Go to Database Directory || Go to Bibliography

Reproduced with permission of 53 American Journal of Comparative Law (Spring 2005) 379-401

CISG and Its Followers: A Proposal to Adopt Some
International Principles of Contract Law

Ole Lando

  1. Globalization and the Law of Contracts, CISG and Its Followers -- The 'troika'
  2. A Proposal to Adopt Some General Principles
  3. Substantive Freedom of Contract
  4. You Shall Keep Your Bargain (pacta sunt servanda)
  5. Informality
  6. The Unilateral Promise Should Be Binding
  7. Good Faith and Fair Dealing
  8. Reliance
  9. The 'Reasonably Foreseeable' Test
  10. Proportionality

I. Globalization and the Law of Contracts, CISG and Its Followers -- The 'troika'

The purpose of this article is first to promote the idea of establishing general principles of contract law for the world trade. Secondly, in order to start the discussion, the article seeks to advance some principles which I submit should be adopted.

The background for this proposal is as follows: The world trade is expanding. The computer and other means of electronic communication have caused, and will cause, a considerable increase in the world trade. Those who use these means to buy and sell goods and services seek their partners all over the world, and very often they do not pay much attention to where the other party resides. However, trading with people in other countries may create problems. Which law governs these contracts? The rules on this question, the choice of law rules, differ from country to country. In addition, they are difficult to handle in practice.

In order to obviate the existing uncertainty as to which rules will govern, attempts have been made to unify and harmonize the laws of the world. A great deal was achieved by the United Nations Convention on Contracts for the International Sale of Goods (CISG), which was adopted at a diplomatic conference in April 1980 organized by UNCITRAL. In 2005, CISG celebrated its 25th anniversary.

It took time to bring the CISG about. In 1929, Ernst Rabel proposed to make a Uniform Sales Law as part of the work plan for the newly established International Institute for the Unification of Private Law (Unidroit) in Rome. It is there that the first preparations and drafts were made in the 1930s. The work was interrupted by World War II, but was continued after the war. At a Hague Conference in 1964, the Uniform Law of the International Sale of Goods (ULIS) and the Uniform Law on the Formation of International Sale of Goods (ULFIS) were adopted. These two uniform laws were not successful, if measured by the number of ratifications. Their rules were criticized for being based on the Romanist legal tradition and thus for not being adapted to the needs of modern trade. Only nine, mostly European, states ratified them, and most of those abandoned [page 379] ULIS and ULFIS when CISG appeared on the stage. The ULIS and the ULFIS were in effect from about 1972 until about 1990.[1] But their relatively short existence was not totally in vain. Several legislators used them as models for new sales and contract laws, and the courts of the Benelux countries, Germany and Italy, applied them widely and taught others how to deal with uniform sales laws.

CISG benefited from this long and troublesome genesis; it was a better product than ULIS and ULFIS and it became a success. In September 2005, it was in force in 63 countries including the USA, Australia, Canada, Mexico, China, Russia and most of the Member Countries of the European Union, and in 2006 there will be 66 Member Countries.[2] There are hundreds of court decisions and arbitral awards applying the Convention, and it is widely dealt with in the legal literature throughout the world. Furthermore, the rules of CISG have become familiar to lawyers and business people all over the world. Many of its provisions are apt for contracts in general. CISG, therefore, greatly facilitated the work of the two working groups, which around 1980 started to draft general principles of contract law. The members of the Working Group, which prepared the Unidroit Principles of International Commercial Contracts, came from all parts of the world. The members of the Commission (CECL), which drafted the Principles of European Contract Law (PECL), were Europeans. Most of the members of the two groups came from academia. They were independent and did not represent specific political or governmental interests. Some of the Members of CECL were also Members of the Unidroit Working Group.

Both groups adopted a kind of 'codification procedure.' In CECL, each chapter, or section of a chapter, was drafted by a Reporter, who put his or her draft before a Drafting Group of four or five Members. The revised draft was then submitted to the plenum, which discussed the draft. This discussion led the Reporter and the Drafting Group to revise their draft. In this way there were two or three readings of each part of the PECL. In the Unidroit Group, each chapter, or section of a chapter, was drafted by a Reporter who put his or her draft before the Group. There were also two or three additional readings before the final draft was submitted to the Governing Council of the Unidroit, which also discussed the draft and made a few changes before it was adopted.

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 [page 380] Contracts was published in 1994.[3] The second Unidroit Working Group added rules dealing mainly with the authority of an agent to bind his or her principal, 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.[4]

The CECL first made rules on performance, non-performance and remedies. Part 1 of the Principles of European Contract Law (PECL) was published in 1995.[5] In 1999, the CECL published in one volume the Principles of European Contract Law Parts 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 or her principal.[6] 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.[7]

The working groups, which prepared the PECL and UPICC, drew on a wide range of legal materials from all over the world. CISG has had a substantial influence on the terminology and the rules relating to formation, contents, performance and non-performance of the PECL and UPICC. But no single legal system was made the starting point from which the rules of the two instruments were taken or from which the terminology that they employ was derived. [page 381] Nor have the draftsmen of these 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. Some of the provisions in the PECL and UPICC are taken from the U.S. law, and some reflect suggestions and ideas which have not yet materialized in the law of any country. The UPICC and the PECL show great similarities. Their terms and structures are similar, and about two-thirds of the provisions of the first edition of the UPICC are identical in wording, or in substance, with those of PECL I & II.

In July 1999, a Study Group of a European Civil Code was established under the leadership of Professor Christian von Bar of the University of Osnabruck in Germany. The Study Group is preparing a draft Code based on comparative studies and drafts worked out primarily in centers in Germany, Austria, Norway and the Netherlands. The Group is dealing with the specific contracts (notably sales, leasing, insurance and services), torts, negotiorum gestio, unjust enrichment, 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 April 2005, the work of the Study Group was not finished, and the present article will deal only with the CISG, UPICC and PECL.

