Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 229-235. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§ 200 Agreements of Modification Article 29 addresses questions that arise when the parties agree to modify their contract. Will the agreement be effective although nothing additional is given to satisfy common law requirements with respect to "consideration?" Some contracts provide that modifications must be in writing: Will these agreements nullify modifications that are made orally?
Article 29 addresses questions that arise when the parties agree to modify their contract. Will the agreement be effective although nothing additional is given to satisfy common law requirements with respect to "consideration?" Some contracts provide that modifications must be in writing: Will these agreements nullify modifications that are made orally?
"(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."
§ 201 A. Modification or Termination by "Mere Agreement"
Paragraph (1) is addressed to a problem presented by the traditional common-law doctrine of "consideration." When an agreement to modify a contract merely increases or reduces the obligations of one of the parties, the agreement may be ineffective since it is not supported by "consideration"—i.e., by an act or promise given in exchange for the new promise. This restriction on the parties’ ability to adapt their transaction [page 229] to new circumstances has generated pressure for modifications of the traditional rule.
The (U.S.A.) Uniform Commercial Code swept aside this common-law rule by this brief statement (§2–209(1)): "An agreement modifying a contract within this Article needs no consideration to be binding." Article 29(1) of the Convention achieves the same result by stating that a contract may be modified or terminated "by the mere agreement" of the parties. "Agreement" need not be explicit but may be based on conduct (Art. 18(3), §§163–164, supra), or on practices established by the parties or usage of trade (Art. 9, §§112–122, supra).
§202 B. Contract Restrictions on Modification
The fact that the sales contract is in writing does not bar oral modification. Arts. 11, 29(2). However, contracts sometimes provide that they may be modified only in writing. Article 29(2) gives effect to these private "statutes of frauds." What is the effect of a contract term that requires formalities for modification other than a "writing?" Suppose the initial contract permits modification only by a writing "signed by the parties" or requires the "approval in writing by the managing director."
Under Article 6, the parties may "vary the effect of any " of the Convention’s provisions; the parties, by a written agreement, may broaden the scope of Article 29.
The role of the second sentence of Article 29(2) may be illustrated as follows:[page 230]
Example 29A. A written contract called for Seller to manufacture 10,000 units of a product according to specifications that were supplied by Buyer and set forth in the contract. The contract provided: "This contract may only be modified by a writing signed by the parties." Before Seller started production, the parties by telephone agreed on a change in the specifications. Seller produces 2,000 units in accordance with the new specifications; Buyer refused to accept these units on the ground that they did not conform to the specifications in the written contract.
Because of the contract provision, under Article 29(2) the oral agreement to the change in specifications, by itself, was ineffective to modify the contract. However, Buyer’s oral agreement could be held to constitute "conduct" that would preclude him from invoking the contract clause "to the extent that the other party has relied on that conduct"; Seller’s production of the 2,000 units in accordance with the oral agreement could constitute such reliance. However, Buyer is precluded only "to the extent" of the reliance; he should be able to insist on the original specifications for further production.
Under this view, Article 29(2) reliance may be based on "conduct" such as a statement by one party that it would accept a shipment made a week later than the date specified in the contract followed by a shipment made in accordance with this assurance.
It may be argued that a "no oral modification" clause means: "This contract may be modified only by written agreement, and may not be modified by an oral agreement or other conduct regardless of reliance thereon". This construction of a "no oral modification clause", or an express contract provision in terms just quoted, raises a difficult question on the relationship between Article 29(2) (last sentence) and Article 6 (§§74–77, supra). Article 6 states: "The parties may...derogate from or vary the effect of any of [the Convention’s] provisions". Under one view Article 6 would authorize the parties to override the "reliance" provision of Article 29(2). However, the "reliance" provision addresses a specific problem of abuse of a "no-modification" clause rather than the general effectiveness of the clause. Consequently, it may be suggested that Article 6 should not be construed to authorize contracting to nullify the narrow protection [page 231] against abuse of contracting in Article 29(2). In further support is the mandate of Article 7(1) that, in interpreting the Convention, "regard is to be had to...the need to promote... the observance of good faith in international trade". See: Schlechtriem, Com. (1998) 214-216.
