Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.

"[E]ven when outward uniformity is achieved, ... uniform application of the agreed rules is by no means guaranteed, as in practice different countries almost inevitably come to put different interpretations upon the same enacted words."[1]

"[H]ow [does one] determine which interpretation should be preferred when the CISG itself gives rise to different autonomous interpretations [?]" [2] [page 299]

I. INTRODUCTION

A hopeful note was expounded 250 years ago by Lord Mansfield when he stated that "mercantile law ... is the same all over the world. For from the same premises, the sound conclusions of reason and justice must universally be the same."[3] It is this view of the universality of commercial practice that the success of a uniform international sales law is hinged. Critics of such a view assert that such uniformity efforts are both unwise and doomed to failure. Nonetheless, the United Nations Convention on Contracts for the International Sale of Goods ("CISG") was adopted on April 11, 1980, under the auspices of the United Nations Commission on International Trade Law ("UNCITRAL").[4] Critics have argued that the benefits of uniform international business law are minimal,[5] and that national courts will inevitably be the conscious or subconscious victims of homeward trend.[6] Homeward trend reflects the fear that national courts [page 302] will ignore the mandate of autonomous-international interpretations of the CISG in favor of interpretations permeated with domestic gloss. It is most difficult for a court to "transcend its domestic perspective and become a different court that is no longer influenced by the law of its own nation state."[7]

An example of homeward trend jurisprudence is the Italian case of Italdecor SAS v. Yiu's Industries.[8] The court ignored the interpretive methodology [9] of the CISG by failing to review pertinent foreign cases and arbitral decisions. For example, the court failed to seek guidance from existing cases dealing with the determination of fundamental breach.[10] If any semblance of applied uniformity is to be achieved, it is imperative that courts look to relevant foreign decisions for guidance. Whether as voluntarily binding precedent or as persuasive precedent,[11] courts should [page 303] review CISG jurisprudence before rendering a decision. In the case of diverging interpretations, the interpreter should select, modify, or reconcile such decisions through the proper use of the CISG's interpretive methodology:

"[C]ourts [should serve] two primary functions [in their roles as informal appellate courts.] First, they would look to decisions of foreign courts for guidance. Second, they would actively unify international sales law by distinguishing seemingly inconsistent prior decisions and by harmonizing differences in foreign interpretations."[12]

Simply put, courts' decisions should separate well-reasoned cases from the poorly reasoned ones, explain why they are so, and give persuasive effect to the cases using the proper interpretive methodology.

One commentator concluded that the Court's decision in Italdecor SAS was "cryptic, and parochial, and it is written in a way that is hard to understand, even for an Italian."[13] The court not only failed to review foreign case law on the CISG, but also failed to use relevant articles of the CISG. In one instance, the court applied Article 49(1) without analyzing the related Article 25.[14] Article 49(1) allows for the avoidance of a contract in the event of a fundamental breach. The court held that an untimely delivery was fundamental without applying Article 25 which provides the [page 304] CISG's parameters for determining whether a breach is fundamental. Without the use of the Article 25 template of "substantiality" and "foreseeability," and without the guidance of foreign cases applying the Article 25 template, there is no deterrent to a homeward trend perspective of fundamentality.

The answer to this debate between the Mansfield view and the "realist critique" is somewhere in the middle. The likelihood of substantive uniformity of application is unrealistic, but the utter failure of the CISG as a device to remove legal impediments to international trade is equally implausible. This middle view is found in the ongoing development of CISG jurisprudence. It is the jurisprudence of the CISG that this article seeks to uncover in gauging the impact of the CISG on international sales law.

The focus of this article is not whether the CISG mandates or should mandate absolute uniformity of application. The literature on this subject is quite extensive.[15] Instead, this article recognizes that many CISG provisions are the product of compromise and thus we ask whether these compromises have proven to be effective or have resulted in a chaotic jurisprudence. How have the articles of the CISG actually been interpreted and applied by the various national courts? At the interpretive level, is there evidence of convergence or divergence among the national courts?

To this end, the remainder of this Introduction will examine the special characteristics of the CISG as an "international code" including the importance of the CISG as an international convention and legal code meant for uniform application. The importance of defining a standard for measuring uniformity of application will be discussed along a continuum between absolute and relative standards of uniformity. The discussion then focuses on the importance of autonomous interpretation, as intended by the drafters of the CISG, to the goal of a relative uniformity of application. The Introduction concludes with a discussion of the more expansive use of the CISG as "soft law." This use of the CISG as evidence of customary international law offers an avenue for courts and arbitral tribunals to bridge differences between domestic law regimes. [page 305]

The review of CISG jurisprudence in Parts II through VI will highlight the problems of non-uniform applications. This will be done by highlighting poorly reasoned opinions as well as those that are a product of better reasoning. The poorly reasoned opinions are generally characterized by decisions that merely apply the legal concepts of the Court's domestic legal system. The exemplary opinions are characterized by the application of CISG interpretive methodology, as discussed in Part II, in pursuit of autonomous interpretations. Finally, numerous arbitral cases will be examined to assess the application of the CISG by arbitral panels.

Parts II through VI, however, provide a more practical view of the CISG at work. These sections are intended to provide a descriptive review of the jurisprudence that has developed around the major provisions of the CISG as well as the raw material necessary to judge the CISG's functionality in lowering the legal obstacles to the international sale of goods. This review is meant to illustrate the types of issues and interpretation problems encountered by national courts and arbitration tribunals in the 15 years since its adoption. It also recognizes that courts have developed specific default rules to make the CISG more functional. The use or misuse of CISG interpretive methodology and the development of specific default rules will be highlighted throughout the remainder of the article.

Parts III thorough VI review CISG jurisprudence according to the main substantive areas of the Convention: Contract Formation (Part III), Obligations of Buyers (Part IV), Obligations of Sellers (Part V), and Common Obligations (Part VI). In each of these Parts, the provisions with the largest volume of case and arbitral law are given the most coverage. In Part III, the review focuses on the writing requirements, the use of extrinsic evidence, and offer-acceptance rules, including the battle of the forms scenario. Part IV concentrates on the duty of the buyer to inspect and give timely notice of non-conformity (defect), and the civil law concept of nachfrist notice as codified in Articles 47 and 48. Part V discusses sellers' obligations, warranty provisions, and the buyer remedies for seller's breach. Part VI includes the passing of risk, fundamental breach, anticipatory breach, and consequences of breach. The consequences of breach observe the calculation of damages, doctrines limiting damages recovery, and the excuse of "impediment" found in Article 79. Through this analysis, divergent interpretations, CISG interpretive methodology, and the development of specific default rules are highlighted.

Part VII's "Summary and Observations" concludes that the CISG is an evolving legal code. Consequently, its jurisprudence reflects courts' confusion and methodology to contend with the CISG's perceived shortcomings through gap-filling measures. Because case law commonly brings necessary depth and clarity to statutory acts, Part VII offers five examples of such developing jurisprudence and the persistence of [page 306] homeward trend reasoning in CISG opinions. This Part further posits that homeward trend reasoning as a solution, despite its long term deficiencies.

Furthermore, this article concludes in Part VII that the level of disharmony associated with divergent national interpretations is acceptable because national interpretations impact the effectiveness or functionality of the CISG. Some divergence in interpretation is expected and acceptable given the difference in national legal systems and in the very nature of codes. This divergence is expected not only because of the codes multi-jurisdictional application, but also because -- like the civil and commercial codes of Europe and the United States ("UCC") -- the CISG is an evolving, living law. As such, it provides for the contextual input of the reasonable person,[16] including the recognition of evolving trade usage,[17] in the re-formulation and application of its rules. The benefit of such a dynamic, contextual interpretive methodology is that the code consistently updates its provisions in response to novel cases and new trade usages. This process should ultimately overcome the initial divergent interpretations and result in an effective and functional international sales law. The success of the living, contextual nature of the CISG is dependent upon courts balancing the need for flexibility in application against the need to minimize divergent interpretations to ensure that the CISG remains attentive to its mandate of uniformity.

We can look to the UCC as an example. It is held up as an example of a successful harmonization of commercial law among multiple jurisdictions. In fact, different state court systems have rendered divergent interpretations of UCC provisions. Despite such divergence, can we still say that the UCC has served its function of uniformity?[18] The answer depends on one's definition of uniformity or harmonization. The CISG has worked to harmonize international sales law despite the production of [page 307] divergent interpretations and despite failing the test of absolute uniformity. Nonetheless, it remains an enduring code that evolves with modern commerce and continues to be an intrinsic part of international trade.

A. CISG as International Code

It is important to understand that the CISG is written in the form of a convention-code [19] and not as a uniform or model law. The paramount characteristic of a convention is its international character. This characteristic implies that its overall purpose is the standardization of law at a level above that of national law.[20] This standardization provides the important benefit of the longstanding problem of conflict of laws among national states.

In the short term, however, international conventions often produce a problem referred to be Professors Enderlein and Maskow as the cleavage of statutes.[21] This is caused by the fact that although the CISG is not meant to be integrated into national legal systems, it is incorporated and applied by national courts. The presence of two sales laws within a single legal system inevitably produces norm conflict. The differences in the use of general contract and interpretation principles, along with substantive differences in the formal legal rules, cause a degree of conceptual dissonance. It is hoped that with any new trans-jurisdictional standardizing law, whether in the form of a uniform law, model law, or convention, the effect of such dissonance will diminish over time. In the end, it is hoped that a solid jurisprudential framework will develop in which the interpreter will "manage with the standardizing rules"[22] independently of the influence of divergent domestic law.

The international nature of the CISG is demonstrated by the fact that its jurisdiction is transaction-focused and not party-focused. The fact that a transaction crosses national borders is the linchpin of CISG jurisdiction -- not the nationality of the parties. For example, Article 10(a) provides that the place of business is that which has the closet relationship to the transaction. The nationality of the parties, the place of incorporation of a party, and the place of its headquarters are largely irrelevant. Article 10(a) states the rule that "the nationality of the parties is not to be taken into [page 308] consideration"[23] in determining the applicability of the CISG. Therefore, a contract between two nationals of the same country may be subject to the CISG if it involves a trans-border shipment and one of the parties has its CISG "place of business" in another country.[24]

Another example of the international nature of the CISG is its exclusion of types of sales transactions that are more likely to be exposed to the peculiarities of national laws. Article 2 excludes consumer sales, auction sales, sales of ships and aircraft, and forced or judicially mandated sales. The rationale behind excluding these types of sales is that they are subject to special national regulations. Examples of such specialty laws are consumer protection laws and special registration laws (ships and aircraft). [25]

B. Principle of Uniformity

A recent article is entitled: Is the United Nations Convention on the International Sale of Goods Achieving Uniformity?[26] The author correctly replies that the question itself is improper. The answer is yes and no depending on how the word uniformity is defined. If by uniformity one means substantive or absolute uniformity of application, then the answer is a commonsensical no. The better question is: Has the CISG become a functional code? Have functional default rules developed through the application of CISG's general principles? Has it resulted in at least a manageable level of uniform application to have decreased the legal impediments to international sales?[27] Finally, what is the likelihood of greater uniformity of application in the future?