For the time being, neither the PECL nor the UPICC bind the courts of any country. They are 'soft law' as the American Restatements of the Law. However, 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.[8] The PECL are designed primarily for the Member States of the European Union and have created great attention in Europe. They have influenced the recent legislation in several European countries, notably the laws of new members of the European Union. The Commission of the European Communities is now in the process of preparing a Frame of Reference, a kind of soft law to be used by contracting parties.[9] It will make use of the PECL for this purpose. As mentioned, most of the provisions of the CISG, UPICC and PECL are very similar, and it is generally acknowledged that this troika forms an important part of a new lex mercatoria. They have also exercised considerable influence on recent national codes and statutes. [page 382]

The 18 African Member Countries [10] of the Organization for the Harmonisation of Business Law in Africa, or in French, l'Organisation pour harmonisation en Afrique du Droit des Affaires (OHADA), will soon be asked to adopt a Uniform Act on Contracts based on the UPICC and prepared by Professor Marcel Fontaine of the Catholic University of Louvain la Neuve. The Draft OHADA Uniform Act on Contracts (hereinafter AFRAC) will stay close to the model, but there will be some deviations, which will exist on account of the specific African features. Some matters not covered by the UPICC will be treated in the AFRAC.[11]

The Common Core of European Private Law Project was started in 1993 at the University of Trento in Italy, and has led to the publication of several important works.[12] The method of this project is to make inquiry into how the legal systems resolve practical legal questions. These questions are in the form of short cases, borrowed from real life or coined by the editors. Each contributor, a scholar from one of the European countries, comments on each of the cases and tries to solve it from the point of view of his or her law. In fact, the American involvement in this European project is rather significant.[13] Although its purpose is not to establish common rules, editors, contributors and readers are constantly tempted to ask themselves: Which is the best rule for this issue, not only for my own country but for the world?

However, in spite of these efforts, the harmonization and unification of the various forms of contract law of the world have not yet progressed very far. There are still substantial differences not only [page 383] between the Common Law of the English-speaking world and the Civil Law, which has its roots on the European Continent, but also between the contract laws of the countries belonging to this Civil Law group. In fact, the contract laws of the world lag sadly behind the ongoing rapid growth of the world trade and communication.

II. A Proposal to Adopt Some General Principles

In other writings, I have proposed to promote the Unidroit Principles from their present status as soft law to rules of law, which are binding upon the courts, in order to include them in a World Code of International Commercial Contracts, which will also have a special section covering specific contracts. In that section, the rules of CISG regarding sale of goods will be an important element. With some modifications, the general principles of UPICC should then apply to those contracts, which are treated in the special part of this Global Code.[14]

This approach may be compared with the one taken by Professor Klaus Peter Berger in his book, The Creeping Codification of the Lex Mercatoria [15] (hereinafter Berger), in which he lists 78 Principles, Rules and Standards of the Lex Mercatoria that have been brought forward in Uniform Laws, including the CISG, UPICC and PECL, national laws, arbitral awards and legal doctrine. Berger's list is well documented and a remarkable achievement; its usefulness cannot be underestimated.

Berger's rules are only meant to perform a 'codificatory focal point,' or a 'creeping and informal codification.' Berger prefers this 'creeping' and informal codification to the "Restatement method" of the UPICC and PECL, which he fears will become stale and inflexible. Berger will probably feel the same about the Global Code. Open and flexible rules, he claims, can be updated without a formalized codification procedure, which, if ever developed, would be slow and difficult, especially at the international level.[16]

The authority of the CISG and the American Restatements of the Law is due to the careful codification procedures of the UNCITRAL and the American Law Institute. It is, of course, true that the rules of Berger's creeping and informal 'codification' will be more flexible than those of a Restatement or a Code. But the rules, which do not go [page 384] through a formalized codification procedure, will never possess the authority or provide the security and predictability that the black letter rules offer. Therefore, the idea of preparing a Global Code should not be abandoned.

However, Berger's creeping approach has its merits. From the time the idea to prepare a World Sales Law was launched, it took more than 50 years for CISG to be adopted.[17] It may also take a long time for the Global Code of International Commercial Contracts to materialize. Meanwhile, some rules derived from a few important basic principles could be introduced to penetrate the law of contracts of the world. If widely accepted, they will lay the groundwork for the Global Code and facilitate world trade by making it more clear as to which rules should govern international contracts. If a general consensus on such principles and rules can be achieved, one may expect that they will be taken into account by national and international legislators when they reform their contract laws. They might also be applied by the courts to interpret or supplement international uniform law instruments and their domestic law.

As mentioned above, the purpose of this article is twofold. First, I wish the idea of establishing general principles of contract law for the world to be discussed and adopted. Second, in order to start the discussion, I advance some principles which are to be found in the troika or in one or two of them, and which I submit should be adopted.

Most of the 78 rules on Berger's list are contract rules.[18] In this paper, an attempt is made to present eight Principles. In addition, mention will be made of some Rules that may be derived from the Principles. The list covers rules in CISG, UPICC and PECL I &II and is not intended to be exhaustive. The Principles and the Rules are meant to "creep" into the legal minds of the world. But contrary to Berger, I hope that they will eventually come to govern a Global Code. Most general contract rules have seemed to be fairly durable. Principles, which are held in general terms, as the present are, may be more resistant to the changes in society than hard-and-fast black letter rules. However, they may not live forever. Legal values inevitably change with the times, and even though they may seem eternal today, some of the rules will one day be given a different meaning [19] and some will be abandoned altogether. [page 385]

And another caveat is needed. Even if the Principles are adopted as an important common core of the legal systems, the uniformity of the result, and the consequent predictability for contracting parties that these Principles should bring about, will most likely be far from complete. Even if enacted or otherwise recognized, their degree of penetration and the way they are interpreted in the various societies will certainly vary. In several countries, the law, though existing on paper, is inadequately enforced. There are few or no courts and those which exist are manned with judges who have no legal training and, therefore, often ignore the laws.

It is also inevitable that the courts of those countries which do apply the principles may do so differently depending upon their legal traditions, and their rules of procedure and evidence. However, the cases reported on the application of CISG [20] show relatively few divergences among the courts.[21] So, in spite of the caveats just mentioned, the vision of the Principles will, if they are generally accepted, enhance the mutual understanding and give more predictability to the agents of world trade and communication.

I now come to the Principles themselves. Some of them are already part of the common core of the legal systems, some are in the 'troika,' some in the UPICC and PECL and only one or two in the PECL.

III. Substantive Freedom of Contract

Freedom of contract governs the CISG,[22] and has been made the portal of the UPCC and PECL. "The parties are free to enter into a contract and to determine its contents," says UPICC art. 1.1. Art. 1:102(1) of PECL provides that, "parties are free to enter into a contract and to determine its contents, subject to the requirements of [page 386] good faith and fair dealing, and the mandatory rules established by these Principles."[23]

"Everybody has a right to a free scope for his personality in so far it does not violate the rights of others and is not in contravention of the constitutional order or public morality," says the German Constitution,[24] and this free scope includes freedom of contract. Statutes and Codes of many other countries have proclaimed this freedom, and the courts both in the civil and common law countries have stuck to it tenaciously.[25]

The purpose of the rules laying down the freedom of contract is perhaps best understood when one considers its opposite and its true scope. The opposite is the regime of the state trade countries. The wording of UPICC art. 1.1 and PECL art. 1:102 is clearly directed against the socialist economies, where the exchange of goods and services are governed by state plans and orders, and where the government has dictated the terms of the contracts, which the state enterprises are ordered to conclude. In the last decades of the 20th century, the market economy has made triumphal progress all over the world. The state trade systems have been dramatically reduced.

