Convention on Contracts for the International Sale of Goods — CISG
25 Years: 1980 — 2005
Standard Terms in UN-Contracts of Sale
Prof. Dr. Burghard Piltz
Rechtsanwalt in der Sozietät Brandi Dröge Pilz Heuer & Gronemeyer, Gütersloh; Curriculum Vitae.
Originally published in:
VJ 2004 (8), pp. 233–244
According to the intention of the user, pre-formulated rules in standard terms shall become part of future, yet to be concluded contracts. Since neither of the parties has the power to submit the other to unilaterally pre-formulated rules, standard terms in a private law contract will only be valid if they form part of the contents of the respective contract. Moreover, standard terms that have effectively been included in a contract and whose meaning is specified by interpretation are often subject to a special review of their contents (1).
The following remarks are focussed on standard terms in UN-Contracts of Sale. UN-Contracts of Sale are contracts that are governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) (2).
2 INCLUSION OF STANDARD TERMS
The inclusion of standard terms in a private law contract raises legal questions concerning the formation of the contract. As the CISG explicitly governs the ‘formation of the contract of sale’ (Art. 4 CISG), the inclusion of standard terms into a UN-Contract of Sale must also, in principle, be judged according to the rules of the CISG. The CISG supercedes national law, such as § 305 (2) of the German Civil Code (BGB) or the rules of the inclusion of standard terms into contracts of sale concluded between business people that have been established by German Courts respectively. In legal literature, this position is advocated almost without exception (3). Courts have likewise taken this view repeatedly (4). However, while acknowledging the applicability of the CISG in general, there are also decisions that examine the inclusion of standard terms according to national, non-uniform law (5). Since these courts do not give reasons for their procedure, one actually cannot speak of a dissenting opinion. Instead one must assume that the decisive role of the CISG was overlooked.
The formation of the UN–Contract of Sale is governed by Arts. 14 et seq. of the CISG (6). In contrast to the German Civil Code (BGB) and other national legal regimes, the CISG does not provide for special rules for an agreement on standard terms. As a consequence, Arts. 14 et seq. principally also apply to the inclusion of standard terms in a UN-Contract of Sale (7). In the interest of a uniform application of the CISG as prescribed by Art. 7, and of the development of universally valid rules, preference is to be given to solving the problem of the inclusion of standard terms by a direct application of Arts. 14 et seq. instead of Art. 8 (8). Otherwise, individual points of view influenced by national law could come to the fore.
Articles 14 et seq., in contrast to German business rules, do not contain regulations that declare the mere reference to existing standard terms without their being handed over (9) sufficient, nor do they provide for other simplified techniques for the formation of the contract or for rules concerning the validity of standard terms formulated in a foreign language. However, the rules for the formation of the contract in Arts. 14 et seq. are not mandatory. Rather, derogations from these provisions as agreed on by the parties under Art. 6, as well as usages and practices established by the parties between themselves under Art. 9, take precedence over Arts. 14 et seq. and may lead to deviating results (10). For instance, the parties may stipulate in a distribution agreement or an other general contract that standard terms will be effectively agreed upon regardless of their language and of their being handed over at all or every time a contract of sale is concluded. Also, in a continuously practiced business relationship, for example, it will not be necessary to make the standard terms’ entire text known to the other party again and again when the parties have in tacit understanding carried out their dealings on the basis of these standard terms. In the case of a dispute, however, the user of the terms is obliged to prove that such a special agreement, usages or practices concerning the inclusion of standard terms into the individual contract of sale exist.
When special arrangements or circumstances regarding the agreement on a set of standard terms cannot be made out, their inclusion into the individual contract of sale is governed by Arts. 14 et seq.. Consequently, the standard terms must be included into the offer leading to the formation of the contract, i.e., into the contractual arrangements. Mere reference to standard terms without conveying them to the other party will regularly not suffice. Instead, from the contract formation mechanisms as laid out in Arts. 14 et seq., it follows that, for the effective inclusion of standard terms:
– standard terms, just as other contents of the contract, must be in the hand of the other party at the time of the declaration of acceptance of the offer;
– the user of standard terms must make clear to the other party before the declaration of acceptance that the terms form part of his/her offer;
– the other party must declare his or her acceptance being aware (which is to be assumed) of the inclusion of the standard terms as provided with and informed about by the offering party.
