Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography

CISG CASE PRESENTATION

Hungary 25 September 1992 Supreme Court (Pratt & Whitney v. Malev) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/920925h1.html]

Primary source(s) for case presentation: Case text

Case Table of Contents

Case identification

DATE OF DECISION: 19920925 (25 September 1992)

JURISDICTION: Hungary

TRIBUNAL: Legfelsobb Bíróság [Supreme Court]

JUDGE(S): Salamonné Dr. Solymosi Ibolya, Dr. Nemes Júlia, Dr. Gyürkei Klára

CASE NUMBER/DOCKET NUMBER: Gf.I. 31 349/1992/9

CASE NAME: United Technologies International Inc. Pratt and Whitney Commercial Engine Business v. Magyar Légi Közlekedési Vállalat (Málev Hungarian Airlines)

CASE HISTORY: 1st instance FB (Metropolitan Court) 10 January 1992 [reversed]

SELLER'S COUNTRY: United States (plaintiff)

BUYER'S COUNTRY: Hungary (defendant)

GOODS INVOLVED: Airplane engines

Case abstracts

HUNGARY: Supreme Court 25 September 1992

Case law on UNCITRAL texts (CLOUT) abstract no. 53

Reproduced with permission from UNCITRAL

The [seller], an American manufacturer of aircraft engines, further to extensive negotiations with the [buyer], a Hungarian manufacturer of Tupolev aircraft, made two alternative offers of different types of aircraft engines without quoting an exact price. The [buyer] chose the type of engine from the ones offered and placed an order. At issue was whether a valid contract was concluded. The court of first instance held that a valid contract had been concluded on the ground that the offer indicated the goods and made provision for detemining the quantity and the price.

The Supreme Court found that the offer and the acceptance were vague and, as such, ineffective since they failed to explicitly or implicitly fix or make provision for determining the price of the engines ordered (Article 14(1) CISG). The Supreme Court considered that the acceptance was a mere expression of the intentions of the [buyer] to conclude a contract for the purchase of the engines chosen and, as such, the acceptance could not operate as a counter-offer. The Supreme Court therefore overturned the decision of the first instance and held that there was no valid contract concluded.

Journal of Law & Commerce

Reproduced with permission from 13 Journal of Law & Commerce abstract 31-47 (1993)

Summary of facts: Malev Hungarian Airlines planned to buy two jumbo jet aircraft, either from Boeing Aircraft Co. or Airbus of France. The engines for those aircraft were to be purchased separately. The Plaintiff, United Technologies International, Pratt & Whitney, filed a declaratory judgment action in the Metropolitan Court of Budapest for a determination that Pratt & Whitney and Malev had a valid contract for the sale of the jet engines needed by Malev. The Metropolitan Court of Budapest ruled for the Plaintiff and cross-appeals were filed.

Holding: Judgment modified and amended. Court held that no [contract] between the parties had been formed, and ordered Pratt & Whitney to pay legal costs.

Reasoning of the Court

1. Plaintiff made two parallel offers to Malev for each type of jet plane Malev contemplated buying. Neither offer indicated the price of the jet engine.

2. Section [14], paragraph 1 of the CISG indicates that a proposal to enter into a contract, addressed to one or more persons, qualifies as a bid if it is properly defined and indicates the bidders' intention to regard itself bound in case of acceptance.

3. A bid is properly defined if it indicates the product, the quantity and the price, or contains directions as to how these terms can be defined. The definition of the product, its quantity and its price are all essential elements of an offer.

4. Section 55 of the CISG cannot be used to determine the price term of an offer for a product, such as a jet engine, which has no market price.

5. A party's declaration that it intends to close a contract is insufficient for the establishment of a contract.

6. Under Hungarian Rules of Civil Procedure, Paragraph 1, Section 78, the losing plaintiff must bear his own costs and reimburse the defendant for all costs as well.

Go to Case Table of Contents

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 2(e) ; 3(1) ; 8 ; 14(1) ; 55

Classification of issues using UNCITRAL classification code numbers:

2E [Exclusions from the Convention: ships, vessels, hovercraft, aircraft (aircraft engines distinguished from aircraft)];

3A [Scope of Convention: goods to be manufactured];

14A11 ; 14A12 [Criteria for an offer, basic criterion (intention to be bound in case of acceptance): definitiveness of key conditions: indication of goods; Determination of quantity and price];

55A [Open-price contract: enforceability of agreements that do not make provision for the price]

Descriptors: Intent ; Offers ; Open-price contracts

Go to Case Table of Contents

Editorial remarks

EDITOR: Albert H. Kritzer

This is a ruling that has been much criticized; go to commentaries cited below.

