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Reproduced with permission from 23 Harvard International Law Journal (1982) 49-67

A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code *

Isaak I. Dore [*] & James E. DeFranco [**]

I.      Applicable Law
II.     Usages of Trade
III.    Good Faith
IV.    Dealing with Omissions
V.     Conclusion

On April 10, 1980 a United Nations Conference of Plenipotentiaries adopted the United Nations Convention on Contracts for the International Sale of Goods (Convention.)[1] This document represents the culmination of an international effort under the auspices of the United Nations Commission on International Trade Law (UNCITRAL) to draft a uniform law on international sales acceptable to a substantial number of states. The International Institute for the Unification of Private Law (UNIDROIT) adopted the Convention's precursor, the Uniform Law on International Sale of Goods (ULIS) in 1964 after negotiations which had been initiated over thirty years earlier.[2] ULIS,[page 49] however, was ultimately ratified by only eight states.[3] The United States, which had been only remotely involved in the drafting of ULIS,[4] rejected it as unworkable and incompatible with its Uniform Commercial Code (UCC).[5]

One of UNCITRAL's first tasks was to re-examine ULIS and develop a text more acceptable to all states.[6] Several states advocated a fresh codification under the auspices of UNCITRAL of the law governing the international sale of goods.[7] UNCITRAL followed this approach and ultimately drafted the currently proposed Convention,[8] which the [page 50] United States signed August 31, 1981.[9]

This article compares selected nonsubstantive provisions [10] of the Convention with their counterparts under the UCC. This comparison will aid United States businessmen in assessing the impact that ratification of the Convention would have on their international transactions. In addition, the degree of similarity between the two documents may indicate the likelihood that the Convention will provide an effective legal framework for coordinating the laws of many jurisdictions.[page 51]

In comparing the two documents, this article focuses on four types of provisions, which, under the UCC, have helped resolve jurisdictional problems and have provided a legal framework flexible enough to accommodate changing business practices. First, it compares the choice of law provisions contained in the two texts. Second, it compares the manner in which the two documents treat trade usages. Third, the article compares the Convention and UCC approaches to the concept of good faith as a means of supplementing the agreements of the contracting parties. Finally, it analyzes the standards which the two documents contain to guide courts in dealing with omissions in the text's substantive provisions.

This article concludes, on the basis of this comparison, that the Convention's nonsubstantive provisions are acceptable to United States business interests.

I. Applicable Law

Determining when the Convention will govern particular international transactions is essential to assessing the Convention's impact on United States business interests. Although the UCC and the Convention both allow contracting parties some freedom in choosing the law which will govern their contracts, the two codes adopt substantially different approaches in resolving choice of law problems. Absent a written or implied agreement, the UCC requires that the court interpreting the contract apply the law which has an "appropriate relationship" to the transaction.[11] The Convention, on the other hand, provides that absent explicit agreement, its substantive provisions will govern if both parties have places of business in different Contracting States or if the rules of private international law indicate that the law of a Contracting State should apply.[12] While these differences are unimportant if parties are aware of their ability to choose the applicable law, they may have important consequences for unwary parties.

Under Section 1-105 of the UCC, parties generally may designate the law by which their relations are to be governed provided that the transaction "bears a reasonable relation" to the state selected.[13] Thus Section 1-105 codifies a two-tier test: the parties must agree on the governing law, and that transaction must bear a reasonable relation to that law.[page 52]

The first requirement of this test is satisfied if the parties explicitly agree on the governing law; but it is not clear that the test is satisfied if the parties only implicitly agree. It can be argued, however, that an implicit agreement is sufficient to satisfy the first requirement. Although the term "agree" is not defined in the UCC, Section 1-201 defines "agreement" as "the bargain of the parties in fact as found in their language or by implication from other circumstances, including course of dealing or usage of trade or course of performance as provided under the UCC."[14] Clearly it would seem appropriate for a court to look beyond the mere words of a contract to determine whether there is an agreement as to the choice of law in particular.[15] Commentators have suggested that:

"[If] the preponderance of contacts of a transaction are with one jurisdiction, and if nothing is expressly stipulated as to choice of law, the circumstances clearly suggest that the parties implicitly agreed on that law as the applicable law."[16]

The Convention also allows the parties flexibility in determining which law will govern their contract. Article 6 permits the parties to exclude the application of the Convention entirely.[17] Thus, if the parties have explicitly agreed to exclude the Convention and to apply the domestic law of a state related to the transaction, they have successfully "opted out" of the Convention.[18] Unlike the UCC, however, the Convention does not seem to recognize implied agreements which exclude application of the Convention.[19] The Convention may therefore [page 53] govern contracts which the parties by their implied agreement might have assumed to be governed by domestic law.

Under the UCC even if the parties agree on the controlling law, the courts will not uphold that agreement unless the "reasonable relation" test is satisfied. Although the Comment to Section 1-105 fails to define the term "reasonable relation,"[20] subsequent case law has identified a number of relevant factors in determining whether a relation is reasonable. These include the location where the contract was signed,[21] the principal place of business of the parties,[22] the place where the greater part of performance occurred or was to have occurred,[23] and the place where any property subjected to the contract is located.[24] The Convention, on the other hand, does not contain a test to determine whether the parties' choice of law will be upheld. Once it is clear that the parties have explicitly excluded the Convention, the question of which law applies is determined by the domestic law of the forum in which the litigation proceeds. Thus, the Convention will not alter the standards by which choice of law provisions are currently evaluated.

Both the UCC and the Convention allow contracting parties some degree of freedom in determining the law governing their transactions. The two codes adopt substantially different approaches, however, when the parties have made no agreement concerning the governing law. Absent an agreement or a reasonable relation, the UCC governs if [the] transaction bears an "appropriate relation" to the forum state.[25] The [page 54] appropriate relation and reasonable relation tests differ only in name and not in substance, and in applying either test courts will consider the same factors.[26] In contrast, the Convention could govern whether or not the transaction bears an "appropriate relation" to a Contracting State. Under Article 1(1)(a) the mere fact that parties have places of business in different Contracting States leads to the application of the Convention.

The Convention also applies when the rules of private international law lead to the application of the law of a Contracting State. This provision increases the number of situations in which the Convention applies, and, it may also lead to the application of the Convention in instances not contemplated by the contracting parties. If the choice of law rules of a forum lead to the application of the law of a Contracting State, the substantive provisions of the Convention, rather than the domestic law of that state, will apply.[27] Thus two parties from different nonContracting States who form a contract with some relation to a Contracting State might find their contract unexpectedly governed by the Convention.

