Open Price Terms in the CISG, the UCC and
Mexican Commercial Law
Carlos A. Gabuardi
CISG Database, Pace Institute of International Commercial Law with permission © CopyrightDerechos Reservados. Carlos A. Gabuardi, Distrito B-6 No. 571, Col. Leones, Monterrey,
N.L. MEXICO. (2001)
Albert H. Kritzer CISG Database
Institute of International Commercial Law
ii
Contents
Contents
I. Importance of this topic
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Open terms in contracts . . . . . . . . . . . . . . . . . . .
III. Â Open price terms in the CISG . . . . . . . . . . . . . .
IV. Case interpretations discussing open price terms in CISG
A. Abstract No. 52 (a Hungarian Case) . . . . . . . . . . . .
B. Abstract No. 53 (another Hungarian Case) . . . . . . . .
C. Abstract No. 106 (an Austrian Case)
. . . . . . . . . . .
D. Abstract No. 139 (a Russian Case) . . . . . . . . . . . .
E. Abstract No. 215 (a Swiss Case) . . . . . . . . . . . . . .
. . . .
. . . .
. . . .
. . .
. . . .
. . . .
. . . .
. . . .
. . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1
1
3
4
9
10
11
13
15
17
V. Â Open price terms in the UCC
18
VI. Open price terms in Mexican Commercial law
20
VII. Comparison and Conclusions
23
FOOTNOTES
24
SiSU Metadata, document information
25
Albert H. Kritzer CISG Database
Institute of International Commercial Law
iii
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
Open Price Terms in the CISG, the UCC and Mexican Commercial Law,
Carlos A. Gabuardi*
1
I. Importance of this topic
2
A. Introduction
3
I remember that during my early history lessons, teachers used to teach that the study
of history was usually made through different ages named after those features that were
most characteristic or dominant of the specific time period concerned. One day, the teacher
asked one question to the group: What do you think will be the name with which history
will describe the times we are living today? From that day on that question has been
hovering in my mind. When I was a child I used to hear that our times would be called The
Nuclear Era, later The Space Age, then The Times of the Sex Revolution, and so forth.
Now, commentators call this The Age of Communications, or Computers, or the Internet,
or whatever is the most fashionable theme of the moment.
Beyond the appeal of fashion, I think that there are two major forces stressing, pulling and
shaping the realities of the world today. One is globalization,1 the global village is a reality
in almost every aspect of our daily lives, including business where efficiency and rapidity of
1
“Globalization is unstoppable. Even though it may be only in its early stages, it is already intrinsic to the
world economy. We have to live with it, recognize its advantages and learn to manage it. That imperative
applies to governments, who would be unwise to attempt to stem the tide for reasons of political
expediency. It also goes for companies of all sizes, who must now compete on global markets and learn to
adjust their strategies accordingly, seizing the opportunities that globalization offers.” Maria Lievanos
*
Carlos A. Gabuardi (Lic. Jur., LL.M.), is Of Counsel of J. Salazar and CÃ-a, abogados. He was a lawyer
in the Legal Department of the http://www.worldbank.org World Bank, Washington, D.C.; Corporate Legal
Manager and Assistant Secretary of http://www.cosmos.com.mx/ali/4y70.htm Grupo Gamesa; Head of the
Law Department and Professor of Law at http://www.udem.edu.mx/ Universidad de Monterrey, where he
graduated; Visiting Professor of Law, St. Mary´s University School of Law, San Antonio, Texas; co-planner
and administrator of the program: “Joint Venture. A Transnational Study and Training Program for U.S. and
Mexican Business Lawyers? (St. Mary?s University School of Law and Universidad de Monterrey); Adjunct
Professor of Law, http://www.wcl.american.edu/ The Washington College of Law, American University,
Washington, D.C.; Adjunct Professor of Law, http://www.ur.mx/ Universidad Regiomontana; member of the
Regional Advisory Board of the Centre for Conciliation and Arbitration of St. Mary´s University School of
Law, San Antonio, Texas; member of the Académia Nuevo Leonesa de Derecho Mercantil; National
Association of Corporate Lawyers, President of Province XXVIII of the International Legal Fraternity Phi
Delta Phi, member External Advisory Board de http://www.law.smu.edu/lawschool/scholar.htmnafta
NAFTA: Law and Business Review of the Americas; Lecturer, http://www.mty.itesm.mx/dacs/centros/jurici/
Inter-American Legal Center for Free Trade, member of the University Council of http://www.ctu.ie/beta/
Cyber Tech International University, Ireland and The International Advisory Board of The International
Institute for Postgraduate Studies, University of Oradea, Romania He presently teaches a course on
?International Business Transactions? at the http://www.sistema.itesm.mx/ Institituto Tecnológico y de
Estudios Superiores de Monterrey and he is working towards a Doctorate in Laws in the School of Law of
the Tulane University, New Orleans, Louisiana.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
1
4
5
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
the existing means of communications have had a definite impact in the manner in which
businesses are conducted around the world, and along with globalization the other feature
that shapes our times is change. Today change is an element that is always present and
has become a constant in our daily lives. Almost everything around us is always changing,
everyday there are new developments, new attitudes, new inventions, new ways of life,
new discoveries, new social and political adjustments that a few years ago appeared to be
impossible to happen during our lifetime.
But, what is the effect that these new realities have on the rule of law and the legal framework for doing international business? The legal phenomenon has always been linked to
the dynamism and complexity of humankind, and the forces of globalization and change
have created new challenges for the rule of law, imposing a crescent and pressing need
for legal certainty and stability in global trade and commerce.
Today the challenge is to maintain the balance between the stability and certainty that
should be provided by the rule of law and the need to respond to the actual requirements
posted by the new and changing circumstances of the global village. Nowadays the world is
witnessing the very early stages of the rise and evolution of a supranational legal framework
for international business, a system that is still trying to define its own shape and features,
a system that provides a fertile field for legal scrutiny and which is frequently known as the
New Lex Mercatoria.2
In this work the goal is to introduce the issues and implications presented by the use of open
price terms in international sales contracts by means of the comparative legal analysis. To
this purpose, reference will be made to three different legal systems: The system created
by the United Nations Convention on the International Sales of Goods (?CISG?),3 the
Cattaui, The Global Economy ? an opportunity to be seized i n Business World the Electronic magazine of
the International Chamber of Commerce (Paris, July 1997), cited by: Ralph Amissah, The Autonomous
Contract, Reflecting the borderless electronic ? commercial environment in contracting,
‹http://www.jus.uio.no/lm/the.autonomous.contract.07.10.1997.amissah/doc.html›
2
Amongst the items of which the lex mercatoria has grown to be comprised of, in a not necessarily
hierarchical manner, are: (a) Customs and usages of international trade; (b) Relevant rules promulgated by
international institutions on the area of law concerned - ICC - Incoterms, or the Uniform Customs and
Practices for Documentary Credits; (c) The rules and principles common to all or most states engaged in
international trade, or to those states which are connected to the contract. Apart from individual principles
and rules for given circumstances, this includes uniform law such as UNCITRAL’s CISG; (d) In the absence
of the above the arbitrators will apply or establish the rule which appears to them to be best suited to the
situation; (e) In ICA also relevant is the public policy of the country in which the award is likely to be
requested; (f) Recently the definition of lex mercatoria has been greatly if controversially assisted, by
comprehensive international rules made for this purpose by UNIDROIT and the Commission on European
Contract Law. Ralph Amissah, The Autonomous Contract, Reflecting the borderless electronic ?
commercial environment in contracting, Loc. Cit.
3
As of June 25, 2001, there are fifty-nine parties to the Convention. International Trade Law Branch of the
United Nations Office of Legal Affairs servicing the United Nations Commission on International Trade Law
(UNCITRAL), STATUS OF CONVENTIONS AND MODEL LAWS (Last updated on 25 June 2001)
‹http://www.uncitral.org/english/status/Status.pdf› In Mexico the CISG was published in the Official Journal of the
Albert H. Kritzer CISG Database
Institute of International Commercial Law
2
6
7
8
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
system prevailing in the United States of America (?US?) and the system presently in
effect in the United Mexican States (?Mexico?).
By comparing these three legal systems, this work aims not only to provide a significant
tool to understand the mechanics and operation of open price terms in international sales
contracts from different perspectives, but also to identify and distinguish the different approaches and solutions adopted by each system and how these different approaches and
legal frameworks coexist intertwined and interacting with each other.
II. Open terms in contracts
10
One of the consequences of globalization and the fast pace of an every day changing
world is the increasing use of open terms in international contracts and more particularly,
the use of open price terms.4 The concept of open terms is developed in contraposition to
the concept of ?closed or fixed terms?; closed or fixed terms are those that are accurately
determined and agreed upon at the time in which the parties to a contract enter into it.
