Cite as Farnsworth, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 95-102. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
E. Allan Farnsworth
1. Historv of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(1) For the purpose of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.
1. History of the provision.
1.1. - Article 8 contains rules for the interpretation of the statements and conduct of the parties. It is the only article of the Convention that is derived from the UNIDROIT Draft Law for the Unification of Certain Rules Relating to Validity of Contracts of International Sale of Goods (ULVC). At its eighth session, the Working Group decided to eliminate Article 4(2) and 5(3) of ULFC, which dealt with interpretation of an. offer, and asked the Secretariat to prepare a draft text on interpretation based o.n those provisions together with Article 3, 4 and 5 of ULVC (see Yearbook, VIII (1977), 86). The Working Group, after considering a Secretariat draft, agreed that a provision on interpretation should be included but for want of time postponed the principal consideration of the subject.
A controversy developed over whether the rules on interpretation should be limited to questions of formation or should [page 95] extend to contracts as well. The Working Group «decided that the rules on interpretation should be limited to interpreting the unilateral acts and statements of the parties for the purpose of determining whether a contract had been concluded» (see Yearbook, IX (1978), 62). Later, however, the Commission decided to integrate the provisions on interpretation into the Convention as a whole, so that they would govern the interpretation of contracts as well as the interpretation of unilateral acts and statements for the purpose of determining whether a contract has been concluded (see Yearbook, IX (1978), 43).
1.2. - Article 8(1) is based on Article 3(2) of ULVC, which provided:
Article 8(1) also incorporates the thought behind Article 3(1) of ULVC, which provided:
This latter provision was deleted by the Working Group after it was pointed out that it. was superfluous since the rule of Article 8(1) would lead to the same result (see Yearbook, IX (1978), 63). The Working Group decided to cast the rule of Article 8(1) in the singular, so that it would refer to the statements and conduct «of a party» rather than «of the parties» (see Yearbook, IX (1978), 63). Later, it was decided to substitute the words «knew or could not have been unaware of» for «knew or ought to have known». This was done to take account of «the concern expressed in the Commission that the previous paragraph (1) contained too subjective a test» (see Yearbook, IX (1978), 34). No further changes were made at the Vienna Convention (see Official Records, I, 88).
1.3. - Article 8(2) is based on Article 3(3) of ULVC, which provided: [page 96]
The Working Group's decision to use the singular rather than the plural was applied to this paragraph (see § 1.2., supra) and the word «understanding» was substituted for «intent» (see Yearbook, IX (1978), 64). At the Vienna Convention, it was decided to refer to «a reasonable person of the same kind as the other party» instead of just «a reasonable person» in order to indicate the characteristic that should be assumed on the part of the reasonable person and to make it clear that the reference is to the party to whom the statement was addressed and not to the party making the statement (see Official Records, II, 423).
1.4. - Article 8(3)'s remote antecedent is Article 4(2) of ULFC, which dealt with the interpretation of offers and similar proposals. Its direct antecedent is Article 4(1) of ULVC, which was based in part on Article 4(2) of ULFC and which provided:
This provision was shortened by the deletion of the reference to «the meaning usually given in any trade concerned» (see Yearbook, VIII (1977), 90) and of the definition of usages (see Yearbook, IX (1978), 35; Official Records, I, 88).
2. Meaning and purpose of the provision.
2.1. - Article 8 is broad in scope. It furnishes rules to be followed in interpreting any statement or other conduct of a party for the purposes of the Convention. It is not limited to the interpretation of the contract terms in order to determine the meaning of the contract. It also applies to the interpretation of statements [page 97] and other conduct during the negotiation stage (e.g., an offer, an acceptance, a revocation of an offer, a rejection of an offer) in order to determine whether a contract has been concluded in the first place. And it applies to the interpretation of statements and other conduct after the conclusion of a contract (e.g., a modification or termination, a notification that the goods are defective, a modification or avoidance), in order to determine how the parties' rights under the contract have been affected by that conduct.
2.2. - In applying Article 8, reference is to be made to the time that the conduct had its effect, not to the time of the dispute over its interpretation. In a dispute over the meaning of a contract, for example, each party claims that the language should be given a .meaning that he attaches to it at the time of the dispute. However, in resolving the dispute reference is made not to these meanings, but to the meanings attached by each party at the time the contract was made at the time their conduct was to have effect.