To avoid this result, Article 95 of the Convention permits a state to declare that it is not bound by Article l(l)(b). The United States has already expressed its intention to file such a reservation upon ratification.[28] Accordingly, U.S. courts will be able to apply the UCC rather than the Convention where the transaction takes place primarily in the United States and where at least one of the contracting parties has a place of business in a nonContracting State. Furthermore, if a majority of states also decline to be bound by this provision, it will be less likely that parties will be unexpectedly bound by the Convention,[page 55] because foreign courts will have the same freedom that United States courts have in applying their own domestic law.[29]

II. Usages of Trade

The Convention's usage of trade provisions address two of the United States' criticisms of ULIS, namely that it failed to account for "practical realities of trade practices" and that it was incomprehensible to businessmen.[30] Like the UCC, the Convention provides for the interpretation of contracts for the sale of goods in light of the general practices of the business sector and of the previous practices between the parties to the contract.[31] Such provisions relating to course of performance, course of dealing and usage of trade permit the Convention to adapt to commercial realities.[32] In addition, the basic similarity between the Convention's standard and that of the UCC suggests that the new international code will also be comprehensible to United States businessmen.

The Convention's definition of those usages of trade which will be considered relevant to the interpretation of contracts is similar to that of the UCC. Article 9 [of the Convention] limits applicable usages to those which are "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned,"[33] while the UCC defines usages of trade as "any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the [page 56] transaction in question."[34] These definitions are similar in several respects. First, both codes require that a usage be regularly observed. Second, regularity of observance will, in turn, be probative of the parties' actual or implied knowledge of the particular usage in question.[35] Finally, both definitions limit applicable usages to those which are particular to a specific trade.[36] Although the UCC does contain an additional clause that regularity of observance justifies a party's reliance on a usage of trade, that provision functions as a safeguard to ensure that questionable or dishonest trade practices are not considered trade or industry standards.[37] The Convention's definition of usages of trade, therefore, is not significantly different from that of the UCC.

The Convention initially appears more likely to bind parties to usages of trade than does the UCC. Under Article 9 of the Convention, usages can bind the parties either through express or implied agreement.[38] The UCC, on the other hand, makes no explicit provision for an "implied" agreement binding the parties to a particular usage of trade.[39] Section 1-205(3) of the Code, however, does provide that a [page 57] usage of trade may "give particular meaning to and supplement or qualify terms of an agreement."[40] Since the UCC defines a usage as a practice of which the parties should have been aware,[41] and since such a usage may supplement terms of an agreement, a party may be impliedly bound to a usage under the UCC as well. Thus, it appears likely that the UCC and the Convention will bind parties in the same circumstances.

Another area of potential disagreement between the Convention and the UCC is the extent to which a local custom and technological advances may rise to the status of usages of trade. The UCC permits reference to usages that are particular to a place or vocation, in addition to those evident in the trade as a whole.[42] Article 9 requires that implied usages be "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."[43] Under a narrow reading of this provision, a commercial practice would qualify as a usage of trade only if it were generally followed by the majority of parties who engaged in a particular type of commercial transaction.[44] A more expansive reading of the Convention, however, would construe the term "trade" to include trade in a certain product or region or among a certain set of trading partners, and thereby eliminate the apparent divergence from the UCC's provisions. In fact, the drafters of Article 9 have endorsed such an interpretation.[45][page 58]

A final area in which the Convention and the UCC differ is the treatment of usages in relation to other interpretive devices. The UCC provides four points of reference for construing the meaning of an agreement: express terms of the contract,[46] course of performance,[47] course of dealing,[48] and usages of trade.[49] In the event that these indicators cannot be construed consistently with one another, the UCC has established a hierarchy for determining the relative importance of each. Express terms control over any reference to customs or practices.[50] In addition, a course of performance after an agreement has been made is more persuasive as to the meaning of the terms of the contract than a prior course of dealing.[51] Finally, a course of dealing controls contrary practices adopted by the trade.[52] Unlike the UCC, the Convention does not provide such a hierarchy.[53] The Convention appears to rely on the courts to supply a hierarchy by giving precedence to specific provisions over less specific conflicting terms.[54]

The above discussion reveals important similarities between the usages of trade provisions in the Convention and the UCC. The definition, scope and applicability of usages of trade in the Convention are analogous to those of the UCC. Thus, United States businessmen should encounter no difficulties understanding or employing the provision governing usages of trade.[page 59]

III. Good Faith

Both the Convention and the UCC employ good faith as a general guiding principle. Since the concept of good faith does not easily lend itself to uniform interpretation, there may be problems in applying the concept in a diverse international setting. Nonetheless, examination of the UCC reveals that similar problems have been encountered and overcome in the United States context.

The UCC provides that "every contract or duty within this act imposes an obligation of good faith in its performance or enforcement."[55] This concept of good faith is not a specific rule of law [56] but rather a general equitable principle which runs throughout the Code.[57] Although some courts consider it "a vague concept subject to a wide variety of interpretations,"[58] the good faith principle has served a number of useful purposes. By giving courts the "flexibility which is needed by any Code to make it work in practice,"[59] the good faith principle furthers the policies of the UCC. For example, this flexibility allows tribunals to avoid overly literal readings which would produce inequitable results unintended by the drafters.[60] Furthermore, the obligation of good faith itself may foster an atmosphere of mutual trust among commercial traders.

The Convention's Article 7(1) states that "in the interpretation of the Convention, regard is to be had . . . to the need to promote . . . the observance of good faith in international trade."[61] Although this [page 60] provision does not explicitly impose a good faith obligation on the parties to the contract, the drafters viewed the good faith principle as an integral component of the Convention as a whole. The Commentary declares that the principle of good faith "applies to all aspects of the interpretation and application of the provisions of this Convention."[62] Furthermore, the drafters explicitly suggested that the principle of good faith be applied to numerous substantive provisions of the Convention such as the nonrevocability of certain offers,[63] late acceptance of offers,[64] and the rights of a seller to remedy nonconforming goods.[65] Thus, the good faith provision in the Convention appears to be a pervasive norm analogous to the good faith obligation of the UCC.

Critics have noted several potential problems in applying [page 61] and defining the Convention's good faith principle.[66] First, it may be difficult for courts to decide when to apply the good faith provision. On the one hand, the inherent vagueness of the good faith concept may lead courts to disregard the provision altogether. On the other hand, courts may abuse a vague and open-ended provision, employing it as a roving commission to prevent results which the court happens to consider unfair at the moment. Moreover, even if these problems of application can be overcome, the wide variety of fora interpreting the Convention may be unable to develop a common definition of good faith.[67]

These criticisms should be evaluated in light of the domestic experience with the good faith provision of the UCC. The difficulty of precisely defining "good faith"[68] has not prevented courts from applying the principle in a number of areas.[69] For example, where a contract calls for the exercise of discretion by one party, courts have imposed the obligation of good faith to prevent the party from exercising that discretion in a way which would defeat the purpose of the contract.[70] Courts have also employed the good faith provision to avoid inequitable results caused by an overly literal application of a statute or contract provision.[71] Moreover, courts have used the provision to prevent a party from taking advantage of his own actions taken in bad faith.[72]

A more serious concern is that the good faith provision will be overused. Under the UCC, the good faith principle functions primarily as a check on unfair practices rather than as a mandate to rewrite the terms of the contract.[73] Moreover, some courts have held that Section 1-203 is an equitable principle, not a rule of law creating a cause of action for breach of a duty of good faith.[74] Courts have also refused to employ the good faith provision to override unambiguous statutory requirements [75] or specific contractual terms.[76] Nevertheless, the [page 62] UCC experience reveals, at the very least, that courts are able to apply the concept of good faith in appropriate situations despite its inherent vagueness.

