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Cite as Eörsi, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 150-160. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.

Article 16

Gyula Eörsi

1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision

ARTICLE 16

(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

(2) However, an offer cannot be revoked.:
(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

1. History of the provision.

     1.1. - Article 16 deals with the revocation of an effective offer up to the time when acceptance becomes effective (Article 18(2), (3)). This is the second phase of the making of a contract (for the first see commentary on Article 15, § 2.1, supra). The antecedents of this article are Article 4(2) of the 1958 Draft, and Articles 4(2), 5(2), (3), (4) of ULFC.

     1.2. - The history of this article is dramatic. Article 4(2) of the 1958 Draft followed the principle prevailing in civil law jurisdictions, and provided that an effective offer was irrevocable unless the offer has reserved the right of revocation in the offer. In discussions of the Committee on Formation at the 1964 Hague Conference, this rule was supported by the delegation from one international organization and opposed by six delegations, three of them from common law countries, two from civil law countries, and one from Scandinavia (1964 Hague Conference Records, 207-208, 234). The result thereof was a switch in the ULFC from the civil law to the common law rule. From this time on the main draft rule permitted revocation of an effective offer, subject to good faith, fair dealing and an indication of the intention of the [page 150] offeree to consider his offer to be firm or irrevocable (Article 5(2) of ULFC). This was considered to be a compromise solution (1964 Hague Conference Records, I, 234), but in fact good faith, etc., were no more than fig leaves which dropped away in the UNCITRAL phase of the work on unification. The doctrine of revocability survived as the main principle.

          1.2.1. - Another issue in drafting this article was the relevance of the death or incapacity of one of the parties after the offer was made but before it was accepted. Article 4(3) of the 1958 Draft provided that death or mental incapacity could, under certain circumstances, permit revocation and that the offeree may permit the offer to lapse. The Committee on Formation heard four proposals: one to the effect that the offer shall not lapse, another to the effect that the offer shall lapse, a third to the effect that the offer may be revoked and a fourth one which distinguished between the death or incapacity of the offeror (revocation) and that of the offeree (the offer lapses). This last proposal was replaced by a proposal to delete Article 4(3) of the 1958 Draft. The final decision appeared in Article 11 of ULFC which provided that the formation of the contract is not affected by the death or incapacity of one of the parties before acceptance unless the contrary results from the intention of the parties (a rare occurence), a usage or the nature of the transaction. UNCITRAL and the Vienna Conference remained silent on these issues. Silence in this respect allows the same result as the provision in Article 11 of ULFC.

Bankruptcy problems were not discussed either by the 1964 Hague Conference or by the Vienna Conference since the consequences of a bankruptcy would be governed. by the applicable domestic law (HUBER, UNCITRAL-Entwurf, 441).

     1.3. - The article was discussed at the eighth session of the Working Group of UNCITRAL (Yearbook, VIII (1977), 79-80) on the basis of an alternative text proposed by the Secretariat. It was decided that the «basic compromise of ULFC should be retained» (Yearbook, VIII (1977), 80). All references to the period of time during which an offer was revocable were deleted on the ground that the offer normally remained irrevocable until it lapsed. Three exceptions to the main rule of revocability appeared: (a) if [page 151] the offer expressly or implicitly indicates that it is firm or irrevocable; (b) if the offer states a fixed period of time for acceptance or irrevocability; and (c) if there were justifiable reliance on the firm character of the offer. At its eighth session the Working Group drafted Article 5(2), (3), as follows:

(2) The offer can be revoked if the revocation is communicated to the offeree before he has dispatched his acceptance [shipped the goods or paid the price].

(3) However, an offer cannot be revoked:
(a) if the offer expressly or impliedly indicates that it is firm or irrevocable; or
(b) if the offer states a fixed period of time for [acceptance] [irrevocability]; or
(c) if it was reasonable for the offeree to rely upon the offer being held open and the offeree has altered his position to his detriment in reliance on the offer (Yearbook, IX (1978), 74).

     1.4. - At its ninth session the Working Group deleted the bracketed words «shipped the goods or paid the price» of paragraph (2) (Yearbook, IX (1978), 75).

It was then pointed out that, since the term «dispatched an acceptance» was used, the article was inapplicable to cases in which acceptance was effective upon the doing of an act (see Article 18(1)). It might, however, be mentioned that at the eighth session of the Working Group a proposal of the Secretariat maintained that any act treated as acceptance was equivalent to dispatch of an acceptance (Yearbook, VIII. (1977), 79). This proposal was not adopted by the Working Group thereby creating a gap in the law (see § 2.1.2., infra).

