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Reproduced with the consent of West Services, Inc., from 37 Uniform Commercial Code Law Journal, issue 2 (Fall 2004) 3-46, published and copyrighted by Thomson/West. Any further reproduction may only be done with express permission of the publisher.

A Vision of a Future World Contract Law:
     Impact of European and UNIDROIT Contract Principles

Ole Lando [*]

     Résumé

  1. CISG and the Principles of International and European Contract Law
  2. The Vision
  3. The Scope of the Code
  4. Structure and Contents of the Code
         a. Which Rules and Where to Place Them?
         b. The Structure of the Rules on Failure to Perform and Non-Performance
  5. Interpretation of the Code
  6. Mandatory Rules
         a. The Present Régime
              aa. Rules of CISG and Mandatory Rules of National Law Inconsistent with CISG
              bb. Mandatory Rules of UPICC and PECL and National Mandatory Rules
              cc. Ordre public and Directly Applicable National Rules
         b. The Régime of the Code
              aa. Matters Covered by the Code
              bb. National, Supranational and International Law on Matters Not Covered by the Code
  7. Specific Topics
         a. Formalities
         b. Meaning of "Writing" or "Record"; Electronic Messages
         c. Good Faith and Fair Dealing
         d. Must the Price Be Included in the Offer?
         e. When Is an Offer Irrevocable?
         f. Professional's Written Confirmation
         g. The Battle of Forms
         h. Interpretation Favouring the Public
         i. Hardship
         j. Remedies for Non-Performance: Specific Performance
         k. Can a Creditor Claim a Performance That Is Impossible or Unlawful?
         l. Interest on Delayed Payment

RÉSUMÉ: The article develops further the ideas of Gerold Hermann and Joachim Bonell to prepare a Global Commercial Code in order to face the need of uniform rules that the globalization of the world trade entails. On the basis of the Convention on Contracts for the International Sale of Goods (CISG), now in force in 63 countries, the UNIDROIT Principles on International Commercial Contracts (UPICC), and the Principles of European Contract Law (PECL), the author treats the scope of the Global Code and, in broad outline, the structure and contents of that part of the Code, [page 4] which will cover the general principles of contract law. Furthermore, he treats the status of mandatory rules in the Code. In the last part of the article, he proposes some adaptations of the rules of CISG, which he would find appropriate when, together with rules now contained in UPICC and PECL, the rules of CISG are to become part of the Global Code.

1. CISG and the Principles of International and European Contract Law

The United Nations Convention on Contracts for the International Sale of Goods (CISG) was adopted at a diplomatic conference held in Vienna in 1980. CISG regulates the formation and effects of the sales contract, its performance, breach, and remedies for breach. It is one of the most successful efforts to unify the law of international commerce. As of September 2004, it was in force in 63 countries, including the USA, Canada, Mexico, China, Russia, and most of the Member States of the European Union. There are hundreds of court decisions and arbitral awards applying the Convention, and it is widely dealt with in the legal literature all over the world. The rules of CISG have become familiar to lawyers and business people in large parts of the world. Many of its provisions are apt for contracts in general.

For this reason, CISG facilitated the efforts of the two working groups which, around 1980, started to prepare general rules of contract law. The Working Group, which prepared the UNIDROIT Principles of International Commercial Contracts, began its work in 1979. The Commission on European Contract Law (CECL), which created the Principles of European Contract Law (PECL), was founded in 1980. The approximately 17 members of the UNIDROIT Working Group came from all parts of the world. The approximately 20 members of the CECL came from the European Union. Most of the members of the two groups were academics. Both groups were independent and not representatives of specific political or governmental interests. Some of the members of CECL were also members of the UNIDROIT Working Group.

The UNIDROIT Group first prepared rules on formation, validity, interpretation, content, performance, and non-performance (breach) of contract. The first edition of the UNIDROIT Principles of International Contracts was published in 1994.[1] The second UNIDROIT Working Group added rules dealing mainly with the [page 5] authority of agents, third party rights, assignment of rights, transfer of obligations, assignment of contracts, set off, and limitation periods. The UNIDROIT Principles of International Contracts 2004 (hereinafter UPICC) were published in 2004 and comprise both the old and the new rules.[2]

The CECL first prepared rules on performance, non-performance, and remedies. Part 1 of the Principles of European Contract Law (PECL) was published in 1995.[3] In 1999, the Commission published in one volume the Principles of European Contract Law Part I and II (hereinafter PECL I & II) containing a revision of Part I and a new Part II on the formation, validity, interpretation, and contents of contracts, as well as on the authority of an agent to bind his principal (hereinafter called agency).[4] In 2003, the Commission published Part III of PECL (hereinafter PECL III), covering rules on plurality of creditors and debtors, assignment of claims, substitution of a new debtor and transfer of contract, set-off, prescription, illegality, and conditions.[5]

The PECL are designed primarily for use in the Member States of the European Union. They have regard to the economic and social conditions prevailing in the Member States. Although meant to cover the world, the UPICC reflect prevailing social amd economic [page 6] conditions in the industrialized countries. The Commission on European Contract Law and the UNIDROIT Working Group have drawn on a wide range of legal materials from both within and outside Europe. Both Groups have been influenced by American law including the American Uniform Commercial Code (UCC) and the Restatement of the Law, Second, of Contracts.[6] Every legal system has not had an equal influence on every issue considered, but no single legal system has been made the starting point from which the rules of the UPICC and PECL are taken and from which the terminology that they employ is derived. Nor have the draftsmen of the Principles seen it as their task to make interpolations or compromises between the existing national laws, except as is necessary in order to weld the PECL and the UPICC into a workable system. CISG has had a substantial influence on the rules on formation, contents, performance, and non-performance of PECL and UPICC. Some of the provisions in PECL and UPICC reflect suggestions and ideas that have not yet materialised in the law of any State.

The UPCC and the PECL show great similarities: Their structures are similar, and about two-thirds of the provisions of the first edition of UPICC are identical in wording or in substance with those of PECL I & II.

Since July 1999, a Study Group of a European Civil Code has been established under the leadership of Professor Christian von Bar of the University of Osnabrück in Germany. The Study Group is preparing a draft Code based on comparative studies and drafts worked out primarily in centers in Germany, Austria, and the Netherlands. The Group is dealing with the specific contracts (notably sales, leasing, insurance, and services), torts, negotiorum gestio, unjust enrichment and secured transactions, and transfer of title in moveable property. It is envisaged that the general principles of the law of contracts provided in the PECL I & II and III will be integrated in the Draft European Civil Code. In September 2004, the [page 7] work of the Study Group was not finished, and the present article will deal only with CISG, UPICC, and PECL.

For the time being, neither PECL nor UPICC bind the courts of any country. They are only non-binding instruments, or 'soft law' like the American Restatements of the Law. Before 1994, when the first edition of UPICC appeared, the members of the UNIDROIT Working Group may have dreamt about the influence that the UPICC might get on the world trade law, but, as far as I know, they did not talk about it. I do not think that they had great expectations in that respect. But their dreams came through. Parties to international commercial contracts now quite often agree that they shall be governed by the UPICC, and the UPICC are widely applied by international commercial arbitral tribunals.[7] As was mentioned, most of the provisions of UPICC and PECL are very similar, and it is generally acknowledged that, together with the PECL, which has created great attention in Europe, the UPIC is an important part of a new lex mercatoria. Both UPICC and PECL have exercised considerable influence on recent national codes and statutes.

It sometimes happens that fantasies in science fiction novels come true, as did the story of a journey to the moon, which Jules Verne wrote more than a century ago. The success of UPICC and PECL is a legal fantasy that has been realized, and it has encouraged the present writer to imagine a future role for the UPICC and PECL that may be still more important than the one they already have.

2. The Vision

The former Secretary of the UNCITRAL, Gerold Herman, has proposed the preparation of a Global Commercial Code.[8] The Code is to be a compilation of special rules relating to the most important kinds of commercial transactions. Some of these rules already exist in the form of separate international conventions or model laws. One of the most, if not the most, important of them is CISG. Other rules may be added for the occasion. Mr. Herman did [page 8] not propose to let the Code cover the contracts in general, which he thought should be governed by national law.

Professor M.J. Bonell, who is the coordinator of the UPICC and a far-sighted scholar, has followed up on this idea.[9] However, he would go further than Gerold Herman in two respects. First, the existing instruments, "cannot simply be transplanted as such into the new Code, but will have to be co-ordinated not only in terms of formal presentation and terminology but also, to some extent to their content."[10] Second, Professor Bonell does not agree that the general contract law should be held outside of the picture. The differences in content between the various domestic contract laws are considerable. Consequently, the solutions that naional courts will reach under the Global Commercial Code may well vary considerably, dependant on which domestic law is applicable in a given case. This will seriously jeopardize the uniformity that is the ultimate goal of the Global Commercial Code. In order to secure uniformity in the application of the Code, there will be a need to cement the existing instruments by general contract rule. This, says Professor Bonell, could be achieved if the Code specifically referred to the UPICC.[11]

Professor Bonell's ideas deserve support. The existing instruments will need to be coordinated. Furthermore the acceptance of the CISG by so many countries indicates a need or a Global Commercial Code, and this need will grow with the globalisation of communication and commerce. Modern means of communication knows no frontiers. When the world become one market, this market will require one law, and this law must include general principles of contract law.

Which status will the UPICC then have under such a system? It seems as if Professor Bonell wishes the UPICC to remain as it is, an instrument of soft law separate from the Global Code. However, if uniformity is to be achieved, the UNIDROIT Principles can hardly remain soft law. It would be necessary to lift the UNIDROIT Principles from their present status to rules of law that are binding upon the courts. In addition, they should be included as part of the Code. [page 9]

The Courts should then apply the rules of UPICC to those contracts that are covered by the special parts of the Code. Both the non-mandatory and the mandatory provisions of the UPICC will then become part of the Global Code and will replace national laws. This, for instance, will be true of the rules of UPICC on the validity of the contract.[12]

This is the future role of the UPICC that the present writer imagines. He wishes UPICC to be part of the Global Code together with CISG and other international instruments. However, this will necessitate an adaptation of these instruments. That is where the PECL come in. They have important rules, which should be added to the Code.

