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GUIDE TO ARTICLE 29

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 29 with PECL Articles 2:105, 2:106 and 2:107
CISG Article 29


(1) A contract may be modified or terminated by the mere agreement of the parties.

(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

PECL Article 2:105 [Merger Clause]
(complete and revised version 1998)

(1) If a written contract contains an individually negotiated clause stating that the writing embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the writing do not form part of the contract.

(2) If the merger clause is not individually negotiated it will only establish a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted.

(3) The parties' prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause.

(4) A party may by its statements or conduct be precluded from asserting a merger clause to the extent that the other party has reasonably relied on them.

PECL Article 2:106 [Written Modification Only]

(1) A clause in a written contract requiring any modification or ending by agreement to be made in writing establishes only a presumption that an agreement to modify or end the contract is not intended to be legally binding unless it is in writing.

(2) A party may by its statements or conduct be precluded from asserting such a clause to the extent that the other party has reasonably relied on them.

PECL Article 2:107 [Promises Binding without Acceptance]

A promise which is intended to be legally binding without acceptance is binding.


Editorial remarks

Remarks on the manner in which the
Principles of European Contract Law may be used
to interpret or supplement Article 29 of the CISG

Sieg Eiselen [*]
September 2002

a. Article 29 of the CISG deals with the requirements for the modification and termination of contracts. It further entrenches the principles of party autonomy, freedom of contract and freedom from formalities contained in article 11 of the CISG.[1] These principles also form the foundation of the Principles of European Contract Law ('"PECL") as expressed in articles 1:102, 2:101(2) and 2:106 and should therefore form the governing principles in the interpretation of any contract as well as its modification or termination.[2] Art 1:102 PECL however, pertinently subjects the principle of freedom of contract to the principle of good faith and fair dealing, which may not be excluded.[3]

b. The first object of article 29 CISG is to reinforce the principle that any agreed modification or termination will be valid in whatever form it is made or contained.[4] Its second object is also to eliminate an important difference in approach between civil and common law, namely clearly establishing that no consideration is necessary for any amendment to be valid.[5] However, it also entrenches the time honored principle that where parties have by agreement voluntarily restricted their ability to modify or terminate a contract by requiring formalities for such actions, that that agreement will be valid and enforceable.[6]

c. Article 2:106 PECL which deals with written modification clauses, differs somewhat from article 29 CISG in that it merely creates a presumption of invalidity where there is a clause requiring formalities for modification or termination.[7] There is, therefore, an evidentiary onus on the party who wants to rely on an oral modification or termination to prove that the parties nevertheless intended such modification or termination despite not complying with the agreed formalities. This approach, which is less strict than the approach found in the CISG, is based on the principle of good faith.[8]

d. The application of the principle of good faith may as a consequence be useful in interpreting article 29 CISG, especially in respect of the abuse exception in article 29(2). Where the reliance of a party on the written modification or termination clause would be against the dictates of good faith under the circumstances, such reliance ought not to be countenanced.[9]

e. Although the PECL does not specifically state that contracts may be informally modified or terminated, it is clear from the provisions of article 2:101(2), which entrenches the freedom of form, and article 2:106(1) that that is the actual point of departure in these principles. The CISG and the PECL therefore are based on the same principle of freedom of formalities as a starting point.

f. The PECL, however, does not accord the same strong effect to oral modification clauses as the CISG as outlined in paragraph b. above. It may therefore well result in the PECL following a more lenient approach than the CISG. An informal agreement to modify or terminate a contract may therefore be interpreted as "an implied abrogation" of the clause itself in terms of the PECL, whereas this is not the case with the CISG.[10]

g. Both article 29 CISG and article 2:106 PECL seem to apply only where the modification or restriction clause is contained in a "written agreement."[11] In interpreting what constitutes a "written agreement" the PECL may be helpful as article 13 CISG only extends the concept of writing to telegrams and telexes. Article 1:301 PECL defines "written statements" as "[including] communications made by telegram, telex, telefax, and electronic mail and other means of communications capable of providing a readable record of the statement on both sides." A readable record produced by a telephone receiver which is capable of converting sound into writing is not a written statement under Article 1:301(6).[12] It is generally recognised that article 13 CISG contains a gap in that it only refers to older forms of technology and does not provide for more modern forms of electronic communications such as e-mail, fax or internet communications.[13] It is suggested that the meaning of "written" should be extended to include these forms of communications in accordance with the definition contained in article 1:301 PECL.[14] The latter has the advantage of being clear, practical and technologically neutral without losing sight of the object of the written formality, namely preserving an objective reproducible record of the communication between the parties.

