1.  Notwithstanding Article 4, the otherwise applicable rules of law about mistake, non-fraudulent misrepresentation, duties of disclosure, initial impossibility and questions of lesion caused by mistake do not apply to CISG contracts if the rules relate to matters governed by the Convention even if the otherwise applicable rules of law characterize them as, for example, issues of validity. In cases of fraud, however, the otherwise applicable rules of law on fraud are not excluded.

A. The issues addressed in this Opinion

1.1. This Opinion explains when a party to a contract that is governed by the Convention may claim a remedy under the otherwise applicable rules of law governing the contract on the basis of mistake, fraud, misrepresentation, or other doctrines that may apply in similar factual situations, namely, duties of disclosure, initial impossibility and lesion (or “gross disparity in value”).

1.2. This is a topic that can cause difficulty because of the limits on the application of the Convention contained in Article 4.  Article 4 provides:

“This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:

a) The validity of the contract or of any of its provisions or of any usage;

b) The effect which the contract may have on the property in the goods sold.”

In respect of cases where the contract has been affected by mistake, fraud or misrepresentation, or where there may be a claim based on a duty of disclosure, initial impossibility or lesion under the otherwise applicable rules of law, Article 4 raises two issues.

1.3. The first issue is whether a party may rely on the  otherwise applicable rules of law when these doctrines may be classified as raising issues of validity. As will be explained below, this depends on both the meaning of “validity” and whether the matter is “provided” for in the Convention.

1.4. The second issue is whether the Convention applies to claims for damages that may arise under the otherwise applicable law because there has been a mistake, fraud or other misrepresentation, etc., if the otherwise applicable rules of law treat liability of this type as non-contractual (for example, as delictual or tortious, or as statutory). This depends on whether the claim falls within the first sentence of Article 4, which provides that the Convention “governs … the rights and obligations of the seller and the buyer arising from such a contract”.

1.5. This Opinion explains that even though under the otherwise applicable rules of law the facts that have occurred may give rise to an issue of validity or to a damages claim that the otherwise applicable rules classify as non-contractual, the Convention applies unless the matter is one that is not governed by the Convention; and that, if the matter is governed by the Convention, the Convention applies exclusively (or to put it in different words, the Convention displaces the otherwise applicable rules of law) except in cases of fraud.  A party that has been induced to enter the contract by fraud may resort to the otherwise applicable rules of law as an alternative to, or in addition to, claiming a remedy under the Convention.

B. The “otherwise applicable rules of law”

1.6. The phrase “otherwise applicable rules of law” means the law that governs the contract (either by choice of the parties or by virtue of the rules of private international law) other than the rules of the Convention itself.  This will often be “the domestic law”, i.e. the rules of the governing law that apply to purely domestic sales. However, as the CISG-AC pointed out in a previous Opinion, the otherwise applicable law may include rules of law that do not originate from formal State sources of law.[1] This may occur, for example, if the parties agree that any dispute should be referred to arbitration according to a non-national set of rules, for example the UNIDROIT Principles of International Commercial Contracts. Many laws accept a choice of this kind as valid. Therefore in this Opinion we refer to “the otherwise applicable rules of law”. However, in many of the cases with which this Opinion deals, it is the domestic law that would be the alternative to the CISG, and so in the Comments we will frequently refer to “the domestic law”.

1.7. It may happen that the Convention does not apply because the parties are not in Contracting States (Article 1(1)(a)) and the rules of private international law do not lead to the application of the rules of a Contracting State (Article 1(1)(b)), but the parties agree that their contract is to be subject to the CISG. Outside arbitration (on which see the previous paragraph) the effect is that the Convention is incorporated into their contract, subject to any mandatory rules of the applicable law.[2] Subject to those rules and to anything contrary in the contract, the parties may be taken to have agreed that the Convention should pre-empt the law governing the contract to the same extent as if the Convention applied directly. In this situation what is said in this Opinion applies with necessary adaptations.

C. Background

1.8. Article 4 excludes questions of validity from the scope of the Convention because delegates had been unable to agree on rules on validity or on adopting a Uniform Law on Validity of Contracts of International Sale of Goods[3] (the LUV) that had been prepared by UNIDROIT, and saw no prospect of reaching an agreement on the issues within a reasonable time;[4] nor were the issues thought to be likely to affect contracts for the international sale of goods at all often.[5] Experience has shown, however, that these issues do arise in practice and that they can be difficult to resolve. The situation which has arisen most frequently is one in which the buyer may appear to have a choice between a remedy for breach of the seller’s obligations under the Convention and a remedy for mistake, misrepresentation or fraud under otherwise applicable law. The Opinion covers this and also a wide spectrum of other cases involving mistakes, misrepresentation and  related issues.

