GAP-FILLING FUNCTION OF CUSTOM & NON-MANDATORY LAW

Transcription

1 GAP-FILLING FUNCTION OF CUSTOM & NON-MANDATORY LAW Evolution of Gap-Filling Rules *Pratham The established principle of common law is that it is the parties who should make contracts for themselves and court should not make the contract for the parties 1. The courts interpretation of contracts in dispute has been in furtherance of this approach. Different practices were adopted by the court to perform this approach. The gap-filling law s origin and development can be divided into three main phases on the basis of approach and interpretation of contracts by the courts. PHASE I - STRICT INTERPRETATION OF CONTRACTS The main approach of courts during the seventeenth century in England was that the parties to the contract enjoy entire freedom of contract. During this period the court held the approach that it is exclusive rights of parties to determine clauses for a contact. The court restricted its function to the extent of only interpreting the clauses of the contract and did not fill any gaps in the contract. 2 The parties to contract during this period enjoyed complete freedom of contact and took the responsibility to provide content to their contract. Also, it was due to approach of courts during this period that legal maxims like reservenda sunt pacta, i.e., an agreement must be kept though the heavens fall and caveat buyer, i.e., buyer should beware came into existence. The approach of the court during this period can realized by the decision of the court in the case of Chandelor v. Lopes. 3 In this case the buyer alleged that a stone purchased from the seller, the jeweller, was misrepresented as a bezar-stone to him. The court held: [T]he bare affirmation that it was bezar-stone, without warranting it be so, is no cause of action; and although he knew it to be no bezar-stone, it is not material; for everyone in selling his wares will affirm that his wares are good, yet if he does not warrant them to be so, it is no cause of action. Also, due to this approach of the court held that even the frustration of contract due to any natural calamity cannot considered to be an excuse 1 Henrietta Mills, Inc. v. Commissioner of Internal Revenue (1931) 52 F. 2d E. A. Farnsworth, Omission in Contracts, 68 Colum. L. R Chandelor v. Lopes, 79 Eng. Rep. 3 (Ex. Cham. 1603) 355

2 for a party to escape his liability. 4 A classical example of Strict Literalism is the verdict of Portia in, the classical English novel by William Shakespeare, The Merchant of Venice which was written at the end of 16 th century. PHASE II - ACTUAL INTENTION OF THE PARTIES TO THE CONTRACT By the nineteenth century the approach of courts changed to a more flexible and liberal form. The right of parties to determine the clauses of a contract still remained an exclusive right which the courts did not intervene with and an exclusive source for the performance. But while interpreting the terms of the contract in case of any dispute the courts started going beyond the contractual language and started filling gaps in consistence with actual intention of the parties when they entered into the contract. Therefore, the judicial decisions were announced in the name of the parties, by claiming that the result was based on the actual intention of the parties implied in the contract. 5 The courts came up with the concept that the content of the contract not only existed in the expressed terms, but also in the parties intention behind the expressed terms. In the case of Jones v. Bright 6 the court held that there is an implied warranty by the seller to the buyer that the goods being supplied to the buyer would be fit for the purpose for which the buyer is buying the goods. The court further established a general rule of implied warranty that if a man sells an article, he thereby warrants that it is merchantable, that it is for some purpose. The doctrine of frustration of contract was also laid down due to this approach of the court during the same period. Taylor v. Caldwell 7 is the case which laid down this doctrine. In this case the lessee contracted to hire the lessor s music hall for a series of concerts. After the signing of the contract, but six days before the first contract, the hall was destroyed by fire. The court held that the lessor was discharged from performing and that his failure to perform was therefore not a breach of contract. This conclusion was based on the theory that the parties regarded the continued existence of the hall as the foundation of the contract, and that the contract contained an implied condition that both parties would be excused if the 4 Michael G. Rapsomanikis, Frustration of Contract in International Trade Law and Comparative Law, 18 Duq. L. Rev. 551 (1980) 5 Supra note 2 6 Jones v. Bright, 130 Eng. Rep (Ex. Cham 1829) 7 Taylor v. Caldwell, 122 Eng. Rep. 309 (K.B. 1863) 356

