CISG Advisory Council Opinion No 13

A General

1.    It is a common feature of the modern mass production economy that contracts for the manufacturing, distribution and delivery of products and services are governed by the standard terms and conditions of one of the parties.[3] Standard terms are provisions which are prepared in advance for general and repeated use by one party and which are actually used without negotiation with the other party.[4] The contents of the contract may be contained not only in the part specifically negotiated and agreed on by the parties but also by reference to standard terms used by one of the parties, framework contracts, standard industry contracts or a combination of the above.

2.    One of the perennial problems in respect of standard terms in most legal systems is whether the terms which are usually not the object of specific bargaining have been included in the agreement between the parties or not.[6]

3. The UNCITRAL Working Group discussed the issue of the incorporation of standard terms, but decided that the provisions dealing with the interpretation of the contents of the contract were sufficient.[7] Most commentators and courts agree that the incorporation of standard terms must therefore be dealt with in accordance with the provisions dealing with the formation of the contract.[8] Domestic provisions and rules regulating standard terms may only be applied to standard terms if they deal with questions of validity.[9]

4. Where the parties have expressly agreed to the incorporation of standard terms no problem arises, but quite often the incorporation of the standard terms takes place by a mere reference in an oral or written communication to the inclusion of such terms without any clear and express agreement on the incorporation.[10] Sometimes the text of the standard terms will accompany the main agreement, for instance being printed on the back of an order form,[11] but quite often the contract merely contains an incorporation clause without any accompanying text. [12] The question then arises whether there has been a valid incorporation or not.

5. The essential characteristic of standard terms is that they have not been individually negotiated between the parties. It does not matter how the standard terms are presented, who drafted them or whether they are brief or extensive. Standard terms may be specially drafted for one of the parties or may be drafted by an industry organisation for general use in the trade.[13]

6.    Although there are many different definitions of standard or non-negotiated terms,[14] the definition contained in Article 2.1.19 of the UNIDROIT Principles of International Commercial Contracts ("UNIDROIT Principles") provides a good example of such a definition.[15] The key characteristic of these clauses are the fact that they are not negotiated between the parties.

B Specific comments

1. Rule 1. The inclusion of standard terms under the CISG is determined according to the rules for the formation and interpretation of contracts.

Basic principles of contract formation

1.1. The CISG does not expressly deal with requirements for the inclusion of standard terms and courts must therefore rely on the interpretation of the articles dealing with the formation and interpretation of the contract in general.[16] The issue is governed mainly by Article 8(2) which stipulates that where a party is not aware of the intent that the other party had with a specific statement, that statement must 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. [17]

1.2. The CISG deals with the formation of the contract in Part II, and more specifically for our purposes in Articles 14, 18, 19 and 23.[18]

1.3. However, it is also necessary to consider Articles 8 and 9 that deal with the interpretation of any statements made by the parties, as the statements and conduct of the parties form the basis for the offer and acceptance and usages established between the parties.[19]

1.4.    The question on whether terms are included in the contract or not, is an issue which falls squarely within the scope of the CISG.[20]

1.5.    The statements and conduct of the parties leading up to and including the conclusion of the contract must be interpreted in the light of Article 8 and Article 9. Article 8 must also be applied to the interpretation of the offer made by the offeror in terms of Article 14 and the acceptance of the offer by the offeree in terms of Articles 18 and 19 as the statements and conduct of the parties underlie the offer and the acceptance.[21]

1.6.    Where the offeror has clearly communicated to the offeree that it wanted the agreement to be subject to its standard terms then the standard terms should be applicable where the offeree accepts the offer, unless the offeree clearly indicates that it does not agree to such incorporation, provided that the offeree has a reasonable opportunity to take notice of the contents of the standard terms.[22]

1.7.    Where there is a clear and conspicuous reference to the incorporation of the standard terms, there should in principle be no problem about the incorporation of the terms as acceptance by the offeree of the offer based on such document, creates the reasonable impression in the mind of the offeror that the offer has been accepted without any modification.[23]

