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Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.6 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.6, which provides a number of broad interpretative guidelines for the interpretation and the supplementation of the UNIDROIT Principles of International Commercial Contracts (PICC). The provision does not purport to set forth a complete set of detailed rules and principles of contractual interpretation. It simply highlights some interpretative elements that are of particular importance in the context of international uniform law. The interpretation of a PICC article is concerned with determining whether a given set of facts falls within the scope of application of such article and therefore triggers the legal consequences spelt out in the provision. Art 1.6 outlines the international character and autonomous interpretation of the PICC, criteria of interpretation, weight of the interpretative criteria, issues within the scope of the PICC but not expressly settled by them, and ‘settling the issue’.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.7 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.7, which obliges the parties to a contract to ‘act in accordance with good faith and fair dealing’. The imposition of this duty corresponds to a global trend towards an increasing role for the standard of good faith in contract law that has been emerging for several decades. To a certain extent, the UNIDROIT Principles of International Commercial Contracts (PICC) help to reinforce this trend. Art 1.7 spells out the scope of the obligation to act in accordance with good faith and fair dealing; standard of good faith and fair dealing, including ethical standard and standard employed ‘in international trade’; consequences of failure to act in accordance with good faith and fair dealing; and burden of proof.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.8 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.8 of the UNIDROIT Principles of International Commercial Contracts (PICC), which states that a party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment. A party that behaves inconsistently within the meaning of Art 1.8 acts in bad faith. Therefore, Art 1.8 can be seen as the most general of the various specific applications of the general obligation to act in accordance with good faith and fair dealing — spelled out in Art 1.7 — that are contained in the black letter rules of the PICC. Art 1.8 covers the requirements for inconsistent behaviour, remedies for inconsistent behaviour, and exclusions or limitations of the provision on inconsistent behaviour.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.9 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.9 of the UNIDROIT Principles of International Commercial Contracts (PICC), which stipulates requirements for the bindingness of usages or practices established between the parties. Art 1.9 does not provide criteria for ascertaining the existence of such usages or practices, but rather presupposes their existence. The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. The parties are also bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable. Art 1.9 also addresses burden of proof as a requirement for parties that claim that an established practice is binding.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.10 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.10, which deals with the effectiveness of notices provided under the UNIDROIT Principles of International Commercial Contracts (PICC). A notice refers to any communication of intention. By way of example, the paragraph lists declarations, demands, and requests. The notice must be ‘required’ under the PICC; that is, a provision of the instrument must attach certain legal consequences to the giving of the notice. Art 1.10 establishes a single regime for all types of notice which has two main features. In order to be effective, notices are not subject to any requirement as to form. However, they must be received by the addressee. Art 1.10 also explains the burden of proof concerning the party that relies on the effectiveness of its own notice and the party that relies on the effectiveness of the other party's notice.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.11 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.11, which sets out some definitions of key terms of the UNIDROIT Principles of International Commercial Contracts (PICC), namely, ‘court’, ‘place of business’, ‘obligor’, ‘obligee’, and ‘writing’. The definitions are largely self-explanatory. The drafters' preference for the term ‘court’ as referring to both state courts and arbitral tribunals may, at first, seem somewhat misleading but this is justified by the intention of avoiding unduly heavy language. The terms ‘obligor’ and ‘obligee’ are unfamiliar to most users but they are useful for identifying the obliged party and the entitled party, irrespective of the nature of the performance due.

Ch.1 General Provisions, General Provisions III: Arts 1.6–1.12—Application of the PICC, Art.1.12 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.12 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning holidays and time zones and their effect on periods of time set by the parties. Official holidays and non-business days are included in the computation of periods and have no effect on the duration of the period according to Art 1.12(1), unless the parties agree otherwise, such as by referring specifically to ‘working days’. Holidays and non-business days, however, become relevant if the last day of the period falls on such a day. The determination of the applicable time zone may be of crucial importance, in particular where international contracts are concluded across continents. The relevant time zone does not necessarily predetermine the hour format that needs to be used.

