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Problems of Unification of International Sales Law, Working papers submitted to the Colloquium of the International Association of Legal Science, Potsdam, August 1979, Oceana Publications (1980) 130-141. Reproduced with permission of Oceana.

[Context of this commentary is the 1978 Draft of the CISG, not the final text of the CISG.]

Formation of International Sales Contracts

Warren L.H. Khoo

Introduction
Offer
-   What is an offer?
-   Public offers
-   When does an offer become effective?
-   Withdrawal of offer
-   Revocation of offer
Acceptance
-   What is an acceptance?
-   Silence as acceptance
-   When is acceptance effective
-   Measurement of time fixed for acceptance
-   Instantaneous communications
-   Acceptance out of time
Conclusion

INTRODUCTION

As is undoubtedly well known, the basis of work undertaken by UNCITRAL in formulating rules on the formation of contracts was the Uniform Law on the Formation of Contracts for the International Sale of Goods adopted by the diplomatic conference at the Hague in 1964 (in this report referred to as ULF). The UNCITRAL Working Group on the International Sale of Goods devoted two working sessions to this subject, in January and September 1977. The draft prepared by the Working Group was examined by UNCITRAL at its 11th Session held in New York in May-June 1978. The Commission then decided to consolidate the rules on formation of contracts with the rules on sale of goods in one single convention. Some of the rules governing general matters which were found in the Working Group draft are now scattered in other parts of the Convention, so that the rules that exclusively deal with formation are now to be found in Part II of this composite draft Convention --the draft Convention on the International Sale of Goods (in this report referred to as CISG).

The formation rules of the Convention deal basically with the following questions:

(1) What is an offer?
(2) When does an offer become effective?
(3) When may it be withdrawn or revoked?
(4) What constitutes an acceptance?
(5) When must an offer be accepted?
(6) When does an acceptance become effective? and
(7) When may a late acceptance be treated as effective? [page 130]

This report will give a brief account of some of the rules of the CISG dealing with these questions and will also set out the author's personal comments on these rules. Comparison will be drawn between the provisions of these rules and those in the ULF. The report approaches the subject from the point of view of a practitioner rather than an academic; it is a report, not an academic thesis.

It is convenient to divide the body of this report into two main sections, one dealing with Offer and one dealing with Acceptance.

OFFER

What is an offer?

Article 12(1) [identical to Article 14(1) CISG] provides that:

"A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. ..."

This contrasts with the wording of Article 4 of ULF, which states as follows:

"4(1) The communication which one person addresses to one or more specific persons with the object of concluding a contract of sale shall not constitute an offer unless it is sufficiently definite to permit the conclusion of the contract by acceptance and indicates the intention of the offeror to be bound."

The new article states the proposition in a positive manner, while ULF states it negatively, but both require that the communication should be "sufficiently definite", and both require an intention on the part of the offeror to be bound in case of acceptance. [page 131]

In the ULF, no attempt is made to define what is "sufficiently definite". To say that an offer must be "sufficiently definite to permit the conclusion of the contract by acceptance" merely begs the question. The CISG, however, makes an effort, successfully or not, to define this concept by stating in the second sentence of Article 12(1):

"A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price."

The effect of this, so it would appear, is that a proposal which contains or provides for the three essentials -- the goods, the quantity and the price -- can be turned into a binding contract upon acceptance.

Whether this is a good rule or not is open to question. While there is probably general agreement that a proposal would generally not be sufficiently definite without these three elements, it is open to doubt whether the three elements alone are sufficient to make all proposals sufficiently definite. There are other matters which businessmen may well regard as material and essential and on which they would want to reach agreement before they consider themselves bound. Article 17(3) [antecedent to Article 19(3) CISG], dealing with a purported acceptance containing additions and modifications, in fact enumerates some of these matters. The list includes the mode of payment, the quality of the goods, the place and time of delivery, the extent of one party's liability to the other and provisions for the settlement of disputes. If the underlying basis for the rule in Article 17(3) is correct, it would seem to necessarily follow that the rule in Article 12(1) needs to be re-examined.

It is submitted that a reasonable solution may be to provide that the three elements of goods, quantity and price should be the minimum requirements of a definite offer, leaving what amounts to a definite offer undefined and to be determined by the application of the general rule of interpretation laid down in Article 7 [of the 1978 Draft] [antecedent to Article 8 CISG]. [page 132]

This in effect is advocating a return to the approach of the ULF, for which perhaps no apology is necessary.