2.3. - Paragraph (1) lays down a «subjective» test (i.e., a test that depends on the actual intentions of the parties). If, for example, an offeror, in making his offer, actually attached to it the meaning that he now claims, and if he can also show that the offeree knew that the offeror attached that meaning, the offeror's intent will prevail. However, even if the offeree knew the meaning that the offeror attached, it may be difficult for the offeror to prove this. Consequently, under paragraph (1), if the offeror shows that the offeree «could not have been unaware» of the offeror's intent, the result will be the same as if he shows that the offeree actually knew of the offeror's intent -- the offeror's intent will prevail.
One consequence of paragraph (1) is that if the parties shared a common understanding of the meaning of language or other conduct, that understanding will prevail regardless of what a reasonable person might have understood. If, for example, a seller agrees with a buyer to show a price of 50,000 in the contract, rather than the true price of 100,000, in order to reduce the broker's fees, their contract will be interpreted according to their common understanding, 100,000 not 50,000 (see Max-Planck report's example quoted in Yearbook, IX (1978), 97). [page 98]
However, the test of actual intent contained in paragraph (1) will not often be applied in practice. This is because it will not usually be possible for a party to show either that the other party knew or that the other party could not have been unaware of the first party's intent.
2.4. - If paragraph (1) is not applicable, paragraph (2) applies. Under that paragraph a party's conduct «is to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances». Thus under this paragraph the offeror's intent will prevail if he can show that this would have been the understading of a reasonable person of the same kind and in the same circumstances as the offeree.
If the offeror's meaning does not prevail, this must mean that the offeree actually had a different intent. The offeree may then be able to invoke the rule of paragraph (2) by showing that, when the offeree accepted the offer, a reasonable person of the same kind and in the same circumstances as the offeror would have had the same understanding as the offeree. The offeree's meaning would then prevail. The effect of paragraph (2) will usually be the interpretation that is the more reasonable in the light of the kind of parties involved and their circumstances (but see § 3.2., infra).
It is worth emphasizing that the test of paragraph (2) is not that of a reasonable person in the abstract. Paragraph (2) requires a tribunal to hypothesize a reasonable person of the same kind as the other party with respect, for example, to such matters as linguistic background and technical skill. And it requires the tribunal to hypothesize that this person is in the same circumstances as the other party with respect, for example, to knowledge of prior dealings and negotiations between the parties and awareness of world markets and events. Thus, for example, definitions in dictionaries or in trade codes would not be binding unless they would be part of such a reasonable person's understanding.
2.5. - A simple example will help in understanding the relationship of paragraphs (1) and (2). Suppose that a seller offered to sell to a buyer «1,000 tons» of ore and the buyer replied «I [page 99] accept». The seller now claims that he is bound to deliver «short» tons (i.e., of 2,000 pounds), while the buyer claims that he is entitled to the delivery of «long» tons (i.e., of 2,240 pounds) (see example in Yearbook, IX (1978), 98).
If the seller can show not only that it was his intent when he made his offer to sell «short» tons but that the buyer actually knew that it was the seller's intent to sell «short» tons, the seller's meaning will prevail. Furthermore, the seller's meaning will prevail even if the seller cannot show that the buyer actually knew that it was the seller's intent to sell «short» tons, as long as the seller can show that the buyer could not have been unaware that this was the seller's intent. All of this follows from paragraph (1).
If the seller cannot show either that the buyer knew or that he could not have been unaware of the seller's intent to sell «short» tons, his meaning will not prevail under paragraph (1) but it still may prevail under paragraph (2). In order for the seller's meaning to prevail under paragraph (2), he must show that a reasonable person of the same kind as the buyer and in the same circumstances as the. buyer would have understood «short» tons.
If the seller's meaning does not prevail, then the buyer will be able to show that when he said «I accept» his intent was to accept a contract for «long» tons. In addition, the buyer may be able to show that a reasonable person of the same kind and in the same circumstances as the seller would also have understood his acceptance as one of a contract for «long» tons. Thus under paragraph (2) the buyer's meaning will prevail.
