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Reproduced with permission from 6 Minnesota Journal of Global Trade (1997) 105-152

excerpt from

The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles

Phanesh Koneru [*]

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[Comments on Open-Price Issues]

Article 14 states that a proposal to conclude a contract is an offer if it is sufficiently definite to allow the price to be fixed, either explicitly or implicitly.[190] Thus, if the price can be determined, the proposal does not fail for indefiniteness, and a valid contract exists. Article 55 fills the gap for the price term and states that, once a valid contract has been formed, the price is the market price at the time of the conclusion of the contract.[191] Professor Farnsworth, applying the Convention language literally, argues that Article 55 applies only after the contract is validly formed.[192] Because the Convention is not concerned with the validity of the contract,[193] its validity should be determined according to the appropriate domestic law as directed by private international law rules.[194] If such a contract is invalid under domestic law, Article 55 cannot be applied.[195]

While this argument is persuasive, it loses its strength when the interaction between Article 14 and 55(1) is considered in the international context. The Convention does not seem to consider the missing price term to be fatal to the contract. The Convention does not expressly provide a mechanism to fix a missing quantity term or a term that identifies the goods (the other two important variables under Article 14(2)), but Article 55 does provide the missing price. Thus, the view under the Convention is that a contract is valid even if it does not have an explicit price term. The price can be supplied either under Article 14 (implicit or explicit provisions for fixing the price), or under Article 8(3) (which allows for determination of the price from any subsequent conduct of the parties), or ultimately under Article 55(1) (a reasonable price).

Assume a scenario in which the parties failed to fix the price under Article 14, the buyer nevertheless received the goods, and the parties disagree on the price. The existence of the contract can be proved under Article 8 from their conduct. But is there a valid contract when the price term is missing? Under the indefiniteness argument, there is no contract, and Article 55 can not be used if domestic law determines the contract to be invalid. But the general principles of assessing the intent of the parties from conduct,[196] protection of reasonable reliance,[197] and the overarching principle of preservation of contract[198] require the contract to be preserved. Indeed, Article 56(1) is meant to apply precisely to this type of situation. Only an overly-technical reading, while ignoring the general scheme of the Convention, produces the result of an invalid contract under this scenario.[199] Thus, if the mandates of Article 7 are faithfully followed, the term validity under the Convention should be given a narrow interpretation limited to "common core" issues and does not cover the issue of a missing price term.[200]

International case law is mixed on the validity aspect of missing price terms. One court did not even inquire whether missing price created a validity issue [Enterprise Alain Veyron v. Soc. E. Ambrosio 26 April 1995 (France)].[201] The dispute was between an Italian seller and a French buyer who contracted over the sale of sweets produced by the seller. When the seller sued for the buyer's default in payment, the buyer claimed that the price was not fixed in the contract and that the price was to be determined according to Article 55. The buyer thus argued that the price should be the market price, which was less than the price when the contract was concluded. The court held that the buyer had taken delivery of the goods without contesting the price indicated by the seller. Under Article 8(2) and 8(3), such conduct should be interpreted as acceptance of the price. One lower court in Hungary determined that the quality, quantity, and price of the goods were all impliedly fixed by practices which the parties had established between themselves over a period of time [Adamfi Video Production GmbH v. Alkotok Studiósa Kisszövetkezet (Metropolitan Court of Budapest) 24 March 1992].[202]

The Hungarian Supreme Court, in Pratt & Whitney v. Malev, The Hungarian Airlines,[203] ruled that if the price cannot be determined from the contract, the contract is void. Pratt & Whitney, a U.S. aircraft engine manufacturer, and the Hungarian Airlines (Malev) had entered into an agreement for Malev to purchase certain aircraft engines to be chosen in the future. The price had been agreed upon for two engines, but it was not fixed for one other engine. Malev argued that there was no price agreed upon for the third engine and that the contract failed for indefiniteness under Article 14(1). The Malev court reasoned that "price is an essential term" of the contract and ruled that the contract failed when the price could not be determined from the contract. The Court stated that there was no "ready market" for aircraft engines and that the price could not be fixed by using Article 55.

