THE APPLICATION IN THE CONTRACTING STATES OF THE UNITED NATIONS

CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

(CISG)

By Peter Henseler of Henseler & Partners Duesseldorf/Germany, www.hp-

legal.com

Section 1 Introduction

Section 2 When Does the CISG Apply?

Section 3 Relationship between CISG and Member States Law

Section 4 The Law Laid Out By the CISG

Section 5 Where to Find Out More on the CISG

Section 6 Conclusion

SECTION 1 INTRODUCTION

1.1 The United Nations Convention on Contracts for the International Sale of
Goods (the “CISG”) is one of the documents produced through the diplomatic efforts of
the United Nations Commission on International Trade Law (“UNCITRAL”). The CISG
attempts to bridge the gap between the different legal systems of the world, mainly be-
tween the civil law (French and German sub-traditions) and the common law (English
and American sub-traditions), by creating a uniform law for the international sale of
goods (preamble of the CISG). The CISG governs the formation of the contract of sale
as well as the rights and obligations of the buyer and seller (including their remedies). It
came into force on 1 January 1988 for those countries that were then parties to it.

1.2 What follows is a short introduction to the CISG drafted mainly to address the
situation where the CISG applies and the parties to the contract have chosen national
law of a Member State as the law that complements the CISG. I will first describe when
the CISG does apply and when it does not apply in the Member States (Part 2). I will
then show how the CISG, when it applies, takes precedence over Member States law
(part 3). I will finally very briefly introduce the contents of the CISG both on the forma-
tion of the contract and on the rights and obligations of the parties (part 4). Just before
concluding I will list a few places where one could find further information about the
CISG (part 5).

1.3 A list of the 70 member states to the CISG as per today is appended to this pa-
per. You will note that some important trade countries such as Great Britain and Ire-
land, yet also most of the African and Arabian countries including the UAR and Dubai
are still missing on this list.

SECTION 2 WHEN DOES THE CISG APPLY?

Article 1(1)(a) of the CISG

1
2.1 The CISG provides for two ways in which it will become the law of the con-
tract. First, through Article 1(1)(a), the CISG applies when both parties to the contract
of sale have their places of business in different States that are both Contracting
States. For example, if a company with its place of business in Germany sells to one
with its place of business in the People’s Republic of China (PRC), the CISG applies
because both Germany and the PRC are Contracting States. Germany is bound by Ar-
ticle 1(1)(a). If however a French company (France being a Contracting State) enters
into a contract of sale with an Indonesian company (Indonesia is not a Contracting
State as of today), the CISG cannot apply through article 1(1)(a) since one of the par-
ties has its place of business in a non-contracting state.

Article 1(1)(b) of the CISG is not Binding in each Contracting State

2.2 Even if one or both parties do not have their place of business in a contracting
state the CISG might still apply “when the rules of private international law lead to the
application of the law of a Contracting State” (article 1(1)(b)). For example if French
and Indonesian parties choose French law as the law of the contract, the CISG would
normally apply because France is a contracting state notwithstanding the fact that In-
donesia is not a contracting state.

2.3 However, article 95 of the CISG states that “Any State may declare at the time of
the deposit of its instrument of ratification … that it will not be bound by [article
1(1)(b)].” If such a reservation is made, it means that in the case of a contract between
a company domiciled in a contracting state that made a reservation in accordance with
art. 95 and an Indonesian company e.g., the CISG will not apply. Therefore contracting
states that made the reservation of art. 95 (like for instance Singapore) will be bound
by the CISG only if both parties have their place of business in Contracting States (arti-
cle 1(1)(a)).

The parties may Exclude the CISG and Choose National Law (German Civil Code
or Commercial Code, French Code civil or Code de Commerce etc.)

2.4 Even if both parties are from contracting states they may still choose to be gov-
erned by Member States law to the exclusion of the CISG. Article 6 of the CISG allows
the parties to exclude the application of the CISG in whole or in part. The parties could
therefore draft a choice of law clause that chooses German law but excludes the CISG
entirely.

SECTION 3 RELATIONSHIP BETWEEN CISG AND MEMBER STATES LAW

3.1 Assuming that the CISG applies through article 1(1)(a), that the parties have not
excluded its application through article 6 and that they have chosen German or other
Member States law to complement the CISG, what will be the relationship between the
CISG and Member States law?

The CISG takes Precedence over German or other Member States Law

10.3.2 Article 7(2) CISG 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 con-
formity with the law applicable by virtue of the rules of private international
law”. Therefore when it applies, the CISG takes precedence over the national
law. Therefore if both parties are from contracting states, the CISG will take prece-

2
dence over Member States law. But the CISG is also part of national law and if the par-
ties want to exclude the application of the CISG they should do so explicitly (for exam-
ple: “Legal relations existing in connection with this contract shall be governed by Ger-
man substantive law, to the exclusion of the United Nations Convention on Contracts
for the International Sale of Goods (CISG).”