1. Strict Uniformity versus Relative Uniformity

The degree that the CISG has been successful at unifying international sales law has been debated. In order to gauge its perceived impact on unifying international sales law, a standard is needed in which to measure CISG jurisprudence. Numerous standards can be offered including the [page 309] standards of strict [28] or absolute uniformity,[29] relative uniformity, and the lessening of legal impediments to international trade.[30] "It is generally acknowledged that the existence of different national legal systems impedes the development of international economic relations with complicated problems arising from the conflict of laws."[31] We believe that the success of the CISG should be measured using a standard of relative uniformity or a standard of the lessening of legal impediments to trade. Thus, a relative or useful level of uniformity [32] should be the benchmark to measure the success of the CISG. This is what Professor Miller has referred to as "a more specific goal [of] uniformity." The fact that Article 7 prefaces its uniformity mandate with "regard has to be had"[33] implies that a standard below strict uniformity in application was envisioned. The uniformity mandate itself indicates that strict uniformity is not a realizable goal. Instead of using active words like establish or create, the CISG merely states the "need to promote uniformity in its application ... ."[34] The benchmark of relative or useful uniformity is superior to the previous system of private international law characterized by the full panoply of different domestic laws and systems.

The CISG was never intended to achieve the lofty goal of absolute uniformity. In the words of Johan Steyn, "[n]o convention can eliminate uncertainties in its application. But a convention such as the Vienna Sales Convention will tend to reduce differences and to eliminate uncertainty."[35] If it helps to relieve the impediment noted above of conflicts of national laws then it is to be considered a progressive, albeit a transitory, step to uniform private international law. [page 310]

2. Uniformity through Original or Autonomous Interpretation

The interpretive methodology of the CISG mandates that interpreters seek original or autonomous interpretations. It is hoped that such autonomous interpretations, divorced from the idiosyncrasies of domestic jurisprudence, will result in more truly supranational law. One of our co-authors previously wrote that "[t]he Convention is meant to be interpreted based upon its uniqueness and not its similarities to any one of the legal systems from which it was created."[36] As discussed earlier, the CISG is an example of a convention qua code. The importance of the fact that the CISG is a convention pertains to its international character. This international character calls for a non-domestic, autonomous interpretation of CISG rules.

The importance of convention qua code is that its international character is to be fused with the interpretive methodology common to all codes.[37] Professor Scott defines a code as "a preemptive, systematic, and comprehensive enactment of a whole field of law."[38] Thus, problems of interpretation such as gaps in the code are to be solved by means internal to the code. A court or arbitral panel is given the duty "to use the processes of analogy and extrapolation to find a solution consistent with the purposes and policy of the codifying law. In this way, the code itself provides the best evidence of what it means."[39]

The CISG invites the interpreter to construct autonomous interpretations through its use of nomenclature independent of any domestic legal system. The CISG uses terms such as contract "avoidance,"[40] and language such as "among other things,"[41] "extent of one party's liability to the other,"[42] and "handing the goods over."[43] CISG phraseology is relatively vague and abstract, which invites original interpretations. Simultaneously, the CISG's flexibility enables a wide scope for application [page 311] and reasonable but divergent "national" interpretations. This problem of divergent autonomous interpretations will be a focus of our CISG jurisprudential review.

3. CISG as Soft Law: Uniformity through the Prism of Customary International Law

One avenue to greater implementation and uniformity is the use of the CISG as soft law.[44] Two uses of the CISG as soft law include (1) the voluntary use of the CISG as a choice of law by private parties not automatically subject to CISG jurisdiction and (2) the use by courts and arbitral panels of the CISG as evidence of international customary law. One question posed by CISG jurisprudence is whether the CISG has been used where it is not mandatory law.[45] The major reporting services, CLOUT, Pace Law School, and Unilex, among others, report arbitral panel decisions.[46] These reports, although not comprehensive, indicate CISG usage as a source of soft law or customary international law. Because arbitral panels are often not required to apply a given national law, they are less susceptible to the legal centricity inherent in courts operating within a domestic legal system.[47] To this end, this article's analysis draws from both case law and arbitral decisions. [page 312]

II. CISG METHODOLOGY AND JURISPRUDENCE

Parts III through VI offer a selective but comprehensive review of CISG jurisprudence.[48] They allow an assessment of the diverging interpretations problem by national courts. Before assessing the uniformity of CISG jurisprudence relating to its substantive rules of contract, an understanding of the interpretive methodology provided by the CISG is necessary. Failure to understand and apply the CISG's interpretive methodology increases the likelihood of divergent interpretations through the improper use of domestic methodologies and legal constructs. This holds true for any code, domestic or international. Professor Hawkland, referring to the Uniform Commercial Code, asserts that "a court should look no further than the code itself for solution[s] to disputes governed by it -- its purposes and policies should dictate the result even where there is no express language."[49] CISG interpretive methodology provides a template for addressing substantive gaps or issues of law not directly (expressly) dealt with by the CISG. This template includes analogical reasoning by using CISG Articles not directly related to the issue at bar and the use of the general principles of the CISG in fabricating default rules.[50]

The notion of analogical reasoning is not expressly mentioned in the general provisions. However, such a methodology is implied in any comprehensive code. Furthermore, Article 7(2) states that "questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based." A broad interpretation of this methodology would require the use of express and implied general principles. General [page 313] principles cover all CISG provisions and can be utilized to uncover implied principles that underlie specific provisions. These principles -- express or implied -- are to be used for guidance in the interpretation of specific CISG provisions. This entails analogical reasoning in order to ensure that article-specific interpretations fit within the framework of the CISG as a whole.[51]

There is a debate as to which priority these rules have in the interpretive methodology of codes. Some argue that general principles are the first recourse to filling in a gap or ambiguity in a code provision.[52] Others argue that reasoning by analogy takes precedent especially when a solution provided in one code provision is analogous to an issue presented under another provision.[53] The best interpretive methodology would include both types of analysis.[54] The two levels of the interpretive discourse are likely to merge in most application. It is the recognition and application of general principles underlying specific CISG articles that make analogical reasoning a functional methodology. The third level of the CISG's interpretive methodology is recourse to private international law. Only after the failure to provide a CISG-generated solution from analogical reasoning or application of general principles should a court resort to private international law (domestic law).[55] The last resort status of domestic sales law is meant to deter the threat of homeward trend. This is especially crucial in the case of the CISG due to the fact that its provisions were the product of intense debate and compromise. The temptation exists that in cases of application, especially in areas of ambiguity or gaps, to seek [page 314] the familiarity of domestic default rules.[56]

A. Interpretive Methodology

As highlighted above, the CISG provides an interpretive methodology for interpreting and applying its substantive rules. The spirit of this methodology is that of excluding recourse to domestic legal methodologies. This is implicit in the view that the CISG directs decision-makers to develop autonomous interpretations [57] of CISG provisions. It is only in this way that the CISG can rise above the inherent differences between national contract laws and legal systems. Article 7(1) states that the CISG is to be interpreted in "good faith," "to promote uniformity," and with regard "to its international character."[58] The more difficult questions are not the fabrication of autonomous interpretations of the CISG but the development of different autonomous interpretations. This is especially due to the fact that the CISG is a product of studied ambiguity or compromise and that there are numerous substantive gaps in its rules. The courts and arbitral panels will invariably face issues that are within the scope of the CISG but where the CISG fails to provide an express rule.[59] Once again the above described methodology of analogical reasoning and general principles is consistent with the presumption that CISG provisions are to be interpreted broadly. A mandate of broad interpretation is consistent with the code-based interpretive methodology.[60]

B. General Principles

In order to diminish the frequency of divergent national interpretations, the CISG mandates the use of general principles, both express and implied, found within its Articles. The CISG displays two noticeable characteristics relevant to legal interpretation. First, it fails to [page 315] explicitly enunciate many of its general principles. Article 7(2) states that if "matters governed by [it] are not expressly settled in it [they] are to be settled in conformity with the general principles by which it is based."[61] The general principles can be characterized as either general or specific and either express or implied. The general, expressed principles are found in Article 7(1). It provides that "[i]n 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."[62] The general principle of international character is directed at preventing the problem of homeward trend discussed earlier.[63]

An example of an implied general principle is "the principle of favoring the continuation of a contract."[64] The fact that goods can only be rejected for fundamental defects requires buyers to accept defective goods in most instances. The restrictive nature of fundamental breach is discussed in Part VI.B.1.[65] The importance of completing the transaction in long distance sales, as compared to the broad right of rejection under the perfect tender rule for domestic sales,[66] limits the right of avoidance under the CISG. This is somewhat offset by the incorporation of a uniquely non-common law remedy of price reduction. Thus, the buyer is forced to complete the transaction but is allowed to unilaterally reduce the price by the diminishment of value related to the defect. "The principle [of continuation of performance] can be extracted from Articles 34, 37, 48, 49, 51, 64, 71 and 72 of the CISG."[67]

The Helsinki Court of Appeals recognized the importance of continuation of contract within the principle of loyalty. "The so-called [page 316] principle of loyalty has been recognized in scholarly writings. According to the principle, the parties to a contract have to act in favor of the common goal; they have to reasonably consider the interests of the other party."[68] In essence, each party owes a duty of loyalty to the other party to preserve the viability of the transaction. From such a duty, the court recognized an implied general principle in an expanded notion of duty to continue a sales relationship beyond the discrete individual sales transactions. The case involved a buyer who purchased carpets for resale on an ad hoc basis. The seller abruptly ended its relationship with the buyer. The court held that on the basis of a two-year business transaction, the buyer's "operations cannot be based on a risk of an abrupt ending of a contract."[69] Therefore, the seller was restricted in its right to not sell to the buyer despite the fact that there was no agency or long-term supply contract in place. The court reasoned that the buyer had "obtained de facto exclusive selling rights."[70] Such implied rights, based upon good faith and trade usage, make the seller of multiple discrete transactions susceptible to damage claims under Article 74.[71] In essence, the court held that principles of reasonableness and trade usage require an extended notice of termination where damages to a buyer are foreseeable, regardless of the fact that the discrete contract failed to require such notice.[72]