Standard terms will regularly not be effectively agreed upon when the parties enter into the contract — especially via telephone, fax or email — by quoting its individually negotiated contents but without handing over the standard terms, even if reference to their inclusion is made (11). While according to non-uniform German law, between business people the mere reference by the user to his/her standard terms suffices and the other party is responsible for inquiring as to their contents (responsibility of the other party to inquire) (12), in contrast, within the scope of the CISG — and disregarding other arrangements, practices and usages — the user of the standard terms is responsible for informing the other party of their contents (13). A rule that obliges the other party to inquire as to the standard terms’ content, and that in case of omission declares the terms effectively included into the contract, cannot be deduced from the CISG (14). In view of today’s means of telecommunication that practically enable the worldwide conveyance of even extensive texts without loss of time, the need for quick and smooth communication in business matters cannot be put forward as an argument for the responsibility of the other party to inquire as to parts of the contract’s contents, thereby deviating from the CISG’s fundamental principles (15).
The user of the standard terms does not meet his or her responsibility to inform the other party of the terms’ contents by depositing them with a chamber (16) or court (17), on the internet (18) or elsewhere where they can be looked into or are available on call. Instead, the user of the terms has to provide the other party with his or her standard terms on his or her own accord. It is not necessary, though, that the standard terms’ form is sent to the addressee together with the other parts of the offer, nor that they are physically attached to the core text of the contract, or that they are signed by the parties. Rather, it is sufficient when the user of the terms clearly and recognisably informs the other party (19) that the terms as a whole are to be part of the contract and, along with that, conveys the terms’ text to the other party without request (20).
Not in any case it is necessary, however, that the whole text of the standard terms is handed over. One can think of circumstances under which it may suffice when the user hands over only the core legal regulations of his or her standard terms. At the same time, however, he or she must make clear that the presented terms are not complete, and the remaining terms must be available on call and may not contain substantial shifts regarding the burdens of risk and costs. Terms not handed over may then become part of the contract as far as one can reasonably assume the consent of the other party. Such circumstances are imaginable when, on the one hand, the formation of contracts in a particular trade hardly allows for the handing over of the entire standard terms’ text (for instance, immediate confirmation of orders in order pads between present persons) and when, on the other hand, the use of standard terms is common in that trade. It has to be noted however that, in principle, standard terms just as other parts of a contract must be communicated to the other party by the time this party declares his or her acceptance of the offer. Only under special circumstances may one allow for an exception to this rule, when the exception is recognisable for and can reasonably be expected from the other party.
Besides conveying the standard terms’ text, the user has to make clear that the terms are to form part of the contract (21). This information about the terms’ inclusion into the contract must be made on occasion of the intended conclusion of the contract. Reference made at no particular time that does not specifically relate to the contract in question cannot be considered as a clear indication (22) of the terms’ intended use in the deal up for decision from the other party’s point of view. Both the information about and the handing over of the standard terms have to be completed before the acceptance of the offer is declared (23). Disregarding special arrangements, usages and practices, standard terms will not form part of the contract without the need of the other party’s opposition or similar declaration of disapproval where the information about these terms and/or the terms themselves reach the other party at a later point in time, especially only with the invoice (24).
It follows from the user’s responsibility to inform the other party about the standard terms that both the terms and the information about their inclusion must be in a language comprehensible to the addressee. In practice, standard terms in two languages are partly used (25). If the standard terms are formulated in a language not easily understandable for the other party, the user of the terms will generally not have met his responsibility of information (26). However, the standard terms do not always have to be formulated in the language of the addressee’s place of business. Instead, it is sufficient if the terms are formulated in the language of the negotiations (27). If a party makes use of a different language, the crucial point will be whether the other party has sufficient command of that language or not. However, one cannot assume that every buyer or seller in international business transactions speaks English (28) or even French, Spanish or German (29). As for the rest, it can of course follow from express or tacit agreements, from relevant usages in the meaning of Art. 9 CISG or from practices established between the parties, that the use of other languages suffices (30).
When clear information about the inclusion of the standard terms has been given and when the terms have been handed over, both in a comprehensible language and before the declaration of acceptance, and when, furthermore, the acceptance is not to be interpreted as a rejection of the offer according to Art. 8 CISG, the standard terms have been effectively included into the contract. Mere silence does not suffice (31). It is not necessary, though, that the other party has in fact read the terms (32) or even has specifically confirmed their effectiveness (33). Rather, yet subject to the circumstances, it is to be assumed that the other party has declared his or her acceptance being aware of the user’s reference to his or her standard terms that are at hand of the accepting party. Such an assumption is justified when reference to the standard terms has been made clearly and unequivocal. When the accepting party, however, makes reference to his or her own standard terms, he or she rejects the terms of the offering party and, for the time being, it remains open whose terms prevail. Otherwise, a specific declaration of consent with the standard terms is not necessary even in the case of specific form requirements due to a reservation made in accordance with Art. 96 CISG, or where the parties have agreed on specific forms for the conclusion of the contract under Art. 29 CISG.