D. Outline and scope of Opinion

1.9. The Opinion first explains the general principles that apply in this situation and why most cases of mistake, non-fraudulent misrepresentation and the like will be governed exclusively by the Convention. It then explains the implications for the case in which the buyer or the seller seeks to rely on remedies under the otherwise applicable rules of law for mistake or non-fraudulent misrepresentation in respect of the goods (see Rule 4(a)). The Opinion goes on to deal  with a variety of  related situations in which one or both parties acted under some form of mistake when they entered the contract: mistakes or non-fraudulent misrepresentations as to as to value (Rule 4(b)), mistakes as to creditworthiness or ability to perform (Rule 4(c)), questions of impossibility (rule 4(d)) and shared mistake (rule 4(e)).  Conversely, it explains when mistakes and misrepresentations may fall outside the scope of application of the Convention (rule 5). Rule 6 deals with those cases in which (under some otherwise applicable laws) there may be duties of disclosure.

1.10. The Opinion next explains how the Convention applies to mistakes and misunderstandings over the terms of the contract (”mistakes in declaration”) and to mistakes of identity (rule 7).

1.11. As mentioned earlier, the Opinion also deals with the extent to which claims for damages that may arise under the otherwise applicable law in in cases of mistake and misrepresentation  are pre-empted by the Convention (Rule 8).

1.12. Lastly, the Opinion explains the position where there has been fraud, and what is meant by fraud in this context (rules 9 and 10).

1.13. The Opinion does not deal with other rules of otherwise applicable law that may be thought to fall under the heading of validity.

E. Validity and the "counter-exception”

1.14. The Convention does not define “validity”. It must have been intended to include the issues of mistake, fraud and threat (duress), which were the topics covered by the LUV; and it may reflect an understanding that “validity” refers more widely to any ground on which a contract, or a term a contract, may be held to be void, voidable, unenforceable or (especially in relation to individual terms of the contract) of no effect.

1.15. Thus “validity” might include the following doctrines found in the different laws:

a. the traditional vices de consentement – fraud, threat (or duress), mistake and misrepresentation;

b. breach of a duty of disclosure;

c. initial impossibility;

d. substantive unfairness that renders a contract voidable (lésion);

e. excessive advantage-taking and unconscionability;

f. contracts or terms that are contrary to public policy (including illegality and also those rules of public policy that seem to be aimed at protection of one of the parties, such as usury and some types of restraint of trade[6]);

g. contracts that are liable to be set aside because they were obtained by unfair means, for example by unfair commercial practices[7] or misleading or deceptive conduct[8];

h. terms that are invalid because of their content[9] (including terms excluding or restricting liability);

i. terms that may be invalid by reason of legislation;[10]

j. penalty clauses;[11]

k. formal requirements (though these are brought back into the scope of the Convention by the express provisions of Article 11);

l. capacity; and

m. (possibly) rights of withdrawal / cancellation.[12]

1.16. The difficulty is that different laws are likely to have varying conceptions of what is or is not a matter of validity.

1.17. Article 7(1) of the Convention provides:

“(1)      In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade”.

To promote uniformity, the word “validity” in Article 4 must be given an autonomous meaning,[13], because to interpret it according to the otherwise applicable law might result in the Convention having a different scope of application from one jurisdiction to another, according to what each system regards as a question of validity.

1.18. For the purposes of this Opinion, however,  it is not necessary to determine exactly which doctrines fall within “validity”. The autonomous meaning certainly includes validity on the grounds of mistake, fraud and non-fraudulent misrepresentation and the closely-related topics that are dealt with in this Opinion. This Opinion expresses no view on which other doctrines do or do not fall within validity.

1.19. Even if an issue should be categorised as one of validity, Article 4 provides a “counter-exception”: the Convention is not concerned with issues of validity “except as otherwise expressly provided in the Convention”. The wording of the counter-exception has given rise to some uncertainties, which are explored below.

F. Damages for mistake, negligent misrepresentation, etc

1.20. A similar problem of lack of uniformity would occur in respect of claims for damages under the otherwise applicable law if the claim arises from facts that may also give rise to issues of validity, but the claim is characterized as non-contractual, for example damages for culpa in contrahendo[14] or negligent misrepresentation. Article 4 provides that the Convention “… governs only … the rights and obligations of the seller and the buyer arising from such a contract…”. This makes it possible to argue that even if the factual situation is covered by the Convention, the Convention only affects any rights of avoidance and does not affect claims for damages under the otherwise applicable law on the basis of, for example, tort or statutory liability for negligent misrepresentation.[15] However, this interpretation would not lead to uniformity, as not all national laws may classify such claims as non-contractual; and  indeed, as will be explained below,[16] this interpretation would produce incoherence.

2.   A matter is governed by the Convention if the question is expressly settled in the Convention or is
settled by the general principles on which it is based (Article 7(2)).

