Article 1 CISG
(1)This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a)when the States are Contracting States; or
(b)when the rules of private international law lead to the application of the law of a Contracting State.
(2)The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.
(3)Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.
I.Overview
Article 1 CISG defines the sphere of application of the Convention. It is a unilateral conflict of laws rule stating that the CISG applies if either the parties to a sales contract have their places of business in different Contracting States (Art 1(1)(a)) and the parties were aware of that at the time of conclusion of the contract (Art 1(2)); or if the rules of private international law of the forum lead to the application of the law of a Contracting State (Art 1(1)(b)). The nationality of the parties and their civil or commercial character are irrelevant to the question of whether the CISG applies (Art 1(3)).
Article 1(1)(a) CISG is said to determine the applicability of the CISG âautonomouslyâ or âdirectlyâ. The term âautonomous or directâ indicates that the sphere of application is determined without resorting to the rules of private international law. It is the primary method established in the Convention which applies if the States in which the parties have their relevant place of business are Contracting States. If the requirement of both parties having their place of business in a Contracting State is not fulfilled, the question of whether the CISG applies is governed by Article (1)(1)(b), which acknowledges the application of conflict of laws rules. That is, the CISG will apply if the conflicts rule of the forum points to the application of the law of a Contracting State. Article 1 CISG determines the applicability of the CISG âobjectivelyâ, that is, absent a choice of law by the parties. The CISG may apply even if the requirements of Article 1 are not fulfilled but the parties have agreed on its application. Whether such a choice of law is valid is subject to the conflict of laws rules of the forum (see also Article 6 below).
Article 1 CISG is supplemented by Articles 91, 92, 94, 95, 99 and 100 CISG. Article 1 must further be read in conjunction with Articles 2 to 5. Whereas Articles 2 and 3 specify the type of contracts to which the CISG applies, Articles 4 and 5 delimitate the legal issues covered by the CISG.
II.Autonomous Application of the CISG (Arts 1(1)(a), (2) and (3) CISG)
According to Article 1(1)(a), the Convention applies if the parties have their place of business in different Contracting States and if the contract is about the sale of goods. These elements (Contracting States; internationality/place of business; contract of sale of goods) are explained as follows.
A.Contracting States
The CISG applies when, at the time of the conclusion of the contract, the parties have their relevant place of business in different Contracting States. This generally means that, at the time of the conclusion of the contract, the CISG must have been enacted in the corresponding States. Whether a country has become a Contracting State to the CISG can be ascertained by referring to the official website of the United Nations Commission on International Trade Law (UNCITRAL). The website lists all Contracting States and states the date of ratification of the CISG, as well as any reservations made by a Contracting State.1
As regards the intertemporal applicability of the CISG, Article 100 draws a distinction between the applicability of Part II and Part III of the Convention: the rules of formation of a contract (Part II) will apply when the offer is made on or after the date the Convention is enacted in accordance with Article 91. In contrast, Part III (Art 25 et seq) only applies if the contract is concluded on or after the date the Convention becomes effective in the Contracting State(s) concerned in accordance with Article 99(2) CISG.
Another reservation referring to Part II and Part III of the Convention can be found in Article 92 CISG: a State may declare that Part II or Part III of the CISG is not binding on it; in that case, it is not to be considered a Contracting State with regard to the Part(s) to which the reservation refers. Unlike Article 100, Article 92 is not concerned with the intertemporal sphere of application of the Convention; rather, it grants Contracting States the opportunity not to be bound by Part II and/or Part III of the CISG and to apply its domestic law instead.
The notion âContracting Stateâ can further be limited by way of Article 93: if a State declares that the Convention does not apply to certain of its territorial units, those units do not have the status of a Contracting State (Art 93(3)). So far, Canada is the only Contracting State which has made use of Article 93.
B.Place of Business in Different States
Article 1(1) CISG requires that the parties have their place of business in different Contracting States. The term âplace of businessâ has not been defined in the Convention, but it has been addressed in a number of court decisions and arbitral awards. The question is dealt with under Article 10 below.
For the purposes of Article 1 CISG, three elements must be emphasised. First, the partiesâ place of business must not both be in the same country. Article 1 expressly requires that the partiesâ place of business be âin different Statesâ. The requirement is further specified in Article 1(2), according to which the fact that the parties have their places of business in different States must be recognisable from an objective point of view. Article 1(2) lists three sources: the diversity of places should be apparent: (1) from the contract; (2) from any dealings between the parties; or (3) from any information disclosed by the parties that they have their places of business in different States.
Secondly, the reference to the partiesâ place of business in Article 1 makes it clear that the nationality of the parties is irrelevant to the applicability of the Convention. That is, even if the seller and the buyer have different nationalities, the CISG will not apply if the parties are domiciled in the same country. This is expressly stated in Article 1(3).
Finally, the term âplace of businessâ implies that the Convention applies to commercial transactions (business-to-business, B2B) only, to the exclusion of consumer contracts. This is expressly stated in Article 2(a) (for details, see below Art 2), but it is also inherent in the term âplace of businessâ. In this regard, Article 1(3) clarifies that the term âbusinessâ is to be defined autonomously and that any qualification of the parties or the contract as âcivilâ or âcommercialâ is irrelevant.