Perhaps, the strongest objection to the good faith provision is that courts will be unable to develop a common definition. Achieving uniformity in the international setting will be more difficult than it was under the UCC because of the greater diversity among jurisdictions.

However, 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."[77] Such widespread recognition of a good faith principle should promote uniformity in the application of the Convention's good faith provision. Moreover, Article 7(1) requires that courts interpreting the Convention promote uniformity in its application. Thus, courts should be able to develop a substantially uniform definition of good faith.

IV. Dealing with Omissions

ULIS' failure to outline an acceptable method of dealing with omissions was a factor contributing to its rejection.[78] In response to this criticism, the drafters of the Convention adopted a gap-filling approach which is similar to that of the UCC. However, because the Codes operate in different settings, United States businessmen may be less able to predict how courts will resolve gap-filling problems under the Convention than under the UCC.

The UCC does not specify whether courts should resolve omissions in the Code by reference to external legal principles -- the common law approach,[79] or by internal analogy -- the civil law approach.[80] Section [page 63] 1-103, provides that "[u]nless displaced by the particular provisions of the Act, the principles of law and equity . . . shall supplement its provisions."[81] This section appears to support the common law approach, and some courts have invoked this section as authority for applying pre Code law -- external authority -- when no UCC provision is applicable.[82] Under this approach the Code's directive in Section 1-102(1) that the Act "be liberally construed and applied to promote its underlying purposes and policies,"[83] is viewed merely as an exhortation to apply the Code pragmatically rather than as an endorsement of the civil law approach.[84]

Other commentators argue that Section 1-102(1) incorporates the civil law tradition.[85] Under this view, the Code "not merely has the force of law, but is itself a source of law" from which answers to unresolved problems may be extrapolated.[86] Only where no general principles are discernible may the common law approach be invoked. This method of interpretation, a hybrid of the civil and common law approaches, dictates: "Look first at the explicit language of the Code, next to the Code's purposes and policies and, finally, to the common law."[87]

ULIS adopted the civil law approach. Article 17 of ULIS [88] directed courts to "create" new rules or to extend existing rules "according to [page 64] the principles consonant with [ULIS'] spirit."[89] In addition, Article 2 [90] prohibited courts from applying the external legal principles embodied in rules of private international law except in a few special circumstances.[91]

This approach to the problem of omissions evoked criticism.[92] The central concern was that the ULIS provisions were not as comprehensive as those of the civil codes of continental Europe.[93] Courts therefore would be unable to deduce the general principles essential to internal analogy. Furthermore ULIS failed to provide courts with an explicit statement of the general principles on which it was based.[94]

The drafters of the Convention, instead of relying exclusively upon the civil law method drew upon both common and civil law approaches.[95] Article 7(2) explicitly outlines the procedure for dealing with omissions:[96] courts must first consider the general principles of the Convention; then, if these principles fail to resolve the problem, the courts are directed to that national law applicable by virtue of the rules of private international law. Article 7(1) provides several general principles [page 65] of the Convention [97] that may be invoked in the first step of this procedure. Other principles can be derived from specific provisions in the Convention.[98] Moreover, since the Convention is more comprehensive than ULIS,[99] it should be easier for courts to discern general principles.

The Convention's method of dealing with omissions resembles that of the UCC. Under both codes, the courts look first to the code itself and then to a set of external norms. In the case of the UCC the external norms are provided by the common law; the Convention directs courts to the law of a particular state. Consequently, when courts are forced to look beyond the general principles of the Convention, the results are likely to be more diverse than under the UCC. It should be noted, however, that in "no other major branch of law is there more uniformity among the principal legal systems of the world than in the law of international sales."[100] Such uniformity should minimize the exposure to uncertainty that United States businessmen will face under the Convention.

The Convention's ability to supplement omissions in its text by way of internal analogy is apparently superior to that of ULIS. Nonetheless, the Convention's reliance upon a diverse body of national laws to deal with omissions when internal analogy fails threatens to produce some uncertainty for those operating under the new international code. As a result, although the Convention's method of dealing with omissions is similar to that of the UCC, it may be difficult for United States businessmen to predict how courts will resolve cases not covered by the substantive provisions of the Convention when an internal analogy is not readily apparent in the Convention.

V. Conclusion

This article has compared selected nonsubstantive provisions of the Convention and the UCC in order to assess the Convention's probable impact on the United States business community. Although the Convention has a relatively broad scope of application, United States businessmen retain their freedom to exclude it. Moreover, if the United States declares itself not bound by Article 1(1)(b), the scope of [page 66] application of the Convention will be limited even further in favor of the UCC. In addition, the Convention incorporates both a concept of trade usages and a principle of good faith similar to those of the UCC. Thus, even if the Convention governs certain contracts, United States businessmen can rely upon these concepts as they do under the UCC. Finally, although it may produce some problems of uncertainty by virtue of the international setting, this problem is minimized because the law of sales is relatively uniform in most states.

The Convention has, to a large degree, improved upon the corresponding provisions of ULIS, which were widely criticized. Like the UCC, the Convention creates an effective legal framework for coordinating the laws of many jurisdictions. Finally, the nonsubstantive provisions of the Convention embody principles and concepts which are both familiar to United States businessmen and compatible with their interests.[page 67]


FOOTNOTES

* Associate Professor, School of Law, Southern Illinois University at Carbondale; LL.B., LL. M., Zambia; LL.M., J.S.D., Yale.

** Clerk, Chief Justice Goldenhersh, Supreme Court of Illinois, J.D. Southern Illinois University.

The authors would like to thank Professor Robert H. Skilton for commenting on a previous draft of this article, and D. Michael Helm for comments and research assistance. The authors also thank Mr. Peter H. Pfund, Assistant Legal Advisor for Private International Law, U.S. Department of State, for information and materials which would not otherwise have been available. Research for this article was partly funded under a Fellowship from the Illinois Bar Foundation Research Program.

1. Final Act of the United Nations Conference on Contracts for the International Sale of Goods, April 10, 1980, U.N. Doc. A/Conf. 97/18, reprinted in 19 Int'l Legal Mats. 668 (1980). The text of the Convention appears in Annex 1 of the Final Act.

2. Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, 834 U.N.T.S. 107, with Annex, Uniform Law on the International Sale of Goods, reprinted in 13 Am. J. Comp. L. 453 (1964) [hereinafter cited as ULIS]. Also adopted was the Convention Relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods, July 1, 1964, 834 U.N.T.S. 169, with Annex, Uniform Law on the Formation of Contracts for the International Sale of Goods, reprinted in 13 Am. J. Comp. L. 472 (1964) [hereinafter cited as ULF]. The drafting effort began in the 1930's when UNIDROIT appointed a Committee of experts from England, France, Germany and Sweden to elaborate a uniform law of sales. Institut Internationale de Rome Pour L'Unification de Droit Prive, Societe des Nations. Projet d'Une Loi Sur La Vente Internationale des Objets Mobiliers Corporels (1935). One of the Committee's pre-war drafts was considered at a diplomatic conference in November 1951, of some twenty states, with the United States sending only an observer and taking no part in the debates. A new Committee consisting of France, West Germany, Italy, the Netherlands, Sweden, Switzerland and the United Kingdom was appointed to revise the draft. Actes de La Conference, Convoque Par Le Gouvernement Royal Des Pays-Bas, sur un Projet de Convention Relatif a Une Loi Uniforme Sur La Vente D'Objets Mobiliers Corporels 269-70 (1952). Rabel, "The Hague Conference on the Unification of Sales Law," 1 Am. J. Comp. L. 58 (1952). The revised draft, completed in 1956, was considered at a second diplomatic conference at The Hague in April 1964, which produced ULIS and a supplementary convention. The conference was attended by twenty-eight governments of which only three were socialist and two were from developing countries. The governments represented were those of Austria, Belgium, Bulgaria, Columbia, Denmark, Finland, France, West Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, The Netherlands, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, Turkey, United Arab Republic, United Kingdom, United States, Vatican City, and Yugoslavia, 3 Int'l Legal Mats. 854 (1964).

3. See Lansing & Hauserman, "A Comparison of the Uniform Commercial Code to UNCITRAL's Convention on Contracts for the International Sale of Goods," 6 N.C. J. Int'l & Com. Reg. 63, 64 n.12 (1980).

4. The United States was unable to participate in the drafting effort because it could not be represented at the conference until it had been authorized by Congress to become a member of the Rome Institute. The authorization was given by a joint resolution of Congress, Act of Dec. 30, 1963, Pub. L. No. 88-224, 77 Stat. 775 (codified at 22 U.S.C. 269(g)(1976)). Thus, the United States delegation, having barely three months to prepare for the conference, stated that "there was no possibility of arranging for a comprehensive review of the legal issues involved with a view to formulating positions to be taken by the United States Government at the Conference." Kearney, Report of the United States Delegation to the United Nations Conference on Contracts for the International Sale of Goods at 9-10 (1981) [hereinafter cited as Kearney Report].

5. The United States Delegation concluded that "it would appear unlikely that the Uniform Act will prove acceptable to America's governmental, commercial, and legal organizations because its many unclear and unworkable provisions do not meet the current needs of commerce and because it varies too markedly in its approach and content from our Uniform Commercial Code." Kearney Report, supra note 4, at 10.

6. Report of the United Nations Commission on International Trade Law on the Work of its First Session, 23 U.N. GAOR Supp. (No. 16) para. 7, U.N. Doc. A/7216 (1968).

7. Report of the United Nations Commission on International Trade Law on the Work of its Second Session, 24 U.N. GAOR Supp. (No. 18) para. 30, U.N. Doc. A/7618 (1969). At its second session, held in March, 1969, UNCITRAL set up a Working Group on the International Sale of Goods to decide which modifications to the 1964 Conventions "might render them capable of wider acceptance by countries of different legal, social and economic systems, or whether it will be necessary to elaborate a new text for the same purpose. . . ." Id. para. 38. The Working Group was composed of Brazil, France, Ghana, Hungary, India, Iran, Japan, Kenya, Mexico, Norway, Tunisia, USSR, the United Kingdom and the United States.

8. See the reports of the UNCITRAL Working Group on the work of its first nine sessions. Progress Report of the Working Group on the International Sale of Goods on the Work of its First Session, U.N. Doc. A/CN.9/35 (1970); Progress Report of the Working Group on the International Sale of Goods on the Work of its Second Session, U.N. Doc. A/CN.9/52 (1971); Progress Report of the Working Group on the International Sale of Goods on the Work of its Third Session, U.N. Doc. A/CN.9/62 & Adds. 1-2 (1972); Progress Report of the United Nations Commission on International Trade Law on the Work of its Fourth Session, U.N. Doc. A/CN.9/75 (1973); Progress Report of the Working Group on the International Sale of Goods on the Work of its Fifth Session, U.N. Doc. A/CN.9/87 (1974); Progress Report of the Working Group on the International Sale of Goods on the Work of its Sixth Session, U.N. Doc. A/CN.9/100 (1975); Progress Report of the Working Group on the International Sale of Goods on the Work of its Seventh Session, U.N. Doc. A/CN.9/116 (1976); Progress Report of the Working Group on the International Sale of Goods on the Work of its Eighth Session, U.N. Doc. A/CN.9/128 (1977); and Progress Report of the Working Group on the International Sale of Goods on the Work of its Ninth Session, U.N. Doc. A/CN.9/142 & Add. 1 (1978). With regard to both ULIS and ULF, the Working Group recommended that the Commission adopt new texts. These texts were adopted by the U.N. Commission on International Trade Law at its tenth and eleventh sessions. Report of the United Nations Commission on International Trade Law on the Work of its Tenth Session, 32 U.N. GAOR Supp. (No. 17) para. 34, U.N. Doc. A/32/17 (1977); Report of United Nations Commission on International Trade Law on the work of its Eleventh Session, 33 U.N. GAOR Supp. (No. 17) para. 27. U.N. Doc. A/33/17 (1978). At its eleventh session the Commission decided to combine the two texts into a single draft Convention on Contracts for the International Sale of Goods. Id. at para. 18.

