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Published in Galston & Smit ed., International Sales: The United Nations Convention on Contracts for the International Sale of Goods, Matthew Bender (1984), Ch. 2, pages 2-1 to 2-36. Reproduction authorized by Juris Publishing.

General Provisions

by Gyula Eörsi

§ 2.01 Introduction
§ 2.02 Interpretation in General
§ 2.03 Article 7(1) on Interpretation of the Convention
§ 2.04 Article 7(2) on Gaps in the Law and "General Principles"
§ 2.05 Article 8: Interpretation of Statements and Conduct
§ 2.06 Article 9 on Usages
§ 2.07 Article 10 on Multiple Places of Business
§ 2.08 Articles 11 and 12 on the Requirement as to Form
§ 2.09 Article 13

§ 2.01 Introduction

General provisions in a legislative act are technical means for avoiding repetitions in the text of the law. They govern a broad field and as a body of rules they are in contrast with other chapters, heterogeneous. In our case they serve multiple purposes; they govern the interpretation of the Convention, deal with closing eventual gaps in the law, provide rules for interpretation of the statements and conduct of the parties to the contract, deal with usages, determine the place of business, and lay down formal requirements.

Before discussing these issues the present writer feels the [page 2-1] need for a caveat. The innocent reader might in some instances have the impression that the draftsmen of the Convention could not really live up to expectations. Though it may happen that, in a heterogeneous and periodically changing group consisting of a great number of delegations from different States an unexpected decision which cannot be remedied later may occur, this, however, happens rarely -- and mainly in the hasty last days of the conference. (If it were possible, those last days should be canceled altogether.) If the reader finds provisions which seem to be unreasonable, he should attribute them to a compromise solution veiling an issue which could not be resolved. He may be fairly sure that a compromise was practically the only way to avoid a deadlock. It is better to have a questionable compromise than to endanger the success of the whole undertaking.[1]

My final introductory remark is that the West and the East are not at all antagonistic in the field of sales law. The line of division in most cases runs along the borders of the common law and the civil law and not along political borders. Delegations from Socialist states frequently sided with other delegations from civil law countries, and vice versa. Still, after having discussed usages, the good faith clause and the requirement as to form, a short Appendix will point to some characteristic differences in Western and Eastern contract strategies.[page 2-2]

§ 2.02 Interpretation in General

Interpretation is needed mainly because language frequently tends to be vague and offers more than one meaning. Two CISG articles are concerned with interpretation, namely, one on the interpretation of the Convention (Art. 7(1)) and another on the interpretation of the statements and conduct of a party to a contract (Art. 8).

It has been pointed out that the difference between Article 7(1) and Article 8 consists in the fact that the first one is directed to the courts and the second to the parties.[2] Still, it could perhaps be argued that both articles are directed to the courts since judgment is delivered by the courts, and both are also directed to the parties since it is they who must comply with the Convention. Nevertheless, there is a difference between the two kinds of interpretation: they find themselves on different levels. The first is concerned with the law, the CISG, and the second with the behavior of the parties to the contract. At the same time, statements and declarations of intent willy-nilly contribute not only to the interpretation of the contract, but to the interpretation of the law as well. Hence both types of interpretation are practically the same activities on different levels, except that in the Final Provisions in Part IV and some articles on the sphere of application of CISG the parties to the contract have no role to play.

An important aspect of some of these provisions is the desire to curb the homeward trend so frequent in international trade practice. In Article 7(1) there are two devices for this purpose: regard for the international character of CISG, and the need to promote uniformity. In Article 7(2) there are again two devices: One is conformity with the general principles on which the Convention is based; this, in particular, serves to exclude the homeward trend. The [page 2-3] second, on the other hand, points to the rules of private international law and thus seeks a solution outside the Convention. I shall come back to these clauses later. [page 2-4]

§ 2.03 Article 7(1) on Interpretation of the Convention

It could be argued that the provisions of Article 7(1) are but pious wishes: the paragraph is necessarily vague and therefore open to surprising results. Nevertheless, a considerable merit of the paragraph lies in the fact that it proclaims an up-to-date legal policy in harmony with the exigencies of world trade which postulates that "no recourse to national law should be admitted in interpretation."[3] This seems to be a worthy goal and if this precept will take root much will be achieved. In addition, the elements of regard to the international character of the Convention and uniformity in its application were well chosen.[4] The first, as we have seen, was devised to check the homeward trend, and the second is an admonition to follow precedents on the international plane. I admit that it will not always be easy to implement the above-mentioned principles. Domestic courts must not be allowed to forget these requirements, and a collection of precedents followed by critical annotations should be published, possibly by UNIDROIT which has issued the Uniform Law Review since 1973.

The question may arise: when is there a need to interpret the Convention? First, a party or a tribunal may feel that there is a gap in CISG; in that case paragraph (2) should be consulted; this will be discussed below. Secondly, the text may seem to be unclear in certain respects, for example, as to whether the provisions on Exemptions (Art. 79) stipulate fault liability or strict liability; in such cases a resort to analogy in external sources should not be permitted; the analogy should be sought within the provisions of the Convention.

The policy of the Convention should be followed. For instance, the Convention, in contrast to ULIS, never requires a party to act promptly. Therefore where a party is [page 2-5] required to act within a reasonable time, a "reasonable time" should not mean "promptly," because the policy of the Convention does not require prompt action.

Further, the legislative history may also give some guidance, as where a principle in ULIS was deliberately rejected in the course of the preparation of the Convention, such as ipso facto avoidance or the ULIS concept of delivery. Another nest of litigation may develop where there is clear antagonism between the civil law and the common law; in particular I have in mind the revocation of an offer (Art. 16). None of this, of course, means that the parties are not permitted to stipulate by virtue of Article 6 either prompt action or ipso facto avoidance in their contract.