The Malev Court was short on analysis and failed to pay attention to the Convention on many fronts. The Court hastily referred to domestic law by failing to interpret the term "validity" under the Convention. In the process the Court ignored the interrelationship between Article 55 and Article 14. The Court purported to be willing to apply Article 55, but paid it only lip service when the Court stated that there was no ready market for aircraft engines and that the price could not be determined. Even though an aircraft engine is not a common commodity, there could have been an acceptable method to fix the price: for example, by an independent appraiser familiar with the aircraft engine industry. The Court did not take into account the parties' intent under Article 8 in the formation of the contract. The parties' behavior, under an objective standard of either Article 8(2) or 8(3), revealed that the parties considered themselves to have a binding agreement. Finally, the Court missed the general principle of protecting the reasonable reliance of the aggrieved party.[204] The facts in Malev seem to indicate that Pratt & Whitney reasonably believed that a binding contract was formed. The Malev decision suggests that not only Malev, but also the Court failed to observe "good faith" under the Convention. The Malev decision should have questionable authority in the international jurisprudence of the Convention.

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* J.D., University of San Diego School of Law, 1996; Ph.D., University of Southern California, 1992. . . .

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190. The Convention states:

A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.

A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

CISG, supra note 1, art. 14(1).

191. Article 55 states:

Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.

CISG, supra note 1, art. 55(1).

192. Hartnell, supra note 180, at 69 n.276. Professor Hartnell also agrees and states that "Article 14(1) is a rare example of the Convention itself declaring that the absence of certain provisions renders a contract invalid." Id. at 69.

193. CISG, supra note 1, art. 4(a).

194. The Convention states:

This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage.

CISG, supra note 1, art. 4.

"The overall scheme is thus that the CISG (usually) provides the rules of offer and acceptance; national law then determines whether there is a valid (binding & enforceable) contract; whereafter CISG Part III regains control if the answer is yes." Joseph M. Lookofsky, Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules, 39 Am. J. Comp. L. 403, 405 (1991) (footnote omitted).

195. Extensive debate exists on the interaction between Articles 14 and 55(1). See generally Amato, supra note 16; Hartnell, supra note 180, at 69 n.276.

196. CISG, supra note 1, art. 8.

197. See supra notes 59 and 65 and accompanying text (discussing provisions for reasonable reliance).

198. See supra notes 70-72 and accompanying text (discussing the principle of contract preservation).

199. "[I]n a codified set of rules such as the Convention, every effort should be made to construe seemingly incompatible provisions in order to make sense out of them." Garro, supra note 185, at 464.

200. See supra note 184 and accompanying text (discussing the core of validity issues).

201. Case 213 (Italy v. F.R.G.), Entreprise Alain VEYRON v. Soci,t, E. AMBROSIO, Cour d'Appel de Grenoble Chambre Commerciale (Apr. 26, 1995) (abstract) (unpublished), available in UNILEX, supra note 3.

202. Case AZ 12.G.41.471/1991 [Adamfi Video Production GmbH v. Alkotók Studiósa Kisszövetkezet], Metropolitan Court of Budapest (Mar. 24, 1992) (abstract) (unpublished), available in UNILEX, supra note 3. The court found that the contract did not fail for in definiteness because the German seller repeatedly delivered the same type of goods and the Hungarian buyer paid the price after each such delivery. Id. Thus, Article 9(1) of the CISG was applicable to determine the "validity" of the contract for Article 14(1) purposes.

203. Case Gf. I. 31 349/1992/9. . . United Technologies International, Pratt & Whitney v. MALEV Hungarian Airlines, The Supreme Court of the Republic of Hungary (Sept. 25, 1992) (unpublished), available in UNILEX, supra note 3, translated in 13 J.L. & Com. 31 (1993).

204. See supra note 59 and accompanying text (discussing general principles and the specific textual provisions supporting the general principle of protection of reasonable reliance).

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Pace Law School Institute of International Commercial Law - Last updated April 19, 1999

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