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"Missing Information": Inquiry into the CISG

[application of Articles 35 and 8]

Sumiya Sukhbaatar [*]
June 2004

I.    Introduction
II.   A Hypothetical Case
       A. Facts
       B. The disputed question
       C. What is special about this case?
III.  Rules on Conformity under the CISG
       A. Contract interpretation rules
1. Subjective text
2. Objective test
3. Interpretation and missing information
       B. Rules on implied obligations
1. Fit for ordinary purposes
2. Fit for particular purpose
3. Implied obligations and missing information
IV.  Conclusion

I. INTRODUCTION

The 1980 United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as 'the CISG' or 'the Convention') is probably the most successful of all attempts in the area of unification of private law at the international level.

International sales contracts play an important role in conducting trade among nations. Specially, they perform an important economic function of delivering goods to their most valuable users. Unfortunately, it may happen, though not frequently, that a buyer receives goods different than he had expected. And it is even more unfortunate if the same happens just because of the parties' failure to notice important facts related to the characteristics of the goods in question. To an observer, it looks as if the facts in question were absent or missing at the time of the negotiations.

Thus, the present essay will attempt to look into the CISG from the perspective of such 'missing facts or information'. The ideas for this essay developed out of a hypothetical case. Therefore, the same case will be used to illustrate the points made throughout the essay.

II. A HYPOTHETICAL CASE

A. Facts [1]

A dispute arose between two companies, parties to a sales contract agreed by them to be governed by the CISG.

The buyer had been packing small quantities of products with older machines for some time. In anticipation of a large contract from a third company, the manager for the buyer wrote to the seller, inquiring into the possibility of purchasing several new machines. Below is the crucial part of his letter:

The buyer's letter

We anticipate the possibility of being in the market for up to six machines capable of packaging dry bulk commodities into retail packages of 500 grams to 1 kg. The machines could be expected to be used over a wide range of products, both fine goods, such as ground coffee or flour, and coarser goods such as beans or rice.

I should like to know what you might be able to offer us, including the price and the delivery terms. Both price and prompt delivery would be essential elements of our purchasing decision.

The salesman for the seller promptly answered with the following offer:

The seller's letter

...If you plan to use the machines over a wide range of products, as you have stated, you will wish to purchase auger-feeder machines. You would need auger-feeders for the fine products. Auger-feeders can also be used for coarser items such as beans or rice, though they are slower at doing so than are multi-head weighers. As you are also undoubtedly aware, multi-head weighers are considerably more expensive than are auger-feeder.

I can offer you six of Model 16 auger-feeder machines. This is our newest model introduced this year and it has been a favorite with every one of our customers. The price is $____. Because of the great demand for them, there would be a two month delay before we would be able to ship.

There is another possibility that might better meet your need for prompt delivery and desire for as good a price as possible. I could offer you six of our Model 14 auger-feeder packaging machines. This model was first introduced in 2000 and was also one of our top products. It has been discontinued in favor of Model 16, but I am sure that you would be more than satisfied with it. Because it is a discontinued model, I am able to offer you a special price of $____ per machine with immediate shipment for a minimum order of six machines. We have only a limited number available, so I encourage you to order promptly if you would be interested.

Having received the seller's reply, the buyer ordered six Model 14 machines. They were duly delivered, installed and placed into service. They were used for packaging a variety of products, including salt. After a while, the machines began to show serious signs of corrosion and eventually the buyer decided that they should no longer be used. In fact, the machines were totally destroyed. The manager telephoned the salesman to tell him of the corrosion. As it turned out, the machines were not designed to be used for salt because of salt's corrosive nature. It also became clear that there was a separate model (Model 17) specially designed for packaging salt.

To complete the main facts of the case, there was a telephone conversation just before the shipment of the machines. During this telephone conversation, the buyer made another statement. Its content is reproduced below as recorded and transcribed:

The buyer's oral statement

It's a good thing we are getting such a versatile machine from you. They (the third company) want us to get going on packaging their stuff. They have everything in mind from large beans to salt to fine powder and we are going to have to do it all. Some of this is stuff we've never handled before, but I am sure we'll do fine with your machines to help us.