3.3 For example, the rule of the CISG that a contract is formed only when an accep-
tance is received by the offeror (article 18(2) CISG) will apply and take precedence
over the rule of the Common Law Countries to the effect that in some circumstances
the contract is formed when the acceptance is mailed rather than when it is received.

The Principles of the CISG

3.4 Matters not explicitly settled in the CISG but which are generally governed by the
CISG will 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” (article 7(2) CISG). These principles therefore also
take precedence over Member States law in matters governed by the CISG (formation
of contracts and rights and obligations of the parties).

Member States Law is the Residual Law for Matters not Governed by the CISG

3.5 Matters not settled by the CISG or its principles and matters not governed by the
CISG (issues other than the formation of the contract and the rights and obligations of
the parties) are to be settled ‘in conformity with the law applicable by virtue of the rules
of private international law” (article 7(2) CISG). The residual law will therefore be na-
tional law when it is the law chosen by the parties or is otherwise the applicable law.

3.6 For example the CISG does not govern “the effect which the contract may have
on the property in the goods sold” (article 4(b)) and therefore does not govern the pass-
ing of title in the goods (though the CISG does govern the passing of risk in articles 66
to 70). The German Civil Code (para. 929 “Bürgerliches Gesetzbuch”) and the German
law generally will therefore govern the passing of title if the good is sold in Ger-
many. The rights of third parties in the goods or against the buyer and seller are neither
governed by the CISG (the CISG only provides a warranty by the seller against third-
party claims, see articles 41 and 42). Member States law will therefore fill in the gap.

National Public order takes Precedence over the CISG

3.7 The CISG “is not concerned with the validity of the contract or of any of its provi-
sions or of any usage” (article 4(a) CISG). Therefore a contract or the provisions of a
contract that would be against public policy under Member States law could be de-
clared invalid even if the contract is also governed by the CISG.

The CISG and Incoterms or the Common Law Terms

3.8 When the parties use an Incoterm such as “CIF Incoterms 2000” to settle stan-
dard matters regarding delivery, shipping, insurance etc. there will be no conflict with
the CISG. The Incoterm is integrated to the contract of sale either as part of that con-
tract by reference (an explicit exclusion of the CISG, see article 6) or as a usage of
trade (article 9(2)) and therefore it prevails over the CISG.

3.9 In order to avoid any doubt and misunderstanding, terms and clauses such as
“CIF” should always be denominated as “Incoterms 2000”.

3
4
SECTION 4 THE LAW LAID OUT BY THE CISG

Sphere of Application and General Provisions (art. 1 -13)

4.1 Part I of the CISG determines its sphere of application and introduces a few
general provisions. We have already mentioned articles 1 (when the CISG applies), 4
(scope of CISG) and 6 (parties may exclude the CISG). This part also determines the
kinds of sales that are not governed by the CISG (article 2) - the sale of ships and air-
crafts for example – and distinguishes between contracts of sale and contracts for the
manufacturing of goods or for the providing of services (article 3). It also states that the
consequences of a death caused by the goods are not governed by the CISG (article
5).

4.2 In interpreting the CISG, one must take into account its international character
and the need to promote uniformity and the observance of good faith (article 7(1)). The
convention however does not explicitly provide for a duty to act in good faith as would
be the case in civil law jurisdictions – it seems that good faith is limited to the interpre-
tation of the CISG, and does not even extend to the interpretation of the contract of
sale. The general provisions also determine a few other matters such as how state-
ments are to be interpreted (article 8), the role of customs and practices (article 9) etc.

The Formation of the Contract

4.3 Article 14 defines what constitutes an offer and suggests that a price is required
for an offer to be valid and therefore seems to require an agreement on a price for a
contract to be valid. This is quite similar to what is the case under German Civil
Law. Article 14 however may not be the final word on the matter as article 55 of the
CISG states that when, somehow, a contract is validly formed without “expressly or im-
plicitly fix[ing] or mak[ing] provision for determining the price”, the price would be the
price generally charged for such goods. This has been an area of continuing debate
and buyers and sellers would be well advised to fix the price or a way of determining
the price in their contract to avoid what appear to be some inconsistencies in the CISG
about the possibility of having a valid contract without a price being determined or de-
terminable.

4.4 The CISG also contains other rules on offer (articles 15, 16 and 17) and accep-
tance (articles 18 and 19), on deadlines for acceptance (article 20, 21 and 22), on
when the contract is formed (23 and 24) etc. It should be pointed out to common law
lawyers that offers may not be revoked if the offeror has set a time period for its accep-
tance (“this offer is open for 10 days”) (see article 16). In such cases the offer cannot
be revoked for the duration of the time period notwithstanding the fact that, under the
common law one would hold that the offeree has not provided any consideration for the
offer to be kept open – the CISG does not have a concept of consideration.