Go to Case Table of Contents

Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=20&step=Abstract>

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER) / Revue suisse de droit international et de droit européen, 1995, 280

Italian: Diritto del Commercio Internazionale (1993) 656-657 No. 18

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 246

CITATIONS TO TEXT OF DECISION

Original language (Hungarian): Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=20&step=FullText>

Translation (English): 13 Journal of Law & Commerce (1993) 31-47 [text presented below]

CITATIONS TO COMMENTS ON DECISION

English: Citations and comments in texts. Ferrari, International Legal Forum (4/1998) 138-255 [210 n.649 (sale of aircraft parts)]; Honnold, Uniform Law for International Sales (1999) 50-51 [Art. 2 (sale of aircraft parts)], 156 [Art. 14 (definiteness and price: prior to delivery and acceptance)]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 102-103 [Art. 14/55 issues]; Lookofsky, Understanding the CISG in the USA (CISG/USA)(1995) 12 n.14, 29, 35 n.98; Lookofsky, CISG/Scandinavia (1996) 36, 68 n.126; Bernstein/Lookofsky, CISG/Europe (1997) 14 n.26, 35; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [providing flexibility for long-term contract formed through negotiation 138-148 (this case at 138-148)]; Case commentary. Amato, 13 Journal of Law & Commerce (1993) 1-29; Commentary references to open-price issues in this case and other cases. Bonell/Liguori, Uniform Law Review (1996-I) 147 [159 n.62]; Flechtner, 17 Journal of Law and Commerce (1998) 212-213; T.S. [Simons], Forum des Internationalen Rechts / The International Legal Forum [= Forum] (English language edition) 1 (1996) 91-92; Koneru, 6 Minnesota Journal of Global Trade (1997) 148-151; Curran, 15 Journal of Law & Commerce (1995) 175-199 [187-192] [English summary of comments by Witz in Les Premières applications, cited below]; Karollus, Cornell Review of the CISG (1975) 51 [60]; Gabuardi, Open price contracts (June 2001); Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 2-5 n.32; §: 3-3 n.29; Pilar Perales Viscasillas in Ferrari, Flechtner & Brand ed., The Draft UNCITRAL Digest and Beyond, Sellier / Sweet & Maxwell (2004) 272-274; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 2 para. 35 Art. 14 para. 8 Art. 19 para. 13 Art. 55 paras. 7, 8; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 133

French: Lecossois, 41 McGill L.J. (1996) 513-541; Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995) 62-68; Witz, Receuil Dalloz Sirey (1995) ch. 143 [143 n.23, 24]; Witz, Tilburg Lectures (1998) 159 [166-167]

German: Magnus, Zeitschrift für Europäisches Privatrecht (ZeuP) 1993, 79 [84, 86]; Schlechtriem in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht (2d ed. 1995) 141 n.26 [Art. 14]; Schlechtriem, Internationales UN-Kaufrecht (1996) 47-48; Vida, Praxis des internationalen Privat- und Verfahrensrechts (IPRax) 1995, 261-264; T.S. [Simons], Forum 1 (1996) 92-93

Greek: Witz/Kapnopoulou, Ellenike epitheorese europaikou dicaiou (1995) 561 [570-571]

Italian: Liguori, Foro Italiano (1996-IV) 145 [161-162 n.83] ("sibillina")

Go to Case Table of Contents

Case text (English translation)

Reproduced with permission from 13 Journal of Law and Commerce 31-47 (1993) [1]

The Supreme Court of the Republic of Hungary

United Technologies International Inc. Pratt and Whitney Commercial Engine Business
v.
Magyar Légi Közlekedési Vállalat (Málev Hungarian Airlines)

Gf. I. 31 349/1992/9.


IN THE NAME OF THE REPUBLIC OF HUNGARY

The Supreme Court of the Republic of Hungary has passed the following

Judgment

against the partial judgment No.3.G.50. 289/1991/32 brought by the City Court of Budapest in the lawsuit initiated by the Plaintiff, United Technologies International Inc. Pratt & Whitney Commercial Engine Business (400 Main St., East Hartford), represented by Dr. László Szlávnits, attorney at law, of Legal Office (1053 Budapest, Károlyi M. u. 9), against the Defendant, MALÉV Hungarian Airlines (1051 Budapest, Roosevelt tér 2.), represented by Dr. Zsolt Jurasics, attorney at law, of Office of Attorneys No. 99. (1068 Budapest, Benczúr u. 3.) in respect of validity of contract due to the appeal submitted by the Defendant during the trial, held on the 25th day of September 1992:

The Supreme Court changes the partial judgment of the City Court of Budapest, the court of first instance, by revising the partial judgment as a judgment, and rejects the Plaintiff's claim.

The Supreme Court obligates the Plaintiff to pay HUF 15,150,000, i.e. fifteen million one hundred and fifty thousand forints, the cost of the original lawsuit and of the appeal, into the account of the Defendant's legal representative.

Plaintiff is to bear its costs itself.