Public offers

Article 12(2) of [the 1978 Draft] [identical to Article 14(2) CISG] states explicitly that any proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers in the absence of any clear indication to the contrary. This fills a gap left by Article 5 of ULF.

"Over-ruling" the common law rule established by the Carbolic Smoke Ball case, it is probably a sensible provision in the context of international trade. Most business concerns which make offers to the public expect to take into account the public within the country or territory in which they customarily do business. It would be unreasonable to hold them to their offers (sometimes containing terms, for example, for delayed payment) in regard to potential acceptors in other countries.

When does an offer become effective?

Not much needs to be said about this. Both CISG and ULF provide in effect that an offer becomes effective when, and only when, it reaches the offeree. See Article 5 of ULF and Article 13 of [the 1978 Draft] [substantively identical to Article 15 CISG]. ULF states the rule in a negative, while CISG states it in a positive, manner.

Withdrawal of offer

Article 13(2) of [the 1978 Draft] provides that "An offer may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer". There appears to be little difference between this and the rule in Article 5(1) of the ULF, except in the matter of terminology. Article 13(2) of [the 1978 Draft], however, explicitly states that an offer may be withdrawn, in the manner provided, even if it is irrevocable. This appears to be a useful addition to the general rule and puts the position beyond doubt. [page 133]

Revocation of an offer

Revocation relates to the time after an offer has been communicated to the offeree. Both Article 14 of [the 1978 Draft] [identical to Article 16 CISG] and Article 5(2) of ULF provide for the possibility of revoking an offer after it has been communicated to the offeree, or, in the words of Article 14(1), after it "reaches the offeree". It is in regard to the circumstances in which an offer is to be treated as irrevocable that the two conventions differ.

To take one point first, CISG provides that an offer cannot be revoked "if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable". On the other hand, Article 5(2) of the ULF provides that an offer can be revoked unless "the offer states a fixed time for acceptance or otherwise indicates that it is firm or irrevocable." There is a slight difference between the wording in the provision of these two Conventions concerning an offer with a stated fixed time for acceptance. On the ULF wording, it seems to be clear that an offer which states a fixed time for acceptance is in every case to be treated as irrevocable. Under CISG, whether intentionally or inadvertently, the position would seem to be a little blurred, and the wording gives rise to the nice question whether, in addition to indicating a fixed time for acceptance, the offer must also explicitly "indicate that it is irrevocable" for it to be considered as irrevocable.

At the 11th Session of UNCITRAL, it was suggested by one or two delegates that this wording of CISG represented a compromise which, according to them, went some way towards satisfying those in common law countries who would wish to maintain the rule that an offer is revocable even if it states a fixed time for acceptance. It is difficult to see to what extent such sentiments really find expression in this wording of CISG. Can an offer that states a fixed time for acceptance but does not explicitly indicate it is irrevocable, be considered as an irrevocable offer? The use of the words "by stating a fixed time for acceptance" may reasonably give rise to the interpretation that stating a fixed time is a mode of indicating that the offer is irrevocable, but the wording of the sentence as a whole also admits of the contrary argument that that alone is not sufficient to make it so, and that an explicit indication of irrevocability is necessary. [page 134] The only definite thing one can say about this new wording is that it is not as clear as the wording in the corresponding article of ULF.

For those who regard the approach of the civil law as more in accordance with the expectations of the ordinary businessman and who would wish to see unification in the direction of irrevocability, any dilution of the clear and unequivocal wording of the ULF must be regarded as a retrograde step.

It would in any case be regrettable if the solution to a problem provided by an international convention should turn upon fine arguments based on a close syntactical analysis of words like those discussed.

Another matter that gives rise to difficulties of interpreting Article 14 [of the 1978 Draft] [identical to Article 16 CISG] is the provision, in Paragraph (2)(b), that an offer is irrevocable "if it was reasonable for the offeree to rely upon the offer as being irrevocable and the offeree has acted in reliance on the offer."

It is unfortunate that the Article itself does not furnish any guidelines by which a court can judge the question of reasonableness. In view of the marked difference in approach between civil and common law countries to this question of revocability of offers, the word "reasonable" is likely to give rise to a great divergency of interpretations. The corresponding article of the ULF refers to "good faith and fair dealing" in this connection. It is arguable whether these concepts would give a judge a more certain guide, but there is little doubt that much litigation can be expected centering around the word "reasonable"; What is reasonable to those schooled in one tradition may well be outrageous to those accustomed to the other. [page 135]

ACCEPTANCE

What is an acceptance?

