The United Nations Convention on Contracts for the International Sale of Goods - Essay Example

?Introduction The United Nations Convention on Contracts for the International Sale of Goods (CISG) has been adopted by seventy six (76) countries asof 7 July 2010 (Kritzer, 2011, 1). This include the United States which has ratified the Convention and has made it part of the US law (Johnson, 2011, 1). However, there have been various debates arising as to its interpretation mainly because of it has been claimed that its provisions has too many inconsistencies. This paper therefore, would like to examine if indeed the view that the CISG has many inconsistent provisions is true or not. United Nations Convention on Contracts for the International Sale of Goods (CISG) Susan J. Martin-Davidson, a Professor of Law at Southwestern Law School in Los Angeles, has commented that the “place of business is not defined in the Convention” which is the foremost important consideration in examining whether or not CISG would apply (Martin-Davidson, 2008-2009, 1). It was said that commentators have proposed that the place of business would refer to “a permanent and regular place for the transacting of general business” (Honnold, 1989). However, Martin-Davidson says that it is still unclear if such a term would include “the location of a distributor, or other agent, who participates in the negotiation and performance of the contract” (Martin-Davidson, 2008-2009, 1). Even the final draft of CISG, the delegates were unable to address as to the issue if place of business would apply to “local agents working on behalf of foreign principals” (Martin-Davidson, 2008-2009, 1). Martin-Davidson also comments that “matters relating to agency” are not addressed by the Convention and does not also illustrate what “activities of an agent” would be adequate to establish that “the agent's place of business” is that of the principal (Martin-Davidson, 2008-2009, 1). A CISG critic has even remarked that the term “place of business is a “concept (that) carries with it substantial factual and definitional uncertainties, the resolution of which are likely not to be known by the parties at the time of contract formation” (Rosett, 1984, 265 & 269). CISG is also critiqued because it “does not suggest a test for establishing which location has the closest relationship to the contract and its performance” (Martin-Davidson, 2008-2009, 1), which place is so provided under Article 10 of the CISG and which basically determines the location of parties under Article 1 of the CISG (Bailey, 1999, 300). In Micro Data Base Systems, Inc. v. Dharma Systems, 148 F.3d 649, 653 (7th Cir. 1998), it explained that “it is not clear whether a relationship linked to the formation of a contract is more or less important that a relationship linked to its performance.” Such provision is even more complex with the proviso that instructs to have a regard “to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract” (CISG Article 10(a)). No suggestion however is offered as to kind of circumstance referred to in such provision (Martin-Davidson, 2008-2009, 1). The sale of goods under the CISG is also said not to have been defined under the Convention (Martin-Davidson, 2008-2009, 1). Although there have been “scholarly commentary” explaining that “goods are basically only moveable, tangible objects,” (Schlechtriem, 2005, 28), there were some reported decisions wherein the court had to decide the meaning of such a term (Landgericht, 2001, 1 & Oberlandesgericht, 1991, 1). This is especially relevant to the application of CISG on the “information stored in and read by computers” which include both the “information stored on a disk or in a computer” considered to be “intangible property” and not as goods (CISG, Article 2(f)), and the so-called “licensed use of information,” which does not satisfy “the seller's obligation to ‘transfer the property in the goods’” under Article 30 of CISG (Martin-Davidson, 2008-2009). Such concern however, was addressed by Frank Diedrich who interpreted the goods as to cover “standard software or custom-designed software, or whether the software is transmitted electronically or by means of a tangible data carrier” (Diedrich, 1996, 336). As to the issue that “the licensing restrictions fail to satisfy the seller's obligation to transfer the property in the goods,” Diedrich commented that “the CISG allows the parties to derogate from or vary its provisions” (CISG, Article 6).  There are however some difficulties experienced by courts which use “the vague and open-ended provisions of the Convention” in order to address complex questions “posed by custom and usage in the software industry” (Martin-Davidson, 2008-2009, 1). Hence, Martin-Davidson suggests that there must be “uniformity in the application of the CISG to licensing agreements that accompany computer products and transactions” by having an agreement as to the “nature, timing, and quality of information exchanges that will constitute assent” (Martin-Davidson, 2008-2009, 1). Contracts providing for both goods and services are said to be covered by CISG “unless the ‘preponderant part of the obligations of the party who furnishes the goods will consist of services” (CISG, Article 3(2)). Such provision in Article 3 has initiated a controversy that paved the way for the “CISG advisory Council to issue Opinion No. 4” (Pace Law School Institute, 2005), that listed issues such as the differences in meaning of terms like “substantial, preponderant, and obligations” which have been translated officially in different languages; the seemingly lack of commentary and applicable case law analyzing issues arising from the “interpretation of Article 3” Oberlandesgericht [OLGZ] [Civil Court of Appeal] Dec., 3 1999; and a general confusion regarding “the relationship between Article 3(1) and Article 3(2)” (Oberlandesgericht [OLGZ] [Civil Court of Appeal] Dec., 3 1999). Another issue raised against CISG is that it does not address “the potential for conflict between buyers of goods still attached to realty and purchasers of the real estate prior to their severance” (Martin-Davidson, 2008-2009, 1 on CISG, Article 4(b)). This issue is very relevant in many developing countries, wherein “real estate and things associated with real estate are still the most important sources of