Reproduced with permission from 12 New York International Law Review (1999) 105-110, published by the New York State Bar Association, One Elk Street, Albany, New York 12207
144 F.3d 1384 (11th Cir. 1998)
Jee J. Kim
Federal Courts Required to Examine Parol Evidence when Interpreting Contracts Governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG)
In MCC-Marble Ceramic Center, Inc. v. Ceramica Nuovo d'Agostino, S.p.A., the Court of Appeals for the Eleventh Circuit interpreted a contract governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG or the "Convention"), and held that article 8(1)  required a court to consider parol evidence of a party's subjective intent when contracting, where the other party was aware of the intent at the time of the contract, even when the oral agreement or conduct contradicts the written contract. In a substantial departure from American jurisprudence, CISG "essentially rejects the parol evidence rule" and "gives clear instructions to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent." In so holding, the Court of Appeals reversed the District Court's decision to grant summary judgment, where the District Court relied only upon the terms and conditions set forth in the written contract.
MCC-Marble Ceramic Center, Inc. (MCC), a Florida corporation, contracted with Ceramica Nuovo d'Agostino S.p.A. ("d'Agostino"), an Italian company, for the purchase of tiles. The contract was negotiated by MCC's president J. Monzon and d'Agostino's commercial director G. Silingardi through a translator, G. Copelli, also an agent of d'Agostino. The parties reached an oral agreement on the essential terms regarding price, quality, quantity, delivery and payment for ceramic tiles sold by d'Agostino to MCC. The parties then signed a written contract on d'Agostino's standard, pre-printed order form, with additional terms on the back which were incorporated by reference. In February 1991, according to MCC, the parties also entered a requirements contract whereby d'Agostino was to supply additional tiles to MCC.
MCC sued d'Agostino for breach of contract when d'Agostino failed to deliver several subsequent orders scheduled for delivery in April, May and August 1991, pursuant to the February 1991 requirements contract. D'Agostino brought counterclaims, seeking damages for non-payment of its tiles, delivered to MCC between February 1991 and July 1991. As its defense for MCC's claim of breach of contract, d'Agostino offered the written contract, which included terms establishing that, in the event of a default of payment, d'Agostino was under no obligation to fill MCC's orders.
In response to d'Agostino's counterclaim of non-payments, MCC alleged the tiles were of inferior quality, entitling MCC to reduce its payments pursuant to article 50 of CISG. However, d'Agostino, referring again to the terms of the contract, stated that the complaints for defects were not properly made by MCC. MCC did not dispute any of the above underlying facts during trial, nor did MCC dispute the translations provided by d'Agostino. Instead, MCC stated that it did not intend to be bound by the additional terms and conditions on the back of the order form. As evidence of the parties' subjective intent, MCC filed affidavits of Monzon, Silingardi and Copelli. The affidavits support MCC's claim that the parties did not intend to be bound by the terms on the back of the order form.
The magistrate judge held that even if the affidavits were accurate, they did not raise an issue of material fact regarding the interpretation or applicability of the terms of the written contract. The District Court, agreeing with this position, granted summary judgment in d'Agostino's favor. MCC, the plaintiff-appellant, then brought this appeal before the Court of Appeals, stating that the affidavits raised an issue of material fact, which should have precluded summary judgment.
Although United States case law interpreting the Sale of Goods Convention is limited, the Convention nevertheless governs all contracts between parties conducting business in different nations, if both nations are signatories to the Convention, unless the parties agree otherwise. As such, the Court of Appeals determined that CISG governed this contract since both the United States and Italy were signatories to the Convention at the time of contract negotiations. Furthermore, the parties themselves also agreed that CISG governed their dispute.
After establishing that CISG governs, the Court of Appeals examined article 8, which was the basis of MCC's appeal. Article 8 of United Nations Convention on Contracts for the International Sale of Goods, explains the procedure where the courts consider the parties' subjective and objective intent. The plain language used in the Convention requires courts to investigate a party's subjective intent when the other party to the contract knew or could not have been unaware of that intent. The CISG appears to permit a substantial inquiry into the parties' subjective intent, unlike United States contract and case laws.
MCC presented evidence of its subjective intent in the form of affidavits, including one from Monzon, the president of MCC, in addition to those of Silingardi and Copelli, both agents of d'Agostino. All three affiants contended that the parties subjectively intended not to be bound by the terms written on the reverse of the order form, even though such terms were incorporated by reference on the face of the document. The Court of Appeals noted that article 8(1) not only requires consideration of evidence of the parties' subjective intent, but also requires a court to consider subjective intent in its interpretation of the conduct of the parties. Therefore, because MCC provided affidavits which evidenced the parties' subjective intent, the court was therefore required also to consider MCC's evidence as it relates to the court's interpretation of the parties' conduct. Otherwise, without the affidavits, article 8(2)  directs courts to interpret the parties' intent through objective evidence.