An acceptance is defined in Article 16(1) of [the 1978 Draft] [the corresponding portion of Article 16(1) CISG is identical] as a statement made by, or other conduct of, the offeree which indicates assent to an offer. The corresponding provision of Article 6(1) of ULF merely states that an acceptance consists of a "declaration communicated by any means whatsoever to the offeror".

The language of the CISG would appear to be an improvement over that of the ULF. The word "declaration" seems to have an unduly formal air about it and may give the ordinary businessman the impression that he needs to perform some solemn act or execute some formal document. The present draft seems to accord with the understanding of ordinary men of business. Furthermore, it comprehends the intentional element of a declaration by simply requiring an indication of assent to the offer.

Silence as acceptance

Article 16(1) of [the 1978 Draft] states that silence shall not in itself amount to acceptance. [Article 18(1) CISG states that "silence or inactivity" shall not in itself amount to acceptance.] The words "in itself" are intended to meet the objection that in some circumstances it is reasonable for the offeror to regard the silence of the offeree as acceptance. It is, however, doubtful whether these words are sufficient to achieve the purpose. As has been pointed out by others, there may well be circumstances in which a party to whom an offer is made and who wishes to reject it may reasonably be expected to give an indication of his rejection. The mandatory nature of this rule in Article 16(1) would give rise to unreasonable results. This is not mitigated by the provisions of Article 16(3), which contemplates the possibility of an acceptance being manifested by the performance of an act (e.g. dispatch of goods) and in any case deals with the time at which an acceptance becomes effective and not with the question at hand. [page 136]

It is submitted that the omnibus provisions of Article 7 [of the 1978 Draft] [antecedent to Article 8 CISG] (concerning the interpretation of a party's conduct) would probably be resorted to by courts in giving meaning to the statement in Article 16(1) that silence in itself does not amount to acceptance, but to ensure this result, perhaps some explicit reference to that Article in Article 16(1) would be necessary.

When is acceptance effective?

Article 16(2) of [the 1978 Draft] [substantively identical to Article 18(2) CISG] states that acceptance takes effect when it reaches the offeror. This represents, so far as acceptance by post is concerned, a reversal of the established common law rule that acceptance takes effect on the posting of the acceptance. (See Henthorn v. Fraser (1892) 2 Ch. 27). Whatever be the merits or demerits of this rule, it is at least clear and certain.

Both Article 16(3) of [the 1978 Draft [substantively identical to Article 18(3) CISG] and Article 6(2) of ULF recognize that, as a result of practices established between the parties and usage, an offer can be accepted by the offeree performing an act, such as the dispatch of goods or payment of the price. The CISG, however, provides clearly that such acts are effective even without notice to the offeror. It also makes it explicit that the acceptance is effective at the moment the act is performed. To the extent that this removes any ambiguity which may be inherent in the corresponding provisions of the ULF, Article 16(3) ... must be considered as an improvement.

However, the use of the words "an act, such as one relating to the dispatch of the goods or payment of the price" makes the provision somewhat vague; it is not clear what acts subsidiary to the actual dispatch of goods or payment of the price are intended to be covered by this expression.

Measurement of time fixed for acceptance

Article 18(1) of [the 1978 Draft] [substantively identical to Article 20(1) CISG] provides as follows:

"(1) A period of time for acceptance fixed by an offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope ...". [page 137]

The corresponding provisions of ULF are in Article 8(2) and state as follows:

"2. If a time for acceptance is fixed by an offeror in a letter or in a telegram, it shall be presumed to begin to run from the day the letter was dated or the hour of the day the telegram was handed in for dispatch."

It will be noted that, in Article 8(2) of the ULF, the rule is merely stated as a presumption, whereas in Article 18(1) ... it is stated in the form of a peremptory rule. The wisdom of this may be questionable. It deals with a purely evidentiary matter which should properly be left to the judge. In a case where a doubt arises whether an offer was accepted within the period of time stipulated, the tribunal has to judge all the evidence available to ascertain what was intended by the offeror. Article 7 [of the 1978 Draft] [antecedent to Article 8 CISG] provides keys to how the offer should be interpreted. Article 18(1), it is submitted, should not be cast in such a way as to give the impression that it lays down an inflexible rule and thereby to discourage a full recourse to the rules of interpretation laid down in Article 7.

