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Reproduced with permission of 23 Syracuse Journal of International Law and Commerce (Spring 1997) 67-111

An International Contract Law Formula: The Informality of
International Business Transactions Plus the Internationalization
of Contract Law Equals Unexpected Contract Liability

Larry A. DiMatteo [*]

  1. Introduction
  2. The Civil Law Countries
    A. The Federal Republic of Germany
    B. France
    C. The Belgian Civil Code
  3. Contractual Liability: The Totality of the Circumstances Analysis
    A. Oral Representation and Prior Dealings
    B. Custom and Usage
    C. Reliance
    D. Business and Professional Standards
  4. The Convergence of Contract Law
    A. Foreign Contract Law: A Selective Review
    B. The Unification of Contract Law
    C. International Principles of Contract Law
    1. The Duty of Good Faith
    2. Substantive Fairness
    3. Notice Obligations
    4. The Enforceability of Business Instruments
    D. Interpretation of the CISG
    E. CISG as Customary International Law
  5. Reconciliation: The Uniform Commercial Code and the CISG
    A. The Battle of Forms
    B. Precontractual Liability
    C. Contractual Informalities Under the CISG
    1. The Evidentiary Threshold
    2. Modification of Contracts
    3. Choice of Law
  6. The American Business Person and the CISG: Summary and Conclusion

I. INTRODUCTION

"The interest in general principles of law both measures the extent of convergence of legal rules and, under appropriate conditions, facilitates further convergence."[1]

Albert Einstein is best known for his special and general theories of relativity. The time-space continuum can be manipulated through the process of speed to bend time and thus travel through it. A theory of relativity can be ventured for the international law of contracts as well. The speed of the process of the internationalization of contract law can result in the bending or shifting of the enforceability-nonenforceability continuum as it pertains to business persons' use of informal business letters, instruments, and correspondences. The relative likelihood of unexpected contractual liability (L) is a function of the informality (i) of a business relationship or correspondence and the universalization or internationalization (i) of principles of contractual liability. The (i) functions will be squared to illustrate that the speed of internationalization is positively related to unexpected contractual liability. In short, an informal correspondence previously considered to be nonbinding in nature may be transformed into an unexpected liability through an international recognition of enforceability at odds with a given national legal system's holding of nonenforceability. The speed of the internationalization of contract law has been accelerating. This article examines the phenomena of internationalization of contract law. A special emphasis is placed upon the potential for the American business person of unexpected contractual liability in the wake of the ratification of the Convention for the International Sale of Goods. [page 67]

The American business person confronts two issues when negotiating international contracts. First, whether the ratification of the Convention for the International Sale of Goods (CISG)[2] by the United States will result in unexpected liability for the business person with only a working knowledge of the Uniform Commercial Code (UCC). A U.S. Court of Appeals case noted that analogous case law interpreting the UCC "may also inform a court where the language of the relevant CISG provisions tracks that of the UCC."[3] The court concluded, however, that such "case law is not per se applicable."[4] Article 7(1) of the CISG asserts that the courts' interpretations of the Convention should be "informed by its 'international character and ... the need to promote uniformity in its application."[5] Thus, a prudent practitioner of international law must be concerned with foreign court decisions interpreting the Convention's provisions.

A second area of concern is the ongoing internationalization of contract law. The acceptance of generally recognized contract principles, the trend towards economic trade unions, the adoption of international conventions, and the growth of international customary law has lead to the convergence of national legal systems in the area of international contract law. In the long-term, this movement towards international unification and harmonization is likely to reduce transaction costs relating to contract formation. In the short-term, however, it further complicates an already complex international legal regime.

The continuing globalization of United States business interests will focus the legal and business communities on the legal intricacies of [page 68] international business transactions.[6] "[A] factor of prime importance is the internationalization of commercial law."[7] The successful international entrepreneur will be required to familiarize herself with the CISG and with the contract law of the foreign country in which she plans on doing business.

This article will examine the importance of the United States ratification of the CISG within the general movement towards the internationalization of contract law. It will also examine the potential for unintended contractual liability under the CISG and in the different legal systems in which the American business person hopes to transact business. This article's primary focus is upon the issue of contract formation and the attachment of contractual liability to a given correspondence or transaction. When do seemingly informal business letters or instruments become grounds for contractual liability? When do representations or promises in a business correspondence cross the line from nonenforceable assurance or words of negotiation to words of contract? The article is written from the perspective of the American business person and that of the practitioner of the common law. Unintended contractual liability occurs when they do not fully understand the legal implications of their statements and writings. These misunderstandings and expectations are due to the differences in the way that the Uniform Commercial Code, the CISG, and other national legal regimes define and interpret issues of contracts. What follows is a comparative review of contract idiosyncracies of selected civil law countries, the factors used by courts to decide international contract disputes, generally accepted principles of contract law, and the interfacing of the CISG with the Uniform Commercial Code.

II. THE CIVIL LAW COUNTRIES

The common law legal system in its paradigmatic form generally holds that business communications possessing uncertain contractual intent are presumed to be unenforceable. Classical contract law requires certainty as to all material terms and proof of a clear intent to enter into legal relations. In contrast, the civil law countries' presumption is in favor of enforceability. Unlike the importance of formality as a prerequisite to enforceability in the common law, a "formal contract is not the [page 69] dramatic event in civil law countries. As a result, the courts in civil law [countries] are more likely to declare the parties legally bound at an earlier stage of the negotiation process than courts in common law countries."[8]

A. The Federal Republic of Germany

The presumption of enforceability is grounded upon the fact that German contract law is less dependent upon the legal literalism often found in Anglo-American jurisprudence. Contracting parties are given free reign under the Bürgerliche Gesetzbuch or Civil Code in structuring their contractual relationships.[9] For example, unlike the mandates of the statute of frauds, "a merchant's guarantee is valid even if given only verbally."[10] In fact, there are no provisions in the Civil Code that deal specifically with guarantee-type agreements.[11] This legal informalism provides the parties to a transaction with greater flexibility in their structuring and, accordingly, the types of instruments they use to effectuate their intent. "They are at liberty to agree to variants [of accepted legal instruments] ... or to develop entirely new types ..."[12] Thus, the evolution and enforceability of business agreements are a likely response to this underlying informalism.

The German approach to contractual liability is more consequence based than the common law system. Its legal system places less emphasis upon the types of legal instruments used, the labels applied to these instruments,[13] or upon the legal meaning of the words used within the instruments. Instead, German jurists look to give effect to the purpose [page 70] of the instruments and not to giving a literal interpretation to the language used;

"by contrast with ... English legal doctrine, German courts favor the so-called teleological method of interpretation: rather than restricting themselves to a literal interpretation of the wording of a provision, they tend to consider the purpose of the [instrument] and to interpret it in the way best suited to meet that purpose ..."[14]

The determination of enforceability is less likely to revolve around the formalistic labeling of an instrument as a contract or a non-contract. The importance of context in determining actual, subjective intention is the cornerstone of German contract interpretation. Article 133 of the German Civil Code states that "in interpreting a declaration of intention the true intention shall be sought without regard to the declaration's literal meaning."[15] One commentator has construed Article 133 to encourage the interpretation of contracts "in light of the contractual economic purposes."[16] Thus, the full breadth of a relationship can be brought to bear to find contractual intent in the face of an instrument that indicates otherwise.

B. France

French law approaches the efficacy of business correspondences in a direct, common sense way: Would two sophisticated commercial entities intend to create a meaningless, unenforceable instrument? French jurisprudence allows for a presumption in favor of enforceability. To the French, "the creation [in the commercial world] of a meaningless instrument ... is unthinkable."[17] Business instruments are more likely to be considered obligations de faire [18] that commit the writer to some level of performance. In comparing American and French laws one can conclude that the French analysis of contracts makes courts more likely [page 71] to enforce promises not found in formal, fully integrated contracts. This may even be the case when a promise or an assurance is given orally. Unlike the common law's statute of frauds requirement, the French Civil Code states that "with respect to merchants, acts of commerce may be proved by all means."[19]

C. The Belgian Civil Code

The Belgian Civil Code requires all contracts to be executed in good faith [20] and their interpretations are to be supplemented by custom and usage.[21] Article 1135 states that "agreements obligate not only for what is expressed therein, but also for all the consequences which equity, usage or the law gives to an obligation according to its nature."[22] If the essence of a letter is to persuade another to rely, then the possibility for enforceability exists. The facilitating factors of equity and usage may add or subtract from the enforceability decision. The Belgian Civil Code possesses the purpose or consequence-oriented jurisprudence found previously in German and French contract law. The language of the instrument is but one factor in the interpretation and enforcement of decisions. Article 1156 dictates that the jurist is to seek "the common intention of the contracting parties rather than stop at the mere literal sense of language."[23] The courts are to be guided in the task of interpretation by effectuating the intended consequences of the contract or instrument. In the case of ambiguity, the courts are to choose a meaning that "would have some effect rather than in the sense in which it could not produce any [effect]."[24]

Second order rules of interpretation are also codified in the Civil Code. First, a counterpart to the English contra proferentem rule construes ambiguities in written instruments against their drafters.[25] Second, "customary usage" and usage found in a particular region are to be [page 72] implied into contracts where such usages are generally found.[26] Third, the integrity of the entire instrument is to be maintained. Article 1158 states that terms are to be interpreted in "the sense which is most suitable for the subject-matter of the contract."[27] These elements may be used to construe an informal business instrument against its writer and towards a finding of enforceability.

III. CONTRACTUAL LIABILITY: THE TOTALITY OF THE CIRCUMSTANCES ANALYSIS

The previous review of national laws pertaining to potential liability for informal letters of commerce show that there are no per se rules of non-enforceability. As a general rule, the broader and the more vaguely drafted the less likelihood of enforceability. The courts have long looked to the circumstances surrounding the issuance of a written instrument to find the required intent to create legal relations. Lord Wilberforce in Reardon Smith Line, Ltd. v. Yngvar Hansen-Tangen [28] restated the notion of the totality of the circumstances analysis: "In commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn pre-supposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."[29] Some of these evidentiary circumstances include oral representations, prior dealings, usage and custom, reliance, and enunciated business standards.

A. Oral Representations and Prior Dealings

The lack of a writing requirement in the CISG and some civil law legal systems will allow a party to enter evidence to overcome the shortcomings of contractual informality. Prior dealings between the parties may be used to bolster the enforceability claim of the receiver of a promise or of a business letter. Prior dealings may be regarded "as establishing a common basis of understanding for [purposes of] interpreting [the parties'] expressions and conduct" relating to the transaction in question.[30] As such, freed of the limitations of the parol evidence rule, the courts in international contract cases have a greater variety of admissible evidence to consider. [page 73]

B. Custom and Usage

Just as domestic contracts are supported by local custom and trade usage,[31] so too are international transactions formed and performed within a milieu of customary law. "Usage of trade furnish the background and give particular meaning to the language used [in business communications.] [They provide] the framework of common understanding controlling any general rules of law."[32] In 1961 Professor Goldstajn boldly stated that "a new law merchant is rapidly developing in the world of international trade. It is time that recognition be given to the existence of an autonomous commercial law that has grown independent of the national systems of law."[33] The enforceability of a commercial instrument or letter will be affected by the general customs of international business transactions, the usage of a particular business or trade, and the usage of the locality in which it is to be performed.[34] The custom or usage pertaining to the enforceability of informal instruments is likely to change as they become more and more detailed in content. "Once the custom [is] proven ... it [becomes] an independent source of obligation: a rule of law that supplements the common law."[35] The more that such instruments are referred to in legal terminology, the greater the likelihood that custom and usage will be transformed into recognizing their potential enforceability.

C. Reliance

Reliance theory in Anglo-American contract law has often been used to fill in gaps in the enforceability determination. It has been used to overcome shortcomings in contractual intent, lack of consideration, and failure to satisfy statute of fraud requirements. Under the CISG and some civil codes, agreements may be implied through the giving of an oral commitment. In the common law, liability may be affixed if not through the clear expression of contractual intent, then by a finding of [page 74] reasonable reliance. The quasi-contractual nature of business instruments makes them susceptible to the ever-expanding doctrines of promissory estoppel and detrimental reliance.[36]

D. Business and Professional Standards

In order to manage liability, particular groups of business persons and professionals have developed guidelines for the contents of their business instruments. This standardization of business transactions has brought some legal certainty to the issue of contractual liability. For example, both the German Institute of Certified Public Accountants and the American Institute of Certified Public Accountants have issued guidelines and standards for comfort letters. An American Institute task force anticipated increased liability and has recommended that the "availability of comfort letters from accountants [be restricted]."[37] The development of business and professional standards provide added sources to assist a plaintiff in reaching the evidentiary threshold for enforceability.

IV. THE CONVERGENCE OF CONTRACT LAW

The enforceability of business instruments within an international context is considerably more complicated than simply analyzing them within a national legal system. Idiosyncracies found in most national legal systems makes the use of foreign counsel in international contract negotiations a necessity. The movement towards convergence, however, among the world's different legal systems in the area of transactional law offers hope for a more uncomplicated future.