     1.5. - Article 5(3) of the Formation Draft, underwent some changes at the ninth session. Sub-paragraph (a) was amended by deleting the words «expressly or impliedly». In sub-paragraph (b) the words «if the offer states a fixed period of time», which expressed the civil law approach, remained unchanged although the rule was unknown in common law countries (Yearbook, IX (1978), 75, 135). The sub-paragraph was adopted by the Working Group (Yearbook, IX (1978), 76). Concerning the alternative square brackets the Working Group adopted the word «acceptance» (Yearbook, IX (1978), 75). The Working Group considered a proposal to delete sub-paragraph (c) on the grounds that [page 152] only the offeror should be able to make his offer irrevocable (which was the case anyway) and that the provision was too vague (in particularly for civil law delegations). On the other hand, the provision was explained as merely a particular application of the requirement of good faith and fair dealing. The Working Group decided to retain sub-paragraph (c) after deleting the second part of its sentence Yearbook, IX (1978), 75-76).

     1.6. - At the eleventh session of UNCITRAL the Commission made an important change in the text. In paragraph (3) the three sub-paragraphs were integrated into two: sub-paragraph (2) («if the offer states a fixed period of time for acceptance») was placed in sub-paragraph (a). It thereby lost its independent standing and its distinctly civil law character opposed by the common law delegations. The aim was to reach a compromise between civil law and common law but, as will be shown later, this change created ambiguity in the text. (Concerning the change see Yearbook, IX (1978), 14-15).

     1.7. - This text appeared in Article 14 of the UNCITRAL Draft Convention.

          1.7.1. - Meanwhile, delegations from governments and international organizations made comments and proposals. One delegation advocated irrevocability as the general principle of the article (Official Records, I, 75), but received no support. Another did not like the word «dispatched» since it did not cover an acceptance by conduct. Still another government proposed dealing with the revocation of public offers (Official Records, I, 75). When this issue was raised again at the ninth meeting of the First Committee of the Vienna Conference, two delegations supported it (Official Records, II, 277-278).

          1.7.2. - Paragraph (1) presented no difficulty at the Vienna Conference, but a very lively discussion arose over paragraph (2). The heated debate (twenty-seven interventions) centered on the civil law rules of paragraph 2(a) which was read in the common law way by some delegations and in the civil law way by others. Delegations from civil law countries maintained that if a fixed time for acceptance is stated, then the offer is irrevocable during [page 153] this period of time. This view was originally adopted by the Working Group at its ninth session (Yearbook, IX (1978), 90-91) but could not survive. On the common law side it was argued that there is a distinction between revocation and lapse and if a fixed time is stated for acceptance, this:

... merely indicared the period during which the offer might remain open and after which it lapsed (Official Records, II, 27).

A number of delegations justly pointed out that the rule was capable of different interpretations. Others stated that it would be undesirable to have irrevocability of the offer imposed on two common law parties. Answer to the latter point was:

It was not acceptable that one interpretation would apply when the parties to a contract were nationals of a common law country and another one when those parties were nationals of a civil law country (Official Records, II, 278).

The adoption of proposals leaving interpretations of the text to judges and arbitrators would have had the same result. The argument of an alleged compromise was raised by a common law and a civil law delegation, but this was doubted by others. Delegations, mainly from civil law countries, advised that parties under the common law should rely upon Article 7 or draft a reservation. Objection was raised to the latter proposal of a reservation on the ground that traders could not be expected to find out whether or not the State of which the other party was a national had made a reservation.

At the thirty-fifth meeting the First Committee adopted the article without any discussion (Official Records, II, 424). At the seventh meeting of the plenary the article was adopted by forty-four votes to none with two abstentions, in spite of the divergence of views aired in previous discussions of the First Committee: seven representatives supported the view that the words quoted should not signal irrevocability while seventeen representatives were of the opposite opinion. In fact, few delegations were unaware that the rule in sub-paragraph 2(a) was, due to differing legal backgrounds, ambiguous. Nonetheless, many felt it preferable to adopt an ambiguous rule than to give up unification of such a crucial issue (Official Records, II, 778-780). [page 154]

2. Meaning and purpose of the provision.

     2.1. - Under paragraph (1) an offer may be revoked if (a) the offer has become effective (see Article 15(1)), (b) the contract is not yet concluded (see Article 23), (c) the revocation reaches the offeree before he has dispatched an acceptance, and (d) paragraph (2) does not apply.

          2.1.1. - There are three basic approaches to the problem of revocability. In the common law an offer is revocable and, as a historical remnant of the consideration doctrine, its revocability is affected neither by a promise not to revoke it nor by a provision that it will not be revoked before a stated date (but see the different rule adopted by § 2-205 of the United States Uniform Commercial Code). In romanistic systems (e.g., French law), although revocation of an offer is permitted -- particularly if it states a fixed time for acceptance -- the offeror is bound to indemnify the offeree or to pay damages in case of revocation. In German law and in some other civil law systems an offer is binding unless the offeror stated that the offer was revocable (ZWEIGERT-KÖTZ, Einführung in die Rechtsvergleichung auf dem Gebiete des Privatrechts, Tübingen (Mohr), 2nd ed. 1984, I, 39). At the 1964 Hague Conference and at the Vienna Conference the romanistic pattern was not discussed and the debate centered on the common law and the German pattern.

