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Article 55. Open-price Contracts

TEXT OF ARTICLE 55

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.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

55A Enforceability of agreements that do not make provision for the price; conflicting views:

55A1 Article 14 denies enforcement for lack of definiteness

55A2 Article 14 denies enforcement only when lack of provision for price indicates that parties do not intend to be bound

55A3 When parties intend to be bound, Article 55 upholds the agreement

55A31 Implied agreement on price generally charged for such goods

55A312 Problem: No general price; see art. 9 (practices and usages)

55A4 "Validly concluded" in art. 55 refers to applicable domestic law outlawing such agreements


DESCRIPTORS

Open-price contracts


CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

UNCITRAL has identified relevant cases in Digests containing case annotations for each article of the CISG. UNCITRAL cites 7 cases in its Digest of Art. 55 case law:

France      1           Hungary       1           Russian Federation        1         
Germany       1 ICC      2 Switzerland         1      TOTAL:      7

Presented below is a composite list of Art. 55 cases reporting UNCITRAL Digest cases and other Art. 55 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 9 May 2000 citation reported below. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data, including commentaries by scholars to the extent available.

There are scholars who believe that there are circumstances in which the UNIDROIT Principles of International Commercial Contracts may be used to interpret or supplement this Article of the CISG. See match-up of this Article with counterpart provisions of the Principles and commentary on this subject. To the extent this reasoning fits, cases on the counterpart provisions of the UNIDROIT Principles may be relevant. To the extent available, such cases may be found on the Unilex website.
 

Czech Republic 25 June 2008 Supreme Court (Manufactured paint case) 55A [translation available]
 

Slovak Republic 18 June 2007 Regional Court Zilina (Baked and confectionary goods case) [translation available]

Switzerland 27 April 2007 Tribunal cantonal [Appellate Court] Valais (Oven case) 55A [translation available]
 

Germany 19 October 2006 Oberlandesgericht [Appellate Court] München (Auto case) 55A [translation available]

Italy 24 August 2006 Tribunale [District Court] di Rovereto (Euroflash Impression S.a.s. v. Arconvert S.p.A.)

Netherlands 3 May 2006 Rechtbank [District Court] Rotterdam (Electric Motors case)

Russia 13 April 2006 Arbitration Award 105/2005 [translation available]
 

Switzerland 22 December 2005 Handelsgericht [Commercial Court] Zürich (Retail fashion clothes case) [translation available]

China 21 September 2005 Supreme Court of the PRC (Panda S.r.l. v. Shunde Westband Furniture Co., Ltd.)

Germany 3 August 2005 Landgericht [District Court] Neubrandenburg (Pitted sour cherries case) 55A [translation available]
 

Switzerland 11 October 2004 Kantonsgericht [Canton Court] Freiburg 55A [translation available]

Germany 15 September 2004 Oberlandesgericht [Appellate Court] München [translation available]

Russia 9 April 2004 Arbitration Award 129/2003 [translation available]

United States 29 March 2004 U.S. District Court [Pennsylvania] (Amco Ukrservice v. American Meter Company)
 

Spain 27 November 2003 Audiencia Provincial [Appellate Court] Barcelona 55A

Belgium 19 March 2003 Rechtbank van Koophandel [District Court] Veurne
 

Germany 10 October 2001 Oberlandesgericht [Appellate Court] Rostock 55A31 [translation available]

Russia 30 May 2001 Arbitration Award No. 185/2000 55A [translation available]
 

* Germany 9 May 2000 Landgericht [District Court] Darmstadt [translation available]
 

* ICC September 1999 International Court of Arbitration, Case 9819 55A
 

China 25 December 1998 CIETAC Arbitration Award [CISG/1998/11] (Pig iron case) 55A [translation available]

Bulgaria 30 November 1998 Bulgaria Chamber of Commerce Arbitration award, Case 14/98 55A31 [translation available]

Switzerland 16 September 1998 Bezirksgericht [District Court] Unterrheintal

Russia 16 February 1998 Arbitration award 33/1997 [translation available]
 

Switzerland 26 September 1997 Handelsgericht [Commercial Court] Aargau (Cutlery case) [translation available]

* Switzerland 3 July 1997 Bezirksgericht [District Court] St. Gallen 55A3 [translation available]
 

Germany 15 March 1996 Oberlandesgericht [Appellate Court] Frankfurt [Benetton II]
 

Switzerland 5 December 1995 Handerlsgericht [Commercial Court] St. Gallen (Computer hardware devices case) [translation available]

Russia 22 November 1995 Arbitration award 99/1994 55A [translation available]

Germany 12 May 1995 Amtsgericht [Lower Court] Alsfeld [translation available]

* France 26 April 1995 Cour d'appel [Appellate Court] Grenoble (Alain Veyron v. Ambrosio) 55A [translation available]

Russia 3 March 1995 Arbitration award 304/1993 [commentary available]

* Russia 3 March 1995 Arbitration award 309/1993 55A

* ICC 1995 International Court of Arbitration, Case 8324 55A3 [translation available]
 

Austria 10 November 1994 Oberster Gerichtshof [Supreme Court] 55A [translation available]

Germany 4 March 1994 Oberlandesgericht [Appellate Court] Frankfurt [translation available]
 

Austria 4 March 1993 Landesgericht [District Court] 55A
 

* Hungary 25 September 1992 Legfelsobb Bíróság [Supreme Court] 55A [translation available]

Hungary 10 January 1992 Fovárosi Bíróság [Metropolitan Court][translation available]
 

Argentina 20 May 1991 Juzgado Nacional de Primera Instancia en lo Comercial [National Commercial Court of First Instance] [translation available]


CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

The UNCITRAL Digest of case law on the United
Nations Convention on the International Sale of Goods
[*]

A/CN.9/SER.C/DIGEST/CISG/55 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 55
Digest of Article 55 case law
-    Introduction
-    Priority of the intention of the parties
-    Salvaging of a contract specifying no price
-    Price fixing by courts]
ARTICLE 55

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.

DIGEST OF ARTICLE 55 CASE LAW

Introduction

1. As has been revealed by the preparatory work, the interplay of articles 14 and 55 is one of the most delicate questions raised by the Convention.[1]

Priority of the intention of the parties

2. Court and arbitral decisions consistently find that for the application of article 55, as for other provisions of the Convention, one must refer first and foremost to the intention of the parties. Article 55 does not enable a judge or arbitrator to establish a price when it has already been determined,[2] or made determinable, by the contracting parties.[3] Article 55 of the Convention is likewise inapplicable when the parties have decided to make their contract subject to subsequent agreement on the price.[4]

Salvage of a contract specifying no price

3. In one case, a Supreme Court decided, with regard to the sale of aircraft engines, that an offer to sell had no force in the light of article 14 of the Convention because it did not contain the price of all types of aircraft engines among which the buyer could choose and that the contract was therefore invalid.[5] That decision seems to show that article 55 does not make it possible to give effect to a contract which is invalid owing to the absence of a price and that article 14 of the Convention thus prevails. Under that interpretation of article 55, the provision is applicable only if the contract of sale was validly concluded without a price.

4. On the other hand, one court invoked article 55 to determine the sale price of raw materials not agreed upon beforehand by the parties.[6] Equally, it appears that arbitrators, confronted with articles 14 and 55, give precedence to article 55 over article 14 and accept the responsibility of establishing the missing price with a view to rendering the contract effective.[7]

Price fixing by courts

5. The price established by the judge or arbitrator is that "generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned". While implementation of this provision should not give rise to any particular difficulties when the goods consist of raw materials or semi-finished products, it is a different matter when the contract deals with manufactured products. Thus, in a case involving the sale of aircraft engines, the Supreme Court of a State came to the conclusion that the price of aircraft engines could not be determined under article 55 because they have no market price as such.[8]


FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. 1980 Vienna Diplomatic Conference, Summary Records of Meeting of the First Committee, 8th meeting, Monday, 17 March 1980. On the same question, see Digest, article 14.

2. CLOUT case No. 343 [GERMANY Landgericht [District Court] Darmstadt 9 May 2000; available at <http://cisgw3.law.pace.edu/cases/000509g1.html>]; CLOUT case No. 151 [FRANCE Cour d'appel [Appellate Court] Grenoble 26 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950426f1.html>].

3. [ICC International Court of Arbitration, case No. 8324 of 1995; available at <http://cisgw3.law.pace.edu/cases/958324i1.html>]; CLOUT case No. 106 [AUSTRIA Oberster Gerichtshof [Supreme Court] 10 November 1994; available at <http://cisgw3.law.pace.edu/cases/941110a3.html>].

4. CLOUT case No. 139 [RUSSIA Arbitration Award case No. 309/1993 of 3 March 1995; available online at <http://cisgw3.law.pace.edu/cases/950303r1.html>].

5. CLOUT case No. 53 [HUNGARY Legfelsobb Bíróság [Supreme Court] 25 September 1992, available online at <http://cisgw3.law.pace.edu/cases/920925h1.html>].

6. CLOUT case No. 215 [SWITZERLAND Bezirksgericht [District Court] St. Gallen 3 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970703s1.html>]. See on this case, Digest, article 14, no. 16.

7. See [ICC International Court of Arbitration, case No. 9819 of 1999; available at <http://cisgw3.law.pace.edu/cases/999819i1.html>] ("Sale without prior fixing of a price is common in international trade, as is shown by the Vienna Convention of 11 April 1980 on the international sale of goods (art. 55) [...]").

8. CLOUT case No. 53 [HUNGARY Legfelsobb Bíróság [Supreme Court] 25 September 1992, available online at <http://cisgw3.law.pace.edu/cases/920925h1.html>].


ANALYSIS OF CISG CASE LAW

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

excerpt from

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene,
Virginia Maurer and Marisa Pagnattaro

[...]

