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Reproduced with permission from 13 Journal of Law and Commerce (1993) 1-29

U.N. Convention on Contracts for the International Sale of Goods -- The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts

Paul Amato

I. Introduction

II. Origins of CISG and its Current Status

III. Article 14 -- The Offer

A. The intention of the parties
B. The problem of sufficiently definite terms

IV. Pratt & Whitney v. Malev Hungarian Arlines

A. Facts
B. Analysis by the Hungarian courts

V. Malev and the Open Price Term Controversy

VI. Other Countries' Approaches to the Unstated Price Term

A. The United States
B. Germany
C. France

VII. Prospects for the Future of CISG

A. The transnational perspective
B. The policy perspective

VIII. Conclusion

I. Introduction

It has been over twelve years since the drafting of the United Nations Convention on Contracts for the International Sale of Goods ("CISG") was completed.[1] CISG's provisions, however, only became effective in January 1988. As a result, the document is unfamiliar to its signatories. At present, there are few court decisions interpreting CISG, either in the United States or abroad -- at the time this Note is written, only one U.S. opinion exists.[2] It is the premise of this Note, however, that decisions of foreign courts can prove educational now, since there is so little actual interpretation of CISG, and in the future, as a form of persuasive authority for domestic application of CISG. Thus, the recently decided case of Pratt & Whitney v. Malev Hungarian Airlines [3] is offered for examination. Decided by the Hungarian Supreme Court in September of 1992, it implicates several issues in CISG, including, among others, contract interpretation (Articles 7 and 8), the sufficiently definite offer (Article 14), and the supply of an open price term (Article 55).[page 1]

The Hungarian Supreme Court in Malev primarily focused on the sufficiently definite offer -- in particular, whether an uncertain price term in a proposal for sale will cause the sale to fail for indefiniteness. This issue implicates Articles 14 and 55 of CISG. In so doing, the facts of Malev bring to light a well recognized discrepancy in CISG, specifically, its approach to the issue of the open price term. On CISG's face, Articles 14 and 55 cannot be construed together. There is a healthy split of opinion, however, over whether they should be so read. Although the Court in Malev relied on these articles, this discrepancy was not addressed. Nonetheless, the facts of Malev lend themselves to such an analysis, especially in light of the lack of "real world" interpretation of CISG to date.

Generally, this Note sets out to further the goal of bringing a "transnational perspective to interpreting CISG."[4] It does this by considering the issue of the price term discrepancy from two perspectives -- the transactional or practice perspective and the policy perspective. More specifically, from the transactional perspective, this Note seeks to enlighten the practitioner to a potential trouble spot in CISG and to inform the practitioner how CISG has been interpreted by one nation's highest court. Next, from the broader, policy perspective, it suggests to the legal community how future foreign court decisions interpreting CISG can be analyzed in an effort to achieve uniform application of its provisions.

After initially considering the origins of CISG and its status today, Section III will examine the relationship between Articles 14 and 55. Section IV will then consider the Hungarian Supreme Court's application of CISG in Malev. Section V will consider Malev within the context of Articles 14 and 55. Section VI will consider the open price term issue from a multi-national perspective. Finally, in light of the examination of Malev and Articles 14 and 55, Section VII will conclude with a consideration of CISG from the transaction and policy perspectives.

II. Origins of CISG and its Current Status

The origins of CISG began before the Second World War when the International Institute for the Unification of Private Law (UNIDROIT) attempted to prepare a uniform law on the international [page 2] sale of goods under the auspices of the League of Nations.[5] The next great effort at unifying international sales law came under the 1964 Hague Conventions, where two uniform laws were adopted, the Uniform Law on the International Sale of Goods (ULIS),[6] and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF).[7] However, due to a lack of world-wide participation in the drafting of the Hague Conventions, many of the concepts embodied in their drafts "could not be translated into words and ideas that were intelligible in other parts of the world."[8]

Despite the failure of wholesale acceptance of the 1964 Hague Conventions, and recognizing the rapid growth in international trade in the years following adoption of the Conventions, the United Nations Commission on International Trade Law (UNCITRAL) embarked on an effort to foster adoption of uniform international rules in various areas such as sales, arbitration, negotiable instruments and transport.[9] Ten years of work by UNCITRAL resulted in the unanimous agreement by the participating states on a convention that was submitted for signature in Vienna.[10] CISG was born, created to provide a uniform international sales law that would facilitate world trade and eliminate the uncertainty created by conflicting states' national laws.[11]

Completion of the text and its opening for signature, however, were only the first steps. "In the next stage the new legal [text] must be made an integral part of international trade practice."[12] A difficulty in gaining acceptance of CISG, however, is that it represents a series of compromises among nations. CISG focuses on simplicity, practicality and clarity, and it is free of the legal "short-hand" and complicated legal theory familiar to many legal practitioners.[13] In an effort to avoid [page 3] the legal "short-hand" which is apt to produce differing interpretations depending upon the legal system applying it, the drafters of CISG attempted to draft its language with the businessperson in mind. The document does not attempt to cover all possible situations,[14] but is written in more general terms.[15] Thus, CISG does not possess the precision in terminology to which one may have become accustomed or which may be desired. Additionally, CISG reflects a "delocalization"[16] of international trade law. It attempts to unwind the sophisticated localization of sales law which nation states have developed over time.[17]

Conceived both as a general approach to sales law, and as an attempt to break away from any one specific body of existing sales law, CISG is unfamiliar to practitioners world-wide. It is no surprise, therefore, that parties to international sales of goods have avoided CISG, that some states have not adopted it because of uncertainty over its future interpretation, and that the lack of cases interpreting CISG has made parties in the United States wary of using it.[18]

But this hesitancy to rely on CISG as the applicable sales law is not the only stumbling block to application of the law. As Professor Honnold has pointed out, CISG will often be applied by tribunals "who will be intimately familiar only with their own domestic law. These tribunals, regardless of their merit, will be subject to a natural tendency to read the international rules in light of the legal ideas that have been imbedded at the core of their intellectual formation."[19] Thus, many commentators are concerned that uniform application of CISG will fail.[20][page 4]

To avoid the tendency to construe CISG under the light of a nation's domestic sales law, and to foster uniform application, Professor Honnold has prescribed several interpretive approaches. First, one may look to see how other legal systems have read the text, and how they have characterized its tenets, by examination of the scholarly writings of these systems.[21] Second, one may rely on the legislative history of CISG which may reveal the specific provision's objective.[22] Third, one may rely on general principles extracted from the text of CISG as a form of "gap-filling by analogical application of the statute in order to effectuate its purpose."[23] Finally, one may seek recourse in either domestic or foreign case law as an aid to interpreting CISG.[24]

This Note relies on the final three approaches. By considering the legislative history of CISG, and its gap-filling procedures, and by studying how one foreign court employed CISG, the United States practitioner can draw valuable lessons for future encounters with CISG -- both specifically, as to future dealings with Hungarian national businesses, and generally, as to discrepancies in the provisions of CISG. It is with an eye to these valuable lessons that we now turn to a discussion of the applicable articles of CISG.

III. Article 14(1) -- The Offer [25]

Article 14(1) provides CISG's guidance as to offers:

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.[26]

The article sets out two requirements: first, that an offer indicate the parties' intention to be bound in case of acceptance, and, second, that an offer be sufficiently definite. The requirement that the proposal "indicate the intention of the offeror to be bound in case of acceptance" demonstrates that "such an intention must be 'indicated' to the party to whom the proposal is addressed".[27][page 5]

A. The Intention of the Parties

Article 8, which addresses the question of interpreting statements or other conduct of a party (i.e., intention), is part of the standard of Article 14(1). Although not of particular concern to the Court in Malev its tangential importance requires a brief divergence through Article 8.[28] To begin with, Article 8(1) embodies the "subjective" approach to interpretation, relying on an understanding of "the actual intent of the party responsible for the statement or conduct that must be discerned."[29] While troublesome, due to the practical difficulty in knowing what a party's actual, subjective intent may be, the application of the concept of subjective intent is limited in CISG to those situations "where the other party knew or could not have been unaware of what that intent was."