3 hall ceased to exist. The reason given for the principle was that it carried out the intent of the parties. PHASE III - REASONABLE EXPECTATIONS OF THE PARTIES The courts explorations of actual intention of parties in a contract ultimately give birth to a new theory by the end of nineteenth century which is known as the objective theory based on objective standards of a reasonable person in a contract. The court while interpreting clauses of a contract started considering objective intention of parties when they entered in a contract rather than the subjective intention of parties. Court began openly to go beyond the parties actual expectations as well as their contract language and fill in the gap with what the judges themselves thought was fair or reasonable. 8 As in the case of L. N. Jackson & Co. v. Royal Norwegian Government 9, Hand, J. remarked that As courts become increasingly sure of themselves, interpretation more and more involves an imaginative projection of the expressed purpose upon situations arising later, for which the parties did not provide and which they did not have in mind. As, objective intention started getting preference over subjective intention of the parties in the courts, the precedents of each case became a ready-made for filing gaps. The terms supplied by the law were no longer considered to be based on the intention of the parties, but visualized instead as suppletive rules of law. 10 Suppletive rules are defined as reasonable intention of the parties. As early as in 1893, the warranties of fitness and merchantability went into the English Sale of Goods Act as suppletive rules of law. The theory laid down in the case of Jones v. Bright was incorporated in Uniform Sales Act and imposed the contractual duty on the seller, i.e., caveat venditor. The Act provided that: Where the goods are brought by description from a seller who deals with in goods of that description, whether he be the grower or the manufacturer or not, there is an implied warranty that the goods should be of merchantable quality Supra note 2, at L. N. Jackson & Co. v. Royal Norwegian Government, 177 F.2d 694, 702 (2d Cir. 1949) 10 Supra note 2, at S. 15, Uniform Sales Act 357

4 Similarly, the Restatement of Contracts stated the rules on impossibility as a suppletive rule. These rules would apply unless a contrary intention has been manifested. 12 Finally, the agreement of the parties was admitted not to be the exclusive source of their obligations, but only the source to be deferred to when their intent was clearly established and hence parole evidence rule came into the existence. This rule says that everything cannot be written in a contract as a contract is a mere indicative list of documents. The scholarly works regards most of the rules of the law of contracts as gap-filling rules or default rules 13 which are implied terms of a contract unless the contracting parties explicitly varies from theses terms. Thus, we can say that the development of gap-filling rules represents a gradual accumulation of default rules or implied terms in a contract. LAWS ON THE GAP-FILLING International trade historically has been subject to numerous domestic legal systems, mainly by virtue of the rules of private international law. The disputes arising out of international sales contracts have been settled at times according to the lex loci contractus, or the lex loci solutionis, or the lex fori. This diversity of the various legal systems applied has hindered the evolution of a strong, distinct and uniform modern lex mercatoria. Such legal diversity creates legal uncertainty and imposes additional transactional costs to the contracting parties. The dependency on the place where the case is heard made it impossible for the parties to know which law applied when there were several potential jurisdictions. To prevent this dependency on the forum is the raison d'être of uniform law. An additional advantage of uniform law is that it is equally accessible for both parties. The idea of a unified international trade law represents the revival of an ancient trend towards unification that can be traced to the Middle Ages and which had given rise to the lex mercatoria. 12 S. 457, Restatement of Contract, E. Allan Farnsworth & William F. Young, Contracts: Cases and Materials, p. 612 (5th ed. 1992) 358

5 UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS The United Nations Convention on Contracts for the International Sale of Goods (1980) represents the most recent attempt to unify or harmonize international sales law. The Convention creates a uniform law for the international sale of goods. This is clearly stated in the Preamble which introduces the Articles of the Convention: THE STATES PARTIES TO THIS CONVENTION, BEARING IN MIND the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order, CONSIDERING that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States, BEING OF THE OPINION that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, HAVE AGREED as follows : The Preamble to the CISG introduces the legal text which binds the signatory States of the Convention. Thus, the CISG attempts to unify the law governing international commerce, seeking to substitute one sales law for the many and diverse national legal systems that exist in the field of sales. INTERPRETATION OF ARTICLE 7 OF CISG Art. 7 of the United Nations Convention on Contracts for the International Sale of Goods read as follows: (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. 359