2.6. - Paragraph (3) gives a non-exclusive list of circumstances that are to be taken into consideration in the interpretation process. These include negotiations, practices, usages and subsequent conduct of the parties (SCHLECHTRIEM, UN-Kaufrecht, 26; Uniform Sales Law, 39).
The reference to subsequent conduct permits a party to rely on what is sometimes called «course of performance» or «practical construction», in which the behaviour of the parties over repeated occasions for performance is used in determining their understanding of the contract. This reference is of special importance because, though some legal systems allow this use of subsequent conduct, not all systems do. [page 100]
3. Problems concerning the provision.
3.1. - One troublesome feature of the rules of paragraph (1) and (2) is that they are stated in terms of the conduct «of a party». This poses no problem if what is being interpreted is the unilateral act of a single party, as is the case, for example, of an offer or a notification or avoidance. The rules seem less well designed, however, to deal with situations like that, for example, in which after prolonged negotiations the parties nearly simultaneously put their signatures to a document that they have drafted jointly. Nevertheless, the rules of paragraphs (1) and (2) seem capable of application to even this situation if the signature of each party is regarded as a statement by that party the text of which is the text of the agreement that is signed.
3.2. - Another troublesome feature of the rules of paragraphs (1) and (2) is that it is possible for them to result in a standoff, under which neither party's intent will prevail. This might arise in the illustration given earlier (see § 2.5., supra), for example, if the seller intended «short» tons but a reasonable person of the same kind and in the same circumstances as the buyer would not have had this understanding, while the buyer intended «long» tons but a reasonable person of the same kind and in the same circumstances as the seller would not have had this understanding.
Commentators have suggested that in such a situation there would be no contract (see Yearbook, IX (1978), 97-98; HONNOLD, Uniform Law, 141). This is the general understanding of the famous English case of the two ships named «Peerless» (see Raffles v. Wichlhaus, 2 H. & C. 906, 159 English Reports 375 (Ex. 1864). It would also be the result required by Article 5 of ULVC, according to which «there is no contract if, under the provisions of the preceding articles, an agreement between the parties cannot be established» (see Yearbook, VIII (1977), 105). That provision was not, however, incorporated into the Convention.
Fortunately, such situations will rarely occur, since a tribunal will usually be able to apply the test of reasonableness under paragraph (2) so as to yield the interpretation advanced by one party or the other. The result will sometimes turn on which party has the burden of showing that a contract was concluded on his terms.[page 101]
3.3. - A problem that is likely to be of more practical significance relates. to the effect of «merger» clauses on Article 8. A «merger» clause is a clause that states that all of the agreements between the parties are integrated into their written agreement. It is primarily designed to prevent recourse to prior negotiations for the purpose of supplementing or modifying the writing. Whether such a clause is effective for this purpose does not appear to be governed by the Convention. Although Article 6 allows the parties to vary the rules of the Convention, that article does not apply where, as here, the Convention is silent.
The more difficult question is whether a «merger» clause would be effective to vary Article 8(3), which provides that in the interpretation of a contract «due consideration is to be given to all relevant circumstances of the case including the negotiations». Certainly a tribunal should carefully scrutinize the language of any «merger» clause in an effort to read it as barring evidence of negotiations only for the purposes of supplementing or modifying the writing, and not for the purpose of explaining the writing. If the clause is broadly drafted so that it purports to bar evidence of negotiations for this purpose as well, the tribunal may face a difficult question as to whether the clause is in this respect invalid under the applicable domestic law since, under Article 4, the Convention is not concerned with the validity of any of the provisions of the contract. (For a different resolution of this problem, see HONNOLD, Uniform Law, 142-143).
3.4. - A final problem concerns the relationship between interpretation and mistake in expression. If a seller mistakenly offers to sell goods for «68,000 francs» when he intended to offer to sell them for 86,000 francs, a reasonable person of the same kind and in the same circumstances of the buyer might not realize that the seller had made a mistake in expression. If the buyer accepts, the rule of Article 19(2) would result in a contract at 68,000 francs as a matter of interpretation. Whether the seller can avoid the contract on the ground of his mistake is, however, a separate question. The answer to this question is not determined by the Convention but rather by the applicable domestic law since, under Article 4, the Convention is not concerned with the validity of the contract. [page 102]