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GUIDE TO ARTICLE 8

Comparison with UNIDROIT Principles of International Commercial Contracts


Match-up of CISG Article 8 with counterpart provisions of UNIDROIT Principles


For a general observation on the use of Chapter 4 of the Principles to help interpret CISG Article 8, see Jacob Ziegel, The Unidroit Principles, CISG and National Law ("the rules of interpretation of contracts in Chapter 4 of the Principles are only an elaboration of the more succinct provisions in Article 8 of CISG and should therefore be admissible gap fillers on an analogical basis"). For a more detailed commentary on this subject, see the Editorial remarks by Joseph M. Perillo presented below.

UNIDROIT Principles
Chapter 4 - Interpretation

Article 4.1 - Intention of the parties

CISG
Article 8

(1) A contract shall be interpreted according to the common intention of the parties.

(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

Article 4.2 - Interpretation of Statements and Other Conduct

(1) The statements and other conduct of a party shall be interpreted according to that party's intention if the other party knew or could not have been unaware of that intention. 

(2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the party would give to it in the same circumstances.

1. For purpose 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 4.3 - Relevant Circumstances

 In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including

(a) preliminary negotiations between the parties;

(b) practices which the parties have established between themselves;

(c) the conduct of the parties subsequent to the conclusion of the contract;

(d) the nature and purpose of the contract;  

(e) the meaning commonly given to terms and expressions in the trade concerned;

(f) usages.

Article 4.4 - Reference to Contract or Statement as a Whole

Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear.

Article 4.5 - All Terms to be Given Effect

Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.

Article 4.6 - Contra Proferentem Rule

If contract terms supplied by one party are unclear, an interpretation against that party is preferred.

Article 4.7 - Linguistic Discrepancies

Where a contract is drawn up in two or more language versions which are equally authoritative there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up.

Article 4.8 - Supplying an Omitted Term

(1) Where the parties to a contract have not agreed with respect to a term which is important for a determination of their rights and duties, a term which is appropriate in the circumstances shall be supplied.

(2) In determining what is an appropriate term regard shall be had, among other factors to

(a) the intention of the parties;

(b) the nature and purpose of the contract;

(c) good faith and fair dealing;

(d) reasonableness.

[The UNIDROIT articles displayed above are to be read in conjunction with the Official Comments on them as "the comments on the articles are to be seen as an integral part of the Principles" (UNIDROIT).]


To examine CISG provisions displayed above in their context, go to the full text of the CISG || To examine UNIDROIT Principles displayed above in their context, go to the full text of the UNIDROIT Principles


Editorial remarks on the manner in which the UNIDROIT Principles may be used to interpret or supplement CISG Article 8

Joseph M. Perillo [*]

a. Article 8 of CISG has been entitled "Interpretation of Statement or Other Conduct of a Party." Surprisingly, CISG makes no explicit statement concerning the interpretation of a contract that is the joint product of the parties' negotiations resulting in the adoption of common language. As Professor Honnold has noted, the provisions of Article 8 have "special significance for agreements that have not resulted from detailed negotiations."[1] Uncomplicated sales of goods, where no formalized contractual documents are produced are quite common, but more complex transactions interweaving sales with support services are quite important.[2] The UNIDROIT Principles' focus is broader than simple sales and provides explicit guidance for the interpretation of contracts and not merely for the interpretation of individual communications. It thus fills a wide gap in the CISG text.

b. Article 4.1 of the Principles talks in terms of the interpretation of "contracts." It starts with a subjective notion. If the parties have a common intention, the common intention will prevail. This, on the face of it, is the same rule that has been adopted by the American Restatement,[3] but the common law objectifies intention by erecting barriers to evidence of what the parties really intended as opposed to what they said or wrote.[4] The Principles, however, disclaims any limitation on evidence of the parties' intentions.[5]

c. If the common intention of the parties cannot be determined, the Principles would apply an objective test to determine the meaning of the contract. Once again the Principles fill in a gap as the CISG is silent on the question of interpreting the joint intention of the parties. The objective test is that the interpretation should be the "meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances."[6]

d. CISG has rules concerning the interpretation of the statements and other conducts of individual parties. Article 4.2 of the Principles, except for stylistic changes, is identical to Article 8(1), and 8(2) of CISG. The primary standard is the subjective intention of the party whose statement or conduct is in issue, provided, however, that the other party knows or should know of that intent. If that standard cannot be attained, for example, the other party had no reason to know the first party's intent, then the standard is that of the reasonable person in the position of the other party.