A. Matters governed by the Convention

2.1. Even if an issue is one of validity within the meaning of Article 4, the Convention governs the matter if the Convention provides for it, either expressly or by way of general principle in accordance with Article 7(2).  In relation to validity, the Convention recognises this explicitly. Article 4 provides a “counter-exception”: the Convention is not concerned with issues of validity “except as otherwise expressly provided in the Convention”. This Opinion explains that in relation to claims for damages arising from facts that might give rise to an issue of validity, whether the Convention governs must be determined in the same way.[17]

B. Matters “expressly settled”

2.2. The first question is: when does the Convention provide “expressly” for a question? It clearly does so where  a provision is aimed directly at an issue that in many systems would be regarded as one of validity, e.g. Article 11, which provides that a contract of sale need not be in any particular form. But that is far from being the only case.

2.3. First, in the CISG-AC’s view, a question is “expressly provided” for when the Convention’s provisions address the relevant matter  either in so many words or when correctly interpreted in accordance with Article 7(1), so that (in the words of Article 7(2)) the matter is “expressly settled”. For example, the Convention does not explicitly mention the effect of a mistake in declaration but, as will be explained in more detail in the Comments to Rule 7, the effect can be determined by a correct interpretation of Article 8 (in some cases, in conjunction with Article 14).

C.  Matters settled in conformity with general principles

2.4. Secondly, a matter that is not “expressly settled” is still provided for by the Convention if it can be settled “in conformity with the general principles on which [the Convention] is based”, in accordance with Article 7(2).[18] In other words, even if the legal issue arising from the factual situation is one of validity, the otherwise applicable law will not apply if the situation is provided for by the Convention, including the general principles on which the Convention is based.  An example might be[19] a mistake or misrepresentation as the value of the goods, to which the Convention does not refer explicitly, but which, it will be argued below,[20] can be solved by reference to the general principles on which the Convention is based.

D. Matters not governed by the Convention

2.5. It is only when the question is not expressly settled and cannot be determined in accordance with the general principles on which the Convention is based that the matter must be determined in conformity with the rules of the otherwise applicable law (Article 7(2), last phrase). For example, a contract for the sale of machinery might require the transfer of ownership of the small area of land on which the machinery is situated. This would not prevent the Convention applying to the contract as a whole, but if there were some mistake over the ownership of the land, this would be governed by the otherwise applicable rules of law, as the Convention does not deal with sales of real property and contains no relevant general principles.[21]

E. Matters: legal issues or factual situations?

2.6. A second question is over the meaning and effect of the counter-exception in relation to validity: does it refer to the Convention providing for the legal issue of validity, or for a factual situation that might be seen as giving rise to an issue of validity? A similar question arises with the word “matters” used in Article 7(2). This question has provoked some disagreement among scholars and also in the case law. We address this question in the Comments to Rule 3.

3. The Convention applies exclusively when:
    a.  the same factual situation is addressed by both the Convention and the otherwise applicable
rules, and
    b. the purpose of the otherwise applicable rules is broadly the same as that of the Convention.

A.  Competing academic views

3.1. Some scholars have considered that whether the Convention applies depends on how issues are traditionally categorized in the otherwise applicable law. For example, it has been argued that even in a fact situation on which the Convention has an express provision, the otherwise applicable law can apply simply because in some (or even all) systems the facts also give rise to a question of validity.[22] Thus if the contract is for specific goods that the buyer believed to be in conformity with the requirements of Article 35, when in fact they are not, the buyer would be able to choose between a claim under the Convention on the grounds of non-conformity and a claim based on mistake under the otherwise applicable law (if it allows such a claim).[23] Similarly, it has been argued that the Convention is concerned only with contractual issues, and therefore all non-contractual claims, in particular claims for negligent misrepresentation, are outside its scope and are left to the otherwise applicable law.[24]

3.2. The CISG-AC is unable to adopt an approach that depends on how issues are categorized in the otherwise applicable law, because domestic laws do not adopt a uniform categorization. To say that in a fact situation on which the Convention has an express provision, the otherwise applicable law can also apply simply because in some (or even all) systems the facts also give rise to a question of validity would lead to different solutions[25] according to (a) whether the particular domestic law recognizes that the facts may render the contract invalid and, if it does, (b) whether it allows the buyer to choose between remedies.

3.3. A more nuanced approach to the validity exception has been advocated by Hartnell, who acknowledges that allowing ready access to domestic law will not promote uniformity, but recognizes that during the negotiations there were many delegates who considered that questions of validity should be left to domestic law, because of the variety of approaches and the cultural specificity of the rules. Hartnell[26] argues that:

“… tribunals should be aware of the history of the Convention, including the validity exclusion, and the purposes it was designed to serve, in order to recognize the delicate nature of the conflict of laws analysis they are required to undertake, and to balance carefully the tension between domestic public policy and the needs of the international legal order.”

3.4. The CISG-AC cannot adopt this approach either. When the legislative history does not give a clear indication of what was intended, the agreed text should be interpreted objectively, without asking what the delegates might have intended by it. To put it another way, the Convention must be taken to have agreed on the wording, even if the delegates were not in agreement on its meaning, and to have left its meaning to be determined later by objective interpretation, without regard to the travaux préparatoires.