Consequently, it can be said that open terms are those that are not accurately determined
and agreed upon at the time in which the parties to a contract enter into it.
Professor Mark P. Gergen in his interesting article ?The Use of Open Terms in Contract?
wrote that ?open terms are contractual provisions that expressly grant a party substantial, but not completely unfettered, discretion in performance,?5 and according to him, the
parties to a contract may elect to leave open terms under the following circumstances:
(a) when a particular contract term depends on the principle of uncertainty, that is ?when
the probability or value of contingent outcomes is sufficiently doubtful that people with the
same information and preferences value the contract or the contingency significantly differently, and there is no market to price the contingency?;6 (b) when ?the difficulty of writing
and enforcing contracts that precisely specify performance subject to finely drawn conditions to deal with many known risks?;7 (c) when ?a party is risk averse?;8 (d) when ?they
align individual risk and joint risk . . . better that do fixed termsª?,9 and (e) when ?the
existence of extra-legal or structural constraints on performance . . . help [to] overcome
the difficulties of enforcing an open term.?10
Federation as of March 17, 1988 Â Â In the US the CISG is published in 52 Federal Register 6262,
6264-6280 (March 2, 1987); United States Code Annotated, Title 15, Appendix (Supp. 1987).
4
Open price terms are one of the species existing under the broader genus of ?open terms? and what
can be said about the genus is generally applicable to the different species subordinated to it.
5
Mark P. Gergen, The Use of Open Terms in Contracts, 99 Columbia Law Review 997, 998 and 999
(1992).
6
Idem. 1004.
7
Idem 1006.
8
Idem.
9
Idem. 1007.
10
Idem. 1008.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
9
3
11
12
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
I think that Professor Gergen?s definition of open terms offers a good point to start our
analysis on open terms in contracts; unfortunately, he never explains what should be understood by a party’s substantial, but not completely unfettered, discretion in performance.
Additionally, his definition of open terms only stresses that the eventual determination of
the open terms is to remain in one party?s control, while I think that there may be other circumstances in which the contract terms are left open but subject to conditions, elements,
factors or agents extrinsic to the parties control; and there may be even other circumstances in which the parties to a contract are just silent with respect to both the specific
term concerned and to the method in which such term is to be determined.
Thus, I conclude that open terms are those contract terms that are omitted or are not accurately determined and agreed upon at the time in which the parties to a contract enter into
it, but are to be determined either by a party?s substantial – but not completely unfettered
– discretion, or by elements, factors or agents extrinsic to the parties’ control.
Accordingly, under the open terms of a contract the following circumstances and legal issues may be identified: (a) the event in which the parties are silent with respect to the
method in which the term will be determined at a given time: How and who will establish
the concrete meaning of that term? (b) the event in which the parties agree that the determination of such term will be subject to the substantial – but not unfettered ? discretion of
one of the parties: What are the parameters to that discretion? and (c) the event in which
the parties agree that the determination of such term will be subject to elements, factors or
agents extrinsic to the parties to a contract: How will those elements factors or agents be
identified? What happens if during the life of the contract one of these elements, factors
or agents disappears or changes substantially?
I am sure there are still many other questions to be asked. Â However, now is the time to
focus the analysis of this work on the specific features of open price terms in the context
of the legal systems of the CISG, the US and Mexico.
III. Â Open price terms in the CISG
11
United Nations Document V.89-53886 (June 1989) ?Explanatory Note by the UNCITRAL Secretariat on
the United Nations Convention on Contracts for the International Sale of Goods?, Paragraph 1
‹http://www.cisg.law.pace.edu/cisg/text/p23.html›
Institute of International Commercial Law
14
15
16
17
The United Nations Convention on Contracts for the International Sale of Goods is an
instrument of private international law that aims to provide a uniform text of law for international sales of goods. It was prepared by the United Nations Commission on International
Trade Law (UNCITRAL) and adopted at a diplomatic conference on 11 April 1980.11 ?The
Convention is divided into four parts. Part One deals with the scope of application of the
Convention and the general provisions. Part Two contains the rules governing the formation of contracts for the international sale of goods. Part Three deals with the substantive
Albert H. Kritzer CISG Database
13
4
18
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
rights and obligations of buyer and seller arising from the contract. Part Four contains the
final clauses of the Convention concerning such matters as how and when it comes into
force, the reservations and declarations that are permitted and the application of the Convention to international sales where both States concerned have the same or similar law
on the subject.?12
?Different groups of countries objected to open price term contracts during the drafting
of the CISG and the Uniform Law on the International Sale of Goods. Socialist countries
objected to the conclusion of contracts with open price terms, because open price terms
would frustrate the principle that parties should conform their contracts to a predetermined
macroeconomic governmental plan. Others argued that contracts with open price terms
placed developing countries trading in raw materials at a disadvantage by subjecting them
to unpredictable swings in commodities markets. Finally, some civil law countries, such as
France, view open price terms with hostility, particularly where the unilateral fixing of the
price works to the disadvantage of the weaker party.?13
Apparently, ?[t]he United States delegation was unsuccessful in attempting to change this
language in favor of ‘open price’ offers. An uneasy compromise was finally reached, not by
amending article 14(1)14 but by inserting a new provision in article 5515 (under the section
dealing with the obligations of the buyer). This provision seems to say the opposite of what
is stated in article 14(1), for it implies that a contract may be ‘validly concluded’ even though
it ‘does not expressly or implicitly fix or make provision for determining the price.’?16
It seems as though the final result of having articles 14 and 55 occurred because ?when
art. 55 was discussed . . . the former provision could only be modified by a qualified ma12
United Nations Document V.89-53886, Loc. Cit., Paragraph 6.
Helen Elizabeth Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention On
Contracts for the International Sale Of Goods, 18 Yale Journal of International Law 1, 66 (1993). See also:
Alejandro M. Garro: ?Socialist countries objected to the conclusion of contracts with open price terms,
because the parties are expected to conform their contracts to a predetermined macroeconomic
governmental plan. This view makes sense in a planned economy, in which contracts with open price
terms are a nullity from the perspective of the superintending state planning agency. Also in some civil law
systems contracts of sale with open price terms are viewed with hostility, particularly when the unilateral
fixing of the price works to the disadvantage of the weaker party.? Alejandro M. Garro, Reconciliation of
Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods, 23 International
Lawyer 443, 463 (1989).
14
Article 14 of CISG ?(1) A proposal for concluding a contract addressed to one or more specific persons
constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or
makes provision for determining the quantity and the price. ‹http://www.cisg.law.pace.edu/cisg/text/treaty.html›
15
Article 55 of CISG ?Where a contract has been validly concluded but does not expressly or implicitly fix
or make provision for determining the price, the parties are considered, in the absence of any indication to
the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion
of the contract for such goods sold under comparable circumstances in the trade concerned.?
‹http://www.cisg.law.pace.edu/cisg/text/treaty.html›
16
Alejandro M. Garro, Loc. Cit., 464.
13
Albert H. Kritzer CISG Database
Institute of International Commercial Law
5
19
20
21
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
jority, which could not be raised.?17 Some said that ?[t]he adoption of art. 55 eventually
responded to the desire of the Scandinavian countries to accept Part I of the Convention
without Part II, and to have a provision in Part II in case the price has not been determined.?18
?The controversy, therefore, concerns whether article 14(1) should be read alone, or in
conjuction with article 55.?19 There are two different trends of opinion on this discussion,
one led by Professor Honnold and the other by Professor Farnsworth. ?The Honnold
position is that the provisions may be read together, while Farnsworth position is that they
cannot.?20
Professor Allan Farnsworth thinks that the adoption of article 55 of CISG created a contradiction with the rule established in article 14. ?Farnsworth points out that the requirement
in 14(1), that a proposal will not be sufficiently definite to constitute an offer unless it expressly or implicitly makes provision for determining the price, carries with it what he terms
?the unfortunate implication? that such a proposal ?is not sufficiently definite unless it
does this.? . . . Farnsworth discovers no solution in article 55 since that article becomes
operative only after it has been determined that a contract ?has been validly concluded.?
He joins others who believe that article 55, in Part III of CISG dealing with the obligations
of the parties to an existing contract, was designed for use only where a Contracting State
made a declaration under article 92(1) that it will not be bound by Part II of the Convention.?21
Paul Amato summarizes Farnsworth’s position highlighting that ?a contract cannot be concluded under the requirements of article 14(1), unless there is sufficiently definite price
term. This circularity cast doubt on the applicability of article 55 to article 14(1), and implies that Farnsworth?s analysis is more sound.?22
On the other side of this controversy, Professor Honnold thinks that articles 14 and 55 of the
CISG deal with different issues. In Professor Honnold?s opinion, article 14 deals only with
the question of whether a communication should be construed as an ?offer? when it fails to
state the price and not with the validity of an executed agreement that does not determine
17
Ghestin, Les obligations du vendeur selon la Convention de Vienne du 11 avril 1980 sur les contrats de
vente internationale de marchandises, 6 Revue de Droit des Affaires Internationales, (1988), quoted by
Alejandro M. Garro, Loc. Cit., 483 n.90.
