Reproduced with permission from 15 Journal of Law and Commerce (1995)175-199

• Preliminary application of private international law

• Divided views on acceptance and counter-offer

• The price

The Preliminary Application of Private InternationalLaw

In the majority of cases applying the CISG, the CISG is reached throughthe preliminary application of international law. This is of particular interestin light of the fact that Article 1(1)(b) was the subject of much controversy,leading the drafters to decide to permit Contracting States to opt out of it.[6]

Witz confronts the problem of courts inappropriately applying or failingto apply the CISG, as where (1) a German court failed to apply the CISG in a1989 case[LG Bielfeld 23 June1989],[7] applying instead the 1964 Hague Convention relating to aUniform Law on the International Sale of Goods, despite theCISG's having replaced that Convention at the time the contract wasconcluded[8] (p. 25); (2) another German court in a 1993 case [OLG Düsseldorf 2 July1993] [9] incorrectly applied the CISG to a dispute involving a U.S.seller and a German buyer, simply ignoring the fact that the U.S. has opted outof Article 1(1)(b), precluding a legitimate application of the CISG by way ofprivate international law (p. 25 ); and (3) the Paris Court of Appeals in 1992[Cour d'appel de Paris 22 April1992] [10] erroneously applied the CISG where private internationallaw led to its application, but where the parties did not have their places ofbusiness in different states. The court thus ignored the preliminary conditionof different states set forth in the first sentence of Article 1 (pp.28-31).

While the failure to apply and the inappropriate application of the CISGproduce undesirable precedents, they do not present conceptual difficulties. More complicated is the situation, also arising under Article 1(1)(b), in which anaction is brought in a country whose conflicts of laws rules designate the lawof a CISG Contracting State, but where thelatter's private international law would require the court to apply the lawof a country which has not ratified, and therefore would not apply, the CISG. Witz suggests that judges in Contracting States should not apply the national lawof a non-Contracting State in such cases, on the ground that CISG Article1(1)(b) refers to substantive law, to the exclusion of conflicts of laws rules (pp.26-29).[11]

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6. No European state has opted out of the provision,although both the United States and China have (p. 24 n.1).

7. LG Bielefeld, 23-06-1989, IPRax 1990, 316.

8. The Convention relating to a Uniform Law on theInternational Sale of Goods was appended to international conventions adopted at TheHague in 1964 [hereinafter "ULIS"], and was superseded by the CISG. See Peter Winship, The U.N. Sales Convention: A Bibliography ofEnglish-Language Publications, 28Int'l Law. 401, 403 (1994).

9. OLG Düsseldorf, 02-07-1993, RIW 1993, 845 etseq., EWIR 1993, 1075 et seq., obs. P. Schlechtriem.

10. Paris, 22-04-1992. The English translation of thiscase, along with the English translation of an extensive commentary of the caseby Witz, will appear in Volume 16, Issue 1 of this journal.

11. In support of this argument, Witz cites the CISGdrafters' wish to confer the widest possible scope to Article 1 §1(b), as well as the view that unification of the law precludes the application ofthe law of non-Contracting States (p. 29).

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Divided Views on Acceptance and Counter-offer

While Article 19 has not given rise to many court decisions, it has beenthe subject of some controversy. In a 1992 case, the Paris Court of Appealsadjudicated a situation in which a French company had ordered electronic componentsfrom a German company at a price previously indicated by the supplier, butwhich was to be subject to revision in light of a drop in the market[Cour d'appel de Paris 22 April1992]. [31] On receiving the order, the German company confirmedits receipt, stated in writing that the prices were subject to modification inaccordance with either a rise or fall in the market, but signaled that it could notproceed with the order at the present time, and that it would inform the buyeras soon as it was able to accept the first orders. After an ensuing telephoneconversation, the German company sent a telex to the buyer, modifying the orderwith respect to price and amount of goods to be delivered per shipment. Twoweeks later, the French company modified the order yet again. Five days later, theGerman company declared that it could not accept the last modification withrespect to short-term deliveries.