More pertinent is the "objective" approach to interpretation embodied in Article 8(2). It provides that statements or other conduct must be interpreted "according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances." Since it will be rare that the subjective standard of Article 8(1) is met, the "reasonable person" standard of Article 8(2) will be the standard generally applied.[30]

Article 8(3) weighs into the interpretation fray by allowing "due consideration" of "all relevant circumstances." This article "cuts through technical rules [such as parol evidence] that might bar access to relevant materials."[31] "Relevant circumstances" include such things as negotiations, practices which the parties have established between themselves, usages and any subsequent conduct of the parties.[32] Thus, it expressly refers to the understanding of a reasonable person.[page 6]

"[Article] 8(3) applies to both the understanding of a reasonable person [8(2)] and the intent of a party [8(1)]."[33] In a sense, Article 8(3) serves as an "objective" overlay to the standards of both Articles 8(1) and 8(2).[34] Since Article 8(1) should seldom be relied upon (due to its subjective nature), Article 8(3) and its enumeration of those circumstances to be given due consideration will be used primarily to elaborate the reasonable person standard of Article 8(2).[35]

B. The Problem of Sufficiently Definite Terms

With Article 8's guidance for interpretation of the statements and conduct of a party in hand, we can now more capably approach the problems of the latter requirement presented by Article 14(1) -- sufficiently definite terms. Article 14(1) defines a sufficiently definite proposal. Such a proposal must indicate the goods, and must "expressly or [implicitly fix] or [make] provision for determining the quantity and the price."[36]

The first two requirements of definiteness are not particularly troublesome. The requirement that the proposal must "indicate the goods" means that the goods must be sufficiently described;[37] while the quantity term must expressly or implicitly be determinable.[38] Difficulty arises, however, in the requirement that the price be sufficiently definite. This clause has caused controversy in the early examinations of CISG, and the difficulty it engenders is highlighted by the facts of Malev.

The basis of the controversy arises from the interplay, or lack thereof, between the reference in Article 14(1) to a sufficiently definite price term and the open price provision of Article 55. As noted above,[39] Article 14(1) provides that a proposal is sufficiently definite if it expressly or implicitly fixes or makes provision for determining the price. The question then arises, what occurs if the proposal does not do so? Will such an indefinite price term prevent the formation of a contract?

On these questions the commentators are divided. One of the foremost experts on CISG, and a former Secretary of UNCITRAL, Professor [page 7] Honnold, posits that Article 55 resolves any doubt as to open price terms. 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.[40]

Professor Honnold contends that the opening language of Article 55 "makes clear that a contract may be 'validly concluded' even though it 'does not expressly or implicitly fix or make provision for determining the price.' "[41] Honnold further contends that the statement "impliedly made reference to the price generally charged" precludes argument that failure to state the price produces a fatal gap in the contract. He concludes that, "[b]y virtue of these articles, when the parties have made no provision concerning the price their intent to conclude the contract must be clear, but the Convention does not deny effect to that intent."[42]

This view of the relationship between Articles 14(1) and 55 is supported by another former Secretary of UNCITRAL, Professor Kazuaki Sono. Professor Sono states:

With regard to the price, it is not necessary that the price be calculable at the time of contract . . . . [M]any national sales laws provide a mechanism for fixing the price for cases where a validly concluded contract does not include any provision therefor either expressly or implicitly. The Vienna Sales Convention itself also provides such a mechanism [in Article 55].[43]

These sentiments are echoed by the legal analysis accompanying the President's transmittal of CISG to the United States Senate for ratification. In regard to the issue of the open price term, the analysis provides that ClSG's solution "calls for construing Article 14(1) in the light of Article 55, which states that . . . the parties are considered, in the absence of any indication to the contrary, to have impliedly made [page 8] reference to the price generally charged for such goods at the time of the conclusion of the contract."[44]

In contrast to Honnold's view, Professor Farnsworth has contended that Article 14(1) does not so clearly indicate that a proposal with an indefinite price term can be a sufficiently definite offer.[45] To begin with, Farnsworth holds that Article 14(1) reflects a restrictive view of open price terms. "Although it states only that a proposal 'is sufficiently definite if it . . . expressly or implicitly fixes or makes provision for determining . . . the price,' there is an unfortunate implication is [sic] that it is not sufficiently definite unless it does this."[46]

Further, Farnsworth does not see Article 55 as a solution to the indefinite price term quandary: "Unfortunately, Article 55 only operates if a contract has been 'validly concluded.' "[47] Thus, as a threshold issue under this analysis, a valid contract must previously have been concluded for Article 55 to fill in the open price term. As Professor Murray points out, Farnsworth

joins others who believe that Article 55, in part III of CISG dealing with the obligations of the parties to an existing contract, was designed for use only where a Contracting State made a declaration under Article 92(1) that it will not be bound by Part II of the Convention [on contract formation].[48] If the non-CISG law of that State found a contract without [page 9] a price to have been "validly concluded" but litigation ensued concerning the obligations of the parties under that contract to which Part III of CISG, ratified by the Contracting State, would apply, Article 55 of Part III would permit a court to insert the "price generally charged" in such a "validly concluded" contract.[49]

In other words, whether a valid contract has been concluded, and whether Article 55 may be used to fill in the open price term, will depend upon whether or not the parties' native countries have ratified Part II of CISG. If Part II (on contract formation) was not ratified, the court will have to rely on domestic sales law to determine whether a valid contract exists. If a valid contract is found to exist, then Article 55 may be used as a basis to supply the price term.

The controversy, therefore, concerns whether Article 14(1) should be read alone, or in conjunction with Article 55. The Honnold position is that the provisions may be read together, while the Farnsworth position is that they cannot. Professor Farnsworth's position seems stronger in that the express terms of Article 55 provide that "where a contract has been validly concluded" the price term may be supplied. This seems to presuppose that the contract must already have been concluded in order for the price term to be supplied. However, a contract cannot be concluded, under the requirements of Article 14(1), unless there is a sufficiently definite price term. This circularity casts doubt on the applicability of Article 55 to Article 14(1), and implies that Farnsworth's analysis is more sound.[50]

This is not the end of the debate, however. An examination of the legislative history of CISG indicates that this contradiction was recognized by the participants to the Convention, and that the discrepancy was much at issue. The chairman of committee deliberations, Mr. Loewe of Austria, saw that a contradiction "was apparent between the statement in [A]rticle [14(1)], that a fixed price was an essential factor in a definite proposal and the provision in [Article 55] for rules for fixing a price. For that reason some delegations had wanted to delete [page 10] the second sentence of article [14]."[51] Further, Mr. Vischer, a delegate from Switzerland, proposed that the question of the possible contradiction between Articles 14(1) and 55 should be taken under consideration in future deliberations.[52]

Although this contradiction was clearly acknowledged during the formative period of CISG, it is not clear what the drafters intended. In contrast to Professor Murray's findings that the Farnsworth analysis finds considerable support in the legislative history of CISG,[53] there seems to be ample authority to support the viewpoint that Articles 14(1) and 55 were meant to be considered together (Professor Honnold's view). In any event, both viewpoints were asserted in various forms,[54] and CISG was opened for signature with the contradiction unresolved. With this contradiction in mind, we will now turn to the Malev case, which squarely faced a situation implicating the Article 14/Article 55 debate.