Reasons adduced

From the fall of 1990 negotiations had been conducted by the parties to the suit and the American VALSAN Co., on the one hand, about the conditions given which the Plaintiff would replace the ineffective engines on the Defendant's Soviet made Tupolyev TU-154 aircrafts with PRATT JT 8D-219 engines, manufactured by the Plaintiff (engine replacement), and on the other hand, about the Plaintiff supplying the PW 4000 series engines for the wide bodied aircrafts, to be purchased by the Defendant. On December 4, 1990 the parties signed a Letter of Intention about their negotiations on the replacement of the engines on the Defendant's already existing Soviet made aircrafts. They expressed their intention -- without undertaking any obligations whatsoever -- to sign a final agreement in the future in accordance with those contained in the declaration. In the above-mentioned Letter of Intention the Plaintiff stipulated a condition, among others, according to which the signing of the final agreement depended on Defendant's acceptance of Plaintiff's support offer for the purchase of PW 4000 series engines from Plaintiff by Defendant for the wide bodied aircrafts to be purchased.

Plaintiff submitted two purchase-support offers, dated December 14, 1990, to Defendant with the aim of aiding the purchase of two aircrafts, supplied with Plaintiff's engines, whose order was finalized, another one with an option to buy, furthermore, the purchase of one spare engine with a finalized order, and another one with an option to buy. These support offers replaced the one dated November 9, 1990, making that null and void. Both offers made a reference to the Appendix containing the PW 4000 series engines' Guarantee Plan. One of the offers was made in case the Defendant decided to purchase a 767-200 ER aircraft assembled with PW 4056 engines, the other in case Defendant purchased a 310-300 aircraft equipped with the new PW 4152 or 4156 jet engine systems. At this time Defendant was negotiating with two aircraft manufacturers and had not yet come to a decision about the type of the aircraft to be bought and the company to purchase from. The support offers involved financial assistance (lending), engine warranties, product maintenance and repair services in order to select the engines or jet engine systems produced by Plaintiff.

The offers were kept open by Plaintiff until December 21, 1990 on condition that the validity of Defendant's declaration of acceptance depends on the appropriate provisions to be made by the Government of Hungary and that of the United States. Point Y of both support offers contained the purchase agreements. The place where the Defendant was to sign the support offers in case of acceptance was clearly marked on the document. Defendant did not sign either support offers, but in the presence of Plaintiff's proxy, who at this time extended the offer to include the PW 4060 engine, as well, and on the basis of the discussions carried out with him/her, composed a letter together with him/ her, which was sent to the Vice-President of Plaintiff's company by telex, notifying him/her that -- based on the evaluation of technical data and efficiency, furthermore taking the financial assistance also into consideration -- they had selected the PW 4000 engine for the new wide bodied fleet of aircrafts. Defendant also informed Plaintiff that it is looking forward to the cooperation with PW, especially with respect to the replacement of the TU-154 aircraft engines, furthermore that the present declaration of acceptance is wholly based on the conditions included in the PW engine offer, dated December 14, 1990. In the meantime Defendant asked Plaintiff to keep this information strictly confidential until they were ready to make a joint public announcement.

Later, in the beginning of February, 1991, the Parties had a verbal discussion, with reference to which Plaintiff addressed a letter to Defendant on February 11, 1991. In this letter Plaintiff declared that an advertising budget of USD 65,000.00 "will be added" to the premium for signing, and offered assistance in selecting a partner for engine maintenance and cooperation in the creation of a spare-parts pool for the maintenance of the line. It was also said that Plaintiff would come to Budapest to continue the discussions on the replacement of the TU154 aircrafts' engines and to finalize the PW 4000 contract.

Following that Defendant notified Plaintiff in writing that Defendant would not choose PW 4000 series engines for the Boeing 767 aircraft. In response to that, still on the same day Plaintiff stated its standpoint, according to which Defendant had definitely and irrevocably committed itself to purchase the new 767 aircraft with PW 4000 engines, asked Defendant to meet its obligations without delay, notify Boeing about its selection of PW 4000 engines and make a public announcement about it. Defendant, on account of its different standpoint, refused to do so.