18
Alejandro M. Garro, Loc. Cit., 483 n.92.
19
Paul Amato, U.N. Convention on Contracts for the International Sale of Goods ? the Open Price Term
and Uniform Application: an Early Interpretation by the Hungarian Courts, 13 Journal of Law and
Commerce 1, 10 (1993).
20
Idem.
21
John E. Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United
Nations Convention on Contracts for the International Sale Of Goods, 8 Journal of Law and Commerce
(1988) ‹http://www.cisg.law.pace.edu/cisg/text/murray14.html›
22
Paul Amato, Loc. Cit., 10.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
6
22
23
24
25
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
the price,23 while he thinks that article 55 deals with the regulation of contracts that have
been validly concluded but did not make express or implied provisions for determined the
price.24
In developing his opinion Professor Honnold acknowledged the dispute involving articles
14 and 55 of the CISG on the issue of open prices,25 concluding that:
“The language that became article 14 of the Convention, from the outset, was framed
in terms of whether a communication ?constitutes an offer?. Many of the delegates discussed the issue in these terms, while others felt that the issue posed by this language
was whether the parties had the power to make a valid agreement (even by executing a
formal document entitled ?Contract of Sale?) when the agreement did not fix (or make
provisions for fixing) the price. There is little indication in the discussions that this divergence in premises resulted from differences in commercial experience or in value choices.
Instead the problem seemed to reflect different patterns of thought derived from concepts
of domestic law. Â In one legal universe it is thought that a contract of sale, in the nature of
things, must provide for the price; in another legal universe the possibilities of contracting
are conceived more broadly.”26
I agree with Alejandro Garro in the sense ?that in a codified set of rules such as the Convention, every effort should be made to construe seemingly incompatible provisions in order
to make sense out of them?.27 But, what was the position of the delegates who worked
in the preparation of the CISG? I can hardly think that they had purposely wanted to create a legal nightmare leading to the complication of the very problems they were trying to
solve. On the contrary, it seems as though the underlying purpose of the delegates in the
framing of CISG was a problem-solving attitude looking for fair, practical and appropriate
23
?Does Article 14 deal not only with the question whether a communication should be construed as an
?offer? but also with the validity of an executed agreement that does not determine the price? This latter
reading of Article 14 is difficult to sustain in the face of Article 4 which states that ?except as otherwise
provided in this Convention, it is not concerned with (a) the validity of the contract of of any of its provisions .
. . ?? John Honnold, International Sales Law and the Open-Price Contract, in ESTUDIOS EN HOMENAJE
A JORGE BARRERA GRAF, Universidad Nacional Autónoma de México, T. II. MEXICO. (1989). p. 925.
24
“Will Seller’s action fail on the ground that there was no contract since the agreement did not ?expressly
or implicitly fix . . . or make provisions for determining the . . . price? as required by Article 14” Buyer’s
argument has to face, at the outset, the fact that Article 14, read literally, deals with the question whether a
´proposal is sufficiently definite and indicates an intention to be bound? to be ?an offer?. Here the parties
did not exchange an ?offer? and ?acceptance?; instead they signed a writing that stated that they intended
to be bound by contract event though the price had not been fixed.? John Honnold, Loc Cit., 924
25
?Do the parties have the power to make a binding sales contract that does not ?expressly or implicitly?
fix or make ?provisions for determining? the price? As we shall see, the dispute involves both Articles 14
and 55. Considerable ink has been shed debating this issue as to the parties? power to contract. Â This
issue is an inviting one for theoretical dispute but, as we shall see, has little practical significance.? John
Honnold, Loc. Cit., 921.
26
John Honnold, Loc. Cit., 931 and 932.
27
Alejandro M. Garro, Loc. Cit.,.465.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
7
26
27
28
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
rules.28
It has also been said that the due to the arguable contradiction between articles 14 and 55,
the Scandinavian States requested the option for the parties to the CISG to choose either
for the rules of Part II ?Formation of the Contract? (articles 14-24) or the rules of Part III
?Sale of Goods? (articles 25-88).29 Â However, the Scandinavian States have been so
far the only parties to the Convention that have chosen for this alternative.30 That is, only
four of the fifty nine parties to the CIGS have opted-out in favor of this alternative and I find
hard to believe that the rest of the parties to the CISG had opted to adopt a contradiction
as a solution to regulate international sale contracts.
For all the reasons stated above, I think with Honnold that articles 14 and 55 regulate
different issues and are not contradictory. I think that article 14 only establishes a rule for
those cases in which the parties exchange ?offers? and ?acceptance? without making
an express commitment to be bound even if the price has not been fixed, while article 55
establishes a rule for those cases in which the parties enter into an agreement in which they
commit themselves to be bound by it, even though the price has not been fixed.31
Notwithstanding, I realize that even taking the position that articles 14 and 55 of the CISG
should be read in conjunction, the practical consequences derived from open price terms
in international sales contracts may still present significant problems that are still to be
resolved.32
28
?In a decade of work that led to the 1980 Vienna Conference, delegates of the various persuasions ?
common and civil law, market and planned economies ? quickly learned that they could not achieve the
success they all desired if they thought of their task as GATT-like bargaining: we?ll take more of your
watches if you?ll take more of our chickens. Instead, the UNCITRAL delegates quickly concluded that the
premises for decisions were these: What rules would be the most fair, practical and appropriate for
international Trade?’ ? John Honnold, Loc. Cit., 932.
29
Apparently the Scandinavian States requested this option. John Honnold, Loc. Cit., 929. Further, it is
doubtful that the issue on open price had been decisive for making this request because ?The Swedish Act
of 1915 on the Conclusion of Contracts imposes no restrictions relating to price. The Swedish Act of 1905
on the Purchase of Goods states (art. 5): ´Where a contract purchase has been concluded without the
price having been fixed, the buyer must pay what the seller demands unless it is deemed unreasonable’.?
John Honnold, Loc. Cit., 929 n.32.
30
?Upon ratifying the Convention, Denmark, Finland, Norway and Sweden declared in accordance with
article 92(1) that they would not be bound by Part II of the Convention (Formation of the Contract).?
DECLARATIONS AND RESERVATIONS TO THE CISG AS PUBLISHED IN THE UNCITRAL REPORT ON
THE STATUS OF THE CONVENTIONS AND MODEL LAWS, Note 4
‹http://www.uncitral.org/english/status/Status.pdf›
31
?Article 14, read literally, deals with the question whether a ?proposal? is ?sufficiently definite and
indicates and intention to be bound? to be ?an offer?. Here the parties did not exchange and ?offer? and
?acceptance?; instead they signed a writing that stated that they intended to be bound by contract even
though the price has not been fixed.” John Honnold, Loc. Cit., 924.
32
Such is the case of Professor Jacob S. Ziegel of the University of Toronto who wrote: ?Art. 55 must be
read in conjunction with art. 14 which deals with the essential constituents of an offer. Art. 55 was
substantially amended at Vienna. The adopted version attempts to reconcile the price requirements of art.
14 with the need to provide for a case where the contract contains no reference to the price, and does so
Albert H. Kritzer CISG Database
Institute of International Commercial Law
8
29
30
31
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
IV. Case interpretations discussing open price terms in CISG
32
One of the goals aimed at by the CISG is the uniform interpretation of the Convention, as
proposed by paragraph (a) of article 7 that states: ?In the interpretation of this Convention,
regard is to be had to its international character and to need to promote uniformity in its
application and the observance of good faith in international trade.?33
Since the CISG entered into effect on April 11, 1980,34 a significant body of case law has
developed around the world. Most of this case law has been compiled in a database maintained by the UNCITRAL35 that is known as ?CLOUT? (Case law on UNCITRAL texts).36
As of July 31, 2000, the CLOUT system compiled 324 abstracts of cases decided in jurisdictions all over the world dealing with issues related to the interpretation and application
of the CISG.37 In addition to CLOUT, there are several websites that also reproduce the
CLOUT abstracts and occasionally also have copies of the full decisions as published in
the original languages made by the adjudicating bodies (mostly judicial courts or arbitration tribunals), as well as translated texts and other relevant documents and academic
materials concerning the CISG.