h. The issue of merger clauses is not dealt with in these remarks as they are more appropriately covered under article 8 CISG which deals with the interpretation and proof of agreements.[15]

i. The exception created in article 29(2) CISG is one area where the application of article 29 may lead to interpretational difficulties.[16] The rule is based on principles contained in the so-called "Mißbrauchseinwand" of German law or the "nemo suum venire contra factum proprium" principle of Roman law or the doctrine of waiver and estoppel of Anglo-American law.[17]

j. Under article 2:106 PECL, it is required that the reliance by the party acting upon the informal modification or termination must have been reasonable. It would seem that this requirement is justifiable also in respect of the CISG viewed in the light of the principle of good faith.[18] Where reliance was not reasonable under the circumstances, a party ought not to be allowed to use the defense contained in article 29(2) CISG.[19] The requirement of reasonableness under the PECL is further refined in article 1:302 of the PECL.[20] In considering what is "reasonable", it should be asked what persons under the same circumstances and acting in good faith would have considered to be reasonable. In deciding what is "reasonable", all relevant factors should be taken into consideration, including the nature and purpose of the contract, the circumstances of the case and the usages and practices of the trade or profession.[21] These generally reflect the behavior of reasonable parties. This test could equally well be utilized in respect of the CISG.[22]

k. A further issue which crops up is whether the provisions of the exception in article 29(2) can be upheld in circumstances where writing is obligatory due to a country making a reservation in terms of article 96 of the CISG to article 12.[23] It is suggested that even in those instances oral modifications or terminations should be upheld where article 29(2) circumstances are found.[24] The decision in Belgium 2 May 1995 District Court Hasselt,[25] however, seems to indicate that courts would be willing to apply the exception even in those instances.v

l. Neither the CISG nor the PECL makes provision for the case where the parties have agreed to further formalities such as signature or witnesses for an amendment or termination.[26] In this respect there may be a divergence between the approach of the CISG and the PECL. It is submitted that it would be in accordance with the provisions of article 29 CISG that the parties are held bound to such formalities and that non-complying modifications or terminations would be void, unless the abuse exception contained in article 29(2) CISG should apply.[27] In filling the gap under article 2:106(1) it is submitted that in accordance with the basic premises of that article, such requirements will only constitute a presumption and will not be valid and binding per se as under the CISG. This divergence is a result of the more lenient approached followed in terms of the PECL outlined in paragraphs b. and f. above.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 342-345.]


FOOTNOTES

* Professor of Private Law, Faculty of Law, University of South Africa; Advocate of the High Court of South Africa.

1. Ferrari F in Schlechtriem PH & Bacher K Kommentar zum einheitlichen UN Kaufrecht 3rd ed (2000 München) Art 7 Rn 48; Magnus U in Martinek M (ed) J. von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetze: Wiener UN-Kaufrecht (1999 Berlin) Art 7 Rn 42, Art 29 Rn 1, 2 & 9; Karollus M in Honsell H Kommentar zum UN Kaufrecht (1997 Berlin) Art 29 Rn 9; Witz W, Salger in Salger HC & Lorenz M Internationales Einheitliches Kaufrecht (2000 Heidelberg) Art 29 Rn 8; Kritzer AH Guide to the Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1989 Deventer) 115.

2. See Lando O & Beale H Principles of European Contract Law Parts I and II - Combined and Revised (2000 The Hague) Comments to Article 1:102; 2:101 and 2:106; Bonell MJ 1995 Tulane LR 1134-1135. See art 1:201.

3. As to the role of good faith in the CISG, see Schlechtriem/Ferrari Art 7 Rn 26. For a thorough and up to date discussion of the good faith principle in the CISG, see the Editorial Remarks to Article 7 by Magnus U at <http://cisgw3.law.pace.edu/cisg/principles/uni7.html#um>. For a contrary view on how the application of good faith in the CISG should be limited as a result of the drafting history of the CISG and the clear text of the CISG, see the Editorial Remarks on the Concept of Good Faith in the CISG and the PECL by Felemegas J at <http://cisgw3.law.pace.edu/cisg/text/peclcomp7.html#er>. See also Schlechtriem Art 29 Rn 10; Honnold Rn 204 footnote 8; Salger Art 29 Rn 16; Kritzer 235; Honsell/Karollus Art 29 Rn 18 & 19; Enderlein F. & Maskow D, International Sales Law - United Nations Convention on Contracts for the International Sale of Goods (1992 New York) <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html>, Art 7 par 5 at p 56 and Art 29 para 5.1 at p 125. See also Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html> para 5.4. These principles are underpinned by the principle of bona fides contained in Art 7 CISG. In this regard, see the comments in Mexico 30 November 1998 Compromex Arbitration (Dulces Luisi v. Seoul International) <http://cisgw3.law.pace.edu/cases/981130m1.html>; and Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html>.