Plaintiff initiated a suit on July 23, 1991 asking the court to declare that the contract between the Parties legally came to force on December 21, 1990, that its provisions were violated by Defendant, that Defendant was to meet its contractual obligations, and also asked for the allowance of the legal costs. Plaintiff claimed that Defendant, with its declaration, dated on December 21, 1990, accepted Plaintiff's contractual offer, dated on December 14, 1990, thus a valid, and legally binding contract was made for the sale and purchase of PW 4056 engines and spare engines. According to Plaintiff's position, the December 14,1990 offer fully complies with the content of Paragraph 1, Section 14 of the United Nations Agreement on international sales contracts, dated in Vienna on April 11, 1980 (hereinafter the 'Agreement'), and therefore with the acceptance of the offer the contract had legally come to force. For the offer clearly states the product, its quantity and contains data on the basis of which the price can be determined precisely. The circumstance that Defendant talked about PW 4000 series engines in its declaration of acceptance is insignificant, since the engines listed in the offer all belong to this series, furthermore, the offer indicated the engines' number within the series, as well. The extension of the December 14,1990 offer to include the PW 4060 engine and the modification of the engine's maintenance and cost warranty plans by the Plaintiff's business representative were precisely in response to Defendant's request. The offer provided an opportunity for Defendant to choose the type of the aircraft from the two alternatives and, accordingly, that offer should be deemed accepted, which corresponded to the type of the selected aircraft. The quantity could also be defined on the basis of the offer, since it depended upon the Defendant purchasing two or three planes. The price was also defined, since it could be arrived at by calculating the costs. Defendant knew the technical characteristics of the engines involved in the suit, had received the engine's specifications and additional necessary documentation to which Defendant referred in its declaration of acceptance. Later in the course of the lawsuit, Plaintiff requested Defendant to be ordered to reimburse Plaintiff for costs incurred by the discovery proceedings, in relation to the present lawsuit, that had been initiated by Defendant, and indicated the amount to be USD 64,816.20.

Defendant asked for the dismissal of the suit. Defendant did not acknowledge entering into a contract with Plaintiff about the engines involved in the suit. According to Defendant's position, Plaintiff's December 14, 1990 offers could not be regarded as a contractual offer, for they did not contain the data stipulated by Paragraph 1, Section 14 of the Agreement. The support offers, dated December 14, 1990, did not properly identify the goods, i.e. any one of the actual engines, that could be the subject of the contract and should be delivered by the Plaintiff. Neither did the definition of quantity comply with the provisions of Paragraph 1, Section 14 of the Agreement and the document did not indicate the price of the engines to be installed at all. For the price of the PW 4056 series spare engine is not identical with the price of the PW 4056 engine, neither is the price of the PW 4056 series engine identical with the price of the PW 4000. The so called pricing formula could only be applied if the base price of the given engines would have been defined at the time of making the contract. According to the data supplied by Plaintiff the base price would also have to be calculated, however, the data were not even sufficient for that, since Plaintiff did not indicate its own price index. Engines do not have general market prices, therefore, general market prices cannot be used for guidelines. Since the aircraft manufacturer would be paid by Defendant, while Plaintiff would be paid by the aircraft manufacturer for the engines, the precise knowledge of the price is absolutely necessary, for it is to be harmonized with the financial conditions and the terms of payment given by the aircraft manufacturer. According to Defendant's position the debated offer involved in the lawsuit does not qualify as an offer, if the cited Section of the Agreement is interpreted correctly, for it does not express Plaintiff's intention to regard itself to be under contractual obligation in case of acceptance. This is also proven by the fact that in its letter of February 11, 1991, Plaintiff still writes about the finalization of the contract and did not transfer the 1 million US dollar premium for signing either. This is the buyer's contractual premium, in case the offer is accepted within its deadline.

Defendant also referred to the fact that Plaintiff tied the validation of the contract to conditions, and the declaration of acceptance was not signed either by the United States or the Hungarian government.

According to the Defendant's position, even if Plaintiff's offer had complied with the stipulations set by the Agreement, the contract would not have been established, for Defendant's December 21, 1990 letter cannot be regarded as acceptance. This letter refers to the engine family in general terms only, and stipulated a condition that could qualify as a brand new counter-offer, when Defendant based its declaration on the replacement of the TU-154 fleet's engines.

The court of first instance passed a partial judgment after deliberating the Parties' declarations, the December 14, 1990 offers made by the Plaintiff, the Defendant's letter, dated on December 21, 1990, the technical table of PW 4000 (Appendix No. 13.), the certified Hungarian translation of service policies issued in January, 1984 and amended in April, 1987, the Hungarian translation of the Warranty Plan for the PW 4000 engines, dated December 14, 1990, furthermore the attached letters and other documents. In its operative part the Court stated that, based on the Plaintiff's December 14, 1990 offers, the Defendant's December 21, 1990 declaration of acceptance, and on the negotiations conducted between December 16 and December 21, 1990, furthermore on the attached documents, the contract was established.

In case of legal disputes, based on the agreeing declarations of the Parties, the provisions of the United Nations Agreement on international sales contracts, dated in Vienna, on April 11, 1980, was applied. Considering Paragraph 1, Section 14 of this Agreement the Court stated that Plaintiff's December 14, 1990 offers are defined, for they have indicated the product and essentially determined the quantity and the price, as well. In respect of defining the product, the court of first instance refers to the fact that with the decision being made about the type of the aircraft (December 29, 1990) the type, that forms the subject of the contract, became unambiguously identified from the ones listed. The quantity of the product can also be determined knowing how many planes will be bought by the Defendant. Prices are stated for all the types in the offer. The circumstance that Defendant could select the engine based on the offer itself, depending on the selection of the aircraft, meant a 'unilateral power' for Defendant.