The unification of contract law stems from numerous sources. These sources include the increase in economic and legal unions, most noticeably in Europe, the use of "neutral" country laws, and the increased recognition of general principles of contract law. The most profound evidence of the move towards the unification of contract law is the ratification of the CISG. The development of a new contracts jurisprudence to interpret and bolster the CISG is likely to have important consequences for business instrument enforceability. In the short-term, the ratification of the CISG, coupled with the existing differences in national legal systems, further complicates the enforceability issue. In the [page 75] long-term, the movement towards the internationalization of contract law holds the hope for a more unified approach to business instrument enforceability. The next sections will review foreign contract law, the internationalization of contract law, the problem of CISG interpretation, and the potential for the extraterritorial use of the CISG.

A. Foreign Contract Law: A Selective Review

A number of features unique to a national legal system may trap the unwary business person attempting to transact business with a foreign entity.[38] A selected review of some of these idiosyncrasies will show the daunting task that faces the American business person abroad. Article 1590 of the French Civil Code, for example, implores the use of the doctrine of arrhes.[39] The buyer gives money or a thing of value to a seller to evidence the making of a contract. It is akin to the earnest money deposit used in Anglo-American law to bind a contract.[40] Unlike Anglo-American contract law, the use of arrhes gives the buyer and the seller an option to terminate the contract. The parties are "at liberty to withdraw."[41] In the case of withdrawal, whether in good faith or bad, the buyer forfeits her deposit while the seller must return "double the amount."[42]

The French Civil Code also adopts the Roman law notion of laesio ultra dimidium vel enormis in which a contract is subject to attack if it is determined that the price paid is one-half or less the value of the item purchased. This current notion of "just price" was born in the Middle Ages.[43] The notion of inequality of consideration is codified in Article 1641 of the French Civil Code. "If the price of an immovable object is inadequate by more than seven-twelfths, the seller has the right to demand rescission of the sale."[44] This is true even if the seller had renounced her right to rescission in writing. The right of rescission gives the purchaser two options, to return the item or to pay "the balance of the just price."[45] Unlike the just price theories of the Middle Ages, the [page 76] purchaser does not have a right of rescission in the event that she had paid greater than one and seven-twelfths the value of the item. In contrast, the common law requires only an exchange or mutuality of consideration. It mandates that the adequacy of the considerations are to be determined by the parties and not the courts.

Another concept foreign to Anglo-American contract law is the civil law notion of nachfrist notice.[46] This allows a buyer or seller to fix an additional time for performance beyond that which is specified in the contract. Civil law's ability to affix additional time was adopted in Articles 47 through 49 of the CISG. The buyer may give notice to the seller that she will accept delivery beyond the time prescribed.[47] The buyer is then enjoined from taking legal action during the nachfrist period and must accept any proper tender of performance during that period.[48] If the seller makes a request for a nachfrist extension, then the buyer is obligated to respond to the request. Failure to do so results in the automatic granting of the additional time.[49] The failure of the breaching party to perform during the extension allows the other party to declare an immediate avoidance of the contract.[50]

An American business person unaware of this practice may face unintended liabilities. She may mistake a nachfrist notice as a meaningless, non-legal request for more time. Failure to respond in a proper way could result in the unintended grant of additional time and a freezing of her legal options. This could be compounded by her rejecting delivery of goods during the nachfrist period as untimely, resulting in liability for the purchase price and possible additional freight and storage costs. The existence of an express "time of the essence" clause is unlikely to provide a party any further protection from the use of nachfrist notice. It is important for a business person to realize that the receipt of seemingly meaningless communications should be fully investigated for legal consequences. [page 77]

B. The Unification of Contract Law

In many ways international commercial law or the lex mercatoria can be seen as the world's first uniform law, albeit in an uncodified form. Merchants have long developed usage and practices that have given them the ability to communicate with one another without the distractions presented by the nuances of culture, language, and national legal systems. Professor Honnold has noted that successful sales law unification entails a body of rules that are event-specific and void of unnecessary legalese. An international sales law "needs to cut out legal idioms, and write the rules in terms of commercial events that happen around the world. Without knowing the languages of the world you can be sure that there have to be words for these commercial events wherever there is commerce."[51]

The CISG is the most recent attempt at contract law unification which reaches back to the medieval lex mercatoria. "Besides retention of the principle of freedom of contract ... [its] essential characteristics are simplicity, practicality and clarity. It is free of legal short-hand, free of complicated legal theory and easy for businessmen to understand."[52] It was motivated by the quest for uniformity in international business transactions while at the same time it is a product of different national legal systems. It is a product of the civil, socialist, and common law systems of contract. As such it is a unique hybrid of all three. In order to promote uniformity it had to detach itself from the idiosyncrasies of any one legal system. It is meant to be interpreted based upon its uniqueness and not its similarities to any one of the systems from which it was created. Article Seven mandates that the Convention be interpreted in a way that would "promote uniformity in its application."[53] One commentator has noted that it was hoped that this dictate of uniformity would allow individual judges to sever their thinking from domestic law mindsets. It is an attempt "to free judges, particularly in countries of the common law tradition, from the iron chains of precedent, thus permitting them to examine foreign cases as well in order to [page 78] attain uniformity."[54] Thus, national stare decisis is to be transplanted by an informal supranational stare decisis.

The simplicity of the Convention masks some deep-seated differences between the positions of civil law and common law signatories. One commentator notes that "divergency in the interpretations of civil law and common law judges seem to be inevitable."[55] In order to avoid this divergence, common law and civil law judges must reverse their approaches in a number of ways. First, the civil law judge is asked to search other cases throughout the world and follow precedent much the same way the common law judge does within her national system. Second, the common law system is asked to look to the travaux préparatoires, legislative history, and general principles when making a decision involving an original interpretation of the Convention. These are the techniques of interpretation in which civil law judges feel most at home:

"It is common knowledge that common law judges seem traditionally willing to take recourse to preparatory materials or to refer to the genesis of a statute ... [In contrast,] civil law judges are more willing to refer to the preparatory work or legal history of a text than their common law colleagues ... Continental European judges are far less scrupulous about taking a functional approach than their English or American counterparts."[56]

The job of the American jurist has been made easier in a number of ways. First, much of the Convention mimics the rules found in the Uniform Commercial Code. "The American lawyer will find the Convention ... sufficiently akin [to the U.C.C.] so that experience with one will be readily translatable for use with the other."[57] Second, the language is simple and not nation-specific thus inviting original interpretation. "To prevent problems of translation and interpretation the Convention's language is terse and clear, and its concepts are uncomplicated."[58] Furthermore, the rules of the Convention are expressed in terms of the events found generally in international trade and are not tied to thematic, abstract elements of contract law. Third, the Convention provides a cross-referencing road map for the jurist to follow in reasoning by analogy. [page 79] There is a "considerable amount of cross-reference to other pertinent articles, which reduces substantially that perennial difficulty encountered by [common law judges and lawyers] in dealing with civil law ...."[59]

Professor Goldstajn has attributed the current rise of a supranational commercial law to two key factors. First, the "optional character of the law relating to the sale of goods."[60] Most rules of sales law are not immutable. They can be varied by agreement. It is by this variation that merchants can transform customary law. The optional nature of sales law has been preserved by the CISG. The CISG allows the parties to an international sales contract to "exclude the application of the Convention or derogate from or vary the effect of any of its provisions."[61] The second factor that has lead to the development of an independent international sales law is the increased use of arbitration to settle contractual disputes. The Council of Europe, for example "started work as early as 1959 on the preparation of a convention on arbitration."[62] The European arbitration convention is to "a large extent based on the various legal systems involved and on the fruit of practical experience."[63] Commercial arbitrators are less likely to be concerned with the "peculiarities of the various national systems of law."[64] They are more likely to make decisions based upon pro-arbitration norms than on any predisposition towards a domestic law. These factors, along with widely accepted supranational rules of commerce, have lead to the creation of a law of business for international transactions. The pervasiveness of this internationalization of transactional law into domestic legal systems was duly noted by Professor Schmitthoff. "The legal techniques of carrying on international trade are the same everywhere, irrespective of the political, ideological or economic orientation of the countries [involved]."[65]

The movement towards free trade areas has had a direct impact on the unification of sales and contract law. Nowhere has the need for harmonization of national laws been more pronounced than in Europe.[66] [page 88] "Typical features of the current business scene in Europe include a growing number of international commercial transactions and the expansion of trade as a result of economic interdependence and interpretation. At the same time, there are still broad discrepancies between legal systems."[67] The importance of uniform rules and for the uniform application of those rules has been specifically addressed by the Council of Europe.[68] The Sub-Committee on the Uniform Interpretation of European Treaties has sponsored a number of resolutions to facilitate the uniform interpretation of supranational legislation.[69] First, it recommends that each nation establish a procedure to prepare and forward copies of decisions interpreting international conventions. Second, "each member [state] [should] establish a national liaison bureau to permit an exchange of information on legislative activities."[70] It will be interesting to see whether European signatories to the CISG will keep each other informed through their European channels of communication.[71] The CISG's commitment to uniformity in interpretation would be served by the adoption of similar enhanced communications between member states.[72]

Commercial parties have often compromised in choice of law negotiations and forum selection clauses by selecting venues and national laws that are considered fair and advanced. The London Court of International Trade and the International Chamber of Commerce's Paris-based Arbitration Panel are popular compromises for contracting parties from divergent legal systems. This has also been the case regarding [page 81] Swiss commercial law. "Swiss commercial law appears to be acceptable to parties from different legal backgrounds."[73] The straight forward, uncomplicated nature of Swiss law has made it an appealing compromise selection for choice of law in contract negotiations.[74] Other popular choices of law in international contract dispute resolution include English, American, French, German, and Swedish laws.[75] Choice of law selection has helped "internalize" some of these national laws.

C. International Principles of Contract Law

The Court of International Justice recognizes general principles of law found in the legal systems of all civilized societies as a source of international law.[76] This can also be said of contract law. There are universalized principles or norms [77] of contract law that are found in some form in most national legal systems.[78] "Despite the variety of ways in which the conclusions are reached and articulated, concrete commercial issues tend to have similar resolutions in all Western systems."[79] [page 82] The Arbitration Panel in Libyan American Oil Company v. Libyan Arab Republic offered a definition of generally recognized principles. "These general principles are usually embodied in most recognized legal systems ... They form a compendium of legal precepts and maxims, universally accepted in theory and practice. Instances of such precepts [include] ... the principle of sanctity of contracts."[80] The notion of universal rules or norms of contract has been formulated in many ways. The following litany of general thematic concerns of contract law is one example of such a formulation. Principles of contract law may be motivated by "the goal of full compensation, the moral convention of promising, a community's sense of justice, relational and cooperation norms, or the goal of unification and certainty in international sales contracts."[81] The meta-principles of good faith, fairness in the exchange, and the duty to inform are implied into contract by most legal regimes.

1. The Duty of Good Faith

"Good faith is a legal principle that forms an integral part of the rule pacta sunt servanda ... good faith with the keeping, and manner of performance ... [and] is one of the oldest and most clearly established of the major elements of the principle in international law."[82] The CISG surprisingly did not adopt a specific implied duty of good faith provision for sale of goods transactions.[83] It does indicate that good faith should play a role in its interpretation. It should be interpreted to promote "the observance of good faith in international trade."[84] Other provisions of [page 83] the Convention may be used to imply a good faith obligation. The statements and conduct of the parties to a contract are to be "interpreted according to the understanding [of] a reasonable person."[85] A reasonable person is generally taken to act and react in a good faith manner. Article 9(2) implies trade usage and custom into every contract of sale.[86] A strong argument may be made that good faith is a universal trade usage or custom. From the medieval lex mercatoria to the present specific rules of business can be traced to the norm of good faith and fair dealing. The duty of good faith is consistent with the goals of the Convention and may be implied through purposive reading of its express articles. For example, Article Seventy-Seven's express adoption of the duty to mitigate is consistent with a finding of an implied duty of good faith.[87] The duty to mitigate by the nonbreaching party is the counterpart to the breaching party's duty of good faith performance.

The obligations of good faith found in national legal systems [88] can also be used in the interpretation and enforcement of contracts under the CISG. The Convention specifically excludes from governance over "the validity of contracts."[89] Bad faith negotiation or performance in most national legal systems will void a provision in a contract that was produced by the bad faith act. Whether viewed as a contract voiding principle under Article Four or as a usage of trade under Article Nine, it is likely that national principles of good faith will be applied to CISG contracts.[90] A brief review of national principles of good faith supports the [page 84] view that the duty of good faith is a general principle of international contract law.

