INTRODUCTION TO THE ISSUE OF IRREVOCABILITY OF OFFERS

a. Article 16 CISG dealing with the revocation of an offer is a rather controversial provision of the Convention. Most of the difficulties derive from the different interpretative approaches of civil law and common law regarding the revocability of offers. Although the drafters of the CISG provision were determined to create a compromise solution reflecting the approaches of the two systems, the practical application of Article 16 CISG still reflects several ambiguities of interpretation.

b. Before examining whether the Official Comments to Article 2.4 of the UNIDROIT Principles may be used to help interpret Article 16 CISG, this chapter examines different approaches of civil and common law in interpreting revocation of the offer.

c. In civil law systems a contract is concluded only if the acceptance reaches the offeror. Before that, the offeror impliedly gives the offeree a reasonable time to consider the offer, during which time the offer is irrevocable unless otherwise indicated by the offeror. If the offer states a time limit for acceptance, the offer is usually irrevocable, and if it does not, the offer is irrevocable for a reasonable period.

d. In common law systems, however, the contract is concluded as soon as the offeree dispatches the acceptance. Prior to that point in time, the offer is revocable at any time, even if it must be accepted within a time period. This may sometimes also be the case even if the offeror expressly states that the offer is irrevocable.

THE OPERATION OF CISG ARTICLE 82

Article 82 of the Convention belongs to Section IV of the Convention, entitled Effects of Avoidance. According to the provisions contained in CISG Article 82, the buyer loses the right to avoid the contract or to demand substitute goods when it is impossible for him to make restitution of the goods in a condition substantially similar to that in which he received them. However, the buyer retains the right to avoid the contract if the following conditions are met: the damages to the goods are not due to the buyer's act or omission [Article 82(2)(a)]; the deterioration or consumption of the goods results from the examination as required by CISG Article 38 [see Article 82(2)(b)]; or the goods are sold in the normal course of business or consumed or transformed by him in the normal course of use before he discovered, or should have discovered, their lack of conformity [(Article 82(2)(c)].

The general rule of the Convention– i.e., that the contract may be avoided only if the goods can be returned substantially in the condition in which the buyer received them–is stated in Article 82(1). However, Article 82(2), provides three considerable exceptions to that rule. Paragraph 2 in Article 82, therefore, deals with the allocation of the risk of loss of the goods before avoidance.

INTRODUCTION

About a century and three quarters ago, Alexis de Tocqueville remarked that the major issues of American life sooner or later appear as questions for decision by the courts. The truth of his remark was already apparent by the early nineteenth century; of course, different types of problems have, from epoch to epoch, held center stage.

The early decades of the nineteenth century saw the U.S. Supreme Court beginning to map out its own role in the tripartite system of government provided for in the new Constitution. In a series of important decisions, the early Supreme Court under the leadership of Chief Justice John Marshall not only established the principle of judicial review of federal legislative action but also gave meaning to important structural Constitutional provisions, such as the Commerce Clause, that defined the respective spheres of competence of the states and the new federal government.

From roughly 1885 to 1937, the judiciary was increasingly involved with economic and regulatory issues. In the 1930s, a constitutional crisis developed. The Supreme Court struck down on constitutional grounds the basic elements of President Franklin Roosevelt's “New Deal,” which contemplated large-scale governmental intervention in national economic life. With a view to overcoming this judicial veto, Roosevelt proposed that the Court's membership be increased. The highly controversial proposal, which was known at the time as the “court-packing plan,” was never implemented. More or less coincidentally with the plan's surfacing, significant changes in the Court's membership occurred.

INTRODUCTION

Article 9 CISG is located in Chapter II, entitled “General Provisions,” of the Convention. The other provisions of the Convention included in that chapter deal with general matters, such as the interpretation of the Convention (Art. 7) and the conduct of the parties (Art. 8)

Similarly, in the UNIDROIT Principles of International Commercial Contracts, Art. 1.8, which has a similar structure to that of Art. 9 CISG, is located in Chapter 1, entitled “General Provisions.” Included in that chapter are similar references to rules of interpretation sources.