Among those sites, mention can be made to the site maintained by the Institute of Inby deeming the parties to have impliedly agreed to adopt the price generally charged for such goods at the
time of the conclusion of the contract. It is not clear whether this formula is sufficient to overcome the
limitations of art. 14, although it was clearly meant to. Difficulties may still be encountered because art. 55
does not come into play unless a contract has been validly concluded. Further, art. 55 fails to state how the
price is to be determined where the seller is the only supplier of the goods (e.g., of a new type of computer
or a new drug): presumably the seller’s price is to be implied unless the price is clearly unreasonable. Note
too that, under art. 55, it is the price obtaining at the time of the conclusion of the contract and not at the
time of delivery that will be applied in the absence of contrary agreement.? Jacob S Ziegel, REPORT TO
THE UNIFORM LAW CONFERENCE OF CANADA ON CONTRACTS FOR THE INTERNATIONAL SALE
OF GOODS, ‹http://www.cisg.law.pace.edu/cisg/text/ziegel55.html›
33
Emphasis added.
34
Alejandro M. Garro and Alberto L. Zuppi, La Convencion de las Naciones Unidas Sobre los Contratos de
Compraventa Internacional de MercaderÃ-as, ‹http://www.cisg.law.pace.edu/cisg/text/garro-zuppi.html›
1. Based on a decision by the United Nations Commission on International Trade Law (UNCITRAL) at its
twenty-first session (A/43/17, paras. 98-109), the Secretariat has established a system for collecting and
disseminating information on court decisions and arbitral awards relating to Conventions and Model Laws
that have emanated from the work of the Commission. The acronym for the system is “CLOUT” (“Case law
on UNCITRAL texts”). 2. The purpose of the system is to promote international awareness of such legal
texts elaborated or adopted by the Commission, to enable judges, arbitrators, lawyers, parties to
commercial transactions and other interested persons to take decisions and awards relating to those texts
into account in dealing with matters within their responsibilities and to promote the uniform interpretation
and application of those texts.? User guide, CASE LAW ON UNCITRAL TEXTS (CLOUT), Distr.
GENERAL A/CN.9/SER.C/GUIDE/1 1 May 1993 ORIGINAL: ENGLISH, UNITED NATIONS COMMISSION
ON INTERNATIONAL TRADE LAW, ‹http://www.uncitral.org/english/clout/guides/guide.htm#TOP›
35
United Nations Commission on International Trade Law, ‹http://www.uncitral.org/›
36
Case Law on UNCITRAL Texts (CLOUT) , INDEX, United Nations Commission on International Trade
Law (UNCITRAL), ‹http://www.uncitral.org/english/clout/abstract/index.htm#TOP›
37
Idem.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
9
33
34
35
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
ternational Commercial Law of Pace University Law School in English,38 the site of the
Universidade Federal Fluminense in Portuguese,39 the site “CISG online” maintained by
the Law Faculty of the Albert-Ludwigs-Universität in Freiburg (Germany), mostly in English but also has links to cases decided in German, English, French and Italian,40 the site
?CISG ? Israel? maintained by the Faculty of Law of the Bar-Ilan University, in English
with reference to cases decided in Israel,41 the site ?CISG-Japan Database? maintained
by Kyushu University, in Japanese,42 the site ?CISG-France? maintained by Professor
Claude Witz of the Université de la Sarre, in English, German and French,43 and the site
maintained by the Universidad Carlos III de Madrid, in Spanish which focuses on Spanish
and Latin American cases and materials.44
Thanks to the Internet, nowadays researchers can have instant access to cases and materials published all over the world. However, several problems are faced by a person
researching in this area; most of them are related to the diversity of languages in which
the materials are published. It can also be mentioned the difficulty to have access to the
text of the full decisions because the CLOUT only publishes summaries of the decisions
compiled in this database. The Internet sites listed above do, however, publish full texts
of CISG cases for the jurisdiction they address. Another challenge in reading and interpreting these cases is the lack of information about the context in which those cases were
decided. That being said, I think that reviewing cases decided in some of the jurisdictions
of the parties to the CISG will be helpful to learn how open price issues have been treated
in actual practice.
A. Abstract No. 52 (a Hungarian Case)
36
37
Hungary: Municipal Court Budapest AZ 12.G.41.471/1991/21
38
24 March 1992
39
Adamfi Video Production GmbH v. Alkotk Studisa Kisszövetkezet
40
Original in Hungarian Â
41
The [seller], a German company, demanded payment of the price and interest for goods
sold and delivered to the defendant, a Hungarian company. At first, the [buyer] disputed the
existence of a contract and the delivery of goods. However, the court found that delivery
38
‹http://www.cisg.law.pace.edu/› Each of the Internet sites listed is a member of the Autonomous Network of
CISG Websites. For information on this network and its expanding membership, go to
‹http://www.cisg.law.pace.edu/network.html›
39
‹http://www.uff.br/cisgbrasil/›
40
‹http://www.jura.uni-freiburg.de/ipr1/cisg/title.htm›
41
‹http://www.biu.ac.il/law/cisg/›
42
‹http://www.law.kyushu-u.ac.jp/~sono/cisg/index.htm›
43
‹http://witz.jura.uni-sb.de/CISG/›
44
‹http://www.uc3m.es/cisg/›
Albert H. Kritzer CISG Database
Institute of International Commercial Law
10
42
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
had taken place on the basis of documents obtained from the Hungarian Customs Authority
and the forwarding agent had delivered the goods upon receipt signed by an employee of
the defendant.
The court relied upon a sales contract that had previously been concluded between the
parties, in order to determine the price of the goods and the other elements of the contract
and ordered the [buyer] to pay (arts. 9(1) and 53 CISG).
As to the obligation for payment of interest, which is not regulated by CISG, the court, on
the basis of the Hungarian Act on Private International Law (paragraph 25 of Legal Decree
No. 13 of 1973), applied German law as the law of the seat of the seller. In this context,
on the basis of article 352 paragraph (1) of the German Code of Commerce (HGB), the
Court awarded to the [seller] interest at the rate of 5% on the amount due as of the day the
obligation to pay the purchase price (determined in German currency) became due.
There are three aspects that may be highlighted from this particular case, one concerning
the existence of the sales contract, another referring to open contract terms, and a third
related to the interest that must be paid when the principal is past due.
Although in this case the buyer first disputed an issue concerning the existence of the
contract, the Hungarian court did not resolve this matter addressing the problem of contract
formation but, applying article 9(1) of CISG, relied upon the conduct of the parties since
the buyer had accepted delivery of the goods.
In respect to the open price term, the Hungarian court acknowledged the importance of the
usages and practices established between the parties. Thus, based upon a sales contract
that the parties had previously concluded, made a harmonic interpretation of the principles
established in articles 9(1) and 53 of CISG and ordered the buyer to pay the price of the
goods.
Finally, in determining the interest to be paid by the buyer for past due principal, the Hungarian court recognized that CISG does not covers this matter. Thus, in order to determine
such interest, the Hungarian court resorted to Hungarian domestic law on conflicts of laws,
which in turn required the application of German law.45
B. Abstract No. 53 (another Hungarian Case)
45
46
47
48
50
45
It is worthwhile mentioning that this case illustrates the Hungarian court?s commitment to analyze and
decide this case in light of its international character, according to the guidelines established by article 7 of
CISG. That is, the Court resolved all issues regulated by CISG applying the rules and principles set forth in
the Convention, and later, when addressing a question not governed by the Convention the Court resorted
to the applicable rules of Private International Law in Hungary. At this point, I also want to mention the
practicable difficulties that a court may find in order to apply the doctrine of international ?autonomous
contracts.? For additional reference on autonomous contracts see Ralph Amissah, The Autonomous
Institute of International Commercial Law
44
49
Hungary: Supreme Court Gf.I. 31.349/1992/9
Albert H. Kritzer CISG Database
43
11
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
25 September 1992
51
United Technologies International Inc. Pratt and Whitney Commercial Engine Business v.
Magyar Légi Közlekedési Vállalat (Malév Hungarian Airlines)
Original in Hungarian
53
The [seller], an American manufacturer of aircraft engines, further to extensive negotiations
with the [buyer], a Hungarian manufacturer of Tupolev aircraft, made two alternative offers
of different types of aircraft engines without quoting an exact price. The [buyer] chose
a type of engine from the ones offered and placed an order. At issue was whether a
valid contract was concluded.46 The court of first instance held that a valid contract had
been concluded on the ground that the offer indicated the goods and made provision for
determining the quantity and the price.
The Supreme Court found that the offer and the acceptance were vague and, as such,
ineffective since they failed to explicitly or implicitly fix or make provision for determining
the price of the engines ordered (art. 14(1) CISG). The Supreme Court considered that the
acceptance was a mere expression of the intention of the [buyer] to conclude a contract
for the purchase of the engines chosen and, as such, the acceptance could not operate
as a counter-offer. The Supreme Court therefore overturned the decision of the Court of
First Instance and held that there was no valid contract concluded.47
The entire text of this decision, made by the Supreme Court of the Republic of Hungary, as
well as the decision of the Court of First Instance, the Metropolitan Court of Budapest, was
translated into English by Dr. and Mrs. László Szlávnits and published in the Journal
of Law and Commerce.48
An interesting feature of this decision is that the Court of First Instance and the Supreme
Court of the Republic of Hungary reached to opposite conclusions: the Court of First Instance ?held that a valid contract had been concluded49 on the ground that the offer indicated the goods and made provision for determining the quantity and the price?;50 while
Contract, Reflecting the borderless electronic ? commercial environment in contracting, Loc. Cit.