The Code, as envisioned, raises several questions that I will not deal with here; among them are which other international instruments than CISG are to be included in the Code and the adaptations of these instruments that this will necessitate.

In the following sections, I shall deal with the scope of the Code and, in broad outline, with the structure and contents of that part of the Code that will cover the general principles of contract law. Furthermore, I shall treat the status of mandatory rules in the hierarchy of the Code. In the last Section (7), I will deal with some proposed adaptations of the rules of CISG, which I would find appropriate when, together with the rules of UPICC and PECL, CISG becomes part of the Global Code. In doing this, I will also consider texts in the UCC, the Proposed Amendments to the UCC, and the Restatement, Second, Contracts.

3. The Scope of the Code

Like CISG and UPICC, the Code should apply to international contracts as this concept is defined in CISG.[13] It would cause insurmountable difficulties to unify the domestic contract laws of the world, and the states can, as Honnold says,[14] "be expected to bind themselves to the same rules only in an area of shared interest -- the international trade transactions."

Likewise, their main interest is the commercial contracts that make up the bulk of international contracts. Both CISG and UPICC treat commercial, not consumer, contracts.[15] It is submitted [page 10] that the Global Code should be limited to international commercial contracts.

The Code should cover private law. It should not treat rules on restrictive trade practices, import and export restrictions, and other public laws. It will, however, deal with the effect of these and other public laws on the validity of the contracts, see section 6 below on Mandatory Laws.

4. Structure and Contents

a. Which Rules and Where to Place Them?

As CISG, UPICC, and PECL, the Code should start with a part covering its sphere of application and some general provisions mostly dealing with its interpretation and the impact of usages and practices between the parties. In addition, it should provide some general duties and some definitions of concepts used in the texts. This first part we also find in Article 1 of the American Uniform Commercial Code (UCC) and in several other Codifications. [page 11]

Like Article 2 of the UCC on sales and the Restatement of the Law, Second, of Contracts, the sequence of the chapters of UPICC and PECL are chronological. The chapter on formation of the contract is followed by chapters on the authority of an agent to bind his principal,[16] validity, interpretation, contents of the parties' obligations, performance, non-performance (breach) and the remedies available in case of non-performance. To this, UPICC and PECL III add chapters on assignments of claims, transfer of obligations,[17] transfer of the contract, set-off, and limitation periods (in PECL called prescription).

There are some differences between UPICC and PECL,[18] but the main structures are very similar. It is submitted that the part of the Code on contracts in general should adopt the sequence of chapters in UPICC and PECL.

The rules of the general part of the Code that covers the same subjects as the rules of CISG, such as formation, performance, non-performance, and remedies should not be repeated in its chapter on sales, which should treat those subjects that, like the rules on delivery of the goods, conformity of the goods, third party claims, and passing of the risk, are specific for the sales contract.

With one exception,[19] CISG provides only non-mandatory rules and does not include rules on validity, which are mandatory. CISG only has one rule, art 8, on the interpretation of the parties' statements, whereas, like most of the European Codes, UPICC and [page 12] PECL provide several rules on the interpretation of contracts. CISG does not treat agency. The rules of UPICC and PECL on validity, interpretation, and agency are not incompatible with those of CISG and should be included in the Code. The same is true of the rules on assignments of claims, transfer of obligations, and of the contract, set-off and prescription.

PECL III treats subjects not [yet] to be found in UPICC. Chapter 10 provides rules on Plurality of Parties, chapter 15 treats the effects of illegality, and chapter 16 deals with Conditions. It is submitted that rules on plurality of parties and on conditions are useful and that illegality should be given a general treatment as in PECL, see on Mandatory Rules below.

If this pattern is adopted, most subjects that are treated in the Restatement of the Law, Second, of Contracts will also be dealt with in the Code.[20]

b. The Structure of the Rules on Failure to Perform and Non-performance

The system in CISG, UPICC, and PECL regarding non-performance (breach) and remedies for breach differ in some respects from that of the UCC and the Restatement of the Law, Second, of Contracts.

If the contract is not performed in accordance with the express or implied terms of the contract, the failure to perform may be due to the debtor's fault; or it may have causes for which he cannot be blamed but for which he nevertheless must be the risk. The failure to effect due performance may also have been caused by the person who is to receive performance -- the creditor -- either by his fault or by other causes for which he bears the risk.

The legal systems will allocate detrimental consequences to the defaulting party if that party is in fault or carries the risk. The failure to perform may give the other party -- the aggrieved party -- certain rights against the defaulting party. The aggrieved party may [page 13] have a right to damages for the loss he suffers from the other party's failure to effect due performance.[21] If he accepts a tender of performance not conforming to the contract, he may reduce his own performance.[22] Furthermore, he may withhold his performance until the other party makes a due performace.[23] Under certain conditions, he may terminate the contract.[24] The aggrieved party may finally have a right to specific performance, that is, to claim that the contract be performed as agreed.[25] In CISG, PECL, and UPICC, all these rights are called remedies.

The law gives these remedies to the creditor when, for reasons for which the debtor carries the risk, the latter fails to effect due performance. If, for instance, the seller of scrap iron does not deliver it, the buyer may terminate the contract, buy the iron from another source, and claim damages from the seller for any loss he has suffered. The remedies may also be accorded to the seller when the buyer fails to receive performance. If a buyer of scrap iron refuses or is unable to receive it, the seller may terminate the contract, sell the iron to another purchaser, and claim damages from the buyer for any loss he has suffered.

The situations where there is a failure to effect due performance that gives the aggrieved party one or more remedies are called by PECL and UPICC situations of non-performance.[26]

In the case of the scrap iron, we face a problem of terms. The seller who has a duty to deliver the iron also has right to get rid of it. The buyer who has a right to get the iron also has a duty to remove it or receive it. Both parties are therefore "debtors" and "creditors" in relation to the same performance, and there is non-performance if they fail to perform their duties.

There are cases where the debtor's failure to perform gives the party who is to receive performance no rights or remedies. Thus, [page 14] where identified goods are to be delivered and, due to a contingency for which the seller is not liable, they perish before delivery but after the risk has passed, the buyer who has to pay the price has no remedies. The performance has failed, but there is no non-performance since there is no remedy. Sometimes a party's failure to receive performance or to contribute in other ways to the debtor's performance (mora creditoris) will not give the debtor any remedy. The effect of the failure is that the creditor does not get the performance that he has contracted for, but the debtor, who is prevented from effecting due performance, cannot force his performance upon the creditor; nor can he terminate the contact or claim damages. If he gets his counter-performance as stipulated in the contract, he has no remedy. Thus if a pianist who has been engaged to play in the bride's home at a wedding party is dismissed because the couple has decided not to marry, the pianist who gets his fee cannot force the couple to listen to his performance, nor can he -- under normal circumstances -- claim damages because he was denied the opportunity to perform. The refusal of the bride to admit him to play in her home causes a failure in his performance, but since it does not give him any remedies caused by that failure, we will not call it a non-performance, neither on his part nor on the part of the couple.

The debtor is generally not liable in damages for non-performance of any of his obligations, if he proves that the failure to perform was due to an impediment beyond his control and that he could not have taken the impediment into account at the time of the conclusion of the contract or have avoided or overcome it or its consequences, see CISG art 79. For instance, the seller is not liable in damages if, after the conclusion of the contract, an unforeseen embargo is placed on scrap iron which prevents the seller from delivering it to the buyer's country.

Where the aggrieved party cannot claim damages for non-performance of an obligation, he also cannot, as a rule, claim specific performance of the same obligation. The non-performance is excused. However, the aggrieved party may still withhold his own performance, in this case his payment of the purchase price. In case of a temporary impediment which excuses the debtor, the creditor's right to specific performance is not lost, but only postponed. When the impediment disappears, the creditor may claim performance and, if he does not get it, damages for delay. If, [page 15] however, the impediment lasts so long that the non-performance becomes substantial, as for example if the embargo persists, the aggrieved party may terminate the contract. He may then refuse to receive the iron even if, once the embargo is repealed, the defaulting party wishes to deliver it. In this respect, the defaulting party carries the risk for the non-performance.

There are now the following categories:

Failure to Perform       
Non-performance      "Remedy-less" failures
 
Non-excused remedies: Excused remedies:
 
Specific performance
Damages
Withhhold performance         Withhhold performance        
Termination Termination
Price reduction Price reduction

It is to be noted that the creditor's failure to receive performance may be a non-performance on his part. The failure to receive performance may, however, also be "remedy-less." The "remedy-less" failures and the other cases of a failure to perform give the creditor no remedy.

5. Interpretation of the Code

CISG, UPICC, and PECL all have directions on how to interpret their rules.[27]

They all stress the need for uniformity in the application of their rules. CISG and UPICC provide that regard is to be had to their international character, and, CISG and PECL wish to promote good faith and fair dealing. [page 16]

There is always a danger that a court will interpret an international convention in the light of its domestic law. However, in the case of CISG, the courts of several countries have shown their readiness to pay regard to its international character and to disregard national laws which are not in accordance with the rules of the CISG. The courts have also shown willingness to learn from each other and from legal doctrine.[28]

PECL provides that the Principles shall be interpreted and developed in accordance with their purposes. As does CISG art 7(2), UPICC 1.6.(2) and PECL art 1:106(2) provide that "issues within the scope of the Principles but not expressly settled by them are so far as possible to be settled in accordance with the ideas underlying the Principles." CISG and PECL then add that, "[f]ailing this, the legal system applicable by virtue of the rules of private international law is to be applied."

It is a principle underlying the interpretation of all three instruments that the rules should be flexible and have capacity to meet situations which the draftsmen have overlooked or omitted or which they could not imagine would happen in the future.

The authors of UPICC and PECL realized, as did the draftsmen of CISG, that international rules that are made both to last and to promote a liberal interpretation must be broad principles. This approach, it is submitted, should also be adopted in the Code.