Defendant's December 21, 1990 declaration was regarded as the offer's acceptance by the court of first instance. The reasoning was that the declaration was entirely based upon the December 21, 1990 P & W engine offer. The Court did not accept Defendant's reference to Paragraph 1, Section 19 of the Agreement, for, according to the Court's position, Defendant's declaration contains no such date, that is determined by Paragraph 1 of this Section of the Agreement. The stipulation of the offer, according to which the validity of Defendant's declaration depends on the proper approval of the governments of the United States and Hungary, is without significance, according to the position of the court of first instance, for the Agreement contains no such qualified stipulations. Otherwise, Defendant is an independent company that brings its own decisions, which do not depend on the approval of the founding organizations. According to the proper interpretation of the debated stipulation Plaintiff did not make Defendant's declaration of acceptance dependent upon the cited condition, rather Plaintiff's fulfillment was made conditional, therefore, the stipulation shall be regarded as a 'condition of termination'.

In respect of the passage of Plaintiff's letter, dated February 11, 1991, concerning the replacement of the TU-154 aircrafts' engines and the finalization of the PW 4000 contract, the Court expressed its view, according to which there could be no doubt that, interpreting the entire content of the letter, Plaintiff writes about a later addition to the contract.

According to the reasons adduced the court of first instance brought a partial judgment in the lawsuit initiated by the Plaintiff, because Plaintiff also submitted a claim for compensation -- pertaining to the Plaintiff's legal fees emerging in the course of the discovery procedure -- thus, the Court continues the proceedings in respect of the claim for compensation and legal costs.

Defendant appealed against the above partial judgment and primarily asked for the reversal of the partial judgment of the court of first instance and the nonsuit of the Plaintiff. Secondly, in case the evidences were to be supplemented, asked the court of the second instance to annul the partial judgment of the first instance and to order the court of first instance to retrial the suit and to pass a new judgment.

From the point of view of the legal proceedings, Defendant protested against the court of first instance passing a partial judgment. According to Defendant's position doing so the court of first instance violated Paragraph 215 of Civil Procedure, for it exceeded the subject matter of the lawsuit. Plaintiff's claim for legal costs cannot be regarded as the main issue in the suit, for it is an auxiliary issue and the court has to pass judgment in respect of who has to bear the legal costs besides the judgment passed on the main subject matter of the suit. According to Defendant's position Plaintiff has not submitted a claim for compensation.

Further in its appeal Defendant protested that the court of first instance regarded Plaintiff's December 14, 1990 declarations as an offer aiming at the closing of a contract that in content fully satisfies all requirements stipulated in Paragraph 1, Section 14 of the Agreement. In this respect, apart from reiterating its defense, presented during the legal proceedings of the first instance, Defendant also referred to Paragraph 1, Section 8 of the Agreement. According to Defendant's position, the debated offers of the Plaintiff, when their content is properly interpreted, do not express intentions toward final commitments, rather they assume that later a final contract can be drawn up at the Defendant's initiative. This follows from the fact that in the debated offers Plaintiff talks about providing various kinds of loans after a general introduction. The provision of loans, however, was tied to the condition, according to which loans can be granted only if Plaintiff had received a notification in writing about the Defendant having sent a final and irrevocable order for the aircraft and the spare engine. Therefore, the debated offers referred to the establishment of a preliminary agreement at the most.

This interpretation is also supported, according to the Defendant, by Plaintiff's letter of February 11, 1991 in which Plaintiff writes about the finalization of the PW 4000 contract and the continuation of the discussions on the replacement of the TU-154 aircrafts' engines. Based on these support offers, as they were not proposals for entering into a contract, the sales contract for the engines involved in the suit would not have been closed even if Defendant had accepted them. However, Defendant made no declaration of acceptance, did not sign the debated proposals, it was not Defendant's intention to do so -- at that time Defendant had not yet made a decision about the type of the planes to be purchased and was still continuing discussions with Plaintiff about certain technical-economic issues They had not yet reached an agreement in the question of the supply of spare parts and the setting up of an engine maintenance network. Without these, however, no airline would purchase aircrafts. It is precisely for that reason that the Defendant's letter was put together -- on Plaintiff's request. To explore the creation and signing of this letter, and of Defendant's intention with signing the letter, Defendant requested to call the participants of the suit to the witness' stand. Defendant also attached a declaration from the participants on the Defendant's side, which was to prove the circumstances of the writing of the latter, and Defendant's intention with it.