IV. Pratt & Whitney v. Malev Hungarian Airlines

A. Facts

Malev involved a classic question of contract formation. The issue was whether the lack of a definite price term in an offer for sale leads to the failure of the offer. The transaction involved the sale of aircraft engines by Pratt & Whitney ("P&W"), a subsidiary of United Tech [page 11] nologies International, to Malev Airlines ("Malev"), the Hungarian National Airline. Negotiations for the sale had been ongoing through the Fall of 1990.

The alleged contract had two parts. First, there was an agreement for P&W to supply replacement engines to Malev for its Soviet-built TU-154 jet airliners (the "engine replacement"). Second, there was an agreement for P&W to supply both original and replacement engines for Malev's soon-to-be-purchased "wide body planes" (the "engine purchase"). Although the Hungarian Supreme Court ultimately found that no contract existed, it was the latter of the two agreements, the engine purchase, which proved to be the source of controversy between the parties.

Concurrent with the P&W negotiations, Malev was negotiating with both the U.S.'s Boeing and Europe's Airbus for the purchase of wide body aircraft. P&W offered to supply (1) the engines that would serve as original equipment on these jets; (2) spare engines; and (3) service, maintenance, warranty, and financial support.

The type of engines P&W would sell Malev depended upon Malev's decision on whether to purchase the Boeing or Airbus aircraft. P&W's original offer, dated November 9, 1990, provided for the sale of one of three types of engines to Malev -- PW 4056 engines, if Malev chose the Boeing aircraft, or PW 4152 or PW 4156/A engines, if Malev chose the Airbus aircraft. All these engines, collectively, were referred to as the "PW 4000 series" engines.[55]

On December 4, 1990, the parties signed a letter of intent in regard to the terms of the engine replacement agreement for the Soviet built airliners. However, this agreement was still contingent on the conclusion of a final agreement for the engine purchase portion of the contract (i.e., engines for the wide body aircraft).

In a meeting on December 14, 1990, P&W presented a written proposal to Malev in regard to this engine purchase. The proposal, entitled "Purchase Agreement," revised P&W's November 9 offer. The terms included (1) an offer to sell engines for two airliners, with an option to purchase engines for an additional airliner; and (2) an offer to sell one spare engine, with an option to purchase an additional spare [page 12] engine. However, it acknowledged that the exact type of engine to be sold was contingent upon the type of airliner ultimately purchased by Malev.

The engine base prices varied with the type: the PW 4056 was quoted at $5,847,675; the PW 4152 was quoted at $5,552,675; and the PW 4156/A was quoted at $5,847,675. The offer's terms further provided for a support package (involving service, maintenance, credit, and spare parts) to be tailored to the type of aircraft ultimately chosen by Malev -- Boeing or Airbus. The offer also required United States and Hungarian governmental approval, and provided an expiration date for the offer.

A key fact was the purported difference between the engines for the Airbus aircraft and those of the Boeing aircraft. The Court pointed out that the engines for the Airbus option (PW 4152/PW 4156) were more properly referred to as a "jet engine system" which included the engine, other parts and the nacelle.[56] In contrast, the engines for the Boeing option (PW 4056) only included the engine.

At a meeting held on December 21, 1990, P&W extended its offer to include PW 4060 engines as an additional option for the Boeing aircraft.[57] P&W stipulated that the conditions of the proposal would remain the same regardless of which engine type Malev chose. The offer further amended the December 14 offer, generally, with respect to the engine maintenance plan, and specifically, with respect to an increase in the amount of credit extended to Malev for the purchase.

Although termed a "purchase support offer," Malev did not sign an offer sheet provided by P&W. Instead, the parties drafted a letter indicating that Malev had chosen the PW 4000 series engines for its wide body aircraft. This letter, which specifically stated that acceptance was conditioned on the terms of the December 14 offer, was subsequently signed by Malev's general manager, and telexed to the Vice President of P&W [page 13]

In the week after this meeting, negotiations continued regarding various technical questions. On December 29, Malev selected the Boeing aircraft. In early February 1991, additional exchanges occurred between the parties addressing issues of advertising, selection of a Hungarian partner for engine maintenance, and the establishment of a spare parts pool in Hungary. Further, P&W representatives were allegedly to travel to Hungary to finalize the terms of the PW 4000 contract.

On March 25, Malev informed P&W by letter that Malev would not purchase the PW 4000 engines. On that same day, P&W asserted to Malev that it believed it had a binding agreement based on Malev's letter of December 21, and that Malev should meet its obligations without delay by notifying Boeing about Malev's selection of the P&W engines and by making a public announcement about the selection.

Upon Malev's refusal to honor the alleged contract, P&W filed a complaint against Malev in the Metropolitan Court of Budapest. P&W asserted that it had a valid, binding contract with Malev for the sale of the engines, and that Malev had breached the contract. Malev defended its actions by claiming: (1) that the offer was ineffective because it was not sufficiently definite; (2) that P&W's purported offer could not be interpreted as evidencing an intention to be bound; and (3) that Malev's purported acceptance of December 21, 1991 was not an acceptance, but merely evidenced an intention to be bound at a later date. P&W sought a declaratory judgment to establish the validity of the contract, and also sought fees and expenses from Malev.

B. Analysis by the Hungarian Courts

After determining that CISG was the applicable law,[58] the Metropolitan Court found that a valid contract existed.[59] On appeal, however, this decision was overturned. Based generally on CISG, the Hungarian Supreme Court found that the contract terms were not sufficiently definite to indicate that a contract existed. Although the Court made reference [page 14] to CISG Articles 8[60] and 19,[61] it relied on Article 14(1) in finding that P&W's offer was not sufficiently definite in regard to price, and thus, that P&W's proposal did not reasonably constitute an offer.[62]

The Court determined that P&W had effectively made two different offers to Malev -- one in case Malev were to select the Boeing aircraft, and one in case it were to select the Airbus aircraft.[63] Referring to the Boeing option, the Court pointed out that, with the December 21 modification of the offer, there were two engines at issue -- the PW 4056 and the PW 4060. Although the price of the PW 4056 was stated, the price of the PW 4060 engine was not.

The Court placed even greater emphasis upon the fact that the Airbus option quoted a price based on the "spare engine base unit" for each of the PW 4152 and the PW 4156 engines.[64] These engines, the Court pointed out, were to include the nacelle and other equipment. Thus, the quoted price, which only referred to the "engine base unit," did not account for the entire "jet engine system." The Court stated that "the price of the jet engine system is not identical with the price of the engine (motor). The offer contained the price of neither [the PW 4152 or the PW 4156] jet engine systems."[65]

The Court then considered these facts in light of Article 14(1).[66] It stated that "[a] bid is properly defined if it indicates the product, expressly or in essence defines the quantity and the price, or contains directions as to how they can be defined."[67] Interpreting this language, the Court said that, "[t]his means that [CISG] regards the definition of the subject of the service (product), its quantity and its price to be an essential element of a bid."[68]

The Court then reiterated its earlier point regarding the lack of a price term in reference to the Airbus option: "The base price of the jet engine systems is not included in the offer, only that of the spare engines, in spite of the fact, that these two elements are not identical [page 15] either technically or in respect of price."[69] In passing, the Court also considered Article 55[70] (regarding open price contracts), stating that the price here could not be determined based on Article 55 since "jet engine systems have no market prices."[71]

Alternatively, and without reference to any articles of CISG, the Court considered the circumstances as if a proper offer had been made. The Court concluded, however, that there could not have been an acceptance by Malev since Malev still had an option over which engines it could choose even after its purported acceptance of December 21.[72] Thus, the Court concluded, Malev's acceptance could not have been effective even if the price term had been sufficiently definite -- "[t]he opportunity to choose after closing the contract does not follow from the offer."[73]

At this point, the Court referred to concepts such as the "noticeable intention of the offer's wording," "common sense,"[74] and "economic reasoning"[75] in construing P&W's offer. However, the Court made no further reference to CISG. The Court concluded its opinion with reference to several of the arguments advanced by the parties which the Court did not reach, since there was found to be no offer, and to several of its domestic rules of civil procedure. Its decision reversed the lower court's judgment and awarded Malev a reimbursement of its court costs.