However, no freedom is absolute. The PECL makes the freedom "subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles." UPICC art. 1.4 provides that, "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," and PECL has a similar provision.[26] Some of these rules are made to protect the economy and secure public safety and morality.

Several rules operate as restrictions on the parties' formal freedom, but are in fact rules, which give effect to the parties' real or substantive freedom. The enterprises are not permitted to restrict [page 387] the free exchange of goods and services by monopolies or other restrictive trade practices. The parties' consent must not be flawed by fraud, coercion or abuse of an unequal bargaining power. As has been pointed out by the German Constitutional Court,[27] freedom of contract (Privatautonomie) means that a party must have a substantive autonomy. In other words, the party's free will must not be corrupted.

Developments in the last decades of the 20th century have accentuated this substantive aspect of party autonomy, which has given it a new face. In several legal systems, consumers are not bound by unfair contract terms in standard form contracts to which they would not have agreed if they had had a say in the matter. Consumers are given a cooling-off period in which they can call off a deal which was made at the door step of their home. In addition, when a wife has consented to stand as surety for her husband seeking a bank loan, she is not to be held liable to the bank if the bank did not take positive steps to ensure that she obtained independent advice, or that she understood the import of the security documents she signed. Substantive autonomy, however, should not be an obstacle to the reliance principle, which is treated below.

IV. You Shall Keep Your Bargain (pacta sunt servanda)

This is a basic principle in the laws of all countries. Many laws and courts stick to it with rigor.[28] It is stated in the famous article 1134(1) of the French Civil Code. "The agreements validly concluded are regarded as law for the parties," the UPICC states in art. 1.3. "A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles."[29] A contracting party must be able to rely on the contract and exercise the rights granted to him or her under the contract. As the draftsmen of the CISG, the [PECL] considered the principle to be so obvious that it was not stated in a special rule. It is, however, implied in several articles, including CISG art. 79, see force majeure below in section 9. It is also implied in art. 6.111(l) of the PECL on change of circumstances, which provides that a party is bound to fulfil its obligations even if performance becomes more onerous.

V. Informality

CISG art. 11 states that, "a contract for sale need not be concluded in or evidenced in writing and is not subject to any other requirement [page 388] as to form. It may be proved by any means including witnesses." UPICC art. 1.2 provides the same rule for contracts in general which CISG art. 11 lays down for sales, and PECL art. 2:101 is to the same effect.[30]

Among the laws, the most important and widespread formal requirement is that of writing. Some laws require writing for all commercial contracts, others for specific contracts, others again for individual terms such as arbitration agreements and jurisdiction clauses.

Article 96 of CISG provides that a Contracting State, whose legislation requires contracts of sales to be concluded 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, that allows a contract for sale or its modification or termination by agreement or any offer, acceptance or any other indication of intention to be made other than in writing, does not apply where any party has his place of business in that State. Art. 12 provides that in such cases art. 11 does not apply and thus the parties may not derogate from or vary the effect of art. 12.

As for the AFRAC, the question of formalism has not been settled. Some of the participants in the discussion have asserted that the high degree of illiteracy in Africa has engendered a strong 'oral tradition,' and argue that the AFRAC should be kept as simple as possible with no formal requirements. A minority has advocated an absolutely general requirement of evidence in writing, and most of the views expressed are in favour of some degree of formalism in contract law as regards to evidence.

The rules in CISG art. 11 and UPICC art. 1.2 reflect the necessity of having international transactions freed from formal requirements.[31] 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 with great speed and are not recorded. It is submitted that the reservation as to form made by some countries under art. 96 of CISG should be revoked. It is worthy of note that the United States did not make that reservation.

Legislators may of course require writing or other formalities with regard to specific contracts, terms or statements.

VI. The Unilateral Promise Should Be Binding

An agreement only becomes a binding contract if the parties have intended to become legally bound. Further, the parties must [page 389] have agreed on terms which are sufficiently definite. But can you do without cause as a requirement for the validity of a contract, and is a party bound by a promise, which is unsupported by consideration?

Cause has been criticized for being an unclear concept with several incoherent roles. It is unknown in German law, the Nordic laws and the Common Law. Both the UPICC and PECL do without it. The functions which French law and other Romanist legal systems have attributed to cause by invalidating contracts due to absence of legal basis, illegality or immorality, absent or insufficient quid pro quo, etc., are better taken care of by specific rules governing these matters. PECL, chapter 15, deals with the effects of illegality on the validity of a contract without mentioning cause. It is not necessary, or even illustrative, to maintain that it is invalid because it has an illicit cause. Furthermore, a contract or contract term may be held unenforceable because a party has abused its superior position to obtain an excessive benefit or unfair advantage from the other party, or simply because contrary to good faith and fair dealing, the contract causes a significant imbalance in the parties' rights and duties to the detriment of one party. In these cases it seems artificial to use absence of cause to explain the outcome.

For consideration, the English Common Law rule states that in order for a promise to be binding, the promisor must exact something in exchange (consideration) for the price of the promise; either performance of an act or an undertaking to perform at a future date. It is not sufficient that the consideration was given in the past before the promise was made. The promisee must give something in exchange for the promise that is either a detriment to the promisee or a benefit to the promisor.[32] American law seems to emphasize the bargain. The consideration must be bargained for, and if that requirement is met, benefit or detriment is not required.[33]

However, experience has shown that in business there are promises, such as promises to pay or to raise payment for work or services already done or agreed upon, which should be enforced though they lack consideration. The same applies to promises to make a gift or donation. It has been argued that promises to make gifts are not productive; that they do not enhance society's wealth,[34] but is this true? Are only bargains beneficial for mankind? Is the promise of a wealthy industrialist, who in public announces that he will pay one million dollars into a fund for the benefit of wives and children of soldiers killed while serving in Iraq, without any value to society? In fact, the English and American courts have had problems [page 390] with the doctrine of consideration and have tempered it by relying on commercial usages, estoppel and "invented consideration" to avoid some of the hardship which the doctrine creates.[35] For these reasons the PECL and UPICC follow the continental rule, which does not require consideration.[36]

PECL goes further and adds a rule which will cause traditionalists to frown. It provides in art. 2:l07 that a promise which is intended to be legally binding without acceptance is binding. Experience shows that several promises made in the course of business are binding without acceptance. An irrevocable documentary credit, issued by a bank on the instruction of a buyer, binds the bank; a confirmation of such a credit by an advising bank binds that bank as soon as it is delivered to the seller. Some guarantees and some promises in favour of third parties also fall into this category.