And where should the material for interpretation of the Convention be sought? Clearly, this should, unless CISG expressly provides otherwise, be taken from the Convention itself. It should not be taken from external sources such as the law of the forum or the law applicable under a conflict of laws rule. CISG is not a law complementary to national laws but is meant to be an exhaustive regulation.[5]

Our innocent reader might be surprised to read the words "observance of good faith" in an article dealing with interpretation of the Convention. In fact, the introduction of good faith was first proposed by the representative of Spain as early as 1972 [6] but was forgotten until 1978. I do not intend to dwell at length upon the necessity of introducing this concept into international trade. Still, I cannot resist mentioning that the good faith clause together with synonyms such as Treu und Glauben, a "Mädchen für Alles" in German law, and other similar clauses playa beneficient role in domestic trade and should be introduced into international [page 2-6] trade as well. I say this even though I realize that a party whose municipal law is familiar with the good faith clause may find himself at a disadvantage if the law of his partner ignores the clause. In any event, the idea was fiercely opposed, in particular by the delegation of the U.K. and some others. It was a misfortune that the proposal to include the clause was tabled when formation was discussed. Professor Farnsworth argued that the U.S. rules on good faith do not go to formation.[7] The situation was aggravated by a proposal of the GDR to the effect that, if one party violates the principle of fair dealing, the other party may demand reimbursement of his costs.[8] After lengthy discussions, a proposal of an ad hoc Working Party [9] recommended that as a compromise good faith could survive but should be shifted to the provisions on interpretation of the Convention, thus consigning it to a ghetto and giving it an honorable burial. This recommendation was adopted (No. 60) even though practically everybody was convinced that the clause was dead. Then came a counterattack: the clause should apply to interpretation of the contract rather than interpretation of the Convention (Art. 8); "it was not really appropriate to direct the requirement of good faith to the courts rather than to the parties."[10] This, however, could not satisfy the common law delegations,[11] and Professor Farnsworth -- politely or ironically -- called the solution already adopted a "statesmanlike compromise."[12]

This story gives an insight into what I have mentioned in [page 2-7] respect of compromises. And yet I am not convinced that the good faith clause may not be of some help even though it is placed in a provision on interpretation of the Convention. The Netherlands delegation in its comments declared that it was pleased to "see the inclusion ... of a rule concerning good faith."[13] Other civil law delegations -- in particular, those from the Federal Republic -- were also in favor of introducing good faith (Treu und Glauben) into the Convention, though understandably not in Article 7(1). Professor Schlechtriem, for instance, deplored the fact that the idea expressed in § 242 BGB did not find its place in the Convention.[14] However, both he and Huber seem to believe that the good faith clause may play an active role in spite of its location in the Convention.[15] If this is true -- and I hope it is -- it is still possible that the civil law and common law courts will follow opposite courses, which I would deplore. Anyway, Schlechtriem expects that "Treu und Glauben" will prevent a hasty recourse to municipal rules and practices.[16]

Further possible illustrations: Under Article 24, a declaration of acceptance "reaches" the addressee when "it is ... delivered ... to his place of business or mailing address ... ." If a party knows that the other party who has a place of business is away from his home for a considerable period of time, and he nevertheless sends the declaration to the mailing address, he may violate the requirement of good faith. Again, a party sends declarations regularly to place of business "A" but on one occasion he directs the declaration to place of business "B" intending that it should reach the other party late; the principle of good faith is again violated and the court may hold that the proper place of business was "A." Thus, interpretation of the Convention may indeed lead to application of the good faith clause. It might be argued that in such cases it was not the Convention which [page 2-8] was interpreted but the contract. In my humble opinion, however, interpretation of the two cannot be separated since the Convention is necessarily interpreted by the parties also; after all, the Convention constitutes the law of the parties insofar as they do not make use of Article 6 on freedom of contract.

As a transition to Article 7(2), it might be mentioned that gaps in the law constitute a danger in respect of interpretation of the Convention, since one way to follow the homeward trend is to find gaps in the law. On the other hand, if a gap is detected, the problem arising thereby should be solved by way of the interpretation of the Convention. This must be the means whereby gaps are filled. [page 2-9]

§ 2.04 Article 7(2) on Gaps in the Law and "General Principles"

The key words in Article 7(2) confine its operation to "[q]uestions concerning matters governed by this Convention which are not expressly settled in it." The provision corresponds to Article 17 ULIS which, as explained by Dölle in his commentary, served for the filling of gaps.[17] In fact, Article 7(2) serves exactly the same function; the fact that the word "gap" does not figure in the Convention does not mean that gaps were forgotten.

On the other hand, all this was not clear when Article 7(1) was drafted; there was no Article 7(2) and therefore no provision for gap-filling. This caused some trouble. Prior to the Diplomatic Conference, the Convention's provision on interpretation (Art. 7(1) was deemed to cover the idea expressed in Article 17 ULIS, but this was not the case.

A way out could have been to assert that gaps are also covered by Article 7(1); after all, it is merely a question of interpretation to find or to bury gaps in the law. This, however, was never argued. Article 7(2) was born at the latest stage of the preparation of the Convention; the gap in Article 7 itself, namely, the absence of a gap-filling technique, was filled almost at the end of the Diplomatic Conference.

What do we regard as questions not governed by the Convention? Obviously, questions which are expressly excluded by the Convention, as by Articles 2, 3(2), 4 and 5. But there are also others which are governed by the Convention but are not completely regulated. An example can be found in Articles 78 and 84, where interest is called for but the rate is not settled. Another instance may occur under Article l(b) if one of the parties has a place of business in State A which has ratified the Convention and another in [page 2-10] State B which has not ratified it. (Article 10 certainly cannot govern such a situation.)

Whether there is it gap or not can only be verified through interpretation: interpretation may "call gaps into being" or may "bury" gaps. For instance, the traditions of the common law favor restrictive interpretation and therefore common law tribunals find more gaps than civil law judges who are accustomed to the traditions of systematic codification. Nevertheless when the W/G at its first, second and third sessions decided to draft what has later become Article 7(1), no provision on filling gaps was envisaged.

