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Copyright © by Colorado Lawyer. Reprinted with permission of 18 Colorado Lawyer (March 1989) 423-430.

The U.N. Convention on the Sale of Goods
and the "Battle of the Forms"

Paul C. Blodgett [a1]

The Convention
-    Convention Application
-    Convention Coverage
Sample Differences between the Convention and the UCC
-    Statute of Frauds
-    Parol Evidence Rule
-    Trade Terms
-    "Mirror Image" Rule
The "Battle of the Forms"
-    The Common Law and the "Battle"
-    The UCC and the "Battle"
-    The Convention and the "Battle"
-    Conclusion of a Contract by a "Battle" and Later Performance
Potential Contract Formation Outcomes
-    Matching an Acceptance to an Offer
-    A "Battle" after an Oral Contract
-    Summary
Forming a More Certain Contract
Conclusion

On January 1, 1988, the United Nations Convention on Contracts for the International Sale of Goods ('the Convention') came into effect. The Convention establishes a uniform law for the international sale of goods and binds the United States and fourteen other countries, including France, Italy and China.[1] It is likely that most of the major trading partners of the United States will also approve and become bound by the Convention.[2] Since the Convention is now an integral part of U.S. law, counsel involved with international sales transactions should be familiar with its provisions and learn how its approach to sales contracts differs from the approach of the Uniform Commercial Code ("UCC").

This article presents a brief description of the Convention, which includes how the Convention came into existence, when it applies, what it covers and a few of the differences between it and UCC, Article 2.[3] The article also addresses the "battle of the forms" problem occurring under the Convention.

The purpose of describing the Convention is to introduce the practitioner to its primary elements. This article does not attempt to analyze the Convention nor to present the differences between the Convention and the UCC. Both of these tasks have been tackled by others.[4] Moreover, the practitioner is cautioned that this article's superficial treatment should be just a starting point for analyzing the Convention's provisions. Because the Convention's articles are so brief and so new, counsel must be aware that they contain some uncertainty, especially when determining whether or not the Convention governs a particular contract.

The briefness of the Convention can be a definite advantage in terms of simplicity, but a disadvantage when it comes to comprehensiveness. For example, the Convention does not even define the phrase "contract for sale." Is a consignment contract a "contract for sale'? Thus, there are parts of the Convention which appear to be straightforward and complete, but can lead to uncertain results when applied. For practitioners in the United States, this may be especially tricky because, while some of the differences between the Convention and the UCC are obvious, others are similar, but not the same. Generally, then, practitioners should carefully analyze the suitability of the Convention by weighing this uncertainty against the Convention's advantages on a case-by-case basis.

THE CONVENTION

The Convention is the culmination of work which began over fifty years ago to create a uniform law for international sales contracts. In the 1930s, some of the greatest commercial law experts of Western Europe were assembled by the International Institute for the Unification of Private Law ('UNIDROIT') to create such a law. The work begun by these experts concluded in 1964 in two Conventions adopted at the Hague, one on the formation of the international sales contracts and the other on rights and obligations under international sales contracts. While the Hague Conventions went into effect for a few countries in 1972, they never received widespread acceptance.

The United Nations Commission on International Trade Law ("UNCITRAL") [page 421] started revising the Hague Conventions in the late 1960s to produce a version which would be more widely accepted. After many years of hard work, in 1980 UNCITRAL submitted its draft Convention to a diplomatic conference in Vienna for final revision and approval. After five weeks of intensive debate, the Vienna Conference, comprising representatives of sixty-two countries unanimously approved the Convention.

After approval by the Vienna Conference, the Convention still required the ratification of at least ten nations before it could become effective. In October 1986, the U.S. Senate approved the Convention, and the United States deposited its ratification with the United Nations on December 11, the same day that Italy and China deposited theirs. These three ratifications brought the number of nations which approved the Convention to eleven, one more than necessary for the Convention to take effect. The official effective date for these eleven countries is January 1, 1988.

Convention Application

The Convention applies to sales contracts concluded on or after January 1, 1988, between parties whose places of business are in different countries, if those countries are subject to the Convention.[5] Thus, if a U.S. company whose place of business is in the U.S. enters into a contract for the sale of goods with a French company whose place of business is in France, the Convention applies because both the United States and France are subject to the Convention. If either of the parties has two or more places of business, the relevant place "is that which has the closest relationship to the contract and its performance."[6]

Additionally, the Convention applies "when the rules of private international law lead to the application of the law of a Contracting State."[7] Therefore, in a sales transaction between a party in France and a party in Greece (Greece is not yet a Contracting State), the Convention would apply if the conflicts of law principles for the transaction would point to the application of the laws of France. However, the Convention allows a Contracting State to declare that it will not be bound by this provision, and the United States made this declaration when it ratified the Convention.[8]

The Convention does not apply in whole or in part when the parties to the contract agree to that effect. Article 6 of the Convention provides, in relevant part: "The parties may exclude the application of this Convention or ... derogate from or vary the effect of any of its provisions." Commentators have disagreed on whether it is necessary to exclude the application of the Convention expressly or by implication. The safest course is to exclude the application of the Convention in express terms.