1. Offer Rules and the Open Price Term: Articles 14 & 55

Cases interpreting Article 14 appear to rely mostly on the language of the CISG, with a modest amount of cross-references to other provisions in the Convention. Article 14's requirement that a valid offer be addressed to one or more specific persons has spurred academic debate, but it has not surfaced in a meaningful way in litigation.[193] Two areas of contract dispute that have been analyzed in the courts are offeror's intent to be bound upon acceptance of the alleged offer and contract requirements regarding the specificity of quantity and price. Consequently, reference to Article 8's methodology for interpreting intent is a vital component in determining whether a term is sufficiently definite under Article 14.[194]

The essential terms of the contract -- identification of the goods, quantity, and price -- must be specified; there are many methods of determining what the terms are if they are not stated expressly.[195] The degree that an offer fails to specify a sufficiently definite price is the issue that has created the most discussion under Article 14. Article 14's rule that the price may be implicitly fixed was a compromise between countries that [page 337] supported open price offers and those that opposed such offers.[196] Article 55, on supplying "the price generally charged," has served as a gap filler in determining whether an offer is "sufficiently definite" as required by Article 14(1). National courts have shown flexibility in finding that a price is sufficiently definite if it can be fixed or determinable in some way, such as a reference to market prices.[197]

National courts have used other CISG articles to fill in missing price and quantity terms. Article 8 determination of intent based upon a totality of the circumstances analysis [198] (prior dealings, course of performance, usage), as well as Article 9 (usage, prior dealings), which addresses industry practices and prior dealings between the parties, supplement Article 14 in determining whether the parties intended to be bound and whether the terms of the agreement are sufficiently definite in light of that intent. For example, national courts have held that price and quantity may be impliedly fixed by a long time commercial relationship between the parties.[199] Similarly, the ICC Court of Arbitration found that a contract was sufficiently definite even though the price agreed on by the parties was provisional and subject to revision depending on the price obtained from the final buyer. [200] The court's finding relied on Article 9(2) which assumes that [page 338] parties apply customary trade usage, as well as Article 8(3) which allows all relevant circumstances of the case, including negotiations, usages and practices, to be taken into account in determining the parties' intent.[201] The tendency of national courts to respect industry practice and custom is also reflected in a case where the plaintiff claimed that well-established industry custom was to rely on unwritten supply commitments. Noting that the CISG has "a strong preference for enforcing obligations and representations customarily relied upon by others in the industry," the U.S. court in Geneva Pharmaceutical Tech. Corp. v. Barr Labs., Inc.[202] held that a purchase order for "commercial quantities" of a product was sufficiently definite under Article 14 since it was supported by evidence of industry custom.[203]

Article 8(2)'s emphasis on the "reasonable person" interpretation of statements and conduct and Article 8(3)'s inclusion of subsequent conduct to determine intent have also been used by national courts to determine whether parties intended to be bound according to Article 14. Article 8(2) instructs that statements and 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."[204] A German court found that a contract for three "truck loads" of eggs was sufficiently definite, based on Article 8(2)'s interpretation of intent, because a reasonable buyer would expect a quantity equivalent to the full load capacity of the trucks.[205] A Hungarian court, although not referencing Article 8, held that the goods were unambiguously identified, and the quantity and price sufficiently definite, even where the offer "allowed unilateral power to the buyer" in choosing the quantity and model types of the products being purchased.[206] Relying on Article 8(2) and 8(3), an Austrian court found that a contract for a "certain quantity" of chinchilla [page 339] furs was sufficiently definite as evidenced by the buyer's subsequent conduct of immediately selling the furs delivered.[207] Similarly, a Swiss court, found that when the buyer of fashion textiles requested the seller to send an invoice to the embroiderer of the textiles, this conduct subsequent to the delivery of the goods indicated the buyer's intent to be bound as to the quantity of goods delivered.[208]

When an offeror claims that he intended to be bound, courts evaluating the validity of the offer must also consider whether the other party was reasonably aware of such intent. A German court held that a seller's fax offering to sell yarn did not communicate the requisite intent to be bound because the fax referred to instructions from its parent company.[209] The court found that the communication did not clearly identify who the seller was, as the purported offeror referred to itself as "exporter" not "seller."[210]

There are two issues arising from Article 55 that national courts have addressed in their opinions. These issues are whether the failure of the parties to state a price prevents contract formation and the enumeration of the factors utilized to determine the "price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."[211] As to the initial issue of contract formation, two divergent views have developed regarding the price requirement, one restrictive and the other liberal. Professor Farnsworth maintains that some method of determining the price must be included in the offer for a valid contract to be concluded. This restrictive view is consistent with established contract law in many states that require the setting of a specific price in order for an enforceable contract to be formed. Under this view, Article 55 would only be used to set a price after an enforceable contract had been determined to exist. [212]

The alternative view argues that the restrictive interpretation of the CISG's provisions with respect to contract formation that requires the existence of a definite or determinable price conflicts with the very existence of Article 55.[213] A more liberal view has been advocated by [page 340] Professor Honnold who maintains that Article 55 allows "the price generally charged at the time of the conclusion of the contract" to cure the lack of a price or a method for determining the price. [214] Professor Honnold insists that as long as the parties' intention to contract is clear, the construction of the Convention allows the parties to vary the effect of any of the Convention's provisions, including Article 14's price provision.[215]

Professor Honnold's view is supported by the Secretariat's Commentary to Article 14 which states that as long as there is intent to be bound, the law of sales can supply missing terms.[216] Several national courts have also favored Professor Honnold's view. A Swiss court in C. v. W., Bezirksgericht St. Gallen used Article 55 to interpret the price stated in a seller's corrected invoice to be the price generally charged under comparable circumstances in the trade.[217] The indefiniteness of the price term was apparently not fatal because the court was convinced that the parties had manifested their intent to be bound.[218] In a dispute concerning the sale of chinchilla pelts by a German seller to an Austrian buyer, the Austrian Supreme Court concluded that the agreement of the parties setting a price range for the pelts depending upon quality did not defeat the formation of a contract.[219] In reaching this conclusion, the court held that pursuant to Article 55 if the parties' agreement failed to explicitly or implicitly establish a specific price, then the court could imply an agreement based upon the "usual market price."[220] The court specifically [page 341] noted that the parties did not object to the price of fifty German marks per pelt established by the court of first instance in its initial review of the case.[221] As such, the court concluded that the price was sufficiently definite as to constitute a contract and make the application of Article 55 unnecessary.[222] By contrast, the Russian Tribunal of International Commercial Arbitration rejected the gap-filling role of Article 55 where the parties agreed to fix a price "ten days prior to the beginning of the new year" and were unable to do so.[223] The subsequent failure of the parties to reach an agreement with respect to price went to the heart of the transaction and specifically defeated the formation of a contract.[224]

The second issue addressed by national courts with respect to Article 55 is the enumeration of the factors utilized to determine "the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."[225] Initially, at least one national court has concluded that the reference to market price in Article 55 is overridden by a contrary agreement of the parties as determined by application of the CISG in its entirety. [226] Based upon this opinion, the parties are free to list any number of factors that may be utilized to establish the price. Included on the list of acceptable factors are the price range established by the parties with respect to the goods at issue and individual pricing guidelines dependent upon the quality of the goods.[227] An additional relevant factor is the absence of objection by the buyer within a "short time period" to the price set forth in invoices delivered by the seller.[228] In such a case, national courts assume the buyer's agreement that the price stated in the seller's invoice is the price generally charged under comparable circumstances in the trade concerned according to Article 55.[229] [page 342]

[...]


FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

193. An Austrian court considered an issue regarding to whom an offer was addressed, more precisely, whether a contract existed between an Austrian buyer and an Italian manufacturer, when the buyer made an offer to a German seller. When the Italian manufacturer requested payment, the buyer maintained that it had contracted only with the German seller. The court held that a contract between the buyer and manufacturer could exist only if the German seller acted as a qualified agent acting for the Italian manufacturer and the buyer knew or could not have been unaware that the seller was acting for the Italian manufacturer. See OGH, 512/96, Jun. 18, 1997 (Aus.), available at <http://cisgw3.law.pace.edu/cases/970618a3.html> [English translation by Tobias Koppitz].

194. "A Proposal ... constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance." CISG, supra note 4, at art. 14(1) (emphasis added).

195. Two U.S. courts have held that a distributorship agreement is not covered by the CISG if the goods, quantity, and price are not identified. See Helen Kaminksi Pty. Ltd. v. Marketing Australian Prods., 1997 U.S. Dist. LEXIS 10630, at *2-3 (S.D.N.Y. Jul. 23, 1997) (distributorship agreement did not identify the goods that were the subject of the alleged breach); Viva Vino Import Corp. v. Farnese Vini S.r.l., No. 99-CIV.-6384, 2000 U.S. Dist. LEXIS 12347 (E.D. Pa. Aug. 29, 2000) (distributorship agreement did not cover the sale of specific goods nor did it contain definite terms regarding quantity and price as required by CISG).

196. Some countries objected to the elimination of the price requirement because they viewed unilateral price determination as a disadvantage to the weaker party; socialist countries objected because open price terms did not satisfy state planning agency requirements. See Jacob S. Ziegel, "Article 14" in Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, July 1981, available at <http://cisgw3.law.pace.edu/cisg/text/ziegel14.html>. See also Claude Witz, Case Commentary, The First Decision of France's Court of Cassation Applying the U.N. Convention on Contracts for the International Sale of Goods, 1995, available at <http://cisgw3.law.pace.edu/cases/950102f1.html> (noting that "traditional French case law is very demanding with respect to the determinable character of price" but that it is in the process of abandoning "this harsh position").

197. See, e.g., Fauba v. Fujitsu Microelectronik, Cour de Cassation, Paris, 92-16.993, Apr. 22, 1992 (Fr.) (term specifying revision of price according to market trends was sufficiently definite), available at <http://cisgw3.law.pace.edu/cases/920422f1.html>; OLG Frankfurt/M 10 U 80/93, Mar. 4, 1994 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/940304g1.html> [English translation by Dr. Peter Feuerstein, translation edited by Todd J. Fox] (some items in the order contained prices but as buyer insisted on delivery of total order, the offer was not sufficiently definite under either German Civil Code or CISG Art. 14 because special screws did not contain a price).

