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Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 353-357. Reproduced with permission of the publisher, Kluwer Law International, The Hague.

Article 55

Open-Price Contracts

A. Interplay of Rules on Formation and on Price Determination
B. Proposals and Agreements that do not State the Price
      (1) Evidence of Formation Limited to Two Communications
      (2) Article 14(1) as Rule of Contract Validity
      (3) Article 55 and Domestic Rules on "Validity"

§ 324 A. Interplay of Rules on Formation and on Price-Determination

We have already considered open-price contracts in examining the criteria for an offer stated in Article 14; there we met conflicting views over whether the parties may make a contract without determining the price. At the Diplomatic Conference, the final decisions on this issue involved both Article 14 and Article 55. For this reason, both Articles were considered in detail in connection with Article 14, supra at §§134137.6; that discussion is a necessary part of the present examination of Article 55.

The relevant provisions are as follows:

Article 14

"(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

[The full text of Article 14, including paragraph (2), is set forth supra under Article 14 at §133.]

Article 55 [1]

"Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."[page 353]

§325 B. Proposals and Agreements that do not State the Price

In examining the relationship between Articles 14(1) and 55 we need to recall the central points of the discussion of Article 14(1), at §§132.1, 133 and 137.4, supra. That discussion is summarized under headings (1) and (2), which follow.

§ 325.1 (1) Evidence of Formation Limited to Two Communications

The Introduction to Part II—Formation (§132.1 supra) noted that the Convention’s rules on "offer" and "acceptance" are addressed to situations in which the only relevant facts are two communications: one that may (or may not) be an "offer" and a reply that may (or may not) be an "acceptance". While situations with this limited setting are not typical of contract-formation in international trade the offer-acceptance rules are useful; serious problems develop only if one leaps to the conclusion that no contract is formed if an "offer" and "acceptance" cannot be isolated from a flow of communications that mature into agreement, or if the parties’ decision to make a contract becomes clear only as a result of conduct such as the shipment of goods and their acceptance.

The discussion (§170, supra) of Article 19 had to face a similar issue: Delivery and acceptance of goods often follow the exchange of forms that include material inconsistencies; after the transaction has been consummated the question is not "Was there a contract?" but "What were its terms?" On the other hand, when the only basis for finding a contract is the exchange of communications, the rules on contract formation are (and should be) strict. The following example provides one of many possible illustrations.

Example 55A. On June 1, Buyer telexed Seller, "Can you ship me 1,000 bales of No. 1 Cotton?" Seller replied, "Accept your offer. Cotton at $110 per bale will be shipped July 1". Buyer responded, "My telex was only an inquiry: Cannot agree to your terms". Seller answered, "Accepted your offer and will hold you to the contract."

The parties are not bound by contract. Under Article 14(1) Buyer’s "proposal" may not be construed as an "offer": it was not "sufficiently definite" because it did not "expressly or implicitly" fix or make "provision for determining...the price".

The reasons for this strict rule for construing proposals were explored in discussing Article 14 and Example 14A, §137.4 supra.[page 354]

§325.2 (2) Article 14(1) as Rule of Contract Validity

Is the provision on price in Article 14(1) a rule for the construction of "proposals" or is it a rule of validity that nullifies an agreement in which the parties show that they intend to be bound? Reasons for the former conclusion were developed in discussing Article 14 at §137.5, supra. This question of validity under Article 14 (unlike the question of validity under domestic law to be discussed next) is of great importance; at stake is the freedom to contract in all international sales governed by Part II of the Convention; also at stake is the applicability of the uniform substantive rules of Part III. The dimensions of the problem were explored in greater detail under Article 14 at §§137.5–137.6.

§325.3 (3) Article 55 and Domestic Rules on "Validity"

We turn now from Article 14 to Article 55 (quoted at §324) and, more particularly, to the opening phrase: "When a contract has been validly concluded...".

This language emerged during UNCITRAL’s 1977 review of the Working Group’s "Sales" Draft (VIII YB 48–49, Docy. Hist. 341–342) and responded to concerns of some delegates that the Convention should not disturb the rule of their domestic law that provision for the price in an agreement was a requisite for a valid contract.[2] This concern was aggravated by the fact that the draft then provided that, in the absence of agreement, the buyer must pay "the price generally charged by the seller", a provision that could be abused by the seller.[3] This view persisted and, at [page 355] the Diplomatic Conference the reference to "the price charged by the seller" was replaced by "the price generally charged."[4]

A second aspect of this 1977 review was the addition of the reference to "validity" to the opening phrase of Article 55. The legislative history shows that this amendment was designed (in the words of the Commission’s decision quoted more fully in note 2, supra) to restrict the scope of the article "to agreements that were valid by the applicable law"—i.e. domestic law applicable under rules of private international law. See Article 14, supra, at §137.6.

This departure from uniformity is unfortunate but is of acceptable proportions. The rule of "validity" is rejected by the (U.K.) Sale of Goods Act (the pattern for most of the common-law world), by the (U.S.A.) Uniform Commercial Code, and also by many code systems that on this point do not follow French law.[5] The practical consequence of the Convention’s concession to domestic law is that, in making agreements with parties with places of business in States that retain the strict "validity" rule, the parties must exercise no less (and no more) care than formerly to comply with this feature of domestic law. (The serious consequences, including total loss of protection under the Convention, were analyzed under Article 14, supra, at §137.7.)