4. Enderlein & Maskow par 1.1 at p. 123; Salger Art 29 Rn 13; Honsell/Karollus Art 29 Rn 1 & 8; Schlechtriem Art 29 Rn 3; Magnus Art Rn 7 & 9; and United States 22 September 1994 Federal District Court [New York] (Graves v. Chilewich) <http://cisgw3.law.pace.edu/cases/940922u1.html>. In the case Germany 22 February 1994 Oberlandesgericht [Appellate Court] Köln <http://cisgw3.law.pace.edu/cases/940222g1.html>, the court held that although a termination could not be construed from silence or inaction in itself, silence or inaction in conjunction with other factors may provide sufficient evidence of an acceptance of an offer of termination. It is suggested that this also holds true for modifications. See Switzerland 5 October 1999 Obergericht [Appellate Court] Basel <http://cisgw3.law.pace.edu/cases/991005s1.html> where the principle was discussed but the court found that on the facts an amendment had not been proven; and Belgium 17 May 2002 Hof van Beroep [Appellate Court] Gent <http://cisgw3.law.pace.edu/cases/020517b1.html> where the failure of the one party to respond to the letter of another was interpreted as constituting an acceptance of the amendment offered by the other party. On this issue, see also Enderlein & Maskow para 6.1 at p. 125.

5. Commentary of the UNCITRAL Secretariat on Article 27 of the 1978 Draft, Document A/CONF.97/5 p 27-28 as reprinted in Honnold J., Documentary History of the Uniform Law for International Sales (1989 Deventer) and at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-29.html>. See also John E. Murray, Jr., excerpt from 8 Journal of Law and Commerce (1988) 11-51 "An Essay on the Formation of Contracts and Related Matters under the United Nations Convention on Contracts for the International Sale of Goods" <http://cisgw3.law.pace.edu/cisg/text/murray29.html>). This has been confirmed in the following decisions: United States 17 December 2001 Federal District Court [Michigan] (Shuttle Packaging Systems v. Tsonakis et al.) <http://cisgw3.law.pace.edu/cases/011217u1.html>; ICC Arbitration Case No. 7331 of 1994 <http://cisgw3.law.pace.edu/cases/947331i1.html>.

6. Honsell/Karollus Art 29 Rn 1,9 & 11; Salger Art 29 Rn 13 & 14; Magnus Art 29 Rn 7 & 9.

7. Lando & Beale 154-155.

8. See Comment A to PECL Article 2:106, Lando & Beale 155.

9. In this regard, see the comments in Mexico 30 November 1998 Compromex Arbitration (Dulces Luisi v. Seoul International) <http://cisgw3.law.pace.edu/cases/981130m1.html>; and Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html>. For an evaluation of some case law on good faith, see Paul J. Powers "Defining the Undefinable: Good Faith and the United Nations Convention on Contracts for the International Sale of Goods" 18 Journal of Law and Commerce (1999) 346-348 at <http://cisgw3.law.pace.edu/cisg/biblio/powers.html#inter>. In respect of the PECL on this issue, see Lando & Beale 155;

10. See Schlechtriem Art 29 Rn 5.

11. Schlechtriem Art 29 Rn 9; Honsell/Karollus Art 29 Rn 12.

12. Lando & Beale Comment to Article 1:301(6).

13. Eiselen S "Electronic Commerce and the UN CISG" 1996 EDI Law Review 21 <http://cisgw3.law.pace.edu/cisg/biblio/eiselen1.html>; Schlechtriem Art 13 Rn 2; Magnus Art 29 Rn 13.

14. See also Honnold JO Uniform Law for International Sales Under the 1980 United Nations Convention 3rd ed. (1999 Deventer) Rn 130; Eiselen 21. For a contrary view on electronic communications, see Schlechtriem Art 13 Rn 2.

For a further relevant discussion of CISG Art. 13, see Ulrich G. Schroeter, "Editorial remarks on the manner in which the PECL may be used to interpret or supplement CISG Article 13" <http://cisgw3.law.pace.edu/cisg/text/peclcomp13.html#er>.

15. See the Editorial Remarks by Stanivukovic M on Article 8 CISG and its PECL counterpart provisions < http://cisgw3.law.pace.edu/cisg/text/peclcomp8.html#er>.