e. Article 8(3) of CISG requires that "due consideration is to be given to all relevant circumstances of the case including the negotiations. . . ."[7] The Principles echo this rule. According to the Principles, the interpretation process must take into account "the preliminary negotiations between the parties."[8]

f. Can a merger clause change this result? According to CISG Article 6, the parties are free by agreement to vary (with one minor exception ) the effect of any provision of the Convention.[9] Thus, a merger clause that explicitly barred evidence of negotiations would be effective by virtue of Article 6. While the Principles recognize the validity of a merger clause that indicates that the writing is totally integrated, they state that a merger clause does not bar evidence of prior statements of agreements for purposes of interpreting the writing.[10] This statement appears to conflict with CISG. However, because of the principle of party autonomy that underlies the Principles, it certainly leaves open the possibility of effectively drafting a clause that expressly prohibits the parties from introducing such evidence for any purpose, including for interpretation.[11] However, the standard merger clause that states that there are no other understandings between the parties is unlikely to bar evidence of parol evidence for purposes of interpretation. Drafters of contracts should be aware of the narrow effect that a court is likely to give to a merger clause if CISG applies to the case,[12] particularly in the light of the hostility toward barriers to the introduction of evidence of the negotiations shown by its companion, the Principles.

g. One aspect of the parol evidence rule concerns the admissibility of supplementary or inconsistent terms in the face of an integrated writing. Absent a merger clause, do CISG or the Principles permit the admission of such terms in contexts where the common law would exclude them? While this question goes more to the issue of the content of the contract rather than its meaning, it is usually analyzed in the same framework as issues of interpretation. The answer is that both documents are parol-evidence friendly. Neither CISG nor the Principles contain any rule that bars evidence of additional or conflicting terms akin to the common law's parol evidence rule.[13] Under CISG, all relevant evidence is admissible.[14] The same is true under the Principles. While CISG states this mostly in general terms, the Principles flesh this out in detail.

h. Article 4.3 of the Principles agrees with CISG and directs that the court consider "all the circumstances," but it goes beyond CISG and itemizes six non-exclusive kinds of relevant circumstance: (1) preliminary negotiations, (2) course of dealing, (3) course of performance, (4) the nature and purpose of the contract, (5) trade terms, (6) usages. These are familiar kinds of evidence offered in common law cases. The main difference is that there is no preliminary hurdle of ambiguity that many jurisdictions impose (in non-UCC cases) prior to the admission of evidence such as evidence of preliminary negotiations,[15] or course of performance.[16] The latter is freely admissible under the UCC as is evidence of trade usage and course of dealing.[17]

i. Article 8 of CISG does not contain what the U.S. Restatement calls "rules in aid of interpretation and standards of preference." The Principles, however, lay down several such rules and thus provides food for the fleshing out of CISG. One rule is that words should be interpreted in the context of the whole contract or other document in which they appear.[18] Another is that specific provisions prevail over more general ones.[19] The contract, of course, can contain rules of interpretation, e.g., subordinating the terms of one document to that of another document that is part of one complex contract.[20] All terms of the contract are to be given effect.[21] Also, the Principles adopt the principle of contra proferentem -- interpretation against the party who supplied the language.[22] All of these rules are consistent with traditional approaches.

j. One rule the Principles promulgate deals with a problem seldom encountered in purely domestic contracts -- conflicts among versions of the contract in different languages. In the event of discrepancies, the Principles generally favor the version that was originally drawn up. CISG is silent on this important issue and the Principles advance the cause of certainty in international trade by providing a definite and logical rule.

k. The Principles announce a rule with respect to the vexing problem of the omitted term. Where no term of the contract covers an event that has occurred, the tribunal is faced with an omitted term.[23] Perhaps the event was unforeseen; perhaps it was foreseen as a possibility, but was too thorny an issue to be resolved by negotiation. Strictly, the supplying of a term is not interpretation of the parties' agreement. The court must create rather than interpret. However, some gap-fillers are routine and many are found in CISG, e.g., the buyer must notify the seller of any non-conformity of the goods within a reasonable time.[24] If the gap does not concern this kind of routine event, the Principles provide criteria for filling the gap.[25] Once again, the Principles identify raw material with which to fill the gap in CISG.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 48-51]