The justification for such a provision can be derived from the fact that it is hardly possible for an international group to draft a voluminous and complicated piece of legislation without leaving gaps behind. Of course, it can be argued that the problem can be solved by interpretation. This is true, but -- bearing in mind the vague wording of Article 7(1) CISG -- there is perhaps some sense in seeking a separate solution for a not indifferent particular issue, namely, the problem of gaps in the law. As a matter of fact, there is a certain similarity between the structure of the Swiss ZGB Article 1(1),(2) and Article 7(2) CISG. The Swiss Article 1 states that the Code must be applied to all cases which fall within one of its provisions either explicitly or by way of interpretation; Article 7(2) CISG also mentions interpretation and implies that CISG must be applied. Both the Swiss Article 1 and Article 7(2) CISG deal with filling gaps, although in a different manner.

As mentioned above, the main provision of Article 17 ULIS, namely, that gaps should be filled "in conformity with the general principles on which the present Law is based" was much criticized. What are these "general principles?" It is certainly possible to find such principles within CISG. What is more, it may also be possible to find such general principles outside ULIS, as has been shown by Dölle. However, it is unclear whether these are of any use. Dölle mentions Treu und Glauben, which appears as good faith in [page 2-11] Article 7(1) CISG. He refers to freedom of contract, which figures in Article 6 CISG governing formalities; to the quality of a reasonable man; to its historical relationship to the "Natur der Sache" of the Law of Nature; to abuse of right; and to venire contra factum proprium.[18] The latter two may certainly be regarded as "general principles," although they may also belong to the sphere of good faith. Thus the majority of these principles are either expressly incorporated into CISG or are too vague and distant.

But the real danger to unification is that in the search for general principles it is unlikely that the tribunals and parties would find the same "general principles." And if different jurisdictions find different general principles or interpret them in a different way, possibly following local practice, then unification will suffer a heavy blow. Nor is the exhortation of Article 7(1) CISG to promote uniformity of much help. Thus the doors will be open for the homeward trend: conflicting rules may appear in great numbers.[19] The danger is even greater because a number of delegations favored external solutions.

There is a contradiction in all of this: While under Article 7(1) CISG the Convention must be interpreted from within,[20] under paragraph (2) gaps can be filled also by virtue of the rules of private international law. And this can be achieved in a very easy way: it is enough to state that no general principles can be found and therefore the only way out is to resort to private international law. [page 2-12]

§ 2.05 Article 8: Interpretation of Statements and Conduct

"The operation of statute is not automatic, and can never be so. Like all legal rules, it has to take effect through the interpretation of the courts."[21] In order to be able to handle a legal text, it is necessary to know what it implies. This is not as simple as one might think, since there is frequently a conflict between the will and the expression thereof. It can be inferred from this that interpretation has something in common with translation. Here is a text and it needs explanation or clarification. But thereafter the text is no longer what it was. It is to some extent falsified, and the more so when the interpreter or translator is interested in a certain result, as is frequently the case in commercial matters. Interpretation is a malediction and a benediction at the same time. And yet it is inevitable.

At least in the civil law, there are well known methods of interpretation, such as the grammatical, logical, systematic and historical methods; these seem to be somewhat obsolete nowadays. Then there are codes which contain provisions on interpretation, such as the Swiss Civil Code Article 1(1) which as we have seen explicitly mentions interpretation as a means of finding the meaning of the Code's provisions. In addition, the Swiss Code of Obligations provides that interpretation should be based on the common intent of the parties without regard to vague expressions and terms (Art. 18). The German BGB contains an article on the interpretation of a declaration of. intent in general (Art. 133) and another specifically on the interpretation of contracts (Art. 157); the first requires that the true intent and not the literal meaning of the wording should be taken into consideration, and the second provides that a contract must be construed in conformity with Treu und Glauben. And a last example: the Hungarian Civil Code provides that a contractual declaration shall be construed in the way the other party must have [page 2-13] meant, in accordance with the generally accepted meaning of the wording employed, having regard to the presumed intent of the declarant and to the circumstances of the case (Art. 207). This seems to be correct in terms of theory since it combines the general situation with the particular and the individual element. And still the courts almost never apply this provision: it is not practicable in solving contractual conflicts. Then there is a feud between broad (extensive) and narrow (restrictive) interpretation. On the whole, common law traditions rooted in the style in which statutes are drafted favor narrow interpretation, and the civil law systems with their systematic codes favor broad interpretation.[22] In any event, the judgment of Allen is that the "greatest inconsistency is between 'broad' and 'narrow' interpretation."[23] This may be true but there is also much truth in the arguments of Réczei [24] who believes that the policy of CISG is to extend its sphere of application to approach universality. Certainly it follows from Article 7 that CISG must in all cases be interpreted extensively in order to encompass doubtful issues under the Convention and thereby block the homeward trend.

CISG has chosen a practical approach. In fact, modem interpretation, particularly in the field of contracts, is inclined to rely on such devices as the practices established between the parties, the preliminary negotiations, usages, subsequent conduct and so forth, as stated in paragraph (3). The policy in this field is to assure legal security in both domestic and international trade.

Article 8 on interpretation of "statements made by and other conduct of a party" originated in ULF Article 13(2) and traveled through ULIS Article 9(3), then through the [page 2-14] UNIDROIT Draft on Validity (LUV),[25] and finally landed in the General Provisions of CISG.

When formation of the contract was considered, the W/G decided to delete Article 4(2) ULF and to combine it with a new general provision on interpretation [26] based upon Articles 4(2) and 5(2) of ULF and Articles 3, 4 and 5 of the UNIDROIT Draft on Validity.[27] When considering Article 14 ULF, the W/G requested the Secretariat to prepare a draft text on interpretation. The resulting draft contained many elements of the final version. Meanwhile the UNIDROIT Draft on Validity was also considered and also included provisions on interpretation (Art. 3).[28] It was urged that the provisions on interpretation in the Draft on Formation and those of CISG should be identical.[29] A Drafting Group was of the understanding that the Commission wished Article 4 of Formation to be placed in the General Provisions of the Convention so that it would be applicable to the entire Convention. Therefore the W/G decided to append a text of the draft Convention noting that there was no provision in CISG equivalent to the article on interpretation which had been included in the Draft Convention on Formation.[30] At the next meeting of the W/G the provisions on interpretation were extended to the entire Convention and appeared as Article 7 in the UNCITRAL Draft.