16. See the discussion in Honsell/Karollus Rn 17-23; Robert A. Hillman, "Article 29(2) of the United Nations Convention on Contracts for the International Sale of Goods: A New Effort at Clarifying the Legal Effect of 'No Oral Modification' Clauses", 21 Cornell International Law Journal (1988) 449-466 at <http://cisgw3.law.pace.edu/cisg/biblio/hillman2.html> p 458, 460 and 465. In the case law the exception has been mentioned but denied in cases where there was a lack of any evidence showing reliance. See Belgium 2 May 1995 District Court Hasselt (Vital Berry Marketing v. Dira-Frost) <http://cisgw3.law.pace.edu/cases/950502b1.html>. However in Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html> the arbitrator did apply the exception relying on the principle of estoppel.

17. Schlechtriem Art 29 Rn 10; Honnold Rn 204 footnote 8; Salger Art 29 Rn 16; Kritzer 235; Honsell/Karollus Art 29 Rn 18 & 19; Enderlein & Maskow para 5.1 at p 125 See also Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html> para 5.4 These principles are also underpinned by the principle of bona fides contained in Art 7 CISG. In this regard see the comments in Mexico 30 November 1998 Compromex Arbitration (Dulces Luisi v. Seoul International) <http://cisgw3.law.pace.edu/cases/981130m1.html>; and Austria 15 June 1994 Vienna Arbitration proceeding SCH-4318 <http://cisgw3.law.pace.edu/cases/940615a4.html>.

18. This would seem to be the scope of the decision in Germany 22 May 1992 Landgericht [District Court] Mönchengladbach <http://cisgw3.law.pace.edu/cases/920522g1.html> where the court says that when someone receives a document such as an expert's opinion rendered on behalf of the other party, the latter should be held bound to that document as a declaration of will if the party receiving it should have understood it as such and in fact understood it as such looking at it objectively.

19. Magnus Art 29 Rn 17; Honsell/Karolus Art 29 Rn 20. See also the discussion of the necessity to apply this exception with flexibility in Salger Art 29 Rn 17.

20. For a discussion of the concepts of "reasonableness" and "unreasonableness" in the PECL, see Lando & Beale 126-128.

21. Lando & Beale 126.

22. In respect of the concept of reasonableness as a general principle of the CISG, see <http://cisgw3.law.pace.edu/cisg/text/reason.html>.

23. See for instance the decision in Russia 1997 High Arbitration Court [Ruling No. 4, case 2] <http://cisgw3.law.pace.edu/cases/970325r1.html>.

24. The decision in Russia 16 February 1998 High Arbitration Court: Information Letter 29 <http://cisgw3.law.pace.edu/cases/980216r1.html> deals with the general requirement without referring to the exception in Art 29(2).

25. Belgium 2 May 1995 District Court Hasselt (Vital Berry Marketing v. Dira-Frost) <http://cisgw3.law.pace.edu/cases/950502b1.html>.

26. Honsell/Karollus Art 29 Rn 14.

27. Enderlein & Maskow par 3.2 at p 124; Honnold Rn 202. Note the contrary view of Honsell/Karollus Art 29 Rn 14 who argues that unless there is a clear indication that the parties indeed insisted on stricter formalities, that there should be no presumption that the parties required such strict compliance.


Comment and notes on PECL 2:105, 2:106 and 2:107

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 152-158.


COMMENT AND NOTES: PECL Article 2:105: Merger Clause

(1) If a written contract contains an individually negotiated clause stating that the writing embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the writing do not form part of the contract.

(2) If the merger clause is not individually negotiated it will only establish a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted.

(3) The parties' prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause.

(4) A party may by its statements or conduct be precluded from asserting a merger clause to the extent that the other party has reasonably relied on them.

Comment

Merger clauses

When concluding a written contract the parties sometimes agree that the writing contains their entire agreement, and that earlier statements and agreements shall not be considered. Such a merger clause may be useful when during the negotiations the parties made promises and statements based on assumptions which were later abandoned. A merger clause which has been individually negotiated, i.e. inserted in the contract as a result of a mutual discussion between the parties, will prevent a party from invoking prior statements and agreements not embodied in the writing. This follows from the principle of freedom of contract embodied in Article 1:102.

The merger clause will not apply to prior agreements or statements which, though made when the contract was negotiated, are distinct and separate from the contract.

If, on the other hand, the prior agreement is one which has such a connection with the contract that it would be natural to include it in the written contract, the merger clause will apply. [page 152]

Illustration: During the negotiations for the sale of a property the parties orally agree that the seller shall remove an unsightly ice house from a nearby tract. This agreement was not mentioned in the written contract which contained an individually negotiated merger clause. The buyer cannot require the ice house to be removed.

If, however, the merger clause has not been individually negotiated it will only establish a rebuttable presumption that the parties intended that their prior statements should not form part of the contract, see Article 2:105(2). Experience shows that in such cases a party should be allowed to prove that the merger clause was not intended to cover a particular undertaking by the other party which was made orally or in another document. It often happens that parties use standard form contracts containing a merger clause to which they pay no attention. A rule under which such a clause would always prevent a party from invoking prior statements or undertakings would be too rigid and often lead to results which were contrary to good faith.