3.5. A third approach to the question whether a matter is “expressly provided” for in the Convention, is to ask whether the particular factual scenario is covered by the Convention, rather than how it might be categorized as a matter of law.[27] In an earlier Opinion, the CISG-AC said that the characterization of claims under domestic law is irrelevant in deciding whether or not the claim is excluded by the CISG.[28] The CISG-AC considers that  the correct approach to applying the validity exclusion and the counter-exception is to ask whether the factual situation is covered by the Convention, subject to one qualification.

3.6. In the CISG-AC’s opinion, whether the Convention provides for a situation, and therefore pre-empts resort to the otherwise applicable law, depends on (1) whether the Convention deals with the relevant factual situation and (2) whether the legal purpose of the regulation in the otherwise applicable law is broadly the same as that of the rules of the Convention or different. We explain these points in the paragraphs that follow.

B  The factual situation: the provisions of the Convention

3.7. Adopting the approach summarized in the previous paragraph, questions of validity are normally not governed by the otherwise applicable law if the factual scenario is within the scope the Convention. This both promotes uniformity and gives judges and arbitrators relatively clear guidance.

3.8. Similarly, claims for damages arising from mistake or non-fraudulent misrepresentation should normally be governed by the otherwise applicable rules of law only if the factual scenario is outside the scope the Convention.[29] This is discussed in more detail in the Comments to Rule 8.

3.9. Thus, as will be explained in detail below, where the factual situation is covered by the Convention, a party should not be able to rely on the otherwise applicable rules of law either to avoid the contract or, under Rule 8, to claim damages for mistake or non-fraudulent misrepresentation.

C.  Case law

3.10. Case law is moving towards acceptance of the “factual situation” approach. Different courts have taken different views, and certainly some have held that issues of mistake, for example, are subject to the otherwise applicable law.[30] In the United States it has been said in a number of cases that the Convention does not displace domestic rules of tort law, including liability in damages for negligent misstatement.[31] However, other cases in the US have accepted that to some extent the Convention may pre-empt recourse to the domestic law;[32] and the US District Court of the Northern District of Illinois has held that a buyer’s claims for misrepresentation (which were based on allegations that the seller had misrepresented, inter alia, the way in which it made and tested goods of the type offered, and its experience in doing so) were pre-empted by the Convention as they were supported by the same allegations as the buyer’s claims for breach of contract.[33]

3.11. On the issue of whether a buyer who was mistaken over the quality or fitness for purpose of the goods can rely on mistake as an alternative to a claim for non-conformity, some domestic laws would deny relief for mistake in any event, but as will be seen below, even in jurisdictions which as a matter of domestic law would allow the buyer to choose between remedies for non-conformity and rescission for mistake, some courts have held that if the contract is governed by the Convention, the domestic rules are pre-empted.[34]

D.  The factual situation: the terms of the contract

3.12. It should be noted that if a contract is subject to the Convention, the Convention will apply to terms that have been agreed between the parties, even if those terms deal with matters on which the Convention itself is silent. This is explicitly recognized in Articles 45 and 61. Article 45 gives the buyer the standard remedies under the Convention if the seller fails to perform “any of his obligations under the contract or this Convention”; Article 62 does the equivalent for the seller.

3.13. The Convention also governs terms of the contract that do not impose obligations. If, for example, a sale is made conditional on an event that is outside the control of the parties, such as the success of an application that has been made for Government approval of the type of goods, the resulting “condition” would fall to be interpreted under Article 8, not under the otherwise applicable domestic law. It would be most unfortunate if it were to be held that the various terms of the contract were governed by different laws.

E.  The legal purpose of the rules or remedies of the otherwise applicable law

3.14. However, even when the factual scenario is expressly provided for in the Convention or the contract, the otherwise applicable law should not be excluded if the rules of that law, or the remedies it makes available, have a different purpose to the rules or remedies of the Convention.[35] So recourse to the otherwise applicable law will not be prevented when, for example, the Convention is concerned to give a remedy to a contracting party while the regulation of the otherwise applicable law is primarily concerned with preserving competition.[36] Similarly, if the remedy provided for by the Convention aims at corrective justice (for example, damages calculated in accordance with Article 74) but, on the facts of the case, the remedy under the otherwise applicable law is aimed at deterrence (for example, if the domestic law would award punitive damages because the breach was deliberate), the legal purposes of the two differ and the buyer may resort to the otherwise applicable law in order to claim punitive damages.

3.15. In other words, deciding whether a question of validity is within the counter-exception “expressly provided for by the Convention” requires a two-stage analysis. First, a situation is to be treated as within the scope of the Convention not only when the legal question is covered expressly (as for example with form requirements, see Article 11) but also when the provisions of Convention or the terms of the contract are apt to cover the factual situation (the “factual” criterion). Secondly, however, recourse to the otherwise applicable law  should be pre-empted only if the purposes of the Convention rules and of the domestic rules are broadly the same (the “legal” criterion).