6 (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of private international law. This Article can be said to combine three different rules: (1) A general rule on the interpretation of the CISG. This rule reinforces the principle laid down in Art. 31 of the 1969 Vienna Convention on the Law of Treaties. 14 According to this Article, a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. But the provision of the CISG goes a little further, by pointing more specially to the observance of good faith in international trade. This further step is explained by the subject matter of the CISG. (2) A rule regarding gap-filling which is to be applied when the CISG does not contain any express rule on the matter involved. (3) A rule regarding the relationship between the CISG and national law. 15 By reading the three rules it is clear that the three rules are interrelated and endeavours to fulfil the same objective. The message being conveyed by these rules are that the CISG should be autonomous, i.e., it should not depend on principles and concepts derived from legal system of any particular nation. Similarly, this Article provides for gap-filling through analogy and this should be given primacy over national laws. It is only when the gap cannot be filled by analogy the rules of private international law should be referred which point to national legal systems. Thus, this Article also admits that all the gaps cannot be filled by analogy but looking for filling the gap through analogy should be the first approach under CISG. GAP-FILLING UNDER ARTICLE 7(2) The CISG does not constitute an exhaustive body of rules and thus does not provide solutions for all the problems that can originate from an international sale transaction. In fact, the issues governed by the Convention are limited to the formation of the contract and the rights 14 J. Honnold, Uniform Law for International Sales, 116 (1982) 15 Jan Hellner, Studies in International Law: Festskrift til Lars Hjerner, 219 (Stockholm 1990) 360

7 and the obligations of the parties resulting from such a contract. 16 This limitation gives rise to problems relating to the inevitability of filling gaps that subsist in any type of incomplete body of rules. It is to act in accordance with such inevitability that Art. 7(2), designating the rules for filling any gaps in the CISG, was drafted. The reasoning for such a provision lies in the fact that it is hardly possible for an international group to draft a voluminous and complicated piece of legislation without leaving gaps behind. In the manner that Article 7(2) is drafted, the risk of diversity in the Convention's gap-filling from one jurisdiction to another is curtailed, since recourse to domestic laws is to be had only when it is not possible to fill a gap by applying the general principles of analogy on which the Convention is based. The aim of this provision is not very different from that which the interpretation rules found in Article 7(1) are pursuing, i.e., uniformity in the CISG's interpretation and application. Article 7(2) and gap-filling are directly related to Article 7(1) and interpretation, not only due to their location in the text but, more importantly, because of their substantive relationship with each other. Gaps in the law constitute a danger to the uniformity and autonomy of the CISG's interpretation, because "one way to follow the homeward trend is to find gaps in the law". 17 Further, interpretation must be the means whereby gaps in the CISG are filled, because when a gap praeter legem is detected the problem arising thereby should be solved by way of interpretation of the CISG. In accordance with the basic criteria established in Article 7(1), uniformity in the CISG's application is the ultimate goal. It follows that for the interpretation of the CISG in general - not only in the case of ambiguities or obscurities in the text, but also in the case of gaps praeter legem - courts should to the largest possible extent refrain from resorting to the different domestic laws and try to find a solution within the Convention itself Art. 4, United Nation Convention on Contracts for the International Sale of Goods 17 Guyala Eörsi, General Provisions in International Sales, 2 Parker School of Foreign & Comparative Law 1984 (Galston & Smit, eds. New York) 18 M. Joachim Bonell, An International Restatement of Contract Law, 2 nd ed., p. 75 (Transnational: Irvington, NY 1997) 361