V. Malev and the Open Price Term Controversy

The Hungarian Supreme Court relied on none of the analyses discussed in Part III in reaching its conclusion in Malev. For example, it did not address the two-pronged requirement of Article 14(1) in detail. First, the opinion does not discuss the intention of the parties, except for a passing reference to "interpreting the Parties' declarations on the [page 16] basis of [Article 8(1)]."[76] Second, there was no recognition by the Court of the difference between the "subjective" standard of interpretation of Article 8(1), and the "objective" standard of interpretation of Article 8(2). By failing to analyze the case in light of these articles, it can be argued that the Court did not even reach the more fundamental question of whether there was an intention (under Article 8(2)) on the part of P&W to be bound by its proposal of December 14. Third, it is arguable that the Court could have found that, in spite of the offer's alleged price term deficiency, the parties were certain as to price at the time of the purported acceptance of December 21, 1990.[77]

In a sense, the Court did reach the question of intent without actually addressing it. The Court found that the price term was uncertain. Relying on Article 14(1), the Court simply said that "price [was] an essential element of a bid."[78] Relying on the distinction between a "jet engine" and a "jet engine system," the Court found that P&W's proposal was fatally flawed in that the base price listed in the proposal was for a jet engine and not a jet engine system. This discrepancy in the price formulation, in the Court's eyes, presumably demonstrated that P&W had no intent to be bound by its proposal of December 14. This lack of intent nullified P&W's proposal and ended the litigation.

Given the paucity of analysis in the opinion, it is unclear whether the Court relied on the Farnsworth or the Honnold view of the Article 14/55 issue. Intuiting the Court's analysis under the Farnsworth approach, Article 14(1) states that a contract is sufficiently definite if it indicates the price -- implying that a proposal will not be sufficiently definite unless it indicates the price. Since P&W's offer was not completely definite in regard to price in the context of the jet engine/jet engine system distinction, a sufficiently definite offer did not exist, and a valid contract could not be concluded.

Under this analysis, no "gap" existed in the contract which required a gap-filling provision. The proposal was indefinite as to price and simply could not be accepted by Malev. If seen under the Farnsworth [page 17] approach, the Court took a very restrictive view to open price terms -- effectively ruling that price is an essential element of a proposal that must be clearly stated before such a proposal can be accepted by the offeree.

Alternatively, the argument could be made that the Court relied on Honnold's view of the Article 14/55 issue. The Court considered Article 55, albeit briefly, when it stated that the price of the engine could not be determined since "jet engine systems have no market prices."[79] In so doing, the Court appears to have considered Article 14 in conjunction with Article 55 -- the Honnold approach. By the Court's own admission, it considered applying the market price to the contract as provided for in Article 55. That the Court did not find a sufficiently definite market price does not diminish the fact that the Court considered reading these articles together. The result in Malev thus does not specifically help to reconcile the conflict between the Farnsworth and Honnold views of the open price term issue. Neither does the Honnold/ Farnsworth distinction assist in understanding the rationale in Malev.

VI. Other Countries' Approaches to the Unstated Price Term

The result in Malev raises several questions regarding the Court's interpretation of CISG. Was CISG incorrectly interpreted by the Hungarian Supreme Court, or does the case reveal a flaw in CISG that will inhibit its use by members of the international community? It would not have been unusual for a court in the United States to have found the price term in Malev to be satisfactory for the purposes of finding an effective offer.[80] But should we consider this case from our own legal perspective? For the purpose of putting the issue of open price terms into a broader perspective, and allowing us to consider the prospects for uniform application of CISG, let us briefly consider how three other jurisdictions approach the issue of the open price term.

A. The United States

A U.S. practitioner, accustomed to contract formation under the Uniform Commercial Code, will find the result in Malev surprising. The U.C.C. specifically allows for an open price term in a contract. As [page 18] a general proposition, the Code provides that a contract for the sale of goods will not fail for indefiniteness, even if open terms exist.[81]

The Code directly addresses the open price term issue in § 2-305(1): "The parties if they so intend can conclude a contract for the sale of goods even though the price is not settled."[82] The official comment to this section provides further guidance:

This section applies when the price term is left open on the making of an agreement which is nevertheless intended by the parties to be a binding agreement. This Article rejects in these instances the formula that an "agreement to agree is unenforceable" if the case falls within subsection (1) of this section, and rejects also [the notion of] defeating such agreements on the ground of "indefiniteness."[83]

Thus, the purpose of the entire section is to give effect to the agreement which was made between the parties,[84] that is, the intent of the parties -- concepts quite familiar to the commercial lawyer in the United States.

B. Germany

The German practitioner may also find the result in Malev surprising. In Germany, every offer may lead to a contract if the terms of that offer are clearly ascertainable.[85] The terms of an offer will be ascertainable if the contract indicates: 1) a method to remedy indefiniteness, and 2) whether this method can be successfully employed.[86] Price gaps in a contract may be filled in any one of several ways: through the use of gap-filling statutory rules,[87] through the power of "the court to read into the offer the missing terms by judicial interpretation of what would reasonably have been the intention of the parties if they actually had thought of the particular point"[88] or, where the law allows, through the parties' own determination.[89][page 19]

As for furnishing a price, the parties to a contract may rely on objective data found outside the contract, such as the market value of the product or service.[90] Where the price is not clearly stated,

it is presumed that the parties agreed on the standard market price prevailing at the place and time of performance. Where no market price can be established, the parties are deemed to have agreed on that current price at which the article would generally sell in that neighborhood at the time of performance.[91]

Thus, it appears that the open price term in Malev would have been viewed in Germany much like it would be in the United States.

C. France

In contrast to the United States and Germany, the French legal system takes a more circumspect approach to supplying missing terms in a contract. Generally, "French law is opposed to granting the judge a large measure of discretion to supply the contents of the missing terms according to the circumstances of the case."[92] Apart from some limited circumstances, judges cannot "fill in the missing terms of an offer as to any fundamental elements and in particular as to price."[93]

More specifically, it is possible for a French court to supply a missing price term.[94] It seems, however, that such an exercise of judicial power will occur only where the missing term can be determined by applying some objective standard.[95] For example, reference in a contract to a "reasonable price" will prevent an offer from being sufficiently definite;[96] that is, "the virtually unanimous opinion of legal writers [in France] is that such an offer is not sufficiently definite if no objective standard exists to which direct reference can be made."[97]

This short discourse demonstrates several of the similarities and differences between various legal traditions in the world. Sometimes CISG's provisions will align with a nation's legal traditions, and sometimes [page 20] they will not. How national courts contend with these similarities and differences, however, will determine the success of CISG's effort at unifying international sales law. CISG's future success thus depends on how its provisions are applied by the national courts of the world. With this in mind, the next section examines CISG's prospects for the future.