A merger clause will not prevent the parties' prior statements from being used to interpret the contract. This rule in Article 2:105(3) applies also to individually negotiated merger clauses, but in an individually negotiated clause the parties may agree otherwise.

On a party's reliance on the other party's later conduct, see Comment B to Article 2:106, below.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Merger clauses in general

(a) Clauses upheld

A provision similar to Article 2:105(l) is to be found in UNIDROIT art. 2.17. Article 2:105 is also in accordance with PORTUGUESE law where it follows from the good faith principle that a person shall not be allowed go back on an agreement earlier made (venire contra factum proprium). Merger clauses are most often enforced in the U.S.A., see Farnsworth II § 7, 3 ff.

(b) Merger clauses probably not conclusive

This is so in ENGLAND. At one time it appears that English law prohibited the bringing of ‘parol evidence' (that is, evidence of terms which were not contained in the document) to add to, vary or contradict a written contract. However, when faced with clear evidence that the parties had in fact agreed on some term which was not in the document, the courts evaded the rule by the simple expedient of saying that the contract was not wholly in writing, so that the rule did not apply, see for example J. Evans & Son (Portmouth) Ltd v. Andrea Merzario Ltd [1976] I W.L.R. 1078, C.A. As the Law Commission points out, this renders the rule meaningless, and it is now agreed that there is at most a presumption that the written documents contains all the terms of the contract (Treitel, p. 178). It is generally thought that a merger clause will do no more than add weight to this presumption (Law Commission, Report on Parol Evidence Rule) and it will not be conclusive; see Thomas Witter Ltd v TBP Industries Ltd [1976] 2 All E.R. 573, noted at (1995) 111 LQR 385). The Contract (Scotland) Act 1977 has abrogated the parol evidence rule for SCOTLAND. In IRELAND the rule, if it still exists, has been greatly modified, see Friel, 153-154.

Under DUTCH law, evidence of oral agreements may always be brought: there is no such thing as a parol evidence rule. The landmark case is HR 13 March 1981, Nederlandse Jurisprudentie 1981, 635 (Haviltex). It has been argued that clauses which purport to import the parol evidence rule into the Netherlands are invalid, at least when they are to be found in general conditions of contract: Hondius, Entire Agreement Clauses 24-34..

In FRANCE, LUXEMBOURG and SPAIN merger clauses are reported to be rare, and there does not seem to be literature about them. In Luxembourg the rule on evidence in CC [page 153] art. 1341 quoted in note 4(b) to Article 2:101(2) above might indicate that merger clauses will be enforced. They would probably be covered by the rules on proof of judicial acts which in France are treated in Ghestin, Goubeaux & Fabre-Magnan nos. 627 ff. In Spain the rules on interpretation may also be applied, see Diez-Picazo 259-261. There is no clear rule in BELGIAN law on the validity of merger clauses. The authors tend to give the clauses a restrictive interpretation, see Storme, Invloed no. 183.

Rules as those provided in Article 2:105(1) and (2) are not to be found in the ITALIAN CC and the issues have not been dealt with in the legal writing or in reported cases. On the one hand a rule on evidence in CC article 2711 provides that "proof of witnesses is not permitted to establish clauses which have been added or are contrary to the contents of a document, and which are claimed to have been made prior to or at the same time as the document". This rule may be relevant for merger clauses. On the other hand CC art. 1362(2) on interpretation of contracts provides that "in order to ascertain the common intention of the parties, their common behaviour, also after the conclusion of the contract, shall be taken into account." The mandatory character of this rule is confirmed by the writers, see Bianca, Il contratto I 399 and Carresi II 86, and by the courts, see for instance the Court of Cassation 2 March 1971 no. 528. This would exclude merger and no-oral modification clauses.

Merger clauses are not dealt with in the GREEK CC, nor in the reported cases. Whether they will be enforced will probably be viewed upon as a question of interpretation and of CC art. 200, which provides that "contracts are to be interpreted in accordance with good faith having regard to business practices". This provision is mandatory in the sense that parties are not allowed to contract out of it, see Balis para 53, Papantoniou para. 64 1, p. 347-349; cf. AP 908/1978, NoB 1979,758.