1.8. If the offeree failed to read the incorporation clause, it would not have the subjective intent to accept the standard terms but this is a fact that the offeror cannot be held to be aware of. The conduct of the offeree creates the objective impression that the offer was accepted. Article 8(2) should then be applied.[24]

1.9. In the circumstances where the written offer contains a clear incorporation clause and is accepted without any further statement or qualification by the offeree, it would be objectively reasonable conduct on the part of the offeror to rely on such unqualified acceptance and to accept that its standard terms will apply,[25] provided that the standard terms were reasonably available to the other party at the time of the negotiations or conclusion of the contract.[26] It is the same deduction that a reasonable person of the same kind as the offeror would make in similar circumstances.

2. Rule 2. Standard terms are included in the contract where the parties have expressly or impliedly agreed to their inclusion at the time of the formation of the contract and the other party had a reasonable opportunity to take notice of the terms.

Divergent approaches in the case law

2.1.    In the case law there have been a number of cases with divergent approaches to the inclusion of standard terms under the CISG as set out above.

(a) Making the terms available prerequisite

2.2. There are a number of cases where it has been held that standard terms will not be regarded as having been validly incorporated into the contract unless the offeror has made the standard terms available to the offeree in order that the offeree has a reasonable opportunity to become aware of them in a reasonable manner.[27] The leading case is the German Machinery case [28] where the German Supreme Court held as follows:

2.Thus, through an interpretation according to Art. 8 CISG, it must be determined whether the general terms and conditions are part of the offer, which can already follow from the negotiations between the parties, the existing practices between the parties, or international customs (Art. 8(3) CISG). As for the rest, it must be analyzed how a “reasonable person of the same kind as the other party” would have understood the offer (Art. 8(2) CISG).
It is generally required that the recipient of a contract offer that is supposed to be based on general terms and conditions have the possibility to become aware of them in a reasonable manner (Staudinger/Magnus, Art. 14 &p;41; Schlechtriem/Schlechtriem, supra; Soergel/Lüderitz/Fenge, supra; Reithmann/Martiny, International Sales Law, 5th ed., ¶ 651). An effective inclusion of general terms and conditions thus first requires that the intention of the offeror that he wants to include his terms and conditions into the contract be apparent to the recipient of the offer. In addition, as the Court of Appeals correctly assumed, the Uniform Sales Law requires the user of general terms and conditions to transmit the text or make it available in another way (see also Piltz, Sales Law, §3 &pp;77 et seq.; Piltz, NJW, supra; Teklote, The Uniform Sales Law and the German Law on General Terms and Conditions, 1994, pp. 112 et seq.; Hennemann, General Terms and Conditions Control and the CISG from the German and French Viewpoints, Ph.D. Thesis 2001, pp. 72 et seq.; similarly, Staudinger/Magnus, supra, with reference to the Supreme Court of Austria, RdW 1996, 203, 204, with an annotation by Karollus RdW 1996, 197 et seq.; different view, Holthausen, RIW 1989, 513, 517).
[My emphasis]

The court in its analysis and interpretation of Article 8(2) CISG comes to a conclusion that sets a stricter requirement than that encountered in domestic German law.[29] The CISG’s approach is accordingly closer to the position taken by other national sales laws, which similarly impose stricter requirements than German and most common law domestic legal systems.[30]

2.3.    Although the approach in the German Machinery case is somewhat controversial,[31] it would seem that the majority opinion is however that it is desirable that a party should make the standard terms available at the time of the contracting.[32]

2.4.    This approach should be favoured over the other approaches discussed below as more in keeping with the principles underlying the CISG and the requirements of international trade.