FOOTNOTES

* Alpin J. Cameron Professor of Law, Fordham University School of Law

1. John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention ¶ 105 p.163 (2d ed. 1991).

2. See, e.g., Advent Systems Ltd. v. Unisys Corp., 925 F.2d 670 (3d Cir.1991).

3. Restatement (Second) Contracts § 201(1) & Illus. 1, 3 (1979).

4. See John D. Calamari & Joseph M. Perillo, The Law of Contracts, ch.3 (3d ed 1987) (4th ed. forthcoming 1998).

5. See Principles Arts. 1..2, 4.3, & 2.17.

6. Principles Article 4.1(2). However, the commentary advises the court that the actual subjective common intention of the parties, and their reasonable understanding may be subordinated to the understanding of average users of "standard terms," as defined in Article 2.19. Principles Art. 4.1, comment 4.

7. See Honnold supra note 1, at 111.

8. Principles Art. 4.3(a).

9. The exception is Article 12, which provides that if a Contracting State makes a reservation under Article 96 and imposes writing or other form requirements on contracts., the parties cannot derogate from those requirements.

10. Principles Art. 2.17, final sentence.

11. Principles Arts. 1.1 & 1.5.

12. In an earlier article, I wrote: "As an apparent exception to the general rule of contractual freedom adopted by Principles, a merger clause cannot effectively bar parol evidence for the purpose of interpreting a writing." For this proposition, I cited Principles Article 2.17 and comment 3 to Article 4.3. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 Fordham L. Rev. 281, 291 (1994). This may have been the intent of the drafters of those provisions, but I have since reconsidered. That intent, if it exists, is overridden by Articles 1.1 & 1.5.

13. For an explanation of the absence of a reference to the parol evidence rule, see Honnold, supra note 1, at ¶ 110. Of course, the parol evidence rule is a rule of substantive law that has incidental evidentiary effects.

14. CISG Art. 8(3). It is unfortunate that an American case that was faced with this issue stumbled. In Beijing Metals & Minerals Import Corp. v. American Business Center, Inc., 993 F.2d 1178, 1182 n.8 (5th Cir.1993), the court without discussion or analysis applied the Texas parol evidence rule to bar evidence of an alleged additional oral term to a written contract governed by CISG. An earlier case had recognized the absence of a parol evidence rule in CISG. Filanto, S.p.A. v. Chilewich Intern. Corp., 789 F.Supp. 1229, 1238 n.7 (S.D.N.Y. 1992).

15. W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 566 N.E.2d 639, 565 N.Y.S.2d 440 (1990)

16. Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 966 (1993) (evidence of practical construction not admissible if the contract is unambiguous).

17. UCC § 2-202(a).

18. Principles Art. 4.4.

19. Principles Art. 4.4, comment 2,

20. Ibid.

21. Principles Art. 4.5.

22. Principles Art. 4.6.

23. Restatement (Second) of Contracts 204 (1979).

24. CISG Art. 39.

25. Principles Art. 4.8.


Official Comments on Articles of the UNIDROIT Principles cited

Comments reprinted with permission from UNIDROIT

 

ARTICLE 4.1

(Intention of the parties)

(1) A contract shall be interpreted according to the common intention of the parties.

(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

COMMENT

1. Common intention of the parties to prevail

Para. (1) of this article lays down the principle that in determining the meaning to be attached to the terms of a contract, preference is to be given to the intention common to the parties. In consequence, a contract term may be given a meaning which differs both from the literal sense of the language used and from the meaning which a reasonable person would attach to it, provided that such a different understanding was common to the parties at the time of the conclusion of the contract.

The practical importance of the principle should not be overestimated, first because parties to commercial transactions are unlikely to use language in a sense entirely different from that usually attached to it, and secondly because even if this were to be the case it would be extremely difficult, once a dispute arises, to prove that a particular meaning which one of the parties claims to have been their common intention was in fact shared by the other party at the time of the conclusion of the contract.

2. Recourse to the understanding of reasonable persons

For those cases where the common intention of the parties cannot be established, para. (2) provides that the contract shall be interpreted in accordance with the meaning which reasonable persons of the same kind as the parties would give to it in the same circumstances. The test is not a general and abstract criterion of reasonableness, but rather the understanding which could reasonably be expected of persons with, for example, the same linguistic knowledge, technical skill, or business experience as the parties.