The Code should provide as PECL art 1:106(1) and (2). In paragraph (1) it should add, as does UPICC and CISG, that regard is to be had as to the international character of the Code. In paragraph (2) it should omit the unnecessary reference to the rules of private international law. [page 17]

6. Mandatory Rules

     a. The Present Regime

          aa. Rules of CISG and Mandatory Rules of National Law Inconsistent with CISG

The rules of CISG are, as mentioned, not mandatory. Art 4 provides that CISG is "not concerned with the validity of the contract or any of its provisions or of any usage." However, it may happen that its non-mandatory provisions are inconsistent with mandatory rules of national sales law. Under French law, the seller cannot limit or exclude his liability for 'hidden defects' in the goods unless the buyer is a specialist in the particular trade, but, under CISG art 6, the seller is free to limit or exclude his liability for defects in the goods under art 45. It is generally held, also in France, that the sales rules of CISG must prevail over the French rule which, though mandatory, is not part of the French ordre public international, i.e. fundamental public policy.[29] The same holds true of the rule in Section 2:316 of the American UCC, under which a provision in the sales contract that excludes or modifies a warranty of merchantability must be in writing and conspicuous.[30] As do CISG, PECL, and UPICC, the Code will also provide such nonmandatory rules that are inconsistent with national mandatory rules, and these rules of the Code will prevail over those of national law.

          bb. Mandatory Rules of UPICC and PECL and National Mandatory Rules

As mentioned above, UPICC and PECL are non-binding instruments or 'soft law.' They yield to the rules of the law applicable to the contract.

However, insofar as mandatory rules are concerned, a distinction is to be made between situations where the parties have agreed to incorporate the Principles in the contract and where the Principles are chosen by the parties as the law governing the contract.

In cases where the parties' reference to these Principles is considered to be only an agreement to incorporate them into the contract, the Principles will first of all yield to the mandatory rules of [page 18] the law governing the contract, i.e. they will bind the parties only to the extent that they do not affect the rules of the applicable law from which parties may not contractually derogate.

However, in cases where parties to an international commercial contract decide to refer disputes between them to arbitration, they often agree not to have their contract governed by national law. Instead, they submit it to the international customs and usages of the international trade and to the rules which have been established for this purpose, such as the UNIDROIT Principles and the PECL, which are then chosen by the parties as the law governing the contract.[31]

For this purpose, UPICC and PECL have provided a number of mandatory rules that are meant to replace mandatory national rules. They include most of the rules on validity in Chapter 3 of UPICC and Chapter 4 of PECL and some additional mandatory rules.[32] These rules replace corresponding provisions, if any, in the national laws.

          cc. Ordre public and Directly Applicable Rules

However, the mandatory rules of the forum, and possibly also those of third States, will prevail, provided that they claim application whatever the law governing the contract and, in the case of the rules of third States, there is a close connection between those States and the contract in question.[33] On these rules, UPICC art 1:4 provides:

"Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law." [page 19]

PECL art 1:103(2) has a similar provision:

Thus it may happen that the courts of a country having provided rules on unfair contract terms which go further than those which will be adopted by the Code, see UPICC art 3:10 and PECL art 4:110, will give its rules effect irrespective of which law governs the contract. UPICC and PECL will let these national rules of a fundamental public policy prevail over their own mandatory rules.

     b. The Regime of the Code

          aa. Matters Covered by the Code

It is a generally accepted principle that public international law, including treaties and conventions, prevail over national law. If the Code becomes an International Convention, its rules will replace those of the national laws in matters covered by the Code.

The non-mandatory provisions of CISG that are inconsistent with mandatory rules of national sales will continue to prevail over the rules of national law, and so will non-mandatory provisions now to be found in UPICC or PECL that are inconsistent with mandatory rules of national law. The same applies to the mandatory rules on validity in Chapter 3 of UPICC and Chapter 4 of PECL and other mandatory rules. These rules will be applied by national courts, and they will replace corresponding provisions, if any, in the national laws.

Since international conventions prevail over national law, the rules of the Code will also replace the mandatory rules of national laws that form part of their public policy and directly applicable rules. UPICC art 1.4 and PECL 1:103(2) will have to be left out.

          bb. Mandatory Rules of National, Supranational, and International Law in Matters Not Covered by the Code

However, the Code will have to give effect to mandatory rules of national, supranational, and international law in matters not covered by the Code.

PECL art 15:101 provides that "a contract is of no effect to the extent that it is contrary to principles recognized as fundamental in the laws of the Member States of the European Union." Arbitral awards of the Court of Arbitration of the International Chamber of [page 20] Commerce have shown that some of these principles have general application, such as the one invalidating agreements arrived at by means of corruption or bribery.[34] The Code should enforce such principles and other fundamental principles of law found across the world, such as those provided in the UN Treaties on Human Rights. It is submitted that the Code should lay down that a contract is of no effect to the extent that it is contrary to such principles as are recognized as fundamental in the World Community.

In addition, there are national, supranational, and international mandatory rules of public law that may affect the validity of a contract. Under PECL art 15:102, the effects upon the contract of such a rule are that which are expressly prescribed by that rule. If the mandatory rule does not expressly describe the effects of an infringement upon the contract, it may be declared to have full effect, to have some effect, to have no effect, or to be subject to modification. The decision as to which effect the infringement shall have must depend upon an appropriate and proportional response to the infringement, having regard to all relevant circumstances. Examples of such mandatory rules, the application of which cannot be excluded, are to be found in the field of foreign exchange regulations, regulations pertaining to restrictive trade practices, rules invalidating agreements made with unlicensed professionals, and requirements of a public permission which may affect the validity of a contract or its performance. UPICC deals (in arts 6.1.14-6.1.17) with these latter requirements.

For these matters not governed by the Code, a provision similar to PECL art 15:102 should be provided in the Code. The rules on public permissions in UPICC arts 6.1.14-6.1.17 should be added.

Long-arm statutes in some countries may impose prohibitions, illegality, or public permission requirements on contracts entered into by licensees or subsidiaries of companies located abroad. Such statutes are only to be given effect if this is compatible with the conflict of law rules of the forum country.

7. Specific Topics

CISG was drafted in 1980, and later developments have rendered some of its rules obsolete. Furthermore, CISG has some [page 21] rules that, in the opinion of the present writer, were "miskicks" right from the outset. The obsolete and "miskicked" rules would need to be replaced by other rules. In this section, I will deal with some proposed adaptations of the rules of CISG when, together with rules of UPICC and PECL, they are to become part of the Global Code.

     a. Formalities

CISG art 11 lays down that "a contract for sale need not be concluded in or evidenced in writing and is not subject to any other requirement as to form. It may be proved by any means including witnesses." UPICC art 1.2 and PECL art 2:101(2) provide the same rule for contracts in general. The rules address both formal requirements as matters relating to substance and those that are provided for evidentiary purposes only. They reflect the necessity of having international transactions freed from formal requirements.[35] The comment to UPICC points out that art 1.2 seems particularly appropriate in the context of international trade relationships where, thanks to modern means of communication, many transactions are concluded in great speed and are not paper-based.

The notes accompanying PECL art 2:101 tell us that most laws of the European Union have no formal requirements for contracts in general. Most laws require writing for specific contracts and for individual terms, such as arbitration agreements and jurisdiction clauses. However, some laws require writing for commercial contracts.[36]

Art 96 of CISG provides that a Contracting State whose legislation requires contracts of sales to be concluded in, or evidenced in, writing may make a declaration in accordance with art 12 that any provision of articles 11, 29, or Part II of the Convention shall allow a contract for sale or its modification or termination by agreement [page 22] or any offer, acceptance, or any other indication of intention to be made in any other form than writing does not apply where any party has his place of business in that State.[37] Art 12 provides that, in such cases, art 11 does not apply and that the parties may not derogate from or vary the effect of art 12.

It is submitted that the Code should not permit Member States to make reservations under which formal requirements are upheld. This should also apply to sales contracts. Arts 12 and 96 of CISG should be deleted. However, specific provisions in the Global Code may require a record, writing, or other formalities with regard to specific contracts, contract terms, or statements. The Code should permit parties to agree that their contract or modifications of it shall be recorded, put in (paper) writing, or in another particular form.[38]

     b. Meaning of 'Writing' or 'Record'; Electronic Messages

Art 13 of CISG provides that, for the purpose of the Convention, writing includes telegram and telex. The word 'includes' implies that means of communication other than telegram and telex may also be covered under the term writing. It is widely held by the authors that, by way of analogy, writing should also cover telefax. Whether art 13 covers messages transferred from computer to computer is controversial.[39]

However, it is now a widespread opinion that writing should include electronic mail and other electronic means of communication which are capable of providing a readable record of the statement.[40] Art 1:11 last indent of UPICC provides that, "writing [page 23] means any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form." PECL art 1:301(6) has a similar provision. So writing does not any longer presuppose paper. Arts 9(1) and 22 of the European Union Directive on Electronic Commerce [41] have provided that, by January 17, 2002, Member States should have ensured that their legal systems allow contracts to be concluded by electronic means. Member States should, in particular, have ensured that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity on account of their having been made by electronic means. There are some exceptions to this rule, notably regarding contracts that create or transfer rights in real estate.

The proposed Final Draft of 2002 to the US UCC 2-201 replaces the word "writing" with "record." "Record" in 1:201 (no. 33a) of the 2001 Final Draft means "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form."[42] 'Record' means the same as 'writing' as it is now defined in UPICC and seems to be a more adequate term for what is meant. It should therefore be considered to replace the term 'writing' with 'record,' which means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

     c. Good Faith and Fair Dealing

UPICC art 1.7 lays down "that each party must act in accordance with good faith and fair dealing in international trade." PECL art 1:201 provides that "each party must act in accordance with good faith and fair dealing." The rules are mandatory. Good Faith means honesty and fairness in mind. A person should, for instance, not be entitled to exercise a remedy if doing so is of no benefit to him and his only purpose is to harm the other party. Fair [page 24] Dealing means observance of fairness in fact. Even if provided in the contract that payment of the price at the time it is due is of essence of the contract, a party should not be permitted to terminate it if payment is made 10 minutes late. When used in the following, the term 'good faith' also covers fair dealing.