Relying on Article 19, the French company claimed that no contract hadbeen formed, but the court interpreted the first letter from the German company,confirming receipt of the order, as an acceptance of an offer, reasoning that thenew terms set forth by the German company did not materially alter the terms ofthe order.[32]

Witz criticizes the court's opinion for ignoring Article 19(3) whichwould appear to support the French company: "Additional or different termsrelating, among other things, to the price, payment, quality and quantity of thegoods, place and time of delivery, extent of oneparty's liability to the other or the settlement of disputes are consideredto alter the terms of the offer materially." Witz notes that the trueissue of interest is whether Article19(3)'s presumption of material alteration is of a rebuttable orirrebuttable nature, a question which the court ignored by resolving the issue by referenceto Article 19(2).[33] Witz laments the court's opinion, not for the resultreached, but for thecourt's failure to take more seriously its duties as internationalprecedent-maker. (p. 61).

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31. [Paris 22-04-1992].

32. Article 19(2) provides that

a reply to an offer which purports to be an acceptance butcontains additional ordifferent terms which do not materially alter the terms of the offerconstitutesan acceptance, unless the offeror, without undue delay, objects orally tothediscrepancy or dispatches a notice to that effect. If he does not soobject, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

The French CISG uses "sustantiellement" whereas theEnglish uses "materially." Thus, in its own words, the Paris Courtof Appeals held that the contract terms had not been alteredsubstantiellement by the Germancompany's reply.

33. Witz favors the view that the presumption isrebuttable (p. 60).

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Witz limits his discussion of whether a determinable price is a conditionof an offer to an analysis of the Hungarian case, Pratt & Whitney v.Malev,[34] which dealt with that issue. Witz notes in this contextthat in another case brought in Hungary, the court resolved the issue byreference to Article 9(1) (p. 62)[FovárosiBiróság 24 March 1992]. [35] In that case, by taking into account the parties'former usage, the court found that the parties did fix the quantity, quality andprice of the goods, notwithstanding theircontract's silence. Witz concludes that Article 9 section 1 thus allows forflexibility in the application of Article 14 (p. 63).

Witz's criticism of the Malev case is in keeping with criticismwhich appeared in an earlier volume of this journal.[36] Malev involved negotiations between Pratt &Whitney, the U.S. manufacturer of airplane engines, and Malev, a Hungariancompany. Malev wanted to buy engines for, inter alia, use in planes it intended tobuy from Airbus or Boeing. Malevengaged in simultaneous negotiations with Airbus, Boeing and Pratt &Whitney. The type of engines it would need from Pratt & Whitney would dependon whoseCompanies' planes it would buy. On November 9, 1990, Pratt & Whitneyproposed an engine denominated PW4056 if Malev were to buy Boeing planes, and anengine denominated PW4156/A if Malev were to buy Airbus planes. On December 14,1990, Pratt & Whitney gave Malev a document entitled "PurchaseAgreement," consisting of an offer to sell engines for two planes with an option tobuy a third engine in case it bought a third plane; an offer to sell a spareengine, with an option to acquire an additional such engine. The price variedaccording to the kind of plane. The "Purchase Agreement" specifiedprices for the spare engines and for Airbus jet engine systems, but specified onlythe price of spare engines for the Boeing system. The offer also specified thatMalev's acceptance depended on the agreement of the Hungarian and United Statesgovernments. Additionally, it contained an expiration date for the offer.

On December 21, Pratt & Whitney added another model of engine for theBoeing planes, without specifying a price. Both companies drafted a letter onthat day, stating that Malev had chosen the engines from the PW4000 series. Theletter expressly stated that it was an acceptance of the offer of December 14. It was signed by the CEO of Malev and telecopied to Pratt &Whitney's Vice-President. On March 25, however, Malev informed Pratt &Whitney in writing that it would not purchase the PW4000 engines. Pratt &Whitney, relying on the agreement of December 21, declared that Malev had anobligation to notify Boeing of its choice of Pratt & Whitney engines withoutdelay, and to make its decision public.