These two patterns contradict each other at a crucial point of contract formation. The situation is further aggravated when contracts are concluded by traders, who have particular difficulty in knowing which doctrine applies to their contract. At most unification efforts can choose one of the doctrines, or try to compromise. Even in the latter case there is no possibility of a «fifty-fifty» compromise because the two doctrines are irreconcilable. There seems to be no choice but to select one doctrine as the main rule and the other as an exception to it. This is precisely what was done. The Convention follows the common law pattern but permits exceptions.

          2.1.2. - The time span for revocation in civil law countries last until the contract is concluded. But, here again, the two legal. systems diverge. The common law applies, the mailbox theory, [page 155] which means that revocation is not effective if the offeree dispatches an acceptance before the revocation has reached him. The same rule applies also in Article 6.5.2.2.2. of the Netherlands Civil Code (see also commentary on Article 15, supra § 3.2.). It might perhaps be added that by virtue of Article 18(1), conduct of the offeree indicating assent (e.g., shipping the goods or paying the price) amounts to acceptance. Therefore, conduct to the effect of an acceptance might be regarded as equivalent to dispatch (see § 1.4, supra).

The purpose of the mailbox rule is to shorten the time of uncertainty for the offeree by permitting him to cut short the time available for revocation. The disadvantage of this rule is that it involves an element of surprise for the offeror. He loses the right to revoke his offer at the moment of dispatch of the acceptance although at that time he is not yet aware that an acceptance is on the way, and therefore that he may no longer revoke his offer. In contrast, in civil law systems the time span for revocation lasts until the acceptance reaches the offeror. Therefore, uncertainty on the part of the offeree lasts longer since the offeror may revoke his offer up to the time when the acceptance reaches him. On the other hand, there is no element of surprise in the course of making the contract. Here again the common law pattern was narrowly adopted (see Article 16(1)).

          2.1.3. - To sum up, an effective offer (see Article 15) may be revoked if the contract is not yet concluded (see Article 23) and the acceptance was not yet dispatched. If, for instance, the acceptance is dispatched on May 10 and reaches the. offeror on May 15, the contract is concluded on May 15 but the right to revoke lapses on May 10. It might be added that, due to the rapidity of contemporary communication, the above-mentioned element of surprise will, in most cases, not materialize. When this is not the case it is up to the offeree to prove at what time the acceptance was dispatched.

     2.2. - Article 16(2) provides for an exception to the main rule of revocability. Although it might seem that sub-paragraphs (a) and (b) provide for two different exceptions, they express the same exception. Sub-paragraph (a) does it with civil law language, and sub-paragraph (b) with common law language. The question [page 156] presented is, when is it reasonable for the offeree to rely on the offer as being irrevocable? The answer is when the offer indicates that it is irrevocable. It seems impossible that where the offer indicates that it is irrevocable reliance on the offer could at the same time be unreasonable; and, correspondingly, for it to be reasonable to rely on an offer as irrevocable, there must be an indication that it is irrevocable.

Seemingly, sub-paragraph (a) offers the civil law systems their own law and sub-paragraph (b) does the same for the common law jurisdictions. This reasoning, however, was not followed in discussions of the Working Group. A number of delegations did not understand the reliance doctrine well, and common law delegations interpreted sub-paragraph (a) in their own way. The common law delegations maintained that even if the offer states a fixed period of time for acceptance, this, in itself, does not necessarily mean that the offer is irrevocable; after all, revocability and irrevocability do not necessarily depend on whether a fixed time for acceptance was stated in the offer. Thus, common law delegations were inclined to read the civil law languages in the common law way. The Secretariat's Commentary states only:

The offer may also indicate that it is irrevocable by stating a fixed time for acceptance (Official Records, I, 22).

This seems to indicate that stating a fixed time for acceptance is not in itself sufficient to make the offer irrevocable.