C.Contracts for the Sale of Goods
The CISG applies to âcontracts for the sale of goodsâ. The term has not been defined in the Convention. In case law, it has been circumscribed as a contract pursuant to which the seller is bound to deliver the goods and transfer the property in the goods sold and the buyer is obliged to pay the price and accept the goods.
âContracts for the sale of goodsâ require specification in two respects, as both the term âsales contractâ as well as the term âgoodsâ need to be defined. At this point, the focus is on the concept of âsales contractâ, as the definition of âgoodsâ will be discussed below under Article 3.
Sales contracts involve the delivery of goods in exchange for money. The prevailing opinion adheres to this strict definition. However, according to a minority view, the term âpriceâ used in Article 14(1), second sentence, and in Articles 53 and 55 CISG is not necessarily restricted to money. A broader understanding of the term âpriceâ would thus allow for the application of the CISG to countertrade (barter) agreements, whereby the parties would be treated as sellers with regard to the goods delivered by them and as buyers with regard to the goods they receive.
Another controversial question is whether the CISG applies to sales contracts with special financing agreements, such as hire purchase agreements or sale-and-lease-back contracts. In this respect, it has been convincingly argued that, where the parties ultimately aim at an acquisition of the goods by the buyerâas is often the case with hire purchase agreementsâthe contract should be governed by the CISG, even if it contains special financing conditions. For the question of whether repurchase obligations in leasing agreements are subject to the CISG, see C 1-1.
Finally, it must be determined whether the CISG applies to framework contracts, such as distribution agreements or franchise contracts. The question has been dealt with in a number of cases. See, in this respect, the cases C 1-2 and 1-3.
C 1-1
Bundesgerichtshof,
28 May 2014,
CISG-online 25132
[Facts]
The buyer (plaintiff) is a Belgium-based lessor in the recreational industry, the Munich-based seller (defendant) builds bowling alleys. In November 2004, the buyer bought 20 bowling alleys with equipment and concluded a lease contract with ABC GmbH. The contract concluded between the seller and the buyer was written in English and titled âEquipment Purchase and Repurchase Agreementâ. Paragraph F of said contract, titled âRepurchase agreementâ stated, inter alia:
â1. In the event the Client [ABC] does not exercise its purchase option under the Lease Agreement, or in the event of a termination of the Lease Agreement by F. [= plaintiff] due to a default by the Client, or a filing for bankruptcy by Client, or in the event that bankruptcy proceedings are commenced by, or petitions filed by or against Client, under any bankruptcy, administration, liquidation or dissolution procedure, and such proceedings are not withdrawn within seven (7) days, and on the written request of F. made within a reasonable time after any such event (at F. sole discretion) the seller [= defendant] shall purchase the Equipment from F., as is, where is, at the Repurchase Price on the date of such written request as defined in Article A.
[âŠ]
9. F. [plaintiff] shall not be under any obligation to sell the Equipment to seller [defendant] pursuant to the terms thereof but once F. shall have sold or otherwise disposed of the Equipment to a person other than seller, the liability of seller hereunder shall cease. [âŠ]â
[âŠ] On 1 January 2010, proceedings for declaring bankruptcy of ABC were commenced, after an insolvency administrator had been appointed in September 2009. On 30 January 2010, the plaintiff and M.J.F.C. GmbH (MJFC) concluded a leasing contract for the bowling alleys with monthly instalments of 2.839 âŹ. MJFC used the bowling alleys in the same building that ABC had used them in. The contract was concluded for a period of time until 2015. According to the assertions of the plaintiff, MJFC had paid the instalments only from September to December 2010 in the amount of EUR 11,356. Afterwards, MFCJ allegedly stopped paying and âdisappearedâ, which is why the leasing contract was terminated without notice.
In May 2011, the defendant, rejecting that it had any obligation to repurchase the alleys and stating that the alleys were damaged and incomplete, and following lengthy correspondence with the plaintiff, dismantled several elements of the 18 alleys still in existence. [âŠ]
The buyer claims payment in the amount of EUR 90,061,99 plus interest under the repurchase agreement [Granted by the OLG MĂŒnchen. Defendant appeals.]
[Judgment]
[âŠ]
The [Buyer] cannot claim the payment of the repurchase price. The appeal rightly argues that the repurchase obligation set forth in section F 1 of the contract expired according to section F 9 of the contract because the [Buyer] had released the bowling alleys to MFJC.
Contrary to the findings of the lower appeals court, the contract concluded between the parties is not based on the German Civil Code, but rather on the CISG. Section F 14 of the contract does state that the agreement and the resulting rights and obligations are subject to German law. Since the purchase of the leasing object is a purchase of goods and since the parties in dispute are from different contracting states, the choice of law leads to an application of the CISG.
This Chamber has repeatedly decided that repurchase obligations in leasing agreements that are subject to the German Civil Commercial Code are to follow the legal rules for the sale of goods. The same can be said for the disputed obligation of the [Seller], which is to be considered a sale of goods in the sense of Art (1)(1) CISG.
Repurchase agreements are, despite the specifics of leasing law and consequent particularities, essentially contractual obligations that are as a mirror image to the obligations of the original sales contract for the procurement of the leasing objectâregulated for the [Seller] in Art 30 CISG and for the buyer in Art 53 CISG. The agreement that the bowling alleys were to be dismantled by the [Seller] for the purposes of delivery does not prevent their character as a good in the sense of Art (1)(1) CISG. Such a mode of performance is also n...