The parties later signed a written contract, which, unfortunately, did not contain any provisions on the description of the goods at issue.

B. The disputed question

The seller made a clear offer and the buyer accepted it. However, the crucial point in this offer and acceptance sequence is the description of the machines in question given by the buyer in his letter. That description - although, strictly speaking, lies outside the offer and acceptance scheme - is relevant to the dispute because, on the one hand, the buyer, when accepting the seller's offer, apparently thought that the offered machines fitted into the said description, and, on the other hand, the seller's offer was made in response to the same.

The buyer avoided the contract and claimed damages on grounds of non-conformity (the machines are not capable of packaging salt) under Article 35 of the CISG. The disputed question is whether the machines are in conformity with the contract. To answer this question the court will have to interpret the contract. The contract was concluded as a result of an exchange of communications between the parties. Consequently, the interpretation will be aimed at determining the meaning of the expression 'a wide range of products ...' used by the buyer in his letter.

Intuitively, there are three possible interpretations of the buyer's expression in question: a) the machines were required by the contract to be suitable for salt; b) the machines were not required to be suitable for salt; and c) neither of these two meanings can be inferred or both of them are equally plausible.

C. What is special about this case?

The buyer actually used the machines for packaging salt upon the apparently innocent, but erroneous assumption of their ability to handle the same. This is partly confirmed by the fact that he, though in a rather casual manner, somehow had mentioned salt before the machines were shipped. Despite the problems caused by salt, the machines were performing well.[2]

Having reiterated these facts and being mindful of the risk of prejudging the case in favor of the buyer, an economic evaluation of the case holds that expensive machines have traveled a long distance at great costs only to arrive at the wrong user and to be destroyed beyond repair in the course of innocent misuse. In other words, the scarce economic resources have been wasted.

What I see is wrong with this case is this: the contract was concluded in the absence of the knowledge of certain facts (related to salt). Because of this, the contract has turned into a worthless transaction for the parties as well as for the society as a whole. So, the focus is on these facts that were missing in the process of contract formation. The facts related to salt include corrosive nature of salt, the existence of a special Model (Model 17) designed for salt, and the inability of Model 14 to process salt. These facts will be referred to as the 'missing facts' or 'missing information' throughout this essay.

One of the important features of the 'missing information' in this case is its direct connection to the contract. Specifically, it was the absence of this information that caused incomplete understanding between the parties. Had the information been noticed, the parties would have never entered the contract or would have concluded it on substantially different terms.

The basic premise of this essay is that the Convention's rules must have some kind of built-in mechanism for 'missing facts' to be realized and taken into consideration by the parties negotiating a contract. This is one issue to be addressed in the present essay.

To a lay person, the facts of this case may produce an impression that the seller, having better knowledge about the machines, should have noticed and volunteered to share the missing information with the buyer. This should remind a lawyer of the so-called duty to inform or disclose.

Duty to inform [3] is commonly recognized in many civil law countries. It holds that a contracting party must inform the other party of material facts that are essential for that party to make his decision whether to enter the future contract or not. In contrast, the common law does not recognize any general duty to inform. Under the CISG, there is no such explicit duty despite the fact that the term appears in some of the provisions (See Art. 1(2), Art. 40, and Art. 68). This is another issue the present essay is interested in.

The relevance of the missing information to the characteristics of the goods sold and its failure to be integrated into their contract description are indications that the same should be analyzed by looking into the non-conformity rules and, by implication, the contract interpretation rules of the CISG.

The following analysis of the CISG rules on lack of conformity laid down in Article 35 in combination with the contract interpretation rules set forth in Article 8 will attempt to answer the above two questions, thus contributing to a better understanding of the CISG.

III. RULES ON CONFORMITY UNDER THE CISG

Paragraph (1) of Article 35 confirms that the conformity determination begins with the contract between the parties. Paragraph (2) sets forth a series of implied Convention obligations in respect of quality which apply '[e]xcept where the parties have agreed otherwise.'

