EDITOR: Joseph M Go to Database Directory || Go to Bibliography || Go to CISG Case Search Form

EDITOR: Joseph M. Perillo [*]

a. Article 8 of CISG has been entitled "Interpretation of Statement or Other Conduct of a Party." Surprisingly, CISG makes no explicit statement concerning the interpretation of a contract that is the joint product of the parties' negotiations resulting in the adoption of common language. As Professor Honnold has noted, the provisions of Article 8 have "special significance for agreements that have not resulted from detailed negotiations."[1] Uncomplicated sales of goods, where no formalized contractual documents are produced are quite common, but more complex transactions interweaving sales with support services are quite important.[2] The UNIDROIT Principles' focus is broader than simple sales and provides explicit guidance for the interpretation of contracts and not merely for the interpretation of individual communications. It thus fills a wide gap in the CISG text.

b. Article 4.1 of the Principles talks in terms of the interpretation of "contracts." It starts with a subjective notion. If the parties have a common intention, the common intention will prevail. This, on the face of it, is the same rule that has been adopted by the American Restatement,[3] but the common law objectifies intention by erecting barriers to evidence of what the parties really intended as opposed to what they said or wrote.[4] Principles, however, disclaims any limitation on evidence of the parties' intentions.[5]

c. If the common intention of the parties cannot be determined, the Principles would apply an objective test to determine the meaning of the contract. Once again the Principles fill in a gap as the CISG is silent on the question of interpreting the joint intention of the parties. The objective test is that the interpretation should be the "meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances."[6]

d. CISG has rules concerning the interpretation of the statements and other conducts of individual parties. Article 4.2 of the Principles, except for stylistic changes, is identical to Article 8(1), and 8(2) of CISG. The primary standard is the subjective intention of the party whose statement or conduct is in issue, provided, however, that the other party knows or should know of that intent. If that standard cannot be attained, for example, the other party had no reason to know the first party's intent, then the standard is that of the reasonable person in the position of the other party.

e. Article 8(3) of CISG requires that "due consideration is to be given to all relevant circumstances of the case including the negotiations. . . ."[7] The Principles echo this rule. According to the Principles, the interpretation process must take into account "the preliminary negotiations between the parties."[8]

f. Can a merger clause change this result? According to CISG Article 6, the parties are free by agreement to vary (with one minor exception ) the effect of any provision of the Convention.[9] Thus, a merger clause that explicitly barred evidence of negotiations would be effective by virtue of Article 6. While the Principles recognize the validity of a merger clause that indicates that the writing is totally integrated, they state that a merger clause does not bar evidence of prior statements of agreements for purposes of interpreting the writing.[10] This statement appears to conflict with CISG. However, because of the principle of party autonomy that underlies the Principles, it certainly leaves open the possibility of effectively drafting a clause that expressly prohibits the parties from introducing such evidence for any purpose, including for interpretation.[11] However, the standard merger clause that states that there are no other understandings between the parties is unlikely to bar evidence of parol evidence for purposes of interpretation. Drafters of contracts should be aware of the narrow effect that a court is likely to give to a merger clause if CISG applies to the case,[12] particularly in the light of the hostility toward barriers to the introduction of evidence of the negotiations shown by its companion, the Principles.

g. One aspect of the parol evidence rule concerns the admissibility of supplementary or inconsistent terms in the face of an integrated writing. Absent a merger clause, do CISG or the Principles permit the admission of such terms in contexts where the common law would exclude them? While this question goes more to the issue of the content of the contract rather than its meaning, it is usually analyzed in the same framework as issues of interpretation. The answer is that both documents are parol-evidence friendly. Neither CISG nor the Principles contain any rule that bars evidence of additional or conflicting terms akin to the common law's parol evidence rule.[13] Under CISG, all relevant evidence is admissible.[14] The same is true under the Principles. While CISG states this mostly in general terms, the Principles flesh this out in detail.

h. Article 4.3 of the Principles agrees with CISG and directs that the court consider "all the circumstances," but it goes beyond CISG and itemizes six non-exclusive kinds of relevant circumstance: (1) preliminary negotiations, (2) course of dealing, (3) course of performance, (4) the nature and purpose of the contract, (5) trade terms, (6) usages. These are familiar kinds of evidence offered in common law cases. The main difference is that there is no preliminary hurdle of ambiguity that many jurisdictions impose (in non-UCC cases) prior to the admission of evidence such as evidence of preliminary negotiations,[15] or course of performance.[16] The latter is freely admissible under the UCC as is evidence of trade usage and course of dealing.[17]

i. Article 8 of CISG does not contain what the U.S. Restatement calls "rules in aid of interpretation and standards of preference." The Principles, however, lay down several such rules and thus provides food for the fleshing out of CISG. One rule is that words should be interpreted in the context of the whole contract or other document in which they appear.[18] Another is that specific provisions prevail over more general ones.[19] The contract, of course, can contain rules of interpretation, e.g., subordinating the terms of one document to that of another document that is part of one complex contract.[20] All terms of the contract are to be given effect.[21] Also, the Principles adopt the principle of contra proferentem -- interpretation against the party who supplied the language.[22] All of these rules are consistent with traditional approaches.