Subject to special circumstances, the CISG sets up clearly stricter prerequisites for the inclusion of standard terms into a contract of sale between business people than national German law by imposing upon the user the responsibility to inform the other party of the standard terms (34). This strictness of the CISG results from the fact that the Convention does not provide for special simplified techniques for the inclusion of standard terms compared to other contents of the contract. The stricter rules for the inclusion of standard terms into a UN-Contract of Sale do not constitute an argument against the UN Sales Law, though. On the one hand, one must take into consideration that a theoretically possible contractual exclusion of the CISG in standard terms under Art. 6 requires that the standard terms themselves are effectively included into the contract in accordance with the rules of CISG (35). On the other hand, due to Art. 31(2) of the Introductory Act to the German Civil Code (EGBGB), the user-friendly rules for the insertion of standard terms governing German domestic business cannot unrestrictedly be applied to a foreign contracting party even if the parties have chosen the German Civil/Commercial Code (BGB/HGB) as the law governing the contract (36). The true reason for the stricter requirements regarding the inclusion of standard terms is, therefore, not rooted in the CISG but is a consequence of the international character of the transaction.
Moreover, the stricter solution of the CISG also makes it to a great extent unnecessary to distinguish between standard terms and other contractual arrangements. In addition, the CISG brings along the not to be underestimated advantage for the practice of export trade, that still harsher rules for the insertion of standard terms imposed by other national legal regimes (37) do not apply to UN-Contracts of Sale. Instead, the law of inclusion of standard terms into a contract of sale is unified by Arts. 14 et seq. CISG. This aspect is especially significant for the worldwide e-commerce business.
3 DIVERGING OR CONFLICTING STANDARD TERMS
If a reply by the offeree to an offer purports to be an acceptance but contains additions, limitations or other modifications which were not contained in the original offer, this does not necessarily mean that the contract has been concluded, nor does it necessarily mean that the offer has been rejected. In contrast to § 150 (2) BGB, the CISG differentiates according to whether or not the modifications contained in the reply materially alter the terms of the offer, see Art. 19 CISG. When distinguishing between a material and an immaterial alteration, it is irrelevant whether the modification is formulated individually or in standard terms. If the offeree introduces standard terms into the contract negotiations for the first time with his reply to the offer, this will generally, though not necessarily, be a material alteration to the offer, since standard terms typically contain aspects mentioned in Art. 19(3) CISG (38). The same reasoning applies if the offer included standard terms of the offeror and the offeree then tries to incorporate his general terms and conditions instead of those of the offeror (battle of forms).
Article 19(1) CISG regulates the consequences of a reply which is materially different from the offer. If standard terms collide, the application of Art. 19(1) CISG generally results in a counter-offer by the offeree, as the party to refer last to his or her general terms and conditions. The contract is not concluded until the recipient consents to the last counter-offer in a timely manner and without material alterations, specifically without continuing to insist on his own standard terms. As a result, the standard terms of the party who was the last one to insist on their inclusion will be part of the contract (the principle of the last word or last-shot-rule). The consent of the other party can be explicit, but in practice will usually follow from conduct implying its intent. Since conduct showing conclusion of contract, such as the performance of the contract, will generally occur much later than the exchange of offer and reply with material alterations, it must be taken into account whether the consent occurs in a timely manner — that is, within the time limits of Art. 18(2) CISG. If not, the rules regarding late acceptance of an offer will apply (39). An implied acceptance is generally not possible if, in accordance with a declaration according to Art. 96 CISG or party agreement, particular formalities must be adhered to when replying to an offer (see Art. 29 CISG).
The solution to the problem of conflicting standard terms (40) is usually dealt with by referring to Art. 19 CISG, especially in countries other than Austria and Germany (41). The consent-dissent theory (or knock-out-rule) purported in German and Austrian law is principally not excluded by the CISG (42). It does require a considerable constructive effort, though, since the theory was rejected when the CISG was being discussed at the conference in Vienna (43). The application of the knock-out-rule conflicts with the goal of Art. 7 CISG to promote a uniform application of the rules of the CISG in contracting states and therefore has no chance of success internationally. On the other hand, there is no reason to distance oneself completely from the mechanism of Art. 19 CISG and to search for a solution in the general principles of the CISG (44), since the flexibility to find solutions that comes with this approach leads to unacceptable legal uncertainty in practice. Others solve the problem of conflicting general terms and conditions by distinguishing between the conclusion of contract and the contents of the contract (45) or between conflicting standard terms and those which are introduced only by one side (46).
Court decisions (47) do not show a clear line of authority (48). Yet it is definitely incorrect to say that the CISG does not solve the problem of conflicting general terms and conditions and that recourse must be had to national law in the specific case the Dutch first-shot-rule (49).