3.16. The “legal” criterion just described is crucial for the distinction drawn in this Opinion between cases of mistake or non-fraudulent misrepresentation on the one hand and cases of fraud on the other. The purpose of the (non-CISG) rules and remedies of the laws that would otherwise apply to cases of mistake or non-fraudulent misrepresentation appear to be have the same legal purpose as the rules of the CISG, namely to achieve corrective justice;  whereas, as will be explained in the Comments to Rule 9, the rules on fraud do not.

3.17. The result of Rule 3 is that

a.  cases of mistake and non-fraudulent misrepresentation, including the availability of any remedies, are usually governed exclusively by the Convention;

b.  in all cases of fraud the innocent party may rely on the rules on fraud of the otherwise applicable law, even if the party also has a remedy under the Convention (see further rules 9 and 10).

3.18. This Opinion deals first with mistake or non-fraudulent misrepresentation  and the other doctrines that do not depend on dishonesty (Rules 4-8); and then it deals with fraud (Rules 9 and 10).

4.  Therefore, for example, otherwise applicable rules of law are excluded:

a.  If either party was induced to enter into the contract by a mistake or non-fraudulent
misrepresentation as to any of the matters covered by Articles 35, 41 and 42;

b.  If either party was induced to enter into the contract by a mistake or non-fraudulent
misrepresentation as to the value of the goods;

c.  If either party was induced to enter into the contract by a mistake or non-fraudulent
misrepresentation as to a matter covered by Articles 71-73;

d.  in cases of initial impossibility; or

e.  if the parties have entered into the contract under a shared mistake as to any matter covered
by the Convention.

A.  Introduction

4.1. This and the following sections of the Comments aim to explain why a party will not be able to rely on the otherwise applicable law in many situations which that law would analyze as cases of mistake or non-fraudulent misrepresentation as to the facts, because the fact situation is covered by the Convention and the Convention and the rules of the otherwise applicable law have the same general legal purpose. As the relevant part of the otherwise applicable law will normally be the law that governs domestic sales, in what follows we will normally refer simply to “the domestic law”.

4.2. The section begins by distinguishing between different fact situations that may be described as raising issues of mistake.

B Types of mistake

4.3. Doctrines of mistake encompass a wide range of fact situations. A fundamental question for both some legal systems and the application of the Convention is whether the mistake relates to the terms of the contract (referred to in German law as “mistake in declaration”; an alternative label is “mistake in expression”) or is about the facts, for example a mistake as to the substance, quality or usefulness of the goods being sold. Within each category there are further permutations. Was the mistake on party A’s part caused by the other party (B), either intentionally or unintentionally (where B gave information that B believed to be correct but that in fact was incorrect), or was A’s mistake “self-induced”? Did B make the same mistake? Did B know that A was mistaken? And so on. Under domestic law, the questions of which doctrine might apply and whether A will be eligible for relief will often depend on the precise factual situation.

4.4. Rule 4 deals with mistakes and non-fraudulent misrepresentations about the facts. Mistakes in declaration are dealt with by Rule 7. In what follows, we will consider various factual situations in turn, beginning with the type of case that has given rise to the largest number of cases and the most intense discussion, viz. where the buyer has entered a contract under a mistake about the substance, quality or usefulness of the goods being sold, though there was no fraud on the part of the seller.

Rule 4 example (a): otherwise applicable rules of law are excluded  if either party was induced to enter into the contract by a mistake or non-fraudulent misrepresentation as to any of the matters covered by Articles 35, 41 and 42.

A. Mistakes by the buyer and non-fraudulent misrepresentations by the seller

(i) Mistake or misrepresentation

4.5. Where the buyer has entered a contract under a mistake about the substance, quality or usefulness of the goods being sold, the problems that would arise were the buyer allowed to resort to domestic remedies are well known. Many domestic laws that are essentially civilian in origin provide relief to a party who has entered a contract under a mistake (or “error”) as to the substance of the subject matter of the contract.

Example 1: the buyer believed the goods sold were almost new, when in fact they were old and, though reconditioned, did not have features present in more recent models.[37]

Often the notion of mistake as to substance is extended to the usefulness of the subject-matter to the mistaken party, provided that the mistaken party’s purpose was known to and had been accepted by the other party (or, to use the formulation in  Article 35(2)(b) of the Convention, it was not unreasonable for the buyer to rely on the seller’s skill and judgment).