The German principle of good faith performance has a lineage that can be traced to Roman times. The principle was re-embraced by the mercantile community during the eleventh and twelfth centuries.[91] The notion of good faith performance stemming from Roman law and the lex mercatoria has been brought forward to the present day civil codes. The German Commercial Code (BGB) voids any agreements or contractual terms that are considered contra bonos mores or contrary to the public policy of good faith.[92] The German Law on General Business Conditions or AGB-Gesetz (AGBG) states that as a general rule a contract provision is void if it "works to the disadvantage of a party in a way irreconcilable with good faith."[93] The AGBG also provides a number of techniques that can be used in making a good faith determination. First, if a contract provision "fundamentally deviates" from the default rules of the BGB, then they may be considered to have been made in bad faith. Thus, provisions that are contrary to the optional rules of the BGB are not per se invalid, but may be stricken indirectly in violation of the general principle of good faith. Second, a court will make a "literal and restrictive interpretation" of a contract clause that was not freely negotiated.[94] The civil law has long recognized the duty to negotiate in good faith known as culpa in contrahendo.[95] Third, a court can overcome the presumptive power of a written agreement by considering parol evidence that results in a more equitable reading of a harsh contract term. Finally, Section 242 of the BGB uses the good faith concept of "basis of the bargain" or Geschaftsgrundlage [96] to excuse a party from performing a contract that has been frustrated. The existence of a good faith excuse for nonperformance may result in an equitable reformation or a rescission of the contract. "The courts will in the first place try to adapt the contract to the new circumstances by re-writing it in accordance with [page 85] what they perceive as the parties' intentions and interests ... if this fails [they] will void the entire contract."[97]

The concepts of good faith and fair dealing can be found in the Restatement (Second) of Contracts and the Uniform Commercial Code. Section 1-203 of the Uniform Commercial Code states that "every contract or duty within this act imposes an obligation of good faith in its performance or enforcement." The nature of good faith as an overriding principle of contract law has been duly acknowledged. "The general concept of good faith appears in the U.C.C. as an 'overriding and super-eminent principle.'"[98] Good faith "imports affirmative obligations on the parties to communicate during performance and to cooperate in the cure of defects and the modification of obligations in unforeseen circumstances."[99] Expansive interpretations of contractual good faith include good faith in negotiations,[100] the duty to cooperate,[101] the duty to adjust from the express terms of the contract,[102] and good faith in the termination of contractual relations.[103]

The universality of good faith in contract formation and performance is evident when reviewing the legal regimes of planned or socialist economies. Private contract law is generally not associated with countries characterized by state ownership of property and planned economies prior to the fall of communism in the former Soviet Union and Eastern Europe.[104] At that time, contracts of sale, however, were used to facilitate transactions between state-owned agencies. Implicit in the notion of such contractual interchange was the duty to cooperate in concluding [page 86] contracts and to "perform their obligations with due care."[105] These duties to cooperate and to act in good faith were required because all agencies were obligated to work toward goals stated in national economic plans.[106] Thus, failure to act in good faith was viewed as not only harming the other contracting party but the state itself. Failure to perform or providing defective goods resulted in the assessment of penalties not necessarily related to actual damages. These penalties were intended to be punitive and were not primarily aimed at compensating the nonbreaching party for actual damages.[107] A party acting in bad faith was subject to damage claims in excess to those granted under the Hadley foreseeability principle found in the common law.[108] In sum, good faith in the performance and enforcement of contracts in an international setting is recognized by all national legal systems.[109]

2. Substantive Fairness

Professor Atiyah in his article "Contract and Fair Exchange" [110] examines the common law's shift from classical contract's undaunting allegiance to freedom of contract to modern contract's concern with the substantive and procedural fairness in the exchange. He notes the fabrication of equitable doctrines and of the "huge growth of statutory interventions in contract law ... designed to ensure substantive fairness in exchange."[111] Fairness in the exchange has increasingly been accepted as a major norm or principle of contract law at the supranational level. One commentator on international commercial contracts predicts a continuing shift from the principle of sanctity of contract to fairness in the exchange:

"Though the principle of sanctity remains strong, relational elements are on the rise ... [There has been] a major shift towards relationalism [page 87] and a recognition of equitable considerations. Principles of equity have been fully recognized with respect to the duties of good faith, renegotiation, and gap-filling ... The doctrines of good faith and fair dealing are integral parts of contract law. It, therefore, can be concluded that, though fairness might not be the sole aim of contract law, it is certainly its underlying basis and one of its major objectives."[112]

The notion of fairness of the exchange has been traced to the natural law philosophy of Hugo Grotius [113] and Samuel Pufendorf.[114] They believed that contractual fairness was a relevant factor in the enforceability of contracts. "The arguments of fairness, good faith, and change of circumstances were generally recognized by natural law lawyers."[115] The norm of fairness provides an umbrella for a number of doctrines that revolve around the substantive fairness of the exchange. The civil law's notion of just contract [116] and the common law doctrine of unconscionability [117] come within the fairness penumbra. The divergence between the common law and civil law in the area of substantive unfairness may be merely one of semantics. For example, Article Twenty-One of the Swiss Civil Code adopts a rule that is akin to the common law's doctrine of unconscionability. Under Article 1674 of the French Civil Code, an agreed price that is inadequate by more than seven-twelfths of the value of a good may be rescinded by the seller. The purchaser then has the option of "paying the balance of the just price"[118] or return the goods for a refund. In contrast, inequality of exchange is not a ground for rescission under the common law.[119] A common law contract need only be supported by some mutuality of consideration. It need not be characterized [page 88] by an equality or adequacy of consideration. "[A] contract does not lack mutuality merely because its terms are harsh or its obligations unequal."[120] The common law premise is that value is to be determined by the parties and is not to be the subject for judicial reformation on grounds of inadequacy of consideration.[121] It should be noted that in the area of equitable relief the common law is closer to the civil law's notion of just contract. A court faced with a contract of unequal exchange is required to enforce an otherwise valid contract and assess damages. That same court faced with the same contract is free to deny a claim for specific performance because of the inequality of the exchange.[122] Section 364 of the Second Restatement expressly states that specific performance should be denied if "the exchange is grossly inadequate or the terms of the contract are otherwise unfair."[123]

Despite the general common law principle that courts shall not set aside a contract due to inequality or inadequacy of consideration, there is a long-standing exception when the inequality is significant. The 1882 case of Wolford v. Powers states the common law exception. "Where the [consideration] is so grossly inadequate as to shock the conscience, courts will interfere."[124] The notion of substantive fairness is the cornerstone of fairness in the exchange inquiries. Under the civil law's notion of just price the analysis is theoretically to be applied before any contract is enforced. In contrast, the voiding or reformation of a contract in the common law on grounds of unfairness is considered an extraordinary remedy. The enlargement of notions of substantive unfairness or unconscionability has helped narrow the gap between the civil and common law and between legal and equitable remedies.[125] For example, the [page 89] court in Girard Trust Bank v. Castle Apartments, Inc.[126] seemed to adopt the litmus test of the medieval just price theorist. "If the value is more than twice the sale price, there is such gross inadequacy as will shock the conscience of the Court and justify setting the sale aside."[127]

Oftentimes the substantive unfairness of a contract is a tangential result of a weakness in the bargaining process.[128] In Vockner v. Erickson [129] an elderly woman entered into a contract for the sale of her apartment building. The contract provided for a purchase money mortgage with a monthly payment that was so low that it failed to cover the interest owing on the deed of trust. She would have had to wait until the age of one hundred and three for a 30 year balloon payment to mature in order to receive the bulk of the money owing. The court held that the payment term was unconscionable but elected to reform it instead of striking it entirely, holding that the "aim of reformation in these circumstances is to bring the contract in conformity with minimum standards of conscionability."[130] In order to strike a contract, an American court is likely to focus on factors that indicate that the stronger party took advantage of its "gross disparity of bargaining power."[131] The simple fact of disparity in bargaining position, however, is not sufficient to render a contract unconscionable. "Superior bargaining power alone without the element of unreasonableness does not permit a finding of unconscionability or fairness."[132] The court in Tuzlowitzki v. Atlantic Richfield Co.[133] sought out the usage and customs of the particular trade in order to determine if a term was unreasonable. "The business-practices-of-the-community test asks whether the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place."[134] It held that a termination provision in a gas station dealership [page 90] agreement was "not atypical in the local business community"[135] and therefore was not unconscionable despite the disparity in the bargaining positions. It is still unresolved whether a less than "gross disparity in the values exchanged"[136] alone will be sufficient for a common law court to interfere under the rubric of fairness in the exchange. An unfair contract without the notion of one party taking unreasonable advantage of the other will be less likely to be reformed. To do so would be "pushing [Anglo-American] contract theory beyond current substantive unconscionability, beyond medieval just-price doctrine."[137] It is clear, however, that some level of fairness in the exchange "constitutes a principle of current international practice [and] is regarded as an underlying principle of international commitments and arbitral awards."[138]

3. Notice Obligations

The duty to notify the other party in various situations can be seen as a generally accepted principle found in domestic laws. Notice obligations surface in a number of places along the transactional timeline including anticipatory nonperformance, request for additional time, notice of non-conformity, and notice of contract avoidance. Under Swiss law the buyer must inspect the goods purchased "as soon as it is feasible."[139] If defects are found, then the buyer must "immediately" notify the seller of the defects. "If the buyer fails to so notify recognizable defects, the goods purchased are deemed to have been accepted."[140] The German Commercial Code provides a similar duty of prompt inspection and notification. Failure to fulfill these obligations results in the waiver of the right of rejection based upon deficiencies in the goods. The importance of prompt notification is apparent given the relatively short statute of limitation periods found in some national laws. The statutory period under the German Commercial Code is only six months. Under the Danish Sales Act of 1906 or Krbeloven the buyer must advise the seller of defects within a twelve-month period from the delivery of the goods.[141] A prime example of national idiosyncrasies can be found in the Belgian and French Civil Code's title provisions. Generally, ownership passes upon the signing of the contract. An exception is made for [page 91] wine and other goods in "which it is customary to taste before purchasing."[142] There is no sale or duty to notify until the buyer has had an opportunity to taste the goods.

Third World negotiators of the CISG were especially concerned that strict notice requirements would be used by more sophisticated business persons to avoid liability for defects in their products.[143] Nonetheless, the good faith nature implicit in the duty to notify resulted in the adoption of notification requirements. In order to placate opponents, the maximum time limit of two years to notify is longer than what is found in most national laws of sales.[144]

4. The Enforceability of Business Instruments

The way that informal business instruments are originally interpreted under the CISG by a court of first impression will play a key role in determining their enforceability. That court will have the daunting task of harmonizing the divergence in the world's different legal systems regarding such instruments. Second, how foreign courts recognize such opinions will determine if the original interpretation is to gain universal precedential value. The courts are likely to look to the general principles of contract law for guidance in determining the enforceability of these business instruments. The principles of good faith and fairness in the exchange are bolstered by the widely accepted norms of contract law. These include compensation for justifiable reliance, the belief that one should keep her promises, and the justice forwarding inclination of equalizing the exchange. If a party agreed to a seemingly one-sided agreement based upon its reliance on a third party assurance, then a court may feel inclined to enforce an informal assurance as a way of equalizing the underlying agreement. The bad faith use of business instruments and promises by hard bargainers should subject them to a claim for foreseeable reliance damages.

The CISG, as with most codes, reflects a recognition of generalized principles of law. Professor Schmitthoff in making reference to the development of an international trade law code noted that it should possess "principles which should apply to all international trade transactions."[145] One can argue that it is the evolution of general principles of law that make an international code possible. It is unlikely that a code can create new principles that will be universally accepted and applied. A code is [page 92] most likely to be successful if it recognizes and harmonizes existing general principles of contract law. For example, despite the Convention's failure to incorporate a full-fledged good faith requirement, as found in the Uniform Commercial Code,[146] given its prevalence in most legal systems it is likely to be read into the Convention. "It has been predicted that the good faith requirement will mean, at a minimum, that the parties have an affirmative obligation 'to communicate during performance and to cooperate in the cure of defects and the modification of obligations in unforeseen circumstances."[147]

D. Interpretation of the CISG

The adoption of the United Nations sponsored Convention on Contracts for the International Sale of Goods is the most recent attempt at unifying international commercial law.[148] The most apparent problem with the unification of commercial law is that it has to be applied through a nonunified court system. The potential for "diverging interpretations by national courts is a problem of all international uniform laws."[149] The Convention envisioned the use of an informal system of stare decisis to help insure uniformity of interpretation. It was the hope of the drafters that the national trial courts called on to interpret the Convention would act as informal international 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. In performing these appellate functions, the Preamble to the Convention envisions the national courts "contributing to the removal of legal barriers in international trade."[150] The removal of legal barriers to trade is to be accomplished by interpreting the [page 93] Convention with "regard ... to its international character and the need to promote uniformity in its application."[151]

The Convention exhibits characteristics of acute legal schizophrenia. In its creation, it is the product of the rules and exceptions of the various national legal systems including the civil, common law, and socialist systems.[152] In its application, it is intended to divorce itself from the idiosyncratic meanings of the legal systems from which it came. The meaning of the rules and terms of the Convention are to be originally interpreted. A priori meanings taken from national legal systems are to be abandoned in favor of independent meanings consistent with the Convention's objectives.[153] These objectives include the establishment of a New International Economic Order [154] and the creation of a uniform international law of sales. Article 7(2) mandates that interpretation of the Convention is to be guided by its general principles and by the rules of private international law. Matters of interpretation are "to be settled in conformity with the general principles on which it is based"[155] or as a next resort to general principles of international contract law.

