Vol. 78, No. 8, August
Resolving Commercial Disputes in a Global Economy
As Wisconsin's presence in the global economy grows, lawyers
representing clients in international commerce, and lawyers involved in
resolving international commercial disputes, must be prepared to operate
under a body of law that differs from the more familiar Uniform
by James Dries
the United States Senate ratified the United Nations Convention on
Contracts for the International Sale of Goods (the Convention), which
became effective on Jan. 1, 1988 as the U.S. body of law to govern
contracts within its scope.1 Despite the
Convention's broad scope and 17-year existence as U.S. law, an
observation made by the Eleventh Circuit Court of Appeals seven years
ago remains valid today _ few cases decided in the United States have
applied the Convention.2 But the
Convention's relative anonymity undoubtedly will diminish soon, given
its global reach and the rapid increase in the number of subscribing
countries. Currently, 65 countries are signatories to the Convention,
which is the domestic law of each of those countries. Given current
trends, it is estimated that eventually more than 100 countries will
subscribe to the Convention.3 The 65
countries that are parties to the Convention account for more than
two-thirds of all world trade and for a significant majority of the
Dries, Marquette 1974, is a partner in the Chicago office of
Baker & McKenzie LLP, an international law firm with offices in 69
cities and 38 countries. He is a member of the firm's North American
Litigation Practice Group. His litigation practice includes an emphasis
in international disputes.
As the global economy continues its rapid expansion, the Convention
will govern an ever-increasing number of contracts and a rising number
of commercial disputes will be resolved by applying its principles.
Statistics published by the Wisconsin Department of Commerce confirm the
state's involvement in the energized global economy. Wisconsin exports
alone totaled nearly $13 billion in 2004, an increase of more than 30
percent in just five years. Of the 10 leading importers of Wisconsin
goods, eight are Convention signatories. Practitioners unfamiliar with
the Convention will be surprised to learn that the Convention applies
even in the absence of a choice of law provision designating it as the
body of law to govern the parties' agreement. For these reasons, lawyers
representing clients in international commerce, and lawyers involved in
resolving international commercial disputes, must be intimately familiar
with the Convention and how it departs from other established bodies of
commercial law, particularly the more familiar Uniform Commercial Code
This article is not intended as an exhaustive analysis of the
Convention or its differences from other bodies of commercial law but
instead focuses on two specific topics that represent significant
departures from the UCC: 1) the Convention's treatment of oral
contracts, parol evidence, and subjective intent; and 2) the effect of
merger clauses under the Convention.
The Scope of the Convention
The Convention applies to contracts for the sale of goods between
parties whose places of business are in different countries if the
countries are signatories to the Convention (referred to as contracting
states).4 If the Convention applies, its
provisions operate by default; only a properly worded choice of law
provision will enable a party to opt out of the Convention. While the
Convention expressly recognizes the right of contracting parties to
exclude application of its provisions,5 the
Convention generally will control even those contracts that have a
choice of law provision if the provision does not affirmatively exclude
applying the Convention.6 Thus, a choice of
law provision that adopts the law of a contracting state as the
contract's governing law will be deemed to adopt the Convention, because
the Convention is the law of the contracting state.
Statute of Frauds, Parol Evidence, and Subjective Intent Under
The Convention's treatment of oral agreements marks an important
departure from the UCC. Unlike the UCC, which proscribes enforcing oral
contracts for the sale of goods having a price of $500 or more,7 the Convention contains no statute of frauds and
expressly embraces oral contracts: "A contract of sale need not be
concluded in or evidenced by writing and is not subject to any other
requirement as to form. It may be proved by any means, including
The Convention also differs from the UCC in its approach to the
enforcement of written contracts. The UCC affirmatively adopts a form of
the parol evidence rule, which precludes evidence of a prior
understanding or a contemporaneous oral agreement if the parties intend
the written instrument as a final expression of their agreement.9 The Convention does not include any variation of
the parol evidence rule, nor does it expressly permit the introduction
of parol evidence. Nevertheless, various Convention provisions combine
to leave little doubt concerning the admissibility of parol evidence, as
the Eleventh Circuit noted in MCC-Marble Ceramic Center Inc. v.