When "opting out," in addition to stating specifically that the Convention will not apply, counsel should also state what laws will apply instead. This inclusion must be done carefully because a simple statement that the contract will be "governed by the laws of Colorado" would include the application of the Convention because the Convention is now part of Colorado and U.S. law.[9] Therefore, if counsel intends to exclude the application of the Convention and include the application of the Colorado law, including the UCC as enacted in Colorado, counsel should place the following provision in the contract:

The 1980 United Nations Convention on Contracts for the International Sale of Goods (The Convention) shall not apply to this contract. Instead, this contract shall be governed by the domestic laws of Colorado, including the Uniform Commercial Code as enacted in Colorado, and excluding the Convention.[10]

As noted, before deciding to exclude a particular contract from the Convention's application, counsel should carefully consider, on a case-by-case basis, whether the Convention is better suited to the needs of the client than the alternative -- the UCC or the domestic law of another country. The Convention was drafted specifically to address the special problems of international trade, whereas the domestic commercial laws of countries usually are not.[11] Thus, in negotiations, the Convention offers a positive compromise between the two countries' domestic laws, which may be more appropriate to the transaction than any of these laws. In addition, the Convention may offer terms that are more favorable for the client's transaction than the alternative domestic law.

Other advantages of the Convention are that it offers an easy-to-read and easy-to-follow unified body of law which is neutral to all parties and that it is officially in English and five other languages (Arabic, Chinese, French, Russian and Spanish).[12] In the end, counsel must decide whether the Convention's advantages outweigh its disadvantages.

Convention Coverage

The Convention covers for international sales of goods transactions much of what Article 2 of the UCC covers for domestic transactions. The subjects the Convention covers include, but are not limited to, contract formation; contract interpretation; performance (including rights and obligations); passing of risk; breach; remedies; damages; and the preservation of goods.

The Convention does not cover all sales of goods. Before assuming that the Convention applies to a particular transaction, make sure that it does. Articles 2 and 3 of the Convention specify sales contracts which are not covered by the Convention. For example, not covered are contracts for consumer sales, sales of stocks, sales of negotiable instruments or sales of money.[13] Also not covered are contracts where the preponderant part of the obligation of the party who furnishes the goods comprises the supply of labor or other services.[14] For example, a "mixed contract" which calls for the supply of both goods and services is not covered when the value of the goods provided is less than the value of services provided.

The Convention does not cover the legal issues of the validity of a contract or the claims of a third party in the goods.[15] Also not covered is the liability of the seller (e.g., as a result of a breach of warranty) for death or personal injury caused by the goods.[16] Lastly, the Convention does not cover anything which the parties agree it will not cover. As noted, under Article 6, the parties can exclude or vary the effect of the provisions of the Convention.

SAMPLE DIFFERENCES BETWEEN THE CONVENTION AND THE UCC

Although the Convention covers much of the same ground as Article 2 of the UCC and the approaches of the two are somewhat similar, there nevertheless are several significant differences. The most obvious difference may be the sparseness of language of the Convention. For example, the UCC uses four sections to address express warranties, implied warranties and the exclusion of warranties; the Convention disposes of warranties under one article.[17] Another example of this frugality is that the Convention contains few definitions. Unlike the UCC, even the term "goods" is not defined. [page 423]

A few sample differences between the Convention and the UCC are listed below. Of the many notable differences, those discussed here were selected because of their relevance to the "battle of the forms" issue discussed later in this article.[18]

Statute of Frauds

Article 11 of the Convention provides that a "contract of sale need not be concluded in or evidenced by writing ..." [19] Thus, the Convention has no requirement that a sale contract be in writing in order to be enforceable. In Colorado, under CRS 4-2-201, a sale contract (for the price of $500 or more) has to be in writing to be enforceable. Also, Article 29 of the Convention provides that a contract may be modified by the mere agreement of the parties unless a written contract requires contract amendments to be in writing.[20] The UCC, under CRS 4-2-209(3), states that any amendment to a contract must be in writing to be enforceable if the underlying contract has to be in writing.