VII. Prospects for the Future of CISG

Among other things, CISG's general interpretation provision calls for 1) adherence to CISG's international character, 2) uniform application of its provisions, and 3) reliance on its general principles when its provisions are unclear.[98] These provisions reflect the drafters' response "to the fact that a Convention establishing uniform international law performs a unique and difficult function."[99]

The difficulty with these provisions is that they do not say anything about the ways and means of achieving uniformity,[100] nor do they acknowledge the fact that the general principles that one draws from CISG will often depend on one's legal education and experience.[101] In light of this dilemma, the issues in Malev implicate a myriad of questions regarding CISG's prospects for future application. These questions are best understood from two perspectives -- the practice or transactional perspective and the policy perspective.

A. The Transactional Perspective

Often, there will be little guidance for the practitioner to determine CISG's general principles so as to consider the full import of the gap-filling function called for in Article 7. The open price term issue in Malev demonstrates that the transactions attorney will not always find CISG's provisions entirely clear.[page 21]

The practitioner may devise strategies to account for such gaps in CISG's terms. For example, at least one solution has been proposed for the open price issue.[102] Directed to the transactions attorney, it suggests that, when facing the prospect of an open price term in a contract, the contract drafter should designate a "receptive domestic sales law" as the gap-filling law, or give serious consideration to a choice of forum clause relying on a jurisdiction "with a tradition that supports the validity of open-price contracts."[103]

The difficulty with this approach is its assumption that there exists a "gap" in CISG's treatment of open price in the offer. In this view, a gap-filling law is necessary to "account" for a perceived gap in CISG. This approach, however, fails to realize that CISG does account for open price, regardless of which competing view is applied. For example, under the Honnold view, the open price term is accounted for by reading Article 55 in conjunction with Article 14, thereby allowing the court to supply the price term in the form of market price. In contrast, under the Farnsworth view, the open price term is accounted for simply because a contract cannot be formed with such indefiniteness in the offer. Thus, in either case, CISG accounts for the perceived "gap" in its provisions.

This approach raises other questions. Assuming that an offer cannot be accepted because of an indefinite price, a clause stating a "receptive" gap-filling law might not be given effect by the court. Although such a "gap-filling law clause" may be inserted in a sales contract, as a threshold issue, the offer would have to be definite under Article 14(1) in order to be accepted. In other words, for such a gap-filling law to be given effect, presumably there would have to be a definite offer and a valid acceptance; if not, the offer could not be accepted, and the gap-filling law clause would not be given effect. For example, under the Hungarian Court's reasoning, if P&W and Malev had inserted such a clause in their agreement, a contract still would not exist because the offer was indefinite as to price. Thus, since there was not a definite price, the offer failed, and could not be accepted -- regardless of the existence of the gap-filling law clause.

Further, assuming that the foreign partner does not accede to reliance on the U.C.C. as the gap-filling law, designation of a third nation's [page 22] domestic law as the gap-filler seems dubious. Reliance on such a law for purposes of the open price term issue might result in the gap-filling law's application in contexts never anticipated by the parties. Such an approach presents a new series of potential challenges because it will present these challenges outside the context of CISG (i.e., through the potential application of a gap-filling law which is unfamiliar to the parties).

A more conventional approach would be for the contracting parties to vary the effect of CISG's provisions under authority of Article 6.[104] If one of the parties is concerned about open price terms, that party may request that Article 14, or any part of it, not apply to their transaction. By allowing for such variation or derogation from its terms, CISG plainly obviates the need to rely on a particular gap-filling law to account for open price.[105]

With these thoughts in mind, there are several lessons the practitioner can draw from Malev. First, the practitioner must have an awareness of the open price term conflict in CISG. Assuming that the Malev analysis is correct, an offeror must ensure that his or her offer establishes as clear a price provision in the offer as possible. Aside from relying on an Article 6 exclusion or modification, this preventive measure seems to be the only completely safe method for accounting for the open price term discrepancy.

A second lesson that the practitioner should draw is "that CISG contains hidden complexities which can easily lead to errors."[106] As the Article 14/55 debate demonstrates, these complexities do not always appear on the face of the document. This concern stems from the practitioner's inevitable unfamiliarity with CISG -- one that can only be solved by the study, evaluation and application of its terms.[page 23]

A third lesson that practitioners should draw from Malev is to recognize that CISG is not the law under which they came to know commercial transactions. They must not assume that a foreign court interpreting CISG's provisions will be viewing the controversy from their same legal perspective. Courts with different legal perspectives will often be considering questions for which there are no clear answers in CISG. For the practitioner to approach CISG from a parochial perspective may result in misunderstanding and misadventure.

Similarly, this interpretive concern should also extend to transactions under CISG which are analyzed by a court of the same nationality as the practitioner. For example, although U.S. courts will be approaching CISG from the same legal perspective as the U.S. practitioner, U.S. courts, too, are instructed to follow Article 7's guidance to interpret CISG with a mind to its "general principles." Therefore, U.S. court decisions may be rendered which might not coincide with the U.C.C.-influenced expectations of the U.S. practitioner.

A final lesson that the practitioner should learn is the compromise nature of CISG. Initially drafted with a mind to compromise, it will continue to require compromise in its application. Undoubtedly court systems will gradually "mold" majority interpretations of CISG's provisions. The persons who will be impacted by these (sometimes unfavorable) compromise interpretations are practitioners and their clients (e.g., P&W). Although correctly heralded as a benefit to the United States and countries throughout the world,[107] future interpretation will no doubt cause CISG's provisions to be viewed by some as far from beneficial.

B. The Policy Perspective

Focusing on the issue of whether the court systems of the world will be able, or willing, to uniformly interpret CISG's provisions, this section considers CISG from the broader perspective of the litigator, the judge, or those who may be able to bring about future change in CISG. It approaches this issue mindful of both Malev's unique facts and Article 7's call for uniform application of CISG's provisions.

By its nature, CISG will be a difficult document to change. Unlike the U.C.C., to which states can make unilateral changes, CISG cannot easily be amended. Since it is an international treaty, amendments require ratification by each of the signatories before it can become effective.[page 24] This fact is one example of inflexibility in CISG's provisions. The document cannot easily change as weaknesses in its provisions are identified. Thus, the goal of uniform application will hinge on the document as it currently stands.

Any threat that this inflexibility poses to CISG's prospects for uniform application, however, can be handled through a greater reliance on courts which construe CISG. As several commentators suggest, one of the best ways to achieve uniformity is through granting persuasive effect to foreign court decisions:[108] "the uniformity contemplated by CISG Article 7 will be attained only if courts are aware of the way in which the Convention is interpreted in other contracting states."[109] But foreign court decisions will be useful only to the extent that they avoid any tendency to interpret CISG based on their own national legal perspective. The question that arises is whether foreign courts will be able to interpret CISG in this neutral fashion.

This question is implicated in an approach to interpretation suggested by Professor Murray. Although specifically addressing the open price term issue, Murray generally recommends a greater reliance on Article 8(2). He calls for a determination of the missing price term to be based on Article 8(2)'s call for interpretation "according to the understanding that a reasonable person of the same kind as the other party would have had in the circumstances."[110]

Under this approach, if a reasonable person would regard the transaction as binding, uncertain price term included, an interpretation of the parties' manifestations may, nonetheless, require recognition of that agreement. The price term may be implicitly recognized through a greater reliance on Article 8(3)'s guidance to consider all relevant circumstances (e.g., trade usage), when determining the intent of the parties.[111]

In other words, Professor Murray asserts that the "objective" approach to contract formation should be the guiding principle of CISG [page 25], and that such an approach will prevent "technical barriers," such as the requirement for the explicit or implicit fixing of price, from interfering with the reasonable understanding and intention of the parties. Further, it is reasonable to expect courts analyzing any provision of CISG to rely on this "objective" approach when considering transactions under CISG.