Who does interpret the contract? Certainly the courts do, but so do the parties, even if they do not know that they are [page 2-15] doing so, like M. Jourdain who did not know that he was speaking prose. They have certain views on what the contract or clauses thereof mean and make their statements or behave accordingly. Consequently, interpretation is frequently inference from conduct preceding and/or following the conclusion of the contract. This is of course not the only source of interpretation. Further, interpretation by the parties may be used for different purposes and may lead to various results.

The most important function of interpretation is to ascertain whether the contract has been properly concluded and what is its precise content.[31] But interpretation may also be a nuisance. As already stated, interpretation may find or bury gaps in the law, may render the contract void, or may be held erroneous, thus leading to damages for negligence or vitiation of the contract for mistake. It may also happen that the parties, when concluding the contract, do not think of certain problems the relevance of which becomes evident later.[32] Problems of interpretation may emerge before or after the contract is concluded; indeed, a question frequently discussed during the deliberations of the W/G was whether CISG should be confined to interpretation of unilateral statements of the parties for the purpose of determining whether a contract has been concluded, or whether the rules should be extended to regulate the interpretation of contracts already in existence.[33] The right answer is, of course, both, since the conclusion of a contract is but a start.

The text of Article 8 CISG was preceded by two drafts. One was prepared by the Secretariat of UNCITRAL when [page 2-16] Article 13 ULF was discussed.[34] and the second emerged from Article 3 of the UNIDROIT Draft relating to Validity.[35]5 What is common to the drafts is their graduated structure, depending upon whose understanding is relevant. Originally there were three grades: (a) the common intent of the parties, (b) if this is not applicable, the intent of one of the parties provided that the other party knows about this intent, and (c) if neither is applicable, then the understanding of a reasonable person. This is a very logical concept. Still it became clear that for the purposes of interpretation the first grade was justified only in terms of abstract logic but not in terms of law since, when the parties have a common intent, there is nothing to be interpreted. Therefore this grade was eliminated.[36] The graduated concept was followed in both drafts and also in the final text, providing methodological assistance by offering normative suggestions on how to determine the intent of a party or the understanding of the hypothetical reasonable person. All relevant circumstances of the case have to be considered, including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties (Art. 8(3)).

Article 9 CISG on usages restricts binding usages to the type involved in the particular trade concerned. The question arises whether the term under Article 8(3) has the same sphere of application as in Article 9. Article 9 is addressed specifically to usages and by its location in Chapter II constitutes one of the General Provisions which apply throughout the Convention. On the other hand, it has been argued that the function of usages in Article 8(3) differs from that of usages in Article 9. Therefore national and local usages may also be considered in determining party intent [page 2-17] notwithstanding the fact that under Article 9 usages must be international.[37] This argument seems to be correct, since it would be foolish to restrict the possibilities of interpretation. It could not serve any good purpose to prohibit the tribunal from giving due consideration to any kind of usage or anything else that could be helpful in interpreting the contract.

The wording "subsequent conduct of the parties" (Art. 8(3)) was criticized on the ground that acts which occur after the conclusion of the contract should not be relevant in determining whether a contract has been validly concluded.[38] Still, there is some justification for including subsequent conduct, since interpretation is not confined to the conclusion of the contract.

Article 8 CISG looks to intent (para. 1) and to the understanding of a reasonable person (para. 2).

In paragraph (1), intent does not stand alone: no one party will ever be able to control interpretation. The other party is also needed for this purpose: he must know or must not have been unaware what that intent was. The wording clearly shows the importance of his awareness; while ULIS (Art. 10) and also the Draft on Validity (Art. 3(2)) in comparable situations use the expression "ought to have known," here we read the words "could not have been unaware," which sound much stronger than the cited formula.

Now I come to the reasonable person. A large number of civil law delegations had difficulties concerning that mysterious person who does not exist but who nevertheless has an understanding which must be of the same kind that the other party should have had in the same circumstances. But that hypothetical person is no better and no worse than the bonus paterfamilias or the optimaler Beobachter in the doctrine of the adäquater Kausalzusammenhang of the Federal [page 2-18] Republic.[39] All these are rather vague expressions and yet in practice they function well enough, although it is not always easy to transcribe realities into legal language. Still, initially awkward legal terms when frequently used became understood by legal experts. The true source of difficulty lies in the fact that we are concerned with international trade, where we find either the reasonable man of the common law or the bonus paterfamilias of the civil law. It may be comfortable to have one's own legal system as the law of the transaction, but is it not excessive to expect that one who goes into international trade should be prepared to learn something about the legal system of the other party? The only solution lies in compromises which assign a place under the sun both to the reasonable man and to the bonus paterfamilias.

And now I come back to Article 8 CSIG and another aspect of the reasonable person. A commentary on the UNIDROIT Draft on Validity mentions that the two parties to the contract are in different situations and consequently two "reasonable persons" might well have the same disagreement over the interpretation of the contract as the parties themselves.[40] With due respect, this sounds like a nightmare: one reasonable person on the side of the buyer, another on the side of the seller, neither of them existing, holding the exact opposite views of the parties themselves. This is no longer a battle between the parties but between the reasonable persons. To give an example taken from the same source: What happens if the contract is in two languages and the translation is inadequate? Can a German party backed by his reasonable person and a U.S. party backed by his reasonable person solve the problem? And what can a tribunal say? It may declare that there was no consent and therefore there is no contract or it may decide on the basis of paragraph (3).[page 2-19]

This is an example of what I stated at the beginning: Interpretation by the parties may result in invalidating the contract.[page 2-20]