198. For a discussion of the "totality of the circumstances analysis" approach to contract interpretation see generally, Larry A. DiMatteo, The Counterpoise of Contracts: The Reasonable Person Standard and the Subjectivity of Judgment, 48 S.C. L. Rev. 293, 318-24 (1997); Larry A. Dimatteo, Contract Theory: The Evolution Of Contractual Intent 56-60 (1998).

199. See AZ 12.G.41.471/1991, Mar. 24, 1992, supra note 132. (quality, quantity, and price of goods impliedly fixed by the established practice of parties where seller repeatedly delivered the same type of goods and buyer paid after delivery).

200. ICC Court of Arbitration - Paris 8324/1995 (Arbitral Award 1995) [available at <http://cisgw3.law.pace.edu/cases/958324i1.html>] (flexible price was valid where no market price established by common exchange institution for manganese) (on file with author).

201. Id.

202. Geneva Pharm., 201 F. Supp. 2d at 281.

203. Id.

204. See CISG, supra note 4, at art. 8(2). Courts look to a reasonable person interpretation of the language in contracts. See generally HG Aargau, OR.960-0013, Sept. 26, 1997 [Switz.], available at <http://cisgw3.law.pace.edu/cases/970926s1.html> (wording clearly indicated intention of buyer to be bound); HG St. Gallen, HG 45/1994, Dec. 5, [1995] (Switz.), available at [<http://cisgw3.law.pace.edu/cases/951205s1.html>] (language such as "order," "we order," and "immediate delivery" indicated intent to be bound); OLG Frankfurt, 9 U 13/00, Aug. 30, 2000 (F.R.G), available at <http://cisgw3.law.pace.edu/cases/000830g1.html> [English translation by Ruth M. Janal, translation edited by Camilla Baasch Andersen] (language in fax did not communicate an objective intent to be bound).

205. See LG Oldenburg 12 O 2943/94, Feb. 28, 1996 (F.R.G.), available at [<http://cisgw3.law.pace.edu/cases/960228g1.html>].

206. See, Legfelsobb Bíróság, Gf.I. 31 349/1992/9, Jan. 10, 1992 (Hung.), available at [<http://cisgw3.law.pace.edu/cases/920110h1.html>] [English translation by Dr. and Mrs. László Szlávinits].

207. See OGH Ob 547/93, available at [<http://cisgw3.law.pace.edu/cases/941110a3.html>] [English translation by Martin Eimer, translation edited by Ruth M. Janal].

208. See Bezirksgericht [BG] St. Gallen [District Court], 3PZ 97/18, available at [<http://cisgw3.law.pace.edu/cases/970703s1.html>].

209. See OLG Frankfurt 9 U 13/00, Aug. 30. 2000, supra note 204.

210. Id.

211. CISG, supra note 4, at art. 55.

212. See Peter Schlechtriem, Uniform Sales Law, supra note 107, at 80.

213. Id. As a result, "a contradiction remains between [this] requirement ... on the one hand and the possibility of fixing the price after the contract is concluded on the other." Professor Schlechtriem concludes that, although most likely unacceptable to many states, this contradiction may be resolved by interpreting the term "validity" in art. 55 to relate to all contractual requirements other than the determination of price. Id. at 80, n.319. If such an interpretation is adopted, "[a]n offer that is indefinite with respect to the price could then be interpreted ... as an implied reference to the price generally charged for such goods."

214. See John E. Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & Com. 11, 14-17 (1988) [available at <http://cisgw3.law.pace.edu/cisg/biblio/murray.html>]; Harry M. Fletchner, Transcript of a Workshop on the Sales Convention: Leading CISG Scholars Discuss Contract Formation, Validity, Excuse for Hardship, Avoidance, Nachfrist, Contract Interpretation, Parol Evidence, Analogical Application, and Much More, 18 J.L. & Com. 191, 202-06 (1999) [available at <http://cisgw3.law.pace.edu/cisg/biblio/workshop.html>]. Professor Farnsworth disagrees with this interpretation because Article 55 allows this method of determining a price only when "a contract has been validly concluded." Id.

215. Honnold, Uniform Law For International Sales, supra note 53, § 137.6 at 154. Art. 6 provides: "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions." (emphasis added), CISG at Art.6. Professor Farnsworth disagrees with this interpretation because Art. 55 allows this method of determining a price only when "a contract has been validly concluded."

216. See Secretariat Commentary to Art. 14, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-14.html>.

217. See Bezirksgericht [BG] St. Gallen [District Court], 3PZ 97/18, Jul 3, 1997 (Switz), available at <http://cisgw3.law.pace.edu/cases/970703s1.html>.

218. Id.

219. See OGH Ob 547/93, Nov. 10, 1994 (Aus.), available at <http://cisgw3.law.pace.edu/cases/941110a3.html> [English translation by Martin Eimer, translation edited by Ruth M. Janal].

220. Id.

221. Id.

222. Id.

223. Tribunal of Int'l Commercial Arbitration at the Russian Federation of Chamber of Commerce 309/1993, Mar. 3, 1995 (Russ.), available at <http://cisgw3.law.pace.edu/cases/950303r1.html>.

224. Id.

225. CISG, supra note 4, at art. 55.

226. See CA Grenoble, 93/1613, Apr. 26, 1995 (Fr.), available at [<http://cisgw3.law.pace.edu/cases/950426f1.html>] [English translation by Charles Sant 'Elia].

227. See OGH Ob 547/93, Nov. 10, 1994 (Aus.), available at <http://cisgw3.law.pace.edu/cases/941110a3.html> [English translation by Martin Eimer, translation edited by Ruth M. Janal].

228. BG St. Gallen, SZ 84-85, Jul. 3, 1997, available at [<http://cisgw3.law.pace.edu/cases/970703s1.html>] (involving an oral contract for the sale of textiles by a Dutch seller to a Swiss buyer).

229. Id.

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence


ANNOTATED COMPARATIVES
-  UNIDROIT Principles
-  PECL comparatives

Commentary on Whether the UNIDROIT Principles
of International Commercial Contracts May Be
Used to Interpret or Supplement Article 55 of the CISG

Dr. Jumpita Ruangvichathorn [*]
November 2004

  1. Introduction
  2. Relationship between CISG Articles 14(1) and 55
  3. Relationship between UNIDROIT Principles Articles 2.2 and 5.7
  4. Mechanism to determine an open price: CISG Article 55 - UNIDROIT Principles Article 5.7
  5. Conclusion

1. Introduction

Article 55 of the Convention provides a mechanism for the determination of the price in an international sales contract that has been validly concluded in situations in which the contract does not state a price or expressly or impliedly make provision for determining the price. In other words, CISG Art. 55 deals with the uneasy question concerning open price contracts, and it becomes a controversial provision in the light of CISG Article 14(1), which provides that determination of price is one of the criteria for an offer. The two provisions seemingly contradict each other.[1]

Counterpart provisions regulating the same issues, but in a more detailed manner, are also found in the UNIDROIT Principles of International Commercial Contracts [the "Principles"] Articles 5.7 ["Price Determination"] and 2.2 ["Definition of Offer"].

This paper examines whether and the extent to which the provisions of the Principles may be used to aid the interpretation of Art. 55 of the Convention.

2. Relationship between CISG Arts. 14(1) and 55

CISG Art. 14 generally deals with the criteria for an offer, and Art. 14(1) expressly provides that for an offer to be sufficiently definite, the price must be expressly or implicitly fixed or a provision must be made to determine the price.

"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."[2]

On the other hand, CISG Art. 55 permits the possibility that a contract may be validly [3] concluded even without expressly or implicitly fixing the price.

"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."[4]

The legislative history of the Convention offers no clear or convincing explanation of the inter-relationship between CISG Arts. 14(1) and 55.[5] However, two distinct interpretations of the relationship between those two provisions are drawn from the views of two leading CISG commentators, Professors Honnold and Farnsworth, respectively.[6]

The main divergence of those two interpretative approaches to the issue is that, according to the approach propounded by Prof. Honnold, CISG Art. 14(1) should be read together with Article 55, resulting in an interpretation that a contract "may be validly concluded" - not that a contract "must already have been concluded" in the first place, either under a domestic sales law or a declaration under CISG Art. 92(1)[7], before the Convention's mechanism to determining the price under Article 55 can be activated, as per the latter approach of Prof. Farnsworth.

The former approach, the chief proponent of which is Prof. Honnold, seems to have gained most support in academic circles.[8]

3. Relationship between UNIDROIT Principles Arts. 2.2 and 5.7

The counterpart to CISG Art. 14(1) in the Principles is found in Art. 2.2, which reads:

"A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance."

In defining an offer, the Principles lay down the same two requirements also embedded in the Convention: the proposal must (i) be sufficiently definite to permit the conclusion of the contract by mere acceptance and (ii) indicate the intention of the offeror to be bound in case of acceptance.

Furthermore, the wording of the Principles is, to a degree, similar to CISG Art. 14(1), albeit not similarly detailed, because, unlike the Convention, it does not make reference to the matters of "quantity" and "price" to determine whether the proposal is sufficiently definite to constitute an offer.

The Principles merely focus on the matter of "the intention of the offeror to be bound in case of acceptance".[9] In this regard, and based on the Official Commentary on the Principles, no apparent contradiction exists similar to the one that exists in the CISG. As such, it is easier to read together Arts. 2.2 and 5.7 of the Principles.[10] In that regard, it is submitted that the Principles offer a similar but simpler regime when compared to the Convention and might arguably be used to aid the interpretation of the particular textual controversy in the Convention, discussed above.