It is true that the problem of conflicting standard terms cannot in all cases be solved by strictly applying Art. 19 CISG. The CISG may generally be altered by agreement of the parties. This applies to Art. 19 CISG as well. Therefore, depending on the specific case, other conflicts of law rules may be applicable according to Arts. 6 and 9 CISG. In addition, statements made by the parties must always be interpreted against the background of Arts. 8 and 7 CISG (50). It is especially necessary to adapt the last-shot-rule of Art. 19 CISG if an acceptance cannot be implied because of time limits or other formalities, or because both parties perform the contract by mutual consent but continue to refer to their conflicting standard terms (51).
On the other hand, there is no reason to depart from the last-shot-rule of Art. 19, para. 1 CISG if the later conduct of one party in a timely and legally appropriate manner shows its consent with the offer of the other party to apply its standard terms (52). The discrepancy between the conflicting general terms and conditions is then removed by the conduct showing consent with one set of rules. The decisive factor is whether the recipient of the last shot, or last word, shows conduct implying consent. The terminology used for this solution, the last-shot-rule, is misleading in that it emphasises the action of the offeror instead of the offeree. In fact, it is a ‘consent-rule’.
It is not a valid objection to this solution to claim that it is not in line with the expectation of the parties (53); indeed, parties in practice attach great importance to maintaining the ‘last word’. Parties pursue this goal primarily to make sure that their standard terms prevail, which usually include a cost factor in favour of the party, and also to ensure that the terms of the contract are clear. This evaluation does not lose credibility even if the party now agreeing to the standard terms of the other party had originally attached its own general terms and conditions. If the party now showing consent does not want to be evaluated according to its current conduct, it must express this in an appropriate manner. This is all the more true if the party wants its conduct to be understood to the disadvantage of the other side, especially regarding the applicability of its general terms and conditions in contrast to the rules set forth in Arts. 19 and 18 CISG. The mere circumstance that the party referred to its own standard terms in its printed forms during earlier negotiations does not carry much weight (54). It is quite possible that the party now showing consent has given up wanting to use his or her own standard terms because he or she has realised that the other party continues to insist on its general terms and conditions and because of his or her general interest in the conclusion of the contract.
4 INTERPRETATION AND CONTROL OF CONTENTS
Some legal systems require that standard terms which have validly been included in a contract are subject to an additional control of contents (55). The control of contents aims to counterbalance any shift in favour of the party who has dictated its general terms and conditions, often the party with the stronger market position. Before standard terms can be evaluated according to the validity of their contents, they must be interpreted. Interpretation is not part of the control of contents, but aims to define each clause as precisely as possible. When interpreting clauses in standard terms of CISG-contracts, the CISG applies (56).
Following the interpretation of a clause, the control of contents examines the validity of the actual content of the clause (57). Since the validity of the contract or any of its provisions is not governed by the CISG, Art. 4 lit. a) CISG, the control of contents is governed exclusively by national law (58). The same is true for national provisions which — such as § 305c BGB – do not see the contractual inclusion as sufficient for clauses which are surprising for the receiving party (59), or which – such as specific formalised requirements for the inclusion of standard terms — are to be qualified as provisions concerning the validity of a contract (60).
Even if the control of contents follows national law – for example, in German law, § 307 BGB will apply in business dealing (61) — the criteria for the control of contents cannot simply be those of non-harmonised national law. Instead it must be examined very carefully whether the national law in fact provides for the invalidity of a clause in standard terms if a provision of law has not been complied with, and whether the invalidity of the clause is meant to apply to international contracts as well. In particular, when controlling the contents of clauses in standard terms which modify provisions of the CISG, regard must be had to the principles that form the basis of the CISG (62).
Issues that are relevant to the inclusion of standard terms into UN-Contracts of Sale:
– Language: the text of the standard terms as well as the notice that they are to apply should generally be formulated in the native language of the other party or in the language of the contract.
– Presentation: the complete text of the standard terms must be in the possession of the other party by the time that party effectively accepts the offer.
– Notice: the party who wants to use its standard terms must inform the other party of the appliance of the standard terms by the time the other party effectively accepts the offer.
– Consent: the acceptance of the offer to conclude a contract will generally include the implication that the offeree is aware of the notice about the standard terms. An explicit acceptance of the standard terms is not necessary.
– Conflicting standard terms: if standard terms collide, the last-shot-rule generally applies.
– Clarification: if the parties have made differing statements, they should both try to clarify the issue. In case of doubt, it will usually be helpful to check with the other party or to send a confirmation to the other party which clears up the issue.
(1) See, for example, Holger Müller and Hans-Hermann Otto, Allgemeine Geschäftsbedingungen im internationalen Wirtschaftsverkehr (Neuwied, Kriftel, Berlin, 1994) and Antonio Boggiano, International Standard Contracts (Dordrecht/Boston/London, 1992).
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