2.5.    The decision in the German Machinery case has been interpreted by some lower courts in Germany[33] and courts in the Netherlands[34] to mean that the terms themselves should be handed over or sent to the offeree at the time of contracting. This sets too strict a standard.[35] The Bundesgerichtshof’s decision leaves room for making the standard terms available to the other party in another manner which provides the other party with a reasonable opportunity to take notice of them.[36] It would, for instance, suffice where the reference to the inclusion of the standard terms refers to the offeror’s website where the terms are available.[37]

2.6. The offeror need not make the standard terms available to the other party where the parties have had prior dealings subject to the same standard terms or where the offeree has prior knowledge of the contents of the standard terms.[38]

(b) Mere reference sufficient

2.7. In the Austrian Propane case[39] the court sets out the more traditional approach commensurate with domestic law in most legal systems:

The CISG does not contain specific requirements for the incorporation of standard business conditions, such as the [sellers'] general conditions of sale, into a contract. Therefore, the necessary requirements for such an inclusion are to be developed from Art. 14 et seq. CISG, which contain the exclusive requirements for the conclusion of a contract (cf. Piltz, Internationales Kaufrecht, Art. 5 n. 75). Consequently, the general conditions of sale have to be part of the offer according to the offeror's intent, where the offeree could not have been unaware of that intent, in order to become a part of the contract (Art. 8(1) and (2) CISG). This inclusion into the offer can also be done implicitly or can be inferred from the negotiations between the parties or a practice which has developed between them.

2.8.    As indicated by Magnus this approach makes an unfair risk allocation in the case of international transactions.[40] It should not be incumbent on the offeree to request a copy of the standard terms from the other party where the latter seeks to incorporate the standard terms.[41]

(c) Clear incorporation reference where terms are attached

2.9.    The French Isea case[42] presents 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.

2.10.    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 decided 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.

2.11. This case must be contrasted with the American Golden Valley Grape Juice case[43] where the offer was sent as an attachment to an email. The email also included an attachment setting out a warranty and one containing standard terms. The offer did not specifically refer to the incorporation of the standard terms, but the court held that it was the clear intention of the offeror that all of the attachments were relevant for the agreement being negotiated. The buyer could not simply pick and choose between the documents. The court states:

Here, however, the General Conditions accompanied the sales quote. The General Conditions were attached, contemporaneously, with the sales quote and with other sale information, such as warranty information and banking information, which were included in the e-mail. Unlike Chateau and Solae, the General Conditions were not sought to be imposed after the contract had been formed. The General Conditions were part of the offer. Indeed, it is without dispute that Centrisys reviewed at least one other attachment in the same e-mail -- the warranty.
...
The evidence establishes that at the time STS sent its sales quote to Centrisys, it contemporaneously sent its General Conditions as part of the attachments. By adopting the terms of the sales quote, Centrisys accepted the terms upon which the centrifuge had been offered, including the General Conditions. Thus, Centrisys accepted the General Conditions.

2.12. The use of standard terms in all sales, domestic and international is a well known and widespread phenomenon. The decision in the Golden Valley Grape juice case provides a commercially reasonable approach to cases where the written offer does not refer to the incorporation of the standard terms, but where they are attached or printed on the reverse side. If the attached terms are conspicuous, the other party cannot simply ignore such terms, whether they have been sent as a separate document or printed on the reverse side of the document.

(d) Implied acceptance of the standard terms

2.13. Acceptance of the standard terms will often result from some conduct of the offeree objectively indicating that it has accepted the standard terms. This will be the case where there is a clear reference to the incorporation of standard terms in the offer and where they were reasonably available at the time of the negotiations or conclusion of the contract and the other party starts performing without objecting to the inclusion of the standard terms. The fact that the party impliedly accepted the standard terms together with the negotiated terms at the time of its conduct.[44]

3. Rule 3: Amongst others, a party is deemed to have had a reasonable opportunity to take notice of the standard terms:
3.1 Where the terms are attached to a document used in connection with the formation of the contract or printed on the reverse side of that document;

3.2 Where the terms are available to the parties in the presence of each other at the time of negotiating the contract;

3.3 Where, in electronic communications, the terms are made available to and retrievable electronically by that party and are accessible to that party at the time of negotiating the contract;

3.4 Where the parties have had prior agreements subject to the same standard terms.

(a) General

3.1. The examples of when it should be regarded that a party has had a reasonable opportunity to take notice of the standard terms result from examples found in the case law and mentioned by the various authors favouring this approach. This list deals with the most commonly encountered situations but is not intended to be a conclusive list. Each factual situation needs to be assessed against the general principle of reasonable availability.