Parol Evidence Rule

Article 8(3) of the Convention authorizes the use of "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" to determine intent.[21] Thus, evidence of prior negotiations would be admissible to prove intent. Under CRS 4-2-202, only part of the evidence admissible under the Convention would be admissible, part of the time, to prove intent. For example, for a writing without ambiguities, intended as a final, complete and exclusive expression of an agreement, evidence of negotiations would not be admissible to prove intent. In this case, only the UCC concepts "course of dealing," "usage of trade" and "course of performance" would be admissible and only when used to explain or supplement the writing.

It is worth noting that, while under Article 9(1), "parties are bound by any usage to which they have agreed and by any practices which they have established between themselves," under CRS 4-2-202, such extrinsic evidence is only evidence of what the parties intended and is not binding on them.[22]

Additionally, under Article 9(2), the parties are deemed to have made widely known and regularly observed international trade practices applicable to their contract, unless otherwise agreed.[23] Under CRS 4-1-205, a usage of trade makes no particular or exclusive reference to international trade.

Trade Terms

As mentioned above, the Convention contains few definitions. It provides no definitions of trade terms. Consequently, drafters of contracts are expected to specify that the trade definitions provided by the International Chamber of Commerce, or similar trade definitions, apply to the contract. The International Chamber of Commerce's definitions, known as "INCOTERMS," are already widely used in international trade. The UCC, codified in Colorado at CRS 4-2-&319 through 4-2-325, does provide definitions of trade terms, such as '"F.O.B." and "F.A.S."

"Mirror Image" Rule

Article 19 requires that a reply intended as an acceptance be almost a mirror image of the offer for a contract to be concluded; otherwise, the reply would be a rejection of the offer and constitute a counter-offer (discussed below). Under the UCC, at CRS 4-2-207, a reply can serve as an acceptance and conclude a contract even though it contains terms which are in addition to or different from those contained in the offer. Perhaps the most troublesome part of the Convention occurs when parties attempt to conclude contracts in a "battle of the forms" and still comply with this "mirror image" rule for offers and acceptances.

THE "BATTLE OF THE FORMS"

The "battle of the forms" is the phrase used to describe the exchange of differing written proposals which form a contract between two parties. One of the most significant differences between the Convention and the UCC is the Convention's approach to such exchanges. The Convention's approach creates a problem because it leaves the terms of a contract uncertain. Under the common law, a similar problem arose when differing written proposals were exchanged.

The Common Law and the "Battle"

Under common law, for a contract to be formed, an acceptance to an offer had to have been a mirror image of the offer. If the terms of the acceptance varied from the terms of the offer, the varied acceptance became a counter-offer.[24] The benefit of this approach was that both sides of the contract knew the exact terms of the contract. This mirror image rule became unworkable when the sale of goods began to be documented, not by a single written contract signed by both sides, but instead by the exchange of form contracts. Often a buyer would send a form contract to a seller that was drafted by the buyer's lawyer. This "purchase order" would give the buyer an advantage. The seller would then respond by sending a form contract to the buyer that was drafted by the seller's lawyer. This "acknowledgement" or "sales order" would give the seller an advantage.

The front sides of these forms would be relatively blank, thus leaving space for the essence of the deal to be typed in, but the back sides would already be filled in with small print provisions designed to favor the drafter's side. As a result, the two contracts would match on the essence of the deal, such as price and quantity, but would differ on the pre-printed parts.

For example, the purchase order might expand on traditional warranties, while the sales order might limit them. As long as the essential terms agreed, the parties rarely paid attention to the discrepancies between the forms and would carry out the transaction, even though, legally, there was no contract.[25] Under the mirror image rule, the problem was that, when there were discrepancies between the forms, if a party was looking to get out of its contractual obligations, that party could claim that no contract had been concluded.[26] The drafters of the UCC attempted to address this problem.

The UCC and the "Battle"

To prevent parties from using the excuse of a varied acceptance to back out of a contract, the drafters of the UCC created CRS 4-2-207, which provides that a contract could be formed even when the acceptance to an offer varied from the terms of the offer.[27] Under CRS 4-2-207(1), an expression of acceptance operates as an acceptance and, therefore, concludes a contract, even though it states terms additional to or different from those contained in the offer. The additional terms are considered as proposals for addition to the contract and between merchants and become part of the contract unless: (1) the offer expressly limits acceptance to the [page 424] terms of the offer; (2) the terms materially alter the offer; or (3) notification of objection to the terms has already been given or is given within a reasonable time after notice has been received.[28]

The only time an expression of acceptance with additional or different terms from the offer will not conclude a contract is when the acceptance expressly states that it is conditional on the offeror's assent to the varied terms.[29] Therefore, under the UCC, the effect of a varied acceptance to an offer will generally be the conclusion of a contract on the terms of the offeror, with the possibility that the offeree's additional terms may also become part of that contract. In other words, the offeror will "win" the contract battle by going first.