          2.2.1. - Sub-paragraph (a) would be unambiguous if it provided the following: «If (the offer) indicates a fixed time for acceptance or otherwise indicates that it is irrevocable». As, a matter of fact sub-paragraph (a) as adopted by the Working Group at its eighth session stated that an offer cannot be revoked «if it expressly or impliedly indicates that it is firm or irrevocable or (b) if the offer states a fixed period of time for [acceptance] [irrevocability] ...» (Yearbook, VIII (1977), 89). This would mean that an offer which stated a fixed time for acceptance would always be irrevocable. Such a wording could not meet the approval of common law delegations. Therefore, the «compromise» solution reads: «if it indicates, whether by stating that a fixed time ...». For a civil law jurist this wording would lead to the same result, namely that the offer is irrevocable during the time [page 157] fixed for acceptance. On the other hand, for a common law jurist the text would mean that the offer is irrevocable only if the manner of «stating a fixed time for acceptance» indicated that the offer was irrevocable. Stating a fixed time for acceptance may not by itself mean irrevocability. Many of the delegations were fully aware of this ambiguity, but it seemed that this was the only way to achieve unification. The unification achieved is probably strictly formal except for parties coming from legal systems which resemble each other. What the common law or the civil law parties should do under such circumstances is employ Article 8(1), and interpret their contract accordingly.

If the offer states, «Our offer is at any rate good till May 13», then the offer is irrevocable. But, if it states merely, «Our offer is not good after May 13», then common law jurists might conclude that the offer is a revocable one that lapses on May 13. «I stand by my offer till I get your answer» is an indication to the effect that the offer is irrevocable during that time.

The indication required in sub-paragraph (a) may be a statement, a declaration, conduct of the offeror or simply a situation or circumstances known by the offeree or which ought to have been known by him.

          2.2.2. - Sub-paragraph (b) incorporates. the reliance doctrine into the mechanism of making a contract. This doctrine may be compared with the famous general clause «Treu und Glauben» («good faith») of the Federal Republic of Germany Civil Code and the Swiss Code, although its scope is not so wide as that of this general clause. The common purpose of the civil law and common law doctrine is to prevent a fair and fully competent party from being unexpectedly deceived in his lawful expectations. This is «soft law» (in contrast with «harsh law»), a product of what is termed «social law» which provides, among other things, increased protection for those who deserve it. In other words, it protects those whose frustrated expectations were not only lawful but also reasonable in the given situation.

Sub-paragraph (b) applies when two conditions are satisfied: first, it was reasonable for the offeree to rely on the offer as being irrevocable, and second, he has already acted in reliance on the offer. Thus, reliance on the offer is in itself irrelevant: for the purpose of resorting to sub-paragraph (b) an act or a conduct [page 158] in reliance of the offer is needed. Such an act or conduct may consist of preparation for production, buying or hiring materials or equipment, incurring expenses, provided that such an act or conduct was regarded as normal in the trade concerned, or was supported by preliminary negotiations, or should otherwise have been foreseen by or known to the offeror. Such an act or conduct would in such cases also serve as an «indication» under subparagraph (a). An example is offered in the Secretariat's Commentary (Yearbook, IX (1978), 91) of an instance in which it would be of particular importance that the offeree engage in exhaustive investigation to determine whether he should accept the offer. Such a need for investigation would in civil law systems be regarded as an indication of irrevocability for the period of time necessary for the offeree to make his determination. Another example is the following: Buyer solicits offers to enable him to make up a bid on a project. Since it is clear to Seller that Buyer may rely on Seller's offer by using it to calculated Buyer's bid (but it is not expected to accept Seller's offer unless and until Buyer's bid is accepted) Buyer's reliance makes seller's offer irrevocable until bids are accepted and Buyer has a reasonable chance to accept Seller's offer -- even though Seller's offer says nothing of irrevocability and mentions no time. A civil lawyer would probably arrive at the same conclusion on the basis of sub-paragraph (2)(a).

The reverse situation, in which it was reasonable for the offeror to rely upon the conduct of the offeree during the negotiations and to act in reliance on such conduct, is not covered by the Convention. Perhaps the offeror may argue that this situation is analogous to that contemplated by the provision of subparagraph (b).

3. Problems concerning the provision.

     3.1. - Article 16(1) might be misleading. The main rule seems to provide that:

Until a contract is concluded an offer may be revoked.

In other words, it seems to establish a rule determining when an acceptance becomes effective (see Article 23). This, [page 159] however, is a half truth. In fact, the right of revocation ceases when the offeree dispatches the acceptance and not necessarily when the contract is concluded. There might be a time during which the offeror remains unaware of having lost his right to revoke the offer.

This may be a trap for the offeror who does not necessarily know whether or when the acceptance was dispatched and may later be informed that his revocation is no longer effective. Therefore, if he decides to revoke his offer, the offeror must consider that the time for revocation may have lapsed and for the time being should refrain from incurring further expenses. Modern means of communication should minimize this risk.

     3.2. - A second problem arises from the irreconcilable conceptions about the revocability of an offer held by the common law and the civil law. If the offer states a fixed time for acceptance, a party from a civil law country would conclude that the offer was irrevocable during that time; whereas a party from a common law country would conclude that the offer was still revocable. A common law party would find such an offer irrevocable only when there was a special indication to that effect. [page 160]


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