The unifying principles upon which the Convention is to be interpreted include the unification of law,[156] the principle of good faith as internationally recognized,[157] and increasing the certainty and predictability of international transactions.[158] Secondary norms of interpretation [page 94] include filling gaps by internal references, analogy, and the use of the international reasonable person standard. Gap-filling courts are to use the techniques of analogy and expansive construction in order to promote original, uniform interpretations.[159] Article 9(2) authorizes the courts to imply terms "which in international trade [are] widely known and regularly observed."[160] The Convention makes clear that the customs and usage are to be international in character and shall preempt any conflicting national equivalents. The parties submitting evidence of custom or usage must prove that they are "rules governing international trade and not just domestic transactions."[161]

In interpreting the Convention the jurist may make use of both civil and common law interpretive tools. The courts should look within and outside the code in their quest for uniform, rational interpretations.[162] From the civil law, the courts should look to interpret each article of the Convention in order to maintain its internal integrity. In interpreting an article the courts should look to the meaning of other articles and their interrelationships with the article in question. From the common law school of interpretation the use of external principles should be used to adequately attire the newly crowned "emperor"[163] of international sales law. By analogy, Professor Hillman describes the Uniform Commercial Code's interpretive approach as a combination of methods found in the common and civil laws. "Look first at the explicit language of the Code, next to the Code's purposes and policies and finally, to the common law."[164] This is the approach adopted under Articles 7(1) and 7(2) of the Convention. The courts are to look to the express language of the Convention and reason by analogy among its different provisions. Second, [page 95] the courts are to advance the general principles upon which the Convention was drafted when making such an interpretation.[165] Third, if an interpretation is not clear, the court is to make use of private international law as defined in a relevant national legal system.[166]

The quest for uniform application of the CISG will not be a smooth one. The threat of national courts placing a "domestic gloss"[167] on cases of first impression is real. The ultimate impact of domestically slanted opinions will be the soundness of their reasoning and analysis. Ultimately, the way that foreign courts reconcile divergent opinions will determine if uniformity of application will be achieved:

"[A firm] foundation can only be built if the courts interpreting the CISG provide detailed and convincing analysis. Such detailed and convincing analysis will consider the pertinent provisions of [the] CISG and will consider the interplay between them. They [should] also include reference to [its] legislative history and to scholarly articles. In so doing, the decisions will have a logic and rationale which will be persuasive of their own accord.[168] ... The very compromise that led to CISG's creation will lead to results in its application which embody these compromises."[169]

Courts concerned with uniform application of the CISG have a number of techniques and tools at their disposal. The first is to use the CISG as a fully integrated statute. This will allow a court to use unrelated or tangentially related articles of the Convention in interpreting a given article without recourse to domestic gloss. Second, the legislative history of not only the Convention but also previous attempts at contract law [page 96] harmonization will provide ready-made rationales that will help bridge the divergence between national legal systems. Third, a court may seek out the guidance of the universalized reasonable person as a device for supranational interpretation. The use of international usage and custom in conjunction with implying "the understanding [of the internationalized] reasonable person"[170] will help courts to avoid national legal bias. Finally, the uncovering and use of general principles of contract law, such as good faith and fair dealing, will help elevate courts to an internationalized interpretation of the Convention.

The internationalization of contract law results in a complicated duality.[171] In the hope of simplification and uniformity in the long-term, there is a likelihood of increased complexity in the short term. Until the jurisprudence surrounding the CISG is universally accepted with uniform interpretations and applications of its provisions, the international business person will have to confront a number of contract law regimes. The international lawyer will be "called upon to synthesize diverse and sometimes conflicting national and supranational policies and supporting legal rules."[172] For example, a practitioner in Europe will need to be familiar with domestic laws, the law of the European Union, and the CISG. This is the state of the current legal milieu upon which writers of international business instruments and letters are to be judged.

E. CISG as Customary International Law

All legal systems look to commercial practice, trade usage, and custom to breathe meaning into contracts. The objective theory of contract's reasonable person possesses the knowledge and sophistication of the average business person in a given trade or profession. This knowledge includes the meanings, trade usage, and practices generally known and accepted in that business or profession. This knowledge is the merchant's tool which she uses to communicate and effectuate commerce. In the Middle Ages usage and practice became a portable law that merchants carried with them from town to town. "The merchants carried their law, as it were, in the same consignment as their goods, and both law and goods remained in the places where they traded and became part of the general stock of the country."[173] This knowledge base [page 97] was implied into their contracts to imbue express terms with their technical or trade meanings and to imply usage and custom to fill in gaps in the contract. The importance of trade usage to contractual interpretation was adopted by the CISG. Article 8 states that in determining the knowledge of the reasonable person "due consideration is to be given to all relevant circumstances including ... usage."[174] Article 9 solidifies the binding nature of trade usage in international contracts. "The parties are considered ... to have impliedly made applicable to their contract ... a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade."[175]

An International Chamber of Commerce panel posed an interesting twist to the notion of trade usage in relationship to the CISG. Can the CISG itself be considered a usage of trade and be applied outside the scope of its direct jurisdiction? Can it be used within domestic law as evidence of trade usage in the area of international transactions? The panel reasoned that the CISG is "generally characteristic of sales [law found] in all judicial systems."[176] As such, the Convention can be implied into international contracts not only as substantive law but also "as the best available evidence of international usage of trade."[177] The issue in this case was what type of notice was required regarding the non-conformity of certain goods. Rather than looking for guidance in the domestic law, the arbitrators looked to the CISG as a convenient tool in order to determine customary notice practice.[178] The CISG's two-year [page 98] statute of limitations provision for giving notice of a non-conformity is generally longer than those found in most domestic laws.[179] For example, the Danish Sales Act of 1906 [180] provides for a one-year limit to raise claims of defects. The statutory period under the German Civil Code "time-bars claims after only six months."[181] An arbitrator or a judge may be tempted to choose between the different notice positions found in the CISG and domestic law in order to achieve a certain end result. "The Convention may be applied virtually anytime an arbitrator [or judge] believes that it produces the proper result."[182] An International Chamber of Commerce Arbitration Tribunal adopted just such a position:

"The Tribunal finds that there is no better source to determine the prevailing trade usages than the terms of the CISG. This is so even though neither [the buyer or seller are from signatory countries.] If they were, the Convention might be applicable to this case as a matter of law and not only as reflecting trade usages."[183]

One commentator asks whether the Convention can provide "paralegal norms" in contract negotiations and dispute resolution. He concludes that "general conditions embodied in treaties are regarded as evidence of trade usage."[184]

The seeds for the evasion of domestic laws when it is convenient to do so can be found in the Danish Sales Acts. The rules of the Danish Sales Act are not immutable and "may be modified by way of agreement or by commercial usage."[185] The recognition of the CISG notice provision as representative of commercial usage [186] would allow a court to extend the limitations period from one to two years. The buyer's ability [page 99] to bring suit would be extended. Thus, the CISG may be seen as a vehicle for a new international law merchant. Like the medieval jus mercatorium it can be seen as "a collection of usages ..., a sort of international custom"[187] which international merchants may use in their transactions. In the framework of a new international law merchant, the treatment of informal business instruments under the CISG could lead to their recognition as enforceable instruments of international custom or usage. This could result in two regimes of enforceability: one under the decisional law of a given national system, and a second under the CISG. A business instrument could conceivably be held to be unenforceable under the former and enforceable under the latter legal regime.

V. RECONCILIATION: THE UNIFORM COMMERCIAL CODE AND THE CISG

A. The Battle of Forms

An American party familiar with the Uniform Commercial Code can be exposed to unexpected liabilities in the battle of forms situation. Article 19 of the CISG resolves the "battle of forms" dilemma differently than Section 2-207 of the Uniform Commercial Code.[188] A hypothetical involving the addition of a term in an offeree's response will illustrate the comparative complexities. A seller responds to a purchase order (offer) with a confirming invoice. The confirming invoice, however, includes an additional term that limits the ability of the purchaser to notify seller of product defects. What is the legal effect of the additional notice term? Does this modification of the CISG notice provision materially alter the contract offer? If construed as a non-material modification, the CISG and the UCC would acknowledge a contract formation incorporating the offeree's modification. However, if the term was considered to be material the two laws would result in different conclusions. Under the CISG there would not have been a contract because the modification would have converted the would-be acceptance into a counter-offer. The Uniform Commercial Code would have found a contract under the material terms presented in the offer. The notification term modification would be stricken. [page 100]

A German court in fact held that such a modification was non-material.[189] This is a surprising decision given the fact that most commentators have interpreted Article 19 as a rejection of the UCC approach in favor of a mirror image rule.[190] This is because it has been assumed that the CISG's definition of materiality would be broadly construed. Unlike the UCC's restriction of materiality to a few fundamental terms, the Convention gives an expansive list of contract terms that are to be construed as being material. It states that terms "relating to, among other things, the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other, or the settlement of disputes are considered to alter the terms of the offer materially."[191] The notification of non-conformity terms would seem to come within the umbrella of something that impacts upon the "extent of one party's liability to the other."[192] The German court decision is evidence that until a surrounding jurisprudence is solidified contracting parties are likely to be surprised by some of the results produced by national courts interpreting the Convention. In the area of informal business instruments, the materiality of the assurance to the underlying transaction is likely to be a pivotal factor in the enforceability determination.

B. Precontractual Liability

The enforceability of quasi-contractual and preliminary instruments has long been debated. The line between pre-contract or noncontract and contract has never been precisely fixed.[193] Courts have at times rescued those who relied upon noncontractual instruments. Flexible concepts such as promissory estoppel and good faith have been utilized to give recourse to those who would be precluded by various contract law formalities. The uncertainty of liability is compounded in the area of international contracts because of variations on contractual formalities [page 101] among the different legal systems. Under the CISG, an American business person cannot seek protection from the statute of frauds when giving an oral assurance or representation. A verbal guaranty or assurance is more likely to be enforced under the CISG and in some legal systems such as Germany. The approach by a party seeking enforcement of a business letter or an oral assurance would be that "the manifestations of the parties would indicate to a reasonable person that an agreement"[194] had been made or that an intent to be bound had been given.

The importance of the statute of frauds in Anglo-American jurisprudence is often overstated. The informality of a writing or the lack of a final integrated expression of agreement has rarely prevented a court from admitting evidence in order to fill in gaps in a contract:

"In the final analysis, a contract becomes enforceable against the objection of apparent uncertainty ... by resorting to objective external standards, or commercial practice, or other usage or custom fairly shown to be within the contemplation of the parties. [The finding of an] agreement should not be frustrated where it is possible to reach a fair and just result."[195]

Thus, even where the parties contemplate a final written agreement, the court may still find a contract prior to the final integration. "The mere fact that the parties contemplate memorializing their agreement in a final document does not prevent their informal agreement from taking effect."[196]

Three views can be formulated by the parties when considering preliminary agreements, letters of intent, informal business instruments, and other inchoate agreements.[197] First, oral agreement or assurance does not result in legal liability until a formal writing is signed. Second, a more formal writing is a mere formality and informal instruments or oral assurances are legally binding. Furthermore, misrepresentation or lying in a "precontractual" negotiation can result in both moral and legal recrimination.[198] Often times the morality of enforcement equates to the legality of enforcement. Unethical conduct or fraudulent promises have resulted in the creation of legal causes of action.[199] Third, preliminary [page 102] agreements formalize the party's intent to enter into a final agreement pending successful negotiations by their attorneys and other representatives. Failure by third parties to finalize the terms of a final agreement releases the principals from their good faith intentions to enter into a formal, binding agreement.

These various views have also been expressed by American courts. A number of courts have ruled that any negotiation not resulting in a formal agreement allows each of the parties to withdraw whether in good or bad faith.[200] Other "courts have held the withdrawing party liable as if a fully negotiated contract to consummate the transaction already existed."[201] What is clear is that reliance theory has been used to expand the contractual liability net into areas of pre-contract or quasi-contractual instruments in ways not previously seen before.[202] This expansion of contractual liability is likely to include the area of international contract negotiations.