This process can be best understood with the use of an example. Assume an American company, Bakery, Inc., which has its place of business in Denver, Colorado, sends its purchase order to a French company, Boulangerie, Cie., which has its place of business in Paris, France. The purchase order offers to purchase three commercial bread-baking ovens for $150,000. On the back of Bakery's purchase order, it is stated that all disputes arising from the sale shall be subject to binding arbitration to be held in Denver. Two weeks after its receipt of the purchase order, Boulangerie sends its sales order to Bakery, agreeing to accept the American company's offer. In most respects, the terms of Boulangerie's sales order are consistent with the terms of the purchase order. However, on the back of the sales order, it is stated that all disputes are to be decided in the courts of Paris.

Under the UCC provision, Boulangerie's varied acceptance will serve to conclude a contract for the purchase and sale of the ovens on the terms of Bakery's offer. Boulangerie's clause, which provides for the litigation of disputes in Paris, will not become part of the contract because it would materially alter the offer which provides for the arbitration of disputes in Denver.[30] Thus, the advantage of the UCC approach for varied acceptances has been that a contract is formed more often than under the common law since parties cannot back out simply because the acceptance is varied.

The Convention and the "Battle"

The drafters of the Convention chose not to adopt the approach of the UCC to varied acceptances and, instead, settled on an approach close to the common law mirror image rule. Under the Convention, a varied acceptance in which the variance is material will not conclude a contract. This was intended to encourage parties to negotiate and mutually agree on all of the material terms of a contract prior to beginning performance. Article 19(1) of the Convention provides that "[a] reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications, is a rejection of the offer and constitutes a counter-offer."[31] While the acceptance need not use the exact same wording as the offer, the new wording cannot change the obligations of the parties.

The only time an acceptance will conclude a contract when the acceptance varies from the terms of the offer is when it contains additional or different terms "which do not materially alter the terms of the offer" and the offeror does not promptly object to the alteration.[32] Therefore, even if the additional or different terms do not alter the offer materially, if the offeror objects to those terms, no contract will be formed.

The Convention provides a non-exclusive list of those items which would be considered material, and the list is [page 425] broad. The list provides that additional or different terms relating "among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes," are all considered to be items which alter the terms of the offer materially.[33] Because the scope of the list is so broad, an item of importance usually will be considered a material alteration and thus a rejection of the offer.[34] Therefore, it is likely that contracts will be formed less often under the Convention than the UCC in a battle of forms situation.[35]

In the bread-baking ovens example used above, the clause in the Boulangerie sales order that disputes be litigated in Paris concerns "the settlement of disputes" and, thus, would be considered a material change. Therefore, the Boulangerie sales order would reject rather than conclude a contract and serve as a counter-offer to the contained in the Bakery purchase order.

Conclusion of a Contract by a "Battle" and Later Performance

While the Convention provides that the exchange of the two forms that do not match will not conclude a contract, the Convention does not address what happens if the parties perform. Let us assume that shortly after the exchange of forms, Boulangerie delivers the three commercial bread-baking ovens to Bakery in Denver, in accordance with the provisions of both forms. Bakery accepts and pays for the ovens, and shortly thereafter, puts them into use. Within one week, Bakery discovers that all three ovens are apparently not fit for the use intended, in that the bread produced always has a very hard crust. When Bakery brings this alleged defect to the attention of Boulangerie, the French company responds that there is nothing wrong with the ovens, but states that the American company does not know what proper bread crust is. When all attempts at working out the problem have failed, each party proceeds to initiate its own dispute resolution procedure.

Is there a contract at this point under the Convention? It seems that a contract must have been concluded by the time the parties have performed.[36] In fact, two commentators who have addressed this issue have concluded that when the parties perform as though there were a contract, through shipment, delivery and acceptance of the goods, then a contract will have been formed.[37]

POTENTIAL CONTRACT FORMATION OUTCOMES

Once it is clear that a contract has been concluded in a battle of the forms exchange, the content of that contract must be determined.[38] This will be a difficult task because there are no clear answers, only differing potential outcomes. Nonetheless, the answer will depend on: (1) whether the contract has been concluded by an exchange of forms and later performance; or (2) whether the contract is the result of an oral contract followed by an exchange of forms.

Matching an Acceptance to an Offer

As noted, under the Convention, a contract can be formed only when an acceptance matches an offer. Moreover, Article 19(1) provides that a varied acceptance will not only reject an offer, but also constitute a counter-offer. Under the Convention, when the forms themselves are unable to conclude a contract because they do not match, but the contract has been concluded by later performance, the terms of the contract must be determined by identifying which offer (purchase order or sales order) was accepted by which later performance (shipment and delivery or the acceptance).

