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Reproduced with permission from 8 Journal of Law and Commerce (1988) 11-51

excerpt from

An Essay on the Formation of Contracts and Related Matters under the United Nations Convention on Contracts for the International Sale of Goods

John E. Murray, Jr. [*]

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CISG and the Parol Evidence Rule

Assume that the buyer and seller of equipment are about to sign a negotiated and detailed document evidencing their agreement when the buyer asks if the described equipment will meet certain specifications not mentioned in the writing that otherwise contains detailed specifications. After receiving the seller's assurance that the equipment will meet those unwritten specifications, the buyer and seller sign the document. Later, it is clear that the equipment fails to meet the specifications which were the subject of the parties' oral agreement prior to the execution of the writing. Under either the common law or Uniform Commercial Code parol evidence process, the evidence would be excluded. The alleged extrinsic agreement is one that parties, situated as were the parties to this contract, would naturally and normally include in the writing and the evidence would, therefore, be excluded under the Williston/First Restatement test. The evidence would also be excluded under the UCC test that would prevent the admission of such a prior agreement if it "would certainly" have been included in the writing by such parties.[149] CISG rejects the parol evidence rule in the most frugal terms.

Article 8(3) may only appear to emphasize the relevant circumstances to be considered in determining the intention of the parties or the understanding a reasonable person would have under the circumstances. American lawyers will immediately recognize prior course of dealing, trade usage and course of performance in the garb of "practices which the parties have established between themselves, usages and any subsequent conduct of the parties." Just prior to this listing, however, a powerful phrase eliminates any concern over parol evidence: "[D]ue consideration is to be given to all relevant circumstances of the case including the negotiations . . . of the parties."[150] Notwithstanding considerable criticism of the parol evidence rule from abroad,[151] the rule continues to permeate the contract law of the United States. Professor Corbin would have shed no tears at its demise in this country,[152] but it is contained, in liberalized fashion, in the Uniform Commercial Code and seems to thrive with respect to contracts other than those for the sale of goods to which the Code does not apply. Civil law countries have often managed without it[153] or have been willing to apply it sparingly.[154]

Parties to contracts subject to the common law or the UCC often insert a "merger" ("integration" or "zipper") clause in the writing evidencing their contract to provide an express manifestation of their intention that their writing constitutes the sole and exclusive (complete and final) statement of their agreement. Suppose the parties to a contract governed by CISG include such a clause. Does the insertion of a merger clause serve to incorporate the entire parol evidence process in any litigation over that contract? Professor Honnold suggests that such a clause may have that effect.[155] Since there is continuing doubt concerning implied derogation of CISG terms under Article 6,[156] the typical merger clause familiar to American lawyers may be insufficient for this purpose. At least some explicit reference to the parties' intention to derogate from Article 8(3) through Article 6 would provide a safer course. Moreover, since the parol evidence process is unfamiliar to jurists in countries that are now or will be subject to CISG, it may also be desirable to include an express reference to the UCC parol evidence process, i.e., UCC 2-202, in a CISG merger clause. Since the UCC parol evidence rule expressly permits evidence of course of dealing, usage of trade and course of performance,[157] it is not inconsistent with other parts of Article 8(3) of CISG discussed earlier in this section. Notwithstanding the criticisms of the parol evidence rule, it is clear that parties are often eager to emphasize their intention that the document they have signed should be the sole and exclusive manifestation of their agreement. A carefully drafted merger clause, therefore, becomes critically important under CISG if the parties do not intend to be bound by favorable or even accurate recollections of their negotiations prior to the execution of the final and complete writing evidencing their contract.

Interpretations -- Objectives vs. Subjective Manifestations

We have just explored Article 8(3) of CISG which, except for the rejection of any parol evidence concept, contains familiar rules of interpretation, i.e., all relevant circumstances will be considered in determining the intention of the parties including trade usage, prior course of dealing and course of performance. Article 8(2) applies another familiar concept, i.e., statements or conduct of a party are to be interpreted according to the understanding a reasonable person would have had under the circumstances.[158] But Article 8(2) applies only "[i]f the preceding paragraph is not applicable. . . ." That preceding paragraph, Article 8(1), may create confusion for a common lawyer: "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 of what that intent was."[159]

If it is the actual intent of the party responsible for the statement or conduct that must be discerned, common lawyers long ago discarded any attempt to discover the subjective intent of any party to the contract. Though the unfortunate phrase "meeting of the minds" may appear even in current judicial opinions, there is no doubt that the phrase must be understood as requiring only an objective manifestation of assent, as any month old student of contract law in the United States knows. Article 8(1), however, does not require a return to some "will" theory of contract law. Rather, the intent of the party responsible for the statement or conduct is the controlling standard only "where the other party knew or could not have been unaware of what that intent was." American lawyers learn early on that the objective test fails only where there is no preponderance of objective evidence favoring one interpretation over another. The rare and famous example is Raffles v. Wichelhaus[160] where the parties agreed to buy and sell cotton to arrive on the ship "Peerless". There were two ships named Peerless, apparently unknown to either party. From that case, the familiar incantation, now appearing in the Second Restatement, was first uttered: Where neither or both parties are aware of the latent ambiguity, there is no contract; where one party knows of a different meaning attached by the other and the other party does not know of a different meaning attached by the other, there is a contract according to the unknowing, innocent party.[161] Article 8(1) would certainly appear applicable to a "Peerless" situation. It may also be applicable, however, to other situations which are relatively rare in United States contracts case law. If, for example, an offer contains a mistake of which the other party has reason to know, the offeree may not "snap up" the offer.[162] If the offeror misspeaks and by that slip of the tongue makes an offer that the other party must have understood as mistaken because that party knew the true intention of the offeror, there is no power of acceptance for that which the offeree knew to be mistaken.[163] These situations would appear to fall within the "subjective" standard of interpretation envisioned by Article 8(1).