Recent changes in modern international transactions have led to an increased reliance on precontractual instruments. Commercial transactions are increasingly consummated between parties of diverse cultural and legal traditions. Parties are often unfamiliar with the ethical and legal ramifications of the negotiating process in other countries, which may lead the parties to write out their goals at a relatively early stage of the negotiation... The primary question becomes whether the relevant community would accord binding force to the [instrument].[203]

Ultimately, the potential for liability in the area of precontract or in the area of informal business instruments will be determined by commercial practice. "Similarities of contract practice and contract law are due to common commercial needs shared by all who participate in international trade transactions."[204] The more that such instruments are a product of hard bargaining and the more that private contract parties rely upon them, the more likely there will be contractual liability. [page 103]

C. Contractual Informalities Under the CISG

1. The Evidentiary Threshold

The Uniform Commercial Code requires that any sale of goods for a price of $500 or more must be evidenced by "some writing sufficient to indicate that a contract of sale has been made between the parties." [205] Furthermore, the writing must be "signed by the party against whom enforcement is sought."[206] The sanctity of the written contract is protected under the common law and the Uniform Commercial Code by the parol evidence rule. A written agreement cannot be "contradicted by evidence of any prior agreement or of a contemporaneous oral agreement."[207] In contrast, the CISG applies the view of many of the civil law countries that a writing is not a required formality to the finding of a contract. Article 11 states that a "contract need not be evidenced by writing."[208] The lack of a writing requirement is coupled with the admissibility of any evidence that may bear on the issue of formation. Proof of contract or the terms within a contract may be "by any means, including witnesses."[209] Thus, the potential for liability for representations made during the negotiation phase is greater under the CISG than under the Uniform Commercial Code. "Under [the] CISG any relevant statement made in negotiations prior to the signing of the contract are admissible into evidence."[210] In contrast, the Uniform Commercial Code's parol evidence rule integrates prior statements, written or oral, into the final written contract. A seller could avoid warranty liability for representations made during the pre-contract phase by not memorializing them in the written form. Under the CISG, prior oral representations regarding quality and performance would be enforceable. The implication for the enforceability of informal business instruments is evident. The unsophisticated business person could be trapped if she believed that any oral or informal letter would only create a binding obligation when confirmed in a formal writing.

The level of evidence needed to meet the threshold of agreement under the CISG has made international contracting more complicated for the American business person. The writing requirement of the Uniform Commercial Code eliminates oral agreements and "informal" letter [page 104] agreements. The writing must be "sufficient to indicate that a contract of sale has been made ... and [must be] signed by the party against whom enforcement is sought."[211] Under the written confirmation rule, the writing may be a one-sided instrument.[212] A merchant may legally confirm an oral agreement in writing. If the receiving party fails to respond with a written notice of objection, then she is taken to have waived her statute of frauds defense. It should be noted that this forced waiver does not shift the burden of proof as to whether there was in fact a legal contract of sale. The confirming party still has the "burden of persuading the trier of fact that a contract was in fact made orally prior to the written confirmation."[213] Other exceptions to the writing requirement can be found in cases involving "specially manufactured goods"[214] and where one party has "partially performed."[215] The former situation estops a purchaser from canceling an order for specialty goods if its notice of repudiation fails to reach the seller before "a substantial beginning of their manufacture or commitments for their procurement"[216] have been made. In the case of an installment contract, receipt and acceptance of a delivery "constitutes an unambiguous overt admission by both parties that a contract actually exists."[217]

In contrast, the CISG's evidentiary threshold is easier to meet for two reasons. First, a purely oral agreement or one evidenced by informal correspondence or a business letter are sufficient to evidence the formation of a contract. Second, contractual obligations "may be proved by any means"[218] including by "any prior agreement or [by] a contemporaneous oral agreement."[219] A decision rendered by the Mexican Commission for the Protection of Foreign Trade cited Article 11 of the CISG in holding that a number of commercial invoices and evidence of the delivery of the goods were sufficient to support the finding of a contract of sale.[220] The CISG's lack of a writing requirement and of a parol evidence rule will allow the receiver of a business letter or instrument a strategic advantage in proving enforceability. Contemporaneous oral assurances as to the legality of the instrument may be admitted into [page 105] evidence to prove the issuer's intent to be bound. Alternatively, evidence of the depth of negotiations over the wording of the instrument and the importance attached to it by the parties will help support a claim of justifiable reliance.

The requirements to form a contract is further complicated by the fact that Articles 12 and 96 of the Convention allow a contracting state to opt out of the oral agreement provision. Countries whose domestic law requires a sales contract to be evidenced by a writing may opt out of Article 11. A party contracting internationally must not only inquire as to whether the other party is a resident of a CISG country but also whether that country has opted out of the writing requirement. As of this writing at least eight countries have formally opted out.[221] Interestingly, most of the countries opting out have socialist legal regimes.[222] The United States has elected not to opt out in favor of the writing requirements of the Uniform Commercial Code.[223]

2. Modification of Contracts

The differences between legal formalities is further complicated by Article 29 of the Convention. An agreement that all modifications to a contract must be in writing is held to be enforceable. What if the parties orally agree that any future modifications must be in writing? The spirit of Article 11 would indicate that such an oral agreement would be as provable and enforceable as any other contractual term.[224] Article 29(2) may be interpreted to require that any agreement requiring a writing to modify a contract must itself be in writing.[225] An interpretation that an oral agreement as to the requirements for modification is equally binding and in conformity with the spirit of informality represented by Article 11.

The Convention's article on modification and how it is interpreted may impact upon the enforceability of informal business instruments [page 106] made subsequent to the formation of a contract. Two issues arise in conjunction with the use of such instruments, namely, to clarify conflicting positions or to assure a party of continuing performance. First, does the use of a business letter or instrument to clarify or assure work result in a contractual modification? Second, if such a modification is intended, then does it need to be in writing? The second issue has already been addressed. The first issue was addressed outside the context of the CISG in the American case of Chelsea Industries v. Accuracy Leasing Corp.[226] A lessee under an equipment leasing agreement asked the lessor to clarify the issue of a purchase option. In response, the leasing company wrote a letter stating that it was its "policy ... to convert on stated terms"[227] the lease to a purchase contract. The leasing company argued that the policy letter was only a statement of current policy and was intended to be nonbinding. The court disagreed by holding that the letter became a part of the total agreement and thus was a contractually binding promise.

3. Choice of Law

The United States has two laws of contracts: a state law of contracts represented by the Uniform Commercial Code and a "federal law of contracts," the CISG. It has long been the law of the United States that there is no federal common law. The common law remains the domain of the states under a Constitution that restricts the authority of the Federal government to those of enumerated powers. However, when the federal government acts to preempt state law under one of its enumerated powers that preemption by way of statute or treaty becomes state law. This principle was stated by the Supreme Court in the 1880 case of Hauenstein v. Lynham:[228] "The laws and treaties of the United States are as much a part of the law of every state as its own local laws."[229] This becomes important when a United States citizen attempts to opt out of the Convention. This could be done by negotiating a choice of law clause to that effect. The unwary business person may become trapped in the quagmire of conflicts of law. Suppose the choice of law clause states that the "law of the State of New York" shall apply to any disputes evolving out of this contract. What law shall apply, New York's version of the Uniform Commercial Code or the CISG? The better answer would seem to recommend the CISG because it is the law [page 107] of the State of New York where the contracting parties are from different countries that are both signatories to the Convention. Alternatively, if the court's conflict of law rules refer the court to the law of New York, again there would be a strong argument that the CISG preempts the UCC in this situation. This would be the case whether the contract is signed in New York or abroad. It would also be the case involving a foreign company doing business in New York, even if the contract is to be performed within the state. All that is needed is for the parties to have their primary places of business in two countries that are signatories to the Convention.[230]

An ancillary issue is whether a court should allow the introduction of evidence to rebut the presumption in favor of the federal treaty. The parol evidence rule of the Uniform Commercial Code would likely preclude such oral admissions in favor of the courts own interpretation of the words of the contract. In contrast, a court applying the rules of evidence suggested by the CISG would admit evidence that the parties intended that the Uniform Commercial Code to be the law of the case. To avoid a conflict of law renvoi or an unexpected interpretation, the contracting parties should choose their words carefully when opting out of the Convention. In our hypothetical the correct phraseology would be that the law to be applied is the "Uniform Commercial Code as adopted by the State of New York as of the date of the contract and/or as subsequently amended." The choice of law determination is an especially important one for the issue of business instrument enforceability. Under current American law, the informality of instruments, along with ambiguity of language, is likely to result in a finding of nonenforceability. A choice of law rule that directs a court to a foreign national law or the CISG may result in a different holding.

VI. THE AMERICAN BUSINESS PERSON AND THE CISG: SUMMARY AND CONCLUSION

This article has touched upon a number of the philosophical and practical differences in the law of contracts among the world's different legal systems and the CISG. The American business person and her attorney should be cognizant of differences in negotiating and drafting [page 108] international sales contracts and business letters.[231] First, the CISG's definition of materiality is unusually broad. Its agreement finding language is a facade for the strict compliance dictates found in the early common law's mirror image rule. American business persons' adeptness in formulating contracts out of loosely and sparsely worded correspondence is likely to result in uncertainty regarding obligations under the CISG. The battle of forms issue found in American law is jettisoned in favor of a finding of non-contract. All material terms of the acceptance should mirror the offer. Second, the ability to "agree to agree" on a price is expressly abrogated under the CISG.[232] A contract can only be formed if there is a mutual agreement on price or a means of calculating the price at the time of formation. Third, the implication of trade usage is sanctioned under both the Uniform Commercial Code and the CISG, but there are notable differences. The Uniform Commercial Code simply recognizes all "applicable usage of trade in the place where any part of [the] performance is to occur [as an aide] in interpreting the agreement."[233] The implication of trade usage under the CISG has a higher evidentiary threshold. It requires a further finding that the party to be charged had actual or imputed knowledge of the particular trade usage.[234]

Fourth, the Convention disregards the common law writing requirement. Whether a letter is a fully or partially integrated instrument will not play as meaningful a role under the CISG.[235] The courts will be less restrained by the "four corners" of the instrument in answering the enforceability question. In contrast, the common law makes a distinction between fully and partially integrated instruments. Those instruments construed to be partially integrated would admit the types of evidence allowed under the Convention. When an instrument is considered to be fully integrated, however, the divergence between the CISG and the common law is pronounced. The CISG's lack of a writing requirement allows all relevant information into evidence even if it contradicts the written documentation. The common law parol evidence rule would prohibit the introduction of evidence that contradicts the terms of the [page 109] writing.[236] This would be a significant factor in the area of the enforceability of representations made in business letters or informal instruments.[237]

Fifth, in the area of the revocability of an offer, the American business person will find it more difficult to be the master of her offer. With the exception of the firm offer rule,[238] the Uniform Commercial Code presumes that all offers are revocable. Article 16 of the Convention precludes revocation if "it was reasonable for the offeree to rely on the offer."[239] "Thus, an offer stating that acceptance must be made within thirty days would be considered irrevocable for that period."[240] The other material difference is that a firm offer under the Uniform Commercial Code must be in written form. The lack of a statute of frauds requirement under the CISG allows an oral offer to be irrevocable.

What is clear is that the Convention has added another area of legal concern for the practitioner of private international transactional law and her clients. Along with an understanding of the Uniform Commercial Code, knowledge of foreign national laws, and international trade usage, the Convention is of vital importance to anyone involved in the international sale of goods. From a practical point of view, "prudent drafters [of international sales contracts] ought to re-examine language [in order] to protect the special needs of their clients."[241] At a minimum, the [page 110] Convention should be analyzed as a possible choice of law alternative. "As CISG becomes better known, it is likely to become an acceptable compromise choice of law, even where it might not otherwise be applicable."[242]

Generally accepted principles of contract law may be utilized to determine "what is fair and equitable ... in terms of what best serves the business [efficacy] of the relationship."[243] One source for these principles is the Convention for the International Sale of Goods which has been described as "a giant step forward from the eras of conflicts [of law] and the law of merchants."[244] The similarity of contract rules among the world's different legal systems attests to the fact that there has been a process of convergence taking place over the centuries. The conduit for this convergence has been the expansion of international business transactions and trade. The Convention's flexible terminology is unlikely to present an obstacle in the event that new contractual instruments and terms are enforced within the context of international business transactions. [page 111]


FOOTNOTES

* Assistant Professor of Business Law, University of Miami School of Business, BA/BA, State University of New York at Buffalo, 1979; J.D., Cornell Law School, 1982.

1. John H. Merryman, On the Convergence (and Divergence) of the Civil Law and the Common Law, 17 Stan. J. Int'l L. 357, 377 (1981).

2. U.N. Convention on Contracts for the International Sale of Goods, U.N. Doc. A/CONF.97/18 (1980) (hereinafter CISG) (sometimes referred to as the "Vienna Convention"). The CISG became incorporated into the law of the United States in January 1988. As of the date of this article forty-six countries, including many of the United States major trading partners, have ratified the convention. "Among the forty-six nations adopting the CISG are Argentina, Australia, Austria, Canada, Chile, [China,] France, Germany, Italy, Mexico, [Russia,] Spain, Sweden, and Switzerland." John E. Murray, Jr., Different Laws Might Apply to Foreign Buys Under the UN Convention for the International Sale of Goods, 119 Purchasing 30 (Oct. 19, 1995). The United Kingdom is a notable exception.

3. Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995).

4. Id., quoting Orbisphere Corp. v. U.S., 726 F. Supp. 1344, 1355 (Ct. Int'l Trade 1989).

5. Id. It was the hope of the drafters of the CISG that it would facilitate free trade by harmonizing contract rules in the area of the commercial sale of goods:

"If everyone could agree on a single, reasonable set of rules, that is, one that strongly resembled the one with which the speaker is most familiar, then the babel of divergent national legal systems would break down, and a coherent and predictable framework for these business transactions would emerge. This strategy has much to recommend it since ... contract rules are largely conventional." Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L. J. 265, 283 (1984).