If, contrary to this suggestion, the protective rule of Article 29(2) may be nullified by contract, the party prejudiced by such a contract term may invoke applicable domestic rules on "unconscionability", "good faith" or other rules invalidating such a contract provisions. As we have seen, domestic rules on the validity of contract terms are preserved by Article 4(a). See §§64–67, supra.
Conduct Modifying Writing: Decisions. (1) GER. LG Hamburg, 5 O 543 26 September 1990. Agreed payment date extended by accepting bill of exchange. CLOUT 5, UNILEX D.1990–6. (2) GER. OLG Köln, 22 U 202/93, 22 February 1994. S’s offer to terminate was made effective by B’s silence and conduct. CLOUT 120, UNILEX D.1994–16.
Agreement Requiring Writing Enforced. USA S. Dist. NY, 22 September 1994. Graves v. Chilewich, 1994 Westlaw 5/9996. Written agreement requiring writing was enforced. CLOUT 86, UNILEX D.1994–23. See: Hillman, R., 21 Cornell Int. L.J. 449–466 (1988).
Reservations under Articles 12 & 96: Oral Modification of Agreements: See discussion, supra, at Article 12, §129, including BELGIUM Rechtbank van Koephandel, A.R. 1849/94, 2 May 1995. UNILEX D. 1995-15.1.2.
§204.1 C. The Convention and Common-law "Consideration"
Does the Convention abolish the common-law doctrine of "consideration"? This question, sometimes posed by concerned jurists, is reminiscent of questions concocted by clever, mischievous students to test their professor’s mettle. The question is interesting but calls for a slightly narrower focus: Can a problem of common-law "consideration" arise within the area governed by the Convention?
Let us recall the Convention’s scope. Article 4 states: "This Convention governs only" (1) "the formation of the contract" (Part II of the Convention [page 232]) and (2) "the rights and obligations arising" therefrom (Part III of the Convention).
Lawyers who have never met a problem of "consideration" in practice will still recall that at classical common law a promise might not be enforceable unless the promisee gave something in exchange: a promise or an act—possibly only a peppercorn. Perhaps the doctrine’s principal significance has been to deny enforcement to promises to make a gift—a type of open-handedness that does not plague commercial practice. However, as we have seen, problems of "consideration" can arise when an offeror, without receiving anything in exchange, promises not to revoke the offer (§140 supra ). However, Article 16(2) of the Convention provides that such an offer "cannot be revoked" (§§139–142 supra ).
Our clever student, however, may exclaim: "Haven’t you overlooked Article 4 which states that the Convention ‘is not concerned with (a) the validity of the contract’? Our contract law states that consideration is necessary for validity. Hence our rules on consideration are in force in spite of the Convention." This question raises a basic issue of construing the Convention that can occur in an untold number of contexts—and deserves an answer.
First, a few self-evident but essential points: Article 4 defines the scope of the uniform law of the Convention; interpreting the words in Article 4 is an interpretation of the Convention and not of domestic law. Thus, the statement that the Convention "is not concerned with...the validity of the contract" must be read in relation to other provisions that show the issues with which the Convention is concerned. One of the issues with which the Convention is concerned is the revocability of offers. Indeed this is one of the important provisions of Part II on formation of the contract; there was never any question but that, subject to permitted reservations , this and the other rules of the Convention were uniform rules displacing domestic law, regardless of their label.
None of the other provisions of Part II on Formation seems to collide with domestic rules on consideration. If such a problem should arise the answer should be developed in conformity with the principles suggested above.[page 233]
The rules of Article 29 permitting modification of the contract by "mere agreement", as we have seen, also collide with traditional common-law rules on "consideration" (§201 supra ). Here, too, domestic law must yield to the uniform rule of the Convention. There are a few other provisions of the Convention that might be regarded as involving a readjustment of the parties’ agreement. See Arts. 47(2) and 63(2) (effect of a notice fixing an additional period for performance), Art. 48(2) (effect of a request that a buyer make known whether it will accept delayed performance), Art. 65(1) (effect of a request to make specifications). If any of these provisions should collide with domestic rules on "consideration" the domestic rule is superseded by the uniform international rule permitting readjustment of the contract by "mere agreement".