The Court of Appeals in MCC explained that the parol evidence rule is a substantive rule of law, not a rule of evidence. Therefore, a federal district court cannot simply apply the parol evidence rule as a procedural matter, as it would other procedural rules such as Federal Rules of Evidence, which courts would apply regardless of the source of the substantive rule of decision. The court noted that the drafters of CISG were "comfortable with the concept of permitting parties to rely on oral contracts . . . and expressly provided for the enforcement of oral contracts." Also, in enacting article 8(3)  the drafters "expressly directed courts to give, due consideration . . . to all relevant circumstances of the case including negotiations." The Court of Appeals reasoned that one of the primary factors in motivating the negotiation and adoption of CISG was to promote a certainty as to applicable principles of law that would govern potential disputes and remove doubt as to which party's legal system would apply.
Article 7 also explains that the purpose of CISG is to promote uniformity and good faith in international trade. In view of the purposes of CISG, the Court of Appeals stated that courts applying CISG "cannot, therefore, upset the parties' reliance on the Convention" by instituting their own notions and principles of domestic law when the result would conflict with CISG. Having interpreted the plain language of the Convention, the intent of the drafters and the overall goals of CISG, the Court of Appeals held that evidence of subjective intent precluded summary judgment when granted solely upon the written contract, reversed the District Court's summary judgment and remanded to inquire into the subjective intent of the parties.
The court recognized the problem presented when parol evidence is admissible, particularly when a party may not be able to rely on a written contract. However, the court also indicated the rarity of situations where both parties acknowledge a subjective intent not to be bound by the terms of a pre-printed writing. Even the submission of an affidavit of subjective intent may be insufficient. Should the parties wish to prevent any parol evidence from being admitted, they can include a merger clause in the contract that "extinguishes any and all prior agreements and understandings not expressed in writing." The decision rendered in MCC is another example illustrating the trend of recognizing international principles of law in U.S. courts. What might have become a problematic issue in the future through article 8 of CISG has been narrowly defined to be strictly construed in its application, to comply with promoting international good faith and uniformity, and thereby reduce the uncertainty normally associated with international transactions.
1. 144 F.3d 1384 (11th Cir. 1998) [hereinafter MCC-Marble].
2. United Nations Convention on Contracts for the International Sale of Goods, opened for signature April 11, 1980, S. Treaty Doc. No. 9, 98th Cong., 1st Sess. 22 (1983), 19 I.L.M. 671, reprinted at 15 U.S.C. app. 52 (1997). See generally Steven J. Stein, Sales Contracts and the Impact of the U.N. Convention on the International Sales of Goods on U.S. Businesses, 553 PLI/Comm. 49 (1990).
3. See CISG 19. I.L.M. 671, art. 8(1) (providing that "for the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was").
4. MCC-Marble, 144 F.3d at 1387 (holding that the CISG appears to permit a substantial inquiry into the parties' subjective intent and that the plain meaning of the Convention, therefore, requires an inquiry into a party's subjective intent as long as the other party to the contract was aware of that intent).
5. See id. at 1387 n.8 (discussing that U.S. legislatures, courts and the legal academy have voiced a preference for relying on objective manifestations of the parties' intentions).
6. See id. at 1390 (discussing the Court of Appeals' position, in reading art. 8(3) as a rejection of the parol evidence rule is still "in accordance with the great weight of academic commentary on the issue"); see also John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, § 110 at 170, 71. (2d ed. 1991) (discussing that art. 8(3) "relieves tribunals from domestic rules that might bar them from 'considering' any evidence between the parties that is relevant"). See generally E. Allen Farnsworth, Farnsworth on Contracts § 9.6 at 647 (3d ed. 1999) (discussing that courts have held that if an agreement is completely integrated, the parol evidence rule bars extrinsic evidence to show the assumption of the parties).
7. See MCC-Marble, 144 F.3d at 1389 (discussing that art. 8(3) "expressly directs courts to give 'due consideration … to all relevant circumstances of the case including the negotiations . . . ' to determine the intent of the parties") (citations omitted).
8. See id. at 1392.
9. Id. at 1385.
13. Id. (discussing Maselli's affidavit contained in the record at 2-126). Underneath Monzon's signature, translated from Italian is the following statement: "[T]he buyer hereby states that he is aware of the sales conditions stated on the reverse and that he expressly approves of them with special reference to those numbered 1-2-3-4-5-6-7-8."). Id. at 1386. See generally Farnsworth, supra note 6, § 3.28 at 209, 210 (for a discussion on incorporation by reference).
14. See MCC-Marble, 144 F.3d at 1385.
16. Id. at 1386.
17. Id. (discussing Maselli's affidavit contained in the record at 2-126). The print on the back of the form states: "[D]efault or delay in payment within the time agreed upon gives d'Agostino the right to . . . suspend or cancel the contract itself and to cancel possible other pending contracts and the buyer does not have the right to indemnification or damages" (alterations in original). Id.