The new Convention has generated interest and a growing body of commentary on the manner in which the Convention has attempted to answer the objections to ULIS. See, e.g., Honnold, Report of the United States Delegation to the United Nations Conference on Contracts for the International Sale of Goods (1981) (on file at Harvard Int'l L.J. library) [hereinafter cited as Honnold Report]. The Report describes the objections of the United States to ULIS and how these objections have been met by the Convention: (1) ULIS was thought to be "coercive" by being applicable to transactions of parties of nonContracting States; in contrast the Convention applies under more restrictive circumstances, see infra text accompanying notes 28-29 and note 29; (2) UNCITRAL produced a single document on international sales in place of the two documents produced by the 1964 Hague Conference (ULIS and ULF), thereby avoiding problems of interpretation resulting from separate conventions; (3) the Convention gave more deference to the course of dealing between the parties in relation to contract formation than did ULIS. cf. UCC 1-205 (the Convention made both course of dealing and trade usages explicitly applicable to contract formation -- Convention, supra note 1, art. 9); (4) the Convention eliminated problems of complexity, ambiguity and nonuniformity that had arisen from the multiple remedial systems and civil-law terminology in ULIS and ULF, by providing a single set of remedies for contractual breach, cf. UCC 2-703, 2-711; (5) the use in ULIS and ULF of abstract concepts gave rise to interpretational difficulties, whereas the Convention, in an approach similar to that of the UCC rejects such concepts and is expressed more practically in terms of commercial events that can be uniformly understood. Honnold Report, supra. See generally Honnold, "The Draft Convention on Contracts for the International Sale of Goods: An Overview," 27 Am. J. Comp. L. 223 (1979); Lansing & Hauserman, supra note 3, at 64-66.

9. Memorandum from Peter Pfund, Assistant Legal Advisor for Private International Law to Members of the Secretary of State's Advisory Committee on Private International Law and Members of the Advisory Committee's Study Group on International Sale of Goods, Sept. 24, 1981 (unpublished memorandum on file at Harv. Int'l L.J. library).

10. For a comparison of substantive provisions, see Lansing & Hauserman, supra note 3; Honnold supra note 8.

11. UCC 1-105(2) (1978).

12. Convention, supra note 1, art. 1.

13. See UCC 1-105(1) (1978), which provides in part:

[W]hen a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this Act applies to transactions bearing an appropriate relation to this state. Id.

14. UCC 1-201(3) (emphasis added).

15. See In re Bengston, 3 UCC Rep. Serv. 283 (D. Conn. Dec. 15, 1965), in which the District Court followed the Official Comment to U.C.C. 1-205, noting that, "the meaning of the agreement of the parties is to be determined by the language used by them and by their action, read and interpreted in the light of commercial practices and other surrounding circumstances. The measure and background for interpretation are set by the commercial context, which may explain and supplement even the language of a formal or final writing." Id. at 289 (emphasis added).

16. Nordstrom & Ramerman, "The Uniform Commercial Code and the Choice of Law," 4 Duke L.J. 623, 632 (1969) (emphasis added). Such a reading would be consistent with the pre-Code case law: Lauritzen v. Larsen, 345 U.S. 571 (1953); Pinney v. Nelson, 183 U.S. 144 (1901); Prichard v. Norton, 106 U.S. 124 (1882).

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

18. If the Convention does not apply, the agreement will be governed by the domestic law of a state; the choice of law provisions of the forum state will then be followed.

19. In light of the language and history of Article 6, an implied agreement to "opt out" of the Convention seems insufficient. Under the terms of the Convention's predecessor, ULIS, the agreement to exclude application of that law "may be express or implied." ULIS, supra note 2, art. 3. The drafters of the present Convention decided not to provide for exclusion by implication "lest the special reference to 'implied' exclusion might encourage courts to conclude, on insufficient grounds, that the Convention had wholly been excluded." Text of Draft Convention on Contacts for the International Sale of Goods Approved by the United Nations Commission on International Trade Law Together with a Commentary Prepared by the Secretariat, U.N. Doc. A/CONF./97/5 at 44, para. 2 (1979) [hereinafter cited as Commentary]. Thus under the Convention the intention to "opt out" must be made explicit.

20. The comment to Section 1-105 adopts the rule of Seeman v. Philadelphia Warehouse Co., 274 U.S. 403 (1927), and states that "[o]rdinarily the law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs." UCC 1-105 Official Comment (1978). This is not a particularly useful guide -- it merely shifts the inquiry to what is "a significant enough portion" of the contract, and each dispute is settled on a case-by-case basis.

21. Delta Airlines v. McDonnell Douglas Corp., 350 F. Supp. 738 (N.D. Ga. 1972), aff'd 503 F.2d 239 (5th Cir. 1974), cert. denied, 421 U.S. 965 (1975); Best Town U.S.A. Inc. v. Mercury Marine Div. of Brunswick Corp., 364 So. 2d 15 (Fla. App. 978).

22. Cities Service Co. v. Gardner, Inc. 344 A.2d 254 (Del. 1975) place of business of both parties in the jurisdiction in question); Triangle Typewriters, Inc. v. Honeywell, Inc., 457 F. Supp. 765 (S.D.N.Y. 1978), aff'd in part and rev'd in part on other grounds, 604 F.2d 737 (2d Cir. 1979) (place of business of seller in jurisdiction in question); County Asphalt, Inc. v. Lewis Welding & Eng'g Corp., 323 F. Supp. 1320 (S.D.N.Y. 1970), aff'd, 444 F.2d 372 (2d Cir. 1970), cert. denied, 404 U.S. 939 (1971).

23. Cove-Craft Industries v. B.L. Armstrong Co., 412 A.2d 1028 (N.H. 1980); Carl Wagner & Sons v. Appendagez, Inc., 485 F. Supp. 762 (S.D.N.Y. 1980).

24. See, e.g., Tennessee Carolina Transp., Inc. v. Strick Corp., 16 N.C. App. 498, 192 S.E. 2d 702 (1972), rev'd on other grounds, 283 N.C., 423, 196 S.E. 2d 711 (1972).

25. What the UCC states is that "[f]ailing such agreement this Act applies to transactions bearing an appropriate relation to this state." UCC 1-105(1) (1978). Thus, strictly speaking, the UCC does not determine what law applies if the transaction does not bear an appropriate relation to the forum state. However, in such situations courts have applied the appropriate relation test to find that the law of a foreign state applies. Fleishman Distilling Corp. v. Distillers Co. Ltd., 395 F. Supp. 221 (S.D.N.Y. 1975).

26. To promote the development of a single commercial law, the UCC Official Comment declares that traditional conflicts of laws rules should be replaced by a more fluid means of determining the "appropriate relation" between the law selected and the contract in dispute. One test developed to determine "appropriate relation" is the center of gravity test. This test directs courts to look to the grouping of significant interests or the presence of significant contacts to determine the relevant applicable law. See 1 R. Anderson, Anderson on The Uniform Commercial Code 1-105:22 (3d ed. 1981). Cf. General Electric Credit Corp. v. R.A. Heintz Constr. Co., 302 F. Supp. 958, (D. Or. 1969) ("appropriate relation" means essentially the same as "significant contacts"). For a discussion of the difference between "most significant contacts" and "reasonable relation," see Woods-Tucker Leasing Corp. of Georgia v. Hutcheson-Ingram Dev. Co., 642 F.2d 744, 747-52 (5th Cir. 1981).

27. For example, if a contract provides that the domestic law of a Contracting State applies, but does not explicitly exclude the Convention, then Article 1(1)(b) could require that the Convention apply.