Many of the CISG's rules are open-textured and allow application of contextual inputs such as trade usage and custom.[73] For example, it makes repeated use of the "reasonableness standard" in its gap-filling provisions. The authors counted thirty-eight instances where the reasonableness [page 317] standard is imposed by the rules of the CISG.[74] Open-ended rules derive their content from post-hoc application to real world cases.[75] Such rules allow for expansive interpretations to deal with novel cases and for use in analogical reasoning. The analogical reasoning can be used to fill in gaps within the scope of the CISG. As discussed above, one way this is done is through the deduction of general principles underlying the CISG in order to interpret CISG rules.[76]

Because many of the CISG rules are open-ended, despite the fact that it is in code format, it is important to interpret its provisions as part of a whole. In interpreting an open-ended rule, the interpreter should not only recognize the underlying rationales for that particular CISG provision, but should also interpret general principles and other relevant provisions.[77] [page 318] This methodology was applied in an Austrian court decision.[78] The court held that the payment of interest was within the scope of the CISG [79] even though it was not expressly explained. The court concluded that any issues regarding the payment of interest should be settled according to the general principles underlying the CISG. The court then recognized "full compensation" as an underlying general principle that required payment of interest.[80] The court further supported its decision by recognizing payment of interest as a trade usage permitted under Article 9(2).[81]

Article 7 requires that CISG interpretations should be accomplished with regard to "the observance of good faith in international trade."[82] The legislative history of Article 7 demonstrates that the inclusion of a duty of good faith was the subject of contentious debate.[83] The result was the muted compromise of including good faith principle in the interpretive methodology of the CISG. Despite the confinement of the express duty of good faith to CISG interpretation, courts and arbitral panels have implied a general duty of good faith to dealings between contracting parties. The Columbia Constitutional Court enunciated a broad good faith principle by referencing its own Magna Charta:

"Equally, the exercise of the commercial activity that the individuals develop with other citizens of different States must fit the principle of good faith, just as the Convention stipulates in paragraph number one in article 7. This principle should not only be observed in the contractual relationships or negotiations, but in the relationship between individuals and the State and in the procedural performances. Indeed, ... good faith, in conformity with article 83 of the Magna Charta is presumed ... ."[84] [page 319]

A Hungarian arbitration court ruled that "the observance of good faith in not only a criterion to be used in the interpretation of the CISG but also a standard to be observed by the parties in the performance of the contract."[85] The scholarly literature has generally favored the expanded use of Article 7's good faith principle to dealings between the parties.[86] One argument is that the use of the reasonableness standard throughout the CISG inherently requires the application of good faith to the conduct of the parties.[87] In support of this argument, the Secretariat Commentary references CISG provisions that are "manifestations of the requirement of the observance of good faith."[88] The reasonable person is seen as always acting in good faith. Moreover, the recognition of trade usage in the interpretive process has historically been premised upon the commercial norm of good faith and fair dealing.[89] In the area of acceptance, a Swiss court held that good faith is the key to determining whether a sender may assume the recipient of the confirmation letter accepted the terms of the letter.[90] A recent Belgian appellate court characterized Article 40 as the application of "the good faith principle," noting that if the seller knows of the non-conformity and fails to reveal it, he cannot fall back upon the buyer's failure to tell him what he knew already.[91]

C. General Default Rules and Specific Default Rule Creation

Many of the CISG articles provide very general, vague default rules tied to the concept of reasonableness. It is interesting to evaluate whether CISG jurisprudence has begun to fashion more specific, functional default [page 320] rules.[92] The alternative approach is a hasty devolution to the rules found in domestic legal systems. An interpreter will be tempted to argue that since the CISG fails to provide specific default rules for defined categories of cases, then recourse to more fully developed default rules in domestic law is appropriate. This would indeed be an inappropriate presumption. The general principles of uniformity and international character enumerated in Article 7 are intended to prevent premature recourse to domestic law.

An exercise akin to the development of specific default rules is the creation of factors that can be applied in the analysis of various types of cases under the scope of CISG provisions. These factors provide substance to the borderless reaches of reasonableness and enable the formulation of specific default rules. A Swiss Court enunciated a number of such factors by quantifying Article 38(1)'s mandate that a buyer must inspect delivered goods "within a short a period as is practicable in the circumstances."[93] The court listed a number of factors that can be used to categorize "in the circumstances." They include:

"In determining the time limit for the examination of the goods, one must consider the individual circumstances and the adequate possibilities of the parties. This includes, e.g., the place at which the goods are located and the way in which they are packaged. The nature of the goods themselves is particularly relevant. Goods which do not change their quality or go to waste can be expected to be examined for their quantity and type immediately.

"An immediate thorough examination of the quality cannot reasonably be expected if the buyer is busy with other dealings ... . Where a large quantity of goods is delivered, the buyer does not need to examine the entire load but must test samples. Where an examination may damage the substance of the goods, the buyer must check the weight, appearance, etc. In addition to that, she must also take samples even if the examined goods are destroyed in the process or cannot be used [page 321] afterwards. However, the number of samples taken in such cases can be reduced to a few per thousand. This rule also applies to goods in their original packaging which cannot be sold after being opened."[94]

The development of relevant factors is vital to the full functioning of CISG rules. A factors analysis provides the necessary flexibility needed to apply a generally worded default rule to a variety of fact patterns.

Another example can be found in the German Supreme Court's interpretation of the excuse doctrine of impediment.[95] Article 79 allows a party a legal excuse in the event of the unexpected existence of an "impediment beyond his control."[96] The CISG fails to define what it means by an "impediment" and "beyond his control." The court reasoned that the word impediment does not allow for a reallocation of contract risk. In this case, the seller argued for impediment due to the acts of a third party supplier that it had hired to fulfill its contract. The court rejected third-party non-performance as a ground for impediment. It defined "beyond control" more broadly than mere physical control. According to the court, it also included "economic risk control."[97] Since the third-party supplier was within the "seller's sphere of influence"[98] the economic risk remained with the seller. The seller could not argue impediment simply because it could not physically control the actions of a third party.

III. CONTRACT FORMATION

The CISG embodies a modern approach to contract formation, recognizing that contracts are often concluded quickly and without a formal writing. The CISG provisions dealing with contract formation are found in Part II of the convention which contains the rules of formality and offer-acceptance. The rules of formality refer to the writing requirements, definiteness of terms, and types of admissible evidence. Offer-acceptance rules include issues dealing with the mechanics of formation, the battle of the forms scenario, and the firm offer rule. Article 29, found in Part III of the CISG, is concurrently analyzed for contract modification requirements.

A. Writing Requirements and the Parol Evidence Rule

Consistent with its freedom of form approach, the CISG does not require a writing for the formation of a contract. In the area of contract modification, it requires neither a writing nor consideration. Articles 11, [page 322] 12, 13, and 29 contain the CISG's writing, evidence, and consideration requirements for formation, modification and termination. Although freedom from formalities is the rule of both Articles 11 and 29, these articles allow Contracting States to preserve writing requirements if they wish to do so. Moreover, the Convention's principle of party autonomy allows parties to impose their own requirements.

Article 11 of the Convention states that a "contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form."[99] Consequently, under the Convention, oral agreements are valid.[100] Article 12 allows a Contracting State to make a declaration under Article 96 of the Convention in order to exempt itself from the informalities of Articles 11 (addressing issues regarding formation and proof of a contract's existence), Part II (addressing offer and acceptance) and Article 29 (addressing modification and termination).[101] Article 96 declarations are available, however, only to Contracting States "whose legislation requires contracts of sale to be concluded in or evidenced by writing."[102] Moreover, Article 96 requires that at least one of the parties to the contract have its place of business in the declaring State. [103] Because Article 12 refers only to formalities required under Articles 11 and 29 and Part II, other notices or indications of intention unrelated to these Articles are not affected by an Article 96 declaration. CISG default rules on formality not relating to Articles 11, 12, and Part II remain in place.[104]

Article 13 specifies that telegrams and telexes qualify as "writings."[105] Given the drafters' concern for efficient communication, courts interpreting the CISG would most likely recognize more modern forms of electronic communication, not anticipated at the time of drafting.[106] When a [page 323] Contracting State makes an Article 96 declaration, private international law determines whether a writing is necessary and what constitutes a writing. If domestic law applies because of a reservation pursuant to Articles 12 and 96, Article 13 demands that "domestic form requirements are always satisfied by the use of telegrams and telexes."[107]

Although a writing is not required in general, some international conventions may override the CISG with regard to specific provisions in a contract for the sale of goods. For example, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 requires arbitration clauses to be in writing and the Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters requires jurisdiction clauses to be in writing. In such cases, the CISG may apply to determine whether the writing requirement is satisfied.[108]

The CISG contains no express statement on the role of parol evidence. Article 11, however, provides that a contract "may be proved by any means, including witnesses."[109] This provision indicates that the CISG admits not only oral testimony related to the contract but also evidence such as negotiations, the intent of the parties, prior course of dealing, and conduct. Article 8 of the Convention instructs that a party's statements and conduct are to be interpreted according to the subjective intent of the party "where the other party knew or could not have been unaware what that intent was."[110] Otherwise, intent is determined according to a reasonable person standard. [111] To determine intent, courts must consider "all relevant circumstances."[112] CISG's permissiveness, demonstrated by Article 8's instructions to consider "all relevant circumstances" and Article 11's statement that a contract may be proved by "any means," is contrary to the common law approach of excluding parol evidence.

Although contracting parties may insist on certain formalities for [page 324] modification or termination, the CISG does not require any.[113] The CISG makes no reference to consideration which is required for modification under common law. Article 29(1) which states that "a contract may be modified or terminated by the mere agreement of the parties."[114] If parties have prescribed formalities in a written agreement, however, Article 29(2) makes it clear that such formalities must be observed in order to make the amendment or termination valid. A writing requirement, such as a no oral modification clause, however, will be ignored if one party's conduct causes the other to rely on oral statements or other conduct.[115]

1. The Writing Requirements of Articles 11, 12, and 13

The issues that courts have addressed regarding writing requirements include whether there is sufficient evidence that a contract exists, which law apples to determine whether writing requirements must be satisfied when one party is subject to an Article 96 declaration, and how courts should address national parol evidence rules to determine the existence, scope, modification or termination of a contract.