(b) Terms attached to a document used in connection with the formation of the contract or printed on the reverse side

3.2. In most instances where the standard terms are attached to the offer or other document used in connection with the formation of the contract or printed on the reverse side of such document it should be deemed that the other party had a reasonable opportunity to take notice of them.[45] The approach adopted in the French Isea case[46] should be the exception rather than the rule depending on the particular facts. The approach adopted in the American Golden Valley Grape Juice case[47] where there was no incorporation clause in the offer, but other clearly contractual attachments to an email discussed above, provides an example of a commercially sound approach.

(c) Terms available to parties in the presence of each other

3.3. Where parties are negotiating face to face and the terms are referred to during the negotiations or by an incorporation clause and the terms are available at the place of negotiation, that party has a reasonable opportunity to take notice of the standard terms should it wish to do so.[48]

(d) Terms available and retrievable electronically

3.4.    It is today commonplace for commercial parties to have websites containing information about that party and very often containing the standard terms on which that party contracts. Where a party during negotiations refers to the inclusion of standard terms or where there is an incorporation clause in the offer referring to the website, the other party has a reasonable opportunity to take notice of those terms if they are generally accessible over the internet at the time of contracting. This is particularly true if the contract is being concluded via the website. Where the contract has been concluded by other means such as email or in person, a reference to the document on a website will also suffice if access to the website was reasonably available to the other party at that time. Where there are several sets of standard terms and it is not clear which set will apply, the terms cannot be regarded as reasonably available. It should not be up to the other party to guess or inquire which set of terms are applicable to the specific transaction. The terms should also be downloadable and storable for future reference.[49]

3.5. Where the parties are negotiating by email or other electronic means, it would generally suffice if the standard terms are contained in an attachment to the email or can be accessed by clicking on a hyperlink leading to the applicable terms.[50] However, it is more problematic where the negotiations are taking place face to face or over the telephone for instance. The question then becomes a factual issue on whether the terms were reasonably available to the other at the time of contracting.[51]

(e) Terms used in prior agreements

3.6.    It is reasonable to assume that where the standard terms have been used in previous dealings between the parties that they were available to the other party at the time of the negotiations or of contracting.[52] This can only be assumed where the standard terms were previously validly incorporated into contracts between the parties. Where the terms were included in documents such as invoices after the fact and therefore not validly incorporated, they cannot be assumed to be incorporated in future contracts.[53]
4. Rule 4. Standard terms cannot be incorporated after the formation of the contract, unless the contract is modified by agreement.

4.1. The approach in two leading American cases in regard to the inclusion of standard terms after the conclusion of the contract is generally accepted[54] - the reference to and availability of standard terms must occur before or at the same time as the conclusion of the contract.[55] 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.[56]

4.2.    In stark contrast to these two case where the courts have followed a strict but reasonable approach 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 Barbara Berry case the court held as follows:[57]

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).

4.3. 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 refused to perform under the terms originally agreed to. The buyer in this instance was quite entitled under the provisions of the CISG to ignore the terms that the seller wanted to impose unilaterally afterwards. The inclusion of standard terms on invoice after the conclusion of the contract cannot in itself be sufficient to modify the original contract if the recipient remains silent or even performs its part of the contract.[58]

4.4. This type of situation might be distinguished from the cases where one of the parties sends a confirmatory letter immediately after the formation of the contract including its standard terms.[59] This opinion does not deal with the issue of commercial letters of confirmation as this is regarded as a distinct issue which might be addressed in a separate future opinion.