j. One rule the Principles promulgate deals with a problem seldom encountered in purely domestic contracts -- conflicts among versions of the contract in different languages. In the event of discrepancies, the Principles generally favor the version that was originally drawn up. CISG is silent on this important issue and the Principles advance the cause of certainty in international trade by providing a definite and logical rule.

k. The Principles announce a rule with respect to the vexing problem of the omitted term. Where no term of the contract covers an event that has occurred, the tribunal is faced with an omitted term.[23] Perhaps the event was unforeseen; perhaps it was foreseen as a possibility, but was too thorny an issue to be resolved by negotiation. Strictly, the supplying of a term is not interpretation of the parties' agreement. The court must create rather than interpret. However, some gap-fillers are routine and many are found in CISG, e.g., the buyer must notify the seller of any non-conformity of the goods within a reasonable time.[24] If the gap does not concern this kind of routine event, the Principles provide criteria for filling the gap.[25] Once again, the Principles identify raw material with which to fill the gap in CISG.

FOOTNOTES

* Alpin J. Cameron Professor of Law, Fordham University School of Law

1. John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention ¶ 105 p.163 (2d ed. 1991).

2. See, e.g., Advent Systems Ltd. v. Unisys Corp., 925 F.2d 670 (3d Cir.1991).

3. Restatement (Second) Contracts § 201(1) & Illus. 1, 3 (1979).

4. See John D. Calamari & Joseph M. Perillo, The Law of Contracts ch.3 (3d ed 1987) (4th ed. forthcoming 1998).

5. See Principles Arts. 1..2, 4.3, & 2.17.

6. Principles Article 4.1(2). However, the commentary advises the court that the actual subjective common intention of the parties, and their reasonable understanding may be subordinated to the understanding of average users of ?standard terms,? as defined in Article 2.19. Principles Art. 4.1, comment 4.

7. See Honnold supra note 1, at 111.

8. Principles Art. 4.3(a).

9. The exception is Article 12, which provides that if a contracting State makes a reservation under Article 96 and imposes writing or other form requirements on contracts., the parties cannot derogate from those requirements.

10. Principles Art. 2.17, final sentence.

11. Principles Arts. 1.1 & 1.5.

12. In an earlier article, I wrote: ?As an apparent exception to the general rule of contractual freedom adopted by Principles, a merger clause cannot effectively bar parol evidence for the purpose of interpreting a writing.? For this proposition, I cited Principles Article 2.17 and comment 3 to Article 4.3. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 Fordham L.Rev. 281, 291 (1994). This may have been the intent of the drafters of those provisions, but I have since reconsidered. That intent, if it exists, is overridden by Articles 1.1 & 1.5.

13. For an explanation of the absence of a reference to the parol evidence rule, see Honnold, supra note 1, at ¶ 110. Of course, the parol evidence rule is a rule of substantive law that has incidental evidentiary effects. See

14. CISG Art. 8(3). It is unfortunate that an American case that was faced with this issue stumbled. In Beijing Metals & Minerals Import Corp. v. American Business Center, Inc., 993 F.2d 1178, 1182 n.8 (5th Cir.1993)., the court without discussion or analysis applied the Texas parol evidence rule to bar evidence of an alleged additional oral term to a written contract governed by CISG. An earlier case had recognized the absence of a parol evidence rule in CISG. Filanto, S.p.A. v. Chilewich Intern. Corp., 789 F.Supp. 1229, 1238 n.7 (S.D.N.Y. 1992).

15. W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 566 N.E.2d 639, 565 N.Y.S.2d 440 (1990)

16. Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 966 (1993) (evidence of practical construction not admissible if the contract is unambiguous).

17. UCC § 2-202(a).

18. Principles Art.4.4.

19. Principles Art. 4.4, comment 2,

20. Ibid.

21. Principles Art. 4.5.

22. Principles Art. 4.6.

23. Restatement (Second) of Contracts ? 204 (1979).

24. CISG Art. 39.

25. Principles Art. 4.8.

Pace Law School Institute of International Commercial Law - Last updated February 5, 1998
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