UPICC does not seem to take any stand on this issue. Under art. 5.2.4, a third party beneficiary to a contract may acquire rights at once without any need for acceptance. Art. 5.1.9 provides that an offer by the creditor to the debtor to release a right gratuitously shall be deemed accepted if the debtor does not reject the offer without delay after having become aware of it. These rules expressly state that acceptance is not needed, and could imply that in general, promises have to be accepted by the promisee in order to take effect.

VII. Good Faith and Fair Dealing

UPICC art. 1.7 states that, "each party must act in accordance with good faith and fair dealing in international trade." PECL art. 1:201 provides that, "each contracting party must act in accordance with good faith and fair dealing."[37] Both rules are to be mandatory. Particular applications of this principle appear in several specific provisions of the two instruments. The laws of several countries have adopted the principle. Some countries' legal systems, such as German and Dutch law, have given it a wide scope of application. Here, it is a "vitally important ingredient for a modern general law of contract."[38] In other laws, it has received a more modest scope of application,[39] although in some of them, one finds a tendency to widen that scope. The representatives of the OHADA countries decided to [page 391] adopt the good faith principle in the AFRAC and to give it the same scope of application as it has in UPICC.

CISG has no such rule. However, art. 7(1) provides that in the interpretation of the CISG, attention is to be paid to the observance of good faith in international trade. A proposal was put forward at the Vienna Conference in 1980 to include in the CISG a rule providing that in the formation, interpretation and performance, the parties shall observe the principles of good faith and international cooperation. The proposal was not adopted.[40] However, it is not possible in practice to distinguish a problem of interpretation from one of supplementation. It is not reasonable that a question of interpretation of a rule in the Convention is, and the interpretation of a term in the sales contract is not to be governed by the principle of good faith. Some courts applying the CISG have in fact applied the principle of good faith to the interpretation of the contract [41] and the parties' behaviour.[42] Several of the commentators on CISG have deplored that good faith was reduced to a datum for the interpretation of the rules of the CISG.[43]

However, the commentators on CISG and the comments to UPICC do not imply a desire for good faith to have a wide scope of application. They maintain that it is to be understood as an international concept not to be taken from a single domestic system. Rules of conduct that a national system derives from the good faith principle [44] should not automatically be included.

I agree that a court should not apply the good faith principle to an international contract whenever that principle would be applicable to a domestic situation. I also agree that a court should only apply the principle to such a contract if it is clear that a certain behaviour is covered by 'internationally recognized principles of honourable conduct.'[45] But, must it also see to it that there is, 'as far as possible the maximum measure of agreement between the courts [page 392] of the Contracting States?'[46] If a court could apply the principle only when it has ascertained that there is such a maximum measure of agreement, there is a risk that courts will not dare to apply the principle to new situations, and it will not be developed.

Therefore, a court should apply the good faith principle when it finds that it should cover a certain conduct in international trade, and do this regardless of whether or not other legal systems have endorsed the solution.

The principles to be mentioned in the following: reliance, the reasonably foreseeability test and the principle of proportionality, can be seen as specific applications of the good faith principle. These principles have been adopted in the AFRAC draft to the same extent as they have been laid down in the UPICC.

VIII. Reliance

It is generally held that a contract is to be interpreted according to the common intention of the parties, even if this differs from the literal meaning of the words. If it is established that one party intended the contract to have a particular meaning, and at the time of the conclusion of the contract the other party could not have been unaware of the first party's intention, the contract is to be interpreted in the way intended by the first party. However, what happens if no common intention can be established and the other party was unaware of the particular meaning which the first party intended the contract to have? Here the meaning is decisive which a reasonable person in the same situation as the other party will attach to the statement of the other party. This rule applies both to the formation of the contract and to its interpretation.[47]

Whether a party is legally bound to a contract depends upon an interpretation of the party's statement and other behaviour. A contracting party is bound when his or her statements and other behaviour have given the other party reason to rely on them, even if he or she did not intend to be bound. As the Scottish judge Lord Dunedin said in Muirhead & Turnbull v. Dickson,[48] "Commercial contracts cannot be arranged by what people think in their inmost minds. Commercial contracts are made by what people say."[49] The CISG, UPICC and PECL agree on these points both in regards to formation and interpretation.[50] [page 393]

Reliance is also behind the rule on the Merchant's Written Confirmation, which states that a party that receives a written message from the other party claiming to be only a confirmation of what was already agreed, but which in fact contains additional or different terms, must object immediately to the confirmation, and is otherwise bound by its terms, unless they materially alter the terms of the contract, or the addressee objects to them without delay. The rule exists in Germany and the Nordic Countries. It was not included in the CISG, but it may be accepted, and has been accepted, as a trade usage under art. 9(1) or (2), where the parties have their place of business in countries which both have adopted the rule.[51] It is now provided in UPICC art. 2.12 and PECL art. 2:210.[52]

Reliance is behind the doctrine of estoppel, which is recognized in most, if not all, laws, and laid down in UPICC art. 1.8.[53] A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to his or her detriment.

An offer is generally revocable. However, it cannot be revoked if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. This rule, which has its origin in American law,[54] has been adopted by the CISG, UPICC and PECL.[55]

When an agent acts without authority, or exceeds his or her authority, the agent's acts do not affect the legal relations between the principal and the third party. However, when the principal causes the third party to believe that the agent has authority to act on behalf [page 394] of the principal, and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent.[56]

The reliance doctrine governs the rules in PECL on Statements Giving Rise to Contractual Obligations. Art. 6:101(1) provides that a statement made by one party, before or at the time the contract is concluded, is to be treated as giving rise to a contractual obligation, if that is how the other party reasonably understood it in the circumstances, taking into account: (a) the apparent importance of the statement to the other party; (b) whether the party was making the statement in the course of business; and (c) the relative expertise of the parties.