46
Emphasis added.
47
‹http://www.uncitral.org/english/clout/abstract/abstr4.htm#TOP›
48
Dr. and Mrs. László Szlávnits (translators), Interpretative Decisions Applying CISG: CISG Case I and
CISG Case II, 13 Journal of Law and Commerce, 31-78 (1993).
49
?In summary of the above, therefore, it could be established that the parties agreed in the terminating
conditions and not in the suspensive or delaying conditions according to the terminology of the Hungarian
Civil Code as regards the initiative in the [seller’s] offer. Taking into consideration all the above the court
established that a valid agreement has been made between the parties.? Idem, 74.
50
?According to documentary evidence the price of the PW4056 engine is $5,847,675 and the price of
the PW4152 and PW4156/A engine is $5,552,675 as the above enumerated offers and their
completions detailed under paras. 1 and 2 unambiguously indicate. These proposals were so much
definite that they even included different credit facilities as well, also they defined those rates for the
services by the help of which the counter value of the services ca be calculates? Idem, 69.
Albert H. Kritzer CISG Database
52
Institute of International Commercial Law
12
54
55
56
57
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
the Supreme Court ?found that the offer and the acceptance were vague and, as such,
ineffective since they failed to explicitly or implicitly fix or make provision for determining
the price of the engines ordered51 (art. 14(1) CISG)? and consequently ?held that there
was no valid contract concluded.?
Finally, the reference made in the decision of the Supreme Court about the non-applicability
of article 55 of the CISG is strange (?The price cannot be determined according to Section
55 of the Agreement either, as jet systems have no market prices.?), because this statement is made suddenly, out of context, and without articulated coherence of the discussion.
I do not understand why this reference to article 55 is made, because if the Supreme Court
thought that no valid contract had been concluded – as it did – there was no need to determine the price for a contract that never came into existence. There may be other reasons
that may explain why this reference was made, but no further explanation is provided in
either of these Hungarian decisions, neither in the decision of first instance, nor in the
decision of second instance.
C. Abstract No. 106 (an Austrian Case)
58
59
Austria: Supreme Court; 2 Ob 547/93
60
10 November 1994
61
Published in German: Zeitschrift für Rechtsvergleichung 1995, 79
62
An Austrian party ordered in Germany a large quantity of chinchilla pelts of middle or better
quality at a price between 35 and 65 German Marks per piece.52 The German seller delivered 249 pelts. The Austrian party, without opening the packaged goods, supplied them to
an Italian pelt dealer at the same price. The Italian dealer returned thirteen pelts arguing
that they were of inferior quality to that agreed. The Austrian party sent to the German
seller an inventory list setting out the rejected pelts and refused to pay their price arguing
that it had supplied the pelts to the Italian customer on behalf of the German seller as its
agent.
The Court of First Instance ordered the Austrian party to pay the price of the rejected pelts,
51
?It can be determined on the basis of the given evidences and the Parties? declarations, that [seller]
made two parallel offers for the same deal on December 14, 1990, depending on [buyer’s] choice of the
Boeing or the Airbus aircraft. In case Boeing was selected, within the respective offer two separate engines
(PW4052 and PW4156/A) were indicated. This offer did not contain the base price of the PW4060 engine.
In case Airbus was selected, within the respective offer two different jet engine systems (PW4152 and
PW4156/A) were indicated. The base price of the jet engine systems is not included in the offer, only that of
the spare engines, in spite of the fact that these two elements are not identical either technically or in
respect of price. In case there is no base price, value stability calculations have no importance. The price
cannot be determined according to Section 55 of the Agreement either, as jet systems have no market
prices? Idem, 43.
52
Emphasis added.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
13
63
64
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
since the pelts were as specified in the contract. Having found that pelts of middle quality
were sold in the market at a price up to 60 German Marks, the court considered that a price
of 50 German Marks per pelt was a reasonable one.
The Court of Appeal affirmed that decision. It found that the CISG was applicable since
the parties had their places of business in States parties to the Convention and the subject
matter of the dispute fell within the sphere of application of the Convention. The Court of
Appeal further found that a valid contract had been concluded on the basis of the order,
which was sufficiently definite both as to the quantity and the quality of the goods.53
The Court of Appeal further found that the agreement as to the price range (35 to 65 German Marks) did not preclude the valid conclusion of a contract since under article 55 of
the Convention, if the price is not explicit or implicit in the contract, the parties are considered to have agreed on the usual market price.54 The Court of Appeal noted that the price
of 50 German Marks per pelt, which had been established by the Court of First Instance
based on the market price, had not been questioned by the parties. As to the currency of
payment, the court found that payment was due in German Marks, since payment should
be made at the place of business of the German seller (article 57 CISG).
The Supreme Court affirmed the decision of the Court of Appeal. It found that the Convention was applicable since an international sales contract in the sense of article 1(1)(a)
CISG was involved. It also found that the order was sufficiently definite to constitute an
offer under article 14 CISG, since it could be perceived as such by a reasonable person in
the same circumstances as the seller (article 8(2) and (3) CISG). In determining that the
order was sufficiently definite, the Supreme Court took into consideration the behaviour
of the Austrian buyer who accepted the delivered goods and sold them further without
questioning their price, quality or quantity. In particular, the price was found to be sufficiently definite, so as to make the application of article 55 unnecessary.55 As to the place
of payment, the Supreme Court found that it was the place of business of the seller since
the goods were sent by post and no third party had been appointed to receive payment in
Austria on behalf of the German seller.56
In applying article 55 of the CISG, the Austrian Supreme Court acknowledged the possibility that a contract can be validly concluded between the parties even though the price
had not been fixed at the time when such contract was entered into.
This case also presents interesting features in enforcing and interpreting the CISG. Â
The Austrian Supreme Court emphasized the rule contained in article 55 of the CISG in
the sense that a contract may be validly concluded even though the price is open when
it determined that ?the order was sufficiently definite to constitute an offer under article
53
Emphasis added.
Emphasis added.
55
Emphasis added.
56
‹http://www.uncitral.org/english/clout/abstract/abstr8.htm#TOP›
54
Albert H. Kritzer CISG Database
Institute of International Commercial Law
14
65
66
67
68
69
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
14 CISG, since it could be perceived as such by a reasonable person in the same circumstances as the seller (article 8(2)57 and (3)58 CISG)?. In determining that the order
was sufficiently definite, the Court also took into consideration the behavior of the Austrian
buyer who accepted the delivered goods and sold them further without questioning their
price.
D. Abstract No. 139 (a Russian Case)
70
71
Russian Federation: Tribunal of International Commercial Arbitration at the Russian Federation
Chamber of Commerce and Industry
Arbitral award in case No. 309/1993 of 3 March 1995
72
Original in Russian
73
Unpublished
74
An Austrian [buyer] brought a claim against a Ukrainian [seller] for damages resulting from
the latter’s refusal to deliver a certain quantity of goods. The [seller] denied liability on the
grounds that no such agreement had been reached between itself and the [buyer].
In settling this dispute, the tribunal noted that, under article 14 CISG, a proposal for concluding a contract should be sufficiently definite.59 It was considered to be such if it indicated the goods and expressly or implicitly fixed or made provision for determining their
quantity and price. A telex communication from the [seller] regarding the delivery of the
goods within a specified period indicated the nature of the goods and their quantity. However, it omitted to indicate the price of the goods or any means of determining their price.
The indication in the telex that the price of the goods in question would be agreed ten days
prior to the beginning of the new year could not be interpreted as making provision for
determining the price of the goods, but was merely an expression of consent to determine
the price of the goods at a future date by agreement between the parties.60 The [buyer],
who confirmed the contents of the telex communication, thus expressed its consent to the
price of the goods being made subject to further agreement between the parties.
57
Article 8 (1) of the CISG. ?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 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.
‹http://www.cisg.law.pace.edu/cisg/text/e-text-08.html›
58
Article 3 of the CISG. ?Contracts for the supply of goods to be manufactured or produced are to be
considered sales unless the party who orders the goods undertakes to supply a substantial part of the
materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in
which the preponderant part of the obligations of the party who furnishes the goods consists in the supply
of labour or other services. ‹http://www.cisg.law.pace.edu/cisg/text/e-text-03.html›
59
Emphasis added.