Thus, it may be said that the recognition of the normative value of international usages and practices in contracts of international trade is a characteristic common to these two instruments of international commercial law.

NORMATIVE VALUE OF USAGES AND PRACTICES

Art. 9, paragraph (1), of the Convention recognizes the normative value of usages by pointing out that “[t]he parties to a contract are bound by any usage to which they have agreed and by any practices which they have established between themselves.”

Furthermore, Art. 9, paragraph (2), provides that “[t]he parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.”

INTRODUCTION

Doctrinal writing and case law on the problems of giving notice abound where the CISG is concerned, whereas there are few reported problems with the PECL or UNIDROIT. It is one of the most popular areas of dispute as a proper notification is central to any remedial relief. The second opinion from the CISG Advisory Council focuses on the requirements of examination and notification and contains an overview of the relevant case law on point.

CAVEAT on terminology: Any comparison of notice requirements under the PECL, UNIDROIT, and CISG will unearth a significant difference in terminology. The CISG solely encompasses selected formalities concerning validity of contract (such as form of communication, form of contract: Art. 12), but sets most validity issues outside the sphere of application by way of Article 4(a). It thus does not concern itself with most cases in which the contract is not valid due to misrepresentation, threat, fraud, or a similar formality. It also uses the term “avoid” for termination and revocation as the only language of contract cancellation. In contrast, both the UNIDROIT Principles and the PECL refer to rescission by the term “avoid” and use “termination” for the equivalent of the CISG term “avoidance.” This chapter uses CISG terminology and indicates where it is not used in the same manner in the UNIDROIT Principles and the PECL.

INTRODUCTION

Article 13 of the CISG, defining a writing, raises particular questions of interpretation given the technological advances that have occurred since its drafting in 1980. CISG Article 13 states that

From both a common-sense and a syntactical approach, this provision must be interpreted flexibly because of the use of “includes” and the omission of paper and ink.

Because of this demand for flexibility, there are many reasons for looking at the application of the UNIDROIT Principles of International Commercial Contracts to the interpretation of Article 13 CISG. Principles Article 1.10 uses a functional approach to define writing:

These stark differences in definitional style reflect not a different philosophy of drafting, but different technological environments at the time of drafting. The Principles, after all, define “court” not as an organization that “means” something, but as it “includes an arbitral tribunal.” By 1994, however, electronic commerce had grown in types of media and significance and was becoming a growth area in the law. Thus, listing examples of “writing” or even of electronic commerce could only have been doomed to obsolescence by the time of drafting of the Principles. Not only had facsimile, electronic data interchange, the Internet, and e-mail come into common use but also combinations of services were appearing; the development of new products was inevitable.

a. Articles 71–73 of the CISG deal with the situation where it becomes apparent or clear that one of the parties to an agreement will or may not perform a substantial part of its obligations in terms of the agreement. The object of Article 72 is to provide the innocent party with a remedy in cases where it is clear that the other party will not perform at all or will commit another fundamental breach. This remedy based on the Anglo-American doctrine of anticipatory breach allows the innocent party to avoid the contract when the breach occurs without having to wait until performance becomes due. Whereas Article 72 is aimed at the phenomenon of anticipatory breach of contract (i.e., a breach of contract that takes place before the performance is due by the party in breach), Article 71 has a wider scope in that it deals with anticipatory breach as well as incomplete performance. The remedies provided in Article 71 are aimed at keeping the contract intact, whereas the remedies in Article 72 are aimed at avoiding the contract. Article 73 provides for anticipatory breach installment contracts. It is for that reason that these articles contain different requirements for the exercising of the respective remedies.

b. The UNIDROIT Principles is similarly structured in Articles 7.3.3 and 7.3.4. Article 7.3.3 makes provision for a party to terminate the agreement where it is clear that there will be a fundamental non-performance by the other party.