An important source of inspiration for PECL and UPICC was the UCC 1-203. It provides that "every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement." UCC 1-201(19) defines 'good faith' to mean "honesty in fact in the conduct or transaction concerned." Section 2-103(1)(b) on Sales provides that "in this Article 'good faith' in the case of merchants means honesty in fact and the observance of reasonable commercial standards of fair dealing."[43]

CISG, art 7(1) provides that, in the interpretation of CISG, regard is to be had inter alia to the observance of good faith in international trade. A proposal was put forward at the Vienna Conference in 1980 to include in CISG a rule providing that, in the formation, interpretation, and performance, the parties shall observe the principles of good faith and international cooperation. The majority of the delegates feared that such a rule would lead national courts to be influenced by their own legal and social traditions when interpreting vague concepts as good faith, and the proposal was not adopted.[44]

However, it is not reasonable to maintain a distinction between the interpretation of a provision of the Convention which is, and the interpretation of a term in the sales contract which is not to be, governed by the principle of good faith. The principle should also have a 'supplementing function' under which rights and duties not [page 25] expressly provided in the contract or in the law may arise between the parties. Some courts, applying art 7(1), have in fact extended the principle of good faith to cover the interpretation of the contract [45] and the parties' behaviour thereby giving the good faith principle a supplementing function.[46] Several of the authors agree that it was a miskick that good faith was reduced to apply only to the interpretation of the provisions of CISG.[47]

The authors of CISG and the comments to UPICC claim that good faith is to be understood as an international concept not to be taken from a single domestic system. Every rule of conduct that a national system derives from the good faith principle [48] should not be included. The court must have assurance that certain behaviour is covered by "internationally recognized principles of honourable conduct and, as far as possible, with the maximum measure of agreement between the courts of the Contracting States.[49]

I agree that a national court should not make use of the good faith principle whenever that principle would apply to a domestic situation. However, should a court only apply the principle if it has assurance that there is a "maximum measure of agreement" among the courts of the Member States that a certain conduct is covered by the principle? If this should be the approach, there is a risk that courts will not venture to apply the principle to new situations, and it might petrify. Therefore, a court should apply the good faith principle when it finds that it should cover a certain conduct in international trade, and this regardless of whether cases decided by the courts of other countries have endorsed the solution.

UPICC art 1.7, which is now widely accepted all over the world, should be included in the Global Code alongside with the many [page 26] provisions in UPICC and PECL that refer to the principle of good faith and the related rule of reasonableness. UPICC has more than 30 and PECL more than 40 provisions that specifically mention good faith or reasonableness.[50] The Code will then widen the scope of the principle.

     d. Must the price Be included in the offer?

Art 14(1) of CISG in Part II on the formation of the sales contract makes the price a necessary element of the offer. "A proposal for concluding a contract ... constitutes an offer if it ... is sufficiently definite. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price." Under this rule, a proposal that does not expressly or implicitly fix or make provision for determining the quantity and the price is not an effective offer, which may lead to the conclusion of a contract. [page 27]

The price was made a requirement under the influence of the French delegate and delegates from other countries that feared that the seller would take advantage of the absence of a price to charge an exorbitant price. However, after 1980, France and other countries have modified their rules on this point.[51]

Art 14 stands in glaring contradiction to art 55, which provides:

"Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."

Several attempts have been made to explain away this contradiction, but none of them are truly convincing.[52]

UPICC does not require the offer to contain any reference to the price. Article 2.2 on the definition of the offer provides: "A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance." PECL art 2:201 lays down a rule similar to UPICC art 2.2. The comments on UPICC [53] state that even an essential term such as the price may be left undeterinined. The decisive items are whether both parties intended to make a contract and whether the missing terms can be determined by interpreting the language in accordance with the rules on interpretation or supplied in accordance with the rules on supplementation. UPICC art 5.1.7 provides a rule similar to CISG art 55 on the price to be charged. PECL art 6:104 lays down that "where a contract does not fix the price or a method for determining it parties are to be treated as having agreed on a reasonable price." A similar rule is also to be found in 2-305(1) of the UCC.

The Code should adopt UPICC art 2.2, which means that an indication of the price would not be required for the sales contract or [page 28] any other contract. The rule in UPICC art 5.1.7 on the price to be paid appears to be the one best suited for international contracts.

     e. When Is an Offer Irrevocable?

Under German, Belgian, Austrian, Greek, and Portuguese law, an offer is binding when it reaches the offeree; in Nordic law, it is when it comes to his knowledge. Unless the offer itself indicates that it is revocable, it cannot then be revoked. However, most laws will allow a party to revoke his offer before it has been accepted.[54] Under the Common Law doctrine of consideration, offers "are revocable until they are accepted. This also is the rule in CISG art 16, PECL art 2:202, and UPICC art 2.4.

However, there should be exceptions. Offerees will generally expect that offers that indicate that they are irrevocable and offers that state a fixed time for their acceptance will not be revoked. This expectation is to be protected.[55] There are situations where it was reasonable for the offeree to rely on the offer as being irrevocable and where he has acted in reliance on the offer. In such cases, it should not be revocable either. If, for instance, a general contractor gets a sub-contractor to submit an offer, and the sub-contractor knows that the general contractor will use it, and he in fact uses it in his bid on a building, the sub-contractor should not be permitted to revoke his offer. The reliance rule is laid down in US case law and is reflected in the Restatement of the Law, Second, of Contracts, 87(2), and 90. CISG art 16, UPICC art 2.4, and PECL art 2:202 are drafted in accordance with these considerations.

Art 16(2)(a) of CISG and UPICC art 2.4(2)(a) provide that "an offer cannot be revoked if it indicates, whether by stating a fixed time for its acceptance or otherwise, that it is irrevocable." A reader of this provision would believe that the fixing of a time for the acceptance of an offer would always make it irrevocable, but that is not what it is supposed to mean. There was disagreement between the delegates in Vienna. The Common Law delegates would not accept that the fixing of a time for acceptance should make the offer automatically irrevocable. The Civil Law delegates would. The formulation used in art 16(2)(a) swept the problem under the carpet. The outcome, although not clear, seems to have been that [page 29] whether the offer is irrevocable or not depends upon the intention of the offeror as it was reasonably understood by the offeree, see CISG art 8. The offer is irrevocable where the offeror and the offeree, both being from civil law countries, would understand that a fixed time for acceptance alone makes the offer irrevocable. The offer may be revocable where both parties are from common law countries where the stating of a fixed time for acceptance alone does not make the offer irrevocable. Where the offeror comes from a common law country and the offeree from a civil law country, the solution will depend upon whether the offeree knew or could not have been unaware of the offeror's intention not to be bound by the offer, see art 8(1). If not, the solution will depend upon the understanding of a reasonable person of the same kind as the offeree, see art 8(2).[56]

The rule will cause uncertainty and is an unfortunate 'miskick.' It has not been adopted by the Commission on European Contract Law. PECL art 2:102(3) provides that a revocation of an offer is ineffective if the offer stated a fixed time for its acceptance. This should also be the rule of the Global Code.

     f. Professional's Written Confirmation

In 1987, Bonell, who favoured a supplementing function of the good faith principle in art 7(1), mentioned the Merchant's Written Confirmation Rule as one that was not widely enough accepted to be applied under CISG art 7(1).[57] The rule lays down that a party who receives from the other party a written message claiming to be a confirmation of what was already agreed but which in fact contains additional or different terms is bound by its terms, unless they materially alter the terms of the contract or the recipient objects without delay to the terms in the letter of confirmation. Bonell probably expressed the prevailing attitude in 1987, although the rule existed in Germany, Switzerland, Austria, Finland, and Denmark. The march of time has changed the attitude. The rule is now provided in UPICC art 2.1.12 and PECL art. 2:210. It should be included in the Code. [page 30]

The CISG has no rule on the professional's written confirmation. The question of providing a rule was raised in Vienna in 1980 where it was decided that the German rule should be taken into account as a trade usage under CISG art 9(1) or (2). It may be applied where the parties have their places of business in states which, in the relevant trade sector, have rules similar to those of German law.[58]

The rule in UPICC and PECL only covers additional and different terms to a contract that has come into existence. In Germany, Switzerland, Finland, and Denmark,[59] a professional's written confirmation can establish a contract. The confirmation will bind the addressee, if the sender of the confirmation has reason to believe that the negotiations between the parties had led to a contract. Also, here, the recipient will not be bound if he objects to the contract without delay or if the confirmation contains surprising terms.

In a case decide by the Danish Supreme Court,[60] the defendant was a merchant in the oil trade. He had called the plaintiff, another merchant, over the telephone and asked if the plaintiff had gas oil that he would sell at a favourable price. The defendant had told the plaintiff that he could take 2 million litres before April 15, and a price of 176 kroner per 1000 litres had been discussed. The defendant had received the plaintiff's letter of confirmation three days after the telephone conversation and had made no objection to it, until the plaintiff, some days later, asked him whether he had received the written confirmation. The Court held that, even though a contract had not been concluded with sufficient certainty over the telephone, the defendant had had a duty to object to the confirmation without delay and that, having not so objected, he was bound by the confirmation.

In the view of the present writer, a rule like the one provided in German and other laws should be considered. If, as in the case mentioned, the party sending the confirmation has good reason to [page 31] believe that a deal has been concluded, the recipient of the confirmation should be bound by it unless he objects without delay.

     g. The Battle of Forms

The standard form is a usual model for the conclusion of contracts. Most enterprises use standard forms both when they sell and when they buy goods and services. In many countries, the general rule is that if notice of them is given to the recipient, and if they do not contain unreasonable terms, they will bind him.[61]

However, it happens that both parties have used their general conditions of contract and that their terms are in conflict. They generally agree on price, quality, quantity, and when to perform. On other issues, their forms will often diverge. For instance, a term in the seller's condition excludes or limits his liability for defects in the goods sold, whereas the buyer's conditions expressly provide that the seller is fully liable for defects (example 1). Or the seller's terms provide that the buyer shall pay a high interest in case the buyer fails to pay the price when it is due, whereas the buyer's terms have no provision on interest (example 2). This is the so-called 'battle-of-forms' situation. It raises two questions: Is there a contract in spite of the conflicting terms? If there is, which terms apply to the contract?

1. The first question is whether the so-called 'mirror image rule' should be maintained. Under this rule, the acceptance of an offer must be unqualified. If that rule is maintained, there is no contract when there is a battle of forms.