60
Emphasis added.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
15
75
76
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
The tribunal also noted that in this particular instance article 55 CISG, allowing the price of
goods to be determined where it was not expressly or implicitly fixed in a contract or where
a contract made no provisions for determining it, was not applicable since the parties had
implicitly indicated the need to reach agreement on the price in future.61
Agreement on the price had not subsequently been reached by the parties. The [seller]
indicated to the [buyer] that it was not possible to conclude a contract for the specified
quantity of goods. Finding that no contract had been concluded between the parties, the
tribunal dismissed the claim.62
In this case, the arbitral tribunal resolved that the contract never came into existence because under article 14 of the CISG a proposal for concluding a contract should be sufficiently definite. In this case, a telex communication from the seller regarding the delivery
of the goods within a specified period, although indicating the nature of the goods and
their quantity, omitted to establish the price of the goods or any means of determining their
price, but included an indication that the price of the goods would be agreed at a certain
date. The tribunal held that the buyer’s response was merely an expression of consent to
determine the price of the goods at a future date by agreement between the parties, noting
that in this particular instance, article 55 CISG allowing the price of goods to be determined
where it was not expressly or implicitly fixed in the contract or where the contract made
no provision for determining it, was not applicable since the parties had implicitly indicated
the need to reach agreement on the price in the future.
The manner in which the arbitral tribunal resolved this case and the comments made by
the tribunal while discussing the issues in controversy clearly indicate the tribunal’s belief
that articles 14 and 55 of the CISG deal with different issues; that they are not contradictory
to each other.
M. Rozenberg prepared a commentary to this case.63 Unfortunately his discussion on the
issues involving articles 14 and 55 of the CISG is limited to explaining why the parties
failed to provide for either the price of the goods or the mode of its determination because
the parties implied the necessity to reach an agreement in the future, that is, they had not
agreed on the price of this lot of goods.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
16
77
78
79
80
81
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
E. Abstract No. 215 (a Swiss Case)
82
Switzerland: Bezirksgericht St. Gallen, 3PZ97/18 of 3 July 1997
83
Original in German
84
Unpublished
85
Abstract published in German in 1 Schweizerische Zeitschrift für Internationales und
Europäisches Recht 84 [1998]
A Dutch seller (plaintiff) and a Swiss buyer (defendant) entered into an agreement for
goods to be manufactured by the buyer with the raw material delivered by the seller. After
the buyer had used 10 percent of the raw material, the cooperation between the buyer and
the seller was terminated and the remaining goods returned to the seller. The seller sued
the buyer for the purchase price of the entire shipment.
The court held that the buyer had to pay the price for all of the material delivered and not
only for the 10 percent used. The court relied, in the first place, on the buyer’s subsequent
conduct (article 8(3) CISG). The buyer had asked the seller to send the invoice without any
reservations although the buyer already knew that the whole material would not be used.
The purchase price had not been fixed by the parties and was determined by the court in
application of article 55 CISG.64 The interest rate was fixed based on the law applicable
pursuant to the forum’s rules of private international law, which led to Dutch law. However,
the court mentioned the possibility of determining the rate of interest in application of the
law at the debtor’s place of business, pointing out that it was the debtor who could profit
from the fact that the purchase price had not been paid.65
From this decision it can be inferred that, in applying article 55 of the CISG, the Swiss court
acknowledged the possibility that a contract can be validly concluded between the parties
even though the price had not been fixed at the time when the contract was entered into.
Hence, in this case, the Swiss court finds no contradiction between articles 55 and 14 of
the CISG.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
17
86
87
88
89
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
V. Â Open price terms in the UCC
90
Open price terms in sales contracts are regulated by section 2-305,66 Article 2 of the Uniform Commercial Code (the ?UCC?).67 Section 2-305 has been adopted by all the States
of the United States of America with the exception of Louisiana.68 An in-depth study of
this topic is beyond the scope of this work; hence, considering the comparative approach
of this work, I will focus my discussion and analysis of section 2-305 of the UCC on those
aspects treated by articles 14 and 55 of the CISG, namely: (1) whether a contract for sale
may be validly concluded when a proposal to enter into it is open in respect to the price
term; and (2) whether a contract that has been concluded by the parties is enforceable
when the price term remains open.
61
Emphasis added.
‹http://www.uncitral.org/english/clout/abstract/abstr10.htm#TOP›
63
M. Rozenberg, A Case from the Practice of the International Court of Commercial Arbitration at the RF
Chamber of Commerce and Industry, ‹http://www.cisg.law.pace.edu/cases/950303r2.html› I think that Rozenberg’s
commentary is on this case due to the similarity of the facts involved in the case cited in the abstract and in
the commentary under analysis. However, I want to highlight that the abstract from UNCITRAL appears as
case No. 309/1993 of March 5, 1995, while Rozenberg?s commentary makes reference to case No.
304/1993, although both were decided on March 3, 1995, by the Russian Federation Chamber of
Commerce and Industry.
64
Emphasis added.
65
‹http://www.uncitral.org/english/clout/abstract/abstr18.htm›
66
§2-305 of the UCC. ?Open Price Term. (1) The parties if they so intend can conclude a contract for
sale even though the price is not settled. In such a case the price is a reasonable price at the time for
delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to
agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by
a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer
means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of
the parties fails to be fixed through fault of one party the other may at his option treat the contract as
cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless
the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must
return any goods already received or if unable so to do must pay their reasonable value at the time of
delivery and the seller must return any portion of the price paid on account.? Selected Commercial
Statutes, 199, Edition. West Group, 65.
67
?One of the Uniform Laws drafted by the National Conference of Commissioners on Uniform State Laws
and the American Law Institute governing commercial transactions (including sales and leasing of goods,
transfer of funds, commercial paper, bank deposits and collections, letters of credit, bulk transfers,
warehouse receipts, bills of lading, investment securities, and secured transactions).? BLACK?S
DICTIONARY OF LAW, available in Westlaw.
68
?The essential lesson of the jurisprudence is that Louisiana law detests open price terms as nature
abhors a vacuum. Suitably chastened by the Louisiana judiciary?s inflexible insistence on a determinate
price in a sale, Louisiana lawyers strive to make the price clear in their agreements. Despite vigorous
urging by some of our brethren from other states whom I mentioned earlier, Louisiana jurisprudence
teaches us to steer clear of the venerated principle of the venerated principle of the open price term
embodied in Uniform Commercial Code (U.C.C.) Section 2-305 . . .? Shael Herman, APOLOGIA FOR A
FOOTNOTE, 6 and 7 Tul. Civ. L. F. 187, P. 195.
62
Albert H. Kritzer CISG Database
Institute of International Commercial Law
18
91
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
The reading of Section 2-305 of the UCC indicates that the key element for the parties
to conclude a contract for sale, even though the price is not settled, is the intent 69 of the
parties to do so.70
In Alter and Sons, Inc. v. United Engineers and Constructors, Inc.,71 a case decided in
1973 of which no negative history was found, a seller of pumping equipment brought suit
against a buyer for breach of the alleged contract of sale because the buyer cancelled and
repudiated the agreement. In this case, all elements of a sales agreement were mutually
agreed upon between the parties but the sales price remained open. Hence, the court
was required to resolve the issue of ?whether there was a sales contract between the
parties.?
After reviewing the applicable authorities, including the provisions of the UCC as adopted
by the State of Illinois, the Court held that ?[t]he intention of the parties with reference
to the issue whether a contract was made must be determined in light of the facts and
conduct of the parties.? Thus, the Court found that buyer knew and intended that the
seller would commit itself for the purchase, modification and shipment of the equipment
upon the strength of those representations and that buyer’s belated concern with the lack of
agreement as to sales price was inconsistent with buyer’s overriding concern at that critical
juncture in time that its equipment needs were filled on an emergency basis. Accordingly,
the Court resolved that a sales agreement was concluded, despite the fact that the sales
price remained to be determined.
Similarly, in 1982 the Court of Appeals of Idaho resolved the case of D.R. Curtis Company
v. Mathews,72 a case in which no negative history was found, where a farmer and a commodity broker entered into a contract for the sale of wheat. After dispute over the protein
?basis? figure used in determining price of wheat, the farmer refused to deliver the wheat
specified in the contract and the broker filed an action for breach of contract.
The issue that the Court faced in this case was whether or not a contract for the sale of
goods in which the parties left a factor in the price term to be agreed upon and failed to
subsequently agree on the factor left open should be enforced. On this issue, the court
held that ?[i]f the price in . . . a contract is left open by the parties to be established
in a later agreement, the parties are still bound to perform under the contract for sale of
goods.?
Notwithstanding the former argument that the contract was unenforceable because it was
ambiguous and indefinite since no agreement was reached regarding the protein basis, the
Court sustained the finding of the trial court, affirming that at the time the parties entered
69
Emphasis added.
?This section applies when the price term is left open on the making of an agreement which is
nevertheless intended by the parties to be a a binding agreement.? Paragraph 1 of the Official Comment to
Section 2-305 of the UCC. Selected Commercial Statutes, 199 Edition, 65.
