Zara Law Offices 111 John Street Suite 510 New York, NY Tel: Fax: THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (1980) [CISG]: THE APPLICABLE LAW FOR INTERNATIONAL SALES AGREMENTS 1

The U.N. Convention on Contracts for the International Sale of Goods (1980) [CISG] The CISG was adopted to respond to the absence of a unified system of legal rules applicable to international agreements covering the sale of goods The purpose of the Convention was to contribute to the removal of legal barriers in international trade and to promote its development The CISG was signed on April 11, 1980 in Vienna (Austria) and entered into force on January 1, 1988 To date, 70 countries representing 75% of all world trade are parties to the CISG including the US, France, Spain, Germany, Italy, and China. The United Kingdom and Turkey have not yet signed the CISG The CISG is a supplementary set of rules. This means that if a clause in a sales agreement diverges from the CISG’s provision on a particular issue, that clause supersedes the CISG 2

The Scope of the CISG The CISG governs the formation of an International contract for the sale of goods, as well as the rights and obligations of the buyer and seller. The CISG does not govern issues related to the validity of the contract, such as fraud. It also does not deal with issues of title to the goods. These questions are to be resolved by the respective laws of each contracting member. 3

When does the CISG apply? The CISG applies to contracts for sale of goods between parties whose places of business are in different States: –When the States are CISG contracting States; or –When the rules of private international law lead to the application of the law of a Contracting State (CISG Art. 1) The CISG is applicable regardless of the nationality of the parties or their civil or commercial character The CISG constitutes the default law for International sales contracts. In other words, the CISG constitutes the applicable law when the parties did not choose which set of laws should apply when they entered into their agreement. 4

When does the CISG does not apply? The CISG does not apply to : –Sales 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 –Sales by auction –Sales on execution or otherwise by authority of law –Sales of stocks, shares, investment securities, negotiable instruments or money –Sales of ships, vessels, hovercraft or aircraft; –Sales of electricity (CISG Art. 2) The CISG does not apply to sale of services The CISG does not apply to chains of International Sales Agreements. In other words, if a manufacturer sells the goods to a distributor who sells it subsequently to a final customer. The CISG will not govern the relationship between the manufacturer and the final customer 5

The CISG does not apply to agreements for the supply of goods to be manufactured or produced if the person who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production (CISG Art. 3-1) The CISG does not apply to agreements in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services (CISG Art. 3-2) In order to determine whether or not the preponderant obligation of the party who delivers the goods consists in the supply of labor or other services, the parties need to quantify the respective values of the obligations If for instance a Sales Agreement provides that an engine manufacturer’s obligations consist in manufacturing the engines and providing training to the Buyer’s staff, in order to categorize the agreement, the parties will need to determine the respective values of the engines’ production and of the staff’s training. The agreement will be considered as subject to the CISG only if the training does not constitute a preponderant part of the manufacturer’s obligations 6 Sales Agreements and similar agreements

Form and Evidence of Sales Agreements (CISG Art. 11) Unlike the UCC, the CISG was purported to satisfy the needs of international businessman and to facilitate International Trade Therefore, the CISG does not require the Sales Agreement to be concluded in nor evidenced in writing regardless of the sale amount A Sales Agreement may be proved by any means including witnesses 7

The formation of the Sales Agreement 8

Under the CISG, a proposal for concluding a Sales Agreement addressed to one or more specific persons constitutes an offer if: –It is sufficiently definite, and –It indicates the intention of the offeror to be bound in case of acceptance (CISG Art. 14) A proposal is deemed “sufficiently definite”, to constitute an offer, if it indicates the goods and expressly or implicitly fixes, or makes provision for determining, the quantity and the price. However, even if it is not the case, Article 55 of the CISG provides that a valid Sales Agreement can nevertheless be formed; the parties will be in such case considered to have impliedly made reference to the price generally charged at the time of the conclusion of the agreement for such goods sold under comparable circumstances in the trade concerned Unless the contrary is clearly indicated by the offeror, a proposal addressed to the public is to be considered as an invitation to deal (CISG Art. 14-2) 9