3. How to establish the common intention of the parties or to determine the understanding of reasonable persons

In order to establish whether the parties had a common intention and, if so, what that common intention was, regard is to be had to all the relevant circumstances of the case, the most important of which are listed in Art. 4.3. The same applies to the determination of the understanding of reasonable persons when no common intention of the parties can be established.

4. Interpretation of standard terms

Both the "subjective" test laid down in para. (1) and the "reasonableness" test in para. (2) may not always be appropriate in the context of standard terms. Indeed, given their special nature and purpose, standard terms should be interpreted primarily in accordance with the reasonable expectations of their average users irrespective of the actual understanding which either of the parties to the contract concerned, or reasonable persons of the same kind as the parties, might have had. For the definition of "standard terms", see Art. 2. 19(2).

ARTICLE 4.2

(Interpretation of statements and other conduct)

(1) The statements and other conduct of a party shall be interpreted according to that party's intention if the other party knew or could not have been unaware of that intention.

(2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.

COMMENT

1. Interpretation of unilateral acts

By analogy to the criteria laid down in Art. 4.1 with respect to the contract as a whole, this article states that in the interpretation of unilateral statements or conduct preference is to be given to the intention of the party concerned, provided that the other party knew (or could not have been unaware) of that intention, and that in all other cases such statements or conduct 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.

In practice the principal field of application of this article, which corresponds almost literally to Art. 8(1) and (2) CISG, will be in the process of the formation of contracts where parties make statements and engage in conduct whose precise legal significance may have to be established in order to determine whether or not a contract is ultimately concluded. There are however also unilateral acts performed after the conclusion of the contract which may give rise to problems of interpretation: for example, a notification of defects in goods, notice of avoidance or of termination of the contract, etc.

2. How to establish the intention of the party performing the act or to determine the understanding of a reasonable person

In applying both the "subjective" test laid down in para. (1) and the "reasonableness" test in para. (2), regard is to be had to all the relevant circumstances, the most important of which are listed in Art.4.3.

ARTICLE 4.3

(Relevant circumstances)

In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including

(a) preliminary negotiations between the parties;

(b) practices which the parties have established between themselves;

(c) the conduct of the parties subsequent to the conclusion of the contract;

(d) the nature and purpose of the contract;

(e) the meaning commonly given to terms and expressions in the trade concerned;

(f) usages.

COMMENT

1. Circumstances relevant in the interpretation process

This article indicates circumstances which have to be taken into consideration when applying both the "subjective" test and the "reasonableness" test in Arts. 4.1 and 4.2. The list mentions only those circumstances which are the most important and is in no way intended to be exhaustive.

2. "Particular" and "general" circumstances compared

Of the circumstances listed in the present article some relate to the particular relationship which exists between the parties concerned, while others are of a more general character. Although in principle all the circumstances listed may be relevant in a given case, the first three are likely to have greater weight in the application of the "subjective" test.

Illustrations

1. A contract for the writing of a book between A and B, a publisher, indicates that the book should consist of "about 300 pages". During their negotiations B had assured A that an approximate indication of the number of pages was necessary for administrative reasons and that A was not bound to stick precisely to that number of pages, but could exceed it, substantially if need be. A submits a manuscript of 500 pages. In interpreting the meaning of "about 300 pages" due consideration should be given to these preliminary negotiations. See Art. 4.3(a).

2. A, a Canadian manufacturer, and B, a United States retailer, conclude a number of contracts for the delivery of optical lenses in which the price is always expressed in Canadian dollars. A makes B a new offer indicating the price in "dollars" without further specification, but intending to refer again to Canadian dollars. In the absence of any indication to the contrary, A's intention will prevail. See Art. 4.3(b).

The remaining circumstances listed in this article, i.e. the nature and purpose of the contract, the meaning commonly given to terms and expressions in a trade concerned and usages, are important primarily, although not exclusively, in the application of the "reasonableness" test.

The criteria in sub-paras. (e) and (f) may at first sight appear to overlap. There is however a difference between them: while the "usages" apply only if they meet the requirements laid down in Art.1.8, the "meaning commonly given [. . .] in the trade concerned" can be relevant even if it is peculiar to a trade sector to which only one, or even neither, party belongs, provided that the expression or term concerned is one which is typical in that trade sector.