Example 2: The buyer, a manufacturer of curtains, purchased a quantity of “blackout” (i.e light-proof) material. As the seller was aware, the buyer intended to colour-print the material before making it into curtains and believed it would be suitable, but in fact the material was unsuitable for colour-printing.[38]

In some systems the buyer in example 2 would have a remedy for mistake.[39]

4.6. In contrast, most[40] common law systems do not give relief when party A was acting under a self-induced mistake, even if it was evident to B that A was mistaken; but if the mistake was caused by B giving A incorrect information (even innocently, i.e. without negligence, let alone fraud), rescission is normally allowed on the ground of misrepresentation. In some jurisdictions rescission may be denied if there was no fraud and the mistake was of little importance; the court should then award damages “in lieu of rescission”.[41]

4.7. Thus in Example 1, if the seller had said that the machines were nearly new, in common law systems the buyer would have a remedy for misrepresentation, even if the differences between a reconditioned old machine and a “nearly new” one were not fundamental. If however the seller had only said that the machines were reconditioned, and the buyer had simply assumed that they were nearly new or had the features found on newer machines, the buyer would not have a remedy for misrepresentation or mistake in most common law systems. Similarly, in example 2, in most common law systems the buyer would not obtain relief on the ground of mistake, but it would have a claim for misrepresentation if the seller’s words or positively misleading conduct[42] had led it to enter the contract believing the material could be colour-printed.

(ii) A choice of remedy?

4.8. Where the mistake or misrepresentation relates to the substance, quality or usefulness of goods being sold, the buyer is likely to have a remedy for non-conformity, provided that certain conditions are met. In Example 1, if the seller had described the machines as almost new, the buyer would usually have a remedy for non-performance because the goods would not comply with the contractual description. If the Convention applied, the case would come under Art 35(1). In Example 2, if the Convention applied and the buyer had made known to the seller the particular purpose for which the buyer wanted the goods, and it was not unreasonable for the buyer to rely on the seller’s skill and judgment, the buyer would have a remedy under Art 35(2)(b). Most domestic laws will be broadly the same.

4.9. Some domestic laws treat the remedy for non-conformity as exhaustive and do not allow the buyer to resort to the rules on mistake, even if on the facts the non-conformity rules do not provide the buyer with the remedy it wants.[43] When one of these systems is the governing law, the Convention forms part of that law and the parties have not opted out of the Convention, it is clear that the buyer will only obtain a remedy for non-conformity in accordance with the provisions of Article 35, etc. 

4.10. Other systems[44] allow a free choice, so that in domestic law a buyer who wishes to rely on a wider right of rescission, or a more generous limitation period applicable in cases of mistake or misrepresentation, is permitted to do so. Were the same approach to be adopted when the Convention applies to the contract, on the ground that the issue is one of validity governed by the domestic law and not by the Convention, that might result in the buyer being able to rely on mistake or misrepresentation to avoid a contract when the non-conformity was not sufficiently fundamental to justify rescission under Article 25 of the Convention, or to seek avoidance or to claim damages when the buyer had failed to give notice of the problem within the time limit imposed by Article 39(2).[45] Equally, it might be argued that a buyer has a remedy when it was mistaken about the usefulness of the goods for a particular purpose that it had made known to the seller, but its reliance on the seller was unreasonable.[46] The result would be non-uniformity: buyers in a factual situation that falls within the provisions of Convention  would be subject to different rules according to the rules of the domestic law applicable to the contract.

(iii) Commentary

4.11. Scholars have therefore argued that the rules imposed by Articles 25, 35 and 39 occupy the ground and displace the rules of domestic law on the effects of mistake and non-fraudulent misrepresentation, both as to rescission and damages (where available under domestic law).[47]

(iv) Case law

4.12. A number of courts have taken the same approach, most notably the Swiss Supreme Court.[48] In the ElectronicElectricity Meters case,[49] after extensive citation of doctrinal writings,[50] the Court deliberately departed from earlier Federal decisions[51] to hold that a buyer who alleged that the goods delivered were defective, but who had not given notice within the time limit set by Article 39(2), could not fall back on the domestic (Swiss) law to claim relief on the ground of an error as to the quality of the goods, even though if the case had been governed by domestic law alone this would have been permitted.[52] The Court held that where the Convention contains a rule that is functionally equivalent to the domestic rule,[53] the validity exception is irrelevant.

“The Convention, with its provisions concerning the contractual condition of the object of sale, which also take into account the level of knowledge of the buyer, contains a provision functionally equivalent to the fundamental error (Art. 24 para. 1 no. 4 CO)…”[54]

It reached this conclusion not on the basis of the travaux préparatoires, which it found to be inconclusive,[55] nor on the basis that one rule is superior to the other,[56 but on the desirability of uniform application world-wide.[57]

(v) Conclusion

4.13. In the CISG-AC’s opinion, this outcome is the most appropriate. The factual scenario – that the buyer has not received goods of the kind, quality of fitness for purpose that he believed the goods would have – is clearly covered by express provisions of the Convention. In addition, we can say that both the provisions of the Convention and the domestic laws of mistake or misrepresentation, though they will of course differ in detail, have broadly the same aim: to determine whether the buyer can escape the contract and/ or claim compensation, so as to provide the innocent party with corrective justice. Thus the legal criterion is also satisfied.

4.14. The Convention should apply, to the exclusion of domestic law, not only when the issue is whether the goods comply with the default rules on conformity set out in Article 35(2) but also when the issue is over the seller’s obligations to deliver goods that are free from claims under Articles 41 (claims in general) and 42 (claims based on industrial property or other intellectual property). The factual scenarios are addressed by the Convention and the purposes of the Convention and of the domestic rules and remedies are broadly the same.

