02. the cisg

The question

The previous sub-unit examined the sale of goods at the level of general principle, principles that hold broadly across the traditions yet differ in detail from one national law to another. For an international sale, in which seller and buyer are in different states, this divergence of national laws creates uncertainty: which state's law of sale governs, and what does it provide? The international community responded to this difficulty by creating a uniform law, and this sub-unit examines that instrument, the CISG, the United Nations Convention on Contracts for the International Sale of Goods of 1980. The question is what the CISG is, when it applies, what it provides, and how it fits within the harmonisation of commercial law examined in Course 1. The answer presents the leading example of the specific instruments through which the universal concepts of commercial law operate in practice.

What the CISG is and why it exists

The CISG is a multilateral treaty that establishes a uniform body of law for the international sale of goods, adopted in 1980 and now in force in a large number of states accounting for much of world trade. It is, in the terms of Course 1, a treaty that binds the states that ratify it and that, through their ratification, becomes part of the law those states apply to the international sales within its scope. The CISG is the foremost instrument of harmonised commercial law and the leading illustration of the pairing, introduced in the orientation unit, of a universal commercial concept, the sale of goods, with a specific instrument that governs it in international practice.

The reason for the CISG connects directly to the harmonisation examined in Course 1. Before the CISG, an international sale was governed by whichever national law the rules of private international law selected, so that the parties faced uncertainty as to the governing law and, once it was identified, the burden of mastering a foreign law of sale. The CISG addresses this difficulty by supplying a single law of sale that applies, by its own terms, to international sales connected with the contracting states, so that parties in different states may transact on a known and common legal basis. It reduces the cost that the diversity of national laws imposes on cross-border trade, the very purpose that the discussion of harmonisation in Course 1 identified, and it does so as binding hard law in the states that have adopted it, rather than as the soft law of a model or a set of principles.

Consider a seller in one contracting state and a buyer in another negotiating a sale. Without a uniform law, they must determine, by the rules of private international law, which national law of sale governs, and then each must understand that law, which may be foreign to one or both. With the CISG, a single law of sale applies of its own force to their transaction, known to both and designed for international sales, sparing them the uncertainty and the burden of a contest over the governing national law. The example shows the CISG supplying the common legal basis that international sales had previously lacked.

The CISG is therefore a multilateral treaty supplying a uniform law for the international sale of goods, the leading instrument of harmonised commercial law, which reduces the uncertainty and cost that the diversity of national sales laws imposed on cross-border trade by furnishing a single, common, and binding law for the international sale.

The sphere of application and the freedom to exclude

A uniform law must define precisely the transactions it governs, and the CISG does so through its sphere of application, the set of rules determining which contracts of sale fall within it. In broad terms, the CISG applies to contracts for the sale of goods between parties whose places of business are in different states, where those states are contracting parties to the convention, or where the rules of private international law lead to the law of a contracting state. The convention excludes certain sales from its scope, such as sales of goods bought for personal or household use and sales of particular categories of goods, so that it is, in the main, an instrument for commercial sales of ordinary goods across borders.

This definition connects to the reception of treaties examined in Course 1, for the CISG, where it applies, supplies the governing law of the sale in place of the national law that would otherwise apply. A feature of central importance, however, is that the CISG yields to the parties' autonomy: the parties to an international sale may, by their agreement, exclude the convention entirely or vary the effect of its provisions, choosing to have their contract governed by a national law instead or modifying the convention's rules to suit their dealing. This freedom to exclude reflects the party autonomy that the orientation unit identified as a central value of commercial law, and it means that the CISG operates as the default law for international sales within its sphere while leaving the parties free to displace it. Commercial parties accordingly attend, in drafting an international sale, to whether the CISG applies and whether they wish it to govern, and the convention's application is in this sense subject to the parties' choice.

Suppose two enterprises in different contracting states conclude a sale of commercial goods without addressing the governing law. The CISG applies of its own force, because the sale falls within its sphere of application and the parties have not excluded it. Were the parties instead to provide expressly that their contract is governed by a particular national law to the exclusion of the convention, that choice would prevail, and the CISG would not apply. The example shows the CISG governing by default within its sphere while yielding to the parties' contrary choice.