When Malev did not accede to this demand, Pratt & Whitney brought anaction against Malev in Budapest, requesting the court to hold that Malev waslegally bound by a valid contract and that Malev was in breach of contract. Malevargued that the offer had been ineffective for lack of definiteness, that Pratt&Whitney's proposal had not stated an intent to be bound, and that the letterof December 21 had not been an acceptance, but, rather, a statement of anintent to be bound at a later date (pp. 63-65).

The lower court ruled in favor of Pratt & Whitney [FovárosiBiróság 10 January 1992], holding that the parties hadformed a valid contract pursuant to the CISG. Pratt & Whitney originally hadrelied on the laws of Connecticut, and it was Malev which argued that the CISGgoverned.[37] Pratt & Whitney subsequently conceded that the CISGgoverned.

The Hungarian lower court reasoned that the proposal of December 14constituted an offer because it satisfied the conditions of Article 14. The courtrejected thedefendant's argument that the proposal violated Article 14 section 1 byfailing to specify a definite price. The court found sufficient specificationbecause Pratt & Whitney had given a price for each of the three series ofengines. The court further found thatMalev's letter of December 21 constituted an acceptance. The court deemedthatMalev's request that its acceptance remain confidential until the partiescould make a joint public announcement did not contradict the existence of alegally binding acceptance, and, more specifically, did not contradict theplaintiff's offer, according to which the buyer was to authorize the sellerto have an announcement in the press appear.

Witz's approval of the lower court opinion is not without qualification,however, with respect to thecourt's failure to refer to Article 8 when analyzing the clause requiringthe approval of the Hungarian and United States governments (p. 66).[38] Instead, the court referred to Article 23, whichprovides that "[a] contract is concluded at the moment when an acceptance of anoffer becomes effective in accordance with the provisions of thisConvention."

Witz surmises that the Hungarian judges were aware that Article 23,dealing exclusively with contract formation, was not relevant to the issue before thecourt, since the court later referred to the Hungarian Civil Code with respectto conditions, stating that the CISG has similar provisions (p. 66). The judgesthen apparently proceeded to try to interpret the condition in accordance withthe CISG, pursuant to which the point of departure is that an agreement isdeemed to have been concluded in accordance with the relevant provisions of the CISGwhen the acceptance of an offer takes effect, i.e., when the offerorreceives notice of the acceptance (Art. 18(2)). Witz signals that, once again, thejudges appeared to confuse issues as to the date of contract formation withissues concerning the effective date of contractual obligations, which can besubject to conditions (p. 66). Witz further notes that Article23's irrelevance in this context was confirmed by the interpretation of theHungarian judges relative to identifying theplaintiff's intent, i.e., that Pratt & Whitney had foreseen theneed for the Hungariangovernment's approval, not to make the conclusion of the contract dependentthereon, but rather to avoid a possible violation of Hungarian law.

The lower court's decision was reversed by the Supreme Court of Hungary[LegfelsobbBiróság 22 September 1992]. [39] The Supreme Court held that Pratt & Whitney had notmet Article 14 section1's requirement of definiteness with respect to prices, and that the"Purchase Agreement" did not constitute an offer. The Court also made clearthat it would not have deemed Malev bound even if it had found the"Purchase Agreement" to qualify as an offer, for the Court agreed withMalev's argument that the Hungarian company had never given an acceptance,but, rather, only a statement of intent to conclude a contract at a laterdate.