The Implementation of the Seller’s and the Buyer’s General Conditions of

Sale/Purchase

4.5 The CISG does not provide any express regulation as to this issue, which means
that this isue must be solved on the basis of articles 14 ff dealing with the formation of
the contract. As a rule, the party using such conditions must make them known to the
other party in each individual case, although the parties may of course agree to a dif-
ferent procedure such as to form certain conditions as the basis for all forthcoming

5
business transactions. The CISG does not indicate under which condition “knowledge”
is met, in particular whether it is sufficient that the general conditions are deposited with
a court or a chamber of commerce or that they are published in the internet. Also, the
party using such conditions must make it clear to the other party that its general condi-
tions shall be part of the contract which is usually done by an indication in the order re-
spectively in the order confirmation, of the kind that “all business transactions including
any future transactions shall be governed by the [included] general conditions”. Also,
the general conditions should always be in the same language as the contractual lan-
guage.

4.6 In many cases, both the seller and the buyer will refer to their individual general
conditions. This “battle of forms” is being solved differently under the national laws, yet
under the CISG, the solution must be taken from this law, in particular from article 19
CISG which suggests the “last-shot-rule”, meaning that the party which has last re-
ferred to its general conditions will “win the battle”. However, with hardly any court de-
cisions at hand, this issue will remain open for the time being.

The Rights and Obligations of the Parties

Obligations of the Seller

4.7 The obligations of the sellers are stated in very general terms at article 30: he
“must 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.” The transfer of
property is not further mentioned – it is not governed by the CISG but the delivery and
the legal warranties are further defined.

4.8 Article 31 states that if the contract (or a term of trade or a custom) does not
state where the goods are to be delivered, they will be delivered by being handed over
to the first carrier if the contract involves the carriage of goods; if not, by being made
available at the place of manufacturing if that place is know by the parties; and if not,
then at the place of business of the seller.

4.9 Article 32 defines the obligations of the seller, in some cases, to give notice of
the consignment of the goods, to insure the goods or to help in securing insurance for
the goods. These obligations are usually more precisely governed by the contract or
terms of trade such as the Incoterms and therefore article 32 rarely applies. The seller
must deliver the goods on the agreed date or during the agreed period, or in the ab-
sence of such a date, within a reasonable time (article 33). The buyer must also hand
over all the relevant documents (article 34).

4.10 The seller must also deliver goods that conform to the contract (a warranty of
conformity, article 35). They must normally be fit for ordinary use, or for a particular
purpose if that was made known to the seller and the buyer relied on the seller’s skill
(this by the way is inspired by the English Sale of Goods Act), or must conform to sam-
ples. Interestingly the packaging of the goods is made into an issue of conformity – the
goods are not conforming if they are not packed in a usual manner. The liability of the
seller is for any lack of conformity at the time of the passing of the risks (article 36) (the
CISG is not concerned with the passing of property/ownership). The seller must also
guarantee that the goods are free from any right or claims by third parties (articles 41
and 42). The buyer must give notice within a reasonable time to exercise a recourse
under these warranties and with respect to the warranty of conformity, must do so at
the latest within two years (articles 39 and 43).

6
Obligations of the Buyer

4.11 In general terms, the buyer “must pay the price for the goods and take delivery
of them as required by the contract and this Convention” (article 53). The CISG also
determines the place (article 57) and time (article 58) of payment and notes that the
payment is due without the seller having to request payment (article 59).

7
Remedies

4.12 The CISG distinguishes the remedies available to the buyer (articles 46-52)
those available to the seller (articles 61-65) and those available to the seller and buyer
(articles 71-78), a distinction that we will not closely adhere to in this presentation.

Suspension of Performance

4.13 The CISG adopts something close to the civil law exception (i.e. defence) for
non-performance called in the civil law tradition the “exceptio non adimpleti contractus”
– if you are not going to perform your obligation then I do not have to perform
mine. Article 71 states that under some conditions “a party may suspend the perform-
ance of his obligations if, after the conclusion of the contract, it becomes apparent that
the other party will not perform a substantial part of his obligations”.

Fixing an Additional Period of Time

4.14 The CISG describes as a remedy the fact that one of the parties “may fix an ad-
ditional period of time of reasonable length for performance by the [the other party] of
his obligations” (articles 47(1) and 63(1)) adopting to some extent the Nachfrist of
German Law. The advantage of this remedy lies in the fact that if the other party has
not performed at the end of the additional period, the aggrieved party is entitled to
avoid the contract without having to prove that the breach is fundamental (articles
49(1)(b) and 64(1)(b)).