Withdrawal and Revocation of the Offer An offer becomes effective when it reaches the offeree (CISG Art. 15-1) An offer may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer (CISG Art. 15-2) Until a contract is concluded, an offer may be revoked if the revocation reaches the offeree before he has sent an acceptance (CISG Art. 16) However, an offer cannot be revoked: –If it indicates that it is irrevocable, including when it states a fixed time for acceptance; or –If the offeree relying on the offer acted upon it and if it was not unreasonable for him to act in such manner (CISG Art. 16-2) 10

Terms of the Acceptance (CISG art. 19) A reply to an offer which contains additions, limitations or other modifications is to be considered a rejection of the offer and constitutes a counter-offer. This rule is commonly called the “Last Shot Theory” (CISG Art. 19-1) However, a reply to an offer which contains additional or different terms that do not materially alter the terms of the offer constitutes an acceptance: –Except if the offeror orally or in writing notifies his objections to the discrepancies or dispatches –If he does not so object, the modifications contained in the acceptance will bind the Buyer and will be part of the agreement (CISG Art. 19-2) The CISG specifies that additional or different terms relating 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 relating to the settlement of disputes are considered to materially alter the terms of the offer (CISG Art. 19-3) 11

Seller’s Obligations The Seller must: –Deliver the goods –Hand over any relating documents –Transfer the property in the goods –Deliver goods that conform to the Sales Agreement’s provisions –Deliver Goods free from any third party claim 12

Delivery of the goods and handing over of documents The Seller must deliver the goods on the date the parties agreed to if any, or before the expiration of a period of time agreed upon if any, or alternatively within a reasonable time after the conclusion of the Sales Agreement (CISG Art. 33) In case the parties were silent about the place of delivery of the goods: –The Seller must deliver the goods to the first carrier in case of carriage; or –When the goods are to be manufactured or produced, by placing the goods at Buyer’s disposal in the place where the parties had known the goods would have been at the time of the conclusion of the contract, or –In other cases, by placing the goods at Buyer’s disposal at Seller’s place of Business at the time of the conclusion of the contract (CISG Art. 31) If the Seller has the obligation to hand over documents relating to the goods, it must do so at the time and place and in the form required by the Sales Agreement (CISG Art. 34) 13

Passing of Risks The CISG provides that the risks pass to the Buyer at the time of the shipment Unless a loss or damage to the goods is imputable to the Seller, after the risks have passed, the Buyer may not invoke such loss or damage after the passing of risks, in order to discharge itself from its obligation to pay the price (CISG Art. 66) When the sale involves a carriage, the risks pass to the Buyer when the goods are handed over to the first carrier (CISG Art. 67) 14

Conformity of the Goods (CISG Art. 35) The Seller must deliver goods which are of the quantity, quality and description required by the Sales Agreement and which are contained or packaged in the manner required therein Unless otherwise stipulated in the Sales Agreement, the goods, in order to conform to the Sales Agreement, have to: –Be fit for the purposes for which goods of the same description would ordinarily be used –Be fit for any particular purpose made known to the Seller at the time of the conclusion of the Sales Agreement –Correspond to the samples or models the Seller handed over to the Buyer –Be contained or packaged in the manner usual for such goods 15

Conformity of the Goods - 2 The Seller is not liable for any lack of conformity of the goods if at the time of the conclusion of the Sales Agreement, the Buyer knew or could not have been unaware of such lack of conformity (CISG Art. 35-3) The Seller is liable for any lack of conformity which becomes apparent after the passing of risks if such lack of conformity existed before that time (CISG 36-1) 16 The Seller is also liable for any lack of conformity which occurs after the passing of risks and which is due to a breach of any of its obligations (CISG 36-2)