As we have seen, some domestic "validity" rules responded to concern that, in the absence of a contract provision, the seller would set the price. In view of the deletion of the reference in the UNCITRAL draft to "the price generally charged by the seller..." in favor of the reference in Article 55 to "the price generally charged",[6] some domestic systems may wish to consider whether their traditional rule has become unnecessary for international trade. See e.g., Fortier, supra n.3 at 387–388.

Some delegates from Eastern European countries with planned economies also noted that a contract that did not state the price would be inconsistent with the formality of their foreign trade agreements. (This outlook had also generated objections to Article 11 which rejected domestic formal requirements; to meet this concern Articles 12 and 96 authorized reservations to Article 11. The "validity" exception in Article 55 seems functionally similar to the provision allowing a reservation to Article 11.) In any event, these formal foreign trade agreements are not [page 356] likely to fail to provide for the price, and will avoid the question posed by Articles 14 and 55.[7]

Definiteness of Price; Validity. Decisions on these issues were collected in the combined consideration of Articles 14 and 55 at §§137.4–137.8. Attention was paid to redrafting CISG at the Diplomatic Conference to establish rules of validity concerning definiteness of the price, with special reference to French law. Against this background, the following decision, although not definitive, may be of interest.

Decision: FRANCE, CA (Paris), 22 April 1992, affirmed by the Cour de Cassation (Sup. Ct.) 4 January 1995, S. Faube F.FDIS v. Fujitsu. A French buyer ordered electric components from a German seller. The parties exchanged messages on price, subject to later increases or decreases in market price. S shipped goods which B rejected on the ground that a fixed price had not been determined. Both the Court of Appeal and the Cour de Cassation rejected this ground for rejection, and required B to pay for the goods. UNILEX D.1992–9.1, D.1995–1, CLOUT 158.

Comments: Adami, F., "Open Price", 2 Int. Bus. L.J. 103–120 (1993); Amato, P., 13 JLC 1–29 (1993); Murray, D.E., "Open Price": Worldwide Setting, 89 Comp. L. J. 491–800 (1984); Schlechtriem, Com. (1998) 460–462 (Hager). See also references and cases at Article 14.[page 357]

FOOTNOTES: Chapter on Article 55

1. Cf ULIS 57. Art. 51 of the 1978 Draft Convention was substantially revised at the Diplomatic Conference. The legislative history of these changes is examined at notes 2–4 infra.

2. The concern to preserve this rule of domestic law was expressed at different stages of the legislative proceedings. VI YB 73 (para. 153), 74, IV YB 32, IV YB 113 (para. 38) 57, VIII YB 48–49; O.R. 363–367, 392–393; Docy. Hist. 151, 152, 209, 238, 341–342, 584–588, 613–614. The Commission’s decision to add the opening phrase to what became Article 55 (then draft article 37) was as follows (Report of Tenth Session, 1977, A/32/17, Annex I): The Commission sitting as the Committee of the Whole "decided to introduce an express statement into the article to make it clear that it applied to agreements which were considered valid by the applicable law". (Emphasis added). VII YB 49, Docy. Hist. 342, (paras. 329, 340.) On the meaning of "applicable law" see the discussion under Article 14 at §137.6, supra. See Docy. Hist. 341 Para. 328 (applicable national law).

3. The language pointing to the seller’s price was inherited from ULIS (1964) Art. 57. For discussion in UNCITRAL, see: VI YB 73 (para. 152), 74, IV YB 33; Docy. Hist. 151 (para. 152), 152, 210. Decisions in France that seem to reflect this view are discussed in Tallon, Parker Colloq. at 7–11 & 7–12. See also Fortier, Le prix dans la Convention de Vienne, 117 J. D.I. 381 (1990).

4. O.R. 392–393, Docy, Hist. 613–614.

5. (U.K.) SGA (2); (USA) UCC2–305. See Murray, "Open Price" in a Worldwide Setting, Comm. L.J. 491, 496–499 (Nov. 1984); Niggeman, Buyer’s Obligations, Int. Bus. L.J. No. 1, 1988, 27, 31–33; Sevón, Dubrovnik Lectures 209.

6. 1978 UNCITRAL draft, Art. 51, O.R. 10, Docy. Hist. 387.

7. The discussion of Article 29, §§204.2204.3, supra, suggested that the common-law rule requiring "consideration" for the modification of a contract was not preserved by the provision of Article 4(a) that the Convention "is not concerned with: (a) the validity of the contract..." The reason for this conclusion, in brief, was that Article 4(a) could not mean that the Convention was not "concerned" with issues on which it framed a rule—in that setting the rule of Article 29 that a contract could be modified by "mere agreement of the parties". This principle, of course, does not apply to specific concessions to domestic law such as the opening phrase of Article 55 and the provisions of Articles 12 and 96 allowing reservations excluding Article 11.

Pace Law School Institute of International Commercial Law - Last updated February 25, 2005
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