§ 2.06 Article 9 On Usages

Philippe Kahn hailed the inclusion of usages in ULIS as constituting the recognition of a community composed of traders and indicating the hierarchy of sources in the sense that the uniform law becomes a subsidiary source where usages and the will of the parties are sufficiently precise.[41]

So far so good. But usages frequently involve uncertainty; where they appear, the parties to a contract may be taken by surprise. In particular, companies or traders without well established legal services or information systems may be suspicious of unknown usages. Hence, in the deliberations of the UNCITRAL W/G delegations from developing countries and some of those from the Socialist countries urged that the application of usages should be restricted. Few such voices were heard when ULIS was drafted; at that time there were no delegations from developing countries and only a few from Socialist states. It may perhaps be asserted without any value judgment that, on the whole, highly developed countries favor the extension of the application of usages and developing countries would like to shut the door to such usages.[42]

At the very first meeting of the UNCITRAL W/G the main objections against Article [9] came to the fore. It was stated that usages might be binding even if not known to the parties and that they would prevail over the law.[43] Several speakers from Eastern Europe and developing countries [page 2-21] also voiced their mistrust concerning Article 9 ULIS. The USSR stated that it would be wrong to recognize the priority of usages; Mexico feared the imposition of unfair usages; Hungary pointed out that usages unknown to the parties might prevail over the law.[44] To continue this random demonstration: in the discussion at the UNCITRAL Conference (1977)[45] the representative of Czechoslovakia was of the opinion that usages should apply only when they were not in conflict with either Convention or contract, that usages were a vague concept, and that such a provision had no place in the structure of the New International Economic Order (No. 61). The observer for Yugoslavia agreed (No. 64). The representative of Hungary was satisfied that the article provided a guarantee that usages of which a party had no knowledge could not be invoked against him (No. 66). On the other side, the ICC was of the opinion that the "essence of any rule giving relevance to usage is that the newcomer in the trade should not be able to plead his ignorance of the usages as a defence. For that purpose sometimes also local usages must be taken into consideration."[46]

The record of usages is not all bad. Among other benefits, they effectively promote standardization of contractual processes. Nevertheless, it seems appropriate to make a distinction: usages within a distinct branch or community are in fact most useful; the usages are well known, and there is no uncertainty. On the other hand, where a businessman may find himself taken by surprise, usages may present a high risk, which should be taken into consideration unless one is of the opinion that weak parties deserve their fate.

All this is reflected in the different approaches to usages in ULIS and in CISG. While under ULlS the parties are bound by usages which they "usually consider to be applicable to [page 2-22] their contract," CISG requires that the parties at least "knew or ought to have known" the relevant usage. The first approach favors the stronger parties and the second the weaker ones; the first broadens the sphere of application of usages, the second restricts it and thereby widens the sphere of application of CISG.[47] A further difference is that ULIS recognizes usages even if of local origin while CISG restricts the application of usages to usages "widely known." Still further: under ULIS the parties may find themselves bound by usages even against their will, which is not the case in respect of CISG.[48] But perhaps the most important difference lies in the fact that under ULIS, unlike CISG, usages will prevail over the law in the event of conflict; this applies even to the law's imperative provisions. (It can be assumed that this provision was influenced by the Swedish Sale of Goods Act, 1905, Article 1.) In contrast, CISG merely permits the parties to a contract to make usages applicable; this means that imperative provisions of the law prevail. It is also the fact that CISG, due to Article 6, has no imperative provisions except Article 12.[49]

Article 9(1) CISG and Article 9(1) ULIS do not differ much from each other. Agreement between the parties or practices which they have established between themselves may suffice to make usages binding. The difference between the two is that while under Article 9(1) ULIS this can be done either expressly or impliedly, in the case of CISG it can be done only expressly. The reason for this is that Article 9(2) CISG provides that only under certain circumstances [page 2-23] are the parties considered to have implicitly made usages applicable to their contract or its formation. CISG Article 9(1) is reserved for explicit agreements and practices and (2) for cases where usages are implicitly taken into consideration. Thus usages in CISG appear completely on a contractual basis: usages became part of the contract.[50]

It was aptly asserted by Huber that the provisions on usages in CISG have -- again in contrast to ULIS -- no normative force; they are suppletive elements of the interpretation of contracts. He adds that this results in a clear change for the worse both in substance and from the technical aspect, since (a) the provision according to which parties are bound by any usages they know or ought to have known is insufficient; (b) it requires that these usages should be widely known in international trade and (c) they must also be regularly observed.[51]

These, indeed, are the three requirements which must be satisfied in order to make usages explicitly applicable under CISG. Certainly the abundance of these requirements was frequently criticized in the discussions of the W/G. But this was due to the policy adopted, namely, to reduce the applicability of usages, and the three restrictive barriers are justified in light of this policy; another policy would have resulted in a contrary approach.

Article 9(2) second sentence and (3) ULIS have no equivalent in CISG. Both were deleted by the W/G at its sixth session in 1975.[52] As a consequence CISG has no rules on trade terms such as Incoterms, for instance.

A provision to the effect that "[i]n the event of conflict with the present Law, such usages shall prevail unless otherwise agreed by the parties" corresponded to the second sentence of Article 9(2) ULIS. The Drafting Party found that this paragraph was unnecessary, since usages which [page 2-24] were incorporated into the contract under (1) and (2) automatically took precedence over the provisions of the Convention (No. 41).

Article 9(3) ULIS dealt with expressions, provisions or forms of contract commonly used in commercial practice (hereinafter trade terms). This was also deleted by the W/G on the ground that it was often difficult to find any meaning which was widely accepted and regularly given to the expressions, provisions and forms used in international trade (No. 38). Finally, Article 9(2) CISG was slightly amended (No. 42) and the W/G adopted a text which became the final text of Article 9 CISG (No. 40). On several later occasions there were heated discussions concerning paragraph (2) in particular, but the text was understood as a compromise and was consequently not changed again.