The lack of a writing requirement under the CISG does not pose many problems because so many signatory countries have already abandoned the statute of frauds concept even before adopting the Convention.[116] A notable exception is the United States, where the Uniform Commercial Code still requires that contracts for the sale of goods for more than $500 be in writing.[117] Although Article 11 makes clear that a contract may be evidenced by "any means," national courts must still consider whether the evidence provided is sufficient to determine that a contract exists. A U.S. court stated that under the CISG, a "contract may be proven by a document, oral representations, conduct, or some combination of the three."[118] An unsigned fax,[119] an invoice together with documents for the [page 325] carriage of goods,[120] telegrams and telexes,[121] conduct such as the opening of a letter of credit,[122] and witnesses' testimony about the intent of the parties [123] have all been introduced to prove the existence of a contract. A few courts have insisted that the parties should "get it in writing," but such comments appear to be made merely as cautionary statements.[124]

Articles 8 and 9 assist courts in determining whether an oral agreement has been validly concluded. These provisions embody the CISG's emphasis on upholding the parties' intentions and expectations as well as trade usage and industry customs. A case decided by the Helsinki Court of First Instance and upheld by the Court of Appeals found that an oral agreement regarding an exclusive distributorship arrangement was validly concluded and that the one party had failed to give proper notice of termination.[125] In reaching its decision, the court considered "all relevant circumstances" as required by Article 8.[126] This included the incorporation into the contract of any "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."[127] A U.S. court used a similar approach to determine whether, as one party claimed, it was "a well-established custom in the industry ... to rely on implied, unwritten supply commitments."[128] Although the court did not refer specifically to Articles 8 or 9, it cited the CISG's "strong preference for enforcing obligations and representations customarily relied upon by others in the industry," as well as Article 7(1)'s focus on observing [page 326] "good faith in international trade."[129]

A major complication in the CISG's "no writing requirement" regime is Article 12's allowance that Contracting States may exempt themselves from the informalities of Articles 11 and 29. The use of an Article 96 declaration to exempt a Contracting Statement from Article 11 does not necessarily dictate that a writing will be required. Two interpretations have been suggested regarding which law applies for Article 12 purposes. The first interpretation is that form requirements will always be preserved if one of the Contracting Parties has made such a declaration.[130]

The second interpretation is that the forum's conflict of law principles pertain and the applicable national law determines whether a writing is required for a contract to be enforceable. If the applicable law points to the state that requires a writing, then the formalities must be observed. If the private law points to a state that does not have a writing requirement or to the CISG, then no writing is required. For example, let's look at a Hungarian case because Hungary is a state that has made an Article 96 declaration.[131] Here, the Metropolitan Court of Budapest held that the contract concluded over the telephone was valid because the law of the forum state, Germany, pointed to German law which does not require a writing.[132] Similarly, a Dutch court found that a contract based on an oral offer was valid despite the fact that one of the parties had its place of business in the Russian Federation, a state which had made an Article 96 declaration, because the private international law of the forum pointed to the law of the Netherlands, which required the court to apply the CISG as adopted by the Netherlands.[133] [page 327]

While Article 12 applies only to those States that qualify for an exemption through an Article 96 declaration, parties may impose their own private statute of fraud requirements. In doing so, the party imposing the writing requirement must be sure that the other party is aware of the requirement. An Austrian court held that where the seller had standard terms that required acceptance to be in writing, such terms would apply only if the buyer had knowledge of such standard terms, otherwise the oral acceptance would not prevent the conclusion of a valid contract, under the CISG.[134] This notion of particularized express consent is further discussed in Part VII.A.2.

2. Parol Evidence: Articles 11 & 29

The parol evidence rule bars evidence of an earlier oral contract that contradicts or varies the terms of a subsequent or contemporaneous written contract. Parol evidence issues may arise under the CISG in two contexts: first, whether parol evidence may be used to prove the existence or scope of a contract, pursuant to Article 11; second, under what circumstances parol evidence may be used regarding the modification or termination of a contract under Article 29.

a. Admissibility of Parol Evidence

Cases involving the application of the parol evidence rule to the CISG have been limited to United States' courts.[135] The United States instituted a statute of frauds and parol evidence rule in Section 2-201 of the Uniform Commercial Code.[136] Consequently, parties bringing cases in the United States have raised the parol evidence rule, attempting to exclude evidence that a contract existed or evidence of unfavorable contract terms. The majority of U.S. courts have resisted the temptation of homeward trend in barring the application of the parol evidence rule to contract disputes governed by the CISG.[137] Article 11 clearly recognizes the validity of oral [page 328] contracts, which logically would allow parol evidence to prove that a contract has been agreed to by the parties and what the agreement included. Moreover, courts have interpreted Article 8(3) of the CISG which directs courts to give "due consideration ... to all relevant circumstances of the case including the negotiations..." to determine the intent of the parties as a clear instruction to admit parol evidence even in cases where there is a formal written contract.[138] The stronger argument, then, is that given the existence of the provisions in Articles 11 and 8(3), the admissibility of evidence in a contract dispute is within the scope of the CISG. Furthermore, application of nation-specific rules like the American parol evidence rule is antithetical to CISG's general principles of uniformity and international character.[139]

b. Types of Extrinsic Evidence

The CISG allows a broad spectrum of admissible evidence for construing the terms of the parties' agreement.[140] Using Articles 8 and 9 as gap fillers, U.S. courts have complied with the CISG's mandate to admit a broad range of extrinsic evidence in proving the existence of a contract or the content of contracts. In cases involving both written and oral agreements, the CISG allows a court to consider not only the written agreement, but also statements made prior to the agreement and statements that contradict the written documentation.[141] Regardless of whether the [page 329] original agreement was in writing, the CISG allows a court to admit all information relevant to the formation of the contract.[142] In a case where the parties disagreed on the terms of the contract, one U.S. court noted that evidence could include "any negotiations, agreements, or statements made prior to the issuance of the invoices in issue" as well as any prior course of dealings. [143]

The permissiveness of the CISG evidence regime is apparent in cases where courts have admitted not only evidence pertaining to negotiations, and agreements or statements made prior to a written agreement, but also evidence of the parties' subjective intent.[144] The court in MCC Marble Ceramic Center, Inc.[145] stated that "the CISG appears to permit a substantial inquiry into the parties' subjective intent, even if the parties did not engage in any objectively ascertainable means of registering this intent."[146] The court held that it had to consider evidence of the parties' subjective intent that certain terms of a written agreement were not binding.[147] The plaintiff had argued that the defendant was aware of the plaintiff's subjective intent not to be bound by the terms on the reverse side of the pre-printed form, despite a provision directly below the signature line that expressly and specifically incorporated those terms.[148] This case illustrates the difference in approach between the UCC and the CISG evidence regimes. While parol evidence is generally admissible under the UCC only to resolve patent ambiguities, the CISG allows evidence of the parties' subjective intent, even when there is no ambiguity in the written contract or reasonable dispute as to an applicable trade usage.[149] [page 330]

The lack of knowledge of the inner workings of the CISG in areas such as subjective intent and the use of extrinsic evidence was apparent in GPL Treatment v. Louisiana-Pacific Corp.[150] CISG's applicability as the appropriate law was an issue in the case. Applying the UCC, the Oregon Court of Appeals found that an oral agreement followed by a written confirmation was valid due to the UCC's "merchant exception" to the statute of frauds. The merchant exception states that when one merchant receives a written confirmation of an oral contract from another merchant "sufficient against the sender," the contract becomes enforceable unless the recipient objects within 10 days. [151] The dissenting judge disagreed with the sufficiency finding but correctly maintained that the CISG should have applied and that under Article 11 the oral agreement itself would have been valid, thereby eliminating the need for the court to analyze the sufficiency of the written confirmation. [152]

c. Contract Modification

Article 29 allows contracts to be modified or terminated by the "mere agreement" of the parties. This provision reinforces the principle that no particular form is required for either modification or termination.[153] Oral terminations or modifications, however, are ineffective if the parties have previously prescribed formalities to such acts. National courts will find modifications to be invalid in at least three situations. First, when the modification does not represent "agreement" by the parties. Second, when [page 331] a writing is required because one of the parties has its place of business in a Contracting State that made a declaration pursuant to Articles 12 and 96. In such a situation Article 29 prohibits oral modifications.[154] Third, when the parties include a no oral modification clause in a written contract.

Just as intent is critical in determining the existence or scope of a contract under Article 11, so intent is important in examining the validity of a modification. Whether or not the parties have agreed on the modification is a question that incorporates the offer and acceptance rules under Articles 14, 18, and 19, as well as interpretation rules under Articles 8 and 9. A U.S. court in Chateau des Charmes Wines Ltd. v. Sabate USA Inc. found that one party's unilateral attempt to modify an agreement failed where there was no indication that the other party accepted or agreed to the new terms.[155] The parties had orally agreed to the essential terms of the contract, but a forum selection clause which was not part of the original agreement, was included in subsequent invoices.[156] According to the court, it would be illogical to make the forum selection clause contained in the invoices part of the contract.[157] The court stated that "[n]othing in the Convention suggests that the failure to object to a party's unilateral attempt to alter materially the terms of an otherwise valid agreement is an 'agreement' within the terms of Article 29."[158] The court took into account the various circumstances recommended in Article 8(3) to determine the parties' intent, but concluded that there was no evidence or conduct that indicated the party had agreed to the modifications added to the invoice.[159] Other courts have also insisted on evidence of an agreement. For example, a French court considered affidavits from the buyers' witnesses who were present at a meeting to determine whether the parties had concluded a valid price modification.[160] [page 332] Because the affidavits did not mention the seller's agreement to the price, however, the court held that "the modification of a sale price cannot result from the general environment of a meeting."[161]

Parties may avoid parol evidence difficulties such as those raised in the previous section by inserting a merger or no oral modification clause that "extinguishes any and all prior agreements and understandings not expressed in the writing."[162] Enforcing such clauses preserves the intent of the parties as well as the Convention's principle of freedom of contract. The exception to Article 29's general rule, however, is that 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."[163] Several decisions indicate that national courts respect clauses that prohibit oral modifications or the use of extrinsic evidence, where there is no evidence that one party acted in a manner to induce reliance on oral modifications.[164] Nevertheless, where a no oral modification or merger clause exists, a party is allowed to establish conduct, such as a course of dealing, to override the modification clause. [165] Despite academic concerns about the difficulty of interpreting Article 29(2), cases addressing the issue have yet to surface.[166]

Article 29 allows contracts to be modified or terminated by the "mere agreement" of the parties. The Secretariat's Commentary indicates that this [page 333] provision overcomes the common law requirement of consideration.[167] At least one U.S. court as well as the Court of Arbitration of the International Chamber of Commerce have recognized that under the CISG, a contract for the sale of goods may be modified without consideration.[168] In one recent U.S. decision, however, the court approached the consideration issue as a question of contract validity, which Article 4 of the CISG specifically states is not governed by the Convention.[169] This is a questionable extension of the validity delegation under Article 4. Article 29 brings contract modification within the scope of the CISG. The specific default rules of Article 29, namely no writing or consideration requirements, preempts the more general charge that issues of validity are to be determined by national law.