28. The United States, upon signing the Convention in August 1981, declared its intention to file such a reservation excluding Article 1(1)(b). Memorandum from Peter Pfund, Assistant Legal Advisor for Private International Law to members of the Secretary of State's Advisory Committee on Private International law and Members of the Advisory Committee's Study Group on International Sale of Goods, Sept. 24, 1981 (unpublished memorandum on file at Harv. Int'l L.J. library).

29. It should be observed that the Convention does not apply in any of the following situations: (1) where the transaction involves the sale of "goods bought for personal, family or household use," Convention, supra note 1, art. 2(a); (2) where "the fact that the parties have their places of business in different States . . . does not appear either from the contract or from any dealings between, or information disclosed by, the parties" to the contract, Convention, supra note 1, art. 1(2); and (3) where the state whose law governs the transaction has adopted the Convention, but filed a reservation declaring itself not bound by Article 1(1)(b), Convention, supra note 1, art. 95. These exceptions all help to limit the number of situations in which the Convention unexpectedly governs parties.

30. Kearney Report, supra note 4, at 6. See also supra notes 5 & 8.

31. See UCC 1-205; Convention, supra note 1, art. 9.

32. It is a well-established principle in most common law and civil jurisdictions that rules regulating the conduct of merchants and businessmen must keep abreast with their practical needs and customs. Ever since the feudal period, courts have adopted the rules and customs which merchants generally observed among themselves. See 5 W. Holdsworth, A History of English Law 60-65 (2d ed. 1937); Berman & Kaufman, "The Law of International Transactions (Lex Mercatoria)," 19 Harv. Int'l L.J. 221, 226-27 (1978). Furthermore, Lord Mansfield, who was principally responsible for adoption of merchants' rules as rules of law in England, believed that the rules governing merchants must be kept certain and be easily understandable to facilitate trade. 12 W. Holdsworth, A History of English Law 5 24-25 (1938).

33. Convention, supra note 1, art. 9(2) provides:

"The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."

34. UCC 1-205(2) (see infra note 39 for text).

35. Both the Commentary to the Convention and the Official Comment to 1-205 of the UCC are in agreement on this point. The Commentary states:

"The determining factor whether a particular usage is to be considered as having been impliedly made applicable to a given contract will often be whether it was 'widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.' In such a case it may be held that the parties 'ought to have known' of the usage." Commentary, supra note 19, at 48.

The UCC Official Comment provides in part:

"Subsection (3), giving the prescribed effect to usages of which the parties 'are or should be aware,' reinforces the provision of subsection (2) requiring not universality but only the described 'regularity of observance' of the practice or method." UCC 1-205 Official Comment 7 (1978).

36. Convention, supra note 1, art. 9(2) (see infra note 33 for text). UCC 1-205(3) (1978) (see infra note 39 for text). See also Commentary, supra note 19, at 48; UCC 1-205 Official Comment 7 (1978).

37. See the official commentary accompanying UCC 1-205 which contemplates widespread recognition of usages "currently observed by the great majority of decent dealers, even though dissidents ready to cut corners do not agree." UCC 1-205 Official Comment 5 (1978) (emphasis added). Moreover, Comment 6 to the same section reflects the drafters' policy requirement that a usage be "reasonable" -- a requirement intended to prevent "the situation arising if an unconscionable or dishonest practice should become standard." UCC 1-205 Official Comment 6 (1978).

38. Article 9(1) of the Convention provides, "The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves." Convention, supra note 1, art. 9.

"Paragraph (2) posits two conditions for an implied agreement making a usage of trade binding: the usage must be one 'of which the parties knew or ought to have known,' and it must be one 'which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned'." Commentary, supra note 19, at 48. See also Convention, supra note 1, art. 9(2) (see supra note 33 for text).

39. The relevant provisions of the UCC are 1-205(2), (3) and (4) (1978):

"(2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts.

"If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.

"(3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify the terms of an agreement.

"(4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade."

40. UCC 1-205(3) (1978) (see supra note 39 for text).

41. UCC 1-205(3) (1978). See also Posttape Assoc. v. Eastman Kodak Co., 537 F.2d 751 (3d Cir. 1976) (since a party is bound by a trade usage of which he "should be aware," a limitation of damages may be imposed even if the parties did not explicitly and expressly negotiate it); Foxco Indus., Ltd. v. Fabric World, Inc., 595 F.2d 976 (5th Cir. 1979) (holding that an industry usage of which one party had no knowledge may nonetheless be used to interpret a term of the contract).

42. UCC 1-205(2) (1978) (see supra note 39 for text).

43. Convention, supra note 1, art. 9(2).

44. Professor Berman suggested such a narrow reading of the provision in assessing an earlier draft of the Convention:

"Despite the apparent flexibility of the UNCITRAL definition of usage, its requirements of wide knowledge and regular observance in international trade may cause some difficulties. Commercial innovations brought on by technological change may have to wait some time before rising to the status of a usage. Also, a sensible local custom . . . may be thought by some to fall outside the UNCITRAL provision because it is in conflict with the usual practice elsewhere." Berman & Kaufman, supra note 32, at 271-72.

45. The Commentary states that with regard to Article 9(2), "[t]he trade may be restricted to a certain product, region or set of trading partners." Commentary, supra note 19, at 48.

46. UCC 1-205(4) (1978).

47. UCC 1-208(1) (1978).

48. UCC 1-205(3) (1978) (see supra note 39 for text).

49. Id.

50. UCC 1-205(4) (1978) (see supra note 39 for text). See UCC 2-208(2), which provides:

"The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade." UCC 2-208(2) (1978).

51. UCC 2-208(2) (1978) (see supra note 50 for text). The UCC defines a course of dealing as "a sequence of previous conduct between the parties." UCC 1-205(1)(1978).

52. UCC 1-205(4) (1978) (see supra note 39 for text).

53. The Commentary states that Article 9 "does not provide any explicit rule for the interpretation of expressions, provisions or forms of contract which are widely used in international trade and for which the parties have given no interpretation." Commentary, supra note 19, at 48.

Article 9 of the Convention does contain points of reference similar to those of the UCC. Under Article 9(1) parties are bound by "usages to which they have agreed" (express terms) and by practices "which they have established between themselves" (course of performance). Furthermore, under Article 9(2), the parties are impliedly bound by usages "of which the parties knew or ought to have known" (course of dealing and usage of trade). Convention, supra note 1, art. 9. Since the parties are "bound" by the former points of reference and only considered to have impliedly made applicable the latter, it can be argued that the former control the latter.

54. See, e.g., Sun Ins. Co. of New York v. Diversified Eng'rs. Inc., 240 F. Supp. 606 (D. Mont. 1965) (specific statutory terms prevail over general terms which might otherwise be controlling).

55. UCC 1-203 (1978).

56. J. White & R. Summers, Handbook on the Uniform Commercial Code 18-20 (2d ed. 1980); Summers, "General Equitable Principles under Sec. 1-103 of the Uniform Commercial Code," 72 Nw. U.L. Rev. 906, 924 (1978).

