[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.
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.
Official Comments on Articles of the UNIDROIT Principles
cited
Pace
Law School Institute of International Commercial Law - Last updated January 5, 2007
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