Article 35

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment;

The first paragraph of article 35 concerns the contractual description of the goods in question. When that description is in dispute, the interpretation rules apply. Therefore, analysis will begin with Article 8 and then go on to the second paragraph.

A. Contract interpretation rules

When the parties to a contract are disputing over the terms of their contract, the settlement of the case depends on the interpretation of those terms. The purpose of the following analysis is to see if and how interpretation rules operate so that 'missing information' can be brought to the attention of the parties negotiating a contract. The important assumption here is the existence of a direct connection between the disputed unclear terms and certain facts that were missing before or at the conclusion of the contract and which, if realized, could have helped the parties agree on more clear terms.

Article 8

(1) For the purposes of this Convention 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 the preceding paragraph 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.

"Article 8 states the rules to be applied in terms of interpreting the unilateral acts of each party, i.e., communications in respect of the proposed contract, the offer, the acceptance, notices, etc. Nevertheless Article 8 is equally applicable to the interpretation of 'the contract' when the contract is embodied in a single document. Analytically, this Convention treats such an integrated contract as the manifestation of an offer and an acceptance. Therefore, for the purpose of determining whether a contract has been concluded as well as for the purpose of interpreting the contract, the contract is considered to be the product of two unilateral acts."[4]

Theoretically, "paragraph (1) is built on the 'subjective' approach: Interpretation is to be based on the speaker's 'intent' - but only 'where the other party knew or could not have been unaware what that intent was' of the intent. However, because of the practical barriers to providing identity between the intent of the two parties (particularly when they are involved in a controversy) most problems of interpretation will be governed by paragraph (2) which follows the 'objective' approach: Statements by a speaker '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.'"[5]

1. Subjective test

"Since Article 8 states rules for interpreting the unilateral acts of each party, it does not rely upon the common intent of the parties as a means of interpreting those unilateral acts. However, Article 8(1) recognizes that the other party often knows or could not be unaware of the intent of the party who made the statement or engaged in the conduct in question. Where this is the case, that intent is to be ascribed to the statement or conduct."[6]

"It is the intent of the party undertaking the legal act which is decisive. Such intent has an effect only when the other party is actually or supposedly aware of it. When one party clearly expresses his intent through a legal act, the addressee cannot pretend to have insufficient knowledge of that intent. The same applies when the acting party has not clearly expressed his intent, or even disguised it, but the addressee knew of the real intent."[7]

     Illustration 1

Suppose the seller knows from his previous experience that his business partners have ordered the machines by giving a description similar to the buyer's, but having in mind salt. In such a case, the seller cannot pretend to have understood the buyer's description 'narrowly, i.e. excluding salt.

"It would, however, be up to the acting party to prove this. In this context, the factors mentioned in paragraph 3 of article 8 will be of particular relevance. Such proof is made easier for him by certain objectiveness in regard to the knowledge of the other party which is based on the fact that it suffices that the other party could not have been unaware'"[8].

     Illustration 2

Suppose the buyer in the hypothetical case asserts that his intention was to have machines suitable for 'salt'. Such an assertion will need proof that the seller 'knew or could not have been unaware of' this intent. If he is successful, this will result in the contract having the meaning the buyer asserts. This in turn would mean the buyer expressed himself clearly enough.

"It is your obligation to make clear what you mean, your real intention. If you don't, then the objective meaning from the view point of the person to whom the statement was addressed will be controlling."[9]

     Illustration 3

Suppose it is established by the court that the buyer's letter did not convey his actual intent related to salt in such a clear way that the seller 'knew or could not have been unaware of'. In such a case, the buyer will bear the consequences of his unclear language. The seller's understanding (that there was no indication to salt) will prevail.

2. Objective test

"Article 8 cannot be applied if the party who made the statement or engaged in the conduct had no intention on the point in question or if the other party did not know and had no reason to know what that intent was. In such a case, Article 8(2) provides that the statements made by and conduct of a party are to be interpreted according to the understanding that a reasonable person would have had in the same circumstances."[10]

     Illustration 4

Suppose it is not established that the seller knew or could not have been unaware of the buyer's intent related to salt. However, the same intent of the buyer may have been understandable to a reasonable person, thus resulting in something contrary to the seller's actual understanding.