Buyer’s inspection of the goods The Buyer as soon as practicable must examine the goods, or cause them to be examined (CISG Art. 38) If the Sales Agreement involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination (CISG Art. 38-2). However, since the risks had passed to the Buyer at the time Seller delivered them to the first carrier, Buyer might face evidence issues in its attempt to prove that the goods were damaged or lost before Seller’s delivery to the carrier The Buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the Seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it (CISG Art. 39-1) The CISG provides that, unless stipulated otherwise, this reasonable time shall not exceed two (2) years from the date on which the good were handed over to the Buyer (CISG Art. 39-2) 17

Buyer’s Obligations The Buyer must pay the price for the goods as required by the Sales Agreement The Buyer must take delivery of the goods as required by the Sales Agreement 18

Buyer’s Obligation to Remit Payment The Buyer must pay the price for the goods and take delivery of them as required by the Sales Agreement and the CISG (CISG Art. 53) When the parties did not specify the place where Buyer’s payment had to be tendered, Buyer must pay: ▫ At the Seller's place of business; or ▫ If the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place (CISG Art. 57) 19 The Buyer must remit the price agreed upon in the Sales Agreement on the due date without the need for any request or compliance with any formality on the part of the Seller (CISG Art. 59)

Buyer’s Obligation to Take Delivery The Buyer's obligation to take delivery consists of: –Doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and –Taking over the goods 20

Remedies for Breach of Contract by the Buyer The Seller may provide the Buyer a reasonable time extension to perform its obligations (CISG Art. 63) The Seller may force the Buyer to perform its obligations, including payment of the price and taking of delivery (CISG Art.62) The Seller may declare the Sales Agreement avoided: –If the failure by the Buyer to perform any of its obligations amounts to a fundamental breach of Sales Agreement; or –If the Buyer fails to perform its obligations after the expiration of the additional period of time granted by the Seller (CISG Art. 64) 21

Parties’ Anticipatory Breach Any party may suspend the performance of its obligations if it becomes apparent that the other party will fail to perform a substantial part of its obligations as a result of: –A serious deficiency in its ability to perform or in its creditworthiness; or –Its conduct in preparing to perform or in performing the contract (CISG Art. 71) 22 A party suspending performance, must immediately give notice of the suspension to the other party The party suspending performance must carry on the performance of its obligations if the failing party provides adequate assurance of its future performance (CISG Art. 71-3)

Repudiation of the Sales Agreement and Damages If it is clear that one of the parties will commit a fundamental breach of the Sales Agreement, the other party may declare the contract avoided (CISG Art. 72) The party who suffered from the breach of the Sales Agreement is entitled to damages. Such damages may not exceed the loss reasonably foreseeable at the time of the conclusion of the contract (CISG Art. 74) A party who relies on a breach of a Sales Agreement must take any reasonable measure to attempt to mitigate the loss resulting from the breach. If it fails to do so, the damages granted by the Court may be reduced in the amount by which the loss should have been mitigated (CISG Art. 77) 23

Exemption of Liability (CISG Art. 79) If a party’s non-performance of any of its obligations is due to a Force Majeure, such party will be exempted from its liability. It will nevertheless have to prove that its failure was due to an impediment beyond its control which was not reasonably foreseeable at the time of the conclusion of the contract or impossible to avoid or overcome A party who engaged a third person in order to perform its contractual obligations cannot generally invoke the third party’s failure to perform as to preclude from its own liability The failing party must give notice to the other party of the impediment and its effect on its ability to perform 24

Conclusion Since the CISG allows you to opt out of or modify its provisions, it enables you to draft a unique Sales Agreement responsive to your specific needs The provisions of the CISG will allow you to prove your rights under an oral agreement, and enforce it against the Buyer Being a neutral set of rules, the CISG will prevent you or your Buyer from benefiting from the application of your respective national laws Choosing the CISG will provide you with a single set of rules applicable to all your foreign sales Because the CISG was designed to promote international trade, it was designed to be a flexible legal instrument, allowing each party to protect their interests and conduct business efficiently, without excessive restraints 25