Ceramica Nuova D'Agostino.10
In that case, the court had to decide whether it could accept
evidence of a party's subjective intent not to be bound by the
unambiguous terms of the parties' written agreement. The court concluded
that, notwithstanding the Convention's failure to expressly address the
role of parol evidence, various provisions of the Convention permitted,
indeed required, that the court consider evidence of the parties'
subjective intent, even if the evidence conflicted with the written
agreement's terms. First, the court noted that, since representatives of
both parties acknowledged that they did not intend to be bound by
certain written provisions, the court was required to examine the
parties' subjective intent under Article 8(1) of the Convention, which
"For the purposes of this Convention statements made by and other
conduct of a party are to be interpreted according to his intent where
the other party knew or could not have been unaware what that intent
Next, the court commented that the Convention specifically permits
the enforcement of oral contracts.11
Finally, the court observed that Article 8(3) requires courts to give
"due consideration ... to all relevant circumstances of the case,
including the negotiations" in determining the parties' intent.12 Read in concert, these provisions prompted the
court to conclude that it could consider parol evidence to determine the
parties' subjective intent, even if the evidence contradicts the written
terms of the parties' purported agreement.
The approach to parol evidence and subjective intent taken by the
MCC court has been followed by several other courts, leaving
little doubt that written agreements governed by the Convention will be
subject to far greater scrutiny than the same agreements would be if
governed by the UCC.13
If, as the MCC court concluded, a party's subjective intent is
a relevant inquiry even in the face of contrary written terms, then is
it not plausible that a party could defeat a dispositive motion simply
by submitting an affidavit, in which the party asserted that it was not
the party's intention to be bound by the contract terms at issue?
Concerned over such an interpretation of its opinion, the MCC
court addressed this issue, noting that its decision was based in large
measure on the unique circumstance in this case that both parties
acknowledged "a subjective intent not to be bound by the terms of a
prenprinted writing."14 Because, in the
vernacular of Article 8, the defendant "knew or could not have been
unaware" what the plaintiff's intent was, the court was compelled to
examine the plaintiff's subjective intent. When a party does not know or
could not have been aware of the other party's intent, the court must
abandon the subjective intent inquiry of Article 8(1) in favor of the
objective "reasonable person" standard of Article 8(2), which
"If the preceding paragraph is not applicable, statements made by and
other conduct of a party are to be interpreted according to the
understanding that a reasonable person of the same kind as the other
party would have had in the same circumstances."
Most courts that have addressed the role of parol evidence in the
context of a written contract governed by the Convention have agreed
with the MCC court's conclusion that parol evidence is
appropriately considered in determining the parties' intent.15 One court, however, reached a contrary result.
Responding to a parol evidence rule issue raised in the broader context
of a choice of law question in Beijing Metals & Minerals
Imports/Exports Corp. v. American Business Center Inc., the Fifth
Circuit decided that it was unnecessary to resolve the choice of law
issue "because our discussion is limited to application of the Parol
Evidence Rule ... which applies regardless" of whether the
Convention or another body of law applies.16
The MCC court roundly criticized the Beijing Metals
opinion, noting that the opinion failed to include "any analysis of the
Convention," and concluded that the opinion was "not particularly
persuasive."17 Beijing Metals
represents a distinct minority view and, in light of a recently issued
advisory opinion regarding parol evidence, is unlikely to carry any
weight in future decisions.