Ch.2 Formation and authority of agents, Formation IV: Arts 2.1.17–2.1.18—Integrity of writing, Art.2.1.17 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 2.1.17 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning the merger clauses of a contract. The parties to international commercial transactions often insert a merger clause (‘entire agreement’, ‘integration’, or ‘four corner clause’) in their contracts. For Art 2.1.17 to apply, the contract and the merger clause must be in writing. A contract in writing which contains a clause indicating that the writing completely embodies the terms on which the parties have agreed cannot be contradicted or supplemented by evidence of prior statements or agreements. However, such statements or agreements may be used to interpret the writing. By codifying a rule on their validity and legal effects, the PICC broke fresh ground and served as a model for later projects for the harmonization of contract law.

Ch.2 Formation and authority of agents, Formation IV: Arts 2.1.17–2.1.18—Integrity of writing, Art.2.1.18 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 2.1.18 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning contract modification in a particular form. International commercial contracts often contain a ‘no oral modification’ clause (or ‘no variation except in writing’ clause). Such clauses require that subsequent agreements to modify the terms of the contract or to terminate the contractual relationship be in a specified form, normally in writing. The purpose of ‘no oral modification’ clauses is to protect the integrity of the writing even after the contract has been concluded. Art 2.1.18 stipulates that a contract in writing which contains a clause requiring any modification or termination by agreement to be in a particular form may not be otherwise modified or terminated. This commentary discusses an exception from the strict enforcement of ‘no oral modification’ clauses.

Ch.1 General Provisions, General Provisions I: Arts 1.1–1.3—Fundamental principles, Art.1.1 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.1, which deals with freedom of contract, the most important fundamental principle of contract law for contracts governed by the UNIDROIT Principles of International Commercial Contracts (PICC). Art 1.1 restates a general principle of law in the technical sense; that is, a principle common to the laws of all — or at least most — jurisdictions in the world. All modern contract laws recognize freedom of contract, albeit for different reasons and to varying degrees. Art 1.1 covers two aspects of contractual freedom: the first is the freedom to decide whether to conclude a contract at all, and with whom; the second is the freedom to contract on the terms desired by the parties. Limitations of the freedom to determine the content of the contract follow from mandatory rules of the PICC.

Ch.1 General Provisions, General Provisions I: Arts 1.1–1.3—Fundamental principles, Art.1.2 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.2, which spells out a fundamental principle of contract law: the principle of freedom from form, or ‘principle of informality’. No contract, statement, or other act made under the UNIDROIT Principles of International Commercial Contracts (PICC) requires a particular formality in order to be valid and enforceable; it is sufficient if these are made orally or by mere conduct. While the PICC admit for exceptions to some of their other fundamental contract law principles, the principle of freedom from form is executed in the purest form possible. It applies to the formation of contracts as well as to their subsequent modification and termination, it is reinforced by Art 3.1.2, and there is not a single exception to it. Art 1.2 covers relevant and mandatory formal requirements, formal requirements agreed by the parties, and the concept of ‘writing’.

Ch.1 General Provisions, General Provisions I: Arts 1.1–1.3—Fundamental principles, Art.1.3 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 1.3 of the UNIDROIT Principles of International Commercial Contracts (PICC) regarding a fundamental principle of contract law: the principle of bindingness of contract, also known as ‘sanctity of contract’ or pacta sunt servanda — contracts validly concluded under the law are enforced by the law. The underlying rationale of the principle of bindingness of contract, and thus of Art 1.3, may be contested in contract theory. The bindingness of contracts allows parties to arrange their affairs and thus promotes legal certainty. The contract is only binding ‘upon the parties’. Persons who are not a party to the contract are not bound by it: an agreement of the parties to make a contract for the detriment of a third person is not valid. This commentary considers the implications of and exceptions to the principle of bindingness.

Ch.4 Interpretation, Art.4.1 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.1 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning intention of the parties. Art 4.1 is the basic rule of contractual interpretation under the PICC. It consists of two paragraphs that provide for two different points of reference that may be significant in the interpretation of a contract. The meaning of a contractual term must be determined with reference to the meaning that the parties intended it to have. If such a common intention cannot be established, the meaning must be determined with reference to a standard of reasonableness. This commentary discusses contractual interpretation according to the common intention of the parties and according to the understanding of reasonable persons, the relationship between Art 41(1) and (2), interpretation of standard terms, and burden of proof with respect to intention.