While the standard of Article 8(1) is characterized as "subjective,"[164] Article 8(3) indicates that the "intent of a party" requires that due consideration be given to all relevant circumstances of the case including negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. This subsection may superficially appear to apply only to "the understanding of a reasonable person" because it follows the "objective" standard of Article 8(2) which states the objective test, i.e., the understanding of a reasonable person. Article 8(2) expressly applies where 8(1) is not applicable. Article 8(3) expressly refers to the understanding of a reasonable person. What may be overlooked, however, is that 8(3) applies to both the understanding of a reasonable person and the intent of a party.[165] Thus, even if the situation requires the application of 8(1) ("statements by and other conduct of a party are to be interpreted according to his intent"), the "intent" of that party will be considered in the context of all relevant circumstances. Thus, there is an "objective" overlay to the "subjective" standard of Article 8(1).

Finally, it is important to reiterate the difference between 8(1) and 8(2). The "intent of the party" will be the standard of interpretation of statements or conduct by that party only "where the other party knew or could not have been unaware what that intent was." Since the situations will be rare in which the quoted condition is met, the general standard of interpretation will be "the understanding that a reasonable person would have had in the same circumstances," i.e., the Article 8(2) standard. Article 8(3), again, elaborates the "reasonable person" standard of 8(2) and also overlays the "intent of the party" test in 8(1). Since 8(1) will be applied only in rare situations, however, 8(3) will be used primarily to elaborate the reasonable person standard of 8(2), a standard quite familiar to American lawyers.

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Go to entire text of Murray commentary


FOOTNOTES

* University Distinguished Service Professor of Law, University of Pittsburgh, School of Law.

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149. The U.C.C. test is found in Comment 3 to 2-202 and is more liberal than the common law, Williston/First Restatement test. See the comparison between the tests in the well-known opinion by Justice Traynor, Masteron v. Sine, 65 Cal. Rptr. 545, 436 P.2d 561 (1968). For an analysis of the incorporation of the U.C.C. test, among others, in the Second Restatement of Contracts, See Murray, The Parol Evidence Process and Standardized Agreements Under the Restatement, Second, Contracts, 123 U. Pa. L. Rev. 1342 (1975).

150. See CISG, supra note 7, art. 8(3) (emphasis added). Professor Honnold emphasizes that portion of the quoted phrase, " all relevant circumstances." Honnold, supra note 22, at 142. The more specific phrase, "including the negotiations", however, clearly addresses the parol evidence issue.

151. Professor Honnold notes that the English Law Revision Commission has recommended abolition of the parol evidence rule, Law Commission, Working Paper No. 70, Law of Contract, the Parol Evidence Rule (1976) in Honnold, supra note 22, at 143.

152. The view of Professor Corbin on the parol evidence process are found throughout the article by Murray, supra note 149. Professor Honnold suggests "a growing body of opinion that the 'parol evidence rule' has been an embarrassment for the administration of modern transactions." Honnold, supra note 22, at 143.

153. There is no parol evidence rule in German law.

154. In France, the parol evidence rule does not apply to commercial contracts.

155. Honnold, supra note 22, at 142.

156. See supra note 55 and accompanying text.

157. See U.C.C. 2-202(a) (1978) referring to course of dealimg or usage of trade in 1-205 and course of performance in 2-208.

158. See, e.g., Barnes v. Treece, 15 Wash. App. 437, 549 P.2d 1152 (1976) applying the reasonable person test to determine whether a statement was made in jest. See also the well-known statement of Judge Learned Hand in New York Trust Co. v. Island Oil & Transport Corp., 34 F.2d 655, 656 (2d Cir. 1929): "The standard is what a normally constituted person would have understood [words] to mean when used in their actual setting."

159. See CISG, supra note 7, art. 8(1).

160. 2 H. & C. 906 (1864).

161. See Restatement (Second) of Contracts 20 (1981).

162. See Tyra v. Cheney, 129 Minn. 428, 430, 152 N.W. 835 (1915); Geremia v. Boyarsky, 107 Conn. 387, 140 A. 749 (1928). See also Restatement (Second) of Contracts 153(b) (1981).

163. The First and Second Restatement of Contracts contain the following hypothetical: "A says to B, 'I offer to sell you my horse for $100.' B, knowing that A intends to offer to sell his cow for that price, not his horse, and that the word 'horse' is a slip of the tongue, replies, 'I accept.'" Restatement (First) of Contracts 71 illust. 2 (1932); Restatement (Second) of Contracts 20 illust. 5 (1981). Neither Restatement finds a contract for the sale of the horse. The first Restatement also finds no contract for the sale of the cow, but the Second Restatement concludes that there is a contract for the sale of the cow.

164. Honnold, supra note 22, at 137-38.

165. Article 8(3) begins: "In determining the intent of a party or the understanding a reasonable person would have had. . . ." See CISG, supra note 7, art. 8(3).

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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