(c) Merger clauses disregarded

In the other countries of the union a merger clause has the effect that the written contract is presumed to contain a complete record of the contract terms, but the courts will admit evidence of an oral agreement whereby the parties expressly or impliedly decide to disregard a merger clause. If the court is convinced, the merger clause will be disregarded, and an oral agreement which adds to it or varies it will be enforced. This holds true of the law in GERMANY, Larenz/Wolf, § 27 V p. 528 and Boergen; Die Effektivität von Schriftformklauseln, BB 1971, 202; see also BGH WM 1966, 1335; BGHZ 66, 378; for AUSTRIA see the presumption is provided in ABGB § 884. For DENMARK see, Lynge Andersen 87. In FINLAND, a negotiated term, even if made orally, takes priority over written standard form terms. Parties may orally agree to disregard a merger clause, see Telaranta 191; Wilhelmsson, Standardavtal 86.

2. Not-individually negotiated merger clauses

With the possible exception of THE NETHERLANDS, few of the countries seem to make any distinction between individually and not individually negotiated merger clauses. However, the Indicative and illustrative list of terms which may be regarded as unfair, annexed to the EEC Council Directive on Unfair Terms in Consumer Contracts of 5 April 1993 includes in para. 1(n) a term which has the object or effect of limiting the seller's or the supplier's ob1igation to respect commitments undertaken by his agent or making his commitments subject to the compliance with a particular formality. Under this rule a merger clause will (semble) not be upheld. § 10(3) of the AUSTRIAN Consumer Protection Act invalidates clauses like the one mentioned in para.1(n) of the EEC list of terms.

As under the PORTUGUESE Decree Law 446 / 85 of October 25 1985, art. 7 individually negotiated terms take priority over terms in a standard form contract, a merger clause in such a contract cannot set aside a prior or simultaneous individual agreement.

3. Extrinsic evidence on interpretation of the contract

In the systems which enforce merger clauses, it is generally held that the parties' prior statements may be used to interpret the contract, see UNIDROIT Principles art. 2.17, second sentence, and notes to Articles 5:101 and 5:102 below.

On reliance on merger clauses, see note 4 to Article 2:106, below. [page 154]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:106: Written Modification Only

(1) A clause in a written contract requiring any modification or ending by agreement to be made in writing establishes only a presumption that an agreement to modify or end the contract is not intended to be legally binding unless it is in writing. [page 154]

(2) A party may by its statements or conduct be precluded from asserting such a clause to the extent that the other party has reasonably relied on them.

Comment

A. ‘No oral modifications' clauses in general

Clauses in written contracts which provide that modification or termination (ending) by agreement must be in writing often occur, especially in long-term contracts. Under Article 2:106(1) such clauses will only establish a rebuttable presumption that later oral agreements or agreements made by conduct to end or to modify the written contract were not intended to be legally binding. It would be contrary to good faith to let the parties' agreement to use writing bind them to that form when later they have clearly made up their minds to use another form. If, therefore, it can be shown that both parties agreed to modify or end the contract, but did not use writing, effect must be given to their agreement. This applies even if in an individually negotiated clause in their contract they provided that they would not give effect to an oral agreement to disregard the "no oral modification" clause.

B. Reliance in spite of a merger or ‘no oral modification' clause

If the parties by their conduct - for instance by oral agreement - have agreed to modify a contract containing a merger clause or a "no oral modification" clause and one party has reasonably acted in reliance on this conduct, the other party will be precluded from invoking the clause.

Illustration: A construction contract contains a clause providing that "this contract may only be modified in writing signed by both parties". Subsequently the parties orally agree to some changes in favour of the owner which are performed. When later the contractor invokes another oral modification made in its favour the owner invokes the "no oral modification clause.

The contractor may invoke the performance of the first oral agreement to show that the second oral agreement, in favour of the contractor, is binding on the owner. The contractor has in fact relied on the abrogation of the "no oral modification" clause.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Evidential value only

The rule in Article 2:106(1) which only gives evidential weight to the written modifications clause is in accordance with the laws of most of the countries of the Union as far as contracts in general are concerned.

Thus in DANISH and SWEDISH law, even if the parties have agreed that any modification of their contract is without effect unless made in writing, they may nevertheless later orally agree to disregard their previous no-oral modification agreement. However, a party invoking such a later oral agreement has to prove it, see Ramberg, Köplagen 1995, 108 and Gomard & Rechnagel 94.

The same appears to be the case in GERMAN law see v. Caemmerel Schlechtriem art. 29 Footnote 19. Parties who "seriously and definitely" wish to make an informal modification of a contract [page 155] which contains a no-oral modification clause may do so. Such an informal agreement may, however, be difficult to prove, see Dölle (-Reinhardt) art. 15 no. 68.

The Supreme Court of GREECE has held that even if the parties have agreed to conclude their contract in writing, they may later orally agree to modify it (AP 1054/1976, NoB 1977, 508). Even contracts for which the law requires form for their modification may be ended by oral agreement (AP l376/ 1982, EEN 1983, 600).