"An objectivized interpretation can very well result in an act producing a legal effect which does not correspond to the intent of the acting person. The latter will then have to rely on rescission."[11]

     Illustration 5

Suppose it is found that the buyer's description of the desired machines meant suitability for several products without any specific indication to salt. This will result in a meaning contrary to the buyer's actual intent.

3. Interpretation and missing information

The operation of the interpretation rules shows they can have the effect that missing information may be brought to the surface. Let us see how this works.

    Illustration 6

Suppose the result of interpretation was that the machines were to be suitable for salt. This means that the seller should have understood the buyer's statement this way.

As a result, the seller will be liable for breach of contract under Article 35. An understanding of this result may provide a lesson for the seller to disclose and take into consideration any 'missing' facts in similar situations in the future.

     Illustration 7

Suppose the interpretation shows that the buyer's statement was not to be understood in the way he asserts now. Then, the buyer will not be entitled to any relief because there is no finding of non-conformity.

The actual intent of the buyer is not important because the addressee's (or the seller's in our case) reliance on his statement is to be protected. The buyer learns a lesson that he should express himself more clearly. This in turn may provide an incentive for the buyer to seek more information in his subsequent conduct. And such conduct may eventually enable him to realize missing facts such as the ones in the hypothetical case by virtue of their direct relevance to the contract under negotiations.

To sum up, interpretation rules, when applied, have the effect that crucial information, which was absent in the formation process of the contract and caused the contract to turn into a worthless dealing, will probably come to the attention of the parties, at least in their subsequent dealings since the party making the statement will try to be as clear as possible and the party receiving it will make his best efforts to understand it correctly.

B. Rules on implied obligations

Disputes over quality cannot always be resolved simply by measuring the goods against the specific terms of the contract. Specially, when the contract is not complete, certain default rules will be applied to ascertain the seller's obligations. This essay will narrow its analysis to subparagraphs a) and b) of Article 35(2) of the Convention.

1. Fit for ordinary purposes

"Goods are often ordered by general description without any indication to the seller as to the purpose for which those goods will be used. In such a situation the seller must furnish goods which are fit for all the purposes for which goods of the same description are ordinarily used. The standard of quality which is implied from the contract must be ascertained in the light of the normal expectations of persons buying goods of this contract description. If the goods available to the seller are fit for only some of the purposes for which such goods are ordinarily used, he must ask the buyer the particular purposes for which these goods are intended so that he can refuse the order if necessary."[12]

     Illustration 8

Suppose packaging machines are normally expected to be suitable for salt and other products. In such a case, the seller must ask the buyer the particular products he wants to package as the seller's machines are suitable for only some products excluding salt. Upon this clarification, the seller is still able to sell his machines, which the buyer may find satisfactory because salt may be not included in his list.

2. Fit for particular purpose

"Buyers often know that they need goods of a general description to meet some particular purpose but they may not know enough about such goods to give exact specifications. In such a case the buyer may describe the goods desired by describing the particular use to which the goods are to be put. If the buyer expressly or impliedly makes known to the seller such purposes, the seller must deliver goods fit for that purpose. The purpose must be known to the seller by the time of the conclusion of the contract so that the seller can refuse to enter the contract if he is unable to furnish goods adequate for that purpose."[13]

     Illustration 9

Suppose the normal expectation about packaging machines is suitability for a certain number of products without any specific indication to salt. In such a case, some products plus salt will constitute a particular purpose. Consequently, the buyer must make this particular purpose known to the seller.

"The seller is not liable for failing to deliver goods fit for a particular purpose even if the particular purpose for which the goods have been purchased has in fact been expressly or impliedly made known to him if 'the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment'. The circumstances may show, for example, that the buyer selected the goods by brand name or that he described the goods desired in terms of highly technical specifications. In such a situation it may be held that the buyer had not rely on the seller's skill and judgment in making the purchase."[14]

     Illustration 10

The buyer's obligation to have a special purpose made known to the seller may enable him to realize the missing information about salt when he does not rely on the seller's skill and judgment.