Such an objective approach, however, may also lead to difficulty. The facts of Malev are instructive. The Hungarian Supreme Court did not rely upon Article 8(2). Further, while P&W seemed reasonably to have intended to be bound by its offer, the Malev Court did not address P&W's intention to be bound, nor did it address any manifestation of P&W's intention to be bound. Although the Court invoked the subjective standard of Article 8(1),[112] it did not provide analysis of this provision's non-applicability. Finally, the approach that Professor Murray suggests is, arguably, a uniquely American legal doctrine which might not easily be accepted or applied by courts of other nations.[113] Thus, in contrast to a U.S. court, a foreign court might not be able to apply the concept of "objective intent" so easily.

While we cannot expect uniform application of CISG by completely relying on foreign courts to apply the objective theory of contract law, it is still possible to achieve uniformity through the examination of foreign court decisions. Several concerns need to be addressed, however. An obvious concern is that interpretation will turn on a form of "home field advantage." Another concern involves whether near-term decisions will set the standard for future interpretations. It is conceivable that early interpretations by foreign courts may set the direction of CISG -- to borrow a term from corporate law -- a form of "race to the bottom." In other words, the first jurisdictions to decide cases based on CISG may give its provisions a "gloss" of their own domestic sales law -- a gloss which, ultimately, may prove detrimental to the intent of the drafters of CISG.

These concerns are compounded since the general principles referred to in Article 7 will not always be ascertainable. For example, unlike the U.C.C., which provides official commentary as an aid to interpretation, CISG's official comments were not adopted as part of the [page 26] document,[114] thus providing no accessible guidelines with which to interpret CISG's provisions. Further, as the debate over open price terms makes abundantly clear, reference to CISG's legislative history may prove unreliable.

Aside from the difficulties the Malev Court may have had with Murray's objective approach, the Court did not fully analyze many aspects of the open price issue. For example, it is not clear whether the Court relied on the Farnsworth view or the Honnold view on the open price term issue.[115] If the lack of a definite price term was the crux of the Court's decision, one reasonably could have expected an examination of the competing interpretations of this issue. If nothing else, the Court could have either plainly stated its reliance on the express terms of Article 14(1), or clarified its reasoning as to why it could not determine a market price for aircraft engines.

It is conceivable that a United States commercial lawyer would express shock at the result of Malev. Certainly, P&W did.[116] Nevertheless, the decision seems to set a "high water mark" in regard to the requirement of definite price terms in contract proposals. This is especially true in light of the factual disposition of Malev. P&W's offer seemed to be all but certain as to the price of the aircraft engines -- arguably, the price term was sufficiently definite. Thus, U.S. practitioners might think Malev was wrongly decided, and U.S. courts (or courts of any foreign jurisdiction) might be tempted to ignore it as authority in a similar case.

On the other hand, it seems unreasonable to dismiss the result in Malev summarily. The outlook for uniform interpretation demanded by Article 7 would, indeed, be dim if one were to do so. Ignoring the decision altogether, although not fatal, would deal a potential blow to the efficacy of CISG. Over time such treatment could have a crippling effect on the document.

Nonetheless, it appears that the international community can, and should, expect more in terms of analysis than that provided by the Hungarian Supreme Court. At the least, Malev suffers from a dearth of analysis. Although Hungary ratified CISG relatively recently, quite a large amount of international commentary is available. Further, the text of CISG is set forth in six official languages -- Arabic, Chinese,[page 27] English, French, Russian and Spanish. In light of these facts, it does not seem too burdensome to expect a more in-depth analysis than that provided by the Court in Malev.

Courts world-wide have an obligation to promote uniformity in CISG's application. Toward this end, respect must be rendered to foreign court opinions interpreting CISG. This respect, however, should consist of a scholarly reliance, not a slavish deference. Foreign court opinions can serve as important and highly beneficial learning tools. Both courts and practitioners can use such opinions to educate themselves as to the meaning of the provisions of CISG.

To educate, however, these opinions must provide a firm foundation. This foundation can only be built if courts interpreting CISG provide detailed and convincing analyses. Such detailed and convincing analyses, by their nature, will consider the pertinent provisions of CISG in detail, and will consider the interplay between them. They may also include reference to the legislative history of CISG and to scholarly articles interpreting CISG. In so doing, the decisions will have a logic and rationale which will be persuasive of their own accord.

While courts may not fully agree with a foreign court's reasoning, a detailed, convincing analysis will make it more likely that the decision will be regarded as persuasive authority in future interpretations of the document. In this way, the world may slowly build an adequate CISG jurisprudence.

Over time, courts and practitioners may devise additional elements to determine whether to accord certain foreign court decisions more or less persuasive authority than others. In the meantime, a minimum requirement would seem to be a reasonably detailed and well-supported analysis. While no decision should be discounted entirely, each decision should be accorded persuasive authority by other courts only to the extent it enunciates an acceptable rationale for the legal conclusion reached. Since this analysis did not take place in Malev, the opinion provides a less than wholly persuasive interpretation of CISG.

VIII. Conclusion

CISG has the potential to be of great use to the world's business and legal communities. As the circumstances in Malev reflect, however, CISG's provisions are not always clear. This lack of clarity is compounded by the paucity of guidance provided for interpreting its provisions. Thus, the viability of CISG as an international sales law depends [page 28] upon its interpretation in future applications. Both practitioners and the world's courts have a part to play in these interpretations.

On the one hand, practitioners should strive to educate themselves as to the document and its intricacies. As the Article 14/Article 55 controversy demonstrates, application of CISG will not be business as usual. It appears that the most prudent approach in regard to open price terms is to ensure that the offer is clear as to price. Although, arguably, the price term was clear in Malev, this is a potential problem that the practitioner cannot ignore. As was evidenced by the negotiations that led to the conclusion of CISG, compromise was the order of the day. The very compromise that led to CISG's creation will lead to results in its application which embody these compromises. These results will not always comply with one's traditional views in the field of sales law. It is with this prospect that the practitioner should consider Malev.

On the other hand, courts should strive to apply CISG's provisions neutrally, with an eye to its "international character." Courts should also ensure that their decisions are logical and well-reasoned. Opinions interpreting CISG's provisions should be well supported, relying both upon the plain terms of the document and scholarly works analyzing its provisions. If this approach is followed, the CISG jurisprudence that develops will serve to bridge any gaps that may exist in the document, and the outlook will be favorable for uniform application of CISG.[page 29]


FOOTNOTES

1. U.N. Convention on Contracts for the International Sale of Goods, Final Act, U.N. Doc. A/CONF.97/18 (1980) [hereinafter CISG], reprinted in JOHN HONNOLD, DOCUMENTARY HISTORY OF THE UNIFORM LAW FOR INTERNATIONAL SALES 764 (1989) [hereinafter HONNOLD, DOCUMENTARY].

2. Filanto, S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229 (S.D.N.Y. 1992). For an interesting analysis of this case, see Ronald Brand & Harry Flechtner, ARBITRATION AND CONTRACT FORMATION IN INTERNATIONAL TRADE: FIRST INTERPRETATIONS OF THE U.N. SALES CONVENTION, 12 J.L. & COM. 239 (1993).

3. Pratt & Whitney v. Malev Hungarian Airlines, Legfelsbb Biróság, Gf. I. 31, 349/1992/9 (Dr. László Szlávnits trans., 1992, reprinted in 13 J.L. & COM. 32 (1993) [hereinafter Malev].

4. Brand & Flechtner, supra note 2, at 240.

5. Kazuaki Sono, The Vienna Sales Convention: History and Perspective, in INTERNATIONAL SALE OF GOODS: DUBROVNIK LECTURES 1, 2 (Petar Sarcevic & Paul Volken eds., 1986) [hereinafter DUBROVNIK LECTURES].