4. Mechanism to determine an open price term: CISG Art. 55 - UNIDROIT Principles Art. 5.7

Regarding a sales contract which neither fixes the price to be paid for the goods, nor makes provision for determining the price, the Principles provide a presumption that the parties "have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned, or, if no such price is available, to a reasonable price" [emphasis added]. The applicable provision (Principles Art. 5.7) also permits the rebuttal of the presumption if there is any indication to the contrary.[11]

The Official UNIDROIT Commentary on Article 5.7 sheds illuminating light on the origins of this general rule governing price determination, by revealing that the provision "is inspired by Art. 55 CISG".[12]

Furthermore, the notion of "reasonableness", which prevails in that article of the Principles, is also a general principle on which the Convention is based.[13]

Thus, it is submitted that the two instruments adopt the same general policy to determine open price terms.

There are, however, three noteworthy differences between the counterpart provisions:

First, the Principles have chosen not to include in Art. 5.7(1) the words "[w]here a contract has been validly concluded [...]" that appear in CISG Art. 55. Thus, and considering the inter-relationship of Art. 5.7 to Art. 2.2 of the Principles (see Section 3, above), it may be argued that the Principles has in that manner attempted,[14] successfully it seems, to solve the apparent textual contradiction found in the corresponding provisions of the Convention (see Sections 1 and 2, above).

Secondly, in cases where a contract does not fix or make provision for determining the price, the Principles in Art. 5.7(1) has employed the concept of "reasonable price" additionally to the "market price" that is found in CISG Art. 55.

And, thirdly, the Principles, compared to CISG Art. 55, has adopted a more refined and detailed mechanism for determining the price in a contract:

  1. in the case where the price is to be determined by one party,[15]
  2. in the case where the price is to be fixed by a third person,[16] and
  3. in the case where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible.[17]

5. Conclusion

Following an analysis of the counterpart provisions dealing with open price contracts under the CISG and UNIDROIT Principles, respectively, it is submitted that whereas the two instruments adopt the same general policy and also establish similar regimes to regulate the issue, the Principles offer more expansive provisions than the CISG to deal with the issue.

It is, thus, submitted that Principles Art. 5.7 could be properly and efficiently used to interpret and supplement CISG Art. 55.[18]


FOOTNOTES

* Lawyer, The Electricity Generating Authority of Thailand (EGAT); Adjunct Law Lecturer, Faculty of Law, Thammasat University, Thailand.

1. See, for example, Ziegel J., Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, (1981), available online at <http://cisgw3.law.pace.edu/cisg/text/ziegel55.html>. Comment 1, ibid., reads:

"Art. 55 must be read in conjunction with art. 14 which deals with the essential constituents of an offer. Art. 55 was substantially amended at Vienna. The adopted version attempts to reconcile the price requirements of art. 14 with the need to provide for a case where the contract contains no reference to the price, and does so by deeming the parties to have impliedly agreed to adopt the price generally charged for such goods at the time of the conclusion of the contract. It is not clear whether this formula is sufficient to overcome the limitations of art. 14, although it was clearly meant to. Difficulties may still be encountered because art. 55 does not come into play unless a contract has been validly concluded. [...]"

2. CISG Art. 14 (1). Emphasis added. For an online presentation of basic information and further links to the relevant legislative history, case law and scholarly commentary on CISG Art. 14, go to <http://cisgw3.law.pace.edu/cisg/text/e-text-14.html>.

3. CISG Art. 4 reads [emphasis added]:

"This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:
(a) the validity of the contract or of any of its provisions or of any usage;
(b) the effect which the contract may have on the property in the goods sold."

4. CISG Art. 55. Emphasis added. For an online presentation of basic information and further links to the relevant legislative history, case law and scholarly commentary on CISG Art. 55, go to <http://cisgw3.law.pace.edu/cisg/text/e-text-55.html>.

5. See, generally, Amato, P. "U.N. Convention on Contracts for the International Sales of Goods - the Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts", 13 Journal of Law and Commerce (1993), p. 6; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/amato.html>.

6. Ibid., pp. 4 - 6.

7. CISG Art. 92(1) reads:

"A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention."

8. Other approaches to this issue also exist; see, for example, Enderlein F and Maskow D., International Sales Law, Oceana Publications (1992), at pp. 209 - 210, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art55.html> (stating that the validity of the contract in the case of an open-price term shall be determined solely under national law):

"Herewith reference can be made to the prerequisites for validity as contained in the CISG and to national validity conditions [...]. Some authors, therefore, proceed on the assumption that without having fixed a price there is no offer under Article 14, paragraph 1, sentence 2 and, therefore, no delivery can be taken. Hence, there will be no contract so that the rules governing the substance of the contract including Article 55 are irrelevant where there are no exceptions [...]. Others suppose, and the text speaks in favour of this assumption, that the validity of a contract in this case is to be judged only according to national law" [references omitted].

9. See the Official UNIDROIT Commentary on Article 2.2, available online at <http://cisgw3.law.pace.edu/cisg/principles/uni14.html#official>, Comment 2, "Intention to be bound":

"The second criterion for determining whether a party makes an offer for the conclusion of a contract, or merely opens negotiations, is that party's intention to be bound in the event of acceptance. Since such an intention will rarely be declared expressly, it often has to be inferred from the circumstances of each individual case. The way in which the proponent presents the proposal (e.g. by expressly defining it as an "offer" or as a mere "declaration of intent") provides a first, although not a decisive, indication of possible intention. Of even greater importance are the content and the addressees of the proposal. Generally speaking, the more detailed and definite the proposal, the more likely it is to be construed as an offer. A proposal addressed to one or more specific persons is more likely to be intended as an offer than is one made to the public at large".

10. See the Official UNIDROIT Commentary on Article 2.2, op. cit., Comment 1, "Definiteness of an offer":

"Even essential terms, such as the precise description of the goods or the services to be delivered or rendered, the price to be paid for them, the time or place of performance, etc., may be left undetermined in the offer without necessarily rendering it insufficiently definite: all depends on whether or not the offeror by making the offer, and the offeree by accepting it, intends to enter into a binding agreement, and whether or not the missing terms can be determined by interpreting the language of the agreement in accordance with Arts. 4.1 et seq., or supplied in accordance with Arts. 4.8 or 5.2. Indefiniteness may moreover be overcome by reference to practices established between the parties or to usages (see Art. 1.8), as well as by reference to specific provisions to be found elsewhere in the Principles (e.g. Arts.5.6 (Determination of quality of performance), 5.7 (Price determination), 6.1.1 (Time of performance), 6.1.6 (Place of performance), and 6.1.10 (Currency not expressed))".

11. UNIDROIT Principles Art. 5.7 reads [emphasis added]:

(1) Where a contract does not fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price.

(2) Where the price is to be determined by one party and that determination is manifestly unreasonable, a reasonable price shall be substituted notwithstanding any contract term to the contrary.

(3) Where the price is to be fixed by a third person, and that person cannot or will not do so, the price shall be a reasonable price.

(4) Where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible, the nearest equivalent factor shall be treated as a substitute.

12. See the Official UNIDROIT Commentary on Article 5.7, available online at <http://cisgw3.law.pace.edu/cisg/principles/uni55.html#official>. Comment 1 reads:

"This article is inspired by Art. 55 CISG. The rule has the necessary flexibility to meet the needs of international trade. It is true that in some cases the price usually charged on the market may not satisfy the reasonableness test which prevails elsewhere in this article. Recourse would then have to be made to the general provision on good faith and fair dealing (Art. 1.7), or possibly to some of the provisions on mistake, fraud and gross disparity (Chapter 3). Some international contracts relate to operations which are unique or at least very specific, in respect of which it is not possible to refer to the price charged for similar performance in comparable circumstances. According to para. (1) the parties are then deemed to have made reference to a reasonable price and the party in question will fix the price at a reasonable level, subject to the possible review by courts or arbitral tribunals."

13. See "Overview Comments on Reasonableness", Kritzer A., available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html>:

"Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG."

14. There is, however, no mention of any such motivation in the Official Commentary on the Principles.

15. If that determination is "manifestly unreasonable", Principles Art. 5.7(2) provides that "a reasonable price shall be substituted notwithstanding any contract term to the contrary".

See also Official Commentary, op .cit., Comment 2, which elaborates as follows:

"In those cases where the parties have made such a provision for determining the price, it will be enforced. To avoid possible abuses however, para. (2) enables judges or arbitrators to replace a manifestly unreasonable price by a reasonable one. This provision is mandatory."

16. If the designated third party cannot or will not do so, Principles Art. 5.7(3) provides that "the price shall be a reasonable price".

See also Official Commentary, op .cit., Comment 3, which explains:

"[I]f that third person is unable to accomplish the mission (not being the expert he or she was thought to be) or refuses to do so. Para. (3) provides that the price, possibly determined by judges or arbitrators, shall be reasonable".

17. If reference cannot be made to the specific external factor, Principles Art. 5.7(4) provides that the "nearest equivalent factor shall be treated as a substitute".

See also the Official Commentary, op .cit., Comment 4, which explains and illustrates the point:

"In some situations the price is to be fixed by reference to external factors, typically a published index, or quotations on a commodity exchange. In cases where the reference factor ceases to exist or to be accessible, para. (4) provides that the nearest equivalent factor shall be treated as a substitute.

Illustration

The price of a construction contract is linked to several indexes, including the "official index of charges in the construction sector", regularly published by the local Government. Several installments of the price still have to be calculated when that index ceases to be published. The Construction Federation, a private trade association, decides however to start publishing a similar index to replace the former one and in these circumstances the new index will serve as a substitute."

18. For an analysis of CISG Art. 55 compared to another Restatement of Contract Law, the Principles of European Contract Law, see Vincze A., "Remarks on whether and the extent to which the Principles of European Contract Law (PECL) may be used to help interpret Article 55 of the CISG", available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp55.html#er>.