According to John Honnold, one of the principal U.S. delegates to the 1980 Vienna Conference, there are two theories which might be advanced as to which is the offer and which is the matching acceptance.[39] The first theory, in terms of the Bakery/Boulangerie example, would find that when Boulangerie did not receive an acceptance of its counter-offer/sales order (which provided for the litigation of disputes in Paris), it accepted the initial offer/purchase order of Bakery (which provided for the arbitration of disputes in Denver) by shipping the ovens; the second theory would simply find that Bakery, by receiving and accepting the ovens, accepted the counter-offer of Boulangerie.[40]

Honnold points out that the proponents of either theory would have to present their argument in terms of Article 18(1) of the Convention, which defines acceptance.[41] Article 18(1) states that acceptance is: "A statement made by or other conduct of the offeree indicating assent to the offer is an acceptance. ..." Thus, each party would have to argue that the other engaged in conduct indicating assent to its offer. Since neither theory is necessarily more correct than the other, it is not clear whether the performance of the parties will conclude a contract on the terms of the offeror or the offeree.[42]

A "Battle" After an Oral Contract

Prior to a battle of forms exchange, sometimes a buyer and a seller will agree orally to the essential terms of a transaction and then exchange their forms. For example, let us assume that prior to the exchange of forms, a representative of Bakery and a representative of Boulangerie come to an oral agreement by telephone on the sale of the ovens. They both agree to the sale of the three commercial bread-baking ovens for the price of $150,000. Nothing is mentioned by either side about dispute resolution. The oral agreement would constitute a binding contract under the UCC and the Convention. However, it would be unenforceable under the UCC at that point because of its failure to satisfy the written requirement provision of the statute of frauds. The parties thereafter exchange their forms.

The question under the Convention is what effect the subsequent exchange of forms will have on the prior oral agreement. Although there is no certain answer, the analysis will differ, depending on whether the forms are intended to confirm the oral agreement or replace the oral agreement with a new contract.

Forms Intended to Confirm

Under the UCC, the forms could confirm the agreement under CRS 4-2-207. Any terms contained in the forms not in oral agreement could become part of the contract, assuming both parties are merchants, as long as the additional terms did not conflict or materially alter the oral contract.[43] Such a possibility is not likely under the Convention because the Convention has no provision for confirmations. It is uncertain what effect, if any, the Convention will give to an exchange of forms intended as a confirmation of a prior contract.[44]

Under Article 29, which is on contract modification, the most that could be added to a contract through a modification is that which the parties agree upon.[45] Accordingly, one view of the potential of adding to the oral contract [page 426] would be that any terms appearing in both forms would become part of the contract because there is agreement as to them. However, another view of the potential adding to the oral contract would be that none of the terms in either of the forms would be added to the contract unless all of the terms in each of the forms match each other; therefore, the act of exchanging the forms would constitute only an offer for modification and a rejection of that offer since all of the terms of the two forms do not match.

Forms Intended to Replace with a New Contract

Forms exchanged with the intent of replacing a prior oral contract with a new contract can be especially troublesome under the Convention. When the parties intend that a new contract be concluded by the exchange of forms, a new contract will indeed be concluded, by substitution, and this new contract will replace the oral contract entirely. However, assuming there is a material difference between the forms, to determine the terms of the new contract, it is necessary to identify which form constitutes the offer and which later performance constitutes the acceptance to that offer -- the same problem discussed earlier. In this instance, it may not even be possible to determine which form constitutes the original offer and which form constitutes the counter-offer because both forms probably would be sent at roughly the same time. Therefore, in that case, neither would be sent in response to the other.

Summary

When the conclusion of a contract occurs as a result of later performance or a prior oral agreement, it will be difficult to determine the terms of the contract. If there was no oral agreement prior to the exchange of forms, the terms of the contract will have to be ascertained by looking at the forms and the parties' conduct to find an offer and matching acceptance. If there was an oral contract prior to the exchange, when the exchange is intended to produce a confirmation, the terms of the final contract will depend on the effect of the forms exchanged as confirmations. When the exchange is intended to produce a substitution, the terms of the final contract will depend again on finding a matching offer and acceptance in the forms and in the parties' conduct. [page 427]

FORMING A MORE CERTAIN CONTRACT

Certain steps can be taken under the Convention in a battle of forms exchange to make the terms of the contract formed more predictable. Each one of the following recommendations is designed to complement the Convention, and each one will apply whether the client is a buyer or a seller. However, before counsel instructs a client to follow this advice, it must be determined whether or not the Convention applies to the transaction at hand. Counsel needs to be aware that in a battle of forms, if the Convention does otherwise apply, the addition of an "opting out" clause to the client's form might not exclude the application of the Convention because the agreement of both parties is needed to assure that result.[46] The first five recommendations are designed to call a truce in the battle between the forms. The last three are designed to make the contract more certain and to keep it that way.

