(By Sieg Eiselen B Juris) 

3.2 Contract terms on the back but no clear reference on the front

The facts in the French Isea case45 present a more problematic scenario. In that case the buyer sent order forms to the seller. The order forms contained standard terms printed on the back, but contained no incorporation clause on the front of the document. The court held as follows:

The disputed sale was formed, by application of Article 18(2) of the [CISG], at the moment when [Buyer] received the order form returned by [Seller] with the signature of its representative, that is, on 5 April 1991.

Bearing in mind the absence, on the reverse side of that form, of an express reference to the general terms of sale appearing on the back, the [Seller] cannot be considered to have accepted the latter. The confirmation of the order on 23 April 1991, which contains the general terms of sale, being subsequent to the date of contract formation, cannot be analyzed as a counter-offer within the meaning of Article 19(1) of the [CISG]; consequently, [Buyer]’s silence is stripped of its import.

There is no indication or analysis by the court whether the writing on the back of the order form was conspicuous or not or whether a reasonable person in the position of the seller would have noticed such terms on the back of this document. The court, taking a strict approach, simply decides that the lack of an incorporation clause on the front part of the document was enough to deny the standard terms on the reverse side any legal relevance.

Once again this is in a commercial sense a rather startling conclusion without properly analysing the appearance of the document. The use of standard terms in all sales, domestic and international is a well known and widespread phenomenon. Indeed, in this case both parties regularly made use of standard terms. The buyer’s terms were printed on the back of the order form, the seller consistently sent his standard terms to the buyer, albeit after the conclusion of the contract. One may well ask whether the conduct of the seller in this case who probably would have seen the writing on the back of the document, acted in good faith by studiously ignoring the writing on a document which was clearly a contractual document and in which a reasonable commercial party would have expected to find standard terms. It is submitted that in this case the French court displayed too strict an approach to the incorporation of standard terms.

3.3 Where the standard terms are in a different language

In international transactions the contracting parties very often conclude their agreement in a neutral language such as English, or in the language of one of the contracting parties. In these cases it quite often happens that the agreement refers to the incorporation of the standard terms of either the buyer or seller and that those standard terms then exist only in a different language. The issue is whether the incorporation in these circumstances should be regarded as effective. On the one hand one may argue that where there is a clear incorporation term, the party should be bound by the terms incorporated unless it objects to such incorporation. The fact that the terms are in another language theoretically makes it difficult for that party to take subjective notice of the contents of such terms, but practically speaking it is well known that such terms are very often not read by the other party. The failure of the latter to object to the inclusion should have the same effect as if the terms had been in the same language as the rest of the contract.

Magnus however takes a different view. He states:

Generally, only if formulated in the language of the contract is the necessary reference to standard terms effective. The language of the contract is the language in which the parties negotiated and concluded the contract. However, if the reference is made in a language which the addressee (or its representative) in fact understands this constitutes a valid reference. A reference in another language has, however, no effect.

In principle, the same considerations apply to the language of the standard terms themselves. But if in a longstanding commercial relationship a party has always accepted standard terms in a language which is neither the contract language nor understood by this party then such conduct and the principle of good faith disallows this party to object to the terms. Magnus’ point of view is supported by the decision in the German Knitware case where the court states:

If the [seller] did not send its General Conditions to the [buyer], it still cannot be assumed that the [buyer]s Terms for Purchasing became part of the contract. On the one hand, the [seller] denies having received the [buyer]s General Terms of Business; on the other hand, the [buyer] did not state that it had included an Italian translation of its Terms for Purchasing. Since the language of the contract in the present case was not German, the General Terms of Business written in German did not become part of the contract (v. Caemmerer/Schlechtriem, Article14 n.16).

It is submitted that this line of reasoning does not hold water when regard is had to the general principles. Where the addressee does not read or require a copy of the standard terms, the language in which they are couched becomes wholly immaterial. Whether it is in a language that the addressee understands or not, makes no practical difference – the addressee has taken no interest in obtaining the standard terms and has also not objected to their inclusion. The addressee has therefore created the objective impression that it has assented to the inclusion of the standard terms and the other party should be able to rely on that impression if regard is had to the principles laid down in article 8. The reasoning of the court in the German Clothes case is to be preferred:

The [Seller] may not invoke comprehension difficulties, which were not even recited correctly and are hardly understandable in view of the letter of 10 June 1994, which was written in German. A party that accepts a foreign language for negotiations or accepts foreign language offers has to let the intricacies of meaning of the foreign language be held against them because, in case of doubt, the offeree is held to make objections to get sufficient certainty, to make further inquiries or use a professional translation (v. Caemmerer-Schlechtriem, aa. Art. 8, para. 4a). Should it neglect to do so, any unwanted consequences are to be borne by it pursuant to CISG Art. 8(1).

In the American MCC-Marble Ceramic case, the court also dealt with language risks, quite correctly placing the risk on the party accepting a communication in a foreign language without any further inquiry:

We find it nothing short of astounding that an individual, purportedly experienced in commercial matters, would sign a contract in a foreign language and expect not to be bound simply because he could not comprehend its terms. We find nothing in the CISG that might counsel this type of reckless behavior and nothing that signals any retreat from the proposition that parties who sign contracts will be bound by them regardless of whether they have read them or understood them.

The approach taken in the German Knitware case and expounded by Magnus again evidences an approach that is too strict and not in step with commercial realities or with the basic principles of the CISG and should therefore be rejected.