Illustrations

3. A and B conclude a contract for the sale of a cargo of oil at US $20.5 per barrel. The parties subsequently disagree on the size of the barrel to which they had referred, A having intended a barrel of 42 standard gallons and B one of 36 Imperial gallons. In the absence of any indications to the contrary, A's understanding prevails, since in the international oil trade it is a usage to measure barrels in standard gallons. See Art. 4.3(f)

4. A, a shipowner, concludes a charterparty agreement with B for the carriage of grain containing the standard term "whether in berth or not" with respect to the commencement of the lay-time of the ship after its reaching the port of destination. When it subsequently emerges that the parties attached different meanings to the term, preference should, in the absence of any indication to the contrary, be given to the meaning commonly attached to it in the shipping trade since the term is typical in the shipping trade. See Art. 4.3(e).

3. "Merger" clauses

Parties to international commercial transactions frequently include a provision indicating that the contract document completely embodies the terms on which they have agreed. For the effect of these so-called "merger" or "integration" clauses, in particular whether and to what extent they exclude the relevance of preliminary negotiations between the parties, albeit only for the purpose of the interpretation of the contract, see Art. 2.17.

ARTICLE 4.4

(Reference to contract or statement as a whole)

Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear.

COMMENT

1. Interpretation in the light of the whole contract or statement

Terms and expressions used by one or both parties are clearly not intended to operate in isolation but have to be seen as an integral part of their general context. In consequence they should be interpreted in the light of the whole contract or statement in which they appear.

Illustration

A, a licensee, hears that, despite a provision in their contract granting A an exclusive licence, B, the licensor, has concluded a similar contract with C, one of A's competitors. A sends B a letter complaining of B's breach and ending with the words "your behaviour has clearly demonstrated that it was a mistake on our part to rely on your professional correctness. We hereby avoid the contract we have with you". Despite the use of the term "avoid", A's words interpreted in the light of the letter as a whole, must be understood as a notice of termination.

2. In principle no hierarchy among contract terms

In principle there is no hierarchy among contract terms, in the sense that their respective importance for the interpretation of the remaining part of the contract is the same regardless of the order in which they appear. There are, however, exceptions to this rule. First, declarations of intent made in the preamble may or may not be of relevance for the interpretation of the operative provisions of the contract. Secondly, it goes without saying that, in cases of conflict, provisions of a specific character prevail over provisions laying down more general rules. Finally, the parties may themselves expressly establish a hierarchy among the different provisions or parts of their contract. This is frequently the case with complex agreements consisting of different documents relating to the legal, economic and technical aspects of the transaction.

ARTICLE 4.5

(All terms to be given effect)

Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.

COMMENT

It is to be expected that when drafting their contract parties do not use words to no purpose. It is for this reason that this article lays down the rule that unclear contract terms should be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.The rule however comes into play only if the terms in question remain unclear notwithstanding the application of the basic rules of interpretation laid down in Arts. 4.1 - 4.3.

Illustration

A, a commercial television network, enters into an agreement with B, a film distributor, for the periodic supply of a certain number of films to be transmitted on A's network in the afternoon, when only those films that are admissible for all viewers may be transmitted. According to the contract the films submitted must "have passed the admission test" of the competent censorship commission. A dispute arises between A and B as to the meaning of this term. B maintains that it implies only that the films must have been released for circulation, even if they are X-rated, while A insists that they must have been classified as admissible for everybody. If it is not possible otherwise to establish the meaning to be attached to the term in question, A's understanding prevails since B's interpretation would deprive the provision of any effect.

ARTICLE 4.6

(Contra proferentem rule)

If contract terms supplied by one party are unclear, an interpretation against that party is preferred.

COMMENT

A party may be responsible for the formulation of a particular contract term, either because that party has drafted it or otherwise supplied it, for example, by using standard terms prepared by others. Such a party should bear the risk of possible lack of clarity of the formulation chosen. It is for this reason that the present article states that if contract terms supplied by one party are unclear, there is a preference for their interpretation against that party. The extent to which this rule applies will depend on the circumstances of the case; the less the contract term in question was the subject of further negotiations between the parties, the greater the justification for interpreting it against the party who included it in the contract.

Illustration

A contract between A, a contractor, and B for the construction of an industrial plant contains a provision drafted by A and not discussed further stating that "[t]he Contractor shall be liable for and shall indemnify the Purchaser for all losses, expenses and claims in respect of any loss of or damage to physical property (other than the works), death or personal injury caused by negligence of the Contractor, its employees and agents". One of A's employees plays around with some of B's equipment after working hours and damages it. A denies liability, contending that the provision in question covers only cases where A's employees act within the scope of their employment. In the absence of any indication to the contrary, the provision will be interpreted in the manner which is less favourable to A, i.e. as also covering cases where his employees are not acting within the scope of their employment.