1. Announce that oral statements are not binding: The client should clearly announce that it does not intend to be bound by any oral statements made prior to the conclusion of a written contract. By making this announcement, no prior oral contract will be formed and the problems associated with such a contract will be avoided.

2. Announce that the exchange of forms constitutes only proposals to a later single written agreement: The client should announce in the form that the form is only a non-binding proposal. Then the two sides should negotiate all the terms and execute one binding written agreement.

If the client implements the first two recommendations, the client will have come a long way toward achieving certainty of contract. However, if the client is unwilling or unable to enter into a single written agreement, there are still steps the client can take while using preprinted forms to document the transaction. The next three recommendations are offered to that end.

3. Object to discrepancies: If the client, as offeror, has the bargaining position to demand that a contract be formed on the basis of the terms and conditions contained in its purchase or sales order alone, the client should limit acceptance to the terms of its offer, thereby eliminating the risk of performing a contract based on the terms of a counter-offer. Thus, if the client receives a written or even oral reply from the offeree which purports to be an acceptance, but contains anything other than that, the client should promptly object to it. With the transmission of the objection, the client also should make the original offer again invite acceptance to the offer by means of an authorized representative of the offeree putting his or her signature and the date on the offer. The client could modify the client's purchase or sales order clearly to provide the date and accepting signature. Be aware that a clause in the client's form which expressly limits acceptance to the terms of the offer (the form) will not necessarily protect the client if the other party's form materially varies the offer and the parties perform. This is because the other party's form will reject the offer and serve as the counter-offer on which the contract may ultimately be based.[47]

4. Read the other party's form carefully: Often, the other party's preprinted form is simply not read. If the client is faced with a situation in which the client must accept the terms and conditions of the other party's form to conclude a contract, then the client must read those terms carefully to determine if they are acceptable. If the contract must follow the other party's form, at least the client will know exactly what is in it.

5. Amend the offer by incorporation: There will be times when the client or the other party requests a go-ahead with the contract on the terms of the other's purchase or sales order, but with modifications or additions thereto. If this is acceptable, the offeree requesting the change must document this contract properly. Proper documentation can be accomplished by delineating changes on the other's form and by having the other party initial the changes. It can also be accomplished by indicating acceptance of the other party's form on a separate writing and incorporating by reference the entire offer, plus the changes. A clause then must be added on the separate writing stating that if the changes modify or contradict any terms or conditions in the other party's form, the changes will supersede those terms and conditions. To be safe, the offeror should then indicate acceptance to counter-offer by signing it. This separate writing approach would actually reject the purchase or sales order offer under Article 19(1), but it would also provide a counter-offer for acceptance which is based, except for the changes, on the terms of the purchase or sales order offer. This would assure the offeror that the contract formed would be its contract plus the added changes.

The last three recommendations attempt to further increase the certainty of formation of the client's contract by documenting changes to the contract, limiting interpretation of the contract and defining terms for the contract. These are intended to be used in conjunction with the other recommendations (specifically 2, 3 and 5) in a battle of forms situation, but may be used for any contract formed under the Convention.

6. Specify that all contracts and contract amendments must be in writing: To be certain when a written contract is modified and what the modification contains, specify that any contract modification or termination be in writing. Otherwise, the contract can be modified orally. Since the Convention does not require contracts and contract changes to be in writing to be effective, more certainty may be obtained by specifying that all contracts and changes thereto be in writing.

7. Consider using an "Entirety of Agreement" clause: Because the Convention has no parol evidence rule, the client should consider the desirability of excluding evidence of intent which is not contained within the four corners of the contract. An "Entirety of Agreement" clause, which must be accompanied by a specific statement that it is being used in derogation of Article 8(3), should exclude evidence of prior negotiations.[48] It is common for a seller and a buyer engaged in repeated transactions to enter first into the seller's Master Agreement, and the seller will follow up with a sales order for each transaction. The sales order will contain a clause which states that the contract will be subject to the terms of the Master Agreement. Note that the Master Agreement will be automatically incorporated only if the incorporation clause is in a mutally agreed upon single agreement or if the sales order is the document upon which the contract is concluded. The Master Agreement will not be incorporated if the purchase order is the document upon which the contract is concluded.[49]

8. Provide definitions of terms: Because the Convention provides so few definitions of terms, it is important that definitions be provided in the contract. The ideal choice is to specify that the [page 428] International Chamber of Commerce's INCOTERMS apply. INCOTERMS were designed for international trade, are widely used in international trade, and are consistent with the Convention.