Paragraph 2 states that if one of the parties is a professional supplier who gives information about the quality or use of services or goods or other property when marketing or advertising them or otherwise before the contract is concluded, the statement is to be treated as giving rise to a contractual obligation, unless it is shown that the other party knew, or could not have been unaware, that the statement was incorrect. The rule in paragraph 1 appears to be accepted in most legal systems.[57] The rule in paragraph 2 has been adopted by the Nordic countries and a few other countries, among them the United States.[58]

Article 6:101 (3) goes even further: Information about the quality or use of services or goods or other property and other undertakings given by a person advertising or marketing services, goods or other property for the professional supplier, or by a person in earlier links of the business chain, are to be treated as giving rise to a contractual obligation on the part of the professional supplier, unless he or she did not know and had no reason to know of the information or undertaking. This rule, which is applied in the laws of the Nordic countries, is now provided in art. 2 (2) (d) of the Directive 1999/44 EC of the European Parliament and of the Council of May 25, 1999, on certain aspects of the sale of consumer goods and associated guarantees.[59] CISG art. 74 provides that damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, [page 395] suffered by the other party as a consequence of the breach. Similar rules are provided in PECL and UPICC.[60]

This rule gives effect to the so-called expectation interest, which puts a party that relies on a contract which is not duly performed by the other party in the same position as he or she would have been in had the contract been performed (see also on the predictability principle below).

IX. The 'Reasonably Foreseeable' Test

Related to the reliance doctrine is the maxim that a party can only be made to face those consequences of its acts or omissions which the party could reasonably foresee at the time of the conclusion of the contract. This principle, the purpose of which is to protect the party against surprising and onerous conditions and contingencies, is found in several rules.

1. It is found in the rule that states that contract terms which have not been individually negotiated, may be invoked against a party that did not know of them only if the party invoking them took reasonable steps to bring them to the other party's attention before or when the contract was concluded. Terms are not brought appropriately to a party's attention by a mere reference to them in a contract document, even if that party signs the document (see PECL 2:104). UPICC art. 2.1.20 provides that no term contained in standard terms, which is of such a character that the other party could not reasonably have expected it, is effective unless that party has expressly accepted it.[61]

2. PECL art. 1:104 states that the existence and validity of the agreement of the parties to adopt or incorporate these Principles shall be determined by these Principles. Nevertheless, a party may rely upon the law of the country in which it has habitual residence to establish that the party did not consent if it appears from the circumstances that it would not be reasonable to determine the effect of the party's conduct in accordance with these Principles. This provision, which is in accordance with art. 8 and 3(4) of the Rome Convention on the Law Applicable to Contractual Obligations of 1980, is intended to protect a party against being taken by surprise by rules on consent unknown to the party.

3. The Reasonably Foreseeable Test operates to protect a party against unforeseen contingencies that happen after the conclusion of [page 396] the contract. This concern is taken care of by the rules on vis major [62] and hardship,[63] see below in section 10. A party is bound to perform its obligations under the contract. An exception to this rule, the pacta sunt servanda, is made in case of vis major, which is used here to denote supervening events, which make performance impossible or quasi-impossible. In case of vis major, the debtor will be excused for his or her non-performance. Although the rules are not the same in the various legal systems,[64] most of them show the following main features:

The debtor is relieved from his or her obligations only if:

a) The impediment was not reasonably foreseeable at the time of the conclusion of the contract.

Furthermore, it is required that:

b) Performance has become impossible in law or in fact.

Most legal systems also accept the quasi-impossibility where performance, though possible, cannot be requested, and that the impediment occurred outside of the control of the debtor, who is supposed to have control of himself, his employees and his equipment.

In most legal systems, vis major 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. The vis major 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 contract terms. Rules similar to the one mentioned above is provided in CISG art. 79,[65] in PECL art. 8:108 [66] and in the Unidroit Principles art. 7.1.7.

4. The Reasonably Foreseeable Test also puts a limit on the compensation for harm that a party sustained as a result of the other party's non-performance.[67] The aggrieved party can only claim to get [page 397] compensated for the loss, including lost profit, which at the time of the conclusion of the contract was reasonably foreseeable to occur as arising naturally in the ordinary course of things, or which the defaulting party had reason to foresee due to information given to him or her by the aggrieved party or otherwise.[68] This rule, which is provided in CISG art. 74, UPICC art. 7.4.4. and PECL art. 9:503, is gaining ground in the world.[69]

X. Proportionality

This principle prevents or mitigates a disproportion between performance and counter-performance in bargains, and makes sure that there is a reasonable relation between ends and means for a party that wishes to exercise a remedy against another party that is in breach of contract. The laws do not require bargains to be fair in the sense that there must be a fair price for goods and services. The medieval idea of a justum pretium [70] no longer prevails, although there are remnants of it in the doctrine on lésion in some laws.[71] On the other hand, more and more laws tend to police contracts in situations of serious disproportion or imbalance. This is the case where a party took unfair advantage of its superior bargaining power vis a vis a weak party to obtain an excessive advantage.[72]

1. Policing also operates when a contract or contract term is contrary to the requirements of good faith and fair dealing and has caused a significant imbalance in the parties' rights and duties to the detriment of one party.[73] Some of the laws will only apply this rule to terms which were not individually negotiated [74] and will not let it govern cases where the price of the goods or services is unfair,[75] and some limit the rule to consumer contracts.[76] However, it appears that the rule is getting increasing support throughout the world. In several countries it may also apply to business contracts, to a price which is unfair, and to contracts which are individually negotiated.[77] [page 398]

2. In contracts of duration, such as co-operation agreements, lasting construction contracts, and contracts for a continuous supply of goods or services, unforeseen contingencies may make performance excessively onerous for one party, especially in times of depression or unrest. In these contracts a hardship rule is needed. Clauses providing that a party may be relieved or the terms of the contract modified in case of hardship are inserted in many contract documents, but often the parties forget to provide them, or they do not find them necessary. It has been argued that a party that is then exposed to hardship must bear the consequences. However, the hardship that a party may suffer in these cases is often too severe a penalty for its 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 (Italian: essesivamente onorosa [78]) so that the economic basis on which the contract was made has lapsed, (German: Storung der Geschäftsgrundlage [79]). A hardship rule is also found in Dutch law,[80] and a similar rule on imprévision exists in French administrative law.[81]

CISG has no such provision, but the UPICC and PECL [82] provide rules on hardship.[83] Under UPICC art. 6.2.1, a party is bound to fulfil its obligations, even if its performance has become more onerous. A party cannot get out of a contract merely because it has turned out to be unprofitable, but the party can have it modified or ended in case of hardship. Art. 6.2.2. states:

"There 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." [page 399]

Article 6.2.3 gives rules on the effects of hardship:

"(1) In case of hardship, the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based."

Then the disadvantaged party must wait for relief:

"(2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance.