ARTICLE 4.7

(Linguistic discrepancies)

Where a contract is drawn up in two or more language versions which are equally authoritative there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up.

COMMENT

International commercial contracts are often drawn up in two or more language versions which may diverge on specific points. Sometimes the parties expressly indicate which version shall prevail. If all versions are equally authoritative the question arises of how possible discrepancies should be dealt with. The present article does not lay down a hard and fast rule, but merely indicates that preference should be given to the version in which the contract was originally drawn up or, should it have been drawn up in more than one original language version, to one of those versions.

Illustration

1. A and B, neither of them native English speakers, negotiate and draw up a contract in English before translating it into their respective languages. The parties agree that all three versions are equally authoritative. In case of divergencies between the texts, the English version will prevail unless circumstances indicate the contrary.

A situation where a different solution may be preferable could arise where the parties have contracted on the basis of internationally and widely known instruments such as INCOTERMS or the Uniform Customs and Practices on Documentary Credits. In case of divergencies between the different versions used by the parties it maybe preferable to refer to yet another version if that version is much clearer than the ones used.

Illustration

2. A contract between a Mexican and a Swedish company drawn up in three equally authoritative versions, Spanish, Swedish and English, contains a reference to INCOTERMS 1990. If the French version of INCOTERMS is much clearer than the other three on a point in dispute, that version might be referred to.

ARTICLE 4.8

(Supplying an omitted term)

(1) Where the parties to a contract have not agreed with respect to a term which is important for a determination of their rights and duties, a term which is appropriate in the circumstances shall be supplied.

(2) In determining what is an appropriate term regard shall be had, among other factors, to

(a) the intention of the parties;

(b) the nature and purpose of the contract;

(c) good faith and fair dealing;

(d) reasonableness.

COMMENT

1. Supplying of omitted terms and interpretation

Articles 4.1 - 4.7 deal with the interpretation of contracts in the strict sense, i.e. with the determination of the meaning which should be given to contract terms which are unclear. This article addresses a different though related issue, namely that of the supplying of omitted terms. Omitted terms or gaps occur when, after the conclusion of the contract, a question arises which the parties have not regulated in their contract at all, either because they preferred not to deal with it or simply because they did not foresee it.

2. When omitted terms are to be supplied

In many cases of omitted terms or gaps in the contract the Principles will themselves provide a solution to the issue. See, for example, Arts. 5.6, (Determination of quality of performance), 5.7 (Price determination), 6.1.1 (Time of performance), 6.1.4 (Order of performance), 6.1.6 (Place of performance) and 6.1.10 (Currency not expressed). See also, in general, Art. 5.2 on implied obligations. However, even when there are such suppletive, or "stop-gap", rules of a general character they may not be applicable in a given case because they would not provide a solution appropriate in the circumstances in view of the expectations of the parties or the special nature of the contract. This article then applies.

3. Criteria for the supplying of omitted terms

The terms supplied under the present article must be appropriate to the circumstances of the case. In order to determine what is appropriate, regard is first of all to be had to the intention of the parties as inferred from, among other factors, the terms expressly stated in the contract, prior negotiations or any conduct subsequent to the conclusion of the contract.

Illustration

1. The parties to a construction contract agree on a special interest rate to be paid by the purchaser in the event of delay in payment of the price. Before the beginning of the work, the parties decide to terminate the contract. When the constructor delays restitution of the advance payment the question arises of the applicable interest rate. In the absence of an express term in the contract dealing with this question, the circumstances may make it appropriate to apply the special interest rate agreed for delay in payment of the price by the purchaser also to delay in restitution by the constructor.

If the intention of the parties cannot be ascertained, the term to be supplied may be determined in accordance with the nature and purpose of the contract, and the principles of good faith and fair dealing and reasonableness.

Illustration

2. A distribution franchise agreement provides that the franchisee may not engage in any similar business for a year after the termination of the agreement. Although the agreement is silent on the territorial scope of this prohibition, it is, in view of the particular nature and purpose of a franchise agreement, appropriate that the prohibition be restricted to the territory where the franchisee had exploited the franchise.


Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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