For selective references of relevant case law interpreting CISG Art. 55, please see the following cases:

     -      RUSSIA 30 May 2001 Arbitration proceeding 185/2000, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/010530r2.html> (the Tribunal found the parties' contract was "valid although it did not specify the price, since CISG Art. 55 contains provisions for determination of the price for contracts that are validly concluded");
     -      ICC Arbitration Case No. 9819 of September 1999, case presentation available online at <http://cisgw3.law.pace.edu/cases/999819i1.html> (in dicta reference to CISG, the Tribunal stated: "Sale without prior fixing of a price is common in international trade, as is shown by the Vienna Convention of 11 April 1980 on the international sale of goods (art. 55) ...")
     -      SWITZERLAND 3 July 1997 Bezirksgericht [District Court] St. Gallen, CLOUT abstract no. 215, case presentation available at <http://cisgw3.law.pace.edu/cases/970703s1.html> (the purchase price had not been fixed by the parties and was determined by the court in application of CISG Art. 55);
     -      RUSSIA 3 March 1995 Arbitration proceeding 309/1993, CLOUT abstract no. 139, case presentation available online at <http://cisgw3.law.pace.edu/cases/950303r1.html> (the tribunal held that CISG Art. 55 was not applicable because the parties had implicitly indicated the need to reach agreement on the price in future);
     -      AUSTRIA 10 November 1994 Oberster Gerichtshof [Supreme Court], CLOUT abstract no. 106, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/941110a3.html> (the Austrian Supreme Court found that the proposal in that case was sufficiently definite to constitute an offer under CISG Art. 14, since it could be perceived as such by a reasonable person in the same circumstances as the seller (CISG Art. 8(2) and (3)). In determining that the order was sufficiently definite, the Court took into consideration the behavior of the buyer who accepted the delivered goods and sold them further without questioning their price, quality or quantity. As the price was found to be sufficiently definite, the Court held that the application of Article 55 CISG was unnecessary in that case);
     -      HUNGARY 10 January 1992 Fovárosi Biróság [Metropolitan Court] (Pratt & Whitney v. Malev) case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/920110h1.html> (the Court held that, in accordance with CISG Art. 14(1), the offers in question were sufficiently definite, notwithstanding they granted the buyer the unilateral power in respect to its choice of the aircraft engines and relative quantity and they indicated the price of only some of the engines offered);
     -      HUNGARY 25 September 1992 Legfelsobb Bíróság [Supreme Court] (Pratt & Whitney v. Malev), CLOUT abstract no. 53, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/920925h1.html> (the Supreme Court of Hungary held, inter alia, (i) an offer must indicate the product, the quantity and the price, or contain directions as to how these terms can be identified, (ii) the description of the goods, its quantity and the price are all essential elements of an offer, (iii) CISG Art. 55 cannot be used to determine the price term of an offer for a product, such as a jet engine, which has no market price, (iv) a party's declaration merely that it intends to conclude a contract is insufficient for the conclusion of a contract. On the facts, the Court found that the offer was vague and, therefore, ineffective because it failed to explicitly or implicitly fix or make provision for determining the price of the engines ordered; thus, the Court overturned the decision of the first instance and held that there was no valid contract concluded);
     -      FRANCE 26 April 1995 Cour d'appel [Appellate Court] Grenoble (Alain Veyron v. Ambrosio), CLOUT abstract no. 151, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/950426f1.html> (the court found that "the reference made by article 55 CISG to a market price, in as much as this article is applicable to the case, is overridden by a contrary agreement between the parties, such as the provisions of CISG in their entirety, with the exception of article 12 (art. 6)");
     -      HUNGARY 24 March 1992 Fovárosi Biróság [Metropolitan Court] (Adamfi Video v. Alkotók Studiósa Kisszövetkezet), CLOUT abstract no. 52, case presentation available online at <http://cisgw3.law.pace.edu/cases/920324h1.html> (the Court held that an offer was sufficiently definite, as the quality, quantity and price of the goods were impliedly fixed by the practices established between the parties (Art. 9(1) CISG), whereby the seller had repeatedly delivered the same type of goods ordered by the buyer who had paid the price after delivery);
     -      RUSSIA 22 November 1995 Arbitration proceeding 99/1994, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/951122r1.html> (the tribunal held that CISG Art. 55 was applicable to a contract between the parties that had provided for the basic price for the goods having a minimum content of a certain indicator. There was no provision as to the price for the goods in which a content of the indicator was below the minimum level. In such a situation, pursuant to the contract, the price was to be agreed upon by the parties. In some of the delivered goods the level of content of the indicator was below minimum. In this situation, the ICAC deemed it possible to apply Article 55 to determine the price.

For criticism of the tribunal's judgment, see Saidov D., "Cases on CISG Decided in the Russian Federation", 7 Vindobona Journal of International Commercial Law and Arbitration (2003) 1 - 62, at 37 - 38: "It is not clear why the Tribunal deemed it possible to apply Article 55. Such a decision seems to run counter to the provision of the contract according to which in the situation that took place in the case, a price was to be agreed upon by the parties. It is submitted that Article 55 could only be applied where the parties intended to regard an open price contract as valid. Therefore, a price could be determined according to Article 55 only if such a determination of a price stemmed from interpretation of the contract. The decision does not make it clear whether the Tribunal interpreted the agreement. On the basis of the information available, it seems that the parties' intention was not to leave the price open, but to come to an agreement to this effect. In such a case, Article 55 could not be applied. This decision appears to be inconsistent with the decision taken in a case No 304/1993 [of 3 March 1995] where Article 55 was held to be inapplicable in the situation where the parties have agreed to negotiate the price in future and failed to do so" [citations omitted]).


PECL COMPARATIVES

Remarks on whether and the extent to which the Principles of European
Contract Law (PECL) may be used to help interpret Article 55 of the CISG

dr. Andrea Vincze [*]
October 2004

  1. Introduction to the open-price contract provision in the CISG
  2. Broad and narrow interpretation of Art. 55
  3. Applicability of Article 6:104 PECL to Article 55 CISG: Determination of price
  4. Applicability of Article 6:105 PECL to Article 55 CISG: Unilateral determination
  5. Applicability of Article 6:106 PECL to Article 55 CISG: Determination by third person
  6. Applicability of Article 6:107 PECL to Article 55 CISG: Reference to a non-existent factor
  7. Conclusions

1.  Introduction to the open-price contract provision in the CISG

a.  Article 55 CISG [1] addressing the issue of open price terms is a highly debated provision in the light of Article 14(1) CISG [2] describing the requirements of an offer, yet a close link between these two provisions is evident. The main controversy concerning the interaction between these provisions and their proper application derives from the fact that, at first sight, Articles 14(1) and 55 contradict each other, therefore the application of Article 55 seemingly makes no sense. A theoretical debate between broad (e.g., Honnold) and narrow (e.g., Farnsworth) interpretation has been going on for some time but the controversy remained. This paper examines whether and the extent to which Articles 6:104, 6:105, 6:106 and 6:107 of the PECL may be used to help interpret the provision of open-price terms in the CISG.

2. Broad and narrow interpretation of Art. 55

b. Before comparing the relevant provisions of the CISG and the PECL, the problem with interpreting Article 55 CISG shall be shortly discussed. The question whether or not Articles 14(1) and 55 CISG shall be read together arose due to the fact that these two articles deal with very similar issues. Among other preconditions for concluding a valid contract, Article 14(1) implies that for an offer to be sufficiently definite, the price must be expressly or implicitly fixed or a provision must be made to determine the price. Article 55, however, seems to contradict the latter by providing that a contract may be validly concluded even without expressly or implicitly fixing or making provision for determining the price. It is important to note at this point that sales without prior fixing of a price are common in international trade.[3]

The two leading theories on interpretation are Professor Farnsworth's narrow interpretation, inferring that Articles 14(1) and 55 cannot be read together and Professor Honnold's broad interpretation, which allows for parallel application of the two provisions.

Professor Farnsworth's position is that by Article 55 expressly providing for its applicability to validly concluded contracts, the contract must have already been concluded for the price term to be supplied. Yet, under Article 14(1) a contract cannot be validly concluded without a sufficiently definite price term.[4] Therefore, following that interpretation, a "vicious circle" is present in the text of the CISG. Professor Farnsworth further contends that in spite of the latter, Article 55 is not without any use because it can be applied by countries which made a reservation under Art. 92(1) CISG excluding the application of Part II of the Convention, including the controversial Article 14(1). In such cases, and also because the CISG is generally not concerned with the validity of a contract,[5] if the contract is found valid under the domestic law of that country, a legal dispute concerning the price terms of that contract can be resolved by Article 55 of the Convention.[6] Yet, such an interpretation is disputed by several authors because "in a codified set of rules ... every effort should be made to construe seemingly incompatible provisions in order to make sense out of them"[7] and stating that Article 55 must be read in conjunction with Article 14.[8] The balance of academic opinion seems to be in favor of Professor Honnold's approach to the issue.

Professor Honnold had initially opined [9] that a contract may be validly concluded even if the price is not settled because "the term 'validity' in Article 55 relates only to requirements of validity other than the determination of price" upon which an offer indefinite with respect to the price can be interpreted in the light of Article 55. However Professor Sclechtriem,[10] in referring to that approach, contended that most commentators disagree on this point. Professor Honnold also moved away from this interpretation and expressed his disagreement to it in the later edition of his book stating that "[t]he legislative history shows that [the addition of the reference to 'validity' to the opening phrase of Article 55] was designed ... 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."

Honnold further contends that Article 14(1) deals only with the question whether a communication not stating the price, and also without making express commitment to be bound, should be regarded as an offer -- and not with the validity of an agreement not indicating the price, while Article 55 applies to validly concluded contracts to which the parties committed themselves to be bound but which did not expressly or implicitly fix the price or failed to make any provisions on determination of the latter.[11]

There are other authors representing different views based on the mainstream opinions by Professor Farnsworth and Professor Honnold. Yet, for the purposes of this editorial, emphasis shall be placed only on the latter two.[12]

c.  Upon examining the narrow and the broad interpretation of the interaction between the two relevant provisions, regard shall be paid to their legislative history, too. Firstly, the text of Article 55 (i.e., originally Article 51 of the 1978 Draft) was adopted before adopting Part II of the Convention also including Article 14(1), thus a contradiction with Article 14(1) was apparent.[13] This seems to emphasize further that saving a contract with open-price terms shall prevail over the narrow interpretation which would stop the process of contracting at the very beginning if the proposal did not fix the price or did not provide a mechanism for determining the price.

