UN Sales Law (CISG)

In international trade in goods, it is often not only the relevant national law that applies, but, depending on the circumstances, UN sales law as well. The United Nations Convention on Contracts for the International Sale of Goods, or CISG for short, may apply automatically, even without any express agreement or contractual stipulation to that effect. The following article provides an overview of its scope of application, the formation of contracts, the parties' obligations, remedies for breach of contract, the passing of risk, and several practically significant particularities.

Table of contents

• When does the CISG apply?
• What does the CISG govern?
• How is a contract of sale concluded under the CISG?
• What obligations do the buyer and seller have?
• What happens in the event of a breach of contract, and which remedies may apply?
• When and where does the passing of risk occur under the CISG?
• What other particular features should be noted?

When does the CISG apply?

The personal scope of application of the CISG is opened, under Article 1 (1) (a) CISG, for contracts of sale between parties whose places of business are in different States, provided those States have ratified the CISG. These countries include Germany, Austria and Switzerland as well as Türkiye (for a complete overview, see https://iicl.law.pace.edu/cisg/page/cisg-list-contracting-states). In addition, under Article 1 (1) (b) CISG, the Convention may also apply where the rules of private international law lead to the application of the law of a Contracting State, even if one party has its place of business in a non-Contracting State.

In terms of its substantive scope, the CISG applies where the subject matter of the contract is the sale of goods. ‘Goods’ for these purposes means exclusively movable, tangible items not immovable property or rights.

Under Article 2 CISG, the CISG does not apply to, among other things, the sale of goods bought for personal, family, or household use (consumer sales), sales by auction or on execution or otherwise by authority of law, or the sale of stocks, shares, investment securities, negotiable instruments or money, of ships, vessels, aircraft, or of electricity. Contracts in which the preponderant part of the supplier's obligations consists in the supply of labor or other services are likewise not covered, under Article 3 CISG.

It is important to understand that, as a ratified UN treaty, the CISG forms part of the law of the Member State concerned. Where the parties have, for example, agreed on German law, this means that the CISG applies as well. The parties may, however, exclude the application of the CISG entirely, or derogate from individual provisions of it (Article 6 CISG). Such an exclusion must, however, be express and sufficiently specific.

What does the CISG govern?

The content of the CISG is limited to the conclusion of contracts of sale of this kind and the rights and obligations of the contracting parties arising from them. Neither the validity of the contract or of any of its provisions, nor the effect the contract may have on the property (ownership) in the goods sold (Article 4 CISG), form part of the CISG. These questions continue to be assessed under whichever national law applies. The seller's liability for personal injury is likewise expressly excluded (Article 5 CISG) and remains a matter for national tort and product liability law.

How is a contract of sale concluded under the CISG?

For the conclusion of the contract, the CISG follows the classic model of two corresponding declarations of intent, offer and acceptance (Articles 14–24 CISG). From an objective standpoint, an offer must be sufficiently definite in that it expressly or implicitly indicates the goods, the quantity, and the price. From a subjective standpoint, the offer must show the offeror's intention to be bound. Acceptance may be made by a statement or by conduct indicating assent; mere silence does not, as a rule, suffice (Article 18 CISG). As to timing, the contract is concluded at the moment the acceptance reaches the offeror (Article 23 CISG).

A reply to an offer which purports to be an acceptance but contains additions, limitations, or other modifications is treated as a rejection of the offer and, at the same time, as a new counteroffer (Article 19 (1) CISG). Where the modifications concern only immaterial points, however, the contract is concluded on the terms of the offer with the modifications contained in the acceptance, unless the offeror objects without undue delay (Article 19 (2) CISG). Article 19 (3) CISG lists a number of matters that are, in case of doubt, considered material such as price, payment, the quality and quantity of the goods, the place and time of delivery, the extent of liability, and the settlement of disputes (essentialia negotii). In practice, this frequently gives rise to interpretive difficulties particularly where the parties' standard terms and conditions conflict (the ‘battle of forms’) which can be avoided from the outset through a clear contractual provision.

What obligations do the buyer and seller have?

Under Article 30 CISG, the seller is obliged to deliver the goods at the time and place agreed, to hand over any documents, and to transfer property in the goods. Delivery includes ensuring that the goods conform with the contract as to quantity, quality, description, and packaging (Article 35 CISG). In particular, the goods must objectively be fit for their ordinary purpose or, where the seller had actual knowledge of it, fit for a particular purpose. The place and time of delivery are governed primarily by the contractual agreement and, failing that, by the default rules in Articles 31 and 33 CISG.

The buyer, in turn, is obliged to pay the price (Article 54 CISG) and to take delivery of the goods (Article 60 CISG). In addition, under Articles 38 et seq. CISG, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances and must give the seller notice of any lack of conformity within a reasonable time after he has become aware of it or should have become aware of it, and the notice must describe the nature of the defect with sufficient precision. Failing this, the buyer generally loses all rights arising from the lack of conformity, and in any event if notice is not given within two years of the date on which the goods were actually handed over, unless this time limit is inconsistent with a contractual period of guarantee. However, pursuant to Article 40 CISG, the seller may not invoke a failure to examine the goods or to give timely notice where the lack of conformity relates to facts of which the seller knew or could not have been unaware and which it did not disclose to the buyer.