Specific Performance

4.13 One of the differences between the common law and the civil law traditions is
that in the common law an aggrieved party is usually not entitled to specific perform-
ance, an equitable remedy that is not granted as of right. In the civil law tradition the
aggrieved party is usually entitled to specific performance, which may even include the
right to have the goods repaired for example. It might well be that the aggrieved party
in most cases will ask for damages rather than specific performance, and that in some
instances, it might be impossible to grant specific performance, but in principle in civil
law the party is entitled to the performance of what was promised.

4.14 The CISG reaches a compromise between the two traditions by first acknowl-
edging that the parties will be entitled to specific performance (articles 46 and 62) but
then stating that “a court is not bound to enter 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” (article 28). Therefore in common law jurisdictions,
the courts will not grant specific performance more generously than they would under
their own law.

Avoidance

4.15 It is here particularly important to remind the reader of the introductory nature of
this short exposé on the CISG – the CISG rules on avoidance would require a much
longer exposé.

4.16 The CISG is quite different from the common law when it comes to avoid-
ance. In most cases, a “fundamental breach” is required for the contract to be avoided
under the CISG and avoidance will never depend on whether one has breached a con-
dition or a warranty, as is still to some extent the case in the common law (s. 11(2) of

8
the Sale of Goods Act but see also s. 15A which somewhat modifies the traditional ap-
proach). The fundamental breach under the CISG is never defined by whether a term
of the contract was a condition or a warranty and is defined rather differently than the
meaning given to the same terms in the common law. The CISG states that “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” (article
25).

4.17 When the breach is fundamental, the parties are entitled to avoidance (article
49(1) and 64(1)). Avoidance can also be declared in some cases of anticipatory fun-
damental breach (article 72) and some other instances (for example articles 49(1)(b)
and 64(1)(b)). The effects of the avoidance are also detailed (articles 81-84).

Damages

4.18 In the CISG, the right to damages is dealt familiar to common law though it will
not be very unfamiliar to civil law either – the differences between the two traditions are
not fundamental when it comes to damages. Article 74 provides that “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 the light of the facts and matters of which he
then knew or ought to have known, as a possible consequence of the breach of con-
tract.”

Reduction in Price

4.19 Rather than damages, the buyer may ask for a reduction in price when the
goods are not conforming. This remedy is inspired by the actio quanti minoris of the
civil law tradition. Article 50 provides that “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.”

Other Provisions

4.20 There are many other provisions of the CISG which for lack of space will not be
mentioned in detail. These other provisions include:

• Passing of the risks (when not governed by the contract, a trade term or an In-
coterm) (articles 66-70)
• Interest on damages (article 78)
• Exemptions of liability (articles 79-80)
• Duty to preserve the goods (articles 85-88)

SECTION 5 WHERE TO FIND OUT MORE ON THE CISG

5.1 By far the best place to find more information in English on the CISG is at the
web site maintained by Pace University Law School
(http://www.cisg.law.pace.edu). The site is an exceptional source of information includ-

9
ing the text of the CISG in English and other official and unofficial versions, commen-
taries in articles and books on the convention many available online, summaries and
often full text of cases from around the world interpreting the CISG (many in transla-
tion).

5.2 The most comprehensive introductory books about the convention are:

• Peter Schlechtriem (ed.), Geoffrey Thomas (translator), Commentary on the UN

Convention on the International Sale of Goods (CISG), 2d ed. (Oxford ; New
York : Clarendon Press, 1998)
• John Honnold, Uniform law for international sales under the 1980 United Na-
tions convention, 3rd ed., (Cambridge, MA: Kluwer Law International, 1999)
• Peter Huber / Alistair Mullis, The CISG – A new textbook for students and prac-
titioners (sellier. European Law Publishers, 2007)

5.3 Germany (and German authors) and the CISG:

• Hans-Jörg Stadler, Internationale Lieferverträge. UN-Kaufrecht – CISG, 3. Aufl.,

2007
• Peter Schlechtriem, Ingeborg Schwenzer, Klaus Bacher, Kommentar zum Ein-
heitlichen UN - Kaufrecht – CISG, 4. Aufl., 2004
• Christoph Brunner, UN-Kaufrecht – CISG, Stämpfli 2004
• Schlechtriem, Internationales UN-Kaufrecht, 2. Aufl., 2003

SECTION 6 CONCLUSION

It is hoped that this short introduction to the CISG will be of use to lawyers and busi-
nesspersons in need of a quick overview of the CISG and of its application in the na-
tional context. I must however remind the reader that there is much more to say on the
CISG, and it is my hope that this short overview will only be used as a first step in any
research on the CISG.

December 2007

10