57. See the Official Comment to 1-203 of the UCC. Indeed, good faith has been hailed as "the single most important concept intertwined throughout the Code," Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 262, 544 P.2d 20, 24 (1975), and as "the foundation upon which the Code was drafted." Servbest Foods, Inc. v. Emmessee Industries Inc., 82 Ill. App. 3d 662, 674, 403 N.E. 2d 1, 11 (1980) (citing R. Anderson, Anderson Uniform Commercial Code § 1-203:2 (1961)).

58. Servbest Foods, Inc. v. Emmessee Industries, Inc., 82 Ill. App. 3d 662, 674, 403 N.E. 2d 1, 11 (1980). See also Newman, infra note 77.

59. Servbest Foods, Inc. v. Emmessee Industries, Inc., 82 Ill. App. 3d 662, 674, 403 N.E. 2d 1, 11 (1980) (citing R. Anderson, Anderson Uniform Commercial Code 1-203:2 (1961)).

60. The UCC's good faith provision permits courts "to carve exceptions from or otherwise modify Code sections . . . ." J. White & R. Summers, supra note 56, at 19.

61. The Convention's Article 7(1) provides, "In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade." Convention, supra note 1, art. 7(1). Some of the delegations to UNCITRAL supported this provision on the grounds that it would allow the courts to avoid strict adherence to certain articles where an unjust result would obtain, e.g., the United States and Yugoslavia. U.N. Doc. A/Conf.97/8/Add.3 at 19. For the Yugoslav view, see U.N. Doc. A/Conf.97/9 at 67. See also Eörsi, "Problems of Unified Law on the Formation of Contracts for the International Sale of Goods," 27 Am. J. Comp. L. 311, 314-15 (1979). Others believed that the provision should be excluded. For the position taken by the International Chamber of Commerce, see U.N. Doc. A/Conf.97/8/Add. 2; U.N. Doc. A/Conf.97/9 at 6. See also Eörsi, supra at 314.

62. Commentary, supra note 19, at 45.

63. Convention, supra note 1, art. 16(2)(b); Commentary, supra note 19, at 45.

64. Convention, supra note 1, art. 21(2); Commentary, supra note 19, at 45.

65. Convention, supra note 1, arts. 37 & 48; Commentary, supra note 19, at 45. The requirement of good faith also precludes a party from relying on a provision in a contract requiring written modification or termination. Convention, supra note 1, art. 29(2), and precludes a seller from relying on the fact that notice of nonconformity has not been given properly by the buyer if the defect related to facts that the seller knew or ought to have known but which he did not disclose to the buyer, id., art. 40. The good faith requirement also applies in circumstances in which the right to declare a contract avoided is lost, id. arts. 49(2), 64(2) and 82; and when steps must be taken to preserve goods, id. arts. 85-88.

66. See, e.g., U.N. Doc. A/Conf.97/8/Add.2; U.N. Doc. A/Conf.97/9 at 6. See also Eörsi, supra note 61, at314.

67. See, e.g., Report of the Working Group on the International Sale of Goods on the Work of its Ninth Session, U.N. Doc. A/CN.9/142 (1978). See also Eörsi, supra note 61, at 314.

68. The UCC does make an attempt to define good faith as "honesty in fact." UCC 1-201(19)(1978). See also 2-103(1)(b)(1978). This definition is problematic, however, since it does not seem to connote any notion of fair dealing. See Farnsworth, "Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code," 30 U. Chi. L. Rev. 666, 667-69, 674-78 (1963). One court has noted that "good faith" means honesty and perhaps more. Star Credit Co. v. Molina, 59 Misc. 2d 290, 293, 298 N.Y.S. 2d 570, 573 (N.Y. Civ. Ct. 1969). "Honesty" has been defined as "honesty of intent" -- a "white heart test." Eldon's Super Fresh Stores, Inc. v. Merrill Lynch, 296 Minn. 501, 207 N.W. 2d 282 (1973). Although some courts defer to the "honesty in fact" definition of good faith, it seems that in doing so they are reverting to equitable notions of what is considered fair, and thus the definition proferred by the UCC is not in fact necessary or helpful. See also Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code." 54 Va. L. Rev. 195, 196 (1968).

69. See Eisenberg, "Good Faith Under the Uniform Commercial Code -- A New Look at an Old Problem," 76 Com. L. J. 296 (1971).

70. For example, where a one-year warranty is based on the customer's satisfaction with the performance of the product, the buyer may not act capriciously in deciding that he is not satisfied with the product. Maas v. Scoboda, 188 Neb. 189, 195 N.W. 2d 491, 494-95 (1972). Similarly, where a contract called for the supplier to supply all the uranium that was needed or required by the buyer, the buyer could not demand more than was needed for the activity referred to in the contract and thereby bind the supplier to the low price contained in the contract for uranium needed for other activities. Homestake Mining Co. v. Washington Pub. Power Supply Sys., 476 F. Supp. 1162 (N.D. Cal. 1979). For other cases discussing the good faith exercise of discretionary power, see Crooks v. Chapman Co., 124 Ga. App. 718, 185 S.E. 2d 787 (1971); Neumiller Farms, Inc. v. Cornett, 368 So. 2d 272 (1979); Clark v. Zaid, Inc., 263 Md. 127, 282 A.2d 483 (1971); R.A. Weaver & Assoc. Inc. v. Asphalt Constr. Inc., 587 F.2d 1315 (D.C. Cir. 1978).

71. See, e.g., Can-Kay Indus., Inc. v. Industrial Leasing Corp., 286 Or. 173, 593 P.2d 1125 (1979); Bunge Corp. v. Recker, 519 F.2d 449 (8th Cir. 1975); Theo Hamm Brewing Co. v. First Trust & Sav. Bank of Kankakee, 103 Ill. App. 2d 190, 242 N.E. 2d 911 (1968).

72. See, e.g., Agway, Inc. v. Ernst, 394 A.2d 774 (Me. 1978); Ruble Forest Prod., Inc. v. Lasser Mobile Homes of Oregon, Inc., 269 Or. 315, 524 P.2d 1204 (Or. 1974); Ralston Purina Co. v. McNabb, 381 F. Supp. 181 (W.D. Tenn. 1974).

73. Summers, supra note 56, at 201. Summers argues that the concept of good faith is used to exclude "a wide range of heterogeneous forms of bad faith." The concept is used less as a positive measure of conduct to which a party must conform than a minimum level of conduct which a party cannot fall below. See Restatement (Second) of Contracts 205, comment d (1979).

74. See, e.g., Chandler v. Hunter, 340 So. 2d 818 (Ala. App. 1976), where the court refused to give the purchaser of a mobile home a cause of action for the seller's alleged bad faith conduct, noting that it could not find any cases that allowed a cause of action for an alleged breach of the duty of good faith.