However, many contracts are not fully bargained and not understandingly signed or otherwise acknowledged by both parties. Many parties write in their terms that they will only deal if their terms and conditions prevail. However, the parties often wish to conclude a contract in spite of what they have written in their general conditions. And, in most cases, they do not even react to the standard terms of the other party that they receive. Either they do not discover the conflicting terms or, if they discover them, they do not wish to take up the issue. Both parties consider the deal as made. They both act as if the mirror image rule did not exist, and, at this stage, neither of them think of invoking it. [page 32]

However, one of the parties may discover that he has made a bad bargain. He now finds out that the terms are conflicting and invokes the mirror image rule to claim that he is not bound by any contract. Or, after both parties have performed, an event dealt within the conflicting terms comes up. The buyer does not pay in time, and when the seller claims the high interests provided in his terms, the buyer invokes the mirror image rule and maintains that there was no contract.

Can a party do that? If he could, the conflicting terms could be used to get out of a bargain that a party has made but which he later regrets. This would not be acceptable. So, under many laws, the contract is upheld unless the offeror objects to the purported acceptance without undue delay.[62] The UCC 2-207 on Additional Terms in Acceptance or Confirmation provides in subsection 1 that a definite expression of acceptance operates as an acceptance even though it states terms in the acceptance which are additional or different from those offered. Subsection 3 lays down that conduct by parties that recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. Theses provisions cover both the exchange of individually made terms and general conditions. UPICC art 2.22 [63] and PECL art 2:209 uphold the contract where the general conditions are in conflict. The mirror image rule does not apply, since the parties did not wish it to apply when they made the contract.

The position taken in CISG is not clear, since the delegates refused to deal with the problem at the Conference in 1980. However, some commentators interpret the provisions of CISG to mean that a contract is concluded.[64] This view is supported by a Dutch and a German case.[65] Other commentators will only admit that there is a contract, when both parties have performed before the issue is raised.[66]

The Global Code should provide as UPICC art. 2.22 and PECL art 2:209.

2. The second question is which terms will apply if the contract is upheld? Take the case of the buyer who discovers that the goods sold have defects (example 1). The buyer claims termination and [page 33] damages to which he is entitled under his term. The seller invokes his term to maintain that the buyer has no claim. One of them, sometimes both of them, may show that his terms provide that they shall always prevail over the other party's conflicting terms. However, there is no point in encouraging parties to write in such a 'my terms prevail' clause in their standard terms, and such a printed clause should be of no effect.

Three solutions have been discussed:

One maintains that he who 'fires the first shot' must win. When the terms of the offeree differ from those of the offeror, the offeror's terms must prevail. This is probably the solution of the Dutch Civil Code Art 6:225(3) and seems to be the rule also under UCC Section 2-207(1).[67] An argument for this solution is that an offeree who accepts an offer must take it as it is. He should not be permitted to change the terms. However, since it is often a coincidence [page 34] who was the offeror and who the offeree, this theory leads to arbitrary results.

Another solution asserts that he who 'fires the last shot' must win the battle. When the last shot was the offeree's communication of acceptance, his terms must prevail. This is the solution of UCC section 2-207(2) in cases where the additional or different terms do not materially alter the contract. It is probably also the solution of CISG in these situations, see art 19(2). Some commentators refer to this solution as the one that is most in harmony with CISG art 19 and art 18(1), also in cases where the additional or different terms materially alter the terms of the offer.[68] The argument is that he who receives the last shot must be bound by his silence. Other commentators, however, maintain that, since the delegates refused to deal with the 'battle of form' problem when it was raised at the Diplomatic Conference in 1980, one cannot rely on art 18(1) and 19 for this solution. Besides, the last shot theory is also causistic and arbitrary, since it is often a coincidence who fired the last shot.[69]

Under the third solution, the conflicting terms 'knock each other out.' The contract consists of those terms that are common in substance. It is for the courts to fill the gap left by the terms which have knocked each other out. Often the rules of the law, the so-called implied terms, will provide the answer. This solution is adopted by the German and Austrian courts and by the UPICC art 2.1.22 and PECL art 2:209. It is also the solution of UCC 2-207(3) in cases where the subsequent conduct of the parties saves a contract that had otherwise not been established. It is proposed as a general rule in the planned reform of 2-207 of the UCC where it applies to all contracts for the sale of goods [70] and will not be limited to contracts where general conditions have been used.[71] [page 35]

In most cases, the parties intended a contract to be concluded in spite of the conflicting terms and did not raise the issue. They either overlooked it or swept it under the carpet. In these cases, there is no reason to let one party's terms prevail, and this speaks in favour of the 'knock out' rule provided by UPICC and PECL.

     h. Interpretation Favouring the Public

The French, Spanish, Italian, and most Latin American civil codes have a chapter on the interpretation of contracts and so have PECL and UPICC. The rules are meant as guidelines and do not provide a hierarchy that binds the courts. As mentioned above, it is proposed that the Global Code should contain a chapter similar to the one in PECL and UPICC.

One important rule is missing in these instruments that should be included in a Global Code. In chapter 9 on the Scope of Contractual Obligations, the American Restatement of the Law, Second, of Contracts provides rules on interpretation and rules policing the agreement of the parties. Section 207 lays down that, in choosing among reasonable meanings of a promise, agreement, or a term thereof, a meaning that serves the public interest is generally to be preferred. The American courts have applied this rule to prefer a narrower interpretation of a patent license agreement in order to encourage invention and a construction in a contract concerning land that favoured the free use of land.

The public interest may be a global or national one, see, on these interests, section 6 on Mandatory Rules above. [page 36]

     i. Hardship

A party is generally bound to perform his obligations under the contract even though it has become more onerous for him to do so. An exception from this rule, the pacta sunt servanda, is made in case of vis major. Although the rules are not the same in the legal systems,[72] most of them show the following main features:

A debtor is relieved from his obligations only if performance has become impossible in law or in fact. Most legal systems also accept quasi impossibility where performance, though possible, cannot be requested. CISG art 79 [73] speaks of a failure to perform that is due to the effects of an impediment that the debtor cannot overcome. Furthermore, it is required that:

  1. the debtor could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract; and that

  2. the impediment occurred outside of the control of the debtor who is supposed to have control of himself, his employees, and his equipment.

The rule is not mandatory. Parties may agree on stricter conditions (for instance, imposing an absolute obligation on a party) or on more lenient conditions. This is often done in standard contracts.

In most legal systems, vis major or force majeure ends the contract. There is no room for modification of its terms, and no duty for the parties to renegotiate the contract with a view to such modification.

A rule similar to the one mentioned above is provided in CISG art 79, UPICC art 7.1.7, and in PECL art 8:108.[74]

However, in contracts of duration such as cooperation agreements, lasting construction contracts, and contracts for a [page 37] continuous supply of goods or services, unforeseen contingencies may make performance excessively onerous for one party, especially in times of depression or unrest. An unexpected and exorbitant rise in the supplier's costs may occur, but, in the laws of several countries, such a rise is not sufficient to constitute force majeure. In these contracts, a hardship rule that is more lenient than the vis major rule is needed. Clauses providing that a party may be relieved or the terms of the contract modified in case of events causing hardship are inserted in many contract documents, but often the parties forget to provide them, or they consider the events so unlikely that they do not find it necessary to provide for them. It has been argued that a party who is then exposed to hardship must bear the consequences. However, the hardship that a party may suffer in these cases is often too hard a penalty for his forgetfulness or improvidence.

Therefore, in addition to a rule on vis major covering impossibility and quasi-impossibility, some legal systems have relieved the debtor when performance, though not impossible, has become excessively onerous (essesivamente onorosa)[75] so that the economic basis on which the contract was made has lapsed (Germany: Störung der Geschäftsgrundlage).[76] A hardship rule is also found in Dutch law [77] and a similar rule on imprévision in French administrative law.[78] The American courts, having applied UCC 2-615 and having been guided by 261-266 of the Restatement of the Law, Second, of Contracts on Impracticability and Frustration, have been somewhat more friendly towards parties in difficulties than have English courts and French courts in civil (i.e. non-administrative) cases, but the American courts have only rarely yielded to hardship.[79]

CISG has no separate provision on hardship. It has been argued that art 79 dealing with "exemption" stands somewhere between the very tough French rule on force majeure governing civil [page 38] contracts and the more lenient German rule on Störung der Geschäftsgrundlage.[80]

UPICC and PECL [81] provide rules on hardship. Under UPICC art 6.2.1, a party is bound to fulfill his obligations even if performance has become more onerous. A party cannot get out of a contract merely because it has turned out to be unprofitable. Even an unexpected and considerable rise in a supplier's costs or efforts cannot free him from his obligation.

However, art. 6.2.3 provides that:

"[T]here is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished, and

(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;

(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;

(c) the events are beyond the control of the disadvantaged party; and

(d) the risk of the events was not assumed by the disadvantaged party."

Article 6.2.3 gives rules on the effects of hardship. The party suffering hardship must first ask for renegotiations, and then he must wait for relief: He cannot by himself withhold performance, see art 6.2.3(2).

If renegotiations bring the parties nowhere within a reasonable time, each of them can go to court, see art 6.2.3 (3). Under paragraph 4, if the court finds hardship, it may:

(a) terminate the contract at a date and on terms to be fixed; or [page 39]

(b) adapt the contract with a view to restoring its equilibrium.

Like the vis major rule, the rules on hardship are not mandatory. When making their contract, the parties may agree on how to distribute the risks.

These hardship rules differ from the vis major rule in the following respects:

1. The hardship must be excessive, but it is not required that performance has become impossible. Thus there was hardship when a company which, in 1929, had undertaken to deliver water at a fixed price to a hospital in "times ever after" had to continue to deliver the water after 1978 when the agreed-upon price had become derisory due to inflation.[82] There was hardship when a gas company, which, in 1908, had promised to deliver gas for a period of 30 years at a fixed tariff, had to continue delivery at that price when in the first World War a severe shortage of coal used to produce gas had increased the price of coal by four times.[83] There is also hardship when, due to an unforeseeable event beyond the buyer's control, there is no longer any market in his country for the goods he has purchased.

2. Being the best judges of their situation, the parties must renegotiate the contract in good faith. They may adapt the contract to the new situation or, if adaptation is pointless, end the contract.