Ch.4 Interpretation, Art.4.2 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.2 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning interpretation of unilateral statements and other conduct of a party. Under Art 4.2, the statements and other conduct of a party shall be interpreted according to that party's intention if the other party knew or could not have been unaware of that intention. If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances. This commentary discusses interpretation according to the intention of the party making the statement or engaging in the conduct, interpretation according to the understanding of reasonable persons, the relationship between Art 4.2(1) and (2), and burden of proof for parties wishing to invoke Art 4.2(1) or Art 4.2(2).

Ch.4 Interpretation, Art.4.3 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.3 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning relevant circumstances, factors, aspects, or criteria that are to be used in establishing the intention of the parties or the understanding of reasonable persons. Relevant circumstances that are important in contractual interpretation include words used by the parties, internal context of the contract, preliminary negotiations between the parties, practices established between the parties, subsequent conduct of the parties, nature and purpose of the contract, meaning commonly given to terms and conditions in the trade concerned, usages, and policy arguments. This commentary also discusses the weight of the relevant circumstances and the burden of proof of the party that wishes to rely on a relevant circumstance in support of a particular interpretation.

Ch.4 Interpretation, Art.4.4 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.4 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning reference to contract or statement as a whole. Art 4.4 refers to the internal context of the contract or statement. This is a factor that is relevant in contractual interpretation, and it would have been possible to include it amongst the circumstances listed in Art 4.3. The drafters chose to follow the more traditional approach of the Romanistic systems, which devote a separate provision to this factor. The holistic approach advocated for the reading of contracts and statements in Art 4.4 corresponds to the basic hermeneutic principle that words cannot be understood in isolation. Art 4.4 is concerned with the internal context that is confined to the parameters of the contract or statement itself. This commentary discusses inconsistencies in the contract or statement and the weight of arguments from the internal context.

Ch.4 Interpretation, Art.4.5 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.5 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning the interpretation of contractual terms. According to Art 4.5, contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. The rule or maxim that, in the case of doubt, all contract terms should be given full effect is part of the modern lex mercatoria. This ‘rule of common sense’ can be traced back to Roman law. This commentary discusses the requirements for the ‘rule of common sense’, with particular emphasis on irremediable ambiguity and standard terms.

Ch.4 Interpretation, Art.4.6 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.6 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning the contra proferentem rule. According to the contra proferentem rule, in cases of doubt contractual terms are to be interpreted against the party supplying them. Art 4.6 can be understood as an attempt to prevent bad drafting from the outset and to educate the parties to pay attention to the drafting process. This commentary discusses the requirements for the contra proferentem rule, with particular emphasis on irremediable ambiguity and contract terms supplied by one party. It also considers contractual interpretation against the supplier and the burden of proof of the party wishing to rely on an interpretation against another party under Art 4.6.

Ch.4 Interpretation, Art.4.7 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.7 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning interpretation of contracts drawn up in two or more language versions. There has to be a discrepancy between the different versions; that is, the meaning of a clause in one version deviates from the meaning in the other version or versions. Furthermore, it must be impossible to remove this difference of meaning by applying the other rules of contractual interpretation. According to Art 4.7, where a contract is drawn up in two or more versions which are equally authoritative, there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up. The burden of proof lies in the party wishing to rely on a particular language version.

Ch.4 Interpretation, Art.4.8 »

Stefan Vogenauer
From: Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (2nd Edition)
Edited By: Stefan Vogenauer
This commentary focuses on Article 4.8 of the UNIDROIT Principles of International Commercial Contracts (PICC) concerning the supplementation of an omitted term in a contract. According to Art 4.8, where the parties to a contract have not agreed with respect to a term which is important for a determination of their rights and duties, a term which is appropriate in the circumstances shall be supplied. In determining what is an appropriate term, regard shall be had to the intention of the parties; the nature and purpose of the contract; good faith and fair dealing; and reasonableness. This commentary discusses the interpretation, supplementation, and implication of contractual terms, omission of a term, and supplementation of an appropriate term.