INTRODUCTION TO THE OPEN-PRICE CONTRACT PROVISION IN THE CISG

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

BROAD AND NARROW INTERPRETATION OF ART. 55

b. Before comparing the relevant provisions of the CISG and the PECL, this chapter discusses the problem with interpreting Article 55 CISG. The question whether or not Articles 14(1) and 55 CISG should be read together arose because these two articles deal with very similar issues. Article 14(1) implies that for an offer to be sufficiently definite, which is a pre-condition for concluding a valid contract, among others, the price shall be expressly or implicitly fixed or a provision shall be made to determine the price.

INTRODUCTION AND TERMINOLOGY

Although the United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG) uses the term “avoidance” of contract and the UNIDROIT Principles of International Commercial Contracts (hereinafter UNIDROIT Principles) use the term “termination” of contract, both sets of rules deal with the same situation: one party has lost its interest in the contract due to a fundamental impairment in the performance of the other party and puts an end to the contract. In contrast to this situation, the UNIDROIT Principles use the term “avoidance” of contract only in the context of a remedy available to the aggrieved party in the event of an invalid contract on grounds of mistake, fraud, threat, or gross disparity; see Art. 3 UNIDROIT Principles. According to Art. 29 CISG, “termination” under the Convention means cancellation of the contract by (mere) agreement of the parties. The following primarily provides a comparative overview of Arts. 81 and 82 CISG and Arts. 7.3.5 and 7.3.6 UNIDROIT Principles. On that basis, this chapter addresses whether the UNIDROIT Principles provisions can be used to help interpret or supplement the CISG articles on the issue of the effects of avoidance of contract.

GENERAL EFFECTS OF AVOIDANCE UNDER CISG AND TERMINATION UNDER UNIDROIT PRINCIPLES

Art. 81 CISG Is Virtually Identical to Arts 7.3.5(1) to (3) and 7.3.6(1) UNIDROIT Principles

• First, both parties are released from their obligations under the contract, Art. 81(1) first sentence CISG/Art. 7.3.5(1) UNIDROIT Principles.

• […]

INTRODUCTION

Article 13 CISG and its counterpart in Article 1:301(6) PECL both provide definitions of similar, albeit not identical terms: Article 13 CISG deals with the term “writing,”whereas Article 1:301(6) PECL addresses “written” statements.

The systematic position of the two provisions in the respective texts makes clear that both are only concerned with formal aspects of the terms “writing” and “written.” Article 13 CISG and Article 1:301(6) PECL neither expressly nor implicitly deal with other questions of interpretation of declarations, statements, and communications by the parties (these are subject to Article 8 CISG and Articles 5:101 PECL et seq.), nor do they address the question whether a written declaration was or must have been comprehensible to the recipient (which is to be resolved according to Articles 8 and 24 CISG).

REQUIREMENT OF A “WRITING” OR “WRITTEN” STATEMENTS IN THE CISG AND THE PECL

Both Article 1:301(6) PECL and Article 13 CISG limit the relevance of their definitions to writing requirements derived from the respective sets of rules (“[i]n these Principles” and “[f]or the purposes of this Convention”).

Within the PECL, the provisions containing such requirements can be divided into two groups: the first group consists of provisions that require a written statement to be applicable (Article 1:304(1) defining the moment when a period of time set by a party in a written statement begins to run, Article 2:207(2) addressing late acceptances contained in a writing, Article 2:210 governing professionals' written confirmations, and Article 3:208 regulating the effect of the principal's silence to a third party's written confirmation, including a request to ratify an act of the agent), whereas the provisions of the second group govern cases in which the contracting parties have provided for a writing requirement in their contract (Article 2.105(1) applying to “merger clauses”

INTRODUCTION TO CONTRACT FORMATION IN THE CISG AND THE PECL

Section II of the PECL and Part II of the CISG follow the classic pattern of two declarations of will (offer and acceptance) in deeming a contract concluded. The adoption of this process, which is designed in almost the same terms under both texts, is justified for two reasons: (1) it is adopted by the great majority of legal systems and (2) it makes analyzing the formation of the contract easy for the parties and judges or arbitrators. Nevertheless, at times it is difficult to determine what exactly is an offer or an acceptance, such as when negotiations are long and complicated. That, however, does not prevent the conclusion of a contract.