B. Mistakes by the seller and non-fraudulent misrepresentations by the buyer

4.15. Just as a buyer who has entered the contract under a mistake as to some fact that is dealt with in the Convention or the terms of the contract, so the seller may not resort to  the domestic law of mistake or non-fraudulent misrepresentation in a factual situation that is similarly covered. The seller cannot, for example, try to avoid liability for failure to deliver goods conforming to Article 35(2) by arguing that it was mistaken about their quality: factual situations covered by Article 35(2) are governed exclusively by that Article, to the exclusion of domestic law.[58] In any event, most domestic laws systems prevent a seller using mistake as a way of escaping liability for failure to comply with the obligations imposed on it by, for example, legislation on sale of goods.[59]

4.16. Can a seller resort to domestic law to avoid a contract on the ground of mistake when it was mistaken in not knowing that goods were different in substance from what the seller believed (and so more valuable)?

Example 3: after consulting an expert, the sellers sell a painting which, despite a previously long-held belief in the family that the painting is by Poussin, they now believe to be by an unknown artist of little renown, and definitively not by Poussin. The buyer recognizes that the painting may indeed be a Poussin and (without dishonesty[60]) buys it at a low price. Later it is established that the painting is by the famous artist.[61]

On similar facts (The Affaire Poussin), the French court ultimately allowed the sellers to have the contract set aside for mistake on the ground that the seller’s mistake was one of substance: they believed that the painting could not be by Poussin whereas in fact it might be by that artist. The Convention does not have a provision dealing explicitly with a seller who mistakenly undertakes to delivers something that is of a different and more valuable substance than it believed, which might lead to the conclusion that the seller can resort to domestic law. However (subject to Art 79, which does not apply in this case), the Convention requires the seller to deliver the goods promised and this precludes any resort by the seller to the domestic law of mistake in this factual situation.

C. Other terms of the contract

4.17. The same reasoning applies to any other obligation undertaken in the contract, either expressly or by necessary implication. Article 35(1) states that the seller must deliver goods that are of the quantity, quality and description required by the contract;  if the seller fails to do so, the buyer will have the normal remedies for non-conformity – so that if the buyer was mistaken or had been misled (without fraud) as to something that is the subject of one of those requirements, the Convention covers the factual scenario. Article 45 provides that the rights provided in Articles 46-52 and the remedies in damages under Articles 74-77 apply when the seller fails to perform any obligation under the contract. Article 61 has a parallel provision for failure to perform by the buyer. 

Example 4: the seller of goods has undertaken not to supply similar goods to other buyers in the same territory. The seller has not complied with this obligation, but the breach is minor, having little effect on the buyer, and would not justify avoidance under Article 25. If it turns out that the seller’s representative had carelessly (but without fraud) stated that the seller was not supplying other buyers and had no intention of doing so, but (unknown to the representative) the seller was in fact supplying others at the time the contract was made and planned to continue, the buyer should not be able to avoid the contract on the ground of the domestic law of misrepresentation; the remedy under Article 25 should be treated as exhaustive.

4.18. Similarly, the seller may not resort to domestic law giving relief for mistake or non-fraudulent misrepresentation when the factual situation is covered by the express terms of the contract, whether the terms impose obligations on the seller (referred to in Article 45) or on the buyer (referred to in Article 61) or are of some other kind such as a condition to the operation of the contract.[62]

Rule 4 example (b): Mistakes or non-fraudulent misrepresentations as to value

Rule 4 example (b): otherwise applicable rules of law are excludedif either party was induced to enter into the contract by a mistake or non-fraudulent misrepresentation as to the value of the goods

4.19. A party may agree to buy goods for much more than they are worth, or agree to sell them for much less than their true value. In many cases this will be the result of some form of exploitative behaviour by the other party, and many legal systems permit the victimised party to set aside the contract. Often there is no question of mistake or misrepresentation: to take a classic case,[63] the captain of a stranded vessel who agrees to pay an extortionate amount to be towed to safety will be only too aware of the facts of his predicament, and relief is given on the ground of violence par circonstances or exploitation. Other cases might involve A deliberately taking unfair advantage of a mistake of some kind by B, for example as to the value of the goods that B agrees to sell to A[64] or the risk that B is running.[65] Relief might then be given on the grounds of exploitation  or unconscionable behavior. This Opinion does not deal with cases of this kind.

4.20. Even in the absence of exploitative or unconscionable behaviour by a party, the other party might agree to buy goods believing them to be worth much more than is the case, or agree to sell them for much less than their true value. In most legal systems, this will not lead to invalidity of the contract. In systems which grant relief on the ground of mistake, mistakes merely as to value generally do not give rise to relief[66] (unless the mistake was induced by fraud, on which see Rule 9 below); in systems that give relief for non-fraudulent misrepresentation, a statement that goods are worth a certain amount will normally be treated as a mere statement of opinion, which does not amount to a misrepresentation.