6. The passage of the North American Free Trade Agreement and the Uruguay Round of the General Agreement on Tariffs and Trade are two examples of the globalization of commercial transactions.

7. Denis Tallon, Civil Law & Commercial Law, VIII International Encyclopedia of Comparative Law 10 (1993).

8. John Klein & Carla Bachechi, Precontractual Liability and the Duty of Good Faith Negotiation in International Transactions, 17 HOUS. J. INT'L L. 1, 17 (1994). (quoting, Ralph B. Lake, Letters of Intent: A Comparative Examination Under English, U.S., French, and West German Law, 18 Geo. Wash. J. Int'l L. & Econ. 331, 342 (1984)). "Civil law jurisdictions have historically proven more receptive to claims based upon precontractual liability." Id. at 4.

9. "The parties are not bound to any specific type of contract dealt within the [Civil Code.]" Christoph von Teichman, Germany, Federal Republic, in 1 Legal Aspects of Doing Business in Western Europe 205, 216 ( Dennis Campbell ed., 1983). See generally Ernest C. Steele, German Commercial Law (1956).

10. Id.

11. See generally Wolfang Hering, The Commercial Laws of the Federal Republic of Germany, Digest of Commercial Laws of the World 62 ( L. Nelson ed., 1992).

12. von Teichman, supra note 9.

13. The importance of labels and using accepted forms of agreement to ensure enforceability in Anglo-American contract law is often overstated:

"Merely terming a document a letter of intent will not be conclusive as how a court will construe the document. For example, if the document does not clearly and unequivocally indicate that no binding obligations are to arise until a definitive agreement has been reached, a court might look at the intent of the parties and find that the letter of intent constitutes a binding contract. Harvey L. Temkin, When Does the "Fat Lady" Sing?: An Analysis of "Agreements in Principle" in Corporate Acquistions, 55 Ford L. Rev. 125, 130, n.18 (1986) (citing, John D. Calamari & Joseph M. Perillo, Contracts 2-7, at 30-33 (2d ed. 1977)).

14. Id. at 206 (emphasis added).

15. German Civil Code Book I, 133.

16. Naglar Nassar, Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-term International Commercial Transactions 44 (1995). (citing, Danz, Auslegung der Rechtsgesch?fte (Subsequent Conduct and Supervening Events) (T.J. Sawada ed., 1968)).

17. Leon Proscour, Report on France during the meetings of Committee E - Commercial Banking in Atlanta (Nov. 4, 1977), in 6(iii) Int'l Bus. Law 302 (1978). For a discussion of the importance of agreement in French jurisprudence as compared to English law see Anne De Moor, Contract and Agreement in English and French Law, 6 Oxford J. Legal Stud. 275 (1986).

18. Obligation de faire translates as a "commitment to perform."

19. Art. 109 of the French Civil Code, Henry P. Devries, Nina M. Gaston, & Regina B. Loening, French Law 5-18 (1985) (emphasis added). The greater informality and simplicity of French commercial contracts may also be due to the fact that there are fewer lawyers to consult for legal advice. "Overall, France had fewer legal experts than any other Western countries, 1 per 2000 inhabitants, as against 1 per 1200 in former West Germany and 1 per 500 in the USA." Collin Randlesome, Business Cultures in Europe 109 (2d ed. 1993). Alternatively, the fewer attorneys per capita may be due to the fact that business persons are more predisposed to maintain their transactions as agreements between merchants and not between their attorneys.

20. Art. 1134 of Belgian Civil Code, reprinted in, John H. Crabb, The Constitution of Belgium and the Belgian Civil Code 222-223 (1982).

21. Art. 1135. Id. at 222.

22. Id.

23. Id. at 224.

24. Art. 1157. Id.

25. Art. 1162. Id.

26. Arts. 1159 and 1160. Id.

27. Id.

28. 1 W.L.R. 989 (1976).

29. Id. at 996.

30. U.C.C. 1-205(1) (1994).

31. "It is the general rule that when there is a known usage of the trade ... that the usage forms a part of the contract, and that evidence of usage is always admissible ... where it does not alter or vary the terms of the contract." California Lettuce Growers v. Union Sugar Company, 289 P.2d 785, 790 (Cal. 1955). For a review of trade usage as applied in U.C.C. Section 1-205(4) see Amy H. Kastely, Stock Equipment for the Bargain in Fact: Trade Usage, "Express Terms," and Consistency Under Section 1-205 of the Uniform Commercial Code, 64 N.C. L. Rev. 777 (1986).

32. U.C.C. 1-205, cmt. 4 (1994).

33. Alexsander Goldstajn, The New Law Merchant, 1961 J. Bus. L. 12.

34. See e.g., "An applicable usage of trade in the place where any part of the performance is to occur shall be used in interpreting the agreement as to that part of the performance." Id. at 1-205(5).

35. Elizabeth Warren, Trade Usage and Parties in the Trade: An Economic Rationale for an Inflexible Rule, 42 U. Pitt. L. Rev. 515, 519 (1981).

36. See generally Charles Knapp, Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel, 81 Colum. L. Rev. 52 (1981); cf. P. Pham, The Waning of Promissory Estoppel, 77 Cornell L. Rev. 1263 (1994).

37. Vicky Stamas, Accountants' Association Plans to Limit Assurances on Official Statements, Bond Buyer 1 (Oct. 4, 1991).

38. For example, the granting of specific performance is more common in civil law countries than it is in common law ones. "In civil law, specific performance is the normal remedy as regards all obligations and damages are awarded only when specific performance is not possible." Robert B. von Mehren & Nicholas Kourides, International Arbitrations Between States and Foreign Private Parties: The Libyan Nationalization Cases, 75 Am. J. Int'l L. 476, 493 (1981).

39. DeVries, supra note 19, at 4-109.

40. See e.g., Weidner v. Hyland, 216 Wis. 12 (1934); 2 Kent, Commentaries 495.

41. Goldstajn, supra note 33.

42. Goldstajn, supra note 33.

43. Teichmen, supra note 9.

44. DeVries, supra note 19, at 4-122.

45. DeVries, supra note 19, at 4-123 (emphasis added).

46. "Civil law systems traditionally grant an additional period of time, beyond the date called for in the contract, within which the parties may perform. This is referred to in French civil law as mise en demeur and in German law as nachfrist, meaning 'the period after.'" Richard Schaffer, Beverley Earle, & Filiberto Agusti, International Business Law And Its Environment 111 (2d ed. 1993) (original emphasis). The closest that the Uniform Commercial Code gets to such notice is its provisions for "notice of termination" and its request for "adequate assurance." See U.C.C. 2-309, 2-609 (1994). In the area of adequate assurance a merchant may request security or assurance that the other party intends and is able to perform. It is not inconceivable that one party may grant an additional time for performance in exchange for such an assurance.

47. CISG, supra note 2, at art. 47(1).

48. CISG, supra note 2, at art. 47(2).

49. CISG, supra note 2, at art. 48(2).

50. CISG, supra note 2, at art. 49.

51. John Honnold, Beyond the Reef: Uniform Law for International Trade, Lecture at the University of Hawaii (May 13, 1986), quoted in Amy H. Kastely, The Right to Require Performance in International Sales: Toward an International Interpretation of the Vienna Convention, 63 Wash. L. Rev. 607, 609, n.12 (1988).

52. Kuzuaki Sono, The Vienna Sales Convention: History and Perspective, in, International Sale Of Goods: Dubrovnik Lectures 7 (Petar Sarcevic & Paul Volken eds., 1986). "That the Convention is free from dogma is important because it is businessmen who must understand the meaning of the provisions." Id.

53. CISG, supra note 2, at art. 7(1).

54. Sono, supra note 52, at 8.

55. Volken, supra note 52, at 38.

56. Volken, supra note 52, at 39-40.

57. Richard D. Kearney, Uniform Law for International Sales Under the 1980 United Nations Convention (Book Review), 78 Am. J. Int'l. L. 289, 292 (1984).

58. Sara G. Zwart, The New International Law of Sales: A Marriage Between Socialist, Third World, Common and Civil Law Principles, 13 N.C.J. Int'l. L. & Com. Reg. 109, 112 (1988). "The statement of [a] rule is often expressed in the context of the events that trigger the rule." Kearney, supra note 57, at 291.

59. Kearney, supra note 57, at 291-292.

60. Goldstajn, supra note 33, at 12.

61. CISG, supra note 2, at art. 6.

62. Council Of Europe, Legal Co-operation In Europe: 1957-1982 37 (1983).

63. Id. at 38.

64. John R. Crook, Applicable Law in International Arbitration: The Iran-U.S. Claims Tribunal Experiences, 83 Am. J. Int'l L. 278, 279 (1989).

65. C.M. Schmitthoff, Commercial Law In A Changing Economic Climate 18-20 (2d ed. 1981).

66. "The complexity and interdependence of legal, political, monetary and economic systems which characterizes the modern business arena generally are epitomized in Europe." Jack J. Coe, Jr. Western Europe: A Preface and Primer, in, Legal Aspects Of Doing Business In Western Europe 1 (Dennis Campbell ed., 1983).

67. Council Of Europe, supra note 62, at 43.

68. An example of a specific attempt at harmonization is "Resolution (78) 3 on Penal Clause in Civil Law." It was adopted by the Council of Europe to harmonize discrepancies in national laws pertaining to contractual penalty clauses aimed at assessing prefixed damages for an untimely performance. The Resolution provides eight rules to guide member states. The key provision would allow courts to adjust any penalty clause to a more appropriate amount. Article 7 provides that the "sum stipulated may be reduced by the court when it is manifestly excessive." This is contrary to the laws of Belgium and England where courts are placed in an all or nothing situation. If the clause is considered a legitimate liquidated damage provision, then it must be enforced. If a clause is considered to be an unfair penalty, then it must be stricken. There is no provision for a reduction or adjustment of the amount in such clauses. COUNCIL OF EUROPE, PENAL CLAUSES IN CIVIL LAW 6 & 15 (1978).

69. Id. at 93-95 (Resolutions (69) 27, (69) 28, & (64) 15).

70. Id. at 95.

71. The need for courts to keep informed of foreign legal decisions when interpreting and applying the CISG may be satisfied by private sources. For example, the Journal of Law and Commerce (University of Pittsburgh Law School) announced in a 1993 issue that it intended to annually publish "English translations of foreign court decisions interpreting the ... 'CISG.'" 12 J. L. & Com. 237 (1993).

72. One commentator predicts that UNCITRAL will continue to monitor the application and disseminate information on the CISG. "The Secretariat already has started to monitor the implementation of the Convention, and no doubt will find ways to collect and disseminate interpretations." Zwart, supra note 58, at 127.

73. Doing Business, supra note 9, at 397.

74. Doing Business, supra note 9, at 397.

75. "London, New York, Geneva, and Zurich are the most popular arbitration centers. Their respective laws, in addition to German law, are also the most frequently applied in dispute resolution." NASSAR, supra note 16, at 35. "The usual compromise is the law of some 'neutral' third country such as Sweden or Switzerland." See also B. Blair Crawford, Drafting Considerations Under the 1980 United Nations Convention on Contracts for the International Sale of Goods, 8 J. L. & Com. 187, 189 (1988).

76. Statute of the International Court of Justice art. 38(1)(c) done at San Francisco June 26, 1945, entered into force Oct. 24, 1945 (stating that international law includes "the general principles of law recognized by civilized nations"); "'General principles of law' are ... one of the sources of international law." A. A. Fatouros, International Law and the Internationalized Contract, 74 Am. J. Int'l L. 134, 136 (1980). One commentator lists the following as sources of international business law: (1) standard forms, (2) customs and trade usage, (3) rules of professional organizations, (4) general principles of law, (5) codes of conduct, (6) arbitral awards, and (7) international conventions. F. DeLY, International Business Law and Lex Mercatoria (Amsterdam, North-Holland, 1992)(emphasis added).

77. Article 53 of the Vienna Convention on the Law of Treaties defines norm or jus cogens as follows: "[A] peremptory norm of general international law is a norm accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted ...."

78. Lord McNair analyzed the concept of general principles of law as it applies to contracts between companies and governments for the development of natural resources. He concluded that where a nations' laws are not "sufficiently modernized" choice of law should lead courts to seek out generalized principles of contract law and not a particular national law. "The system of law most likely to be suitable for the regulation of [such] contracts and the adjudication of disputes arising upon them is 'the general principles of law recognized by civilized nations.'" Lord McNair, The Generalized Principles of Law Recognized by Civilized Nations, Brit. Y.B. Int'l L. 1, 19 (1957). Lord McNair notes two possible candidates for recognition as general principles: unjust enrichment and the principle of acquired rights or droits acquis. Id. at 16. Professor Goldstajn argues for the universal recognition and confirmation of the fundamental principles of freedom of contract and pacta sunt servanda. Goldstajn, supra note 13, at 17.

79. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and Review, 63 Ford. L. Rev. 281, 282 (1994). "Any law of contracts, national or international, is bound to start with [general] principles." Fatouros, supra note 76.

80. 6 Y. B. Com. Arb. 89 at 94 (1981), quoted in NASSAR, supra note 16, at 5; see also Fatouros, supra note 76 ("The principle pacta sunt servanda ... any law of contracts, national or international, is bound to start with this principle").

81. Amy H. Kastely, The Right to Require Performance in International Sales: Toward an International Interpretation of the Vienna Convention, 63 Wash. L. Rev. 607, 632 (1988) (this litany of considerations pertains to the issue of whether specific performance should be granted).

82. J. F. O'Connor, Good Faith in International Law 37 (1991), quoted in Nassar, supra note 16, at 142-143. The Preamble to the Convention on the Law of Treaties (May 23, 1969) states that "the principles of free consent and of good faith and the pacta sunt servanda rule are universally recognized."

83. The legislative history of the CISG does indicate that its drafters did recognize good faith as a "universally recognized" principle and as a "norm of conduct" in international trade. Commentary on the Draft Convention on Contracts for the International Sale of Goods, Prepared by the Secretariat, U.N. Doc. A/CONF. 97/5, reprinted in Official Records of the United Nations Conference on Contracts for the International Sale of Goods, U.N. Doc. A/CONF. 97/19 (1981).

84. CISG, supra note 2, at art. 7(1).

85. CISG, supra note 2, at art. 8(2).

86. "The parties are considered ... to have impliedly made applicable ... a usage ... regularly observed by parties to contracts of the type involved in the particular trade." CISG, supra note 2, at art. 9(2).

87. Article 77 states that a non-breaching party "must take such measures as are reasonable in the circumstances to mitigate the loss." See also Kastely, supra note 51 at 621.

88. Common and civil law jurisdictions recognize a principle of good faith requiring 'fair dealing, affirmative disclosure of material facts and assistance to others in achieving the free benefit of contractual relationships.' The good faith concept 'is in accordance with the code of fair play of everyday ethics, is written into the civil codes in almost all civil-law systems and is thoroughly established in Anglo-American equity. [Furthermore, it can be found as] an equitable element in the Jewish, Roman, English medieval, Muslim, English modern, Scottish, American, French, German, Swiss, Belgian, Dutch, Italian, ... Soviet, Polish, Swedish, Japanese, and Greek legal systems.

1 Guide to the International Sale of Goods Convention 101.010 (William A. Hancock ed.,1995), quoting R. Newman, The General Principles of Equity in Equity in the World's Legal Systems 589, 600-608 (R. Newman, ed., 1978).

89. CISG, supra note 2, at art. 4(a).

90. Professor Kastely concludes that "although the principle of good faith is not clearly defined and its placement in the Convention is problematic, it is appropriate to interpret the rights to performance ... consistently with a general obligation of good faith." Kastely, supra note 51, at 619-620.

91. Jill P. Anderson, Lender Liability for Breach of the Obligation of Good Faith Performance, 36 Emory L.J. 917, 919-920 (1987).

92. Doing Business, supra note 9, at 217. For an excellent examination of the German duty to negotiate in good faith or the doctrine of culpa in contrahendo, see Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harv. L. Rev. 401 (1964).

93. Doing Business, supra note 9, at 217.

94. Doing Business, supra note 9, at 217.

95. See generally Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harv. L. Rev. 401 (1964).

96. Doing Business, supra note 9, at 218.

97. Doing Business, supra note 9, at 218.

98. Anderson, supra note 91, at 923, quoting E. Allan Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. Chi. L. Rev. 666 (1983). See also Robert S. Summers, 'Good Faith' in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va. L. Rev. 195 (1968); and Steven J. Burton, Breach of Contract and The Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369 (1980) (defines bad faith as a contracting party's attempt to recapture forgone opportunities).

99. Rosett, supra note 5, at 290.

100. See e.g., Nicola W. Palmieri, Good Faith Disclosures Required During Precontractual Negotiations, 24 Seton Hall L. Rev. 70 (1993).

101. Anderson, supra note 91, at 924 ("Cooperation among contracting parties to insure that all parties receive the benefit of their bargain is at the very foundation of the good faith performance obligation").

102. See generally Richard E. Spiedel, The New Spirit of Contract, 2 J. L. & Com. 193 (1982); Robert W. Reeder, Court-Imposed Modifications: Supplementing the All-or-Nothing Approach to Discharge Cases, 44 Ohio St. L.J. 1079 (1983); cf. Clayton Gillette, Commercial Rationality and the Duty to Adjust, 69 Minn. L. Rev. 521 (1985).

103. See generally Robert A. Hillman, An Analysis of the Cessation of Contractual Relations, 68 Cornell L. Rev. 617 (1983).

104. Goldstajn, supra note 33, at 16 ("Although more or less restricted by state planning, individual problems of commodity production and marketing exist in Eastern Europe. The private law of contract ... applies").

105. Law and Economic Reform in Socialist Countries 154 (Gyula E'rise & Attila Harnethy eds., 1971). "Socialist enterprises have the obligation to co-operate in concluding contracts and their performance, taking into account the tasks resulting from national economic plans." Id. at 158.

106. Zwart, supra note 58, at 114 ("The main function of contracts in socialist countries is to help the state fulfill its national plans. Contract law ... is therefore characterized by general principles ... [such as] the principle of socialist cooperation") (emphasis added).

107. Zwart, supra note 58, at 157 ("Conventional penalties in socialist trade are conceived as sanctions against the party obliged who is not performing its obligations properly").

108. Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854).

109. See Clive M. Schmittoff, The Codification of the Law of International Trade, J. Bus. L. 34, 41-42 (1985). "Certain principles ... apply to all international trade transactions ... e.g., the obligation of good faith in the performance and enforcement of an international contract." Id. at 42.

110. P.S. Atiyah, Contract and Fair Exchange, 35 U. Toronto L.J. 1 (1985).

111. Id. at 3.

112. Nassar, supra note 16, at 234 (emphasis added).

113. See e.g., Hugo Grotius, The Law of War and Peace (Francis W. Kelsey trans., Bobbs-Merrill 1925).

114. See e.g., Samuel Pufendorf, The Law of Nature and Nations: De Jure Naturae et Gentium (C.H. Oldfather & W.A. Oldfather trans., 1934).

115. Nassar, supra note 16, at 7.

116. See generally Raymond de Roover, The Concept of the Just Price: Theory and Economic Policy, 18 J. Econ. Hist. 418 (1958); John W. Baldwin, The Medieval Theories of the Just Price, 49 Am. Phil. Soc'y. 2 (1959) (explaining that just price evolved from the Roman law notion of justum pretium). See also James Gordley, Equality in Exchange, 69 Cal. L. Rev. 1587 (1981). It is "the ancient idea that in an exchange the value of what each party gives should be equal to the value of what he receives." Id.

117. See generally U.C.C. 2-302 (1994); Restatement (Second) of Contracts 208 (1981).

118. DeVries, supra note 19, at 4-123 (Article 1681 allows the buyer to reduce the just price by ten per cent). Evidently, the purchaser is entitled to a good bargain but not too good a bargain.

119. See e.g., Batsakis v. Demotsis, 226 S.W.2d 673 (Tex. 1949) ("Mere inadequacy of consideration will not void a contract"). See generally Restatement (Second) of Contracts 79 (1981) (adequacy of consideration; mutuality of obligation).

120. Meurer Steel Barrel Co., Inc. v. Martin, 1 F.2d 687, 688 (3d Cir. 1924). Professor Newman noted that the common law's historical indifference to inequality in the exchange is an aberration. "The conclusion is unavoidable that the Anglo-American legal system is the only important system other than Islamic law incorporating the doctrine that contracts unfairly obtained or unfairly pressed for performance will be enforced in damages" and not be given specific performance. Ralph A. Newman, The Renaissance of Good Faith In Contracting in Anglo-American Law, 54 Cornell. L. Rev. 553, 554 (1969).

121. "If there is any consideration for a promise, it must be sufficient for the one made; for, if this be not so, then the result is that the court substitutes its own judgment for that of the promisor, and, in doing this, makes a new contract." Wolford v. Powers, 85 Ind. 294, 303 (1882).

122. Restatement (Second) of Contracts 357. "The granting of equitable relief has traditionally been regarded as within judicial discretion." Id. at cmt. c.

123. Id. at 364(1)(c).

124. Wolford v. Powers, 85 Ind. at 301. The seminal American case on unconscionability is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 450 (D.C. Cir. 1965) (the traditional test for unconscionability is: something that "no man in his senses and not under delusion would make on the one hand, and no honest or fair man would accept, on the other").

125. "[Types of unfairness] involve elements of substantive unfairness in the exchange itself or in its terms that fall short of ... unconscionability. The gradual expansion of these doctrines to afford relief in an increasing number of cases has resulted in a contraction of the area in which this traditional distinction is made between the availability of equitable and legal relief." Restatement (Second) of Contracts 364 cmt. a.

126. Girard Trust Bank v. Castle Apartments, Inc., 379 A.2d 1144 (Del. 1977).

127. Id. at 1145, quoting Central Nat'l Bank v. Industrial Trust Co., 51 A.2d 854 (Del. 1947). See also Emigrant Savings Bank v. Watson, aff'd, 367 A.2d 650 (Del. 1976).

128. "If ... the disparity between purchase price and market value is great ... the inadequacy of the consideration might raise a presumption of fraud which would preclude relief in either specific performance or damages." Newman, supra note 120, at 558.

129. Vockner v. Erickson, 712 P.2d 379 (Alaska 1986).

130. Id. at 384 (emphasis added).

131. Restatement (Second) of Contracts at 208 cmt. d.

132. 396 A.2d 956, 960 (Del. 1978). See also J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540 (Del. 1977).

133. Id. at 956.

134. Id. at 960 (emphasis added). See also Gordon v. Crown Central Petroleum Corp., 423 F. Supp. 58 (N.D. Ga. 1976), aff'd, 564 F.2d 413 (5th Cir. 1977).

135. Id.

136. Restatement (Second) of Contracts at 208 cmt. c.

137. Amy H. Kastely, Cogs or Cyborgs?: Blasphemy and Irony in Contract Theories, 90 NW. L. Rev. 132, 176 (1995).

138. Nassar, supra note 16, at 170.

139. Doing Business, supra note 9, at 397.

140. Doing Business, supra note 9, at 397.

141. Doing Business, supra note 9, at (Supp. 1987).

142. Article 1587, supra note 20, at 268 (Belgium); see also DeVries, supra note 19, at 4-108.

143. Zwart, supra note 58, at 118-120.

144. CISG, supra note 2, at art. 39.

145. Schmitthoff, supra note 109, at 42.

146. U.C.C. 2-103(1)(b).

147. Hancock, supra note 88, at art. 4, 101.007, noted in Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L. J. 265, 290 (1984).

148. "Work on the unification of sales law started in the 1920's ... [In] 1972 the [first] laws on sale [were] adopted at a diplomatic conference in The Hague." Fritz Enderlien & Dietrich Maskow, International Sales Law 1 (1992). "The 1980 Convention resulted from work instituted in 1968 by the United Nations Commission on International Trade Law (UNCITRAL)." Institute of International Commercial Law, Guide to UN Convention B-1, Supp. 6 (June 1993) (Legislative History of the Convention). See also M.J. Bonell, Is It Feasible to Elaborate Uniform Rules Governing the Relations Between Principal and Agent?, 1 Uniform L. Rev. 52 (1984).

149. Id. at 7.

150. CISG, supra note 2, at Preamble (This would be accomplished by taking "into account the different social, economic and legal systems").

151. CISG, supra note 2, at art. 7(1).

152. "The character of the whole regulation [is] a compromise reflected by the individual norms, by combining different principles, e.g., as rules or exceptions, from which the various legal systems proceed." Enderlein and Maskow, supra note 148, at 14.

153. Enderlein and Maskow, supra note 148, at 15. The use of legislative history is one device used to determine the meaning intended by the drafters of the Convention. Article 32 of the 1969 UN Convention on the Law of Treaties sanctions this interpretive device. For the legislative history of the CISG see generally United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, UN Document No. A/CONF. 97/19 (E.81.IV.3). See also John Honnold, Documentary History Of The Uniform Law For International Sales (1989).

154. CISG, supra note 2, at Preamble. The United Nations has proclaimed that we have entered into a "new economic order." UNGA Res. 3201 (S-VI), May 1, 1974, Declaration on the Establishment of a New International Economic Order, 13 ILM 715 (1974); UNGA Res. 3202 (S-VI), May 1, 1974, Program of Action on the Establishment of a New International Economic Order, 13 ILM 715 (1974).

155. CISG, supra note 2, at art. 7(2) (emphasis added).

156. CISG, supra note 2, at art. 7(1) ("the need to promote uniformity in application"), and Preamble ("the adoption of uniform rules").

157. "National measures for a conduct based on good faith are only relevant insofar as they are also the recognized measure for international trade." Enderlein and Maskow, supra note 148, at 57.