6. Reprinted in 3 I.L.M. 855 (1964).

7. Id. at 865.

8. John Honnold, The Sales Convention: Background, Status, Application, 8 J.L. & COM. 1, 3 (1988). "Many of the countries in Africa and Asia did not exist as independent states when the uniform laws were made; other parts of the world--nearly all of the common law world, Eastern Europe and Latin America--for a variety of reasons did not participate." Id.

9. Id. at 4.

10. CISG, reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 764.

11. Dennis Rhoades, The United Nations Convention on Contracts for the International Sale of Goods: Encouraging the Use of Uniform International Law, 5 TRANSNAT'L LAW. 387, 390 (1992).

12. DUBROVNIK LECTURES, supra note 5, at v.

13. Sono, supra note 5, at 7.

14. Id.

15. "The careful international draftsman tries to avoid abstract, disembodied concepts. For example, [in CISG,] risk of loss passes to the buyer 'when goods are handed over to the first carrier' or . . . when the buyer 'takes the goods' (Arts. 67(1), 69(1)) -- more stable materials than ideas such as 'property' or 'title.'" JOHN HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES § 87 (1987) [hereinafter HONNOLD, UNIFORM LAW]; see also John E. Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & COM. 11 (1988). "Perhaps the first memorable impression is the frugality of the entire Convention." Id. at 12.

16. Sono, supra note 5, at 13.

17. "In the medieval age in the Mediterranean area, there existed a lex mercatoria which knew no boundary in its application. However, as the modern notion of sovereignty became crystallized, the localization of the law of trade commenced through the intervention of national legislatures . . . . The commercial law of each State became sophisticated as legal theories refined it." Id. at 12.

18. Rhoades, supra note 11, at 389.

19. HONNOLD, DOCUMENTARY, supra note 1, at 1.

20. John Honnold, The Sales Convention in Action -- Uniform International Words: Uniform Application?, 8 J.L. & COM. 207, 207 (1988) [hereinafter Honnold, Uniform Application?].

21. Id. at 208.

22. Id. at 209.

23. Id. at 211.

24. Id.

25. The following discussion is based largely on Murray, supra note 15, at 13-17.

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

27. Murray, supra note 15, at 13.

28. Article 8 of CISG states:

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.
CISG, supra note 1, art 8.

29. Murray, supra note 15, at 46.

30. Id.

31. HONNOLD, UNIFORM LAW, supra note 15, at § 109.

32. Murray, supra note 15, at 48.

33. Id. Article 8(3) begins: "In determining the intent of a party or the understanding a reasonable person would have had . . . ." CISG, supra note 1, art. 8(3).

34. Murray, supra note 15, at 48.

35. Id.

36. CISG, supra note 1, art 14(1); see also text accompanying note 26.

37. Murray, supra note 15, at 14.

38. Id.

39. See text accompanying note 26.

40. CISG, supra note 1, at 55.

41. HONNOLD, UNIFORM LAW, supra note 15, § 137.

42. Id.

43. Kazuaki Sono, Formation of International Contracts Under the Vienna Convention: A Shift Above the Comparative Law, in DUBROVNIK LECTURES, supra note 5, at 111, 120-21. Professor Sono served as Secretary of UNCITRAL from 1980-1985. See also Leif Sevon, Obligations of the Buyer Under the U.N. Convention On Contracts for the International Sale of Goods, in DUBROVNIK LECTURES, supra note 5, at 203, 208 ("Article 55 must be read together with Article 14").

44. President's Message to Senate on CISG, Sept. 21, 1983, S. TREATY DOC. NO. 9, 98th Cong., 1st Sess. 7 (1983). This document was prepared by the Department of State and was submitted, along with the CISG, to the United States Senate by President Reagan. As such, the document does not evidence "legislative intent" that may serve as authority for decisions of U.S. Courts.

Notably, however, the document "indicate[s] the relationship between [the provisions of CISG] and United States law as set forth in Article 2 on Sale of Goods of the Uniform Commercial Code . . . ." Id. at 1. Thus, in viewing the issue of unstated price, the Department of State analysis begins with the U.C.C.'s treatment of the issue. It is not surprising, therefore, that the analysis ultimately concludes that Articles 14(1) and 55 are to be read in conjunction.

45. E. Allan Farnsworth, Formation of Contract, in INTERNATIONAL SALES: THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS § 3.04[1], at 3 - 8 (Nina M. Galston & Hans Smit eds., 1984) [hereinafter INTERNATIONAL SALES]. Professor Farnsworth refers to several articles which support his proposition. See INTERNATIONAL SALES at 3-9 n.6.

46. Id. at 3-8. "The United States, which had consistently opposed this language, was unsuccessful in attempting to have it deleted at Vienna." Id. The legislative history of CISG indicates that the United States opposed this language because, by requiring the proposal to expressly or implicitly fix or make provisions for determining the price, the provision was too strict. Pre-Conference Proposals on the 1978 Draft, U.N. DOC. A/CONF.97/9 (1978), reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 392, 395.

47. Farnsworth, supra note 45, § 3.04, at 3-9 (emphasis added).

48. "Article 92(1) permits a Contracting State to declare, at the time of signature, ratification, acceptance, approval or accession, that it will not be bound by Part II of the Convention [on contract formation], or that it will not be bound by Part III of the Convention [on sale of goods]." Murray, supra note 15, at 16 n.29; see CISG, supra note 1, art. 92(1).

49. Murray, supra note 15, at 16.

50. Disregarding what seems to be the plain language of CISG, Professor Honnold nonetheless contends that Articles 14 and 55 should be read together: "Even though a State should adhere to only Part II of [CISG], provisions in Part II (e.g., Art. 14) must be construed in the light of Part III (e.g., Art. 55). [CISG] was designed to permit and encourage States to adhere to both Parts II and III. The goal of uniformity stated in Art. 7(1) would be violated if the construction of Part II depended on whether a State had adhered to Part III." HONNOLD, UNIFORM LAW, supra note 15, § 137 n.9.

51. Summary Records of the Eleventh Meeting of the First Committee, U.N. DOC. A/CONF.97/C.1/SR.11 (1980), reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 513.

52. Id. at 514.

53. Murray, supra note 15, at 16.

54. For example, Professor Honnold's position finds wide support. See, Summary Records of the Eleventh Meeting of the First Committee, U.N. DOC. A/CONF.97/C.1/SR.11 (1980), reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 514 (Mr. Stalev of Bulgaria states that Article 14 "must be interpreted in conjunction with [Article 55]."); Summary Records of the Twenty-Fourth Meeting of the First Committee, U.N. DOC. A/CONF.97/C.1/SR.24 (1980), reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 584 (Mr. Mantilla-Molina of Mexico states that Article 14 and Article 55 "were, in fact, complementary, the former sanctioning contracts in which the price was implicitly fixed and the latter providing a means of determining the price."); id. (Mr. Krispis of Greece states that Article 14 "provided for two possibilities: the price might be expressly fixed in the contract, or the contract might make provision for determining it. It would therefore be useful to keep [Article 55], since it applied precisely in the event that the price was not explicitly fixed.").

In contrast, Professor Farnsworth's position finds support in the unofficial commentary to CISG which states that Article 55 "has effect only if one of the parties has his place of business in Contracting State which has ratified or accepted this Convention as to Part III (Sales of goods) but not as to Part II (Formation of the contract) . . ." Secretariat Commentary on the 1978 Draft, U.N. DOC. A/CONF.97/5 (1979), art. [51], par. 2, reprinted in HONNOLD, DOCUMENTARY, supra note 1, at 435.