4.21. In a few systems, however, relief is given for lesion in a broad range of contracts, at least where the party seeking relief was excusably unaware of the disparity and did not intend to make a gift.[67]

4.22. Where there has been no exploitative behavior by a party, and the other party has simply made a mistake as to the value of the goods, the factual situation is covered by the Convention. The Convention does not provide for this problem explicitly but as a matter of its general principle (see Art 7(2)) the goods must be delivered and paid for at the agreed price. The “mistaken” party may not resort to domestic law.[68]

Rule 4 example (c): Mistakes as to creditworthiness or ability to perform

Rule 4 example (c): otherwise applicable rules of law are excluded if either party was induced to enter into the contract by a mistake or non-fraudulent misrepresentation as to a matter covered by Articles 71-73.

4.23. A party might seek a remedy under domestic law on the ground that it entered the contract under the belief (self-induced or as the result of a non-fraudulent misrepresentation by the other party)  that at the time the contract was made, the other party was creditworthy or was in a position to perform the contract. No business will enter a contract when it is already aware that the other party cannot or will not perform; so, for example, in almost every case in which party A turns out to have been insolvent when the contract was made, party B will be able to argue that it was mistaken about A’s creditworthiness. Subsequent changes in A’s position will not give rise to remedies for mistake or misrepresentation in any event.

4.24. This factual situation is expressly covered by Articles 71-73 of the Convention, dealing with anticipatory breach and breach of instalment contracts.  Therefore neither a mistake nor a non-fraudulent misrepresentation as to a party’s ability or willingness to perform as the result of insolvency or other factors will give rise to a right to avoid the contract under domestic law.  When A’s  inability to perform “becomes apparent”, B will have only the remedies set out in Articles 71-73.[69]

Rule 4 example (d): Initial impossibility

Rule 4 example (d): otherwise applicable rules of law are excluded in cases of initial impossibility

4.25. Under some domestic laws, where the parties have entered a contract under certain kinds of fundamental mistake, the contract may be void for impossibility: for example, if a seller agrees to supply specific goods which, unknown to either party, have ceased to exist at the time the contract is made. In some legal systems the contract may be treated as voidable by either party on the ground of mistake; but in others the contract  is said to be void for impossibility, at least where the seller was not at fault.[70] The same reasoning may apply when the contract is impossible to perform because the goods, though not specific, were to come from a particular bulk that has ceased to exist, or were to be procured directly from a sole source that is not in fact available.[71] Some systems apply the same rule when the goods do not belong to the seller.[72] These cases also might fall within the “validity exception” unless the Convention provides for the situations. As explained in the next two paragraphs, the CISG-AC’s opinion is that in all these cases the Convention contains express provisions covering the factual situation and therefore applies to the exclusion of domestic law.

4.26.  Where the goods no longer exist at the time the contract was made, several articles of the Convention are relevant. Article 68, which deals with goods sold in transit, deals specifically with the case where the goods have been lost or damaged at the time the contract was made, and provides that if the seller knew or ought to have known of the loss or damage  but did not disclose this to the buyer, the seller will bear the risk.[73] Whether the seller will be excused from liability for non-delivery will depend on whether the seller can bring itself within Art 79 (which seems unlikely). More generally, Article 30 imposes an obligation to deliver the goods. Where the goods were specific and do not exist, or have ceased to exist, whether before or after the contract was concluded, the seller will be unable to fulfil its obligation. Again the seller’s liability is governed by Article 79. If the seller could not have known that the goods did not exist, and the reason for their non-existence was beyond the seller’s control, then the seller may be excused.  So the Convention provides for the case of goods that do not exist, or have ceased to exist, when the contract was made.

4.27. The case where the seller does not own the goods is also covered by the Convention.  Article 41 is explicit that the seller has a contractual obligation to deliver goods that are free from any right or claim of a third party, unless the buyer has agreed to take the goods subject to the third party’s right or claim. This has the result that the Convention displaces any rule of domestic law to the effect that the contract is void.[74]

Rule 4 example (e): Other shared mistakes

Rule 4 example (e): otherwise applicable rules of law are excluded  if the parties have entered into the contract under a shared mistake as to any matter covered by the Convention

4.28. The parties may have entered the contract under a shared mistake which is not about the possibility of performing the contract (see example (d) above) but which is about something else affecting the contract. At least if the mistake was to something fundamental to the contract, some domestic laws will allow either party to avoid the contract;[75] others may even treat the contract as void.[76] Yet another approach is to apply a doctrine of change of circumstances, even though there has not been a change of circumstances since the contract was made: if in the true situation the contract has turned out to be seriously unbalanced so that to enforce it would cause hardship to one of the parties, the court may adjust or terminate the contract.[77]

4.29. This situation is also covered by the Convention: Article 79 applies.[78] Therefore neither party may rely on the  domestic law to seek a remedy.