75. In Thomas v. Prewitt, 355 So. 2d 657 (Miss. 1978), the court refused to carve out an "estoppel" exception to the statute of frauds contained in UCC 8-319 on the basis of the good faith provision.

76. See, e.g., Harvey v. Fearless Farris Wholesale, Inc., 589 F. 2d 451 (9th Cir. 1979); AMF Head Sports Wear, Inc. v. Ray Scott's All-American Sports Club, 444 F. Supp. 222 (D.C. Ariz. 1978).

77. Newman, "The General Principles of Equity," in Equity in the World's Legal Systems 589, 603 (R. Newman ed. 1978). Newman states that 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." Id. at 600. From both common and civil-law jurisprudence he distills certain fundamental principles which, as far as the precept of good faith is concerned, provide an international definition of sorts: "Good faith requires fair dealing, affirmative disclosure of material facts and assistance to others in achieving the free benefit of contractual relationships." Id. at 603. Newman further finds good faith an equitable element in the Jewish, Roman, English medieval, Muslim, English modern, Scottish, American, French, German, Swiss, Belgian, Dutch, Italian, pre-Communist Hungarian, Soviet, Polish, Swedish, Japanese and Greek legal systems, Id. at 604-608. Newman also cites civil code provisions such as French Civil Code arts. 1116, 1134; Italian Civil Code arts. 1337, 1375; Swedish Sale of Goods Act art. 31; German Civil Code 138, 157, 242; Belgian Civil Code arts. 1133, 1137, 1366, 1375; and Norwegian Contracts Act 33. Id. 592 nn.12-16.

78. See generally, Berman, "The Uniform Law on International Sale of Goods: A Constructive Critique," 30 Law & Contemp. Probs. 354, 362-63.

79. Common law nations allow courts to fashion their own rules with reference to the relevant text of existing law and guided by occasional responses of legislatures. See Nickles, "Problems of Sources of Law Relationships under the UCC -- Part 1: The Methodological Problem and the Civil Law Approach," 31 Ark. L. Rev. 1, 35 (1977).

80. See generally Nickles, supra note 79, at 35.

81. UCC 1-103 (1978). The official comment to this section gives no guidance as to how the principles found in law and equity are to "supplement" the Code, nor whether these principles apply directly as they exist outside of the Code.

82. For instance, in First Fed. Sav. & Loan Ass'n of Sioux Falls v. Union Bank & Trust, 291 N.W. 2d 282 (S.D. 1980), the court held that since "forgery" is not defined by the UCC, local law controls under 1-103. See also Thompson v. Reedman, 199 F. Supp. 120 (E.D. Pa. 1962) (the court refused to extend privity to guests in a buyer's automobile without even considering extrapolating from the relevant Code provision).

83. UCC 1-102(1) (1978).

84. Skilton, "Some Comments on the Comments to the Uniform Commercial Code," 1966 Wis. L. Rev. 597, 609 (1966). In the UCC comment to this section Skilton detects a concern on the part of the drafters that the courts could reach absurd results in they did not pay heed to the purposes of the provisions when interpreting them. See also, J. White & R. Summers, Handbook on the Uniform Commercial Code 16-17 (2d ed. 1980).

85. Hillman "Construction of the Uniform Commercial Code: UCC Section 1-103 and 'Code' Methodology," 18 B.C. Indus. & Comm. L. Rev. 655, 657-58 (1977); Hawkland, "Article 9 Methodology," 9 Wayne L. Rev. 531 (1963), reprinted in 1 UCC Rep. Serv. 815, passim; Franklin, "On the Legal Method of the Uniform Commercial Code," 16 L. & Contemp. Prob. 330, 337-39 (1951).

86. Hillman, supra note 85, at 659. Comment 1 to 1-102 lends support to this position:

"This Act is drawn to provide flexibility so that, since it is intended to be a semipermanent piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in this Act to be developed in the courts in light of unforeseen and new circumstances and practices." UCC 1-102 official comment 1 (1978).

Comment 9 to 2-615 suggests that that section may be extended to apply to a situation not specifically covered by the section. This also indicates that the Code drafters contemplated internal analog.

87. Hillman, supra note 85, at 678.

88. ULIS, supra note 2, art. 17. Article 17 states: "Questions concerning matters governed by the present Law which are not expressly settled therein shall be settled in conformity with the general principles on which the present Law is based."

89. Rabel, "The Hague Conference on the Unification of Sales Law," 1 Am. J. Comp. L. 58, 60 (1952). Rabel noted that the jurists present at the Conference appeared to be in agreement that questions not covered explicitly in the Code had to be resolved by searching for solutions "within its corners." It was believed that reference to laws outside the text would immediately destroy unity. Id.

90. ULIS, supra note 2, art. 2 states:

"1. Two or more Contracting States may declare that they agree not to consider themselves as different States for the purpose of the requirements as to place of business or habitual residence laid down in paragraphs 1 and 2 of Article 1 of the Uniform Law because they apply to sales which in the absence of such a declaration would be governed by the Uniform Law the same or closely related legal rules.

"2. Any Contracting State may declare it does not consider one or more non-Contracting States as different States from itself for the purpose of the requirements of the Uniform Law, which are referred to in paragraph 1 of this Article, because such States apply to sales which in the absence of such a declaration would be governed by the Uniform Law, legal rules which are the same as or closely related to its own."

91. See Berman, supra note 78, at 359 n.14, in which the author discusses the limited number of exceptions, none of which is applicable to this discussion.

92. See Berman, supra note 78, at 362-63.

93. Berman, supra note 78, at 354, 362-63. Berman notes also that the less detailed a code is the more detailed a contract must be to cover expected contingencies. Thus, an overly brief set of rules might be unacceptable to international businessmen because of the expense of preparing detailed contracts. Id.

94. The general provisions of ULIS, arts. 9-17, did not state the principles on which art. 17 analogies were to be based, and no general principles are to be found elsewhere in ULIS.

95. Working Group Report on the Twelfth Session, 12 Y.B. UNCITRAL (1980). The drafters of the Convention concluded that the civil law method of internal analogy should be used wherever possible but that it should be supplemented by the rules of private international law. Id.

96. Convention, supra note 1, art. 7(2) states:

"Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."

97. Convention, supra note 1, art. 7(1). That clause states:

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

98. For instance, from article 9, the Convention's provision on usages, a court might derive a principle promoting the expansion of international trade through usages and practices of the parties.

99. This is apparent from a comparison of the two codes and is acknowledged by several commentators. See generally Honnold, "The Draft Convention on Contracts for the International Sale of Goods: An Overview," 27 Am. J. Comp. L. 223 (1979).

100. Berman, supra note 78, at 354.


Pace Law School Institute of International Commercial Law - Last updated February 28, 2001
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