It is difficult to envisage cases in which common-law rules on "consideration" would have vitality within the area governed by the Convention. In Part II (Formation), except for promises not to revoke an offer governed by Article 16, the formation of sales agreements does not present a problem of "consideration" since each party’s promise is made in exchange for the other party’s promise or (in rare instances) performance.
In Part III (Obligations under the Contract) it is difficult to think of a promise made after the initial making of the contract that is not made binding either by Article 29 ("A contract may be modified or terminated by mere agreement") or by one of the above-mentioned provisions facilitating readjustment of the parties’ obligations.
Agreements settling disputed claims seldom present problems of "consideration" since each party usually yields some aspect of its claims. Settlement agreements probably are governed by the Convention since (Art. 4) they involve "the rights and obligations of the seller and buyer arising from" the international contract. The Convention does not state that such agreements do not require common-law "consideration"; one can imagine the drafting problem of knocking out common-law consideration for every possible application. However, on each occasion when this question came to the fore (Arts. 16, 29) the Convention rejected "consideration" as a barrier to enforcing the agreement. This policy consequently seems to quality as one of the "general principles" on which the Convention is based and therefore should be given effect under Article 7(2) (§§96–102 supra). Finally, and most important: the legal systems in much of the world have no doctrine comparable to common-law "consideration." See Zweigert & Kötz II (1987), supra note 2. Subjecting some international sales governed by the Convention to this arcane doctrine would be inconsistent with the mandate of Article 7(1) (§§85–87 supra) to interpret the Convention with regard "to its international character and the need to promote uniformity in its application."[page 235]
FOOTNOTES: Chapter on Article 29
1. This article is substantially the same as Art. 27 of the 1978 Draft. The 1964 Hague Conventions had no comparable provisions. The article was initially included in the Formation Draft. For the evolution of the provision, see W/G 8 paras. 36–47 and Appendix I—Proposed Art. 3A; VIII yearbook 76–77, 95, Docy. Hist, 277–278, 290; W/G 9 paras. 138–153 (Art. 3A revised as Art. 13 and later as Art. 18), IX Yearbook 72, Docy. Hist. 304; UNCITRAL XI para. 28 and Annex 1 paras. 187–194 (summary of deliberations) IX Yearbook, 45, Docy. Hist. 379; Com. I (Art. 27); SR. 13, paras 53–74. O.R. 305–306, Docy. Hist. 526–527.
2. English Law Revision Commission, Sixth Interim Report (Statute of Frauds and the Doctrine of Consideration) (Cmd. 5449) Recs. 3, 4 and 8; Ont. L. Ref. Com. I Sale 96–102. Civil law systems impose no comparable restriction. Zweigert & Kötz II (1987) 71–82.
3. Domestic rules requiring a writing or other formality may be applicable to the agreement if one of the parties has its place of business in a Contracting State that has made a declaration under Art. 96. See the Commentary to Art. 12, supra at §129.
4. The Convention’s few rules with respect to a "writing" do not require signatures or other formalities. Under Art. 13 "‘writing’ includes telegram and telex." See Art. 21(2) (letter or other "writing" containing a late acceptance).
5. The requirement of Article 29(2) that restrictions on modification must be contained in a "contract in writing" would a fortiori apply to the more elaborate contractual restrictions mentioned in the text. On the effect of a Contracting State’s declaration under Art. 96, see note 3, supra at §201, and the Commentary to Art. 12, supra at §128.
6. Secretariat Commentary Art. 27, para. 9, O.R. 28, Docy. Hist. 418. Comparable provisions in UCC 2–209(4) and (5) are stated in terms of "waiver"—the voluntary relinquishment of a known right. See White & Summers §1–5. Under UCC 2–209(5) a party may "retract the waiver by reasonable notification...that strict performance will be required, unless the retraction would be unjust in view of a material change of position in reliance on the waiver." The second sentence of Article 29(2) of the Convention is less elaborate but seems to reach similar results. Cf. the doctrine of promissory estoppel.
[Editor's note: Footnotes 7, 8, and 9 not present in the text]
10. Article 98: "No reservations are permitted except those expressly authorized in this Convention". Article 92 permits a reservation excluding Part II (Formation) or Part III (the substantive law of sales). No reservation permits a State to exclude the rules of Article 16 on the revocability of offers.