International sale of goods: the Vienna Convention, formation and performance

1. Background

National sales laws differ sharply: the common law (in India, the Sale of Goods Act, 1930) and the civil law codes take different views of offer and acceptance, conformity and remedies. Earlier efforts under the Hague Conventions of 1964 (ULIS and ULF) attracted few ratifications. UNCITRAL prepared a new text, adopted at a diplomatic conference in Vienna on 11 April 1980: the United Nations Convention on Contracts for the International Sale of Goods (CISG). It entered into force on 1 January 1988 and now has more than ninety contracting States, including China, the United States, most of the European Union, Japan, Russia and Brazil. The United Kingdom and India are not parties.

2. Structure

• Part I: sphere of application and general provisions (Articles 1 to 13).
• Part II: formation of the contract (Articles 14 to 24).
• Part III: sale of goods — obligations of seller and buyer, remedies, risk, damages, exemption (Articles 25 to 88).
• Part IV: final provisions, including reservations (Articles 89 to 101).

3. Sphere of application

• Article 1(1): the Convention applies to contracts of sale of goods between parties whose places of business are in different States (a) when both States are contracting States, or (b) when the rules of private international law lead to the law of a contracting State. Nationality is irrelevant (Article 1(3)). Some States excluded (b) by an Article 95 reservation.
• Exclusions (Article 2): goods bought for personal, family or household use; auction sales; sales on execution; stocks, shares, negotiable instruments and money; ships, vessels, hovercraft and aircraft; and electricity.
• Mixed contracts (Article 3): goods to be manufactured are included unless the buyer supplies a substantial part of the materials; contracts where the preponderant part is labour or services are excluded.
• Matters not covered (Article 4): validity of the contract and the effect on property in the goods; and liability for death or personal injury caused by the goods (Article 5).
• Party autonomy (Article 6): the parties may exclude the Convention or derogate from or vary its provisions.

4. General provisions

• Interpretation (Article 7): regard to the Convention's international character, uniformity and the observance of good faith in international trade; gaps are filled by its general principles, and failing them by the applicable law.
• Intent (Article 8): statements are interpreted by a party's intent where the other knew it, otherwise by the understanding of a reasonable person, with regard to negotiations, practices and usages.
• Usages (Article 9): parties are bound by agreed usages and established practices, and by widely known international usages such as the Incoterms.
• No form (Article 11): a contract need not be in writing and may be proved by any means, including witnesses, unless a State has made an Article 96 reservation.

5. Formation

• Offer (Article 14): a proposal addressed to specific persons, sufficiently definite (indicating the goods and fixing or providing for quantity and price), and indicating an intention to be bound. A proposal to the public is only an invitation unless clearly indicated.
• Effect and withdrawal (Article 15): effective when it reaches the offeree; may be withdrawn if the withdrawal reaches the offeree before or with the offer.
• Revocation (Article 16): an offer may be revoked until the offeree dispatches an acceptance, but not if it states a fixed time or otherwise indicates it is irrevocable, or if the offeree reasonably relied on it as irrevocable. This is a compromise between the common law (offer freely revocable) and civil law (firm offer).
• Acceptance (Article 18): a statement or conduct indicating assent. Silence or inactivity does not in itself amount to acceptance. Acceptance becomes effective when it reaches the offeror (the receipt rule, not the postal rule), within the time fixed or a reasonable time.
• Modified acceptance (Article 19): a reply with additions or modifications is a rejection and counter-offer; but if the different terms do not materially alter the offer, it is an acceptance unless the offeror objects without delay. Terms on price, payment, quality and quantity, place and time of delivery, liability and dispute settlement are material.
• Late acceptance (Article 21) and withdrawal of acceptance (Article 22).
• Conclusion (Article 23): the contract is concluded when the acceptance becomes effective.

6. Obligations of the seller (Articles 30 to 44)

Article 30: the seller must deliver the goods, hand over any documents relating to them and transfer the property, as required by the contract and the Convention.

• Place of delivery (Article 31): if the contract involves carriage, by handing the goods to the first carrier; otherwise by placing them at the buyer's disposal at a particular place or at the seller's place of business.
• Carriage and insurance (Article 32): notice of consignment, appropriate contracts of carriage where the seller is bound to arrange it, and information for the buyer to insure.
• Time (Article 33): on the fixed date, within the fixed period, or within a reasonable time.
• Documents (Article 34): at the time, place and form required; the seller may cure defects before that time if this causes no unreasonable inconvenience.
• Conformity (Article 35): goods of the quantity, quality and description required and contained or packaged as required. Unless otherwise agreed, goods must be (a) fit for their ordinary purposes; (b) fit for any particular purpose made known to the seller, unless the buyer did not rely on the seller's skill; (c) possess the qualities of a sample or model; and (d) be contained or packaged in the usual manner or adequately to preserve and protect them.
• Relevant time (Article 36): conformity is judged when risk passes.
• Third-party rights (Articles 41 and 42): goods free from any right or claim of a third party, and from intellectual property claims under the law of the State of resale or use contemplated, or the buyer's State.

7. Obligations of the buyer (Articles 53 to 60)

Article 53: the buyer must pay the price and take delivery. Payment includes steps to enable payment such as opening a letter of credit (Article 54); the price is payable at the seller's place of business or where documents are handed over (Article 57), when the goods or documents are placed at the buyer's disposal (Article 58), without any request (Article 59). Taking delivery means doing all acts reasonably expected to enable the seller to deliver and taking over the goods (Article 60).

8. Passing of risk (Articles 66 to 70)

Loss after risk passes does not discharge the buyer from paying (Article 66). Where the contract involves carriage, risk passes when the goods are handed to the first carrier (Article 67); for goods sold in transit, from the conclusion of the contract (Article 68); otherwise when the buyer takes over the goods or they are placed at his disposal (Article 69). Goods must be identified to the contract. In practice the parties usually settle risk by an Incoterm.

9. India and the Convention

India has not ratified the CISG. A contract between an Indian seller and, say, a German buyer is governed by the law the parties choose or, failing choice, by the law with which it is most closely connected. If that is German law, the Convention applies through Article 1(1)(b) as part of German law. If Indian law governs, the Sale of Goods Act, 1930 applies, unless the parties have expressly chosen the Convention as the governing rules. The Convention is also used in international arbitration as a statement of trade usage.

How this is examined

For “explain the Vienna Convention”: background and dates, application and exclusions, general principles, formation, obligations in outline, risk, and India's position. For “obligations of the seller”: Article 30, then delivery, documents, conformity (Article 35 in full), and third-party claims, followed by the buyer's remedies for breach of these obligations (see the note on acceptance and rejection of goods).