The sphere of application and the freedom to exclude therefore define the CISG's operation: it applies of its own force to international commercial sales connected with the contracting states, supplying the governing law by default, while the parties retain the autonomy to exclude or vary it, so that the convention governs unless and to the extent that the parties have chosen otherwise.

The substance: obligations, breach, and remedies

The CISG supplies a complete law for the sale within its scope, addressing the formation of the contract, the obligations of the parties, and the consequences of breach, and its substance both reflects and refines the general principles examined in the previous sub-unit. The convention provides for the formation of the contract through offer and acceptance, in terms broadly corresponding to the general law of formation, and it sets out the obligations of seller and buyer, the seller to deliver conforming goods and transfer the property, the buyer to take delivery and pay, in terms that develop the general sale obligations for the international context.

The convention's treatment of breach and remedies connects to the analysis of breach in the previous module, for the CISG adopts the concept of fundamental breach as the threshold for the most serious remedy. Under the CISG, the principal remedy of bringing the contract to an end is termed avoidance, and a party may avoid the contract for the other's fundamental breach, a breach that substantially deprives the innocent party of what it was entitled to expect under the contract. Short of fundamental breach, the convention provides remedies that keep the contract alive, including the right to require performance, the right to damages measured by a principle of compensation resembling the expectation measure and limited by foreseeability and mitigation, and, for the buyer, the right to require the seller to remedy non-conforming goods or to reduce the price. The convention also excuses a party from liability in damages where a failure to perform is due to an impediment beyond its control that it could not reasonably have foreseen or overcome, a provision corresponding to the excuse of performance examined in the previous module. The CISG thus supplies, in a single instrument, the law of formation, obligation, breach, and remedy for the international sale.

Imagine a seller under a CISG contract who delivers goods so defective that they are useless to the buyer for the purpose the contract contemplated. The non-conformity is a fundamental breach, substantially depriving the buyer of what it was entitled to expect, and the buyer may avoid the contract and claim damages. Had the non-conformity been less serious, the buyer could not avoid the contract, though it could claim damages, require the seller to remedy the defect, or reduce the price. The example shows the CISG calibrating its remedies to the seriousness of the breach, reserving avoidance for fundamental breach in the manner the general law of breach prescribes.

The substance of the CISG is therefore a complete law of the international sale, governing formation, the obligations of the parties, and the consequences of breach, adopting fundamental breach as the threshold for avoidance and providing a graduated set of remedies that reflects and refines the general principles of contract and sale examined earlier in this course.

The CISG and the harmonisation of commercial law

The CISG is best understood, finally, as part of the larger project of the harmonisation of commercial law examined in Course 1, and its place in that project illuminates both its achievement and its limits. The convention is the product of the international effort to reduce the legal friction of cross-border trade by replacing the diversity of national laws with uniform instruments, and it stands alongside the other products of that effort, the model laws, the uniform principles, and the standardised terms, as a principal means by which the law of international commerce has been made more uniform.

The CISG's place in this project connects it to the spectrum of harmonising instruments described in Course 1, from binding conventions through model laws to soft-law principles. The CISG occupies the binding end of that spectrum, as a convention that becomes the law of the sale in the states that adopt it, and it is complemented by softer instruments addressed to matters it does not cover or to states that have not adopted it, such as the UNIDROIT Principles of International Commercial Contracts, a set of principles that parties may adopt and that courts and tribunals draw upon. The achievement of the CISG is a genuinely common law for a large share of international sales; its limits are that it does not bind every state, does not cover every question, and yields to the parties' choice, so that the harmonisation it effects is substantial but not complete. The reader who has understood the CISG has understood both the leading instrument of harmonised commercial law and the character of the harmonisation project as a whole.

Consider an enterprise trading across many states. In its sales among contracting states it enjoys the uniformity the CISG provides, transacting on a common legal basis; in its sales connected with non-contracting states, or on matters the convention does not address, it must still reckon with national laws and with the softer harmonising instruments. The enterprise experiences both the achievement of harmonisation, in the common law the CISG supplies, and its incompleteness, in the national divergence that remains. The example shows the CISG as a major but partial advance in the harmonisation of commercial law.

The CISG is therefore the leading instrument of the harmonisation of commercial law, a binding convention that supplies a common law for a large share of international sales, complemented by softer instruments and limited by the states and questions it does not reach, and it exemplifies both the achievement and the incompleteness of the project to make the law of international commerce uniform.