3. Instead of being ended, the contract may be modified either by the parties or by the court.

The PECL art 6:111 provides similar rules as UPICC arts 6.2.1-6.2.3. However, art 6.111(3), in fine, provides that the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing.

The hardship rules of UPICC or PECL should become part of the Global Code. [page 40]

     j. Remedies for Non-performance: Specific Performance

Most contracts provide that one party shall make a performance, be it goods, intangibles (a patent or know-how), or services, and that the other party shall pay a sum of money for the performance he has bought. If a party does not get the performance he is entitled to, can he then enforce that very performance?

Monetary Obligation.

Continental laws allow a creditor to require performance of a contractual obligation to pay money. Also under the common law, an action for an agreed-upon sum of money is often available, although it is limited in certain respects.[84]

In both systems, the creditor can tender his performance to the other party, and he can claim the price. This is also the main rule in UPICC art 7.2.1 and PECL art 9:101(1). The buyer must receive and pay for a performance which he does not want. However, experience gained from common law and Scottish cases indicates that there should be exceptions from the main rule. In cases other than sale of goods, the rule in these countries now appears to be that if a party repudiates a contract, and if at the date of the repudiation the other party has not yet performed his part of the contract, the latter may complete his performance and claim the price only if he has a legitimate interest in doing so.[85] If he has no legitimate interest in performing, he is confined to an action for damages, and his recovery will be subject to his duty to mitigate his loss. The repudiating party has the onus to show that the other party has no legitimate interest in performing. Also, in Belgian law, there are situations, for example construction contracts, in which a creditor must allow the contract to be ended and where his only claim is for damages, see Belgian c.c. art 1794. The creditor must also accept the contract to end in other situations where it would be contrary to good faith or an abuse of right to insist on performance.[86] A similar approach has been taken by the UCC 2-709 were the seller may only recover the contract price if the buyer has accepted the goods, if the risk has passed to the buyer and the goods have been lost or [page 41] damaged within a reasonable time after risk has passed, or if the goods have been identified to the contract and the seller is unable to resell them.[87]

The predecessor of CISG, the Uniform Law on Contracts for the International Sale of Goods of 1964 (ULIS), provides in art 61(2) that a seller shall not be entitled to require payment of the price by the buyer if it is in conformity with usage and if it is reasonably possible for the seller to resell the goods. In that case, the contract shall be regarded as ended, and the seller may only claim damages. CISG, however, has not imposed this restriction on the seller's right to perform and claim the price, and UPIC art 7.2 also lays down that where a party who is to pay money does not do so, the other party may claim payment, but it does not provide for any exceptions.

The PECL art 9:101(2) does. The rule is that a debtor should not have to pay for a performance that he does not want in cases where the creditor can easily make a cover transaction and in other cases where it would be unreasonable to oblige the debtor to pay the price.

It is submitted that the Code should provide the rules of PECL art 9:101(2) or perhaps go further and take the approach similar to the one adopted in UCC 2-709. The rule should then also cover monetary obligations other than payment of the price.

Non-monetary Obligations

In the common law, specific performance of a non-monetary obligation is a remedy [88] based on equity and left to the court's discretion. However, the discretion is not an arbitrary one but is governed by rules. One rule is that specific performance will only be granted where damages are inadequate. In England, it is most frequently ordered in contracts for the sale of land. In the United States, UCC 2-716(1) allows the buyer of goods to claim specific performance when the goods are unique or in other proper circumstances.[89] [page 42]

In the civil law countries, the aggrieved party's right to specific performance is generally recognised.[90] In German law, it is axiomatic that the creditor has a right to bring a claim for performance of the contract and to obtain a judgment ordering the debtor to fulfill it. The right to performance is also emphasised in French and Belgian law, see art 1184(2) of the Civil Code.[91] However, today, specific performance is rarely claimed in international sales of goods.

Civil law makes exceptions to the main rule. Specific performance is not available when performance has become impossible or unlawful. In several civil law countries, specific performance will also be refused if it would be unreasonable to grant it; if, for instance, the cost of raising a ship that sunk after it was sold would considerably exceed the value of the ship.[92] Nor is performance available for contracts that consist of the provision of services or work of a personal character, and, in several countries, a performance that depends upon a personal relationship such as an agreement to establish or continue a partnership in which the defaulting partners are to play an active role cannot be enforced.[93] The reason for this is that an order to perform personal services or work would be a severe interference with a party's personal freedom. Further, such performance rendered under coercion would be unsatisfactory, and, finally, it would often be difficult for a court to control the proper enforcement of the order.

Furthermore, in the civil law countries, an aggrieved party will generally pursue an action for specific performance only if he has a particular interest in performance that damages would not satisfy.[94] The difference in the results between the civil and the common law is not significant.

In spite of the many points of resemblance in results, the civil and the common lawyers did not agree on common rules when CISG was drafted. Art 46 gives the buyer an unqualified right to [page 43] require performance, but art 28 provides that if, in accordance with the provisions of the Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by the Convention. Thus art 28 preserves the common law courts' discretion.[95]

This partition was unnecessary. The civil law countries might have admitted that specific performance should be restricted to the situations for which this remedy is needed in practice and that it should be excluded in cases where it would be unreasonable or unnecessary to require it. The common law countries might have conceded that, except in these cases, specific performance should be a right that the court would have to grant to the aggrieved party.[96]

PECL art 9:102 on Non-monetary Obligations provides that the aggrieved party is entitled to specific performance of such obligations: However it cannot be obtained where:

(a) performance would be unlawful or impossible; or

(b) performance would cause the debtor unreasonable effort or expense; or

(c) the performance consists in the provision of services or work of a personal character or depends upon a personal relationship, or

(d) the aggrieved party may reasonably obtain performance from another source.

The right to specific performance will be lost if the aggrieved party fails to seek it within a reasonable time after he has or ought to have become aware of the non-performance. UPICC art 7.2.2 on Specific Performance of Non-monetary Obligation has almost the same rules as the PECL It is submitted that the Code should provide as PECL. [page 44]

     k. Can a Creditor Claim a Performance That is Impossible or Unlawful?

There are rules that are so self-evident that they need not be laid down in a statute. One is that a creditor cannot claim a performance that has become physically impossible or illegal. The rule is nevertheless provided in PECL art 9.102 and UPICC 7.22.

CISG has no such rules. Under art 46(1), a court will have to order specific performance even in cases covered by the force majeure rule in art 79. Paragraph 5 of art 79 provides that "nothing in this article prevents either party from exercising any right other than to claim damages." Some authors find that sensible.[97] In my view, there is not a valid explanation for this 'miskick.'[98] The Global Code should exclude the claim for specific performance as provided in UPICC art 7.2.2(a) and in PECL art 9:102.(2)(a)

     l. Interest on Delayed Payment

The only provision of CISG on this issue is art 78 which provides that:

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

The rule mentions neither the rate of interest to be charged nor for what period of time it is payable. This is due to the fact that some countries forbid the charging of interest on religious grounds or for reasons of public policy and that prevented agreement on these issues. Art 78 therefore became a 'miskick' on the altar of compromise.[99]

UPICC Article 7.4.9 has provided the rules on interest for failure to pay money, specifying when it is due, for what period it is due, and the rate of interest. It is to be paid whether or not the nonpayment is excused. Article 7.4.10 has a rule on the interest on damages for non-performance of non-monetary obligations. It provides that, unless otherwise agreed, interest on such damages accrues as from the time of non-performance.

The rules of PECL I & II on delay in payment of money are similar to UPICC art 7.4.9. To this, a new art 17:101 in PECL III [page 45] adds a rule on capitalisation of interest, i.e. when interest is to be added to capital:

  1. Interest payable according to Article 9:508(1) is added to the outstanding capital every 12 months

  2. Paragraph (1) of this Article does not apply if the parties have provided for interest upon delay in payment.

The Code should provide rules on the rate of interest to be charged and the time from when and over which the interest is to be paid, and that it is to be paid whether or not the non-payment is excused. Whether to provide a rule similar to the one in PECL on capitalisation of interest will depend on whether such a rule can find sufficient support outside of Europe.[100] [page 46]


FOOTNOTES

* Ole Lando is a Professor of Comparative Law at Copenhagen Business School, President of the Commission on European Contract Law, and Member of the Working Group for the Preparation of the UNIDROIT Principles of International Commercial Contracts 1994 and 2004.

1. Principles of International Commercial Contracts, published by UNIDROIT , Rome, 1994.

2. UNIDROIT Principles of International Commercial Contracts (with comments) 2004, published by UNIDROIT, Rome, 2004 (hereinafter UNIDROIT UPICC). The text of the articles is also available, in English, in 37 UCC L.J. 91 (Summer 2004).

3. Lando & Beale (eds.). Principles of European Contract Law, Part I: Performance, Non-perfomiance and Remedies, Dordrecht, 1995.

4. Lando & Beale (Eds.). Principles of European Contract Law, Parts I & II, prepared by the Commission on European Contract Law, The Hague 1999 (hereinafter PECL I & II). There is now an Italian version, Prinzipi di diritto Europeo ei contratti, Parte I &II, editzione italiano a cura di Carlo Castronovo. Milano 2001, a Spanish version: Principios de derecho contractual Europeo, Partes I y II, Edición espanoia a cargo de Pilar Barres Beneloch, José Miguel Embid Iruj, Fernando Martinez Sanz, Madrid 2003, and a German version, Grundregeln des Europäischen Vertragsrechts Teile I und II, Deutche Ausgabe von Christian Von Bar, Reinhard Zimmermann, München 2002, Japanese and Korean versions are in preparation.

See also the web site of the Commission on European Contract Law, <http://web.cbs.dk/departments/law/staff/ol/commission_on_ecl/index.html>.

5. Lando, Clive, Prüm & Zimmermann (eds.). Principles of European Contract Law, Part III, The Hague 2003, (hereinafter PECL III). A French edition, Principes du droit Européen du contract, preparée par Georges Rouhette, avec le concours de Isabelle de Lamberterie, Denis Tallon et Claude Witz, Paris 2003, comprise Parts I, II, and III.