55. This arrangement would require Malev to pay Boeing or Airbus the complete purchase price of the aircraft chosen by Malev. Subsequently, Boeing or Airbus would pay P & W the engine price directly. Pratt & Whitney v. Malev Hungarian Airlines, Megyel biróságok és Budapest fváros Birósága, 1363 Bp. P.O.B. 16., 3 (Metropolitan Ct. 1991) (Dr. László Szlávnits, trans. 1992), reprinted in 13 J.L. & COM. 50 (1993) [hereinafter Metropolitan Court].

56. Malev, supra note 3, at 18. Referred to alternatively as a "gondola" and a "nacelle." A "nacelle" is defined as a "separate streamlined enclosure on an aircraft . . . housing an engine." THE AMERICAN HERITAGE DICTIONARY 829 (2d Coll. ed. 1982).

57. The record indicates that there was no stated price for the PW 4060 engines. Malev, supra note 3, at 19. The engine options for the Boeing aircraft now consisted of the PW 4056 and the PW 4060. The difference between these engines was solely in the amount of thrust each provided -- the PW 4060 providing more thrust than the PW 4056. Otherwise the engines were identical. Telephone Interview with John Casey, Associate Counsel, Pratt & Whitney Group - United Technologies (Feb. 26, 1993).

58. The alleged contract had a choice of law clause stipulating that the Uniform Commercial Code as applied in Connecticut (P&W's principal place of business) was to be the applicable law. However, as litigation was ongoing, P&W began to research CISG to determine if reliance upon its provisions would be beneficial to P&W. P&W then determined that CISG would be favorable to P&W's position and was prepared to argue for its use. Shortly thereafter, however, Malev moved to have CISG applied as the appropriate choice of law. P&W acceded to this motion. Telephone Interview with John Casey, supra note 57.

59. Metropolitan Court, supra note 55, at 42.

60. Referred to by Professor Honnold as "Interpretation of Statements or Other Conduct of a Party;" see HONNOLD, UNIFORM LAW, supra note 15, at 136. See text of Article 8 at supra note 28.

61. Referred to by Professor Honnold as "Acceptance with Modification;" see CISG, supra note 1, art. 19.

62. Malev, supra note 3, at 20-21.

63. Id. at 17.

64. Id. at 18.

65. Id.

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

67. Malev, supra note 3, at 19.

68. Id.

69. Id.

70. CISG, supra note 1, art. 55.

71. At this point the Court also discussed the arrangement referred to in note 55, supra, whereby Malev would pay the aircraft manufacturer for the engines it chose, and where the manufacturer, in turn, would pay P&W for the engines that P&W supplied. The Court implied that this fact, coupled with the failure to state the price term in the contract, was fatal to the offer in that the price of the aircraft to be purchased by Malev was dependent on the price of the engines to be supplied by P&W, Malev, supra note 3, at 20

72. Malev, supra note 3, at 23.

73. Id.

74. Id. at 21.

75. Id. at 22.

76. Id. at 19.

77. This certainty stems from Malev's apparent intention to be bound by the offer and rests on several factual issues. First, Malev negotiated extensively with P&W before arriving at the terms of the transaction. Second, Malev failed to take issue with the pricing formula prior to its acceptance. Third, Malev never objected to P&W adding the PW 4060 as an additional engine option. Fourth, neither Malev nor P&W ever drew a distinction between "jet engines" and "jet engine systems." Fifth, Malev's method of acceptance (i.e., telex to P&W's Vice-President) presumably was indicative of an earnest acceptance by Malev. Finally, although the Court found the price indefinite as to the Airbus engines, the ultimate transaction involved the Boeing engines.

78. Malev, supra note 3, at 19.

79. See supra note 71 and accompanying text.

80. See infra notes 81-94 and accompanying text.

81. "Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy." U.C.C. § 2-204(3) (1987).

82. U.C.C. § 2-305(1) (1987).

83. Id. at cmt. 1.

84. Id. at cmt 6.

85. PIERRE BONASSIES, ET AL. 1 FORMATION OF CONTRACTS: A STUDY OF THE COMMON CORE OF LEGAL SYSTEMS 511 (Rudolf B. Schlesinger ed., 1968).

86. Id.

87. Id.

88. Id. at 512.

89. Id.

90. Id. at 513.

91. ERNEST C. STEEFEL, GERMAN COMMERCIAL LAW 30-31 (1956) (citations omitted).

92. BONASSIES, ET AL., supra note 85, at 487-88.

93. Id. at 488.

94. Id. at 487.

95. Id.

96. Id.

97. Id. at 495. This position results because, in the French view, "contract law is entirely based on the principle of individual liberty. It is the free will of each contractor which, by restricting his own liberty, creates the contractual obligation. Only the will of the parties may define what is a just price; if they have not defined it, a just price does not exist." Id. at 496 (citations omitted).

98. Article 7 of CISG states:

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

(2) Questions concerning matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with [sic] the law applicable by virtue of the rules of private international law.
CISG, supra note 1, art. 7.

99. HONNOLD, UNIFORM LAW, supra note 15, § 86.

100. Paul Volken, The Vienna Convention: Scope, Interpretation, and Gap-Filling, in DUBROVNIK LECTURES, supra note 5, at 39.

101. Id. at 43.

102. INTERNATIONAL CONTRACT MANUAL: GUIDE TO PRACTICAL APPLICATIONS OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS at Detailed Analysis 139 (Albert H. Kritzer ed., 1992)

103. Id.

104. Article 6 provides: "The parties may exclude the application of this Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions." CISG, supra note 1, art. 6.

105. The effect of applying Article 6 to Article 14(1) would vary depending upon whether Article 14(1) was completely excised, or whether it was simply changed to reflect the parties' desires. If the parties agreed to excise Article 14(1) entirely, and an open price term later became a source of controversy, one of two scenarios may follow: 1) either a national sales law would be applied to the subject matter of the excised article, or 2) the situation would be treated as if a gap existed in CISG that should be settled with reference to the interpretive guidance of Article 7. CISG, supra note 1, art. 7.

If, alternatively, the parties varied the terms of Article 14(1) by allowing for contract formation even though an open price term existed, it would seem that a court would give effect to the agreement of the parties and that a contract would be formed.

106. Brand & Flechtner, supra note 2, at 249.

107. Murray, supra note 15, at 50.

108. See, e.g., V. Susanne Cook, Note, The Need for Uniform Interpretation of the 1980 United Nations Convention on Contracts for the International Sale of Goods, 50 U. PITT L. REV. 197, 226 (1988); Honnold, Uniform Application?, supra note 20, at 211.

109. Brand & Flechtner, supra note 2, at 241. See also Gyula Eörsi, General Provisions, in INTERNATIONAL SALES, supra note 45, § 2.03, at 2-5 (Article Seven's requirement for adherence to CISG's international character and promotion of uniformity will not always be easy to implement. Nevertheless, "[d]omestic courts must not be allowed to forget these requirements, and a collection of precedents followed by critical annotations should be published . . . ."). Id.

110. Murray, supra note 15, at 17.

111. Id. See also CISG Article 9(2), "which elaborates the importance of trade usage and its application to questions of formation." Id. at 17 n.34.

112. See supra note 76 and accompanying text.

113. See 7 Arthur T. Von Mehren, Contracts In General §§ 9/43 to 9/49, in INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW (1992).

114. Peter Winship, The Scope of the Vienna Convention on International Sales Contracts, in INTERNATIONAL SALES, supra note 45, § 1.01 [4], at 1-15.

115. See supra Part V.

116. Telephone Interview with John Casey, supra note 57.


Pace Law School Institute of International Commercial Law - Last updated January 29, 2001
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