a. Sale

aa. Definition

The CISG does not contain a definition of what a sales contract is. Yet, such definition can be derived from the main obligations the CISG puts on the seller and the buyer respectively. According to Art. 30:

The seller 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.

According to Art. 53:

The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

The main duties of the seller are therefore delivery of the goods and transfer of property in them while the buyer has to pay the price and take delivery of the goods. In short a sales contract is thus an exchange of goods and money.

According to the prevailing opinion the mere exchange of goods in the form of a barter contract does not fall within the scope of the CISG. Yet, if two parties exchange goods and money in two distinct transactions and one party is the seller in the one transaction while the other party is the seller in the second transaction both transactions can be governed by the CISG.

In case of doubt, two factors are decisive. First, the contract in question itself has to create the characteristic obligations of a sales contract. This is e.g. not the case with regard to mere distribution contracts since they just set the framework for the actual sales contracts that are concluded separately. Second, the outcome of the transaction in question has to be the transfer of the good from the seller to the buyer either in substance or at least in economic value (disputed).

 

bb. Contracts for Goods to be Manufactured

The CISG contains in its Art. 3(1) specific provisions regarding the sale of goods to be manufactured:

(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

The idea behind Art. 3(1) is that it should not make a difference whether the seller actually manufactures the goods itself or is just an intermediary seller. In both cases the good is transferred from the seller to the buyer. Furthermore, it is irrelevant whether the goods are generic goods or goods specifically customized for the buyer’s needs.

In contrast to Art. 3(2), with regard to goods to be manufactured it is irrelevant whether the manufacturing itself is preponderant compared to the value of the raw materials. Yet, if one party transfers the raw materials to manufacture certain goods to the other party and these goods are later transferred back to the first party, the characteristic performance is not delivery and transfer of property in the goods but merely the manufacturing process. Consequently, such contracts do not fall within the scope of the CISG.

Materials in this regard have to be corporeal. Immaterial contributions such as plans, know-how, licenses etc. do not affect the classification of the underlying agreement as sales contract. The contribution furthermore has to be “substantial”. Whether a contribution is substantial is mainly determined by its value compared to the overall value of raw materials at the time of contract conclusion; generally 50% and more is considered substantial. But even if the value of the contribution is less than 50% of the overall value of the raw materials it can, by way of exception, be so essential for the final product that it still is considered substantial.

 

cc. Mixed Contracts With Service Elements

Art. 3(2) deals with mixed contracts containing sales elements as well as service elements:

(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

According to this provision, the fact that a contract contains sales elements and service elements only excludes the application of the CISG, if the service elements amount to the preponderant part of the obligations. The application of Art. 3(2) is, however, only necessary where the sales and service obligations are part of a single inseparable contract. Where these obligations can be separated from each other the CISG applies to the sales part whereas the applicable domestic law governs the service part. The question whether or not the obligations are separable is answered by the CISG, i.e. by its Art. 8.

Which part of the obligations is preponderant is again primarily determined by a comparison of their economic values at the time of contract conclusion. Of course, the parties are free to determine the values of the obligations different from the objective economic values. To exclude the application of the CISG, the value of the service part must significantly exceed 50% of the overall value of the transaction.

 

dd. Excluded Transactions

Art. 2 lit. a-c exclude certain sales transactions from the CISG:

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;

[…]

Particularly, according to Art. 2 lit. a consumer transactions are mainly excluded from the CISG. Yet, consumer sales contracts can be covered if the seller was not and did not have to be aware of the goods’ purpose “for personal, family or household use”. Such situations may result in difficult to resolve conflicts between the CISG and consumer protection law.

The exclusion of auctions in Art. 2 lit. b is based on historic reasons. Historically, auctions were held in one place and were governed by specific laws and customs of that place. Furthermore, in a traditional auction the seller often did not even know the buyer. Consequently, the exception in Art. 2 lit. b has to be applied with care to modern transactions. Decisive should not be terminological but functional criteria. Not excluded from the CISG are e.g. awards in international public procurement bidding or online auctions.

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Last modified: Wednesday, 21 September 2016, 10:35 AM