Article 2:106(1) also appears to be in accordance with the law of ENGLAND and IRELAND, although there is no authority on this exact point. There are cases holding that a contractor cannot recover extra payment when under the terms of a building contract he should have secured a written instruction for a variation of the contract, see Hudson §§ 7-058 - 060.

ITALIAN CC art. 1352 provides: "If the parties have agreed in writing to adopt a specified form for their future contract, it is presumed that such a form was intended as a requirement for the validity of the contract". However, the writers and the courts are hostile to the adoption of a special form for agreements to modify or determine the contract, see Scognamiglio 461 and the Court of Cassation 9 January 1996 no. 100. On the other hand, special formalities may be agreed for acts which enforce already existing rights and duties such as acts of communication or performance, see Bianca, Il contratto I 307.

2. A mixed approach, or the law is unsettled

In those countries which refuse to admit proof of the existence of civil contracts not made in writing, modifications must also be in writing, see FRENCH, BELGIAN and LUXEMBOURG CCs art. 1341. Under art. l793, in a contract providing a fixed price for the work as a whole, architects and contractors may only demand an increase in the price for extra work if this extra work and its price have been agreed in writing.

However, BELGIAN courts have admitted evidence of behaviour, often performance of the modification, which showed that the party invoking art. 1341 had admitted the modification, see e.g. Cass. 28 February 1980, Arr. Cass No. 410. Likewise in SPAIN both CC art. 1593 and the Supreme Court admit oral and tacit agreements on payment for extra work in building contracts once the work has been carried out.

In FRANCE and LUXEMBOURG the question whether in commercial contracts which need not be made in writing, no-oral modification clauses are valid, has not arisen. The rule is that agreements on evidence, be it agreements on whether evidence is to be admitted or on the effects of such evidence are enforced, see for France Ghestin, Goubeaux & Fabre-Magnan no. 63l. In BELGIUM, however, the courts have admitted evidence by other means than writing of agreements on extra work in building contracts, once the extra work has been performed, see Cass. 22 March 1957, Pas. I, 887.

As any evidence is admitted for the existence of a commercial contract covered by art. 109 of the FRENCH and art. 25 of the BELGIAN Commercial Codes, the parties may orally agree to disregard a previous no-oral modification clause (Dölle (-Reinhard) 105, who for FRANCE quotes Schlessinger (-Bonassies) II 165).

SPANISH law is reported to be unsettled.

No-oral modification clauses are generally not enforced in USA, see Farnsworth II 228 ff. However the UCC § 2-209(2) enforces such clauses in sales contracts, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party if the other is not also a merchant.

3. No-oral modification clauses enforce

CISG gives effect to no oral modification clauses. Art. 29(2), first sentence, provides that a contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement, see also UNIDROIT art. 2.18. The AUSTRIAN law is reported to give effect to no oral modification clauses except in consumer contracts, see notes to Article 2:105(2) above.

4. Reliance despite merger clauses and no oral modification clauses

Articles 2:105(4) and 2:106(2) provide that a party by his word or conduct may be precluded from invoking a merger or no oral modification clause if the other party has acted in reliance of the word or conduct. Similar rules are provided for the no-oral modification clause in US UCC arts. 2.209 (4) and (5), CISG art. 29(2) second sentence, and UNIDROIT art. 2.18 . The same rules on reliance apply in AUSTRIAN law, see Schwimann (-Apathy) § 884 no. 3.

Even though they give effect to merger and ‘no oral modification' clauses, in those countries which allow the good faith and fair dealing principle to operate generally, a reliance rule will probably apply, see notes to Article 1:201. In GREEK law the principle of venire contra factum proprium would apply. On ITALIAN CC arts. 1175, 1337 and 1375 see Bianca, Il contratto I 171 and Court of Cassation 13 January 1993, no. 343. [page 156]

In ENGLAND reliance may be invoked based on the doctrine of estoppel. If in a binding contract the court finds that the employer allowed extra work to be done, the contractor may recover payment for this work although the employer did not confirm its consent in writing, see Hudson §§ 7-077 - 078. [page 157]

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COMMENT AND NOTES: PECL Article 2:107: Promises Binding without Acceptance

A promise which is intended to be legally binding without acceptance is binding.

Comment

A. Unilateral promise

An offer is a promise which requires acceptance. An offeror is not bound by its promise unless it is accepted. Other promises are binding without acceptance and they are nevertheless to be treated as contracts albeit with some modifications. Whether there is such a promise depends on the language of the promise or other circumstances. The promise must of course be communicated to the promisee or to the public.