According to Defendant's position, the court of first instance misinterpreted the conditions on which the validity of the Defendants legal declaration depended. Pertaining to this, Defendant argued that in order to close the contract (1) a type-suitability certificate is to be obtained according to Paragraph 1, Section 8 of the 17/1981 (VI.9.) Council of Ministers [Cabinet] Decree, issued for the implementation of Act 8 of 1981, and (2) according to the Paragraph no international trade contract can be closed until that. Neither did the Plaintiff possess an actual export license, and such a license would have been necessary also because the engines manufactured by Plaintiff were still on the COCOM list in December, 1990. Thus Defendant's declaration would not be legally binding even if it could be qualified as acceptance. Defendant also claimed that Plaintiff's offer violates competition laws for the replacement of the TU-154 aircrafts' engines were tied to the acceptance of the present offer.

Defendant also dealt with the substantive law to be applied in the suit. Besides the Agreement, Defendant referred to Section 7 of Act 13 of 1979 on private international law, and deduced from that the limitations of the domestic application of private international law.

Defendant protested against the court of first instance turning down Defendant's request for creating a security deposit for the legal costs and debated that the procedural conditions of starting a declaratory action were given.

Plaintiff submitted a counter-appeal aiming at the confirmation of the judgment of the first instance. In this counter-appeal Plaintiff essentially repeated its position, presented during the proceedings of the suit of the first instance, according to which on December 14, 1990 Plaintiff gave Defendant a proposal for the closing of the contract, the content of which was in full compliance with the stipulations of the Agreement and bore with all further documents with which it met all requirements of the Agreement. These documents were handed over to Defendant during their discussions and the content of these remained unchanged in spite of the modifications of the proposal in the meantime. Plaintiff also referred to the fact that it did not need to obtain a license to close the contract involved in the suit, the performance deadline. On the other hand Plaintiff had the license to hand over to Defendant the technical data concerning the engine series.

Plaintiff also claimed, against the Defendant's attached "testimonials" and with reference to Mr. Hajek, who negotiated on behalf of Plaintiff, that it did not request a declaration of intention from the Defendant. Defendant signed the declaration of acceptance being aware of its intention to close the contract. Plaintiff attached a sample price calculation of the engine to be delivered to the counterappeal.

Plaintiff's position concerning the issue of the proposal involved in the suit and the replacement of the TU-154 aircrafts' engines was that Defendant's intention to purchase engines was independent from the replacement program.

Plaintiff declared, in reply to the judge's question, during the hearing of the appeal, that concepts of 'jet engine system' and 'engine' are not identical. The jet engine system includes other parts, as well, for instance the so called nacelle. In case Defendant had purchased Boeing planes, Plaintiff would have sold the engines only, since the aircraft manufacturer manufactured the nacelle itself, but in the case of the Airbus, Plaintiff would have delivered the gondola together with the engine. The price of the jet engine system and of the engine are not identical because of the technical differences. Plaintiff did not debate that its offer bid not include the base price of the jet engine system. Plaintiff, however, alleged that Defendant was aware of the prices.

The appeal was well founded.

The court of appeals modifies and amends the bearing of the case, established by the court of the first instance, on the basis of all the accumulated data of the lawsuit, with special attention to those contained in the letter of intention, dated on December 4, 1990, the proposal, dated on December 14, 1990 and Defendant's letter, dated December 21, 1990, and also based on the Plaintiff's declaration during the appeal proceedings, as follows below.

The parties to the suit had been conducting negotiations since the fall of 1990, on the one hand, about Plaintiff replacing the engines on the Soviet built TUPOLYEV TU-154 aircrafts, on the other hand, about Defendant purchasing engines from Plaintiff for its wide bodied aircrafts, that were to be bought. On November 9, 1990 Plaintiff sent a support offer to Defendant about assembling the wide bodied aircrafts with engines manufactured by the Plaintiff. On December 4, 1990 they signed a letter of intention (memorandum) about their negotiations concerning the replacement of the engines. In this document, the Parties stated (Point 8.b) that, among other things, the contract depends on whether Defendant accepts one of the Plaintiff's two support offers, dated November 9, 1990, i.e. whether Defendant selects the PW 4000 series engine for the new wide bodied aircrafts. In case Defendant would not accept this offer, Plaintiff reserved the right to revise its declaration of intention in respect of the TUPOLYEV engine replacement program, which -- by the way -- was signed without undertaking any sort of obligations. Apart from the above, the strong connection between the replacement program and the sale of aircraft engines is also proven by Defendant's December 21, 1990 declaration and Plaintiff's letter, dated on January 11, 1991.

On December 14, 1990 plaintiff made two different offers in case Defendant selects Boeing or in case it selects Airbus. These offers annulled the November 9, 1990 offers and replaced them. In the December 14, 1990 purchase-support offer for the Boeing scenario Plaintiff indicated two engines, taking the modification also into consideration, the PW 4056 and the PW 4060, from which, according to Point Y.l of the offer Defendant was to choose and to notify the aircraft manufacturer about its choice. In Point Y.2 Plaintiff undertook to sell the engines to Defendant on the basis of a separate agreement with the manufacturer. In this offer Plaintiff indicated the price of the new PW 4056 engine to be USD 5,847,675, which could increase according to the stability of value calculations from December, 1989. The modified offer does not contain the base price of the PW 4060 engine and spare engine.