Witz criticizes the Hungarian Supreme Court for making no reference toArticle 8, pursuant to which theparties' intent should have been examined (p. 67). Witz finds the Court'sopinion less than straightforward inasmuch as the central issue before it wasnot, as the Hungarian HighCourt's opinion would suggest, whether the price was sufficiently definite. The real issue was the legal scope of the contract (p. 68). He notes that theradically different analytical approaches to analyzing the case on the part ofthe lower and high courts give one cause for reflection.[40]

A French court of appeals rendered another disappointing opinion in acase involving a buyer who tried to avoid a contract by claiming that Frenchdomestic sales law applied, rather than the CISG[Cour d'appel de Paris 22 April1992]. [41] In that case, the contract specified a price which wasto be subject to modification, depending on a rise or fall in the market. SinceFrench national law deems contract clauses void if they leave the price up toone of the parties, the buyer argued that French law applied by way of CISGArticle 4. The Paris Court of Appeals did not address directly the issue of howFrench national law compared to the CISG with respect to the price.

The court initially seemed to agree with the buyer, but, in itsdiscussion of theparties' intent, concluded that the parties' agreement as to a possibleprice modification, due to a rise or fall in the market, did not render the priceindeterminable. Witz criticizes the court for its failure to indicate whether itfound that the price was determinable pursuant to French national law or toArticle 14 of the CISG (p. 69).

France's highest court similarly did not address the jurisprudentialissue, holding that, in the absence of an agreement as to the existence of a rise orfall in the market, the buyer had accepted to be bound to the price initiallyagreed upon, and in fact billed[Cour de Cassation 4 January1995]. [42] Witz regrets the court's lost opportunity to rule onceand for all that French internal law with respect to price is inapplicable tosales governed by the CISG, and thatFrance's more stringent internal laws do not in any way vitiate theexistence of a valid offer pursuant to the CISG, provided that, pursuant to Article 14,the "proposal . . . expressly or implicitly fixes or makes provision fordetermining the . . . price" (p. 70).

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34. For an English-language translation of Malev,see 13 J.L. & Com. 49 (1993).

35. The case was FövárosiBíróság Budapest, 24-03-1992. Unilex 1995, introduced by Alexander Vida,IPRax 193, 263-264.

Pursuant to Article 9 § 1, "[t]he parties are bound by anyusages to which they have agreed and by any practices which they have establishedbetween themselves."

36. See Paul Amato, U.N. Convention on Contracts forthe International Sale of Goods-- The Open Price Term and Uniform Application: An Early Interpretation bythe Hungarian Courts, 13 J.L. & Com. 1 (1993).

37. The CISG had been ratified by both Hungary and theUnited States.

38. Article 8 provides as follows:

39. Legfelsöbb Bíróság,25-09-1992. . .

40. In Derridaean terms, the irreconcilable perspectivesof the two Hungarian courts would signal a textual point of rupture calling foran analysis capable of exposing an unexpressed dynamic. Without wanting toengage in a full-scale deconstructionist analysis here, one can see in theHungarian SupremeCourt's omission of any reference to Article 8, combined with a progressionfrom (1) reasoning that there was no offer; to (2) reasoning as if there were anoffer, but no acceptance, that the opinion becomes comprehensible as a unifiedtext only if seen as motivated primarily by considerations other thanadjudicating pursuant to the relevant sources of law. TheCourt's primary motive, on closer analysis, appears to be to find in favorof the Hungarian defendant, and only secondarily to establish connections oflogic between the ultimate findings and the CISG. The paradoxes of the SupremeCourt opinion are more salient still when viewed in juxtaposition with the disparatemode of reasoning of the lower court, and in all light of CISG Article 65,which, as Witz points out, explicitly envisages valid contracts which call for thebuyer "to specify the form, measurement or other feature of the goods . . ." (p. 68). For the uses of deconstruction as a method for unearthingunarticulated messages in legal discourse, see, e.g., Vivian Grosswald Curran,Deconstruction, Structuralism, Antisemitism and the Law, 36 B.C. L. Rev. 1(1994).

41. [Paris, 22-04-1992].

42. Cass. civ. 1st, 04-01-1995.

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