3.4 Where the standard terms are added ex post facto

In stark contrast to these cases where the court’s have followed an approach that is far too strict in regard to the incorporation of standard terms, there is one case where a court has followed an approach which is unacceptably lax. In the American Berry case the court held as follows:

Finally, the exclusionary clause was printed in bright red on top of all 63 boxes of raspberry planting stock, and there is no dispute that Plaintiff Berry received and opened these boxes. Even if this were the only notice of the exclusionary clause, similar to the case in Mortenson, the clause is conscionable and enforceable. Even if the CISG did apply, the exclusionary clause is still enforceable because Plaintiff paid the price for the goods and opened the package where the exclusionary clause was prominently displayed on top in red. (Article 18(3):

“assent by performing an act, such as one relating to the dispatch of the goods or payment of the price ...”; Article 18(1): an additional term can be accepted by “conduct by the offeree indicating assent.”) Also, under Article 9(2), “the parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.” It appears that the placement of oral orders for goods followed by invoices with sales terms is commonplace, and while every term of the contract is not usually part of the oral discussion, subsequent written confirmation containing additional terms are binding unless timely objected to. See, e.g., W.T. GmbH v. P. AG, No. P4 1991/238 (ZG Basel, Switz. Dec. 21, 1992).

Magnus quite correctly observes that the reference to and availability of standard terms must occur before or at the same time as the conclusion of the contract. A reference to or the inclusion of standard terms afterwards on an invoice or similar document cannot in itself modify the terms of the already existing contract. The court’s reference here to the existence of a usage as the justification of the inclusion of the standard terms cannot be accepted as there was no clear evidence of such a usage either between the parties or in the industry at large. Furthermore a party cannot unilaterally add additional terms to the contract after the fact. It would be a breach of the contract if one of the parties insisted, even if it is only by its conduct, to insist on additional terms after the conclusion of the contract. The buyer in thisinstance was quite entitled under the provisions of the CISG to ignore the terms that the seller wanted to impose unilaterally afterwards.

The court also refers to the decision in a Swiss case55 as support for its provisions that a party is entitled to send a subsequent written confirmation of the terms of the contract. However, that case dealt with an entirely different situation. In German and Swiss law this type of confirmation is known as a “kaufmännisches Bestätigungsschreiben”. In this type of situation one of the parties will send a confirmatory writing setting out the terms of the agreement immediately after the conclusion of an oral agreement. If the other party does not agree with the confirmatory writing, it must register an immediate protest otherwise the confirmation is deemed to be in accordance with their agreement. However, in the Berry case the court was not dealing with this kind of confirmatory writing, but with entirely new terms that were being forced onto the other party after the conclusion of the contract. The Swiss case therefore does not support the American court’s conclusion in any way. This case provides an example of an approach which is far too lax in respect to the inclusion of standard terms and goes against the clear provisions of the CISG.

Although most of the statements of the court in the Berry case may be considered correct, the application to facts and the result must be questioned. Once a contract has been concluded, the parties are bound by the terms of their agreement and cannot after the event be unilaterally modified by one of the parties, which seems to be what happened in this case. Unless the parties had established between themselves a practice where the inclusion of the standard terms became part of their agreements, sending invoices and packaging with terms prominently displayed cannot change the original agreement. The buyer was entitled to receive the goods in terms of the original contract without any additional conditions or terms being imposed on it. To require, as the court does here, that the buyer should refuse to open the packages if it wanted to object to the inclusion of these terms, runs against the grain of the provisions of article 18 and 19. Furthermore, the nursery is not as vulnerable or exposed in this situation as suggested by the court. There is no reason why the nursery could not refer the buyer to the inclusion of its standard terms at the time of contracting.

4 Conclusion

It is regrettable that at present there does not seem to be any harmony in the interpretation and application of the CISG in regard to the inclusion of standard terms. Although the CISG does not contain any specific provisions dealing with standard terms, the general principles found in articles 8, 14 and 18 should be sufficient to deal with this issue. It is clear that where a contract incorporates standard terms by reference and the standard terms are made available to the other party, that such terms are validly incorporated into the contract. However, the case law as well as academic opinion is divided on the question where the terms are not made available to the other party at the same time. There are three distinct approaches that can be observed in the case law and academic writings, a strict approach, moderate approach and a lax approach.

The German Supreme Court, applying the strict approach, has held that unless the terms are supplied or made available to the other party at the time of the conclusion, they will not be regarded as validly incorporated. This strict approach has been applied consistently in Germany since and has even found favour with some Dutch court’s. This approach is too strict in respect of international commercial transactions and runs against a proper interpretation of the CISG. It should be rejected.

At the other end of the scale, the lax approach applied by an American court in the Berry case59 should equally be rejected. Allowing standard terms to be included ex post facto without allowing for a modification of the contract is totally unacceptable. The fact that the standard terms to be incorporated into a contract is couched in a language different to that of the contract, should not affect the validity of their incorporation unless the other party has objected to their inclusion at the time of the contract.

It is submitted that the moderate approach used by the Austrian Supreme Court60 is based on a proper interpretation of the CISG and is also more closely aligned to commercial practice and the expectations of international traders. It is hoped that this approach will eventually find favour with the majority of courts and represent the harmonized approach that should emerge.

The only exception to these rules should be in respect of those provisions which can be assessed as surprising or unusual in the particular circumstances. A party should not be held bound to such clauses unless it has been specifically made aware of such terms.

(Edited by: China West Lawyer)