B. Offer and Acceptance Rules - Articles 14-24

Despite its general informality and incorporation of flexible, open-ended rules, the CISG provides specific rules of offer and acceptance to determine whether a valid contract has been concluded. The rules of offer and acceptance, concerning the necessary content, timing, and revocation of offers, are contained in Articles 14 through 24. A valid offer must "be addressed to one or more specific persons," be "sufficiently definite," and indicate the offeror's intention "to be bound in case of acceptance."[170] If the offer is not addressed to "one or more specific persons, it is merely an invitation to offer, unless the contrary is clearly indicated by the person making the proposal.[171] Identification of the goods, quantity, and price are [page 334] the essential elements that determine whether the offer fulfills the "sufficiently definite" requirement.[172] An offer does not fail for lack of definiteness, however, if these terms are not expressly fixed. Article 14(1) allows such terms to be "implicitly" fixed or provided for in some other way.

There are numerous, highly specific rules that control the effectiveness of offers and revocation of offers. An offer becomes effective when it reaches the offeree.[173] Article 24 interprets "reaches" to mean that the offer has been communicated orally, delivered personally, or delivered to the offeree's place of business, mailing address, or habitual residence.[174] If the offer is revoked before it reaches the offeree, it becomes ineffective even if the offer stated that it was irrevocable. [175] If a revocation reaches the offeree at the same time as the offer, the offer does not become effective.[176] Finally, an offeree cannot accept an offer until it is received even if he has knowledge of it.[177]

If a revocation reaches the offeree before the dispatch of the acceptance, the revocation is effective. [178] An important exception to the right to revoke prior to acceptance is the CISG's expanded version of the common law's firm offer rule. Unlike, the Uniform Commercial Code's ("UCC") firm offer rule,[179] a firm offer under the CISG need not fix a time or make an assurance of irrevocability. If an offer does not state a specific period of time for acceptance, the question may still arise whether the offer indicates it is irrevocable or whether the offeree had reasonably relied on the offer being held open.[180]

The CISG's acceptance and rejection of offer rules are as specified by the offer rules. If an acceptance is withdrawn before it is received, no expectations have been created and the acceptance is not effective upon receipt.[181] An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.[182] Article 17 may be linked to Article 19 when the [page 335] rejection is ambiguous, since it may be interpreted as a counter-offer (rejection) or as an acceptance. If a reply is a rejection under Article 17, then a court need not get into the more complicated issues raised by Article 19, because no contract is concluded.

Article 18 specifies the criteria, time and manner for a valid acceptance. Determining if and when there has been a valid acceptance is crucial because a contract "is concluded at the moment when an acceptance of an offer becomes effective ... ."[183] Either statements or conduct may constitute a valid acceptance. "Silence or inactivity does not in itself amount to acceptance," so that the recipient may ignore an offer, even if that offer states that it will assume acceptance if there is no reply.[184] The "in itself" qualification to this provision leaves open the possibility that in some cases silence or inactivity may amount to acceptance. How assent is indicated is left open but it must be communicated. Just as an offer is not valid until it reaches the offeree, an acceptance is not valid until it reaches the offeror.[185] Furthermore, the acceptance must reach the offeror within the stated period of time or, if no time is fixed, within a reasonable period of time.[186] Performance of an act may also constitute acceptance if it is accepted usage or practice between the parties. [187]

Article 20 provides rules for calculating the time for acceptance "fixed" in the offer. If a period of time rather than a precise date is given, by which the offeror must respond, Article 20 specifies that the time for acceptance begins to run from the time of dispatch in the case of a telegram, from the date given on a letter, or if none is given, by the date on the envelope.[188] If the communication is instantaneous, the time begins to run immediately.[189] Official holidays and non-business days are calculated in the time period, unless the offer cannot be delivered on the last day of the period, in which case "the period is extended until the first business day that follows."[190]

Article 21 addresses issues of late acceptance. In general, an offer must be accepted before it expires. However, the offeror may elect to "accept" a late acceptance by informing the offeree of his acceptance.[191] This rule, in essence, converts, the acceptance into an offer giving the [page 336] original offeror a power of acceptance. A late acceptance is distinguished from a late arrival. The late arrival occurs when some unforeseen delay in transmission occurs through no fault of the offeree. The late arrival will be effective as an acceptance, unless the offeror, without delay, otherwise informs the offeree.[192]

1. Offer Rules and the Open Price Term: Articles 14 & 55

Cases interpreting Article 14 appear to rely mostly on the language of the CISG, with a modest amount of cross-references to other provisions in the Convention. Article 14's requirement that a valid offer be addressed to one or more specific persons has spurred academic debate, but it has not surfaced in a meaningful way in litigation.[193] Two areas of contract dispute that have been analyzed in the courts are offeror's intent to be bound upon acceptance of the alleged offer and contract requirements regarding the specificity of quantity and price. Consequently, reference to Article 8's methodology for interpreting intent is a vital component in determining whether a term is sufficiently definite under Article 14.[194]

The essential terms of the contract -- identification of the goods, quantity, and price -- must be specified; there are many methods of determining what the terms are if they are not stated expressly.[195] The degree that an offer fails to specify a sufficiently definite price is the issue that has created the most discussion under Article 14. Article 14's rule that the price may be implicitly fixed was a compromise between countries that [page 337] supported open price offers and those that opposed such offers.[196] Article 55, on supplying "the price generally charged," has served as a gap filler in determining whether an offer is "sufficiently definite" as required by Article 14(1). National courts have shown flexibility in finding that a price is sufficiently definite if it can be fixed or determinable in some way, such as a reference to market prices.[197]

National courts have used other CISG articles to fill in missing price and quantity terms. Article 8 determination of intent based upon a totality of the circumstances analysis [198] (prior dealings, course of performance, usage), as well as Article 9 (usage, prior dealings), which addresses industry practices and prior dealings between the parties, supplement Article 14 in determining whether the parties intended to be bound and whether the terms of the agreement are sufficiently definite in light of that intent. For example, national courts have held that price and quantity may be impliedly fixed by a long time commercial relationship between the parties.[199] Similarly, the ICC Court of Arbitration found that a contract was sufficiently definite even though the price agreed on by the parties was provisional and subject to revision depending on the price obtained from the final buyer. [200] The court's finding relied on Article 9(2) which assumes that [page 338] parties apply customary trade usage, as well as Article 8(3) which allows all relevant circumstances of the case, including negotiations, usages and practices, to be taken into account in determining the parties' intent.[201] The tendency of national courts to respect industry practice and custom is also reflected in a case where the plaintiff claimed that well-established industry custom was to rely on unwritten supply commitments. Noting that the CISG has "a strong preference for enforcing obligations and representations customarily relied upon by others in the industry," the U.S. court in Geneva Pharmaceutical Tech. Corp. v. Barr Labs., Inc.[202] held that a purchase order for "commercial quantities" of a product was sufficiently definite under Article 14 since it was supported by evidence of industry custom.[203]

Article 8(2)'s emphasis on the "reasonable person" interpretation of statements and conduct and Article 8(3)'s inclusion of subsequent conduct to determine intent have also been used by national courts to determine whether parties intended to be bound according to Article 14. Article 8(2) instructs that statements and 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."[204] A German court found that a contract for three "truck loads" of eggs was sufficiently definite, based on Article 8(2)'s interpretation of intent, because a reasonable buyer would expect a quantity equivalent to the full load capacity of the trucks.[205] A Hungarian court, although not referencing Article 8, held that the goods were unambiguously identified, and the quantity and price sufficiently definite, even where the offer "allowed unilateral power to the buyer" in choosing the quantity and model types of the products being purchased.[206] Relying on Article 8(2) and 8(3), an Austrian court found that a contract for a "certain quantity" of chinchilla [page 339] furs was sufficiently definite as evidenced by the buyer's subsequent conduct of immediately selling the furs delivered.[207] Similarly, a Swiss court, found that when the buyer of fashion textiles requested the seller to send an invoice to the embroiderer of the textiles, this conduct subsequent to the delivery of the goods indicated the buyer's intent to be bound as to the quantity of goods delivered.[208]

When an offeror claims that he intended to be bound, courts evaluating the validity of the offer must also consider whether the other party was reasonably aware of such intent. A German court held that a seller's fax offering to sell yarn did not communicate the requisite intent to be bound because the fax referred to instructions from its parent company.[209] The court found that the communication did not clearly identify who the seller was, as the purported offeror referred to itself as "exporter" not "seller."[210]

There are two issues arising from Article 55 that national courts have addressed in their opinions. These issues are whether the failure of the parties to state a price prevents contract formation and the enumeration of the factors utilized to determine the "price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."[211] As to the initial issue of contract formation, two divergent views have developed regarding the price requirement, one restrictive and the other liberal. Professor Farnsworth maintains that some method of determining the price must be included in the offer for a valid contract to be concluded. This restrictive view is consistent with established contract law in many states that require the setting of a specific price in order for an enforceable contract to be formed. Under this view, Article 55 would only be used to set a price after an enforceable contract had been determined to exist. [212]

The alternative view argues that the restrictive interpretation of the CISG's provisions with respect to contract formation that requires the existence of a definite or determinable price conflicts with the very existence of Article 55.[213] A more liberal view has been advocated by [page 340] Professor Honnold who maintains that Article 55 allows "the price generally charged at the time of the conclusion of the contract" to cure the lack of a price or a method for determining the price. [214] Professor Honnold insists that as long as the parties' intention to contract is clear, the construction of the Convention allows the parties to vary the effect of any of the Convention's provisions, including Article 14's price provision.[215]