158. "Another criterion to be conceived as a general principle of the Convention, at least when it comes to assessing the scope of the legal consequences which are links to non-conformance or failure of a party or to the overall legal consequences, can be the predictability of effects." Enderlein and Maskow, supra note 148, at 59 (emphasis in original).

159. Enderlein and Maskow, supra note 148, at 58.

160. CISG, supra note 2, at Article 9 (2). Quintessential examples of such universally accepted trade usages include the International Chamber of Commerce's rules pertaining to trade terms and letters of credit. See 1990 INCOTERMS; Uniform Customs and Practices for Documentary Credits or UCP 500 (1994).

161. Enderlein and Maskow, supra note 148, at 70.

162. "Reference [can be made] to external principles - the common law approach, or by [internal] analogy - the civil law approach." Hancock, supra note 88, at art. 4, 101.011.

163. "Emperor" is a reference to Professor's Leff seminal work on unconscionability. Arthur Leff, Unconscionability and The Code - The Emperor's New Clause, 115 U. Pa. L. Rev. 485 (1967). This reference serves two purposes: to note the potential for the ratification of the CISG as a watershed in contract law (as was the U.C.C.'s adoption of the doctrine of unconscionability) and the doctrine of unconscionability as an example of an external principle that may be used in the interpretive process.

164. Robert A. Hillman, Construction of the Uniform Commercial Code: U.C.C. Section 1-103 and 'Code' Methodology, 18 B.C. Indus. & Comm L. Rev. 655, 678 (1977), quoted in Hancock, supra note 88 at 101.012.

165. Article 7(1) states that interpretations of the Convention should pay due regard "to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade." (emphasis added).

166. Article 7(2) states that as a final resort interpretation is to be based upon "conformity with the law applicable by virtue of the rules of private international law." The quest for uniformity should be advanced by the fact that certain principles, such as the duty of good faith and fairness in the exchange, can be found in almost all national legal systems.

167. Paul Amato, U.N. Convention on Contracts for the International Sale of Goods - The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, 13 J. L. & Commerce 1, 26 (1993). A similar concern can be analogized from the adoption of the Uniform Commercial Code by the fifty states. The purposes given for the Uniform Commercial Code can be applied to the aim of uniformity envisioned by the drafters of the CISG:

"Underlying purposes and policies of this Act are,

(a) to simplify, clarify and modernize the law governing commercial transactions;
(b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and
(c) to make uniform the law among the various jurisdictions." U.C.C. 1-102(2).

168. Id. at 28.

169. Id. at 29.

170. CISG, supra note 2, at art. 8(2); see Amato, supra note, 167, at 25.

171. For an exploration of the notion of an "international law of contracts" in the setting of a nation-private party contract, see generally Fatouros, supra note 76.

172. Coe, supra note 66.

173. Wyndham A. Bewis, The Romance Of The Law Merchant vi. (1923). The view of the new lex mercatoria as a modern day descendant of the Roman ius gentium and the medieval law merchant is not without opposition. "Roman law ius gentium and medieval law may not be invoked as historical precedents of an autonomous system of international business law." DeLY, supra note 76, at 54. The common law has long seen custom and usage as an independent source of law. "Once the custom was proven ... it became an independent source of obligation: a rule of law that supplemented the common law." Warren, supra note 35, at 519. See e.g., Walls v. Bailey, 49 N.Y. 464 (1872).

174. CISG, supra note 2, at art. 8(2) (the conduct of the parties and their statements are to be interpreted as a reasonable person within that trade would have interpreted them. "Statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances") (emphasis added).

175. CISG, supra note 2, at art. 9(2) (emphasis added).

176. ICC Arbitration case N. 5713 (1989), reviewed by, Richard Hyland in Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention for the International Sale of Goods Supp. 9 at 3 (1994).

177. Id. quoting Brand & Flecthner, Arbitration and Contract Formation in International Trade: First Interpretations of the UN Sales Convention, 12 J. L. & Com. 258-259 (1993).

178. The use of the CISG as trade usage in the area of notice on non-conformity was criticized by Richard Hyland as an improper representation of usage. "The source of CISG's conformity provisions was not a uniform commercial practice, as found in standard terms frequently employed in international commercial contracts." Richard Hyland, ICC Arbitration Case N. 5713 of 1989, Kritzer, supra note 176, at Supp. 9 at 11.

179. CISG, supra note 2, at art. 39(2).

180. Crabb, supra note 20, at 86. "Pursuant to the act [Sales Act or Krbeloven] the time allowed for complaints constitutes a period of twelve months calculated from the receipt of the goods." Id. at 47 (Supp. 1987).

181. Crabb, supra note 20, at 218.

182. Hyland, supra note 176, Supp. 9 at 7. The importance of international arbitration in advancing trade usage was noted by Professor Schmitthoff. "The interaction between international commercial usage and international arbitration is very close." Schmittoff, supra note 109, at 23.

183. Seeler v. Buyer, ICC No. 5713, 15 Y.B. Com. Arb. 70, 72 (1990), quoted in, Nassar, supra note 16, at 102.

184. Nassar, supra note 16, at 101.

185. Doing Business, supra note 9, at 86.

186. The CISG can be seen as two different sources of international law. First, as formal domestic law when ratified as an international convention or statute. Second, as evidence of international customary law. The importance of the latter should not be underrated. "There are [those] who ... regard custom as the prior source of international law, if not indeed the sole source." Teklewold Gebrehana, Duty to Negotiate: An Element of International Law 18 (1978).

187. Henri Pirenne, Economic and Social History of Medieval Europe 51 (1936). "Conventions ... constitute solidified international trade usages which have grown into, and become part of, national commercial law." Schmitthoff, supra note 109, at 27.

188. See generally Henry Gabriel, Practitioner's Guide to the CISG and the UCC 59-63 (1994).

189. LG, Baden-Baden, August 14, 1991-40 113/90, reported in, 12 J. L. & Com. 278 (1993).

190. "The CISG adopts the traditional common law rule that the acceptance be a 'mirror image' of an offer." DeLY, supra note 76, at 59.

191. CISG, supra note 2, at art. 19(3) (emphasis added). One commentator's response to the broad phraseology of this paragraph is that "almost any alteration is material." DeLY, supra note 76, at 60.

192. CISG, supra note 2, at art. 19(3).

193. See e.g., E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. 217 (1987); G. Richard Shell, Opportunism and Trust in the Negotiation of Commercial Contracts: Toward A New Cause of Action, 44 Vand. L. Rev. 221 (1991); Charles Knapp, Enforcing the Contract to Bargain, 44 N. Y. U. L. Rev. 673 (1969).

194. Temkin, supra note 13, at 133.

195. Mid-Continent Tel. v. Home Tel. Co., 310 F. Supp. 1176, 1192 (N.D. Miss. 1979).

196. V'Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.1968).

197. These views were formulated by Mr. Temkin. Temkin, supra note 13, at 129 n.15.

198. For an examination of the ethics of negotiations see Gerald B. Wetlaufer, The Ethics of Lying in Negotiations, 76 Iowa L. Rev. 1219 (1990).

199. Temkin, supra note 13, at n.39. The moral basis of promissorial enforcement was stated by Professor Linzer: "The origins of enforcement may be religious, or religion may have been used to achieve utility, but I think that today most people believe that one should stand by one's word." Peter Linzer, On the Amorality of Contract Remedies - Efficiency, Equity, and the Second Restatement, 81 Colum. L. Rev. 111, 138 (1981).

200. See e.g., Belcher v. Import Cars, Ltd., 246 So.2d 584 (Fla. 1971).

201. Temkin, supra note 13, at 130.

202. The unleashing of promissorial and reliance-based liability from the confines of assumpsit during the eighteenth and nineteenth centuries is based upon a simple philosophy that it is right for one to receive the performance that was promised.

203. Klein & Bachechi, supra note 8, at 8, 11.

204. Harold J. Berman, The Law of International Commercial Transactions (Lex Mercatoria), 2 J. Int'l Dispute Resol. 235, 235-236 (1988).

205. U.C.C. 2-201(1) (1994). As between merchants a "written confirmation" subsequent to an oral agreement is sufficient to satisfy the writing requirements. Id. at 2-201(2). There is a specific exception for specially manufactured goods. See 2-201(3)(a).

206. Id.

207. U.C.C. 2-202 (1994).

208. CISG, supra note 2, at art. 11.

209. CISG, supra note 2, at art. 11 (emphasis added).

210. Murray, supra note 2.

211. U.C.C. 2-201(1)(1994).

212. Id. at 2-201(2).

213. Id. at 2-201, cmt. 3.

214. Id. at 2-201(3)(a).

215. Id. at 2-201(3)(c).

216. Id. at 2-201, cmt. 2.

217. Id.

218. CISG, supra note 2, at art. 11.

219. U.C.C. 2-202 (parol evidence rule).

220. Kritzer, supra note 176, at Supp. 9 at 3, also reported in, Diario Official (Official Gazette of Mexico) 17-19 (May 27, 1993).

221. Argentina, Chile, People's Republic of China, Russia, Belorussia, Estonia, Hungary, and Ukraine. Institute of Int'l Commercial Law, Guide to UN Convention (Supp. 7-10 Sept. 1993, April 1994 & July 1994).

222. China, Russia, Belorussia, Hungary, Ukraine, Estonia.

223. The lack of formality, such as non-adherence to the statute of frauds, would not serve to protect the American company from unexpected liability. "For companies doing business in the United States under the CISG, there is no statute of frauds writing requirement." Hancock, supra note 88, at 101.002.

224. Article 29(1) illustrates another difference between Anglo-American law and the Convention. It states that a contract may be modified "by the mere agreement of the parties." Thus, a modification of contract under the CISG need not be supported by new consideration. CISG, supra note 2, at art. 29(1).

225. "A contract in writing which requires a provision requiring any modification to [also] be in writing may not be otherwise modified." CISG, supra note 2, at art. 29(2).

226. 699 F.2d 58 (1st Cir. 1983).

227. Id. at 61.

228. 100 U.S. 483 (1880).

229. Id. at 490.

230. It should be noted that the United States opted out of Article 1(1)(b) which would mandate the application of the CISG in certain situations where only one of the parties is from a signatory country. Therefore, if the company doing business in New York is from a nonsignatory country, then the UCC would apply.

231. See generally Burt A. Leete, Contract Formation Under the United Nations Convention of Contracts for the International Sale of Goods and the Uniform Commercial Code: Pitfalls for the Unwary, 6 Temp. Int'l & Comp. L. J. 193 (1992).

232. The U.C.C. expressly condones the notion of an open price term. "The parties if they so intend can conclude a contract for sale even though the price is not settled." U.C.C. 2-305(1).

233. U.C.C. 1-205(5).

234. CISG, supra note 2, at art. 9.

235. See e.g, Restatement (Second) of Contracts 212, 214 (1981). For a general discussion of the notion of integration see Nassar, supra note 16, at 41.

236. See e.g., I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888, n.6 (Colo. 1986). See also Buckley Bros. Motors, Inc. v. Gran Prix Imports, Inc., 633 P.2d 1081 (Colo. 1981).

237. The Court in Beijing Metals & Minerals v. American Business Center, Inc. held that the parol evidence rule would still apply in American courts under the CISG when there is a written instrument. 993 F.2d 1178 (5th Cir. 1993). The Fifth Circuit made only passing reference to the CISG stating that "there is as yet virtually no case law interpreting the Sales of Goods Convention." Id. at 1182-1183, n.9, quoting Filanto S.P.A. v. Chilewich International Corp., 789 F.Supp. 1129, 1137 (S.D.N.Y. 1992). The court assumed that the parol evidence rule goes to the validity of the contract requiring the application of internal law. "We need not resolve this choice of law rule, because our discussion is limited to application of the parol evidence rule which applies regardless." Id. (emphasis added). Based upon this determination, the Court disregarded two oral agreements made contemporaneously with a written payment agreement. It concluded that "the written agreement [was] unambiguous ... and that nothing in its four corners, or in the surrounding circumstances, indicates the existence of collateral contingent agreements... the parol evidence rule bars enforcement of prior or contemporaneous agreements to vary ... terms of a fully integrated written instrument." Id. at 1182-1183.

238. UCC 2-205 allows for the irrevocability of an offer if it is "in a signed writing" and limits the period of irrevocability to a period not to exceed three months.

239. CISG, supra note 2, at art. 16(2)(b). This provision also requires actual reliance on the part of the offeree.

240. Hancock, supra note 88, at 101.021.

241. E. Alan Farnsworth, Review of Standard Forms or Terms Under the Vienna Convention, 21 Corn. Int'l L. J. 439, 447 (1988). Professor Farnsworth recognized a tripartite hierarchy in international contract law. At the top is domestic law regarding the inherent validity of the contract, followed by the contract itself, and at the bottom, the Convention.

242. Crawford, supra note 75, at 189.

243. Nassar, supra note 16, at 191.

244. Kenneth C. Randall & John E. Norris, A New Paradigm for International Business Transactions, 71 Wash. U. L. Q. 599, 619 (1993).


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