The other offer, dated on the same day and intended for the Airbus scenario, among the PW 4000 series engines indicated two engines, PW 4152 or PW 4156, a jet engine system and a spare engine, from which Defendant was to make its selection according to Point Y.l and Y.2 of the offer, and upon acceptance of the offer to notify the aircraft manufacturer immediately. According to Point Y.2 Plaintiff undertook to sell the jet engine systems, the number of which was indicated, on the basis of a separate contract made with the aircraft manufacturer. In this offer Plaintiff indicated the price of the new PW 4152 spare engine base unit to be USD 5,552,675, and the price of the new PW 4156/A spare engine to be USD 5,847,675, with stabilizing their values starting from December, 1989.

According to Point Y.4 of both offers, with the acceptance of the offer Defendant was to send a finalized and unconditional order for the spare engines indicated in the offers.

In case of the offer for the Airbus scenario, the indicated jet engine system includes the engine, other parts and the gondola as well, while 'engine' means the motor only, therefore the price of the jet engine system is not identical with the price of the engine (motor). The offer contained the price of neither jet engine systems.

In the appeal proceedings, based on the Defendant's appeal, a declaration was to be made also about whether, interpreting the Parties' declarations on the basis of Paragraph 1, Section 8 of the Agreement, Plaintiff's December 14, 1990 offers comply with the conditions stipulated in Paragraph 1, section 14 of the Agreement and whether Defendant's December 21, 1990 declaration qualifies as an acceptance.

According to Paragraph 1, Section 14 of the Agreement a proposal to enter into a contract, addressed to one or more persons, qualifies as a bid if it is properly defined and indicates the bidder's intention to regard itself to be under obligation in case of acceptance. A bid is properly defined if it indicates the product, expressly or in essence defines the quantity and the price, or contains directions as to how they can be defined. This means that the Agreement regards the definition of the subject of the service (product), its quantity and its price to be an essential element of a bid.

It can be determined on the basis of the given evidences and the Parties' declarations, that Plaintiff made two parallel offers for the same deal on December 14, 1990, depending on Defendant's choice of the Boeing or the Airbus aircraft. In case Boeing was selected, within the respective offer two separate engines (PW 4056 and PW 4060) were indicated. This offer did not contain the base price of the PW 4060 engine.

In case Airbus was selected, within the respective offer two different jet engine systems (PW 4152 and PW 4156), belonging to the same series, and two different spare engines (PW 4152 and PW 4156/A) were indicated. The base price of the jet engine systems is not included in the offer, only that of the spare engines, in spite of the fact that these two elements are not identical either technically or in respect of price. In case there is no base price, value stability calculations have no importance. The price cannot be determined according to Section 55 of the Agreement either, as jet engine systems have no market prices.

The court of appeals did not accept Plaintiff's position, according to which it did not have to make an offer in respect of the jet engine systems' price, for these would have been billed to the aircraft manufacturer, who includes it in the price of the airplane. For according to the offers (Point Y.2) the engines, the jet engine systems and the spare engines would have been purchased by Defendant from Plaintiff, therefore Plaintiff would have established a contractual relationship with Defendant, as the buyer. That is, the two offers, involved in the suit, related not only to the sales of the spare engines, but also to the engines to be built in and the jet engine systems. Therefore, according to Section 14 of the Agreement, Plaintiff would have had to provide the price of all the products, engines and jet engine systems in its parallel or alternative offer involved in the suit, or the directions for the determination of the price thereof, to the Defendant.

It clearly follows from the above, that none of Plaintiff's offer, neither the one for the Boeing aircraft's engines, nor the one for the Airbus aircraft's jet engine systems, complied with the requirements stipulated in Paragraph 1, Section 14 of the Agreement, for it did not indicate the price of the services or it could not have been determined.

Plaintiff's parallel and alternative contractual offers should be interpreted, according to the noticeable intention of the offer's wording and following common sense, so, that Plaintiff wished to provide an opportunity to Defendant to select one of the engine types defined in the offer at the time of the acceptance of the offer.

For according to the wording of Section Y of the offers:

- Defendant, following the acceptance of the proposal, immediately notifies the aircraft manufacturer about the selection of one of the numerically defined engines (jet engine systems) for use on the wide bodied aircrafts;

- Plaintiff sells the selected engine (jet engine system) to Defendant according to a separate agreement made with the aircraft manufacturer;

- Thereby (that is, with the acceptance of the proposal) Defendant sends a final and unconditional purchase order to Plaintiff for the delivery of the spare engines of the determined type.