the wealth of its people and are protected by formal requirements governing contracts to sell them” (Cod. Civ. arts. 1183-84 (Argentina). Hence, such unresolved questions on CISG’s application to these kinds of transactions, Martin-Davidson suggests that “lawyers should play it safe and comply with local provisions that govern the sale of real property if the contract of sale predates severance” (Martin-Davidson, 2008-2009, 1). The term “validity” has not also been defined under the Convention causing numerous debates concerning its meaning (Hartnell, 1993, 1). This issue has not been resolved as the drafters then were “unable to reconcile the desire for a uniform international sales law” having “proper regard for domestic public policy” (Crawford, 1988, 187 & 191). Generally though, “the validity exception to the scope of the Convention” encompasses domestic policy concerns such as “lack of capacity,” (UNILEX database, 2007), “duress, fraud, and illegality” (Kritzer, 1989, 86). There is also a controversy as to “whether and to what extent the CISG excludes franchises and distributorships, transactions of barter, and consignments” (Martin-Davidson, 2008-2009, 1). Another problem with CISG is Article 7, which include “four principles for interpreting the provisions of the Convention,” thus: “(1) consideration of the Convention's international character, (2) the Convention's need for uniformity, (3) observation of good faith in interpreting the Convention, and (4) the use of the Convention's implicit general principles to address matters not explicitly covered by the Convention” (CISG, Article 7). The Convention also suggests “a specific hierarchy for interpretation of the Convention” in that courts should be guided by “CISG’s unstated general principles if the explicit provisions of the CISG do not provide an answer” (Bailey, 1999, 299). Domestic law rules which are “applicable by virtue of the rules of private international law” must then be applied by courts if there is no answer provided therefore (CISG, Article 7(2)). However, these principles were said to be “vague and difficult to apply” (Bailey, 1999, 299), even if it requires that it be interpreted based on “independent international principles” (CISG, Article 7(1)) as “it does not adequately explain what those principles mean” (Bailey, 1999, 299). “Observing good faith in international trade” as declared in Article 7 of CISG, was also said to be vague as there is “no agreement as to what this principle means or in what situation it is to be applied”(Kritzer, 1989, 109). Article 7(2) also suggests on how to resolve situations not covered by CISG, which states that it be resolved “in accordance with the general principles on which it [the Convention] is based or, in the absence of such principles, in conformity with the [domestic] law applicable by virtue of the rules of private international law” (CISG, Article 7(2)). These general principles however, are not expressly stated in the Convention and is left for courts to apply (Bailey, 1999, 299). Conclusion Given the above analysis of the Convention, the view that CISG has many inconsistent provisions, is not really accurate. The more accurate view is that because the terms have not been clearly defined in the Convention and because the Convention fails to explicitly state the principles or circumstances applicable in certain cases, make it hard for courts to interpret various situations in commercial law, that may possibly lead to varying or inconsistent rulings. It is possible that in the future, U.S. courts and commercial lawyers will be faced with difficult questions in relation to interpretation of the CISG (Martin-Davidson, 2008-2009, 1). Hence there is a need to “anticipate and address these potential problems” by “carefully drafting choice-of-law provisions” for the protection of people engaged in international commercial transactions (Martin-Davidson, 2008-2009, 1). The history and debates in the drafting of the Convention as well as precedents, must also be taken into consideration, so that inconsistent rulings may be avoided. References Barse Trading Limited v. Selkhozpromexport (Russian Federation v. Cyprus) (Fed. Arb. Ct. for the Moscow Reg. May 26, 2003). Bailey, James E. (1999). Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of International Sales. Cornell International Law Journal, 32: 273. Civil Code, Articles 1183-84 (Argentina). Crawford, Blair & Rich, Janet L. (1989). New Rules for Contracting in the Global Marketplace: The United Nations Convention on Contracts for the International Sale of Goods, C395 ALI-ABA 115, 130. Diedrich, Frank (1996). Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG. Pace International Law Review 8: 303, 336. Hartnell, Helen E. (1993). Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods. Yale Journal of International Law 18: 1. Honnold, John O. (1989). Documentary History of the Uniform Law for International Sales. Johnson, William P. (2011). Understanding Exclusion of the CISG: A New Paradign of Determining Party Intent. Buffalo Law Review, 59: 213. Kritzer, Albert H. (1989). Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods. 108-09. Kritzer, Albert H. (2011). CISG: Table of Contracting States. http://www.cisg.law.pace.edu/cisg/countries/cntries.html Landgericht [LG] [Trial Court] Jan. 19, 2001, (F.R.G.). http:// cisgw3.law.pace.edu/cases/010119g1.html. Martin-Davidson, Susan J. (2008-2009). Selling Goods Internationally: Scope of the U.N. Convention on Contracts for the International Sale of Goods. Michigan State Journal of International Law, 17: 657. Micro Data Base Systems, Inc. v. Dharma Systems, 148 F.3d 649, 653 (7th Cir. 1998). Oberlandesgericht [OLGZ] [Civil Court of Appeal] Nov. 27, 1991, (F.R.G.). http:// cisgw3.law.pace.edu/cases/911127g1.html. Oberlandesgericht [OLGZ] [Civil Court of Appeal] Dec., 3 1999, (F.R.G.). http:// cisgw3.law.pace.edu/cases/991203g1.html. Pace Law School Institute of International Commercial Law. Opinion No. 4, Oct., 24 2004. http://www.cisg.law.pace.edu/cisg/CISG-AC-op4.html Rosett, Arthur (1984). Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods. Ohio State Law Journal, 45: 265, 269. Schlechtriem, Peter (2005). Commentary on the UN Convention on the International Sale of Goods 101 (2d ed). Unilex Database (2007). http://www.unilex.info/ Read More