The Advisory Council on the United Nations Conventions on Contracts
for the International Sale of Goods (the Council) was formed in 2001 to
provide interpretive guidance on unresolved issues relating to the
Convention.18 The Council's principal
purpose "is to issue opinions relating to the interpretation and
application of the Convention on request or on its own
In its Opinion No. 3, the Council specifically addressed the parol
evidence rule under the Convention.20 The
Council initially noted that the Convention does not include any version
of the parol evidence rule. Consistent with the MCCnMarble case
(which the opinion cites), the Council emphasized that several
Convention provisions _ notably Articles 8 and 11 _ require courts to
consider statements and other relevant evidence when determining the
effect of a contract's terms.21 The opinion
did not dismiss the importance of a written agreement but noted that "a
writing is one, but only one, of many circumstances to be considered
when establishing and interpreting the terms of a contract."22 Accordingly, the Council concluded that the
parol evidence rule has no application to a contract governed by the
The Council drew support for its opinion from the Convention's
legislative history. It noted that the Canadian delegation had proposed
including a version of the parol evidence rule, but the proposal
garnered little support and eventually was rejected. The Council also
suggested that the parol evidence rule is at odds with most of the
world's legal systems, which "admit all relevant evidence in contract
litigation."23 Finally, the Council
observed that where the parol evidence rule does prevail, notably in the
United States, it is marked by considerable variation and extreme
complexity and is the subject of considerable criticism.24
Given the Council's opinion and the sound reasoning of both the
opinion and MCC-Marble, the parol evidence rule is unlikely to
find support in future commercial disputes litigated in the United
States when the Convention governs the parties' agreement.
Merger Clauses Under the Convention
The Convention's acceptance of subjective intent to determine the
party's agreement begs the question of whether a merger clause that
extinguishes prior agreements not expressed in the writing will
eliminate parol evidence problems. While a merger clause will provide
some measure of protection against consideration of parol evidence, it
is doubtful that such a clause will be a panacea to the parol evidence
problem. In this regard, there is no reason to believe that a merger
clause will be treated any differently from any other provision of a
contract the Convention governs. Consistency demands that a merger
clause be subjected to the same examination of facts and circumstances
required by Article 8 to determine a party's intent as any other
contractual provision. In fact, merger clauses appear to be uniquely
prone to attack by parol evidence, since the parties' intent not to be
bound by the merger clause could be demonstrated by the very evidence
that the merger clause seeks to exclude _ prior understandings not
expressed in the written agreement.
The Fifth Circuit addressed this question in its MCCnMarble
opinion, concluding that a merger clause is the solution to parol
"[T]o the extent parties wish to avoid parol evidence problems they
can do so by including a merger clause in their agreement that
extinguishes any and all prior agreements and understandings not
expressed in the writing."25
The court's comments (in dicta) on the effect of a merger clause are
difficult to reconcile with the rest of its opinion. Indeed, given the
unique circumstances of the case, in which there was evidence that
neither side intended to be bound by certain terms of the written
agreement, it is unimaginable that a merger clause would have altered
In its Opinion No. 3, the Council also weighed in on the impact of a
merger clause in a contract governed by the Convention. The Council
began by noting that Article 6 of the Convention expressly permits
parties to opt out of the Convention, in whole or in part: "The parties
may exclude the application of this Convention or, subject to Article
12, derogate from or vary the effect of any of its provisions." The
Council next observed that a merger clause operates under Article 6 in
derogation of Articles 8 and 11.26 A merger
clause attempts to escape the impact of Article 8 by preventing
"recourse to extrinsic evidence for the purposes of contract
interpretation."27 Moreover, a merger
clause attempts "to bar extrinsic evidence that would otherwise
supplement or contradict the terms of the writing in derogation of
Article 11, which provides that a sales contract may be proved by any
means, including witnesses."28 Referring to
the Fifth Circuit's opinion in MCCnMarble as authority for the
proposition that a properly worded merger clause prevents the
introduction of extrinsic evidence, the Council nevertheless refused to
endorse a merger clause as a bulletproof shield against extrinsic
evidence. Consistent with Article 8, the effect of a merger clause will
ultimately depend on the parties' intent:
"[E]xtrinsic evidence should not be excluded, unless the parties
actually intended the Merger Clause to have this effect. The question is
to be resolved by reference to the criteria enunciated in Article 8,
without reference to national law. Article 8 requires an examination of
all relevant facts and circumstances when deciding whether the Merger
Clause represents the parties' intent."29
Like a written agreement itself, a merger clause is only one of
potentially many factors that must be considered to discern the parties'
"Under the CISG, a Merger Clause does not generally have the effect
of excluding extrinsic evidence for purposes of contract interpretation.