6. The influence of American law is to be found inter alia in UPICC art 1.8 (Inconsistent behaviour), art 2.1.17-2.1.18 and PECL 2:105-2:106 (Merger clauses and modification in a particular form), UPICC art 2.1.4 and PECL art 2:202 (Revocation of offer), UPICC art 2.1.11 and PECL art 2:208 (Modified acceptance), UPICC 2.2 4 and PECL chapter 3, section 2 (Undisclosed agency), UPICC art 4.8 and PECL 6:102 (Supplying an omitted term), UPICC art 7.3.4 and PECL art 8:105 (Assurance of performance), UPICC Chapter 7, Section 4 and PECL Chapter 9, section 5 (Damages), UPICC art 9.1.9, and PECL 11:301 Contractual prohibition of assignment.

7. See the website of Unilex <http://www.unilex.info/>

8. See Hermann, Law, International Commerce and the Formulating Agencies -- The Future of Harmonisation: The Role of UNCITRAL, paper presented at the Schmitthoff symposium 2000, Law and Trade in the 21st Century, Centre of Commercial Law Studies, London, 1-3 June 2000. The idea of preparing a code of international trade law was originally launched in the 1960s by UNIDROIT.

9. Michael Joachim Bonell, Do We Need a Global Commercial Code? 5 Uniform L. Rev. 469 (2000).

10. Bonell, 5 Uniform L. Rev. 469, 473-474.

11. Bonell. 5 Uniform L. Rev. 469, 478-479.

12. See UNIDROIT UPICC chapter 3 and art 3.19.

13. Article 1 of CISG defines international contracts:

"(1) This Convention applies to contracts of sale of goods be places of business are in different States:

(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State.

"(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.

"(3) Neither the nationality of the parties nor the civil or commercial character of the parties of the contract is to be taken into consideration in determining application of this Convention."

14. Honnold, Uniform Law for International Sales, 2d. 1991 13, p 58.

15. CISG art 2(a) defines consumer contracts:

"This Convention does not apply to sales:

(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use."

16. The authority of an agent to bind his principal is a separate Chapter (3) of PECL and a Section of chapter 2 of UPICC called formation and Authority of Agents. Whether the Code shall adopt the attitude of UPICC that views authority of agents as belonging together with formation, which appears to be the German an the Nordic view, or whether agency should be in a chapter of its own could be left to the drafters of the Code.

17. PECL chapter 12 deals with substitution of a new debtor where the parties agree to discharge the original debtor, whereas UPICC Chapter 9, Section 2 treats the transfer of an obligation from the original debtor to the new debtor where the original debtor is released, the transfer where the obligee retains the original debtor in cases where the new debtor does not perform properly, and the transfer where the original and the new debtor are jointly and severally liable.

18. In addition to those already mentioned, chapter 5 of UPIC is divided in sections on Content and Third Party Rights, whereas PECL chapter 6 on Contents and Effects only has one provision, art 6:110 dealing with Stipulation in Favour of a Third Party. Likewise, chapter 6 of UPICC on Performance is divided into one section on Performance in General and one on Hardship. This latter subject is treated in PECL art 6:111 Change of Circumstances.

19. Article 12 on formalities to be mentioned below in section 7, under a.

20. See Restatement of the Law, Second, of Contracts, Chapter 3, Formation of Contracts Mutual Assent; Chapter 6, Mistake; Chapter 7, Misrepresentation, Duress and Undue Influence; Chapter 8, Unenforceability on Grounds of Public Policy; Chapter 9, Scope of Contractual Obligations (including Conditions); Chapter 10, Performance and Non-Performance; Chapter 11, Impracticability of Performance and Frustration of Purpose; Chapter 13, Joint and Several Promisors and Promisees; Chapter 14, Contract Beneficiaries; Chapter 15, Assignment and Delegation; and Chapter 16, Remedies.

21. See CISG Part III Chapter V Section 2, UPICC Chapter 7 Section 4 and PECL Chapter 9 Section 5.

22. See CISG art 50, PECL Chapter 9 Section 4.

23. See CISG art 58, PECL Chapter 9 Section 2, UPICC art 7.1.3.

24. I.e., that the aggrieved party chooses not to perform his own obligation or to claim back what he has performed, see CISG art 49, PECL Chapter, Section 3, UPICC art 7. Section 3.

25. See CISG art 46, PECL Chapter 9 Section I, and UPICC Chapter 7 Section 2.

26. This is the term used in PECL and the UPICC. CISG uses "breach."

27. CISG art 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." UPICC art 1.6(1) lays down that, in the interpretation of the Principles, "regard is to be had to their international character and to their purposes including the need to promote uniformity in their application." PECL art 1:106(1) says: "These Principles should be interpreted and developed in accordance with their purposes. In particular, regard should be had to the need to promote good faith and fair dealing, certainty in contractual relationships and uniformity of application."

28. See cases cited in Unilex and CISG art 7.

29. See Audit, La vente internationale des marchandises, Paris 1990 no. 120.

30. See Honnold, Uniform Law for International Sales, 2nd ed. 1991 no. 232.

31. See UNIDROIT UPICC Comment 3 p 12, Art 17 of the 1998 Rules of Arbitration of the International Chamber of Commerce; Loevenfeld, Lex Mercatoria: An Arbitrator's View, in Carbonneau (ed), Lex Mercatoria and Arbitration, A Discussion of the New Law Merchant, New York 1990 37 ff; and Lando, Some Features of the Law of Contract in the Third Millennium, Scandinavian Studies in Law, Vol. 40 2000, 343, 371 ff.

32. UPICC art 1.7 and PECL 1:201 on good faith and fair dealing, UPICC art 5.1.7(2) and PECL 6:105-6:106 on price determination, UPICC art 7.1.6 and PECL art 8:109 on clause excluding or restricting remedies, UPICC art 7.4.13(2) and PECL art 9:509 on agreed payment for non-performance, and UPICC art 10.3(2) and PECL art 14:601(2) on agreements concerning prescription or, as UPICC calls it, limitation periods.

33. See the 1980 EC (Rome) Convention on the Law Applicable to Contractual Obligations art 7 as well as art 11 of the 1994 Inter-American Convention on the Law Applicable to International Contracts.

34. See, on public policy and on ICC awards dealing with corruption and bribery, awards cited by Sigvard Jarvin in Julian Lew (ed.), Contemporary Problems in International Arbitration, London 1986 p 67 ff.

35. See Peter Schlechtriem, Commentary on the UN Convention on the International Sale of Goods, Oxford 1998 (hereinafter Schlechtriem Commentary) art 11 note 4.

36. See the following footnote and, on US law, Farnsworth on Contracts Vol. I p 81 and UCC art 2-201. The 2002 Proposed Amendments to Uniform Commercial Code Article 2-Sales raises the sum from $500 to $5000 and replaces 'writing' with 'record' so as to allow, as the comment says, both a record written in lead pencil on a scratch pad or entered into a laptop computer, see Proposed Amendments to Uniform Commercial Code Article 2-Sales by the National Conference of Commissioners on Uniform State Laws Meeting in Its One-Hundred-and-Eleventh Year, Tucson, Arizona, July 26-August 2, 2002.

37. Argentina, Belarus, Chile, Hungary, Latvia, Lithuania, Russian Federation, and Ukraine have declared that any provision of article 11, article 29, or Part II of the Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing would not apply where any party had his place of business in their territory. China has made a declaration that it does not consider itself bound by article 11 as well as the provisions in the Convention relating to the content of article 11. However, for sales not governed by CISG, arts 158 and 434 of the 1994 Russian Civil Code provide that a contract may be concluded orally or in written form, which includes e-mail Similarly. Art 10 of the Chinese Contract Act 1999 provides that parties to a contract may use writing, make the contract orally, or use other forms.

38. See PECL arts 2:105(1), 2:106, and 2:210; UPICC arts 2.1., 12, 2.1.17, and 2.1.18 .

39. Against including electronic messages under art 13 is Schlechtriem Commentary art 13 note 2, for is Ramberg & Herre, Internationella köplagen (CISG), Stockholm 2001 (hereinafter Ramberg & Herre) 129.

40. See UNCITRAL Model Law of Arbitration art 7(2) and PECL art 1:301(6). See also the German Code of Civil Procedure (ZPO) 1031(1).

41. See Directive 2000/31 EC of the European Parliament and of the Council of 8 June 2000 Section 3: Contracts concluded by electronic means.

42. See Revision of Uniform Commercial Code, Article 1-General Provisions, National Conference of Commissioners on Uniform State Laws proposed Final Draft (April 5, 2001).

43. See, on the proposed revision of the definition of Good Faith, the Revision of Uniform Commercial Code, Article 1 - Prefatory Note to the Proposed Final Draft (mentioned in the previous footnote) in which Section 1-201(19) replaces the current definition of "good faith" by "honesty in fact and the observance of reasonable commercial standards of fair dealing." The Section provides, however, that its definition of "good faith" is subordinate to the narrower definition in UCC Article 5. (on letters of credit). Section 1-209(19) would then read: " 'Good faith,' except as provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing." If this new definition is adopted, the definition in Section 2-103(b) will be deleted.

44. See Bonell in Bianca and Bonell (eds.), Commentary on the International Sales Law. the 1980 Vienna Sales Convention, Milan 1987 (hereinafter Bianca and Bonell), 68 ff. and 84 ff.

45. See Swiss Handelsgericht Zürich 30.11 1998, Schweizerisches Zeitschrift für internationales Recht und Europarecht 1999, 195; see also Unilex on CISG art 7.

46. See inter alia OLG Hamburg 5.10 1998, cited by Magnus in Staudinger Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener Kaufrecht (CISG) (hereinafter Magnus), art 7 n. 10; Bundesgerichtshof 31.10 2001, VII ZR 60/01; Unilex cases on CISG art 7 (1); French Cour d'Appel de Grenoble 22.2 1995, Journal de droit international 1995, 632; and Dutch Arrondissementsrechtsbank Amheim 17.07 1997; Unilex cases on CISG art 7(1).