Also, it is apparently true that "[t]he adoption of art. 55 eventually responded to the desire of the Scandinavian countries to accept Part I of the Convention without Part II, and to have a provision in Part III in case the price has not been determined".[14] On the other hand, it is hard to believe that this argument would hold true with regard to the fact that such a contradictory set of rules would have been created in favor of the small number of Contracting States (ultimately, only four) that adopted the Convention without Part II, while the rest of the parties would have agreed to adopt a contradiction.[15]

d.  In conclusion, application of Professor Honnold's broad approach seems to be more pertinent when dealing with the CISG itself. However, when comparing Article 55 CISG with the similar set of rules of the PECL, applicability and contractual validity requirements of the latter shall be taken into account based on the particular context of the PECL.

e.  In the PECL there is no such contradiction as the one between Articles 14 and 55 CISG. Article 2:201(1) provides that a "proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract." Consequently, if the essentialia negotii are present then subparagraph (a) indicates that a proposal can become an offer if the parties consider to be bound by that.  Thus, the contract is concluded if the offer is accepted [16] and Articles 6:104 to 6:107 apply only to validly concluded contracts to which the parties undoubtedly intended to be bound but where the price was not agreed upon for some reason. The approach of the PECL aims at eliminating the difficulties in some legal systems where the absence or insufficiency of determination of the object causes the contract to be void; the PECL regime supports saving such contracts. Being so, it seems appropriate to follow the approach advocated by Honnold when comparing Article 55 CISG with the relevant articles of the PECL because under that view Article 55 CISG applies to validly concluded contracts, just like Articles 6:104-107 PECL, while Article 14 is applied to determine whether a communication can be regarded as an offer without the parties' intent to be bound by that, similarly to Article 2:201 PECL.  The following analysis is based on the latter approach, not denying that other interpretations are also present in practice.

3.  Applicability of Article 6:104 PECL to Article 55 CISG: Determination of price

f.  Regarding Article 6:104 PECL, the wording of the relevant provisions of the PECL,[17] as stated above, and the Comments on the PECL [18] assume that the parties intended to conclude a contract, i.e., there is no doubt that they intended to be bound, but they did not agree on the price. The same is substantiated with regard to Article 55 CISG, a further proof of which, besides the above argumentation, is that "UNCITRAL in 1977 changed the opening clause ... to read 'If a contract has been validly concluded ...' [in order to] introduce an express statement into the article to make it clear that it only applied to agreements which were considered valid by the applicable law."[19]

g.  The basic condition of having failed to fix the price itself or the method for determining the price is provided for in the same way in the compared provisions. Therefore, the condition is met if the price is not fixed either directly or indirectly, explicitly or implicitly. Concerning implicit determination in the PECL, usages and practices established between the parties must be taken into account, which is also applicable with regard to Article 55 CISG.[20] Similarly, references to list prices, stock market or market prices, to commercial most-favored-party clauses or to the determination of the price by an expert is sufficient;[21] furthermore, the price is implicitly fixed not only when for example the buyer knows that the seller sells the goods according to price lists but also when the buyer should know about that.[22]

h.  When not even an implicit provision on the price can be found, the PECL clarifies the meaning of Article 6:104 by suggesting that it seems better to save a contract not specifying the price in several exceptional cases like when (a) the goods were needed urgently and there was no opportunity to agree on the price,[23] (b) it is not the custom to ask the price in advance, (c) the obligor leaves it to the obligee to fix the price (e.g., when an opinion is sought from a professional person).[24] This seems to be helpful in interpreting Article 55 CISG as well, supporting the principle of saving open-price contracts.

i.  In the absence of any indication of the price, the PECL and the CISG provide for the application of different substitutes, the former for "reasonable price",[25] the latter for "the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned".[26] The wording in the CISG also refers to some kind of reasonable price which should also be "general" at the time of the conclusion of the contract (i.e., the seller will not enjoy later increases and the buyer will not enjoy later reductions,[27]) for "goods sold under comparable circumstances" (i.e., taking into account commercial terms, territorial criteria, quantity, periods of order, special needs, terms of payment etc.[28]) and in "the trade concerned".

j.  Yet, determining the price under Article 55 CISG may involve uncertainties, e.g., special items or a certain product which is only made by one company, etc.[29] We can contend that it is appropriate to apply the "reasonableness" standard of the PECL to interpret the similar and, at first glance, more detailed definition of the CISG. Although the reasonableness standard is not expressly dealt with by the CISG, the definition in the PECL fits the manner in which this concept is used in the CISG. Therefore, reasonableness requirements of the PECL can be applied to the interpretation of Article 55 CISG.[30]

If we look only to the CISG, Article 8 provides for a reasonable person standard in determining how to understand statements made by and other conduct of a party, in which 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. The CISG lists only three of the "all relevant circumstances"; therefore, and also because the PECL concept of reasonableness fits to that of the CISG, other relevant circumstances included in the PECL can be taken into consideration in a case governed by the CISG. Therefore, some other factors to be taken into account when determining the price under Article 55 CISG are: the nature and purpose of the contract, comparable contracts made in analogous situations, the status of the parties and any usages and practices established not only between the exact parties but also those within the trade or profession concerned.[31]

k.  There is one further significant proviso concerning the applicability of Article 55 CISG which is that it is inapplicable if there is any indication to the contrary, i.e., to the fact that, for example, the contract is to be formed only where there is agreement on the price, or if there is no generally calculable price for the goods concerned.[32] Such a situation is not covered by Article 6:104 PECL either. Although there is no express provision for that in the PECL, the Comments on the PECL deal with the question as follows: Article 6:104 PECL is not applicable if the parties failed to agree on the price – for instance, because the parties could not reach an agreement on it during the negotiations, or they left the question open for future negotiation which was also unsuccessful. Yet, even in such cases, Article 6:104 can be applied if the subsequent behavior of the parties indicates that they did intend to enter into contractual relations.[33]

The latter approach might help interpret Article 55 CISG, especially with regard to the fact that Article 8 CISG provides for the determination of the parties' intent. Consequently, it is evident that if the parties failed to agree on the price for any of the reasons above, in all likelihood, a specific price would have been intended. Therefore, if the parties failed to agree upon it, there was no contract either, except when the subsequent behaviour of the parties indicates that they did intend to enter into a contractual relationship (e.g., when the buyer placed a further offer with the seller). Of course, this approach adds nothing new to Article 55 CISG if we were to follow Professor Honnold's view, according to which that provision is only applicable to validly concluded contracts.

4. Applicability of Article 6:105 PECL to Article 55 CISG: Unilateral determination

l.  Article 6:105 PECL deals with the situation where a unilateral determination of the price [or other contractual terms] by one of the parties has been made but it is grossly unreasonable.[34] Applicability of this PECL provision to the CISG depends on the question whether Article 55 CISG allows for unilateral determination of the price by one of the parties. Professor Schlechtriem contends that "one-sided privilege to determine the price can neither be developed from general principles of the Convention, nor arrived at by recourse to internal law via the rules of private international law in order to apply the domestic right to determine the price ... [t]his, however, is bound with the risk ... that the courts will use the unavoidable degree of leeway in the consideration of evidence to the benefit of the home party".[35]

In theory, at least, the scope of providing for the method of determining the price would not be restricted in such a way. Also in some civil law systems contracts of sale with open-price terms are viewed with hostility, particularly when the unilateral fixing of the price works to the disadvantage of the weaker party.[36]

To the contrary, Enderlein and Maskow opine that it should "be admissible that reference be made to a price which a party, in practice particularly the seller, has to fix individually, i.e. not on the base of generally applicable lists. [...] Even when no reservation is made in this context, e.g. that the price is reasonable, that it is the usual price on the market, etc. and that there has to be a reasonable proportion between the price and the seller's prime costs, the fixing of an unjust price would nevertheless not be binding. This can be inferred from Articles 7, 8 or 9."[37]

m.  Perhaps it is precisely Article 6:105 PECL which helps resolve this controversy by limiting prospective "home-field advantage" and also automatic lack of binding force of unilaterally fixed prices only to the case when the latter is "grossly unreasonable". Finding a unilaterally fixed price grossly unreasonable (e.g., clear mistake of arithmetic or grossly wrong evaluation) instead of simply unreasonable, requires a higher level of unfairness whereby one should refer again to the applicability of the reasonableness standard of the PECL which has been discussed above. Those circumstances relevant in determining reasonableness or unreasonableness shall be applied in this case as well.

All in all, Article 6:105 PECL seems to help interpret Article 55 CISG, even though unilateral determination of the price is not expressly provided for in the CISG.