Professor Honnold's view is supported by the Secretariat's Commentary to Article 14 which states that as long as there is intent to be bound, the law of sales can supply missing terms.[216] Several national courts have also favored Professor Honnold's view. A Swiss court in C. v. W., Bezirksgericht St. Gallen used Article 55 to interpret the price stated in a seller's corrected invoice to be the price generally charged under comparable circumstances in the trade.[217] The indefiniteness of the price term was apparently not fatal because the court was convinced that the parties had manifested their intent to be bound.[218] In a dispute concerning the sale of chinchilla pelts by a German seller to an Austrian buyer, the Austrian Supreme Court concluded that the agreement of the parties setting a price range for the pelts depending upon quality did not defeat the formation of a contract.[219] In reaching this conclusion, the court held that pursuant to Article 55 if the parties' agreement failed to explicitly or implicitly establish a specific price, then the court could imply an agreement based upon the "usual market price."[220] The court specifically [page 341] noted that the parties did not object to the price of fifty German marks per pelt established by the court of first instance in its initial review of the case.[221] As such, the court concluded that the price was sufficiently definite as to constitute a contract and make the application of Article 55 unnecessary.[222] By contrast, the Russian Tribunal of International Commercial Arbitration rejected the gap-filling role of Article 55 where the parties agreed to fix a price "ten days prior to the beginning of the new year" and were unable to do so.[223] The subsequent failure of the parties to reach an agreement with respect to price went to the heart of the transaction and specifically defeated the formation of a contract.[224]

The second issue addressed by national courts with respect to Article 55 is the enumeration of the factors utilized to determine "the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."[225] Initially, at least one national court has concluded that the reference to market price in Article 55 is overridden by a contrary agreement of the parties as determined by application of the CISG in its entirety. [226] Based upon this opinion, the parties are free to list any number of factors that may be utilized to establish the price. Included on the list of acceptable factors are the price range established by the parties with respect to the goods at issue and individual pricing guidelines dependent upon the quality of the goods.[227] An additional relevant factor is the absence of objection by the buyer within a "short time period" to the price set forth in invoices delivered by the seller.[228] In such a case, national courts assume the buyer's agreement that the price stated in the seller's invoice is the price generally charged under comparable circumstances in the trade concerned according to Article 55.[229] [page 342]

2. Firm Offers: Articles 15-17 and 20-24

Articles 15 and 17, along with Articles 20 through 24, have not been the subject of judicial attention. Article 16, however, has been subject to judicial and arbitral interpretations.[230] In Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc.,[231] the court addressed the question of promissory estoppel under the CISG. Article 16(2)(b) provides that an offer is irrevocable "if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer."[232] The U.S. court recognized this provision as a "modified version of promissory estoppel that does not require foreseeability or detriment."[233] More importantly, it stated that other promissory estoppel claims outside the area of firm offers could be preempted by the CISG because "to apply an American or other version of promissory estoppel that does require [foreseeability or detriment] would contradict the CISG and stymie its goal of uniformity."[234] This is an express statement by a U.S. court against the urge toward homeward trend approaches to CISG interpretation.[235]

3. Rules of Acceptance: Article 18

Because Article 23 states that "a contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention," ascertaining whether an offer has been accepted according to Article 18 is critical in determining the parties' contract rights and remedies. Professor Honnold emphasizes the theme of open communication that runs through Article 18.[236] Difficult issues of communication arise most frequently in cases involving when silence or inactivity may be a valid method of acceptance, when commercial letters of confirmation indicate assent, and whether standard terms included in the offer and acceptance have been fairly communicated so as to become part of the contract. [page 343]

Article 18(1) states that silence, by itself, does not constitute acceptance. However, it makes clear that silence or inactivity linked with other circumstances may be enough to indicate assent. If the parties have a practice of accepting without notice, if industry usage has developed, or if other circumstances indicate that silence is reasonable, silence or inactivity may be a valid method of acceptance.

National courts have concluded that silence indicated acceptance when silence qua acceptance was reasonable under the circumstances. When a seller offered to terminate a contract after receiving notice of non-conformity and announced that he would resell the goods himself, the buyer's silence and failure to seek remedy for breach was an implied acceptance, according to a German court. [237] While the court recognized that silence or inactivity alone is not enough for acceptance under Article 18(1), it concluded that "together with other circumstances ... silence can indeed be important and may be interpreted as the acceptance of an offer of cancellation."[238] A French court also found that silence operated as acceptance when a buyer accepted goods without reservation.[239] The buyer subsequently sought to reject the goods, claiming that his silence about the condition of the goods did not indicate acceptance, but the court found that the non-conformity claimed by the buyer was obvious to an expert such as the buyer who had specified the modifications in the goods.[240]

Silence may also be acceptance where the parties have an established pattern or practice in their dealings. If a seller has an established practice of filling orders without expressly accepting them, then the buyer has a right to expect that its orders will be filled.[241] In the French case of Sté Calzados Magnanni v. Sarl Shoes General Int'l, the seller maintained that it had never received the orders. The French court was unconvinced and found acceptance of the orders by silence based on the practices established between the parties.[242] The circumstances that indicated acceptance by silence also included the seller's awareness of the buyer's intention to enter the footwear market. [243] A U.S. court also found that silence was acceptance when a seller did not object to an arbitration clause in a contract for a period [page 344] of five months. The court held that the prior practices of the parties placed a duty on the seller to alert the buyer of its objection to the incorporation of the clause.[244] The court supported its conclusion by citing Articles 18(1) and 18(3) of the CISG, the Restatement (Second) of Contracts, and several cases from its jurisdiction. [245]

Commercial letters of confirmation raise special issues regarding acceptance by silence.[246] In some national legal systems, most notably Germany, silence upon receipt of a commercial letter of confirmation indicates acceptance.[247] According to Professor Schlechtriem, the German rule which allows unanswered letters of confirmation to become part of the contract was expressly rejected at the Vienna Convention.[248] Consequently, Professor Schlechtriem maintains that letters of confirmation that modify or add to a contract are ineffective under the CISG, unless the sending of such letters amounts to a usage under Article 9(2).[249]

National courts have differed in how they interpret the trade usage provision regarding commercial letters of confirmation. A Swiss court found that the buyer's failure to respond to a letter of confirmation from the Austrian seller constituted acceptance according to trade usage.[250] The court stated that both parties knew or ought to have known that under both Swiss and Austrian law, silence or inactivity can be regarded as an acceptance when there is no reply to a commercial letter of confirmation.[251] Professor Schlechtriem criticized this ruling on two counts. First, the court misstated the law of Austria, where the purported rule had been rejected. Second, "the usage must apply to the parties in the particular trade, and must be observed by them," for the exception to Article 18(1) to apply.[252]

A Swiss court also found that the sender was entitled to regard silence as acceptance to a letter of confirmation even where the letter modified [page 345] payment terms.[253] The court stated that good faith is the key to determining whether a sender may assume the recipient of the confirmation letter intended to consent to the terms of the letter.[254] Although the court did not discuss prior practices or usage in this case, the recipient's conduct, accepting the first check that was attached to the letter of confirmation, was sufficient to support a conclusion that the recipient intended to be bound by the terms of the confirmation letter.[255]

Two German cases reiterated the more conservative view that trade usage must be international in order for it to be implied into a contract. In one case, the court distinguished the use of letters of confirmation in a national context from the international context.[256] A French buyer and a German seller had concluded an oral contract regarding the price of chocolates. When the buyer was silent as to the different terms in the seller's letter of confirmation, the court held that the terms of the confirmation letter were not part of the contract as such letters could not be considered part of international trade usage as required by Article 9(2). The court concluded that although the practice was well recognized in Germany, it was not so recognized in France.[257] A German court held that a buyer seeking to hold a seller to the modified price contained in a letter of confirmation did not establish that there was a usage known in international trade recognizing silence as acceptance to a commercial letter of confirmation.[258]

When a party seeks to incorporate standard terms into an offer or [page 346] acceptance, courts consider whether such terms have been fairly communicated to the other party. While the CISG does not specifically address the incorporation of standard terms, national courts generally agree that its provisions on contract formation and interpretation determine whether standard terms have been validly incorporated into the contract. An alternative view is that Article 4 makes it clear that the validity of standard terms is beyond the scope of the Convention, so that validity issues are determined by domestic law.[259] Civil law legal systems have emphasized that a party must be reasonably aware of the terms the other seeks to incorporate but how much information about standard terms must be communicated is less clear from the decisions.

In general, a party that wishes to incorporate standard terms must show good faith efforts to communicate those terms to the other party. Failure to provide standard terms in the other party's language, failure to note that standard terms are listed on the back of a form, and failure to provide the text of standard terms have lead courts to exclude such terms from the contract. In ISEA Industrie S.p.A. v. Compagnie d'Assurances,[260] a French court held that where the buyer's standard terms were printed on the back of a form and the seller had signed only the front page, the standard terms were not part of the contract. The court held that the terms of the contract had already been determined and the seller's attempt to impose additional terms was ineffective. A German court, however, held that where standard terms were printed on the back of the order form in both parties' languages and the front side of the order form specifically referred to the standard terms, the terms were validly incorporated into the contract.[261] Likewise, where an offer made reference in bold letters to particular industry standards and the seller made repeated reference to such standard throughout negotiations, the buyer was aware or should have been aware that the general conditions were part of the agreement, according to Articles 8(1) and (3).[262] [page 347]

The Federal Supreme Court of Germany addressed the issue of the type of information needed to prove intent to standard or general terms.[263] Using Articles 14 and 18, supplemented by Article 8's rules on interpretation, the court held that the seller's "Sales and Delivery Terms," which included a notice of warranty exclusion, were not part of the parties' contract. Although the contract referred to such terms, a copy of the seller's Sales and Delivery Terms was never transmitted to the buyer. The court held that "the user of general terms and conditions is required to transmit the text to the other party or make it available in another way."[264] According to the court, the burden to provide the terms was on the party wishing to insert such clauses.[265] The court emphasized the fact that parties to an international contract should not be expected to know the particular terms and conditions that might be familiar to parties that share the same national legal system and business customs.[266] Requiring one party to make general terms and conditions available to the other party, would, according to the court, promote the CISG's goals of good faith and uniformity. [267] Similarly, an Austrian court held that a seller's attempt to incorporate standard terms requiring a contract to be in writing was not valid.[268] Although the seller had proposed such terms as part of a master contract prior to a subsequent sales contract, the master contract was never concluded, so that reference to terms in that agreement could not be binding on the buyer in the subsequent contract.[269] The court recognized that contractual negotiations, prior practices and trade usages may provide evidence that the offeree was aware of the inclusion of standard terms. This transaction was the parties' first together, however, and the court found that [page 348] the offeree had no reason to be aware that the general terms were to be included in this deal.[270]

C. Battle of the Forms

Article 19 raises the difficult issue of an acceptance with modification or the exchange of forms containing additional or conflicting terms. Negotiated terms, essential to the contract, may appear on the front of a form while additional terms and general conditions appear on the reverse side. Buyers' and sellers' forms undoubtedly contain provisions that favor their respective positions. The boilerplate terms are routinely ignored until a dispute arises. Forms are exchanged in what one author termed "une conversation des sourds" (a conversation of the deaf).[271] Two questions arise when there is dispute. First, was a valid contract formed despite the existence of conflicting, non-dickered terms? Second, if a valid contract was concluded, what are the terms of the contract? Article 19(1) provides that an offer that "contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer."[272] If the additional terms do not materially alter the offer, however, a valid contract is formed and the additional terms enter the contract unless the receiving party promptly objects to their inclusion.[273] This provision prevents a party from escaping from contractual obligations for immaterial differences between the offer and acceptance.