(3) Upon failure to reach agreement within a reasonable time, either party may resort to the court.

(4) If the court finds hardship it may, if reasonable,

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

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

The PECL art. 6:111 provides similar rules as UPICC arts. 6.2.1-6.2.3. The rules on hardship are not mandatory. When making their contract, the parties may agree on how to distribute the risks. Whereas vis major destroys the contract, hardship, which is due to an imbalance in the parties' rights and duties, may keep the contract alive, but its terms will then have to be modified.

3. It is a general rule in many jurisdictions that the aggrieved party can terminate a contract for the other party's non-performance only if it is fundamental.[84] Some legal systems do not openly apply the doctrine of fundamental non-performance, but rather approach it in various ways.[85] The reason for this requirement is that, for the defaulting party, termination usually involves a serious detriment. In attempting to perform, the defaulting party may have incurred expenses, which are now wasted. Thus the party may lose all or most of its performance when there is no market for it elsewhere. This argument carries great weight in international trade, where goods are sent to foreign markets. When other remedies, such as damages, are available, these remedies will often safeguard the interests of the aggrieved party sufficiently so that termination should be avoided. [page 400]

4. Most Civil Law systems give the aggrieved party a right to specific performance as do the PECL and UPICC. However, under several laws, the aggrieved party cannot claim specific performance of a non-monetary obligation if performance would cause the debtor unreasonable effort or expense. Thus, if party A has sold his yacht to party B and promised to deliver it to B's domicile, and, if on the way, the yacht is hit by a ship and is sunk in 200 fathoms of water, so that the cost of raising the ship would amount to many times the ship's value, B cannot force A to perform.[86]

5. A party that is to perform simultaneously with, or after the other party, may withhold performance until the other has tendered performance, or has performed. The first party may withhold the whole of its performance or a part of it, as may be reasonable in the circumstances. In case of a partial or defective performance, the aggrieved party may only withhold its performance to the extent justified by the other party's non-performance. This rule is found in several jurisdictions in Europe.[87]

In 1936, in order to demonstrate the need for a Uniform Sales Law, Ernst Rabel showed in his comparative work on the Sale of Goods, Das Recht des Warenkaufs,[88] how widely different the contract rules of the world were. CISG opened the gates for a harmonisation of the law of contracts. The present troika of contract rules in the CISG, UPICC and PECL has set a model for the future World Contract Law, which is now in sight, first as a "creeping and informal codification" and later as a Global Code of International Commercial Contracts. The rapidly growing world trade and communication are in need of that. [page 401]


FOOTNOTES

1. For a short account of the history of CISC see Commentary on the UN Convention on the International Sale of Goods (CISG) 1-8 (Peter Schlechtriem ed., 1998, hereinafter Schlechtriem).

2. The newcomers are Cyprus, Liberia and Gabon.

3. Principles of International Commercial Contracts, published by Unidroit, Rome, 1994.

4. Unidroit Principles of International Commercial Contracts 2004, published by Unidroit, Rome, 2004 (hereinafter UPICC).

5. Principles of European Contract Law, Part 1: Performance, Non-Performance and Remedies (Ole Lando & Hugh Beale eds., Dordrecht 1995).

6. Principles of European Contact Law, Parts I & II, Prepared By The Commission on European Contract Law (Ole Lando & Hugh Beale eds., 1999, hereinafter PECL I & II). There is now an Italian version, Prinzipi Di Diritto Europeo Dei 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, Edicion Espanola A Cargo De Pilar Barres Beneloch, Jose Miguel Embid Iruj, Fernando Martinez Sanz, Madrid 2003; and a German version, Grundregeln des Europaischen Vertragsrechts, Teile I und II, Deutsche Ausgabe Von Christian Von Bar, Reinhard Zimmermann, München 2002. Japanese and Korean versions are in preparation. See the website of the Commission on European Contract Law, available at: <http://web.cbs.dk/departments/law/staff/ol/commission_on_ecl/index.html>.

7. Principles of European Contract Law, Part III (Ole Lando, Eric Clive, Andre Prum & Reinhard Zimmermann eds., The Hague 2003, hereinafter PECL III). There is now a German version; Grundregeln Des EuropAischen Vertragsrechts, Teil IIII, Deutsche Ausgabe Von Christian Von Bar, Reinhard Zimmermann, München 2005, as well as an Italian Version; Prinzipi Di Diritto Europeo Dei Contratti, Parte III, Editzione Italiano A Cura Di Carlo Castronovo, Milano 2005. A French edition, Principes Du Droit Europeen Du Contract, Preparee Par Georges Rouhette, Avec Le Concours De Isabelle De Lamberterie, Denis Tallon and Claude Witz, Paris 2003, comprise Parts I, II and III.

8. See the website of UNILEX, available at: <http://www.unilex.info>.

9. Communication from the Commission to the European Parliament and the Council European Contract Law and the revision of the acquis; the way forward, Brussels 11.10.2004, COM (2004) 651 final.

10. Benin, Burkina Faso, Cameroon, The Central African Republic, Chad, Congo Brazzaville, Cote d'Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, Togo, The Union of the Comoros and since 2004, The Democratic Republic of Congo.

11. Marcel Fontaine, The Draft OHADA Uniform Act on Contracts and the Unidroit Principles of International Commercial Contracts, IX Uniform Law Rev. 573-583 (2004). See also Acte uniforme OHADA sur le droit des contrats. Note explicative à l'avant projet redige par Marcel Fortaine, (Uniform Act for OHADA on Contract Law, Explanatory Notes to the Draft Edited by Marcel Fontaine) September 2004, unpublished report.

12. The series Cambridge Studies in International And Comparative Law, The Common Core of European Private Law, published by Cambridge University Press, England comprise Good Faith in European Contract Law (Reinhard Zimmermann and John Whittaker eds., 2000, hereinafter Good Faith), The Enforceability of Promises in European Contract Law (James Gordley ed., 2001, hereinafter Enforceability of Promises), Pure Economic Loss (Mauro Bussani and Vernon Valentine Palmer eds., 2003), Security Rights in Movable Property in European Private Law (Eva-Maria Kieninger ed., 2004) and Mistake, Fraud and Duties to Inform in European Contract Law (Ruth Sefton-Green ed., 2004).

13. James Gordley is editor of the book on Enforceability of Promises and Member of the Editorial Board of the Common Core Series. Together with Robert S. Summers, he has made important contributions to the book on Good Faith. Shannon Cecil Turner has together with James Gordley prepared summaries and preliminary observations to the book on Enforceability of Promises. Vernon Valentine Palmer is co-editor of the book on Pure Economic Loss.