47. See Bonell in Bianca and Bonell 84 ff, Schlechtriem Commentary art 7 n. 15 ff, Magnus art 7 n. 10.

48. Bonell in Bianca and Bonell p 86, Schlechtriem Commentary art 7 n. 18 and Magnus art 7 n. 28.

49. The words are cited from Schlechtriem Commentary, art 7 n. 18.

50. See PECL 1.106 on interpretation of the Principles, UPICC art 1.7 and PECL 1:201 on good faith and fair dealing, UPICC art 1.8 on inconsistent behaviour, UPICC art 1.9(2) and PECL 1:105 on usages, art 1.1.4 and PECL art 2:202 on revocation of offer, UPICC art 2.1.15 and PECL art 2:301 on negotiations in bad faith, UPICC art 2.1.18 and PECL art 2:106 on modification in a particular form, UPICC art. 2 1.20 on surprising terms, (see PECL 2:104), UPICC art 2.2.5(2) and PECL art 3:201(3) on apparent authority, UPICC art. 3.5 and PECL art 4:103 on relevant mistake, UPICC art 3.8 and PECL art 4:107 on fraud, UPICC art 3.10 and PECL art 4:109 on gross disparity, UPICC art 4.8 and PECL art 6:102 on omitted terms, UPICC art 5.1.2 on implied obligations, UPICC art 5.1.3 and PECL Art 1 202 on duty to co-operate, UPICC art 5.1.5 and PECL art. 6:108 on quality of performance, UPICC art. 5.1.7 and PECL art 6:104 on price determination, UPICC art 6.1.1 and PECL 7:102 on time of performance, UPICC arts 6.2.2-6.2.3 and PECL art 6:11 on hardship, UPICC art 7.1.5 and PECL art 8:106 on additional period for performance, UPICC art 7.1.6 and PECL art 8:109 on exemption clauses, UPICC art 7.1.7 and PECL art 8:108 on force majeure, art UPICC art 7.2.2 and PECL art 9:102 on performance of non-monetary obligations, UPICC art 7.3.1 and PECL arts 8:103 and 9:301 on the right to terminate the contract, UPICC art 7.3.4 and PECL art 8:105 on adequate assurance of non-performance, UPICC art 7.4.4 and.PECL art 9:503 on foreseeablity of harm for which a party is liable in damages, UPICC 7.4.8 and PECL art 9:505 on mitigation of harm, art 7.4.13 and PECL art 9:509 on agreed payment for non-performance, UPICC art 9.1.3.on assignability of non-monetary rights, UPICC art. 9.1.4 on partial assignment, UPICC art 10.8 and PECL art 14:303 on suspension of limitation in case of force majeure.

See also PECL art 1:302 on reasonableness, art 2:106 on merger clauses, art 4:105(3) on adaptation of contract, art 4:110 on unfair terms, 4:118(2) on exclusion or restriction of remedies, art 5: 102 on relevant circumstances for interpretation, art 11:302 on ineffective assignment, art 11:303 on effect of assignment on debtors obligation, 11:308 on unauthorized modification not binding on assignee, art 15:102 on contracts infringing mandatory rules, art 15:103 on partial ineffectiveness, art 15:104 on damages and 16:102 on interference with conditions.

51. See PECL I & II 309.

52. See Bianca & Bonell (Eörsi) 406 f and Honnold 197 ff.

53. UNIDROIT UPICC 27 f.

54. See PECL I & II 166 ff.

55. For sales, the UCC 2-205 on Firm Offers makes an exception.

56. See on CISG art 16(1)a) and its genesis, Honnold (ed), Documentary History of the Uniform Law for International Sales, Deventer 1989, 280 f, 307, 374 f, 499 ff; Eörsi in Bianca and Bonell 150 ff: Schlechtriem in von Caemmerer & Schlechtriem, Kommentar zum Einheitlichen Kaufrecht, 2d. München 1995 154 f; Honnold, no 141 ff.

57. See Bonell in Bianca and Bonell 86.

58. See Schlechtriem, Commentary, Introduction to Arts 14-24 no 4, and the case decided by the Baseler Zivilgericht, reported in the Baseler Juristische Mitteilungen 1993, 310.

59. See PECL I & II p 186 and Baumbach / Hopt, Handelsgesetzbuch 29th edition, München 1994 346 4) no 32. On American law see Farnsworth on Contracts 1990 Vol. I at 3.15.

60. Decision of 14 December 1973 reported in Ugeskrift for Retsvæsen 1974 A 119.

61. See the Notes to PECL art 2:104 PECL I & II p 151.

62. See PECL I & II p 184.

63. UPICC 2.22 (battle of forms):

Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract.

PECL article 2:209: Conflicting General Conditions

"(1) If the parties have reached agreement except that the offer and acceptance refer to conflicting general conditions of contract, a contract is nonetheless formed. The general conditions form part of the contract to the extent that they are common in substance.

"(2) However, no contract is formed if one party

(a) has indicated in advance, explicitly, and not by way of general conditions, that it does not intend to be bound by a contract on the basis of paragraph (1); or
(b) without delay, informs the other party that it does not intend to be bound by such contract

"(3) General conditions of contract are terms which have been formulated in advance for an indefinite number of contracts of a certain nature, and which have not been individually negotiated between the parties."

64. Honnold, no 170(1), invoking articles 18(1) and (3), 16(2), 8(1), 8(2), 9(1), and 29(2).

65. Dutch Gerechtshof Hertogenbosch 19.11 1995 and German Amtsgericht Kehl 6.10 1995 both reported in UNILEX on CISG art 19.

66. See references by Schlechtriem Commentary Art 19 notes 19 and 20, but see, on English law, Chitty on Contracts 28.ed 1999 Vol. 1 Section 2-034.

67. In our example 1, Summers believes that to be the outcome (see White & Summers, Uniform Commercial Code, 4th ed. St. Paul 1995, Vol. 1 (hereinafter White & Summers) p 10 ff) whereas White would apply the 'knock out' rule. In example 2, they agree on the 'first shot' rule, see p 15 ff. This is the outcome whether the clause on interest was made by the seller as offeror or as offeree.

68. See Schlechtriem Commentary art 19 n. 20 and Farnsworth in Bianca and Bonell 78 ff.

69. See Magnus 228 f and Honnold no 170(4) and (5), both with references to authors.

70. Amendments to Uniform Commercial Code Article 2 Section 2-207 Terms of Contract; Effect of Confirmation:

"If (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract, subject to Section 2-202, are:

(a) terms that appear in the records of both parties;
(b) terms, whether in a record or not, to which both parties agree; and
(c) terms supplied or incorporated under any provision of this Act."

71. Under PECL and UPICC, the general conditions form part of the contract to the extent that they are common in substance. PECL and UPICC leave open the question which terms then govern.

72. See, on French law, Zweigert & Kötz, An Introduction to Comparative Law 3rd ed. 1998, (hereinafter Zweigert & Kötz), chapters 36 and 37; on English law, Goode, Commercial Law, 3d ed. 2004, 135 ff. For a comparative survey of the laws, see Treitel, Frustration and Force Majeure, London 1994.

73. See, on CISG art 79, Schlechtriem Commentary 600 ff; Tallon in Bianca & Bonell 572; Honnold, no 423 ff; and Nicolas, Force Majeure and Frustration, 27 Am. J. Comp. L. 231 (1979).

74. PECL I & II 379 ff.

75. Italian civil code, art 1467.

76. See Zweigert & Kötz, 518 ff. and BGB 313, as amended in 2001.

77. Civil Code of 1992 (BW) art 6:258.

78. See Nicolas, The French Law of Contract, 2nd ed. 1992, 208.

79. See White & Summers, p 163 ff on UCC 2-615; Farnsworth on Contracts, Boston 1990 Vol. n 9.5 and 9.6. The proposed amendment to UCC 2:615 does not seem to change the substance of the rule.

80. See Honnold 542 and Schlechtriem Commentary art 79 n.39-40. The cases reported in Unilex do not address the problem, see <www.unilex.info> under CISG article 79.

81. PECL I & n 322 ff.

82. See the English case Staffordshire Area Health Authority v. South Staffordshire Waterworks Co [1978] 1 W.L.R. 1387, where the Court of Appeal, led by Lord Denning through an 'interpretation' of the words "for times ever after," which, he claimed, could not mean what the parties had said, decided to raise the price.

83. See on the Gaz de Bordeaux decision of the French Coseil d'État of 30 March 1916 (Sirey 1916.3.17); Nicolas, The French Law of Contract 2d, 1992 208,209.

84. See PECL I & II 391 ff. and UCC 2-709.

85. See Attica Sea Carriers Corp. v. Ferrostaal Poseidon Bulk Carrier Reederei GmbH [1976] 1 Lloyds' Rep 250 C.A.

86. See Belgian Court of Cassation 16 Jan. 1986 Air.Cass. no 317, RW 1987 -88.

87. See White & Summers 7-2 through 7-6 p 356 ff. The proposed 2001 draft does not change the rules in substance. See, however, on other monetary obligations, the proposed changes of UCC art 2-716 in the 2002 Proposed Amendments to Uniform Commercial Code Article 2-Sales.

88. See Treitel, The Law of Contract, 11th ed. 2003. 1019 ff.

89. See White & Summers 6-6 pp 325 ff. On the proposed changes to 2-716 see the 2002 Proposed Amendments to the Uniform Commercial Code Article 2-Sales.

90. See PECL I & II 399 ff.

91. Art 1184(2) provides: "La partie envers laquelle l'engagement n'a point été exécuté peut forcer l'autre à l' exécution de la convention lorsqu'elle est possible." (The aggrieved party may enforce performance of the contract whenever that is possible).

92. See for instance 275(2) of the German Civil Code as amended in 2002.

93. PECL I & II 399 ff.

94. See Zweigert & Kötz, 470, 484.

95. Art 28 may also be applied by civil law courts in some special situations, see subsection j below.

96. See Lando in Bianca and Bonell 237.

97. See Schlechtriem Commentary, art 79, note 55.

98. A civil law court can probably use CISG 28 to refuse specific performance in cases where it would do so under its own law, see Ramberg & Herre p 188.

99. On interest as damages, see Restatement of the Law, Second, of Contracts 354.

100. UPICC has no rule on compound interest. The explanation given in UNIDROIT UPICC p 248 is that, in some national laws, the question is subject to rules of public policy, limiting compound interest in order to protect the non-performing party. The question is, however, whether business people need such protection.


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