Article 19(3) sets a broad materiality standard by listing "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" as terms that would materially alter the offer.[274] The breadth of these categories of material terms is susceptible to even further extension by the open-endedness of the introductory phase "among other things."[275] Article 19 is essentially an adoption of the now-discarded common law mirror image rule with the exception that minor differences do not defeat an otherwise valid acceptance. The breadth of Article 19(3) severely limits the scope of the minor term. [page 349]

A battle of the forms arises when parties exchange forms that have inconsistent terms. One commentator explained that the CISG has not been able to "create a consistent pattern that satisfies our basic sense of fairness and justice," with regard to the battle of forms.[276] Although some theorists maintain that the CISG in general and Article 19 in particular do not apply to the battle of the forms, many national courts apply Article 19 in interpreting and resolving such conflicts, using the rules of offer and acceptance.[277] The drafters considered various methods of treating the exchange of inconsistent forms. Under the common law, the offer and acceptance have to match exactly or create a mirror image to conclude a valid contract. UCC's § 2-207 tried to rectify injustices that occurred when one party failed to perform under a contract because of some minor discrepancies between the terms in the exchanged forms. Under § 2-207, a written acceptance or a written confirmation is valid "even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional terms." [278] Article 19 of the CISG adopts the mirror image rule due to its broad definition of materiality in Articles 19(3).

In considering the battle of the forms dilemma, Professor Schlechtriem states that "the different situations of collision" and the "various possible behaviors of the parties" make it difficult to find "a single formula" that addresses this difficult issue.[279] Courts seem willing to find a valid contract where there is an exchange of forms and a general intent to enter into a binding agreement. The more difficult issue to predict is the courts' determinations of what terms enter into the contract. [280] Three solutions to the issue of conflicting terms in battle of the forms scenario have been offered. First, the effect of conflicting terms in the battle of the forms scenario is not governed by the CISG. In short, the effect of conflicting terms on contract formation is a validity issue that Article 4 delegates to national law. Second, the existence of conflicting terms creates a gap that the court can fill by recourse to Article 7(1)'s principle of good faith [page 350] ("knock out rule"). A third solution that has been offered is that the terms provided in the acceptance controls (the "second shot rule").[281] The logic is that the offeror has an implied duty to object to the additional or conflicting terms. Failing to object to additional or conflicting terms and then proceeding to perform on the contract results in a finding of an implied consent to the terms of the acceptance.

Under the knock out rule, if the essential terms of the contract -- identification of the goods, quantity, quality, and price -- are agreed upon and the parties have commenced performance,[282] then the court will find there was a valid contract and ignore the conflicting terms.[283] Even though the conflicting terms in such cases could be considered material under Article 19(3), courts prefer to dismiss the conflicting terms rather than find that no contract was concluded. Unless there is clear evidence that at least one of the parties did not want to contract without the inclusion of the particular provision in dispute, then "the intent to enter a contract on the part of both parties trumps the Article 19 argument for invalidity."[284] This approach seems to uphold the intentions of the parties because in these cases the parties usually have at least partially performed.

Two cases decided by the German courts applied the knock out rule. In a case involving the sale of knitwear by an Italian seller to a German buyer, the parties had agreed on the essential terms of the contract and had performed.[285] When a dispute arose about whether the goods conformed to [page 351] the contract, the parties disagreed on whether certain general terms were part of the contract. The German buyer had included in its general terms a forum selection clause that was additional to the terms in the seller's form. Under Article 19, it could be argued that no contract was formed because the forum selection clause was a material alteration to the offer. Article 19(3) identifies differing terms regarding "the settlement of disputes" as material.[286] Because the parties had performed based on the essential terms of the agreement, the court found that there was a valid contract and that the parties had either "waived their claim to the application of their respective standard business terms or derogated from Article 19 in exercise of their party autonomy under Article 6."[287] The court held that neither party's general conditions became part of the contract.[288]

The Federal Supreme Court of Germany confirmed the knock out rule approach to cases where the parties have agreed on the essential terms of the contract for the sale and have performed.[289] Professor Schlechtriem has asserted that the German Supreme Court's message was that "[c]onflicting standard forms [terms] are entirely invalid and are replaced by CISG provisions, while the contract as such remains valid."[290] In that case, a dispute arose when customers of a buyer complained that the powdered milk delivered by the seller had a sour taste. The standard terms exchanged by the parties contained conflicting terms regarding the extent of the seller's liability. The court found that the contradiction in terms "did not prevent the existence of the sales contracts because the parties did not view this contradiction as an obstacle to the execution of the contracts."[291] [page 352] The seller argued that the CISG was derogated by a clause in its standard forms and that under the applicable German Civil Code, no damages could be claimed. In concluding that neither the buyer's nor the seller's standard forms were included in the contractual arrangement, the court refused to single out some clauses which might be beneficial to one side or the other.

The Cour de Cassation in France also applied the knock out rule regarding conflicting jurisdiction clauses.[292] Recognizing that jurisdiction provisions are material terms according to Article 19(3), the court, instead of invalidating the contract, applied traditional conflict of law rules to determine jurisdiction.[293] A U.S. court addressing a similar issue, found that a forum selection clause was not part of a contract because UCC 2-207 requires "express consent of the parties." [294] Without explanation, the court stated that the "same conclusion" would be reached under the CISG.[295]

Some national courts have used the last shot doctrine to resolve cases involving the battle of the forms. According to this approach, courts interpret an action or performance by one of the parties as an indication of assent to additional terms. The last shot doctrine can be seen as evolving from rules of offer and acceptance, with each new offer being a counter-offer [page 353] until the last one is accepted when one party indicates assent by performance or other conduct.[296] Therefore, if a party fails to object to an additional or modified term, performs, or partially performs, then he has accepted the additional or modified term. Whereas the knock out rule would ignore conflicting terms, the last shot approach incorporates the terms of last communication. Some commentators maintain that the last shot rule is out of touch with commercial reality and encourages parties to act in bad faith by producing numerous forms with standard terms in hopes of controlling the contract through the last shot.[297] Others consider the last shot rule to be the best approach to a difficult situation because it provides "certainty and legal security."[298]

A German court held that an 8-day notice of defects provision in a confirmation letter was enforceable at the time the buyer took delivery of the goods.[299] The notification terms contained in the seller's confirmation letter were additional material terms that amounted to a counter-offer under Article [19(1)], but the court found that the buyer accepted those terms by accepting delivery.[300] Another German court found that a buyer of cashmere sweaters accepted the seller's additional terms which incorporated the "Standard Conditions of the German Textile Industry" by performing under the contract.[301] The court merely cited Articles 18 and 19 without comment.[302] Similarly, another German court held that acceptance of delivery indicated assent to a material modification. When the buyer claimed to have ordered a certain quantity of shoes and the seller delivered a different quantity, the court interpreted the delivery of a different quantity as a material alteration under Article 19(3). The court held, however, that the delivery was a counter-offer which the buyer accepted by taking the goods.[303] In contrast, a U.S. court in Claudia v. Olivieri Footwear Ltd.[304] [page 354] held that even though the goods had been delivered, it could not hold as a matter of law that a valid contract had been concluded when the parties disagreed on a delivery term subsequent to an oral agreement.[305] The court considered the parties' prior course of dealings, which included thirteen transactions, but found insufficient evidence to conclude that they had always used the same delivery term.[306]

If a party continues to perform, or fails to object in a timely manner, to additional terms, she runs the risk that her conduct, silence, or act of performance will be interpreted by a court as an acceptance of the disputed term.[307] This was the issue in Filanto v. Chilewich,[308] where the court found that a manufacturer accepted an arbitration provision as part of the agreement, because he failed to object in a timely manner and commenced performance by opening a letter of credit. This was despite the fact that it repeatedly objected during negotiations to the incorporation of an arbitration clause and that such a clause is a material term under Article 19(3). In Magellan Int'l Corp. v. Salzgitter Handel GmbH, the court found that a contract was formed when a distributor indicated assent by opening a letter of credit.[309] The court held that the terms of the contract were those agreed on at the time the letter of credit was opened.

Despite Article 19(2)'s distinction between material and non-material terms in contracts, courts, using the knock out and last shot rules, have generally disregarded the distinction between material and non-material terms. The Austrian Supreme Court rationalized the diminishment of the distinction by arguing that Article 19(3) list of examples of materiality are merely general presumptions that may be rebutted. The presumption of materiality may be rebutted by evidence including the practices between the parties, trade usages, conduct during negotiations, and other relevant circumstances. For example, modifications that are favorable to one party do not require counter-acceptance by the benefited party.[310] [page 355]

The illusiveness of CISG jurisprudence in the interpretation of materiality is evident in a German case in which the court held that a notice provision which limited the time for rejection of goods was not a material term.[311] Interpreting the provision in the invoice as a modified acceptance of the contract, the court held that the notice provision became part of the contract, according to Article 19(2) which puts the burden on the offeree to reject non-material modifications. [312] Since the buyer did not object, the court found that the provision was valid. Several commentators disagreed with the decision, arguing that the notice provision was clearly material under the broad language of Article 19(3).[313]

A French court in Fauba France FDIS GC Electronique v. Fujitsu Microelectronik GmbH [314] held that a purchase order that altered price and delivery terms did not materially alter the terms of the offer. On appeal, the Court of Cassation held that a valid contract was formed because the offer which allowed prices to be modified "according to market increases and decreases" was sufficiently definite. Unfortunately, both the Court of Appeals and the Court of Cassation failed to discuss the fact that Article 19(3) specifically declares price and delivery terms as material alterations.[315]

A Hungarian court in Technologies Int'l Inc. Pratt & Whitney Commercial Engine Business v. Magyar [316] distinguished between the insertion of a material, additional term and "a simple request" for a material modification. A letter of acceptance contained a provision requesting that the letter be treated confidentially until the parties made a joint announcement regarding the purchase of jet engines was a valid acceptance. The plaintiff's offer had a paragraph whereby the defendant agreed to allow the plaintiff to publish a press release announcing defendant's choice of engine. The court found that the letter was an unambiguous acceptance, not an amendment, restriction, or other change that would amount to a rejection under 19(1). [page 356]