14. See inter alia Ole Lando, A Vision of a Future World Contract Law, 37 Ucc L.J. Vol. 2, 3-46. (2005), Ole Lando, A Merger of the United Nations Convention on Contracts for the International Sale of Goods and the Unidroit Principles of International Commercial Contracts, in Melanges offerts a Marcel Fontaine, (Essays in Honour of Marcel Fontaine) 451-472 (Bernard Dubuisson et. al. eds., Bruxelles 2003); see also Michael Joachim Bonell, Do we need a Global Commercial Code? Uniform Law Rev., 2000, 469-486.

15. The Hague, 1999.

16. See Berger, supra note 15, Chapter 4 ff.

17. See section 1 above.

18. See also Klaus Peter Berger, Formalisierte ORDER "Schleichende" Kodifizierung Des Transnationalen Wirtschaftsrechts, (Formalized or Creeping Codification of International Commercial Law) Berlin 1996.

19. See for instance on the meaning which the 'substantive' concept of freedom of contract has today as opposed to the 'formal' concept of yesterday; see below in section 3.

20. See, e.g. the cases on CISG reported in the Electronic Databases UNCITRAL's Digest of case law on the United Nations Convention on the International Sales of Goods, and the UNILEX, supra note 8. On September 25, 2005, UNILEX had brought 651 court decisions on CISG from 25 countries, and 69 arbitral awards. There were 37 court decisions from the USA. Four hundred thirty-two or about two-thirds of the court decisions came from 11 of the 25 EU countries, 185 from Germany. Discrepancies have appeared, for instance when some courts have given a provision for a 'liberal' interpretation whereas others have kept to the wording. Some courts have held that an offer was sufficiently definite even if it did not make provisions for determining the price, see art. 14(1), others have not. Some courts have interpreted art. 7(1) to mean that the duty to observe good faith could apply to the interpretation of the contract, others have held that it could only be applied to interpret the provisions of CISG, see art. 7(1).

21. The same holds true of the arbitral awards on the application of UPICC reported in UNILEX, supra note 8.

22. See on art. 6 Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 2d ed. 1991 (hereinafter Honnold) No. 74 ff. The freedom was made possible by excluding certain issues such as the validity of the contract from the scope of CISG.

23. See also Berger, supra note 15 Annex 1 Principle no. 1.

24. Art. 2(1) Jeder hat das Recht auf die freie Entfaltung seiner Persönlichkeit, soweit er nicht die Rechte anderer verletzt und nicht gegen die verfassungsmässige Ordnung oder das sittengesetz verstösst. (English translation: "Everybody has a right to the full development of his personality in so far as he does not violate the rights of others or infringe the constitutional order or the moral laws."). See also § 311 BGB.

25. See PECL I & II, supra note 6, notes to art. 1:102 p. 99f. Freedom of contract is now established in the Contract Law of the Peoples Republic of China of 15 March 1999 § 4 and in arts. 1(1) and 421 of the Russian Civil Code of 1995, see William E. Butler, Russian Law 378-379 (2d ed. 2003).

26. Art. 1:103 Mandatory Provisions:

"(1) Where the law otherwise applicable so allows, the parties may choose to have their contract governed by the Principles, with the effect that national mandatory rules are not applicable.

(2) Effect should nevertheless be given to those mandatory rules of national, supranational and international law which, according to the relevant rules of private international law, are applicable irrespective of the law governing the contract."

27. Judgment of 19 October 1993 BVerGE 1994 214, 234.

28. See Enforceability of Promises, supra note 12 passim.

29. See also Berger, supra note 15 Annex 1, Principle no 3.

30. See also Berger, supra note 15 Annex 1, Principle no 8.

31. See Schlechtriem, supra note 1, art. 11 note 4.

32. See Guenter Treitel, The Law of Contract 67 ff (11ed. 2003 hereinafter Treitel).

33. See Farnsworth on Contracts, 1990 Volume 1 at 63 (hereinafter Farnsworth).

34. See Farnsworth, supra note 33, Volume 1 at 71.

35. See on promises inducing unrequested reliance and abstract payment undertakings, such as letters of credit and on-demand guarantees, Roy Goode, Commercial Law 69, (3d ed. 2004 hereinafter Goode), and on the cases of "invented" consideration, Treitel, supra note 32, at 71.

36. PECL I & II, supra note 6, at 137-138. UPICC, supra note 4, at 95.

37. See also Berger, supra note 15, Annex 1 Principle no 2.

38. See Good Faith, supra note 12, at 13.

39. See PECL I &II, supra note 6, at 116 and on French Law, Sonnenberger/Autexier, Einfürung in das Französische Recht (Introduction to French Law) no. 84 (3 ed. Heidelberg 2000). On American law see Summers in Good Faith, supra note 12, at 118.

40. See Bonell in Commentary on the International Sales Law, The 1980 Vienna Sales Convention 68 and 84, (Cesare Massimo Bianca and Michael Joachim Bonell eds., Milan 1987, hereinafter Bianca and Bonell).

41. See Swiss Handelsgericht Zürich 30.11.1998, Schweizerisches Zeitschrift für internationales Recht und Europarecht 1999, 195.

42. See inter alia OLG Hamburg 5.10.1998, cited by Ulrich Magnus in Staudinger Kommentar Zum Burgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener Kaufrecht (CISG) (Staudinger Commentary to the German Civil Code, Vienna Sales Law (CISG)) art. 7 note 10 (hereinafter Magnus), 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 Arnheim 17.07 1997, Unilex cases on CISG art. 7(1).

43. See Bonell in Bianca and Bonell, supra note 40 at 84, Schlechtriem, supra note 1 at art. 7 note 15 ff, Magnus, supra note 42 at art. 7, note 10.

44. See Bonell in Bianca and Bonell, supra note 40 at 86, Schlechtriem, supra note 1 at art. 7 note 18 and Magnus supra note 42 at art. 7 note 28.

45. The words are cited from Schlechtriem, supra note 1 at art. 7 note 18.

46. Schlechtriem, id. at art. 7 note 18.

47. See Berger, supra note 15 Annex 1, Principle no. 10.

48. [1905] 7 Sess. Cas. 686, 694.

49. The same idea was expressed by Blackburn J. in the English case Smith v Hughes (187l) LR 6 QB 597.

50. CISG art. 8 provides:

"(1) Statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

"(2) If this rule is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

"(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties."

See also UPICC, supra note 4 art. 4.1-4.4, PECL I & II, supra note 6 art. 2:101, 2:102, 5:101 and 5:102 and Berger, supra note 15 Annex 1 Principle no. 10.

