1. Delivery of the goods is not a necessary component of a sales contract

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Citing Rabel’s position that the obligation to deliver the goods is the key obligation of the seller (explicitly rejecting a similar relevance of the obligation to transfer the property),665 one might argue that delivery of the goods should be the defining feature of a sales contract.666 Yet, the buyer could already be in possession of the goods when the contract is concluded. In this case, there is no need for an obligation to deliver the goods, but the exclusion of such an obligation does not change the character of the contract as a CISG sales contract.667 Furthermore, in string sales concerning goods that are being shipped when the contract is concluded, both parties may understand that the seller is not required to take any action to deliver the goods, and the buyer may never take possession of them.668 The transfer of the documents providing control over the goods replaces a physical delivery of the goods in the chain of contracts. Nevertheless, such a contract is a sales contract under the CISG.669 Both examples show that the delivery of the goods is not a necessary component of a sales contract under the CISG.

143 2. Benefits and risk of the goods as central elements

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Instead, one might argue that the allocation of the benefits and use of the goods to the buyer could be a sufficient allocation under the CISG. Yet, this allocation also takes place under an agreement to rent or lease.

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There can be contracts under which the contract price is paid over the course of the full lifecycle of the goods: If a good is worn out after ten years and the initial value of the goods is 12,000, the buyer could agree to pay 100 every month for ten years. If the parties do not agree on anything else, it is not entirely clear whether this is a contract for rent or for sale under a retention of property clause.670 Thus, the permanent allocation of the benefits and use of the goods is not sufficient to assess whether the contract is one for sale or rental.671 Rather such determination can only be made by considering the benefits together with two additional factors: The party that originally had the goods has to be relieved of the risk of haphazard loss of or damage to the goods,672 and may not retain a legal interest in the goods. This is what differentiates a sale and a final allocation of the goods to the buyer from a rental of movables where the party providing the goods continues to bear the risk of haphazard loss or damage.673 The relevant question is whether the party receiving monthly payments continues to receive payments after the goods have been destroyed or damaged, or whether he or she has to replace or repair the goods to continue to be entitled to the payments. This understanding of risk also underlies Articles 66–70 of the CISG for the time frame until the seller has fully performed the contract. After the seller has performed the obligations under the contract, or if the buyer has consumed the goods, no regulation is necessary to make explicit that the buyer should bear the risk, since the seller cannot be deprived of the purchase price due or received.

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Neumann proposes a different approach with regard to software sales under which a software contract is a sales contract under the CISG if the buyer receives “dominant control” over the software.674 According to him, dominant control “could be the right to determine the software’s location, its appearance, its reprogramming, or its destruction.”675 Thus, this approach focuses 144 on the benefits and the use of the goods. It neglects the risk of haphazard loss or damage to the goods, which can also make a decisive difference with regard to software. It is possible that the provider of software allows the user to use the software, to reprogram it, to change the software’s appearance, or even delete it. If the user’s facility burns down due to an act of God after the execution of the contract and the user loses all copies of the software, it is decisive for the contract’s characterization whether the user still has to pay the price if the provider does not or cannot deliver a new copy of the software.676 If the user does not have to pay anymore, this signifies that the user does not bear the price risk that the software becomes non-functional due to a haphazard event. In such a case, the contract is not a sales contract but a license to use even though the user has (had) dominant control over the goods. Therefore, while Neumann’s approach is superior to requiring the seller to transfer the property in goods, it lacks the crucial element that the seller is relieved of the risk of haphazard loss of or damage to the goods.

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Therefore, a sales contract under the CISG is a contract that envisions the transaction of goods against payment. To this end, the goods are sufficiently allocated to the buyer when, as between the parties, the buyer permanently receives the benefits and use of the goods, and the seller does not bear the risk of haphazard loss of or damage to the goods and no longer retains a legal interest in them. This equals an economic or material understanding of a sales contract in contrast to the widely proposed formal understanding represented by the transfer of property. Whether and how national law comprehends and deals with the parties’ allocation in terms of property should not be relevant.677 Whether the historical connection between property and risk in many legal systems explains any bearing of property on the contract characterization cannot be pursued here, but just like the separation of risk from property under the CISG, the contract characterization should be decoupled from the transfer of property too.

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The allocation of the goods to the buyer has to be permanent. However, permanence does not mean that the goods can never return to the seller: The contract might oblige the seller to repurchase the goods under certain conditions. The German Supreme Court correctly characterized such a contract as a CISG contract where the contract required the seller to repurchase the goods if the contractual partner of the buyer cancelled the leasing contract 145 with the latter.678 In such a case, it is not up to the seller to reverse the transaction and, from his or her viewpoint, the goods are irretrievably allocated to the buyer.

3. Applying the proposed definition of a sales contract under the CISG

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Applying this proposed definition to contracts that deviate from a standard sales contract reveals the advantages of the proposed definition of a sales contract under the CISG.