8 GAPS PRAETER LEGEM Before the gap-filling rule in Article 7(2) can be put into operation, the matters to which the rule applies must first be identified. The starting point of the gap-filling analysis is the observation that the gaps to which the rule refers, are not gaps intra legem, i.e., matters that are excluded from the scope or the application of the Convention -- such as the matters discussed in CISG Articles 2, 3, 4 and 5; they must be gaps praeter legem, i.e., matters that are governed but are not expressly resolved by the CISG; the absence of a uniform law provision dealing with such issues cannot be regarded as a gap. GAP-FILLING METHODOLOGY In general gap-filling methodology, three different approaches exist to fill gaps praeter legem. The first approach is based on the application of the general principles of the statute and is known as the True Code approach. 19 The drafters of the 1964 Hague Conventions selected that approach. 20 Hague Conventions pursuit of absolute independence from domestic law failed the test of acceptance. The solution adopted in Hague Conventions has been criticized and has been considered by some commentators as one of the reasons for its failure to win wide acceptance. 21 The second approach relies on the use of external legal principles to fill gaps found in the Code and is known as the Meta-Code approach. 22 The third approach to gap-filling is a combination of the foregoing approaches. 23 According to this approach, one is supposed to first apply the general principles of the Code. In the absence of any such principles, however, one should resort to the rules of private 19 William D. Hawkland, Uniform Commercial "Code" Methodology, U. Ill. L. Rev. (1962) 291 cf. Dr. John Felemegas, ed., An International Approach to the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, p. 24 (Cambridge University Press, ) 20 E.Wahl, "Article 17", in Kommentar Zum Einheitlichen Kaufrecht (Hans Dölle ed., 1976) 126 cf. Dr. John Felemegas, ed., An International Approach to the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, p. 24 (Cambridge University Press, ) 21 Isaak I. Dore & James E. DeFranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 Harv. Int'l. L.J. 49 (1982) 22 Steve H. Nickles, Problems of Sources of Law Relationships Under the Uniform Commercial Code - Part I: The Methodological Problem and The Civil Law Approach, 31 Ark. L. Rev. 1 (1977) cf. Dr. John Felemegas, ed., An International Approach to the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, p. 24 (Cambridge University Press, ) 23 Albert H. Kritzer, The Convention on Contracts for the International Sale of Goods: Scope, Interpretation and Resources, Cornell Review of the Convention on Contracts for the International Sale of Goods, 147 (1995) 362

9 international law. This is an approach that combines recourse to general principles with an eventual recourse to the rules of private international law. It is this approach that was adopted by the drafters of the CISG. Therefore, in practice, when a matter is governed by the CISG but is not expressly settled in it, Article 7(2) offers a solution by: (i) internal analogy, where the CISG's other provisions contain an applicable general principle; or (ii) reference to external legal principles, i.e., the rules of private international law, when the CISG does not contain an applicable general principle. 24 Pursuant to Art. 7(2) any gaps must be filled, whenever possible, within the Convention itself; a solution that complies with the aim of Article 7(1), i.e., the promotion of the Convention's uniform application. There are various types of logical reasoning that can be employed in order to find a solution to a gap within the CISG itself, and recourse to the CISG's general principles constitutes only one method of gap-filling. This observation leads to a further interpretation issue, the interpretation of Article 7(2) itself. One must determine whether Article 7(2) should be interpreted broadly, i.e., whether it includes other methods of legal reasoning as well, such as analogical application, or whether it is to be interpreted restrictively. 25 It is agreed upon that Art. 7(2) must have a broad interpretation, and that there are two complementary methods of gap-filling allowed under this provision: (a) an analogical application of specific provisions of the CISG; and (b) a consideration of the general principles underlying the CISG as a whole, when the gap cannot be filled by analogical application of specific provisions.analogical application has also been accepted as a method of gap-filling by many other scholars in this area. 26 An explanation of this method is provided by Dr. Fritz Enderlein and Dr. Dietrich Maskow, who, in endorsing a broad interpretation of Article 7(2), stated that"gap-filling can be done, as we believe, by applying such interpretation methods as extensive interpretation and analogy. The admissibility of analogy is directly addressed in the wording contained in the CISG because it is aimed at obtaining, from several comparable rules, one rule for a not expressly covered fact and/or a general rule under which the fact can be subsumed" Ibid 25 Supra note 18, at Supra note 18, at Enderlein & Maskow, International Sales Law, 58 (Oceana Publications, 1992) 363