What is the state of trade terms when they appear in a contract of sale? A simple answer is that they are part of the contract. But how do they fit into the Convention? It may be argued correctly that they are part of the contract, but this may not be sufficient, and difficulties may arise. For instance, if it is held that the scope of the Convention does not cover trade terms then a contract stipulating the application of such terms cannot be operative under CISG. If, on the other hand, it is held that trade terms are governed although not expressly settled, then these terms share the fate of gaps in the law since, in the course of the preparation of CISG, a large majority took the view that trade terms should not figure in the Convention. These terms are certainly not expressly settled in the CISG but of course nothing can prevent the parties from stipulating their application in the contract. Therefore Article 7(2) does not apply. As for Article 4, this article stipulates that the Convention governs only the formation of the contract of sale and the rights and obligations of the parties. It is clear from the text that the word "only" is not exhaustive since Article 4 offers two examples of issues the Convention is not concerned with, namely, validity of the contract and the effect which it may [page 2-25] have on the property in the goods sold. This does not resolve the question of trade terms; it means only that the parties may stipulate the application of trade terms in their contract if they wish. Thus it appears that while trade terms are excluded from the Convention itself, they are nonetheless permitted to enter into the contract.[page 2-26]

§ 2.07 Article 10 on Multiple Places of Business

The location of the place of business of the other party is important not only for practical reasons but also for legal reasons, in particular, in the field of international sales where, among others, the applicable law may depend upon it. Complications may arise if a party has more than one place of business or has none at all. This rather technical issue is treated in Article 10.

In the discussion of the W/G it was held that "it was important to define first what is the place of business."[53] Ultimately, no such definition was adopted but certain elements of such a definition were mentioned; a warehouse or a seller's agent could not qualify as a place of business."[54]

The W/G at its fourth session in 1971 discussed the problems raised by multiple places of business and proposed the location of the party's principal place of business as the basic solution.[55] Although "principal place" or "main place" were frequently suggested as the best solution, the expression "closest relationship" was quite early mentioned as the relevant place of business.[56] The word "relevant" is important since if a party has more than one place of business then the question is which of them is relevant in the given situation. The transition from "principal place of business" to "closest," that is, most relevant, relationship was achieved at the fifth session: the party's "place of business shall be his principal place of business, unless another place of business has a closer relationship to the contract and its performance."[57] Later on, the clause "closest relationship" was adopted by a large majority, though not unanimously.

Nevertheless, the text of Article 10 gives little guidance.[page 2-27] A clear indication of uneasiness was expressed in the cited words "unless another place of business has a closer relationship." The term "closest relationship" always admits a certain degree of doubt.[58] It is never easy to assess such a relationship, and not only for the purposes of CISG. For instance, where the applicable law has to be applied in the absence of choice, reference is frequently made to the law of the country with which the contract is "most closely connected." But what does this phrase mean? The Convention on the Law Applicable to Contractual Obligations [59] provides that in the absence of choice a contract will be governed by the law of the country with which it is most closely connected (Art. 4). This is followed by a large variety of presumptions, such as the country where the party is to effect the "characteristic" performance, or the country of the habitual residence, central administration, principal place of business, or business other than the principal place of business. The Convention goes on to provide that these connecting factors do not apply if the characteristic performance cannot be determined and that the presumptions be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country. Does this embarras de richesses provide guidance? There is little doubt that the test of "closest relationship" or "connection" is far from unambiguous; anybody could refer to the connection which serves his purposes best.

Mutatis mutandis the situation is by and large the same in respect of Article 10. Therefore the question arises whether it would not have been better to abandon "closest relationship" and rely on the main or principal place of business which can be assessed more easily. Although this approach might have provided better predictability, it too involves serious drawbacks. In any event, apart from the fact that the main place of business may also be difficult to assess, as in [page 2-28] the case of a multinational corporation, we face two different concepts or policies: rigidity versus flexibility. The main place of business may be easier to ascertain than the place with which the contract is "most closely connected." Yet it may be argued that the advantages of a flexible "solution in many cases outweigh those of clear predictability.

Moreover, Article 10(a) does provide some guidance to the interpretation of "closest relationship." The place of performance may in many cases be most relevant since "there is a necessary link between the place of business and ... the performance of the contract.[60] In other cases the circumstances known to or contemplated by the parties before or at the conclusion of the contract may be decisive. Thus the relevant place of business is that which is the most favorable from the point of view of the contract and its performance. This sounds reasonable even if it is not the stone of wisdom. There may also be other aspects to be taken into consideration; perhaps the most important is not to abandon the international character of the contract which could bar the homeward trend. If the main place of business is taken into consideration instead of closest relationship, what is essentially a domestic transaction may be converted into an international transaction, and vice versa.[61] Other indications were provided by Schlechtriem: the place of a permanent establishment vested with certain powers, or the place where the contract was negotiated or signed, for example, the headquarters of a multinational concern in another State.[62] The representative of Belgium mentioned the location of a factory, an economic factor such as investment, or a legal factor such as the powers of a proxy.[63] The previous practices between the parties may also be taken into consideration. [page 2-29]

In the absence of a place of business (Art. 10(b)), reference is made to the habitual residence. This will be a rather rare occurrence, particularly in view of Article 2(a) which excludes consumer sales. Nevertheless, a person who does not have any established place of business may occasionally enter into a contract involving goods intended for commercial purposes.[64][page 2-30]

§ 2.08 Articles 11 and 12 on the Requirement as to Form

Article 15 ULIS lays down no requirement as to form. The model of the provision was that of international large scale business between highly developed countries since, as already stated, the great majority of the States represented at The Hague came from such industrialized quarters.