5. Applicability of Article 6:106 PECL to Article 55 CISG: Determination by third person

n.  Article 6:106 PECL addresses two issues concerning determination of the price [or other contractual terms] by third persons: first, the situation where the third person cannot or will not do so and, second, if its determination is grossly unreasonable.[38] Applicability of this provision to Article 55 CISG, again, depends on the admissibility of determination of the price by third parties in the CISG.   It is acknowledged that in determining the method of fixing the price it is sufficient to refer to determination by an expert [39] and also that the relationship between Articles 14 and 55 CISG would not seem to pose any problems "when the parties have agreed, explicitly or implicitly, that the price may be fixed by a third party".[40]

o.  Applicability of Article 6:106(2) raises no problems in the meaning that it provides for the substitution of a reasonable price if the third party determined a grossly unreasonable price.[41] The same applies to this situation, as stated earlier when examining Article 6:105.

p.  However, it is not certain that Article 6:106(1) would be also applicable. Although this provision of the PECL was designed to save the contract,[42] it cannot be inferred from the wording in the CISG that failure or inability of the third person to determine the price would entitle a court or arbitral tribunal to appoint another person to determine it.[43]

It seems more appropriate to conclude that, in that case, the general provision of Article 55 CISG is applicable, whereby the court or arbitral tribunal would determine the price generally charged in the relevant circumstances which are also specific upon the special nature of originally having appointed an expert third person.[44]

6. Applicability of Article 6:107 PECL to Article 55 CISG: Reference to a non-existent factor

q.  Article 6:107 PECL provides that "[w]here the price [or any other contractual term] is to be determined by reference to a factor which does not exist or has ceased to exist or to be accessible, the nearest equivalent factor shall be substituted". This is a unique provision because national laws vary on this point, either opting for modification of the contract by substituting an existing factor,[45] or termination of the contract, depending on the interpretation the parties' intent.[46]

A similar provision cannot be found in the CISG; however, as the CISG is also aimed at saving the contract, it is arguably appropriate and useful to apply the PECL rule in connection with Article 55. If we contend that Article 6:107 might help interpret Article 55 CISG, regard is to be had of to Articles 8 and 9 CISG, i.e., intent, usages, practices, negotiations and subsequent conduct of the parties, so that a non-existent factor be replaced by another one which fits into the particular contractual relationship.

r. Yet, one should not forget two things. Firstly, that "[i]n the interpretation of this Convention, regard is to be had to its international character".[47] Secondly, that the PECL were designed to "be applied as general rules of contract law in the European Communities which is applicable not only to international commercial contracts for the sale of goods, but to all contract transactions -- contracts for services as well as goods and domestic as well as international contracts, including contracts with consumers".[48]

Concerning the international character of the CISG, the issues of choice of law and the applicable law come into question and may limit the applicability of Article 6:107 to Article 55 CISG. Therefore, a substituting factor should be adjusted to the requirements of the Convention, it should have a very close connection to the law applicable to the contract and it should be a factor which is applicable to international sales.

On the other hand, we should not forget that Article 6:107 PECL applies to all contracts, not only to sale of goods contracts. Therefore, its applicability is limited again – it is not clear whether such a provision would have been incorporated into a similar legal instrument dealing exclusively with the principles of the law of sale of goods.

7. Conclusions

On the various approaches concerning the relationship between Articles 14 and 55 CISG, it is not always evident that even similar provisions of the PECL would be applicable to interpret Article 55 CISG. The present analysis is based mainly on Professor Honnold's theory of broad interpretation,[49] which allows for parallel application of the two provisions of the Convention, whereby the following consequences could be drawn.

Applicability of 6:104 PECL to Article 55 CISG

Article 6:104 PECL provides good interpretative guidance to Article 55 CISG in terms of the exact and practical meaning of the provision, carefully taking into account the conditions of applying the PECL.

Applicability of 6:105 PECL to Article 55 CISG

Although there is no express provision in the CISG regarding unilateral determination of the price, applying Article 6:105 PECL to interpret Article 55 CISG in that manner seems to be helpful in balancing the controversial views concerning the admissibility of unilateral determination of the price under the CISG.

Applicability of 6:106 PECL to Article 55 CISG

Article 6:106(1) PECL seems to be inapplicable to Article 55 CISG because it cannot be inferred from the wording in the CISG that failure or inability of the third person to determine the price would entitle a court or arbitral tribunal to appoint another person to determine it. However, Article 6:106(2) PECL, similarly to what is stated with regard to the applicability of Article 6:105, can help interpret Article 55 CISG.

Applicability of 6:107 PECL to Article 55 CISG

As no similar provision exists in the CISG, the applicability of Article 6:107 PECL seems to be disputed. Applicability of the PECL provision would serve the aim of saving the contract, but its practical execution could cause uncertainty and probably also resistance by the contracting parties.


FOOTNOTES

* Master of Laws (in Hungarian law), University of Miskolc, Hungary, 2002. Ph.D. candidate at the Department of European Law and Private International Law, University of Miskolc, specializing in international business and investment law and international commercial arbitration. She is working on her Ph.D. thesis on jurisdictional issues in ICSID arbitration.

1. Article 55 CISG reads: "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".

2. Article 14 (1) CISG reads: "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".

3.  As stated by the ICC Tribunal in ICC Arbitration 9819 of September 1999, see <http://cisgw3.law.pace.edu/cases/999819i1.html>.

4. E. Allan Farnsworth, Formation of Contract, in International Sales: The United Nations Convention on the Contracts for the International Sale of Goods § 3.04 [1], at 3-8 (Nina M. Galston & Hans Smit eds., 1984), also cited by Paul Amato, U.N. Convention on Contracts for the International Sale of Goods – The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, available online at <http://cisgw3.law.pace.edu/cisg/biblio/amato.html>.

5. Art. 4 reads: "This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:  (a) the validity of the contract or of any of its provisions or of any usage;  (b) the effect which the contract may have on the property in the goods sold."

6. Farnsworth, supra note 4; John E. Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & COM. 11 (1988), available online at <http://cisgw3.law.pace.edu/cisg/biblio/murray.html>, cited by Paul Amato, supra note 4; Phanesh Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, available at  <http://cisgw3.law.pace.edu/cisg/biblio/koneru.html>; Official Records of the United Nations Conference on Contracts for the International Sale of Goods (O.R.) 45.

7. Alejandro M. Garro, Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods, available at <http://cisgw3.law.pace.edu/cisg/text/garro14,55.html>; Carlos A. Gabuardi, Open Price Terms in the CISG, the UCC and Mexican Commercial Law, at <http://cisgw3.law.pace.edu/cisg/biblio/gabuardi.html#23. See also Fritz Enderlein & Dietrich Maskow, International Sales Law, at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art55.html>.

8. Jacob S. Ziegel, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, at <http://cisgw3.law.pace.edu/cisg/text/ziegel55.html>; Leif Sevón, Obligations of the Buyer under the UN Convention on Contracts for the International Sale of Goods at <http://cisgw3.law.pace.edu/cisg/biblio/sevon1.html>. See also Peter Schlechtriem, Uniform Sales Law – The UN Convention on Contracts for the International Sale of Goods, available online at  <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-55.html>; and Koneru, supra note 6.

9. John Honnold, Uniform Law for International Sales § 87 (1987), cf. § 325.3 of the 1999 3d ed. of that text.

10. Peter Schlechtriem, Uniform Sales Law – supra note 8.

11. See Carlos A. Gabuardi, supra note 7; also supported by Martin Karollus, Judicial Interpretation and Application of the CISG in Germany 1988-1994 at <http://cisgw3.law.pace.edu/cisg/text/karollus14,55.html>. See also Koneru supra note 6, commenting on Entreprise Veyon v. Societé Ambrosio, Court of Appeals Grenoble, 26 April 1995, available at <http://cisgw3.law.pace.edu/cases/950426f1.html>, where the court did not even address the question whether the missing price affects the validity of the contract.

12. Some authors state that without a fixed price there is no offer under Article 14, therefore no delivery can be taken and there is no contract, resulting that provisions dealing with the substance of the contract, i.e. neither Article 55, cannot be applied. Others claim that the validity of the contract in this case shall be determined solely under national law (see Enderlein & Maskow, supra note 7, at para 2). Further commentators assume that once a contract is concluded, the offer becomes irrelevant and the conclusion of the contract itself proves that the offer was sufficiently definite, irrespective of whether a provision was made for determining the price (see Garro, supra note 7, at supra 95).

13. Comment by Mr. Loewe (Austria), Official Records of the United Nations Conference on Contracts for the International Sale of Goods (O.R.), Vienna 10 March-11 April 1980, A/CONF. 97/19.

14. See Alejandro M. Garro, supra note 7 at supra 18.

15. See Gabuardi, supra note 7. The four countries opting out Part II were Denmark, Finland, Sweden and Norway.

16. Articles 2:204-2011 PECL.

17. Articles 2:201 and 6:104-107 PECL.

18. Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 307-314; also available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp55.html>.

19. John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 2nd ed., Kluwer 1991, p. 201.

20. See Article 9 CISG. See also Enderlein & Maskow, supra note 7 at para 2; Sevón at supra note 8. In Adamfi Video Production v. Alkotók Stúdiósa Kisszövetkezet, Metropolitan Court Budapest, 24 March 1992, <http://cisgw3.law.pace.edu/cases/920324h1.html>, the court held that quality, quantity and price were all fixed by practices between the parties. See also Koneru supra note 6.

21. Schlechtriem, Uniform Sales Law – The Experience with Uniform Sales Laws in the Federal Republic of Germany, at http://cisgw3.law.pace.edu/cisg/text/schlechtriem14,55.html; Enderlein & Maskow supra note 7 at para 4. Leif Sevón even suggests that an invoice sent in advance which is not objected to by the buyer could mean his agreement with the price indicated therein (see Sevón, supra note 8).

22. Enderlein & Maskow supra note 7. An interesting interpretation of the Austrian courts can be found in the "chinchilla pelts case" where the buyer ordered pelts of middle or better quality at a price between 35 and 65 German Marks per piece. The Court of Appeal found that such an "agreement as to the price range did not preclude the valid conclusion of a contract since under Article 55 of the Convention, if the price is not explicit or implicit in the contract, the parties are considered to have agreed on the usual market price". Later the Supreme Court confirmed this decision but by applying Article 14 instead of 55 CISG. It was held that the order was sufficiently definite to constitute an offer under article 14 CISG, since it could be perceived as such by a reasonable person in the same circumstances as the seller (Article 8(2) and (3) CISG). Also, the Supreme Court took into consideration the behaviour of the Austrian buyer who accepted the delivered goods and sold them further without questioning their price, quality or quantity. In particular, the price was found to be sufficiently definite, so as to make the application of Article 55 CISG unnecessary. See the online presentation of the case at <http://cisgw3.law.pace.edu/cases/941110a3.html> and comments on it in Willibald Posch & Thomas Petz, Austrian Cases on the UN Convention on Contracts for the International Sale of Goods, in: 6 Vindobona Journal of International Commercial Law and Arbitration, 2002, p. 1-24, available online at <http://cisgw3.law.pace.edu/cisg/biblio/posch-petz.html>.