10 GAP-FILLING BY ANALOGY The method of analogical application requires examination of the provisions of the CISG, because the rule laid down in an analogous provision may be restricted to its particular context and, thus, its extension to other situations would be arbitrary and contrary to the intention of the drafters or the purpose of the rule itself. There is some diversity in opinion on the exact test to be applied in such cases. Ferrari 28 states that when the matters expressly settled in the Convention and the matters in question are so closely related that it would be unjustified to adopt a different solution, one can fill the gap by analogy. Honnold offers a different test, placing the focus of the inquiry on whether the cases were so analogous that the drafters would not have deliberately chosen discordant results. Only in such circumstances, according to Honnold, it would be reasonable to conclude that the rule embracing the analogous situation is authorized by Article 7(2) CISG. 29 GENERAL PRINCIPLES AND THE CISG When the solution to a gap-filling problem cannot be achieved by analogical application of a rule which might found in a specific CISG provision dealing with similar issues as those present in the gap, gap-filling can be performed by the application of the general principles on which the CISG is based. This procedure differs from the analogical application method, in that it does not solve the case in question solely by extending specific provisions dealing with analogous cases, but on the basis of rules which may be applied on a much wider scale, due to their general character. LEX MERCATORIA AND CISG The Vienna Convention represents a statutory framework of law created by states, whereas the lex mercatoria is a body of spontaneous law - law created by standard commercial practices and arbitral decisions. Despite their differences, the Vienna Convention and the lex mercatoria do not compete for the status of being the exclusive source of law for international trade. Although the rules of the Convention are approved by states, they operate in conjunction with international trade usages and the principle of contractual autonomy. 28 F. Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Georgia Journal of International and Comparative Law 222(1994) 29 John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 156 (1982) 364

11 Municipal laws are ill-adapted to the regulatory needs of international trade and, in particular, to those of international sales. These laws, by and large, are antiquated and their applicability to international transactions is determined by a choice of law process that varies from country to country. Experience indicates, however, that problems also afflict this approach. Conflicts determinations are highly intricate and prone to achieve uncertainty in many cases, especially when the rules refer - in one way or another - to the law with the most significant relationship. Conflicts rules, therefore, fail to provide the simplicity and predictability of result necessary to international transactions. Moreover, choice of law rules merely refers an international transaction to a given domestic law. Domestic laws are not adapted to the character of these transactions. An international sale is more than a mere domestic sale with incidental foreign elements. It entails special problems of communication and transportation, requires the parties to operate in alien legal and cultural environments, and obliges them generally to speak in different languages in more than the literal sense. Devising uniform rules specifically for international trade, therefore, appears to be the optimal solution. It is the methodology adopted by the Vienna Sales Convention. In contradistinction to prior instruments, the Vienna Convention does not provide a model law that states enact into their domestic law. Rather, once it is ratified, the Convention provides directly applicable rules. The provisions of the Convention, however, were not meant to fill a vacuum. International business practice did not have the luxury of waiting until states could come to agreement to establish a suitable legal regime for transactions. The Convention, therefore, acknowledges that other rules exist which it supplements. TRADE USAGES AND CISG In many areas of international business, such as maritime transportation, insurance, or banking, accepted trade practices or usages are applicable to transactions despite a lack of express reference by the parties. This practice also applies in sales for several types of commodities. Accepted usages constitute the major part of the new law merchant. It has long been recognized that these usages in fact have a greater impact on international contracts than domestic laws 30. The Convention acknowledges unequivocally the paramount importance of 30 Berman and Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 Harv. Int l L.J. 221 (1978) 365

12 usages as a source of law for transactions. 31 Article 9 deals with the question of usages 32 ; thereafter, usages come into play in two ways. Usages are applicable by party provision. The parties are bound by any usages to which they have agreed. When express provision is made, questions regarding the place of delivery or the passing of risk will be decided by reference to the chosen usages, rather than Convention rules. Article 9(2) provides further that the parties, unless they agree otherwise, are considered to have made trade usages impliedly applicable to their contract or to its formation. Article 9(2) is significant in that it acknowledges that rules not made by states can be imposed upon the parties. These rules, therefore, are truly legal rules. Although usages do not have unlimited legal effect, the Convention places them on a footing at least equal to party autonomy, thereby giving them a status superior to the Convention rules themselves. Under the Convention, usages constitute special rules that reflect the accepted practice in the area. Like the rules of the Convention, they are subordinated only to mandatory norms of municipal laws. The Convention rules, therefore, are supplementary to both party autonomy and usages. Because the parties can choose another law and given the existence of trade usages, the Convention rules may not often apply to international sales contracts. The rules, however, can still fill gaps and can be used as a supplementary framework when there are no applicable usages. The Convention also may eliminate party disagreement on the applicable law. The goal of the rules is to provide solutions that do not stray too far from domestic laws and yet take into account the special needs of international trade. So, analogical approach should be the very first approach of the courts to fill in the gaps according to the CISG. Only when analogical approach falls short the courts should look into the other approaches like private international laws and customs and usages. Although, we can say that the CISG is very much silent on customs and usages of the trade. 31 Goldstajn, Usages of Trade and Other Autonomous Rules of International Trade According to the UN (1980) Sales Convention, as cited in P. Sarcevic and P. Volken, eds., International Sale of Goods, Dubrovnik Lectures, 55 (1986) 32 Art. 9, CISG - (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (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. 366