However, the merger clause may prevent recourse to extrinsic evidence
for this purpose if specific wording, together with all other relevant
factors, make clear the parties' intent to derogate from Article 8 for
purposes of contract interpretation."30
If, as Article 8 of the Convention prescribes, contract
interpretation under the Convention is a matter of understanding the
parties' intent, then a party to a contract governed by the Convention
relies on a merger clause to preclude the introduction of extrinsic
evidence at its peril. In light of the Council's opinion and its
persuasive reasoning, it is unlikely that the dictum of
MCCnMarble will find support in future opinions.
In a world that is rapidly losing its commercial boundaries, the
Convention will continue to grow in prominence and play an increasingly
important role in resolving commercial disputes. As a result, lawyers
representing clients involved in international commerce and the
resolution of international commercial disputes must be prepared to
operate under a body of law that adopts concepts not recognized by the
UCC (such as oral contracts) while eschewing other principles (such as
the parol evidence rule) embodied in the UCC.
1The United Nations certified text
is published at 52 Fed. Reg. 6262 (March 2, 1987).
2MCC-Marble Ceramic Ctr. Inc. v.
Ceramica Nuova D'Agostino S.P.A., 144 F.3d 1384, 1389 (11th Cir.
3Pace Law School, CISG
4United Nations Convention on
Contracts for the International Sale of Goods [hereinafter Convention],
at Art. 1(1)(a).
5Convention, supra note 4,
at Art. 6.
6BP Oil Int'l Ltd. v. Empresa
Estatal Petroleos de Ecuador, 332 F.3d 333, 337 (5th Cir. 2003);
Asante Techs. Inc. v. PMC-Sierra Inc., 164 F. Supp. 2d 1142, 1150
(N.D. Cal. 2001).
7U.C.C. § 2-201.
8Convention, supra note 4,
at Art. 11.
9U.C.C. § 2-202.
10MCC-Marble, 144 F.3d
11Id. at 1389.
13See, e.g., Supermicro
Computer Inc. v. Digitechnic, 145 F. Supp. 2d 1147 (N.D. Cal. 2001);
Shuttle Packaging Sys. L.L.C. v. Tsonakis, No. 1:01-CV-691, 2001
U.S. Dist. LEXIS 21630 (W.D. Mich. Dec. 17, 2001); Fercus S.R.L. v.
Palazzo, No. 98 Civ. 7728 (NRB), 2000 U.S. Dist. Lexis 11086
(S.D.N.Y. Aug. 8, 2000).
14MCC-Marble, 144 F.3d at
s.n.c. v. Olivieri Footwear Ltd., No. 96 Civ. 8052(HBYTHK), 1998
U.S. Dist. LEXIS 4586 (S.D.N.Y. April 7, 1998); Mitchell Aircraft
Spares Inc. v. European Aircraft Serv. A.B., 23 F. Supp. 2d 915
(N.D. Ill. 1998).
16993 F.2d 1178, 1183 n.9 (5th
17MCC-Marble, 144 F.3d at
18Dr. Loukas Mistelis, Council
Publishes First Opinions.
Opinion No. 3, 72 KB Parol
Evidence Rule, Plain Meaning Rule, Contractual Merger Clause and the
CISG, 23 Oct. 2004. Rapporteur: Prof. Richard Hyland, Rutgers Law
School, Camden, N.J., USA [hereinafter Council Op. No. 3].
21Id. at § 2.1.
22Id. at § 2.2.
23Id. at § 2.4.
25MCC-Marble, 144 F.3d at
26Council Op. No. 3, supra
note 20, at § 4.1
29Id. at § 4.5.
30Id. at § 4.6.