19. See CISG, 19 I.L.M. 671, art. 50 (permitting a buyer to reduce payments for nonconforming goods in proportion to their nonconformity under certain conditions).
20. MCC-Marble, 144 F.3d 1384 (discussing Maselli's affidavit contained in the record at 2-126). The print on the back of the form states: "[C]omplaints for defects of the merchandise must be made in writing by means of a certified letter and not later than 10 days after receipt of the merchandise." The court did note that "[a]lthough there is evidence to support MCC's claims that it complained about the quality of the deliveries it received, MCC never submitted any written complaints." Id. at 1386.
22. See id. at 1386 n.3 (stating that d'Agostino provided the translation of the contract, which was never contested by MCC for its accuracy).
23. See id. at 1386.
24. See id. at 1387.
26. Id. at 1386.
28. Id. at 1385.
29. See Taylor & Crisera, U.N. Pact Has Wide Application, Nat'l L.J., Dec. 23, 1991 at 23; see also Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1024, 1027-28 (2d Cir. 1995) (observing that there is virtually no case law under the Convention).
30. See CISG 19 I.L.M. 671, art. 1 (providing that the Convention applies to contracts for sale of goods between parties whose places of business are in different states when the states are contracting states).
31. See CISG supra, note 30; see also Filanto S.p.A. v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1237 (S.D.N.Y. 1992).
32. MCC-Marble, 144 F.3d at 1386.
33. CISG 19. I.L.M. 671, art. 8 states:
34. MCC-Marble, 144 F.3d at 1387.
37. See generally U.C.C. § 2-202, which includes a version of the parol evidence rule applicable to contracts for the sale of goods in most states, and prohibits evidence of any prior agreement or of a contemporaneous oral agreement; see also Lucy v. Zehmer, 84 S.E.2d 516, 522 (1954) (indicating that a party's manifestation of objective intent is critical to creating a binding contract, and that subjective intent has little or no relevance).
38. MCC-Marble, 144 F.3d at 1385.
39. Id. at 1387 (the parties memorialized their oral agreement on a standard d'Agostino order form, but did not intend to include the additional terms on the back).
40. See id. at 1388; see also CISG, supra note 33.
41. MCC-Marble, 144 F.3d at 1388.
42. Where art. 8(1) is not applicable, art. 8(2) examines a party's conduct through the eyes of a reasonable person in the position of the other party, by essentially objective evidence. See CISG arts. 8(1), 8(2), supra note 33.
43. See MCC-Marble, 144 F.3d at n.11. The court notes that MCC's affidavits provide no evidence to indicate that Monzon's actions would show his alleged subjective intent not to be bound by the contract, known to "the understanding that a reasonable person . . . would have had in the same circumstances."
44. Id. at 1389 (citing Farnsworth, supra note 6, § 7.2 at 194).
45. Id. at 1389 n.1.
46. Id. Cf. Farnsworth, supra note 6, § 7.2 at 196 & n.16 (citing cases).
47. Compare CISG art. 11, which provides that a contract need not be in writing, and that the parties may prove the contract "by any means, including witnesses," with U.C.C. § 2-201, which precludes enforcement of oral contracts over $500, and U.C.C. § 2-202 "which may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement." But see U.C.C. § 2-202(b), which allows evidence of consistent additional terms that explain or supplement the agreement.
48. See CISG 19 I.L.M., art. 8(3).
49. MCC-Marble, 144 F.3d at 1389 n.1.
50. See Letter of Transmittal from Ronald Reagan, President of the United States, to the United States Senate, reprinted at 15 U.S.C. app. 70, 71 (1997) (discussing that one of the primary factors motivating the negotiations and adoptions of the CISG was to provide parties to international contracts with some degree of certainty as to the principles of law that would govern, and to remove the previous doubt regarding which party's legal system would apply).
51. See CISG, 19 I.L.M. 671, art. 7, which states:
52. MCC-Marble, 144 F.3d at 1391.
53. Id. at 1392.
56. Id. at 1391 (citing Klopfenstein v. Pargeter, 597 F.2d 150, 152 (9th Cir. 1979), which affirmed summary judgment despite the appellant's submission of his own affidavit regarding his subjective intent [not to be bound by the contract]).
57. See Ronald A. Brand & Harry M. Fletchner, Arbitration and Contract Formation in International Trade: First Interpretations of the U.N. Sales Convention, 12 J.L. & Com. 239, 252 (1993) (arguing that art. 8(3) of the CISG will not permit the consideration of parol evidence when the parties have expressly excluded oral modifications of the contract pursuant to art. 29); see also I. Albert Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, 125 (1989) (counseling the use of a merger clause to compensate for the absence of a parol evidence rule in the CISG).
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