Nevertheless, when UNCITRAL started to discuss formal requirements, probably few realized that this issue would be the most difficult to solve; indeed, it remained open until the UNCITRAL Conference in 1977, although it was evident that, while contracts of some importance are usually presented in a written form, there are situations where there is no time. for writing a contract. In these latter cases, of course, it is usually possible to resort to telegram or telex which qualifies as "writing" (Art. 13 CISG). The W/G was informed that "in some developing countries some large scale traders whose business may include international trade are illiterate."[65] On the other hand, the same representative proposed on another occasion that the Convention accommodate the demands of the countries which require their foreign contracts to be in writing.[66] There were even desperate representatives who proposed deletion of the article.[67] Others worked out compromises without result, such as Bulgaria's proposal that the written form should be compulsory when the legislation of one of the parties so requires.[68]

It was the USSR which firmly defended its position to the effect that international sales contracts should always be in written form. A contract is valid only if the offer and [page 2-31] acceptance are in writing.[69] The other Socialist countries have on the whole neither supported nor criticized this concept; indeed, many do not demand that foreign trade contracts be in writing. For instance, in the GDR, the Aussenhandelskaufvertrag (AKV) has no compulsory requirements as to form;[70] in Hungary, foreign trade contracts must be in writing unless an unforeseen emergency arises, in which case the agreement must be put on paper promptly.[71]

It may also be mentioned that it was only ten years ago that the British Parliament repealed the Statute of Frauds which made contracts for the sale of goods unenforceable unless evidenced by a signed writing, and a somewhat milder version still persists in the UCC. It is also well known that American corporations rely heavily on written contracts, in particular if their own interests are at stake. So the idea of written contracts was not alien to anybody but there was a strong reluctance against a compulsory written form. Fortunately or unfortunately, delegations have to live with compromises. In any event, the United States delegation showed much tolerance and made important efforts to accommodate the special demands of the Soviet legal system against a clear majority.[72] These efforts were appreciated by the W/G and UNCITRAL.

A solution had already been suggested in 1971 in the form of a special declaration or reservation,[73] but was at that time not ripe for adoption. The problem was settled by compromise at the UNCITRAL Conference (1977). The main rule remained the original freedom of form embodied in Article 11, and the exception appeared as Article 12 which makes provision for a declaration under Article 96. Article 12 is the [page 2-32] only article whose provisions are imperative and are exempted from the provisions of Article 6.

This may not be the best solution, but it was the only workable one. Enderlein (GDR), for instance, complains that reservations are not available to business circles and that therefore the legal situation remains to a great extent in the dark.[74]

The main consequence of a State's making a declaration under Article 96 is that if any party has a place of business in the State which has made the relevant declaration, Article 11 does not apply. The conflicts rule of the lex fori will decide in such cases.[75] However, it should be mentioned that Article 12 may give rise to difficulties. For instance, if a party has a place of business in a State which has made a declaration under Article 96 and has another place of business in a State which has not made such a declaration, we are faced with a dilemma. May the party simply say under Article 10(a) that the closest connection is with the place of business in the State which has (or has not) made the declaration? Or is the party by virtue of Articles 11 and 12 permitted to choose between the two places of business? [page 2-33]

§ 2.09 Article 13

This Article needs no comment. [page 2-34]


So far as contract strategies are concerned, Socialist and Western laws take a different approach. On the surface, Socialist laws are more rigid than Western laws. This can be traced back to their planning system which endeavors to create security for the fulfillment of the plan targets. Another source of rigidity lies in their mistrust of Western firms -- an attitude which goes back to the early years of the Soviet Revolution and is, at least in part, of a socio-psychological nature. Even more important is the fact that Eastern Europe remained backward for centuries; it did not have three hundred years of industrialization and the resulting knowhow of trading could not be acquired. The status of merchants and traders was very low.

I have used the word "security." Of course, security of law is an important requirement all over the world. But there are two kinds of security. One is when the goal is to be free from any surprise and the other is when the goal is to master conflicts. The first case calls for careful planning, and the second requires appropriate devices to eliminate crises and keep the contract alive through adaptation, through adjustment to changing conditions. I could mention Professor Ian Macneil as a protagonist of the latter approach. Thus the Socialist laws provide security only where no unexpected events occur; after the conclusion of the contract the aim is to prevent conflicts, while Western legal systems are prepared to cope with conflicts and to adjust the contract without judicial interference.

What has been suggested may lead to a better understanding of the attitudes of Socialist representatives during the elaboration of CISG. Their desire to have a good faith [page 2-35] clause (Art. 7(12), their mistrust of usages (Art. 9) and their preference for written contracts (Arts. 10-11) are but manifestations of such attitudes.[76]

Still, it should also be mentioned that international trade has a homogenizing effect on all participants. This elicits converging tendencies. There is more planning in the West than in the past and planning in several Socialist countries today is less detailed and more indicative than normative. [page 2-36]


1. On compromises, see Eörsi, A Propos the 1980 Vienna Convention on Contracts for the International Sale of Goods, 31 Am. J. Comp. L. 333, 345-346 (1983).

2. 9 UNCITRAL Yearbook 36 no. 54 (1978); Official Records 258 no. 47.

3. 3 UNCITRAL Yearbook 76 no. 53 (1972): A/CN/9.SR, p. 5.

4. I return later to a third element, namely, the observance of good faith.

5. P. Schlechtriem, Einheitliches UN-Kaufrecht 23 (1981); Réczei, The Rules of the Convention Relating to Its Field of Application and to Its Interpretation, in Problems of Unification of International Sales Law 53, 86 (1980); Huber; Der UNCITRAL-Entwurf eines Übereinkommen für internationale Warenkaufvertrage, 43 RabelsZ 413, 432-433 (1979).

6. 3 UNCITRAL Yearbook 76 no. 52 (1972).

7. Farnsworth, Problems of Unification of Sales Law from the Standpoint of the Common Law Countries, in Problems of Unification of International Sales Law II, 19 (1980).

8. Enderlein, Zur Ausarbeitung einer Konvention, AW 52/77, Recht im Aussenhandel 32, Beilage p. 7.

9. 9 UNCITRAL Yearbook 36 no. 56 (1978).

10. Id. no. 54.

11. See the pros and cons in 9 UNCITRAL Yearbook 132 nos. 64-79 (1978).

12. Farnsworth, loco cit. supra note 7.

13. 9 UNCITRAL Yearbook 132 (Art. 5, no. 64) (1978).