Instantaneous communications

The second sentence of Article 18(1) states:

"A period of time for acceptance fixed by an offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree."

It is open to doubt whether there is any practical need at all to lay down a rule in regard to instantaneous communications. It is highly unlikely that any businessman when conveying an offer by telephone or telex would say to the other "Let me hear from you in two hours". [page 138] He is most likely to say something like "Let me hear from you by 5.00 p.m." or some such words. Even if he should use the former way of expressing himself, it would seem obvious that the time is to be measured from the moment the offer reaches the offeree, since this is the moment, according to Article 18(1) and according to common sense, it becomes effective. In any case, since the transmission is instantaneous, is it not making too much of a point to refer particularly to the time the communication reaches the offeree?

Acceptance out of time

Article 19(1) of [the 1978 Draft] [substantively identical to Article 21(1) CISG] has the effect that a late acceptance is not effective unless, without delay, the offeror so informs the offeree. This rule reproduces the rule in Article 9(1) of ULF.

Article 19(2), corresponding to Article 9(2) of ULF, deals with an acceptance which, though made in time, is received late because of a delay in transmission. In this case, the late acceptance is considered to be effective unless the offeror otherwise informs the offeree without delay. In either words, it states an opposite rule to that in Article 19(1).

The basis for the different approach between articles 19(1) and 19(2) is not clear. It appears to be the result of an attempt at compromise, but, if so, one may criticize it as an attempt at achieving fairness in the abstract without any real advantage in terms of practical convenience.

It would be simpler to provide that, whether the acceptance is made late or made in time but received late, the offer is deemed to have been accepted in due time unless the offeror without delay informs the other party to the contrary. Such a unified approach, although inevitably arbitrary, would be more convenient in practical application. [page 139]

A problem that both paragraphs of this article give rise to is the difficulty for the offeror of determining whether the acceptance has been made in due time or has arrived in the time. This is either the time fixed by the offeror himself, or, if no time has been fixed, a reasonable time after the offer reached the offeree (Article 16[2] [of the 1978 Draft] [substantively identical to Article 18(2) CISG). It is in regard to the necessity of determining what is a reasonable time within which the acceptance should have reached the offeror or within which the offeree should have dispatched his acceptance that this Article might create difficulties for the average businessman. A learned writer, commenting on the corresponding provisions of the ULF, once said: "Thus it seems every businessman is required to have an intimate knowledge of the workings of international postal systems, and that marginal errors in the application of such knowledge may fundamentally affect his contractual relationships". The wording of this article of CISG does nothing to remove this well-founded criticism.

Further questions may be posed. Why must the mode of informing the offeree be so specifically, and apparently so narrowly, spelt out, i.e. orally or by dispatch of a notice? If the parties have been in communication, for example, by telex, is it reasonable for the offeror to dispatch a notice under either paragraph of the Article in the form of a letter? Would not the words "without delay" found in both paragraphs be already sufficient without these further specifications? If further definition of "without delay" is required, would it not be feasible to introduce a formula similar to that in Article 16(2) (which enjoins us, when considering what is a reasonable time for the acceptance of an offer, to take into account all the circumstances of the case, including the rapidity of the means of communication employed)?

CONCLUSION

From this rather brief analysis of the CISG rules on formation, it may be fair to conclude that they generally represent an improvement over the corresponding rules of the ULF. Some of the rules of the CISG, however, are open to criticism. [page 140] It is unlikely, however, that in an effort at unification that involves so many States, solutions are likely to be found that would meet every criticism, however legitimate. What the author would advocate, however, is that rules should be formulated on the basis of the practical experience of the ordinary businessman, and they should not lead to results which would surprise him. In so far as the law prescribes what he should do in any particular situation, it must be in accordance with what most ordinary men of business would regard

as something that he should do; and in so far as it provides for a legal result, it must be a result that most ordinary men of business would regard as reasonable and acceptable.

Some arbitrary choice has to be made on occasion, particularly in cases where the rules of the two major legal systems of the world conflict. We have seen an example in the matter of revocability of offers; the time when postal acceptance takes effect is another. In these cases, compromise is not necessarily the best solution. It would be better to make a definite choice, and to express that choice clearly and unequivocally. Provided the law is clear and not unreasonable, it is not difficult for the business community to get used to it and to learn to live with it.

Judged by these yardsticks the rules of CISG on formation represent a qualified success. It would be unrealistic, however, to expect more. [page 141]


Pace Law School Institute of International Commercial Law - Last updated June 20, 2003
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