In addition to grammatical interpretation, the assumption of Plaintiff granting "power" to Defendant, made by the court of first instance, essentially entitling Defendant to make its selection until some undetermined point of time or even during performance from the services offered alternatively, goes against economic reasoning as well. For the legal consequences of this would be that Plaintiff should manufacture the quantity, stipulated in the contract, of all four types -- two engines and two jet engine systems -- and prepared with its services wait for Defendant to exercise its right to make its selection with no deadline.

It follows from this all that Plaintiff provided an opportunity to choose a certain type of engine or jet engine system at the time of the acceptance of its offer.

Plaintiff's offers were alternative, therefore Defendant should have determined which engine or jet engine system, listed in the offers, it chose. There was no declaration made, on behalf of Defendant, in which Defendant would have indicated the subject of the service, the concrete type of the engine or jet engine system, listed in the offers, as an essential condition of the contract. Defendant's declaration, that it had chosen the PW 4000 series engine, expresses merely Defendant's intention to close the contract, which is insufficient for the establishment of the contract.

Therefore, the court of first instance was mistaken when it found that with Defendant's December 21, 1990 declaration the contract was established with the "power" -- or, more precisely stipulation -- according to which Defendant was entitled to select from the indicated four types (PW 4056 or PW 4060 engine and spare engine, PW 4152 or PW 4156 jet engine system and spare engine) with a unilateral declaration later, after the contract had been closed. The opportunity to choose after closing the contract does not follow from the offer. If perhaps such a further condition would have been intended by Defendant, then this should have been regarded as a new offer on its behalf.

Lacking an appropriately explicit offer from Plaintiff and not having a clear indication as to the subject of the service in Defendant's declaration of acceptance, no sales contract has been established between the Parties.

It is a different issue, whether the series of discussions and Defendant's declaration of acceptance created such a special atmosphere of confidence, where Plaintiff could seriously count on closing the contract and failing that Plaintiff suffered economic and other disadvantages. With this question and with its legal grounds, no suit being initiated, the court of appeals was not entitled to deal with.

The stipulation of the contract, that the validity of the offer's acceptance dependent [sic] on the approval of the United States or of the Hungarian Government, could bear with any significance only if the acceptance of the offer would have resulted in a contract, however, since a contract was not established, the above-mentioned uncertain future circumstances bear with no significance in relation to the judgment passed in this present suit.

The degree to which the discussions between the Parties about the replacement of the TU-154 aircrafts' engines were related to the acceptance of the offers involved in the suit also had no significance, although Defendant's letter of December 21, 1990 and Plaintiff's letter of February 11, 1991 clearly proves that the Parties, besides the present offers, were continuously negotiating and that Defendant's understanding of the cooperation with Plaintiff included the replacement of the engines.

The Supreme Court did not study Defendant's complaints presented during the appeal proceedings about the irregularities of the proceedings of the first instance for Defendant did not protest against that in its appeal, while the extension of the appeal is not possible for procedural reasons according to Paragraph 2, Section 247 of the Civil Procedure.

Defendant was right in claiming in its appeal that the court of first instance should have brought a judgment and not a partial judgment, for Plaintiff was not suing for damages, but calculated its costs that had emerged in connection with the present lawsuit. These cost are qualified as legal costs according to Section 75 of the amended Act III of 1952 of the Civil Procedure, about the bearing of which the court must rule, according to Section 77 of the Civil Procedure in the judgment, ex officio according to Paragraph 2 of Section 78 of the Civil Procedure. Therefore, the conditions for bringing a partial judgment, stipulated by Paragraph 2 of Section 213 of the Civil Procedure, were not present. The significance of this procedural irregularity has been eliminated with Plaintiff losing the case.

With due attention to all mentioned above the Supreme Court revised the partial judgment of the court of first instance as a judgment, and amended it according to the operative part of Paragraph 2 Section 253 of the Civil Procedure.

Plaintiff has lost the case, therefore, according to Paragraph 1, Section 78 of the Civil Procedure, in addition to bearing its own costs, it is obligated to reimburse all costs that emerged during the first and the appeal procedure to Defendant. Defendant's costs consist of legal fees, determined on the basis of Point B, Paragraph 1 of the Decree of the Minister of Justice of 12/1991 (IX.29.), and a HUF 150,000 appeal duty. Plaintiff indicated more than 2 billion forints as the subject of the suit, the court has determined the court fee, which amounts to 0.5 % of the above sum for the proceedings of the first instance, while in the appeal proceeding half of that amount.

Budapest, on the 25th day of September, 1992.

Salamonné Dr. Solymosi Ibolya, the President of Council, Dr. Nemes Júlia, presenting judge, and Dr. Gyürkei Klara judge

To certify:

court administrator

[The round seal of the Supreme Court of the Republic of Hungary]

FOOTNOTES

1. * This Journal of Law & Commerce case translation was prepared by Dr. and Mrs. László Szlávnits. Dr. Szlávnits was the attorney for the Plaintiff. Any reader who intends to rely on this case must consult the original text, a copy of which can be obtained from the Journal of Law and Commerce.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography