Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

of reasonable commercial standards, but those standards in each case are directed to different aspects of commercial conduct. See e.g., Sections 3–103(a)(9) and 4–104(c) and Comment 4 to Section 3–103.11

It should be noted that former Section 1–203, now Section 1304, which reads as follows: “Every contract or duty within this title imposes an obligation of good faith in its performance and enforcement.”12

However, what makes “good faith” even more unfit for a definition is the courts’ reliance, in some instances, upon the Restatement (Second) of Contracts. American Restatements of Law in the American legal tradition is not law – it is not statutory law or part of the common law; it does not even act as a description of the common law of contracts in each state.13

Instead, a Restatement represents an attempt by the American Law Institute, a private organisation of scholars, judges and practitioners, to formulate with some precision the leading rules and principles in major fields of American Law, “in the aggregate,” so to speak, as if the United States consisted of only one, rather than fifty, state jurisdictions. Where the actual legal rules and principles in the various states are in conflict, or are not well developed, the Restatements frequently purport to formulate rules and principles that represent “the better view.”14

Good faith, as defined by the UCC, is not identical to the definition provided in the Restatement. Section 205 of the Restatement Second, in relevant part, provides as follows:

a.Meanings of “good faith.” Good faith is defined in Uniform Commercial Code § 1–201(19) as “honesty in fact in the conduct or transaction concerned.” In the case of a merchant, Uniform Commercial Code § 2–103(1)(b) provides that good faith means “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” The phrase “good faith” is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving “bad faith” because they violate community standards of decency, fairness or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the circumstances.

b.Good faith purchase. In many situations, a good faith purchaser of property for value can acquire better rights in the property than his transferor had.15 In this context, “good faith” focuses on the honesty of the purchaser, as distinguished from his care or negligence. Particularly in the law of negotiable instruments, inquiry may be limited to “good faith” under what has been called “the rule of the pure heart and the empty head.” When diligence or inquiry is a condition of the purchaser’s right, it is said that good faith is not enough. This focus on honesty is appropriate to cases of good faith purchase; it is less so in cases of good faith performance.

11Id.

12Id., at §1304.

13Summers, “The Conceptualisation of Good Faith,” 120.

14Id.

15See, e.g., UCC §342.

c.Good faith in negotiation. Bad faith in negotiation, although not within the scope of this Section, may be subject to sanctions. Particular forms of bad faith in bargaining are the subjects of rules as to capacity to contract, mutual assent and consideration and of rules as to invalidating causes such as fraud and duress.16 Moreover, remedies for bad faith in the absence of agreement are found in the law of torts or restitution.17 In cases of negotiation for modification of an existing contractual relationship, the rule stated in this Section may overlap with more specific rules requiring negotiation in good faith.18

d.Good faith performance. Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty. [T]he following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.

e.Good faith in enforcement. The obligation of good faith and fair dealing extends to the assertion, settlement and litigation of contract claims and defenses.19 The obligation is violated by dishonest conduct such as conjuring up a pretended dispute, asserting an interpretation contrary to one’s own understanding, or falsification of facts. It also extends to dealing, which is candid but unfair, such as taking advantage of the necessitous circumstances of the other party to extort a modification of a contract for the sale of goods without legitimate commercial reason.20 Other types of violation have been recognized in judicial decisions: harassing demands for assurances of performance, rejection of performance for unstated reasons, willful failure to mitigate damages, and abuse of a power to determine compliance or to terminate the contract.21

B.United Kingdom

There is not a general concept of good faith in English law.22 Good faith is required in particular situations only.23 For example, “the tort of breach of confidence protects

16See, e.g., §§90 and 208.

17For examples of a statutory duty to bargain in good faith, see, e.g., National Labor Relations Act §8(d) and the Federal Truth in Lending Act.

18See §§73 and 89; Uniform Commercial Code §2-209 and Comment.

19See, e.g., §§73 and 89.

20See Uniform Commercial Code §2-209, Comment 2.

21Restatement (Second) of Contracts §205 (1981). There are a number of conceptualizations of good faith in American scholarly writings: (1) Professor Robert S. Summers (excluder analysis), (2) writings of Professor Steven J. Burton, and (3) writings of Professor E. Allan Farnsworth. For details about these conceptualizations, see Summers, “The Conceptualisation of Good Faith,” 125–34; For a statutory duty of good faith in termination, see the federal Automobile Dealer’s Day in Court Act, 15 U.S.C. §§1221–25 (1976).

22See generally Simon Whittaker and Reinhard Zimmermann, “Good Faith in European Contract Law: Surveying the Legal Landscape,” in Zimmermann and Whittaker, Good Faith, 39–48.

23Barry Nicholas, “The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?,” available at http://www.cisg.law.pace.edu/cisg/biblio/nicholas3.html. See also Nathalie

confidential information acquired by the parties during their negotiations from exploitation after the breakdown of negotiations.”24 Another example is “found in the observance of fairness and equality in the tendering process leading to the award of a major construction contract.”25 One instance in which English law imposes a general duty of good faith is in connection with agency,26 consumer contracts,27 and insurance contracts (positive disclosure is required).28

English law does not recognize precontractual liability or “culpa in contrahendo.”29 It does not recognize that the negotiation of a contract by itself creates any sort of relational duty. English law takes the view that both parties are at risk until a contract is actually formed. Therefore, there is nothing wrong in a party that is conducting negotiations to arbitrarily break them off, even if it has brought the other party to the brink of the contract. There is also nothing wrong in a party conducting negotiations and failing to disclose that it is negotiating with multiple parties.30

C. Italy

There are four provisions of the Italian Civil Code that create a general duty of good faith.31 First, Article 1175 requires debtors and creditors to act fairly in relationship to each other. Parties are allowed to advance their self-interests even if that might negatively affect the other party. However, they are precluded from harming the other party more than is necessary to reasonably look after their own interests. This duty not to harm relates only to the conduct that affects a legally recognized interest of the affected party.

Hofmann, “Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe,” 22 Pace Int’l L. Rev. 145, 162–5 (2010).

24John Felemegas, “The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation,” Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) (The Netherlands: Kluwer Law International, 2000–1), 115, 234, and accompanying text, available at http://www.cisg.law.pace.edu/cisg/biblio/felemegas.html.

25Id., at 235 and accompanying text.

26Id., text accompanying n. 250.

27Nicholas, “The United Kingdom and the Vienna Sales Convention.”

28Roy Goode, “The Concept of ‘Good Faith’ in English Law,” available at http://www.cisg.law.pace.edu/ cisg/biblio/goode1.html.

29Similarly, culpa in contrahendo is not recognized in the United States. Professor Farnsworth noted, however, “[w]e do have a variety of other concepts that often serve as a substitute for good faith in precontractual relations (i.e., unjust enrichment, misrepresentation, and breach of a specific promise made during negotiations).” Farnsworth, “The Concept of ‘Good Faith’ in American Law.” See also E. Allan Farnsworth, “Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations,” 87 Colum. L. Rev. 217 (1987). Regarding the precontractual liability in general and under the CISG, see, e.g., Albert H. Kritzer, “Pre-Contract Formation,” available at http://www.cisg.law.pace. edu/cisg/biblio/kritzer1.html.

30Goode, “The Concept of ‘Good Faith’ in English Law.”

31Good faith is mentioned in several articles of the Italian Civil Code, in addition to the instances discussed here. See, e.g., Articles 534, 535, 936, 937, 938, 1147, 1153, 1155, 1159, 1162, 1358, 1415, 1416, 1445, and 1460. For a brief analysis of the concept of good faith under Italian law, see, e.g., Ivana Musio, “Breve analisi comparata sulla clausola generale della buona fede” (June 2010), 5–13, available at http:// www.comparazionedirittocivile.it/prova/files/ncr musio buonafede.pdf; Nicola W. Palmieri, “Good Faith Disclosures during Precontractual Negotiations,” 24 Seton Hall L. Rev. 70, 201–9 (1993). See generally

Commentario Breve al Codice Civile and Complemento Giurisprudenziale (ed. G. Cian and A. Trabucchi) (Padova, 2008).

Article 1337 covers the negotiation and formation of contracts. Typical situations falling within the purview of Article 1337 include the unjustified breaking off of negotiations, failure to cooperate, and failure to disclose. However, because Article 1337 creates a general legal duty of good faith in the precontractual context, it might be relied upon in numerous scenarios.32 A violation of Section 1337, in itself, does not render a contract void.33 Article 1366 requires the good faith interpretation of contracts. The parties’ intent is to be objectively determined to prevent giving effect to unilateral understandings or interpretations inconsistent with what a reasonable person would have understood. Good faith interpretation is used only if contractual provisions remain ambiguous as to the parties’ intent and after the court has exhausted the other interpretive tools provided for in the code.

Finally, Article 1375 recognizes a duty of good faith in the performance of contracts. Parties are required to make reasonable efforts, not unduly costly or inconvenient, to preserve the other party’s interest in the contract. This obligation is in addition to any other contractual obligation or extracontractual duty by which the party is already bound. There is a deep Italian case law in which the courts have actively applied the concept of good faith.34

In 2009, the Italian Supreme Court, in a case dealing with a unilateral termination of a dealership contract, noted that, pursuant to Articles 1175 and 1375 of the Civil Code, parties must conduct themselves in good faith – from the formation to performance and its interpretation. The court also noted that good faith is an expression of the general principle of social solidarity recognized under the Italian Constitution. Because of its constitutional underpinnings, good faith operates to impose autonomous duties on the parties to preserve the contract and not to unnecessarily harm the interests of the other party, regardless of any contractual provision.35 Accordingly, the Supreme Court held that courts may modify contracts to assure a proper balance between the parties’ interests.

D. Germany

In the German Civil Code (BGB),

the observance of Treu und Glauben mit Rucksicht¨ auf die Verkehrssitte,[36] – embodied in such general provisions as §§ 157, 242 BGB, but repeated throughout the code in more specific contexts – has become a legal principle of such pervasive influence that it is sometimes claimed the codified provisions could be dispensed with; the whole system of private law (or, more modestly, certain parts of it such as unjust enrichment) might be taken as a mere embodiment of the principle and could, in theory, be administered by reference to “Treu und Glauben” only. These are, of course, exaggerations, not taken seriously by the majority of legal writers, by the courts or by the legislator, but they are

32See also Italian Civil Code, Articles 1338, 1341, and 1342.

33Unless, for example, the matter falls within the scope of Articles 1439 of the Italian Civil Code.

34See, e.g., Cass., sez. III, November 10, 2010, n. 22819; Cass., sez. III, March 3, 2010, n. 22353; Cass., sez. III, September 18, 2009, n. 20106; Cass., sez. I, September 11, 2008, n. 23393; Cass., sez. I, July 13, 2007, n. 15669; Cass., sez. III, February 15, 2007, n. 3462.

35Some commentators noted that this definition of good faith is broader than the definition previously embraced by the Supreme Court. See, e.g., Giovanni D’Amico, “Il Commento,” in I Contratti, 1/2010, 14 n. 8, available at http://www.casaregi.unige.it/insegnamenti/documents/materiali.pdf.

36See generally Whittaker and Zimmermann, Good Faith, 18–32.

worth mentioning at the outset, if only because of the arguments by which they are usually rebutted: The certainty of law and its application would be abandoned entirely if each case, each individual solution had to be based on such uncertain principles.”.37

III. Good Faith in the CISG

This part examines the evolution and adoption of the good faith principle in CISG Article 7. It then reviews CISG case law on the interpretation and application of good faith and concludes with an analysis of its proper role in CISG jurisprudence.

A. CISG Article 7(1)

The legislative history behind the limited scope of good faith in CISG Article 7(1) is not very helpful.38 A number of versions and proposals were hotly debated.39 The compromise reached was not a knock out for the common law delegations but certainly a major victory,40 though not for long. As the subsequent practice in the application of the Convention shows, good faith became much more than a tool for the interpretation of the Convention.41 A clear indication that good faith would play a bigger role than anticipated could be perceived in the Secretariat Commentary: “The principle of good faith is, however, broader than these examples and applies to all aspects of the interpretation and application of the provisions of this Convention.”42

37Peter Schlechtriem, “Good Faith in German Law and in the International Uniform Law,” available at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem16.html.

38Bruno Zeller, “Four-Corners: The Methodology for Interpretation and Application of the UN Convention on Contracts for the International Sale of Goods” (2003), available at http://www.cisg.law.pace.edu/cisg/ biblio/4corners.html.

39For an historical account of the provision, see, e.g., Honnold, Uniform Law, 119–24; Lisa Spagnolo, “Opening Pandora’s Box: Good Faith and Precontractual Liability in the CISG,” 21 Temple Int’l & Comp. L.J. 161 (2008), also available at http://www.cisg.law.pace.edu/cisg/biblio/spagnolo.html; Benedict C. Sheely, “Good Faith in the CISG: Interpretation Problems in Article 7” (2004), available at http:// law.bepress.com/expresso/339; Disa Sim, “The Scope and Application of Good Faith in the Vienna Convention on Contracts for the International Sale of Goods” (2001), available at http://www.cisg.law. pace.edu/cisg/biblio/sim1.html; Schlechtriem, “Good Faith”; Alejandro M. Garro, “Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods,” 23 Int’l Law. 443 (1989), available at http://www.cisg.law.pace.edu/cisg/biblio/garro1.html; Michael J. Bonell, “Commentary on Article 7,” in Commentary on the International Sales Law (ed. C. M. Bianca and M. J. Bonell) (Milan: Giuffre,` 1987), 65, available at http://www.cisg.law.pace.edu/cisg/biblio/bonell-bb7.html; Peter Schlechtriem, Uniform Sales Law: The U.N. Convention on Contracts for the International Sale of Goods (Vienna: Manz, 1986), available at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-07.html; See also the CISG Database at Pace University at http://www.cisg.law.pace.edu/cisg/text/link7.html.

40They must have thought that appeasing the civil law jurisdictions by agreeing to relegate “good faith” to the interpretation of the Convention only would have done “little harm.” See James Bailey, “Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of International Sales,” 32 Cornell Int’l L. J. 273, 295 (1999), available at http://www.cisg. law.pace.edu/cisg/biblio/bailey.html.

41See, e.g., Michael P. Van Alstine, “Dynamic Treaty Interpretation,” 146 U. Pa. L. Rev. 687, 777–82 (1998), available at http://www.cisg.law.pace.edu/cisg/biblio/alstine2.html.

42The examples listed in the Secretariat Commentary include Articles 7(1), 16(2)(b), 21(2), 29(2), 37, 38, 40, 49(2), 64(2), 82, and 85–8. Secretariat Commentary on Article 7, available at http://www.cisg.law.pace. edu/cisg/text/secomm/secomm-07.html.

CISG Article 7(1) reads as follows: “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.” The 2008 UNCITRAL Digest of case law on the CISG comments on “good faith” as follows:

Although good faith is expressly referred to only in article 7(1), relating to the Convention’s interpretation, there are numerous rules in the Convention that reflect the good faith principle. The following provisions are among those that manifest the principle:

Article 16(2)(b), which makes an offer irrevocable if it was reasonable for the offeree to rely upon the offer being held open and the offeree has acted in reliance on the offer;

Article 21(2), which deals with a late acceptance that was sent in such circumstances that, had its transmission been normal, it would have reached the offeror in due time;

Article 29(2), which in certain circumstances precludes a party from invoking a contractual provision that requires modifications or terminations of the contract to be in writing;

Articles 37 and 46, on the right of a seller to cure non-conformities in the goods;

Article 40, which precludes a seller from relying on the buyer’s failure to give notice of non-conformity in accordance with articles 38 and 39 if the lack of conformity relates to facts of which the seller knew or could not have been unaware and which he did not disclose to the buyer;

Article 47(2), article 64(2), and article 82, on the loss of the right to declare the contract avoided;

Articles 85 to 88, which impose on the parties obligations to preserve the goods.43

B. CISG Case Law

Regarding case law dealing with “good faith,” one general comment is applicable to the cases surveyed: decisions and awards dealing with “good faith” rarely, if ever, examine the concept in a meaningful way.

1. United States

In comparison with the civil code countries, good faith plays a much smaller role in United States contract law. However, unlike the United Kingdom, it is recognized as a general principle that attaches to all contracts. These are not American CISG decisions specifically dealing with “good faith,” although it has been mentioned in several decisions. While the principle of good faith is found in Article 2 of the UCC, it is unclear whether American courts will be able to make autonomous interpretations of the good faith principle in the CISG.44

43UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Goods

(New York, 2008), “Article 7,” available at http://www.cisg.law.pace.edu/cisg/text/digest-art-07.html#g.

44See, e.g., Dingxi Longhai Dairy, Ltd. v. Becwood Technology Group L.L.C., 635 F.3d 1106 (8th Cir. 2011):

It is undisputed that the contract was governed by the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), the “international analogue” to Article 2 of the Uniform Commercial Code (UCC). Chicago Prime Packers, Inc. v. Northam Food Trading Co., 408 F.3d 894, 898 (7th Cir. 2005). In applying the Convention, we look to the language of its provisions and the “general principles on which it is based.” CISG Art. 7(2). “Caselaw interpreting analogous provisions

2. Italy

The Tribunale di Padova (February 25, 2004) faced the issue of the granting of additional time under CISG Article 59. It reasoned that the use of supplemental time periods “cannot be carried out arbitrarily, since the seller must follow the due diligence criteria,” as implied from the reference to the “reasonable duration” of the supplemental period.45 The Tribunal further notes that: “the conduct of the contracting parties must respect the principle of the good faith, . . . since it is one of the general principles on which [CISG] is based.”46 In essence, the good faith principle “must not only influence the entire regulation of the international sale, but also supplies an essential standard for the interpretation of the rules set forth in the [CISG].”47 The Tribunal goes on to state that:

One must conclude that it would be contrary to the principle of good faith to file a claim in court [just a] few days after the expiration of the deadline [seeking] the payment of the price, without having demanded of the buyer adequate explanations for the delay or having conceded him a period for providing performance [cure]. Conversely, the conduct of the seller cannot be regarded as unfair, where the seller brings a claim before the judge after having wait[ed] at least six months for payment of the price, without the buyer having communicated any excuse in the meantime.48

Italian decisions have been lauded because of their use of foreign case decisions in order to comply the CISG’s mandate to interpret its provisions with regard to the CISG’s international character and the need to promote uniformity. However, the decision of the Padova court goes outside the CISG text in implying the existence of positive good faith obligations on the contracting parties. CISG Article 59, for example, expressly exempts a seller from having to make a formal request for payment of an agreed price when the date is fixed by or determinable under the contract. Additionally, there is nothing in the CISG suggesting a seller should wait before taking a buyer to court. Similarly, there is no requirement that a seller request the reason for nonpayment prior to bringing suit. It is this kind of willingness to expand the reach of the “good faith” concept that concerns practitioners and (some) commentators.

of Article 2 . . . may also inform a court where the language of the relevant CISG provisions tracks that of the UCC.” Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995). Id. at 1107.

45Trib., February 25, 2004, n. 40552, available at http://cisgw3.law.pace.edu/cases/040225i3.html (trans. G. Micheli, ed. J. Gulino). See also n. 48, infra. Cf. LG Aachen [Germany], May 14, 1993, in Recht der internationalen Wirtschaft (1993), 760.

46The Tribunal cites: Hof Beroep Gent [Belgium], May 15, 2002, available at http://www.law.kuleuven.ac

.be/ipr/eng/cases/2002–05–15.html; German Federal Supreme Court, January 9, 2002, in Internationales Handelsrecht 2002, 19; German Federal Supreme Court, October 31, 2001, in Internationales Handelsrecht 2002, 14; Corte d’Appello Milano, December 11, 1998, in Rivista di diritto internazionale privato e processuale, 1999, 112; German Federal Supreme Court, November 25, 1998, in Recht der internationalen Wirtschaft (1999), 385; Arbitral award Dulces Luisi v. Seoul International, November 30, 1998 given by Comission para la Protecion del Comercio Exterior de Mexico, in Diario Oficial del January 29, 1999, 69.

47Tribunal references, German Arbitral award of the Hamburg Court of Arbitration, March 21, 1996, in Recht der internationalen Wirtschaft (1996), 766.

48Trib., February 25, 2004, n. 40552, available at http://cisgw3.law.pace.edu/cases/040225i3.html (trans. G. Micheli, ed. J. Gulino) (emphasis added).

3. Germany

The German Federal Supreme Court (Bundesgerichtshof or BGH) rendered a decision on October 31, 2001 relating to the incorporation of standard terms.49 The court appropriately noted that CISG Article 8 required the Court to determine whether the general terms and conditions incorporated in the offer had been a subject of the negotiations, existing practices between the parties, or international customs.50 The Court then reasoned whether a “reasonable person of the same kind as the other party” would have understood that the offeror intended the standard terms to be incorporated into the contract:51

It is unanimously 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 . . . 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, . . . the Uniform Sales Law requires the user of general terms and conditions to transmit the text or make it available in another way.

The court then notes that national legal regulation of standard terms may apply under CISG Article 4(a) (validity) and that such regulation may vary depending on the national law. Therefore, the court reasons,

The [other party] of the user of the clause can often not foresee to what clause . . . he agrees in a specific case because significant differences exist between the particular national clauses. It is true that, in many cases, there will be the possibility to make inquiries into the content of the general terms and conditions. This can, however, lead to delays in the conclusion of the contract, in which neither party can have an interest. For the user of the clauses, however, it is easily possible to attach to his offer the general terms and conditions, which generally favor him. It would, therefore, contradict the principle of good faith in international trade as well as the general obligations of cooperation and information of the parties . . . to impose on the other party an obligation to inquire concerning the clauses that have not been transmitted and to burden him with the risks and disadvantages of the unknown general terms and conditions of the other party.52

In 2009, a German Court of Appeals (Oberlandesgericht or OLG) in Celle again took up the issue of standard terms incorporation. It noted that “effective incorporation” is to be determined under the contract formation rules of CISG Articles 14 and 18. Following the logic of the above German Federal Supreme Court decision, the existence of standard terms in the offer is not sufficient for their incorporation into the subsequent contract:

According to Article 8 CISG, the recipient of a contract offer, which is supposed to be based on standard terms and conditions, must have the possibility to become aware of them in a reasonable manner . . . [T]he effective inclusion of standard terms and

49BGH October 31, 2001, VIII ZR 60/01, available at http://cisgw3.law.pace.edu/cases/011031g1.html (trans. and ed. William M. Barron and Birgit Kurtz).

50See CISG, Article 8(3).

51See CISG, Article 8(2).

52BGH October 31, 2001, VIII ZR 60/01, available at http://cisgw3.law.pace.edu/cases/011031g1.html (trans. and ed. William M. Barron and Birgit Kurtz).

conditions [under the CISG] requires not only that the offeror’s intention that he wants to include his standard terms and conditions into the contract [but that that intention] be apparent to the recipient.

The court references German domestic sales law that permits inclusion if the standard terms are made available to the other party or the other party was aware of their existence. However, it does not require “the recipient’s positive knowledge of [their] content.” The court then referred to the good faith principle of CISG Article 7(1):

[I]t would violate the principle of good faith in international trade as stated under Article 7(1) CISG and the parties’ general duties of cooperation and information, if the recipient of standard terms and conditions was obliged to enquire about the content of the standard terms and conditions which had not been transmitted, thus laying upon him the risk and disadvantage of unknown standard terms being introduced by the other side.53

The Hamburg Court of Appeals had previously discussed the role of good faith in relationship to the application of CISG rules. The court invoked the good faith principle in modifying the express declaration of avoidance as an absolute requirement:

[A]n explicit declaration of avoidance was not necessary because, before Buyer made the cover purchase, the Seller had seriously and finally refused to perform under the sales contract. Although the CISG does not make an exception from the requirement of a declaration of avoidance, the rule of the “observance of good faith in international trade” leads to the result that a declaration of avoidance is not necessary, if it is certain that the other party will not perform its obligations in a case.

In that case, the buyer continued to demand contract performance and threatened to demand damages. The seller failed to respond and reiterate its intent to perform on the contract. The seller’s lack of performance was due to problems between the seller and its supplier. The seller gave no indication that it would find substituted goods to honor its contract with the buyer. The seller did express the willingness to pay compensation in the event that the negotiations with its supplier failed and it would not be able to provide the goods in a timely matter. The buyer had continuously emphasized the importance of timely delivery. The court reasoned because of all these factors and the high level of uncertainty in the seller’s ability of willingness to provide the goods, the “Seller did not need the protection by a declaration of avoidance since it did not itself try to [fulfill] the contract.”54 The lesson of this review of German cases is that German courts give good faith a large role when evaluating parties’ rights and obligations under the CISG.

C. Analysis

CISG Article 7 at first glance appears to limit the application of the good faith concept to the interpretation of the CISG. This was the intent. The wording and practice in the application of the CISG, however, has strayed from this intent. The CISG has not been and will not be interpreted by courts and tribunals in abstract but as applied to actual

53OLG Celle, July 24, 2009, 13 W 48/09, available at http://cisgw3.law.pace.edu/cases/090724g1.html (trans. Veit Konrad).

54OLG Hamburg, February 28, 1997, 1 U 167/95, available at http://cisgw3.law.pace.edu/cases/970228g1

.html (trans. Linus Meyer).

situations. Therefore, despite the limiting wording of Article 7(1), the good faith concept has been applied, de facto, to the conduct of contracting parties.55

A review of the decisions and awards shows how difficult it is to separate the interpretation of the CISG from the interpretation of contracts. Professor Eorsi¨ provides another example of the application of the good faith principle in relation to a relative straightforward CISG rule – acceptance is effective when received at the other party’s place of business:

Under Article 24, a declaration of acceptance “reaches” the addressee when “it is . . . delivered . . . to his place of business or mailing address . . . ” If a party knows that the other party who has a place of business is away from his home for a considerable period of time, and he nevertheless sends the declaration to the mailing address, he may violate the requirement of good faith.56

Professor Eorsi¨ argues that the use of the good faith principle in the interpretation of CISG rules inherently results in the application of the principle to the interpretation of contracts: “[I]interpretation of the two [CISG and contracts] cannot be separated since the Convention is necessarily interpreted by the parties also; after all, the Convention constitutes the law of the parties insofar as they do not make use of Article 6 on freedom of contract.”57

As shown in this chapter, courts and tribunals from many jurisdictions apply the good faith concept in the interpretation of the CISG “as applied” to the contracting parties. This conclusion is supported by direct and indirect references in the CISG to the good faith concept as well as to closely related concepts, such as reasonableness,58 venire contra factum proprium,59 and estoppel.60

Thus, despite the compromise to limit the use of good faith through the language of Article 7(1), good faith has been applied well beyond the interpretation of the CISG. The vexata questio is to what extent does good faith affect the parties’ legal relationship? As noted earlier, good faith in the CISG has been used as: (1) an aid to interpreting the CISG itself, (2) a general principle to assist in gap filling, (3) a direct, positive obligation imposed upon parties, (4) a collective term denoting derivative general principles for gap filling, (5) a product of international usages or practices established by the parties, and

(6) an independent source of rights and obligations that may contradict or extend CISG rules.61

55See, e.g., Ulrich Magnus, “Remarks on Good Faith: The United Nations Convention on Contracts for the International Sale of Goods and the International Institute for the Unification of Private Law, Principles of International Commercial Contracts,” 10 Pace Int’l L. Rev. 89 (1998); Bonell, “Commentary on Article 7,” para. 2.4.1; Schlechtriem, “Good Faith in German Law.”

56Gyula Eorsi,¨ “General Provisions,” in International Sales: The United Nations Convention on Contracts for the International Sale of Goods (ed. N. M. Galston and H. Smit) (New York: Matthew Bender, 1984), §2.03.

57Id.

58See CISG Articles 8(2), 16(b), 18(2), 34, 38(3), 39(1), 48(1), and 48(2).

59See OLG Munchen,¨ September 15, 2004, 7 U 2959/04 (Ger.), available at http://cisgw3.law.pace.edu/ cases/040915g2.html; Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft [Vienna Arbitration proceeding], June 15, 1994, SCH-4318, available at http://cisgw3.law.pace.edu/cases/ 940615a4.html.

60OLG Karlsruhe, June 25, 1997, 1 U 280/96 (Ger.), available at http://cisgw3.law.pace.edu/cases/970625g1

.html.

61Spagnolo, “Opening Pandora’s Box,” 273.