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In cases where the goods are not subject to property rights under national law (for example, a res extra commercium), the contract is a sales contract if the party paying for the goods receives the benefits of the goods and bears the risk of haphazard loss or damage. Thus, such contracts are subject to the CISG if the goods sold can be considered goods under Article 1(1). It makes no difference anymore if national law considers property to exist with regard to these goods.

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Under the proposed definition, the CISG can also be applied to data sales. The proposed definition defeats an important, formalistic argument against the application of the CISG to data sales: Since many national laws do not consider it possible for a person to have property in data,679 some scholars argue that contracts for the allocation of data cannot be considered sales contracts due to the lack of an envisioned transfer of property in the goods.680 Since the proposed definition of a sales contract under the CISG spares a reference to the transfer of property, the formalistic argument against the application of the CISG to data sales is unfounded.

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Nevertheless, the contract must provide for a sufficient allocation of the data to the buyer. This can only be assessed against the respective contract:681 146 Is the data permanently allocated to the buyer, and does the latter receive the benefits and bear the risks of the goods? Moreover, depending on the contract, the person providing the data may have additional obligations besides providing the data whereby the labor or service element of the contract (for example, updates) may become the preponderant part of the obligations under Article 3(2) of the CISG.682 The majority of scholars rightfully argue that data can constitute goods under the CISG.683 This is because first, there is no necessity to limit goods to corporal things.684 Second, the extensive discussions regarding software in which the majority of scholars685 and courts686 reason that (at least standard-)software can be a good under the CISG apply equally to data.687 Therefore, the remaining reasons against an application of the CISG to data sales would not be connected to data as goods or to the lack of property therein, but rather to its allocation between the parties and how the data is collected or created. In other words, the reasons that could lead to an inapplicability of the CISG are not connected to data as such, but apply to all other goods, too: If the goods were chairs, i.e., undisputedly goods under the CISG, the characterization as a sales contract would equally be questionable if the party ordering the chairs was required to give them back to the contractual partner at some point or if the latter 147 assumed additional service or labor obligations. Ultimately, under the proposed definition, the CISG is applicable to data sales.

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The contract litigated in The Res Cogitans would also be a contract of sale under Article 1(1) of the CISG.688 The buyer received the goods and was allowed to consume them before payment. Consuming the goods is the most extensive use of the goods. At the time of consumption, at the latest, the seller no longer bears the risk of haphazard loss of or damage to them and has lost his or her legal interest in them. The retention of property clause does not change anything with regard to the characteristics of the allocation of benefits and risks. Thus, the bunkers were sufficiently allocated to the last buyer to consider all contracts in the chain to have been sales contracts under Article 1(1) of the CISG.

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Similarly, the CISG applies to sales contracts within a chain of contracts, where the property in the goods is directly transferred from the first seller in the chain to the last buyer.689 Under the proposed definition, the lack of transfer of property within the chain is irrelevant. The respective buyers permanently receive the benefits and the use of the goods and decide to transfer the benefits and the use to their respective sub-buyers by reselling the goods. After the execution of the transaction, the seller no longer bears the risk of haphazard loss or damage to the goods and does not retain a legal interest in them. The contracts within the chain of contracts are, hence, sales contracts under the CISG. The parties to the first contract in the chain amend Article 30 of the CISG under Article 6 of the CISG, in agreeing that the seller should not transfer his or her legal interest to the buyer, but rather to a sub-buyer directly. To explain why the last contract in the chain is a sales contract under the CISG, no amendments under Article 6 of the CISG have to be considered: The seller may not have a legal interest in the goods, but the non-transfer of a legal interest is not a breach of Article 30 of the CISG if the seller has no legal interest in the goods.690 If the first seller does not transfer his or her legal interest to the last buyer, the last seller breaches Article 41 of the CISG. Thus, the CISG is perfectly apt to cover all contracts in a chain of sales contracts.

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Lastly, if stolen goods are being exchanged against payment and both parties know of their provenance, which prevents the parties from envisioning a valid transfer of property, the contract can still be a sales contract under the CISG. This presupposes that the parties envisioned the buyer to permanent 148 ly enjoy the goods at least as between the parties. This last qualification is necessary in this case because the parties might very well foresee that the actual owner could deprive the buyer of the goods. Since the paying party should also bear the risk of loss or damage, the contract fits squarely within the proposed definition. The public policy goals of national laws to prevent the sale stolen goods (similarly for the sale of a res extra commercium) can be safeguarded by way of the validity exception in Article 4, sentence 2(a) of the CISG. This, however, does not change the type of contract in the respective case.

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In conclusion, the seller’s obligation to transfer property is not mandatory for a CISG contract, and cannot only be postponed but even excluded without the contract losing its sales character.