CONCLUSION

The United Nations Convention on Contracts for the International Sale of Goods is now an integral part of the United States law. Therefore, lawyers who deal with international sales transactions must study this new international set of rules and be able to use it. Because the Convention supplies an easily accessible and unified body of law, lawyers should find it helpful in negotiating international sales agreements. However, for those times when parties choose to consummate an international sales transaction without fully negotiating an agreement, relying instead on an exchange of forms, the parties may have a problem under the Convention. If those parties later have a need to determine the particular terms of the contract, the Convention will not provide a clear answer. By using the recommendations contained in this article to call a truce in the battle between the two forms, a contract with certain and acceptable terms may be concluded under the Convention.[page 429]


FOOTNOTES

a1. Paul C. Blodgett, Winter Park, is a partner of Atwater, Blodgett & Ruppert.

The author prepared this article in connection with the University of Denver College of Law Course he audited, entitled "International Business Transactions," which was taught by Professor Ved Nanda.

1. Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, United States, Yugoslavia and Zambia are the countries for which the Convention went into effect on January 1, 1988. Austria, Finland, Mexico, and Sweden became subject to the Convention on January 1, 1989. To obtain an up-to-date listing ratifying countries, call these special telephone numbers at the U.N.: (212) 963-3918 or (212) 963-7958.

2. Griffin and Calabrese, 'The New Rules for International Contracts,' ABA Journal (March 1988) at 62. It is already known that Australia will become subject to the Convention on April 1, 1989, and Norway on August 1, 1989.

3. In this article, all references to UCC sections shall be to the UCC as codified in Colorado under the Colorado Revised Statutes.

4. The most comprehensive analysis of the Convention by a U.S. author is Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (Norwell, Mass.: Kluwer, 1987). A good handbook of basic materials about the Convention, published by the American Bar Association, is The Convention for the International Sale of Goods: A Handbook of Basic Materials. This handbook, which was edited by Reed Kathrein and Daniel Magraw, provides all six authentic language versions of the Convention, a summary of the principal provisions of the Convention, the legal analysis which accompanied the Convention to the U.S. Senate, and a bibliography of commentaries on the Convention by Peter Winship, among other materials. The Peter Winship bibliography, which was current up to January 15, 1987, appeared in 21 International Lawyer 585 (1987) under the article heading, "A Bibliography of Commentaries on the United Nations International Sales Convention." Other comprehensive materials on the Convention include: (1) The entire volume of the Journal of Law and Commerce, devoted exclusively to the Convention, 8 Journal of Law and Commerce (1988); (2) Galston and Smit, eds., International Sales: The United Nations Convention on Contracts for the International Sale of Goods (Matthew Bender, 1984); and (3) "Symposium on International Sale of Goods Convention," 18 International Lawyer 3-58 (1984).

5. U.N. Convention on Contracts for the International Sale of Goods (hereafter, "CISG"), Art. 1(a).

6. CISG, Art. 10(a).

7. CISG, Art. 1(b). A "Contracting State" is a country that is subject to the Convention.

8. CISG, Art. 95.

9. Crawford, "Drafting Considerations Under the 1980 United Nations Convention on Contracts for the International Sale of Goods," 8 Journal of Law and Commerce 187 (1988) at 193.

10. Id. See also, Winship, "The Scope of the Vienna Convention on International Sales Contracts" in Galston and Smit, ads., supra, note 4, 1.02 at 1-35. Note that this provision cannot be counted on to work in a battle of the forms situation. See, note 46, infra and accompanying text.

11. Winship, 'The New Legal Regime for International Sales Contract,' 2 Review of International Business Law 107 (March 1988) at 108. See also the preamble of the Convention which provides in part that 'the adoption of uniform rules which govern contracts for the international sale of goods . . . would contribute to the removal of legal barriers in international trade.'

12. Griffin and Calabrese, supra, note 2 at 66. The Convention offers a unified body of law for those issues it covers. Conflicts of law questions would still remain for issues the Convention does not cover. See text acompanying notes 15 and 16, infra.

13. CISG, Art. 2.

14. CISG, Art. 3.

15. CISG, Art. 4.

16. CISG, Art. 5.

17. The UCC sections on warranties are CRS 4-2-313, 314, 315 and 316. The CISG article on warranties is Article 35.

18. To learn more about these and other differences between the UCC and the Convention, see the materials mentioned at note 4, supra.