13 UNIFORM COMMERCIAL CODE The Uniform Commercial Code (UCC), a code addressing most aspects of commercial law, is generally viewed as one of the most important developments in US law. The UCC text and draft revisions were written by experts in commercial law and submitted as drafts for approval to the National Conference of Commissioners on Uniform State Laws (referred to as the Uniform Law Commissioners), in collaboration with the American Law Institute. The UCC is a model code, so it does not have legal effect in a jurisdiction unless UCC provisions are enacted by the individual state legislatures as statutes. Article 2 of the UCC which applies to contracts for the sale of goods has led the way for gap filling. Section sets the stage by dispensing the rigid rules of offer 33 and acceptance contained in the first Restatement. 34 Under this provision, the court is authorized to fill a number of gaps if the parties have left them open in their sales contract. The underlying policy is that an agreement for the sale of goods ought to be binding when the commercial parties regard it to be binding and that in practice both parties frequently believe that they are bound even though some terms have been left open. Gap-filling provisions are based on the assumption that these are the terms that most parties would have agreed to if they had focused on the issues in advance. In particular, the UCC provides instructions for filling gaps in price, place for delivery, time for shipment or delivery, time for payment. GAP-FILLING RULES UNDER UCC The Part 2 of the UCC gives rules form formation and restatement of contracts. The mode of formation of contract can be either expressed 35 or according to the usages of the trade 36. The only condition for the formation of contract is that the parties are consenting for the same transaction and it is not detrimental to any of the parties. Further, in the Part 3 of the UCC 33 S , UCC Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy 34 Eugene F. Mooney, Old Kontract Principles and Karl s New Kode: An Essay on the Jurisprudence of Our New Commercial Law, 11 Vill. L. Rev. 213 (1966) cf. Shumei Lu, Gap-filling and Freedom of Contract, LL.M. Thesis and Essays, Paper 29, Georgia Law Review p. 4 (200) 35 S , UCC 36 Id. S

14 gives general obligations of the parties and rules according to which the courts can construct a contract in dispute. It is this part of the code which gives rules for gap-filling to the courts. OPEN PRICE TERMS The Code gives freedom to the parties to conclude a sales contract even when the price of the goods is not agreed upon or decided upon. The Code provides that 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. 37 The only conditions to be followed is that the price should be fixed in good faith and which must be in conformity with reasonable commercial standards of fair dealing in the trade if the party is a merchant. 38 The other condition is that the parties intended to be bound under the contract before the contract came into the force. 39 ABSENCE OF SPECIFIED PLACE FOR DELIVERY According to the UCC, if the parties do not specify where the goods are to be delivered, the place for delivery is the seller s place of business, or if he has none, his residence. 40 The only exception to this rule is that, at the time of contracting, if the goods are known by the parties to be somewhere other than at the seller s business or residence, that place is the place of delivery. 41 In other words, where the contract is silent the court will construe the contract so as to require the buyer to take delivery at either the seller s location or where the goods are located. The buyer must bargain to place a delivery obligation on the seller. ABSENCE OF SPECIFIC TIME PROVISIONS If the contract is silent as to the time for shipment, for delivery, or for any other action under the contract, that time shall be a reasonable time. 42 A reasonable time for taking any action usually relies on the nature, purpose and circumstances of the action to be taken Id. S (1) 38 Id. S (2) 39 Id. S (4) 40 Id. S (a) 41 Ibid. S (b) 42 Id. S Id. S (1) 368