It is important to understand the reach of Article 19. It is limited to issues of contract formation and not to modifications of contract. Thus, it is universally accepted that where a contract has been validly concluded, one party may not change a material term in the contract without the acceptance of the other party. The court in Chateau des Charmes Wines Ltd. v. Sabate USA Inc. found that where an oral agreement did not contain a forum selection clause, one party's attempt to include such a provision in subsequent invoices did not alter the contract.[317] Because the contract had already been concluded, any new terms were merely offers which required express assent and did not create an obligation to reject the term. The court noted that the mere performance of obligations under the oral contract did not indicate assent to what would be additional material terms under Article 19(3).[318]

As found in the other areas of contract formation, a review of CISG jurisprudence involving the battles of the form scenario finds courts struggling to devise a unified framework for applying CISG rules. Most troubling is that courts seldom use cases from other Contracting States. Because these battles are so prevalent in international transactions and Article 19 offers the flexibility for courts to adopt several approaches, Article 19 is one of the areas where the CISG could most benefit from the adoption of official comments, examples, and guidance that some commentators have suggested. [319] [page 357]

IV. OBLIGATIONS OF BUYERS

This part focuses on the duties of buyers in the CISG-governed transaction. Given the limited right of rejection (avoidance) provided to the CISG, the buyer is burdened with numerous duties including the duty to inspect, give notice of non-conformity, give notice of avoidance, duty to preserve the goods, duty to pay the price, and duty to take delivery. The following analysis reviews how courts and arbitral panels have defined the duties enunciated in the CISG. It will also review the buyer's right to time extensions, along with its associated obligations as provided in Article 47. Finally, this part will examine the buyer's reciprocal obligations to the seller's right to cure under Article 48.

A. The Duty to Inspect, Give Notice, and Preserve Goods

The CISG requires buyers to inspect goods, and provide adequate and timely notice, with respect to any defects in the seller's performance and preserve the goods in the event the buyer elects to reject the seller's tender. These obligations are set forth in Articles 38, 39, 44 and 86. The initial obligation of all buyers is the duty of inspection. Article 38 provides that the buyer "must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances." [320] Special rules apply in the event the contract involves the carriage of goods or their redirection in transit. Examination may be deferred until after the goods arrive at their destination in the event the contract involves carriage.[321] By contrast, examination of the goods may be deferred until after their arrival at their ultimate destination in the event they have been redirected in transit or re-dispatched by the buyer.[322] However, the inspection may be deferred under these circumstances only if the redirection or re-dispatch occurred without a "reasonable opportunity" for examination.[323] In addition, the buyer must demonstrate that the seller knew or should have known of the possibility of such redirection or re-dispatch at the time of the conclusion of the contract.[324]

The failure to comply with the provisions of Article 38 deprives the buyer of the right to rely upon the defense of non-conformity of the goods in a future dispute with the seller. The buyer also loses this defense in the event its notice does not specify "the nature of the lack of conformity within a reasonable time."[325] The time for providing this notice begins to run from [page 358] the time of the actual discovery of the non-conformity or from when the buyer should have discovered it. [326] In any event, the buyer loses the right to rely upon non-conformity of the tendered goods if it does not give notice to the seller "at the latest within a period of two years from the date on which the goods were actually handed over to the buyer."[327] This two-year window for notice is inapplicable to the extent that it is inconsistent with any guarantees set forth in the sales contract. [328] Furthermore, the buyer retains the right to reduce the price payable to the seller or claim damages, except for loss of profits, if it has a "reasonable excuse" for its failure to provide the required notice.[329]

The buyer's ability to reject non-conforming goods is accompanied by a corresponding duty to preserve such goods for the benefit of the seller. Article 86 provides that the buyer must take steps to preserve the goods as are "reasonable in the circumstances."[330] The buyer is entitled to reimbursement from the seller of reasonable expenses incurred in preservation of the goods and is entitled to retain the goods until its receipt of such payment.[331] In the event the goods have been placed at its disposal by the seller and are subsequently rejected, the buyer must take possession on the seller's behalf.[332] The buyer's obligation in this regard is contingent upon its ability to take possession of the goods without payment of the price and without "unreasonable inconvenience or ... expense."[333] Buyer's duties under Article 86 are inapplicable in the event the seller or a person authorized to take control of the goods on its behalf is present at the destination at the time of the arrival of the goods.[334]

1. Inspection Duties and Rights: Article 38

National courts interpreting the CISG's provisions relating to inspection, notice and preservation of goods have concentrated on three issues raised by Article 38. These issues are the amount of time the buyer has to conduct an inspection of the goods, what constitutes an adequate inspection, and the enforceability of contractual provisions modifying the buyer's inspection rights.

The initial issue addressed by national courts with respect to Article 38 is the time within which the buyer must inspect goods purchased from their [page 359] vendors. Article 38(1) provides that this inspection must occur within "as short a period as practicable in the circumstances." [335] This language does not establish a definite time within which such inspection must occur in order to permit the buyer to reject the goods on the basis of non-conformity. Rather, it appears that the time within which such inspection must occur is flexible depending upon the individual circumstances in each case. Indeed, commentators have noted that "[t]his language seems to acknowledge that the shortest applicable period to inspect complex machinery received by a buyer in an isolated town of a developing country may be different from the shortest applicable period to inspect other types of goods by a sophisticated buyer in a big industrial city."[336]

There is some acknowledgement of the flexibility of this standard in the opinions of national courts. A U.S. court noted that it was required to take into account the uniqueness of the goods involved, the method of delivery (including installments) and the familiarity of the buyer's employees with the goods.[337] Courts adopting this approach have noted that buyers may produce proof demonstrating why under the specific circumstances inspection could not occur in a diligent fashion. [338] Although not expressly stated in the CISG, buyers seeking such additional time bear the burden of proof with respect to the reasons justifying such additional time.[339]

However, this interpretive "flexibility" has not been universally accepted. Rather, the majority of cases have rejected this approach in favor of less flexibility in the inspection requirement.[340] These courts have adopted two different approaches to determine whether the buyer's inspection was within as short a time period as practicable. The first approach requires the buyer to prove a special burden existed prior to the request for additional time for inspection. These courts have refused to grant time extensions for inspection of goods, based upon the absence of a burden upon the buyer. Courts adopting this approach have focused upon the ease with which the inspection could have occurred at the time of [page 360] delivery [341] or the obviousness of the alleged non-conformity, such as readily apparent defects and disparities in color and weight.[342] The uniqueness of the goods, their complicated nature, their delivery in installments and the need for training of employees may also place unique burdens on the buyer justifying additional time within which to perform inspections.[343] Moreover, the ultimate disposition of the goods after delivery also may be relevant to this inquiry. The two states that have placed primary importance on this factor have not set specific times for the occurrence of inspections, although they require that these inspections occur prior to the processing, transformation or incorporation of goods into the manufacturing process. [344]

By contrast, other courts have established specific deadlines for the completion of the buyer's inspection, specifically supporting a deadline for inspection with respect to perishable goods. In this regard, national courts have required the inspection occur immediately upon delivery of the goods to the buyer.[345] This is an understandable result given the consequences of delays in inspections with respect to such goods. However, several national courts have extended this inspection upon delivery requirement to nonperishable goods as well.[346] Courts in two states have adopted a more lenient approach by granting buyers one week from the time of delivery to complete their inspection.[347] [page 361]

National courts have also addressed the time within which the buyer's inspection must occur in the event of redirection or reshipment of the goods to the ultimate consumer. Article 38(3) appears to grant buyers some leeway in the event inspection is rendered impractical by surrounding circumstances, such as the necessity of significant unpacking prior to inspection. However, Article 38 does not define the circumstances under which this deferral is available or the time within which the inspection must be completed upon the arrival of the goods at their final destination.

There is less case law with respect to the timeliness of inspection in the event of transshipment than inspection pursuant to Article 38(1). Nevertheless, existing jurisprudence has exhibited a common theme of strict construction. Strict construction of Article 38(3) is evident in three separate holdings. First, inspection may be deferred pursuant to Article 38(3) only when the buyer is a mere intermediary or when the goods are delivered directly to end-users.[348] By contrast, inspection may not be deferred when the buyer takes possession of the goods without advance knowledge at to what extent, when and to whom the goods will ultimately be resold.[349] Second, if the buyer serves as a mere intermediary or direct delivery occurs, inspection may be deferred only if the buyer can demonstrate the absence of a "real opportunity" to examine all of the goods.[350] By contrast, if only a portion of the goods is retransmitted to the ultimate end user, the buyer is still under an obligation to inspect those goods remaining in its possession.[351] The failure to conduct a timely inspection prevents the buyer from rejecting the goods for non-conformity pursuant to Article 38. The buyer may also lose its ability to defer inspection pursuant to Article 38(3) if the goods were reprocessed or repackaged prior to their shipment to the end user.[352] Finally, any delays by the end user in inspecting the goods or transmitting notice of non-conformity are attributable to the buyer and may prevent the utilization of Article 38 as a basis for rejection.[353]

A separate issue addressed by national courts is what constitutes a reasonable inspection. The buyer is not required to make an examination that would reveal every possible defect. Rather, the buyer's inspection must be reasonable under the circumstances and is dependent upon the provisions of the contract in question, usage of the trade, the type of goods, and the technical facilities and expertise of the parties. [page 362]

Four general rules emerge from an examination of the opinions with respect to the thoroughness of the inspection required by Article 38. The buyer has an affirmative obligation to examine the packaging to discover any non-conformity readily apparent from such inspection, including labeling, weight and date of production.[354] Failure to discover any such non-conformity will prevent the buyer from rejecting the goods pursuant to Article 38. Next, buyers are required to carefully examine the goods themselves and discover readily apparent non-conformities. The opinions have not defined what constitutes an apparent non-conformity. However, national courts have held discrepancies in color, weight and consistency to be apparent non-conformities.[355] Additionally, buyers are excused from a complete examination of the goods in the event the quantity or nature of the product renders comprehensive inspection unreasonable. However, buyers are not completely excused from conducting inspections under such circumstances. Rather, buyers are required to sample or spot check the product upon delivery and discover and report any apparent non-conformities.[356] Buyers may not rely upon sampling or spot checking in the event previous shipments from the seller, if any, were non-conforming.[357] Buyers are not required to discover non-conformities that have been actively concealed by their sellers.[358] In any event, the burden of proving reasonable inspection rests wi