Illustration 1: When the Gulf War started in 1990 the enterprise X in country Y published a statement in several newspapers in Y promising to establish a fund of 1 million Euros to support the widows and dependent children of soldiers of country Y who were killed in the war. After the war X tried to avoid payment invoking big losses recently made. X will be bound by its promise.

Some promises made in the course of business are binding without acceptance. An irrevocable documentary credit issued by a bank (the issuing bank) on the instructions of a buyer binds the issuing bank; a confirmation of such a credit by an advising bank binds the bank as soon as it is delivered to the seller. Some guarantees and some promises in favour of third parties also fall under this category, see Article 6:110.

Illustration 2: C sends a letter to the creditors of its subsidiary company D, which is in financial difficulties, promising that C will ensure that D will meet its existing debts. The promise is made in order to save the reputation of the group of companies to which C and D belong. It is binding upon C without acceptance since it is to be assumed that C intends to be bound without the acceptance of each creditor.

Under some legal systems a promisor may issue an instrument of debt containing a promise which is binding per se, i.e. without regard to any underlying relationship. These "abstract" promises which often require a form are not covered by Article 1:207.

Even though a promise does not require acceptance it may be rejected by the promisee. A rejection will destroy the promise, see Article 2:203.

B. Application of the Principles to promises which do not need acceptance

The Principles, including several rules of this section, apply to promises which do not need acceptance, see Article 1:107. This holds true of Articles 2:102 and 2:103. [page 157] The rules on notice in Article 1:303 also apply to such promises, and they are binding as contracts under the rules in chapters 5 and 6. Some of the remedies provided in chapters 8 and 9 apply in case of non-performance, notably damages and specific performance. As they are binding without acceptance they are generally irrevocable. See however Article 6:110 on stipulations in favour of third parties.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Promises binding

Under some of the legal systems of the Union, promises may be binding without acceptance when this is stated in the promise or follows from the nature of the promise. This applies to GERMAN and AUSTRIAN law where, for instance, promises of rewards (Auslobung) are binding without acceptance, see note 3(b)(dd) to Article 2:201.

A promise is also binding on the promisor without acceptance in FINNISH and SWEDISH law. These impose formal requirements for a promise to make a gift, but do not require acceptance by the promisee, see for Finland, Timonen 280. The promise is also binding without acceptance in DANISH law, which does not require formalities for gift promises.

In THE NETHERLANDS such promises may be binding, see BW art. 6:219 and 6:220, and the same holds true of BELGIAN law, see Arr. Cass l979-80 1132 and 1139; Cass. 3 Sept l98l, Tijdschrift Aannemingsrecht- L'entreprise et droit, 1982, 131; van Ommeslaghe, J.T. 1982, 144. However, for special contracts subject to formal requirements, such as gifts, Belgian law explicitly requires acceptance, see CC Art. 932.

In SCOTS law there are "unilateral" promises for which no consideration is required and which are binding without acceptance, see McBryde, Contract, l3-27 and Requirement of Writing (Scotland) Act l995, s l.

2. Acceptance required

The COMMON LAW differs from the Principles in two respects. First, promises generally need acceptance. The only clear cases of a binding promise which do not require acceptance are (i) the deed - the beneficiary need not know of it - but this is seen as kind of property transfer, and not as a contract, and (ii) the irrevocable letter of credit. The latter is considered binding as soon as the confirming bank notifies the seller that the credit has been opened, see Atiyah, Sale of Goods 422; Treitel, Contract l40-l4l; Goode, Abstract payment undertakings. In the common law a party can accept a promise by performing an act, see note 2 to Article 2:101 above. Second, the common law requires promises to be supported by consideration, see note 2(a) to Article 2:101 above.

FRENCH, LUXEMBOURG and PORTUGUESE law require acceptance of promises, including when (as in France and Luxembourg) the contract is a contrat unilatéral, and (in Portugal) where it is a unilateral act where only the promisor is obliged, see note 2 to Article 2:101 above. In SPANISH law promises are not binding unless accepted which may take place by performing the act required, see SPANISH Supreme Court 17 Oct l975 , RAJ (1975) 3675 and 6 March l976 RAJ (1976) 1175 and Sancho, Elementos 173-181.

Equally acceptance is generally required under GREEK law; a mere promise is not enough. However, CC art. 193 provides that under special circumstances the acceptance as such may suffice, regardless of whether it has been dispatched or arrives at the offeror's place, see Erm AK (-Simantiras ) l93 no. 11.

ITALIAN CC art. 1987 provides that a unilateral promise of a performance, i.e. an undertaking which does not require acceptance, is not binding except in specific cases provided by law, such as an offer to the public for a reward.

3. Application of rules of contract

On the application of the rules of contract to promises binding without acceptance see notes to Article 1:107. [page 158]

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© Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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