15 OPEN TIME FOR PAYMENT OR RUNNING OF CREDIT If the contract does not specify whether the buyer is to have credit, payment is due at the time and place at which the buyer is to receive the goods, even if this place is the seller s place of business. Unless otherwise agreed, delivery and payment are concurrent conditions. In other words, the buyer is not entitled to credit unless the contract says so. 44 CUSTOM AND USAGES AND UCC In the case of Nicoll v. Pittsvein Coal Co. 45 the Federal Court of USA held that a businessman generally enters into a contract without express reference of trade and usages of the trade and he rarely includes common commercial understanding expressly in the contract. Therefore, in attempting to construe a contract to conform to the intentions and expectations of the parties at the time the agreement was drafted courts have to be cognizant of the reality of the market place and should permitted course of dealing and usage of trade to be utilized in interpretation. It was this view of the court that was supplemented by the implementation of the Uniform Commercial Code. The code allows the court to explain and supplement the terms of the contracts with the trade, usages and customs of the trade. While the Code makes course of dealing and usage of trade freely admissible when offered to explain and supplement the express terms of the written agreement 46, it also limits the admissibility of evidence offered to prove consistent additional terms. 47 Section 1-303(b) of the UCC states definitions of usage of trade and course of dealing 48 as well as the criteria to be used by the trier of fact in determining the effect of such evidence upon the written terms Id. S (a) 45 Nicoll v. Pittvein Coal Co., 2 Cir. 269 F S (b), UCC 47 Id. S (a) 48 Id. S (b) - A course of dealing is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 49 Id. S , Preliminary Comments 2 - Course of dealing, as defined in subsection (b), is restricted, literally, to a sequence of conduct between the parties previous to the agreement. A sequence of conduct after or under the agreement, however, is a course of performance. Course of dealing may enter the agreement either by explicit provisions of the agreement or by tacit recognition. 369

16 CONCLUSION Art. 7(2) CISG refers in the case of gaps in the first instance to the general principles on which the Convention is based. Thus, Art. 7(2) prefers autonomous gap-filling in the form of recourse to general principles to making resort to the law applicable by virtue of the rules of private international law. The reason why autonomous gap-filling has priority over resorting to the law applicable by virtue of private international law is because when the latter method is applied the law applicable sometimes depends on the forum. Autonomous gap-filling preserves the advantages of uniform law: it avoids the dependency on the forum which allows the parties to know which law applies before a claim is filed; the law is equally accessible for both parties.thus, the underlying meaning of Art. 7(2) is to preserve uniformity as far as possible. With regard to this underlying meaning, equal treatment of the means of gap-filling is justified. Since there is less freedom for a judge when he applies a provision by analogy or derives a more general rule from a single provision, uniformity in gap-filling will be more easily achieved by them. Due to the fact that there are only a few general principles but a lot of provisions to be applied by analogy, uniformity will be more preserved when analogy and generalizations from a single provision are admitted. Also, Art. 9 gives parties autonomy to fill the gaps according to the trade usages and use CISG as a tool to fill the gaps and resolve a dispute when the usages are contradictory in different nations in international sale of goods or when parties disagree to follow to continuing usages.the Uniform Commercial Code starts with an underlying assumption that the parties have agreed to the implied custom and usages of the trade unless a contrary intention appears. In the UCC the prominence is given to the usages. For other cases where the general usages will fail to fill the gaps express provisions has been made. This nature of the UCC makes its nature very similar to several provisions of Indian Contract Act, The problem that the courts might face why sticking to the provisions of the UCC is the absence of alternative mechanism to fill the gaps when both of them fails. Therefore, it can be concluded that both the CISG and the UCC draws its basic nature from the custom and usages of the trade and other non-mandatory laws. Only the prominence given to one over the other differentiates the two legislations. This also leads to the inference that gap-filling laws in international trade cannot be made in vicinity of non-mandatory laws and customs. Also, there cannot be a single comprehensive text to fill the gaps and hence non-mandatory laws and customs will always be a part of international trade. 370

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19 Parker School of Foreign & Comparative Law University of Illinois Law Review Virginia Law Review Washington & Lee Law Review William Mary Law Review Yale Law School Faculty Scholarship Series Statutes United Nations Convention on Contracts for International Sales of Goods Uniform Commercial Code Other Authorities