51. See Schlechtriem, supra note 1, Introduction to articles 14-24 at no. 4, p. 100.

52. See PECL I & II, supra note 6 at 185-187.

53. On the doctrine of estoppel in English law see Treitel, supra note 32 at, 114, PECL I & II supra note 6 art. 1:201 on Good Faith and Fair Dealing, Comment C at 114 and Berger, supra note 15 Annex 1 Principle no. 35.

54. See Restatement, (Second) of Contracts § 87 (2 (1981) and HONNOLD, supra note 22 para. 144.

55. CISG art. 16(2), UPICC, supra note 4 art. 2.1.4 (2)(b), PECL I & II, supra note 6 art. 2:202 (3)(c).

56. UPICC, supra note 4 art. 2.2.5 and the same provision in PECL, supra note 6 art. 3:201 (3), see also Berger, supra note 15 Annex 1 Principles nos. 51 and 52.

57. See PECL I & II, supra note 6, p. 301.

58. See PECL I & II, id. p. 302 and U.C.C. § 2-313. (1977).

59. See § 18 of the Nordic Sale of Goods Act (1989-) and art. 2 (2)(d) of Council and Parliament Directive 1999/44/EC OJ. L 171/12. On the contractual or pre-contractual character of this liability see Mistake, Fraud and Duties to Inform in European Contract Law, supra note 12, at 399.

60. UPICC, supra note 4 art. 7.4.2, PECL I &II, supra note 6 art. 9:502, Berger, supra note 15 Annex 1, Principle no. 60 only mentions the loss caused by the other party's non-performance.

61. This is close to the German BGB § 305(2), see also on other laws in Europe PECL I & II, supra note 6, at 149.

62. See on the terms force majeure, impracticability, frustration and hardship, which Zweigert & Kötz give the catchall term, the Effect of Supervening Events, see Konrad Zweigert & Hein Kötz, An Introduction to Comparative Law, ch. 37 (3d ed. 1988 hereinafter Zweigert & Kötz).

63. See below in section 10.

64. See Berger, supra note 15 Annex 1 Principle no. 24 and on American law, Farnsworth, supra note 33 with Supplements § 9.5, on French law, Francois Terre, Philippe Simler, Yves Lequette, Droit Civil, Les Obligations (Civil Law, Obligations) 8th ed. Paris 2002 No 581, and on English law, Goode supra note 35 at 135. For a comparative survey of the laws, see Zweigert & Kötz, supra note 62, chapters 36 and 37 and Guenter Treitel, Frustration and Force Majeure (1994).

65. See CISG art. 79, Tallon in Bianca and Bonell, supra note 40 at 572, Honnold, supra note 22, 423, and Barry Nicolas, Force Majeure and Frustration 27, Am. J. Comp. L. 231 (1979).

66. PECL I & II, supra note 6, 379 ff.

67. The rule was established in the common law, see on Hadley v. Baxendale (1854) 9 Ex. 431, which was inspired by the French civil code arts 1149-1151, and which has been followed in later English and American cases see Treitel supra note 32 at 965. On American law, see Restatement Second of Contracts § 351 (1981). For a short survey of the laws of the European countries see PECL I &II, supra note 6 at 442 and Berger, supra note 15 Annex 1 Principle no 61.

68. See also the UCC 2.715 (2)a (1977).

69. See Guenter Treitel, Remedies For Breach Of Contract 150 (1988).

70. Reinhard Zimmermann, The Law Of Obligations, 255 (1990).

71. E.g. French civil code arts. 1118 and 1674-1676, and Austrian civil code §§ 934 and 935.

72. See BGB § 138(2) as amended in 1976, Nordic Contract Act § 31, UPICC supra note 4 art. 3.10, PECL I & II, supra note 6 art. 4:109 and on undue influence in English and Irish law PECL I & II, supra note 6, note 1 to art. 4:109. 264.

73. BGB § 307 (as amended in 2001) and § 242, Nordic Contract Act §§ 33 and 36, EC Directive 93/13 on Unfair Terms in Consumer Contracts of 5 April 1993, OJ 95/29, PECL I &II, supra note 6 art. 4:110, Dutch BW §§ 6:233 (on general conditions) and 6:248, and UCC § 2.302 (1977).

74. See Council Directive 93/13 on Unfair Terms in Consumer Contracts of 5 April 1993, OJ 95/29, PECL art. 4:110 and BGB § 307.

75. Council Directive 93/13 on Unfair Terms in Consumer Contracts of 5 April 1993, OJ 95/29 art. 3(2).

76. Id.

77. See notes to art. 4:110 in PECL I & II, supra note 6.

78. Italian civil code art. 1467.

79. See Zweigert & Kötz, supra note 62 at 518 and BGB § 313 as amended in 2001.

80. Dutch BW art. 6:258.

81. See Barry Nicolas, The French Law Of Contract 208, (2d ed. 1992).

82. PECL I & II, supra note 6 at 322 ff.

83. See Berger, supra note 15 Annex 1 Principle no. 29.

84. The rule applies in the Nordic laws of contract and corresponds very closely to English, Irish and Scottish law. It is laid down in CISG art. 49 cf. art. 25, in UPICC supra note 4 art. 7.3.1 and PECL I & II supra note 6 art. 9:301 cf. art. 8:103. See also Berger supra note 15 Annex 1 Principle no. 31 and Restatement (Second) of Contracts § 242 cf. § 241 (1981).

85. German and Nordic law, PECL I & II art 9:102(2)(b) see supra note 6, and UPICC art. 7.2.2.(b) see supra note 4. See on the laws in Europe PECL I & II notes to art 8:103. 366 ff. The way in which the American Restatement (Second) of Contracts (1981) approaches the problem is complicated, see §§ 225 and 237, Comment A. on conditions, § 243(1) cf. § 236(1) on breach and § 253 on repudiation. See also §§ 237-242. The idea behind this approach is that the Restatement wishes to distinguish the non-performance in general which results in discharge and the non-performance which is breach, and which has the additional effect of giving a damage action.

86. See also German BGB § 275 and on the laws of other EU countries note 3c to PECL I & II, supra note 6 art. 9:102 at 400.

87. See PECL I & II, supra note 6 art. 9:201 and on the laws in Europe PECL I & II notes to art. 9:201 p. 406 ff.

88. Volume I Berlin 1936 (reprinted 1957) Volume II 1958.


Pace Law School Institute of International Commercial Law - Last updated August 30, 2006
Go to Database Directory || Go to Bibliography
Comments/Contributions