Article 23 CISG fixes the time of the conclusion of the contract by connecting it with the moment at which the acceptance takes effect in accordance with the provisions of the Convention. It seems clear that, although Article 23 is a central piece in Part II of the Convention, it must be viewed in conjunction with the rest of the dispositions of Part II that establish a precise moment at which the indication of assent takes effect, depending on the manner chosen by the offeree to accept the offer. In Part II of the PECL there is no provision similar to Article 23 CISG, although Article 2:205 PECL (Time of conclusion of the contract) tries to embody in a single disposition the precise time of the conclusion of the contract depending on the way in which acceptance of the offer takes place.

(a) Article 50 of the Convention is a part of the remedial scheme of the CISG. This provision is reflective of the general CISG approach of trying to balance the rights of the buyer and the seller, in the sense that it gives the buyer the right to reduce the price, but the seller may remedy the non-conformity and subsequently obtain the original price agreed on in the contract. PECL Article 9:401 gives the buyer the same right of reducing the price, even though the Principles do not use the term “buyer” but instead use a “party who accepts the tender of performance.” It must be noted that the Principles apply not only to contracts for the sale of goods but also to other types of contracts. In the CISG's realm, the buyer has at his disposal, in addition to price reduction, the remedies of specific performance (CISG Article 46), request for remedying of the non-conforming performance (CISG Article 48), avoidance of the contract in cases of fundamental breach of contract (CISG Article 49(1)), and damages (CISG Articles 45(1) and 74–77).

(b) The objective of CISG Article 50 is to give the buyer an opportunity to keep the received goods that, even though not entirely conforming to what had been agreed on in the contract, he may still make use of, but he may take the non-conformity into account when paying the purchase price.

INTRODUCTION

The broad discipline of conflict of laws – or, to use the nomenclature preferred in Europe, private international law – deals with legal problems that have significant connections with more than one politically organized society. Basically, three distinct although interrelated questions are posed: (1) in what circumstances is it appropriate for a legal order to charge its juridical institutions with the adjudication of interstate or international controversies; (2) from what source or sources are to be derived the rules and principles to regulate such controversies; and (3) in what circumstances and to what extent should a legal order accord respect locally to adjudications given in an interstate or international controversy by the juridical institutions of another sovereign? These problems are addressed by the three branches of private international law: adjudicatory jurisdiction, choice of law, and recognition and enforcement of foreign judgments. This chapter considers some important recent developments in these three areas in the United States.

The experience of the United States with conflict of laws is particularly rich because conflictual problems arise with respect to interstate as well as international situations. Generally speaking, for the most part, each state of the United States is sovereign in private-law matters. Chapter 4 discussed the federal and state court systems whose work and responsibilities overlap and interrelate in various and complex ways. State courts can apply federal law and federal courts can apply state law.

a. Article 28 of the CISG does not have a counterpart as such in the Principles of European Contract Law. Article 28 became a part of the Convention because of the need to acknowledge the difference in the application of the concept of specific performance in different legal systems.

b. The remedy of specific performance has extensive application in civil law countries, and its function is primarily to uphold the pacta sunt servanda principle. In common law countries the scope of the remedy of specific performance is more limited, and damages are seen as the primary remedy upon a breach of contract. This difference in doctrine led to the adoption of CISG Art. 28, when it was acknowledged that, for the Convention to enter into force and for it to become adopted widely, some of the signatory States could not be expected to relinquish the fundamental principles of their judicial procedure.

c. Articles 46 and 62 of the CISG give the buyer and the seller, respectively, the right to require the party in breach to perform its duties under the contract or the Convention. CISG Art. 28 provides, however, that if the law of the forum does not require specific performance in similar domestic cases of contract law, the court is not bound to enter a judgment of specific performance.