23. The situation described in para (a) is commonly mentioned with regard to the CISG. It reflects a very unique situation where the parties, pursuant to Article 6 CISG, derogate from Article 14 and intend to conclude a binding contract without providing for the price.

24. Excerpt from Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 307-314, available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp55.html>; see also Peter Schlechtriem, Uniform Sales Law – The Experience with Uniform Sales Laws in the Federal Republic of Germany, at <http://cisgw3.law.pace.edu/cisg/text/schlechtriem14,55.html>.

25. Article 6:104 PECL.

26. Article 55 CISG.

27. Enderlein & Maskow supra note 7, at para 7. See also Veyron v. Ambrosio, supra note 11, where the commercial agent asserted that his successor benefited from lower prices than those charged to him and requested the court to reduce accordingly the debt claimed by the seller, referring to Article 55 providing for the price generally charged in the relevant circumstances. The court found this argument inadmissible because it is overridden by a contrary agreement between the parties governing the totality of the provisions of the CISG.

28. Enderlein & Maskow supra note 7, at para 10. See Russian Federation arbitration proceeding 99/1994 of 22 November 1995, available online at <http://cisgw3.law.pace.edu/cases/951122r1.html>.

29. See also Peter Schlechtriem (ed.), English Commentary on the UN Convention on the International Sale of Goods (CISG), Comment on Art. 55 by Günter Hager, Oxford 1998, p. 462; CENTRAL List of Lex Mercatoria Principles, Rules and Standards, No. IV.5.1., available at <http://tldb.uni-koeln.de/TLDB.html> under 'List of Lex Mercatoria Principles', Chapter IV 'Contract', Section 5 'Contractual Obligations', No. IV.5.1. That link leads to the Transnational Law Database of the Centre for Transnational Law (CENTRAL), which is maintained by the University of Cologne, Germany, and provides the "world's first online code for transnational law, the new lex mercatoria." The CENTRAL list of lex mercatoria principles includes in Chapter IV, Contract, Section 5, Contractual Obligations, No. IV.5.1. "Subsequent fixing of contract price", the following principle: "If the contract does not contain a provision fixing the price or a method for determining it, the parties are to be treated as having agreed to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned, or, if no such price is available, to a reasonable price."

Hager and Enderlein & Maskow are in favor of objectivization of the price determination. While Hager explains that using the term "average price" would be more appropriate, Enderlein & Maskow, without wishing to change the wording of the CISG, interpret the "general price" term as meaning (a) a uniform price level if there is such in the relevant trade, or (b) an average price if the prices in the trade differ but such a price can be calculated on the basis of prices used by representative sellers. Eörsi even suggests that, in case of doubt, the world market price shall prevail. Cf. Enderlein & Maskow, who instead of the latter, opine that a price typically agreed upon between partners from the countries where the parties have their place of business should be agreed upon.

See also the much debated decision in United Technologies International, Pratt & Whitney v. MALÉV Hungarian Airlines, Legfelsöbb Bíróság, Gf. I. 31, 349/1992/9, also available online at <http://cisgw3.law.pace.edu/cases/920925h1.html>. The Hungarian Supreme Court reversed the decision of the Metropolitan Court Budapest by stating that the price of an additional Boeing engine, which was added to the contract later, was not fixed and that the price of the Airbus engine, which Malév did not choose, did not cover additional accessory equipment, meaning that the proposal did not include a sufficiently definite price, therefore it did not qualify as an offer and there was no contract. The Supreme Court further held that Article 55 CISG was not applicable because "jet engines have no market price". The term "sufficiently definite price" was obviously misinterpreted, which has been confirmed by several authors and several national laws would find the decision strange, too. Firstly, because Article 8 was completely disregarded by the court and instead, domestic law was applied, secondly because there was enough information in the communications which would have allowed for finding an implicitly fixed price. On the other hand, the court's reasoning concerning a non-existent market price is also questionable with regard to the possible methods of determining the price detailed above. The Hungarian Court made a mistake with regard to thte interpretation of Article 55 CISG by viewing it as a method for determining the price and created a questionable link between the possibility to cure the lack of price term in the offer, an existing market price and acceptance. Yet, the Court failed o clarify the relationship between the elements of Articles 14 and 55. In consequence of all criticism concerning the decision of the Supreme Court, its applicability to further legal disputes is questionable. It would mean to dismiss the requirements of Article 7 CISG concerning uniform interpretation. However, it should not be forgotten that the Malév decision was a very early interpretation of the CISG by Hungarian courts.

For further comments on the Malév decision, see Amato supra note 4; see also Koneru supra note 6; see also Harry M. Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and Other Challenges to the Uniformity Principle in Article 7 (1), available at <http://cisgw3.law.pace.edu/cisg/wais/db/editorial/flechtner920925h1.html>; Claude Witz, The Interpretive Challenge to Uniformity, at   <http://cisgw3.law.pace.edu/cisg/wais/db/editorial/witz920925h1.html>.

See also the following decisions: Oberlandesgericht Frankfurt am Main, 4 March 1994 (Germany) where the Court found that an offer is not an offer unless it conteins all essential elements of Article 14 and that Article 55 is only applicable incases where there is performance of the contract; Bezirksgericht St. Gallen, 3 July 1997 (Switzerland) where the court mistakenly considered that the invoice price was to be interpreted as the price generally charged under comparable circumstances in the trade concerned; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 3 March 1995 (Russia) where the tribunal ruled that the agreement of the parties to agree on the price in the future was not a valid method for determining the price, therefore found Article 55 inapplicable. For deeper analysis see comments by Pilar Perales Viscasillas in The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention – Papers of the Pittsburgh Conference Organized by the Center for International Legal Education (CILE), Franco Ferrari, Harry Flechtner & Ronald A. Brand eds., Sweet & Maxwell, Thomson, Sellier, 2004, p. 271-281.

30. The universality of the reasonableness standard is evidenced by the fact that regardless of reasonableness being a common law institution, it is also an attribute to civil law systems where 'bonus pater familias' or 'good businessman' standards are used. See Overview Comments on Reasonableness, Albert Kritzer, available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html>: "Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG." S ee also comments by Jelena Vilus, available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html#vilus; Ziegel supra note 8.

31. See Kritzer at supra note 30, citing Ole Lando & Hugh Beale supra note 18 at 126-128.

32. Enderlein & Maskow, supra note 6 at para 5.

33. Ole Lando & Hugh Beale, supra note 17.

34. Article 6:105 PECL: "Where the price or any other contractual term is to be determined by one party and that party's determination is grossly unreasonable, then notwithstanding any provision to the contrary, a reasonable price or other term shall be substituted."

35. Peter Schlechtriem, 50 Years of the Bundesgerichtshof [Federal Supreme Court of Germany] – A Celebration Anthology from the Academic Community – Uniform Sales Law in the Decisions of the Bundesgerichtshof at II., at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html>. See also the Malév decision at supra note 29.

36. Garro supra note 7.

37. Enderlein & Maskow supra note 7, at para 4. Unilateral determination is allowed e.g. in the German BGB, the Greek CC, the Portuguese CC, the Danish, the Swedish and the Finnish Sale of Goods Act or in England. Limited unilateral determination is allowed in the Austrian ABGB. The Spanish CC, the Italian CC, French, Belgian and Luxembourg law do not permit unilateral determination of the price for sale of goods contracts.

38. Article 6:106 PECL provides: "(1) Where the price or any other contractual term is to be determined by a third person, and it cannot or will not do so, the parties are presumed to have empowered the court to appoint another person to determine it. (2) If a price or other term fixed by a third person is grossly unreasonable, a reasonable price or term shall be substituted."

39. See supra note 21 and accompanying text.

40. Sevón supra note 8; see also Enderlein & Maskow supra note 7, para 4.

41. The reasonable price can be fixed by the court in Germany (under BGB § 317 (1)), Greece (under CC Art. 371), Italy (CC Art. 1349 (1)) and Portugal (under CC Art. 400). Even judicial revision of the price determined by the third person is also available in Italy and Germany. Fixing of a reasonable price by the court is not permitted in France and Luxembourg, for example (see, e.g., French Cour de Cassation, Civ. 2, 6 June 1950, Bull. II no. 205, p. 141). All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

42. For example, Art. 1592 (1) of the French CC and Section 9 of the UK Sale of Goods Act 1979 provide that the contract disappears in such cases. All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

43. Yet, this is the case in Dutch (BW arts. 6:2 and 6:248) and Belgian law (see M.L. and M.E. Storme TPR 1985, 732 Nos 15 and 16). All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

44. The German BGB, the Greek, the Italian and the Portugal CC provide that if the third person fails to act, the court will act for him. (For references see supra note 41.) However, in some legal systems, the contract is void if the third person fails to determine the price, e.g., in the French and Luxembourg CC arts. 1592, the Austrian ABGB (Arts. 1056 and 1057), in the Spanish CC (Art. 1447 (2)) for sale of goods, in England and Scotland under the Sale of Goods Act 1979 (s. 9(1)). All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

45. For example, Denmark, Germany (BGB § 242) or The Netherlands (BW Art. 6:258). All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

46. In French and Luxembourg law the contract is terminated in such cases. But nowadays French law is more in favor of interpreting the intents of the parties (see Cass.Civ.2, 18 July 1985, Bull II no.113 p. 84)). The same applies to Belgium (see Cour de Bruxelles 29 Oct. 1962, JT 1963 102), Portugal (CC Art. 239), Greece (CC Art. 200), Spain (CC Art. 1158) and Austria (ABGB § 194). All references to sources of law are taken from Ole Lando & Hugh Beale, supra note 18.

47. Article 7 (1) CISG.

48. See Predrag Cvetkovik, Remarks on the manner in which the PECL may be used to interpret or supplement Article 14 CISG, available online at  <http://cisgw3.law.pace.edu/cisg/text/peclcomp14.html#er>.

49. For the reasons, see paras. [a]-[d], infra.


Pace Law School Institute of International Commercial Law - Last updated September 14, 2009
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