"If the seller knew that the goods ordered by the buyer would not be satisfactory for the particular purpose for which they have been ordered it would seem that he would have to disclose this fact to the buyer. If the buyer when ahead and purchased the goods it would then be clear that he did not rely on the seller's skill and judgment."[15]

     Illustration 11

Suppose the buyer relied on the seller's skill and judgment, having made his particular purposes known to the seller. In such a case, the seller is under obligation to disclose the facts relating to salt, thus enabling the buyer to cancel his order. A failure by the seller to do so will result in the seller's liability for non-conformity.

3. Implied obligations and missing information

It can be seen from the previous analysis that the CISG default rules on conformity have the indirect effect that certain facts relevant to the contractual characteristics of the goods sold, which are sometimes unnoticed at the pre-contractual stage and later may lead to a dispute, can come to the attention of the parties in the course of their efforts to avoid non-conformity disputes, being mindful of the consequences of their conduct.

The buyer must make sure if he provided a correct description of the desired goods, being aware of the risk of failing to state his particular purposes although in some cases a general description may cover such purposes. Efforts to give a correct description will inevitably bring the buyer to the missing facts.

The seller is also encouraged to share certain facts (i.e. the missing facts) with the buyer when the latter relies on his skill and judgment. A failure to do so will lead to liability. The seller's liability, of course, will not be based on breach of this implied obligation to disclose, but on non-conformity of the goods sold. So, the CISG does not prescribe an explicit duty to inform because the same result can be achieved indirectly through the rules on conformity.

IV. CONCLUSION

The brief analysis of the CISG carried out in the present essay clearly shows that it already contains sufficient mechanisms for ensuring that the parties to a contract make a rational and well-informed decision whether to enter the contract and, if so, on what terms.

It also shows there is no need for an explicit duty to inform under the CISG, as is widely adopted in civil law countries. The same functions that a duty to inform would perform are sufficiently covered by the obligations of the buyer and the seller set forth in the rules on conformity as well as in the rules on contract interpretation.

However, one should remember that the CISG has its limits. For instance, cases of mistake, dissensus, or fraud, which also involve missing information, will have to be handled by applying the relevant domestic legal rules applicable by virtue of the rules of private international law.


FOOTNOTES

* Sumiya Sukhbaatar (Mongolia) is an LL.M. candidate at Graduate School of Law, Kyushu University, Japan. I am grateful for the useful comments and suggestions of my professors Hiroo Sono and Caslav Pejovic. Naturally, I remain responsible for all eventual mistakes in this paper.

1. The facts are based on the problem for the 11th Annual Willem C. Vis International Commercial Arbitration Moot available at <http://cisgw3.law.pace.edu/vis.html>.

2. This part was deliberately modified for the purpose of the present essay. The actual facts contained an additional poor performance problem.

3. For an overview of the legal situation in different countries See 'Pre-contractual liability: reports to the XIIIth Congress, International Academy of Comparative Law, Montreal, Canada, 18-24 August 1990', edited by Ewoud H. Hondius.

4. Secretariat Commentary on article 7 of the 1978 Draft of the CISG available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-08.html>.

5. John O. Honnold, Uniform law for international sales under the 1980 United Nations convention. - 3rd ed., 1999, Kluwer Law International, p. 118

6. Supra Note 4.

7. Excerpt from Fritz Enderlein and Dietrich Maskow, International Sales Law, Oceana Publications, 1992. Available at: <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art08.html>.

8. Ibid.

9. Transcript of a workshop on the CISG available at <http://cisgw3.law.pace.edu/cisg/biblio/workshop-04.html>.

10. Supra Note 4

11. Fritz Enderlein and Dietrich Maskow, supra Note 6

12. Secretariat Commentary on article 33 of the 1978 Draft of the CISG available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-35.html>.

13. Ibid.

14. Ibid.

15. Ibid.


Pace Law School Institute of International Commercial Law - Last updated July 12, 2004
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