71
Alter and Sons v. United Engineers, 366 F.Supp. 959 (1973).
72
D.R. Curtis Company v. Mathews, 653 P.2d. 1188 (1982).
70
Albert H. Kritzer CISG Database
Institute of International Commercial Law
19
92
93
94
95
96
97
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
into the agreement they had the intent to form a binding contract for sale because, one
day after their oral agreement, the broker signed and sent to the farmer a written memorandum confirming the terms of the agreement and the farmer signed and returned this
memorandum, although the memorandum had no reference to a protein ?basis? term or
to the means of establishing such term.
On this matter, the Court reasoned that the fact that the price term was left open to be
established and the parties failed to reach an agreement on that figure, did not make the
contract ambiguous or void for indefiniteness; it simply meant that a reasonable figure
remained to be determined. Accordingly, the Court upheld the decision of the trial court in
the sense that the farmer breached the contract for sale of grain.
From the two cases that have been reviewed, it can be seen that Section 2-305 does not
distinguish between whether the contract is concluded as a result of an open price proposal or whether the open price term is one of the clauses in a validly concluded contract,
but the cases confirm that the key element to determine whether a particular contract is
enforceable is the intent of the parties to be bound by the open price term contract.
VI. Open price terms in Mexican Commercial law
73
The family name is ROJINA VILLEGAS.
Free translation of the author. ?Si el precio no es cierto o en dinero, no existe la compraventa.? Rojina
Villegas, Rafael, Derecho Civil Mexicano, 5ª edición, Editorial Porrúa, 1985. T. VI, P. 195.
75
The family name is PEREZ FERNANDEZ DEL CASTILLO.
76
As provided in a legislative decree published on the Official Journal of the Federation the name of the
former ?Código Civil para el Distrito Federal en Materia Común y para toda la República en Materia
Federal?, the name of this code was changed to ?Código Civil Federal?. In this work all reference made
to the Federal Civil Code means the ?Código Civil Federal? as presently in effect.
77
Article 2251 of the Federal Civil Code. ?Los contratantes pueden convenir en que el precio sea el que
corre en dÃ-a o lugar determinados o el que fije un tercero.?
78
Free translation of the author. ?En este caso no existe contrato hasta que el precio no sea fijado, pues
un elemento esencial del contrato es la fijación de un precio cierto y en dinero.? Pérez Fernandez del
Castillo, Bernardo, Contratos Civiles, 5ª edición, Editorial Porrúa, 1998. P. 89.
74
Institute of International Commercial Law
99
100
The concept of open price terms in sales contracts is a foreign notion in Mexican law because in Mexico the price term is considered as one of the essential elements for the
existence of the contract. On this topic, Rafael Rojina Villegas73 ? one of the most prestigious commentators in Mexican legal doctrine ? wrote: ?If the price is not certain and
in money, there is no contract of sale?.74 This position is so embedded among Mexican
legal thinkers that the prestigious author Bernardo Pérez Fernandez del Castillo,75 while
commenting on the provision of the Federal Civil Code76 that allows that the price of a
sales contract be established in a future date by a third party,77 wrote: ?In this case there
is no contract until the time when the price is settled, because the determination of a price,
certain and in money, is an essential element for the existence of the contract.?78
Albert H. Kritzer CISG Database
98
20
101
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
However, one must try to see beyond the rigidity of those principles that in each legal
system become the paradigms under which legal analysis is made. After all, the articles
of the Civil Code are supposed to be fecund in consequences.79 In Mexico, commercial
sales contracts are regulated in articles 371 to 387 of the Code of Commerce and, pursuant to article 2 of the Code of Commerce;80 all those aspects of the substantive law that
are not specifically regulated by the Code of Commerce are to be supplemented by the
provisions of the Federal Civil Code.81 In the Code of Commerce, articles 380 and 381
make reference to the price term but only establish rules on the duty of the buyer to pay the
price, on the time of payment and on the advances made on the contract. Â Therefore,
all other matters not governed by these articles are to be supplemented by the appropriate
provisions of the Federal Civil Code.
Thus, article 2248 of the Federal Civil Code provides that one of the elements of a sales
contract is that one of the parties shall be bound to pay a ?price certain and in money.?82
But, what does it mean that the price must be ?certain?? On this topic, the several opinions
of the Supreme Court and the Federal Circuit Tribunals have held that a price is certain
when it has been determined or when it may be determinable,83 that is, when the price has
been fixed at the time of entering into the contract or when the contract provides up-front
for a formula or a method to fix the price.
In addition to the article 2248 of the Federal Civil Code, article 2251 provides that ?the
79
This comment about this feature of the Civil Code is generally attributed to the French jurist and scholar
of the XIX century Portalis.
80
Article 2. ?In deficiency of the provisions of this Code, the provisions of the Civil Code shall apply to the
acts of commerce.? Free translation of the author: ArtÃ-culo 2 ?A falta de disposiciones de este código,
serán aplicables a los actos de comercio las del derecho común.?
81
The Mexican Supreme Court and the Federal Circuit Tribunals have confirmed this interpretation in
several decisions. Amparo directo 1109/71. Miguel Peña Fonseca. 29 de enero de 1973. Unanimidad de
4 votos. Ponente: Mariano RamÃ-rez Vázquez; Amparo civil directo 2677/52. Fábrica de Papeles
Faciales y Sanitarios de México, S. A. 23 de septiembre de 1953. Unanimidad de cuatro votos. Los
Ministros Vicente Santos Guajardo y Gabriel GarcÃ-a Rojas no votaron por la razón que se expresa en el
acta del dÃ-a. Relator: AgustÃ-n Mercado Alarcón; Amparo civil directo 1030/45. Alcántara Luis. 22 de
noviembre de 1950. MayorÃ-a de tres votos. Ponente: AgustÃ-n Mercado Alarcón.
82
Article 2248. ?There is a contract of purchase and sale when one of the contracting parties is bound to
transfer the property of a thing or a right and in turn the other party is bound to pay for them a price certain
and in money.? Free translation of the author: ArtÃ-culo 2248 ?Habrá compraventa cuando uno de los
contratantes se obliga a transferir la propiedad de una cosa o de un derecho y el otro a su vez se obliga a
pagar por ellos un precio cierto y en dinero.?
83
See: Rojina Vilegas, Rafael, Loc. Cit. T. VI, P. 197. ?. . . the price certain and determined shall not
necessary be a fixed amount, it is sufficient that it may quantified according to methods or data agreed by
the contracting parties. . .? Free translation of the author: ?. . . el precio cierto y determinado no debe
consistir necesariamente en una suma fija sino que basta que sea susceptible de cuantificarse con arreglo
a bases o datos especÃ-ficos que al respecto estipulen los contratantes. Primer Tribunal Colegiado del
Décimo Primer Circuito. Octava Epoca: Amparo directo 520/89. Margarita Melchor de Navarrete. 7 de
febrero de 1990. Unanimidad de votos. Ponente: Héctor Federico Gutiérrez de Velasco Romo.
Secretario: Guillermo Esparza Alfaro.?
Albert H. Kritzer CISG Database
Institute of International Commercial Law
21
102
103
104
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
contracting parties may agree that the price is that which prevails as of a certain place and
date, or that the price is one which is fixed by a third party.?84 Most commentators insist
that, even in these situations, the price must be considered as ?certain?. This is the same
position adopted by the courts on this matter.85
It is beyond the scope of this work to discuss whether the term ?certain? is used properly,86
but at least it must be acknowledged that Mexican law allows at least three possibilities in
which the price need not be fixed at the time when the contract of sale is concluded: (1)
when the parties agree to a formula or method for the future determination of the price; (2)
when the parties agree that the price will be that prevailing on a certain place and date;
and (3) when the parties agree that the price will be determined by a third party.
There are almost no judicial interpretations for those cases in which the parties agree that
the price will be determined by a third party and when the parties agree that the price will
be that prevailing on a certain place and date. Commentators have opposing opinions on
these topics. As we have noted, author Bernardo Pérez Fernandez del Castillo87 thinks
that there is no contract until the time when the price is settled, because the determination
of a price, certain and in money, is an essential element for the existence of the contract;88
while a different prestigious author Ignacio Galindo Garfias89 thinks that the contract does
exist since the time that the parties agree to enter into it, even if the prices is not fixed at
that very moment.90
84
Free translation of the author. Art. 2251 ?Los contratantes pueden convenir en que el precio sea el que
corre en dÃ-a y lugar determinados o el que fije un tercero.?
85
?. . . the price certain still exists even if agreed that such price will be that prevailing on a future date
and place or the one determined by a third party.? Free translation of the author: “. . . el precio cierto no
deja de existir aunque se acuerde que el mismo sea el que corre en un dÃ-a o en un lugar determinados o
el que fije un tercero. . . .” CUARTO TRIBUNAL COLEGIADO EN MATERIA CIVIL DEL PRIMER
CIRCUITO. Octava Epoca: Amparo directo 3278/87. Miguel E. Abed, S. A. 28 de enero de 1988.