This rule applies irrespective of whether the buyer is a merchant.

What happens in the event of a breach of contract, and which remedies may apply?

The CISG does not distinguish between different types of breach of duty, but instead uses a single, unified concept of breach of contract, to which a graduated system of remedies attaches.

Requirement of performance (cure): Where the goods do not conform with the contract, the buyer may, in principle, require performance under Article 46 CISG in the form of repair or delivery of substitute goods. As a rule, repair must be requested first, in order to give the seller a further opportunity to perform correctly, unless this would be unreasonable having regard to all the circumstances (Article 46 (3) CISG). Delivery of substitute goods may only be required as a primary remedy where the lack of conformity constitutes a fundamental breach of contract (Article 46 (2) CISG). Under the legal definition in Article 25 CISG, a breach of contract is fundamental if it substantially deprives the other party of what it was 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.

Avoidance of the contract: The buyer may declare the contract avoided where either a fundamental breach of contract exists (Article 49 (1) (a) CISG) or the seller fails to deliver the goods within an additional period of reasonable length fixed by the buyer (Articles 47, 49 (1) (b) CISG). This mechanism of fixing an additional period for performance is a central, practical tool under the CISG. It allows the buyer to withdraw from the contract without having to prove, in the event of a dispute, that the breach was fundamental which is often difficult to assess. Correspondingly, the seller has equivalent rights where the buyer is in default of payment or fails to take delivery (Articles 61–64 CISG).

Damages: A claim for damages (Articles 74–77 CISG) may be pursued alongside other remedies and covers the positive performance interest, including loss of profit. It is, however, limited by the principle of foreseeability. Only losses which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, as a possible consequence of the breach, are recoverable (Article 74 CISG). The aggrieved party is, in addition, subject to a duty to mitigate its loss (Article 77 CISG).

Reduction of price: In addition, the buyer has available, with the reduction of price (Article 50 CISG), an independent remedy that does not depend on fault, and which reduces the price in the proportion that the value the goods actually delivered had at the time of delivery bears to the value conforming goods would have had at that time.

Exemption from liability: Under Article 79 CISG, a party is exempt from liability for a failure to perform if that failure is due to an impediment beyond its control which it could not reasonably have been expected to take into account at the time of the conclusion of the contract, and the consequences of which it could not reasonably have been expected to avoid or overcome. 

When and where does the passing of risk occur under the CISG?

Articles 66–70 CISG govern the point at which the risk of accidental loss of, or accidental damage to, the goods passes from the seller to the buyer. Where the contract of sale involves carriage of the goods and the seller is not obliged to hand them over at a particular place, the risk generally passes to the buyer upon handing the goods over to the first carrier (Article 67 CISG). Where no carriage is involved, risk passes once the buyer takes over the goods or, in the event of a failure to take delivery at the appropriate time, when the goods are placed at the buyer's disposal (Article 69 CISG). For the sale of goods in transit, Article 68 CISG contains a special rule. Here, the riskpasses to the buyer at the time the contract is concluded, unless the seller knew, or should have known at the time of the conclusion of the contract, that the goods had been destroyed or damaged and concealed this fact from the buyer (Article 68 CISG).

In practice, these statutory default rules are frequently displaced, in international contracts for the sale of goods, by the agreement of Incoterms clauses (e.g. FOB, CIF, DAP), which provide for a more detailed, clearer, and more individually tailored allocation of the passing of risk, costs, and obligations.

What other particular features should be noted?

Exclusion of liability: Since the CISG does not, in any event, apply to consumer contracts (cf. Article 2 (a) CISG), clauses limiting or excluding liability as between the parties are, in principle, permissible within the CISG's scope of application, by virtue of the freedom of contract under Article 6 CISG. Because the CISG does not itself affect the validity of contractual clauses (Article 4 (a) CISG), the question whether a particular clause is valid (for example, on the grounds that it infringes good faith or the requirements applicable to standard terms and conditions) remains a matter for whichever national law applies.

Limitation period: The CISG does not contain its own rules on limitation periods. Limitation is therefore governed by the national law applicable to the contract under the rules of private international law. Admittedly, a separate set of rules exists in the form of the UN Convention on the Limitation Period in the International Sale of Goods of 14 June 1974 (New York Limitation Convention), as amended by the Vienna Protocol of 11 April 1980, which provides for a uniform limitation period of four years. However, Germany, Austria, Switzerland and Türkiye have not acceded to this Convention. As between these States, limitation is therefore governed by the applicable national law.

Form requirements: Under Article 11 CISG, a contract of sale is not subject to any requirement as to form. An oral agreement is therefore conceivable and valid. Contracting States whose own law requires contracts of sale to be in writing may declare, under Article 96 CISG, that this freedom from form requirements does not apply to parties with a place of business in their territory. The parties remain free, however, to agree in the contract itself on a written-form requirement (Article 29 (2) CISG).