own expense.

• A cure may not be made if the breach is fundamental and A cure may not be made if the breach is fundamental and the buyer chooses to avoid the contract. the buyer chooses to avoid the contract.

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• Time for AvoidanceTime for Avoidance: Once the : Once the NachfristNachfrist period has run, or once the period has run, or once the fundamental breach becomes clear, the fundamental breach becomes clear, the buyer has a reasonable time in which to buyer has a reasonable time in which to avoid the contract.avoid the contract.

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Seller’s Right of AvoidanceSeller’s Right of Avoidance • Analogous to that of the buyer’s Analogous to that of the buyer’s

avoidance remedyavoidance remedy

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Buyer’s Right to a Reduction in Buyer’s Right to a Reduction in PricePrice • Applicable whenApplicable when: :

the seller delivers non-conforming goods the seller delivers non-conforming goods the buyer accepts them, andthe buyer accepts them, and the seller is not responsible for the non-the seller is not responsible for the non-

conformityconformity

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• Formula for determining the price Formula for determining the price reductionreduction: The price is to be reduced : The price is to be reduced by that ratio of: by that ratio of:

The value at the time of delivery of the The value at the time of delivery of the goods actually delivered, togoods actually delivered, to

The value that conforming The value that conforming goods would have had at goods would have had at the time of delivery.the time of delivery.

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• ExampleExample Idaho potatoes sold at $3.50/bushel for delivery in Idaho potatoes sold at $3.50/bushel for delivery in

Djakarta Djakarta Damaged in transit by act of nature Damaged in transit by act of nature Undamaged potatoes are worth $4.00/bushel if Undamaged potatoes are worth $4.00/bushel if

purchased in Djakarta purchased in Djakarta Damages potatoes are worth $2.80/bushel Damages potatoes are worth $2.80/bushel

• The price reduction ratio is:The price reduction ratio is:

$2.80 $2.80 = = 7 7 $4.00 10 $4.00 10

• Applying this ratio, the reduced price the buyer pays is:Applying this ratio, the reduced price the buyer pays is:

$3.50 x 7/10 = $2.45$3.50 x 7/10 = $2.45

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