INTRODUCTION

According to Article 30 CISG, the seller has three obligations that should be performed as required by the contract and the Convention: (i) an obligation to deliver the goods, (ii) an obligation to hand over any documents relating to the goods, and (iii) an obligation to transfer the property in the goods. Article 33 CISG deals with one aspect of the seller's first-mentioned obligation to deliver the goods, ascertaining the time for delivery, whereas Article 52(1) CISG sets out the legal consequences of an early delivery of the goods by the seller.

In this context, Article 33 provides for three situations: (i) where the contract fixes a date or permits a date to be fixed; (ii) where the contract fixes a period of time or permits a period of time to be fixed; and (iii) any other situation (e.g., where the contract is silent as to the date or time for delivery). In the first situation, the seller must deliver the goods on the date so fixed. In the second situation, the seller must deliver the goods on any date within the period so fixed, unless circumstances indicate that the buyer is to choose a date within that period. In the third situation, the seller must deliver the goods within a reasonable time after the conclusion of the contract.

Delivery by the seller on the due date obliges the buyer to take delivery of the goods, as well as to pay the price for them as required by the contract and the Convention (Article 53 CISG).

INTRODUCTION

In Part II of the Convention, entitled “Formation of the Contract,” Article 21 deals with the issue of late acceptance by an offeree, the response to that by the offeror, and the effect that a late acceptance has in the context of contract formation.

Article 2:207, found in the PECL, Chapter 2 “Formation,” Section 2 “Offer and Acceptance,” regulates the same issues concerning late acceptance in contract formation.

The Convention provides that a late acceptance can nonetheless be effective, and so do the Principles. Both the Convention and the Principles deal with the issue of late acceptance – whether the offeree accepted the offer late or the acceptance was late because of a delay in transmission – in almost identical terms.

LATE ACCEPTANCE OF OFFER TO CONCLUDE CONTRACT

Art. 21 of the Convention “deals with acceptances that arrive after the expiration of the time for acceptance.” In that sense, Art. 21 must be viewed in the context of the basic rule of the Convention that a late acceptance is ineffective.

Honnold states that CISG Art. 21 “like Article 20, extends and elaborates the basic rule” for late acceptances, by providing the answer to some related, important questions that can arise when an acceptance does not reach the offeror within the time he has fixed for acceptance.

CISG Art. 21 makes a distinction in the rules applicable to a late acceptance, depending on whether the acceptance was sent late by the offeree or the lateness of the acceptance was caused by delays in its transmission.

The first edition of this book was an outgrowth of a series of lectures that were given by Professor von Mehren in the fall of 1983 and the spring of 1984 at the University of Ghent, Belgium. Professor von Mehren explained the focus of the book in the Preface to the first edition in the following terms:

GENERAL

A contractual party's right to cure a non-performance under the condition that such cure does not create any – or at least any excessive – hardship for the aggrieved party has emerged from common law traditions to become almost a staple of modern contract law, and of modern sales law in particular.

Different justifications for the principle may be cited, whether in terms of risk allocation, good faith obligations, or the relational approach to contract as a framework of relations between parties that shifts the analytic emphasis from overt rules (whether set contractually or by statute) to the actual framework of relations and interests involved. Whatever the theoretical overview, the principle of cure is perhaps the most important deviation from strict doctrines of liability for breach, and as such it maintains an important relation to the doctrine of contract avoidance (“termination” in the context of the PECL), as discussed next.

Curing a non-performance may be relevant in various contexts: payment, defective or missing documents, non-conforming or non-delivered goods, etc. In the PECL – which apply to any and all contractual transactions, not only sales or international sales – Art. 8:104 recognizes a non-performing party's general right to cure, limited by parameters that are discussed presently. In the CISG – divided as it is into seller's and buyer's rights and obligations – the right to cure non-performance depends upon the nature of the non-performance and the time of cure; it is divided into different typical situations, covered by several Articles.