19. CISG, Art. 11, provides: "A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses."

20. CISG, Art. 29, provides: "(1) A contract may be modified or terminated by the mere agreement of the parties; (2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct."

21. CISG, Art. 8(3), provides: "(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."

22. CISG, Art. 9, provides: "(1) The parties are are bound by any usage to which they have agreed and by any practices which they have established between themselves; (2) The 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."

23. Id.

24. White and Summers, Uniform Commercial Code, 1-2 (2d ed. 1980) at 25.

25. Farnsworth, "Formation of Contract," in Galston and Smit, eds., supra, note 4, 3.04 at 3-15.

26. White and Summers, supra, note 24.

27. Id. at 24.

28. CRS 4-2-207(2).

29. CRS 4-2-207(1).

30. Only in the event that Bakery, Inc., expressly agrees to accept the Boulangerie, Cie., clause in place of its own clause will disputes be litigated in Paris. See, CRS 4-2-207, comment 3.

31. CISG, Art. 19, provides: "(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer; (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance; (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially."

32. Supra, note 31 at (2).

33. Supra, note 31 at (3).

34. Farnsworth, supra, note 25 at 3-16; Honnold, supra, note 4 at 193. To constitute a "material alteration" under the UCC, the alteration must be much more drastic than an alteration under the Convention. Alterations are material under the UCC only when they "result in surprise or hardship" and are "incorporated without express awareness of the other party." See, CRS 4- 2-207, comment 4.

35. Kathrein and Magraw, eds., supra, note 4 at 16.

36. The commentary to the 1978 draft of the Convention stated that a contract would have been formed in this situation. However, the final 1980 version does not include a commentary.

37. See, Honnold, supra, note 4 st 194; Winship, "Formation of International Sales Contracts under the 1980 Vienna Convention," 17 International Lawyer 1 (Jan. 1983) at 12. Professor John Honnold (University of Pennsylvania) was a principal U.S. delegate to the Vienna Conference. Professor Peter Winship (Southern Methodist University) chaired the ABA subcommittee on international sales conventions at the time the subcommittee reviewed and reported on the 1980 Vienna Convention.

38. The Convention has no provision like CRS 4-2-207(3) of the UCC, which not only provides that a contract would be formed in this instance, but also supplies a procedure for determining the terms of the contract.

39. Honnold, supra, note 4 at 195.

40. Id.

41. Id.

42. This author believes that the second theory is the stronger, for two reasons. First, once the offer of Bakery is rejected by the Boulangerie counter-offer, the offer is no longer capable of being accepted at a later time because, under Article 17 of the Convention, a rejection terminates an offer. This is the position taken by Kelso, "The United Nations Convention on Contracts for the International Sale of Goods: Contract Formation and the Battle of Forms," 21 Colum. J. Transnat'l L. (1983) at 553, n.132. Second, the Convention approach to an offer and an acceptance is similar to the common law approach -- the mirror image rule. If the parties performed in this situation, the offeror (Bakery) was deemed to have accepted the counter-offer of the offeree (Boulangerie). See, Farnsworth, Contracts (1982) at 159.

43. CRS 4-2-207(2)(b) states that, between merchants, the additional terms become part of a contract (here, the oral agreement) unless they materially alter the contract. CRS 4-2-207(2)(c) states the additional terms also cannot become part of the contract if notification of objection to them has already been given or is given within a reasonable time after notice of them is received. Comment 6 to the section states that, where clauses on confirming forms sent by both parties conflict, each party must be assumed to object to a clause of the other conflicting with the confirmation sent by himself.

44. An early draft of Article 19 did have a provision for confirmations. However, the provision was dropped because it was thought that any modifications should require the agreement of the parties in accordance with Article 29, the article on contract modification. See, Kelso, supra, note 42 at 551, n. 120.

45. See, supra, note 20.

46. For example, if the offeror's form says that the Convention does not apply, but the offeree's form does not match the offeror's form, the offeree's form will reject the offeror's form and constitute a counter-offer. If a contract is then concluded on the basis of the offeree's form and the offeree's form does not exclude the application of the Convention, the Convention will govern the contract.

47. See text accompanying note 31, supra.

48. For example, "Notwithstanding the provisions of Convention Article 8(3) to the contrary, the Parties agree that this contract contains the complete and exclusive agreement of the parties and that it supersedes any prior negotiations, promises, agreements, or representations not expressly set forth herein."

49. However, under Article 8(3), it is possible for parts of the Master Agreement to become part of a purchase order contract "as relevant circumstances of the case" if an "Entirety of Agreement" clause is not used in the contract.


Pace Law School Institute of International Commercial Law - Last updated July 6, 2004
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