14. Schlechtriem, op. cit. supra note 5, at 25.

15. Huber, supra note 5, at 432; Schlechtriem, loco cit. supra note 5.

16. Schlechtriem, loco cit. supra note 5.

17. H. Dölle, Kommentar zum einheitlichen Kaufrecht 123 (1976).

18. Id. 135-138.

19. Réczei, The field of application and the rules of interpretation of ULIS and UNCITRAL conventions, in 24(1-2) Acta Iuridica Academiae Scientiarum Hungaricae 157, 185 (1982).

20. Huber, loc. cit. supra note 5. In the view of Réczei, analogy is not permitted for the purposes of interpretation. Loc. cit. supra note 19.

21. C.K. Allen, Law in the Making 466 (6th ed. 1958).

22. Huber, supra note 5, at 433.

23. Allen, op. cit. supra note 21, at 509.

24. Réczei, supra note 5, at 93.

25. UNIDROIT Draft of a law for the unification of certain rules relating to validity of contracts of international sale of goods, followed by an explanatory Report of the Max-Planck-Institut für ausländisches und internationales Privatrecht, Etude XVI/B, Doc. 22, UDP 1972; [1973/1] Revue de droit uniforme/Uniform Law Review 61, 71.

26. 8 UNCITRAL Yearbook 78 (Art. 4(2) ULF) (1977).

27. Id. at 86 no. 155.

28. Id. at 104-105.

29. Id. at 86 no. 157.

30. 9 UNCITRAL Yearbook 49 (1978): see also id. at 43.

31. 8 UNCITRAL Yearbook 105 (1977): Zweigert et al., Der Entwurf eines Einheitlichen Gesetzes über die materielle Gültigkeit internationaler Kaufverträge über bewegliche Sachen, 32 RabelsZ 201, 211 (1968); Report, supra note 25, at 21-22.

32. 2 K. Zweigert & H. Kötz, Einführung in die Rechtsvergleichung 84 (1969).

33. 9 UNCITRAL Yearbook 62 no. 12 (1978).

34. 8 UNCITRAL Yearbook 86 no. 155 (1977).

35. Id. at 104-105.

36. Common intent, however, may play a considerable role when problems of validity arise (feigned or simulated contracts). Report, supra note 25, at 23.

37. Schlechtriem, op. cit. supra note 5, at 26.

38. 8 UNCITRAL Yearbook 87 no. 167 (1977).

39. H. Kötz,. Deliktsrecht 71-72 (2d ed. 1979).

40. 8 UNCITRAL Yearbook 105 (1977); UNCITRAL Commentary on Art. 3(3), no. 5.

41. La Convention de La Haye du 1er juillet 1964 portant loi uniforme sur la vente internationale des objets mobiliers corporels, Rev. tr. dr. com. 1964, 689, 700-70l.

42. "Developed countries have tended to be suspicious of settled customs and usages at the international level ... . The basis of this suspicion ... by developing countries is the feeling that such usages and customs usually crystallize from practice dominated by actors from the developed countries, particularly those in the West." Date-Bah, Problems of Unification of Sales Law from the Standpoint of Developing Countries, in Problems of Unification of International Sales Law 39, 46 (1980).

43. 1 UNCITRAL Yearbook 183 nos. 76, 81 (1968-1970).

44. Id. at 169 nos. 79-82.

45. A/CN.9/X/C.1/SR 3.

46. 8 UNCITRAL Yearbook 138 (1977).

47. Réczei, supra note 5, at 83.

48. The same applies, for example, in Austria, Italy and Germany. See 1 E. Rabel, Das Recht des Warenkaufs 59 (1957); Jokela, The Role of Usages in the Uniform Law on International Sales, 10 Scandinavian Studies in Law 81-86 (1966); Schlechtriem, op. cit. supra note 5, at 27-28, dealing also with the criteria of usages under German Law.

49. For common law, see Honnold, The Influence of the Law of International Trade on the Development and Character of English and American Commercial Law, in The Sources of the Law of International Trade 70, 79-81 (1964); in respect of UCC, see id. at 83-84.

50. Official Records 264 no. 95.

51. Huber, supra note 5, at 427-428.

52. 6 UNCITRAL Yearbook 52 no. 38 (1975).

53. E.g., 8 UNCITRAL Yearbook 146 (Art. 6) (1977).

54. A/CN.9/X/C.1/SR.3 no. 9.

55. 2 UNCITRAL Yearbook 19 no. 63 (1971).

56. Id. at 41 no. 20.

57. 3 UNCITRAL Yearbook 79 (art. 4) (1972).

58. Official Records 270 no. 79.

59. Art. 4 on applicable law in the absence of choice. 23 Official Journal of the European Communities 1 (L 266, 9 October 1980).

60. A/CN.9/X/C.1/SR.3 no. 20.

61. Id. SR.2 nos. 100-10l.

62. Schlechtriem, op. cit. supra note 5 at 29-30.

63. A/Conf.97/C.1/SR.7 no. 66.

64. UNCITRAL Commentary no. 9.

65. Date-Bah, supra note 42.

66. 2 UNCITRAL Yearbook 48 no. 83 (1971).

67. Id. at 61 no. 121; 8 id. 113 (1977) (Government Comments: Czechoslovakia).

68. 6 UNCITRAL Yearbook 72 no. 6 (1975): 8 id. 112 (1977).

69. 1 UNCITRAL Yearbook 170 no. 91, (1968-1970) and at several other places.

70. 1 Handbuch der Aussenhandelsverträge 181 (1971).

71. F. Mádl-Vékás, Magyar nemzetközi magánjog/Hungarian International Private Law 270 (1981).

72. Farnsworth, supra note 7, at 11 (UCC § 2-201).

73. 2 UNCITRAL Yearbook 61 no. 119 (1971).

74. Enderlein, supra note 8; Schlechtriem, op. cit. supra note 5, at 31.

75. Huber, supra note 5, at 434-435.

76. See also Eörsi, supra note 1, at 341-343.

Pace Law School Institute of International Commercial Law - Last updated December 9, 2004
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