Unanimidad de votos. Ponente: Leonel Castillo González. Secretario: Ricardo Romero Vázquez.
Amparo directo 299/88. Calinda, S. A. de C. V. 11 de febrero de 1988. Unanimidad de votos. Ponente:
Mauro Miguel Reyes Zapata. Secretario: J. Refugio Ortega MarÃ-n. Amparo directo 824/88. Infratec, S. A.
de C. V. 26 de enero de 1989. Unanimidad de votos. Ponente: Leonel Castillo González. Secretario:
Ricardo Romero Vázquez. Amparo directo 719/90. Carlos Guido Torres. 21 de febrero de 1990.
Unanimidad de votos. Ponente: Mauro Miguel Reyes Zapata. Secretaria: Aurora Rojas Bonilla. Amparo
directo 1004/90. Manuel Lorenzo MartÃ-nez Hachity. 11 de julio de 1990. Unanimidad de votos. Ponente:
Mauro Miguel Reyes Zapata. Secretario: Luis Arellano Hobelsberger. NOTA: Esta tesis también aparece
publicada en la Gaceta del Semanario Judicial de la Federación, número 32 Agosto de 1990, pág. 42.
86
In a study made by the prestigious scholar Rodolfo Batiza, it can be seen that in all direct and indirect
sources of article 2248 of the Federal Civil Code, including the Mexican civil Codes of 1870 and 1884, the
projects of Civil Code prepared by Justo Sierra, the Civil Code of the Portuguese Empire and the French
Civil Code, the expression ?price certain? always appears. Â Batiza, Rodolfo, LAS FUENTES DEL
CÃ?DIGO CIVIL DE 1928. INTRODUCCIÃ?N, NOTAS Y TEXTOS DE SUS FUENTES ORIGINALES Y
NO REVELADAS, Editorial Porrúa, S.A. 1979. pp. 972 and 973.
87
The family name is PEREZ FERNANDEZ DEL CASTILLO.
88
See Pérez Fernandez del Castillo, Bernardo, Contratos Civiles, Loc. Cit., 89.
89
The family name is GALINDO GARFIAS.
90
CODIGO CIVIL PARA EL DISTRITO FEDERAL EN MATERIA COUMUN Y PARA TODA LA
Albert H. Kritzer CISG Database
Institute of International Commercial Law
22
105
106
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
In any event, these two topics offer a fertile area of research about Mexican law. I personally think that the formation of the contract should not be conditioned to the rigidity of the
a pre-determined formula or method for the determination of the price. However, I also
have to add that at the time I am writing this paper this would not be the prevailing view
of Mexican courts and practitioners. I also think that at this point and time, sales contract
that are absolutely silent in respect to the price term most probably could be successfully
challenged as non-existing contracts under Mexican domestic law.
VII. Comparison and Conclusions
108
In this work, it has been proposed that ?open price terms? are those that are not accurately
determined and agreed upon at the time in which the parties to a contract enter into it. If that
definition is accepted, it can also be said that the three legal systems in comparison (CISG,
UCC and Mexico) accept the possibility of having open price term contracts. However, in
each of these legal systems the type and operation of such open price term contracts is
different.
Up to this day, the discussion about open price term contracts in the CISG has been dominated by the Farnsworth-Honnold controversy. However, I think that at this point such
discussion should be considered as surmounted by the opinions issued on this topic by
different courts and arbitral tribunals in Hungary, Austria, Russia and Switzerland. As far
as I know, these courts have not expressly dealt with the arguments developed by either
Farnsworth of Honnold; it seems like they have developed their opinions not from the perspective of the academic experts but much more with a problem-solving attitude looking
for fair, practical and appropriate rules.
Thus, while being silent about the discussion within the academic community, the courts
have approached the issue of open price terms in sales contracts acknowledging that
articles 14 and 55 of CISG deal with different issues; that is, article 14 deals with the issue
of open price terms at the time of the formation of the contract, while article 55 deals with
open price terms once the parties have already entered into a sales contract. Furthermore,
the Austrian Supreme Court took into consideration the behavior of the buyer who accepted
the delivered goods and sold them further without questioning their price and held that a
contract may be validly concluded even though the price offer is open.
Under article 55 of CISG, the preferred option to determine an open price term is left to
the will of the parties, which may establish a method for price determination. However, the
courts of the world still have a tremendous amount of work to do on this topic, particularly
on determining what is the meaning of ?the price generally charged at the time of conclusion of the contract for such goods sold under comparable circumstances in the trade
REPUBLICA EN MATERIA FEDERAL, COMENTADO, Instituto de Investigaciones JurÃ-dicas UNAM,
Miguel Porrúa, 1988. T. V, 7.
Albert H. Kritzer CISG Database
Institute of International Commercial Law
107
23
109
110
111
112
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
concerned.?
I think that of the three systems in comparison, the UCC is both the most developed and
the most liberal on the topic of open price terms in sales contracts. As explained, under the
UCC the emphasis is placed upon the intent of the parties to enter into a binding contract.
That is, if you can prove that the parties intended to enter into a valid and mutually binding
contract, they are bound by the terms upon which they so agreed. At some point, the
prevailing case law has gone so far as to acknowledge that the parties may even enter
into an agreement to agree on the price term.
In contrast to the system of the UCC, Mexico presents the most conservative and rigid
system on open price terms for sales contracts. In Mexico, the general rule is that the
price is an essential part of the sales contract; consequently, it must be fixed up-front. This
rigid principle only admits three exceptions, that is, the parties can provide for a formula or
method for the determination of the price, or the price can be determined by a third party,
and that the price may be that prevailing at a certain place on a future date. However, the
rules of operation for the last two exceptions are not clear and scholars have expressed
opposing opinions on this matters. In this sense, I think that the influence of globalization
and comparative analysis will help to overcome the rigidity of the prevailing doctrines.
Before ending this work, one word must be said about whether the determination of the
price may be left to one of the party?s substantial, but not completely unfettered, discretion.
On this topic, the Supreme Court of Virginia held that ?open price provisions are enforceable in sales contracts, provided the party that is to set the price does not have the power
to act arbitrarily.?91 In Mexico, the rule is even more rigid since the validity or performance
of contracts may not be left to the will of one of the parties.92
The discussion of this topic on the CISG presents many difficulties and questions, practical
and academic, many questions that are still required to be resolved. It has been repeated
once and again that we are living in a global village and supranational laws, such as the
CISG, are one of the current trends trying to provide a legal answer to the issues presented
in global commerce. I think that these are only the first glimpses of that which we can
expected for the near future; big challenges are to come. I hope this work may help to
create an interest on the subject and to emphasize the importance of the comparative
method as a suitable approach to the issues arising in the development of a supranational
legal system.
FOOTNOTES
114
115
116
117
91
American Trading and Production Corporation v. Fairfax County Board of Supervisors, 214 Va. 382, 200
S.E. 2d 529, (1973), 4.
92
Free translation of Article 1797 of the Federal Civil Code: ?La validez y el cumplimiento de los contratos
no puede dejarse al arbitrio de los contratantes.?
Albert H. Kritzer CISG Database
113
Institute of International Commercial Law
24
Open Price Terms in the CISG, the UCC and Mexican Commercial Law
SiSU Metadata, document information
Document Manifest @:
‹http://www.jus.uio.no/pace/en/manifest/open_price_terms_in_cisg_and_mexican_commercial_law.carlos_gabuardi.html›
Title: Open Price Terms in the CISG, the UCC and Mexican Commercial Law
Creator: Carlos A. Gabuardi
Rights: Copyright: CISG Database, Pace Institute of International Commercial Law with permission © Copyright-Derechos Reservados. Carlos A. Gabuardi, Distrito B-6 No. 571, Col. Leones, Monterrey, N.L. MEXICO. (2001)
Publisher: SiSU on behalf of CISG Database, Pace Institute of International Commercial Law
Date available: 2001-07-24
Date: 2001
Version Information
Sourcefile:
open_price_terms_in_cisg_and_mexican_commercial_law.carlos_gabuardi.sst
Filetype: SiSU text 2.0, UTF-8 Unicode text, with very long lines
Source Digest:
SHA256(open_price_terms_in_cisg_and_mexican_commercial_law.carlos_gabuardi.sst)=2e2e8144-
c494d851acce1755998657caab838877e26ddf756d8c6afb66708f9a
Generated
Document (ao) last generated: 2014-12-11 20:00:06 -0500
Generated by: SiSU 6.4.0_pre_rel of 2014w49/1 (2014-12-08)
Ruby version: ruby 2.1.5p273 (2014-11-13) [x86_64-linux-gnu]
Albert H. Kritzer CISG Database
Institute of International Commercial Law
25