Stephen E. Smith, Esq. [*]
(c) Implied terms
(a) Irrevocability v. rejection
(b) Counter-offer as rejection
(c) Is silence an acceptance or a rejection?
This article will address the powerful effects of CISG Article 17, perhaps the shortest Article of the CISG, and put its utility into perspective. Note though that utility is informed by other CISG Articles and UNIDROIT Principles, as described and referenced herein.
CISG Article 17 provides: "[a]n offer, even if irrevocable, is terminated when a rejection reaches the offeror". Accordingly, it is seemingly misplaced in its setting within Articles that benefit the offeror in the formation of the contract. Those Articles, CISG Articles 15 through 18, provide grounds upon which the offeror, after having dispatched his offer, may be freed from the binding effects of his offer and therefore reallocate the resources committed. Before the offer has reached the offeree, the offeror may withdraw the offer (CISG Article 15(2)). CISG Articles 16 and 18 contemplate actions which can be taken after the offer has reached the offeree: the offeror may revoke the offer unless it is irrevocable (CISG Article 16). The offeror is also freed from his offer upon the expiration of the time for its acceptance (CISG Article 18(2)).
CISG Article 17, however, foresees as a cause of termination of the offer, an initiative emanating from the offeree, i.e., the rejection of the offer, an obvious offeree benefit. Further, even though irrevocable, the offeree may still reject the offer, an option not allowed the offeror regarding an irrevocable offer (CISG Article 16). Herein lies much of CISG Article 17's power.
UNIDROIT Article 2.5, in virtually the same words as CISG Article 17, explicates the same issue. There is, though, one minor difference in the wording. CISG Article 17 contains the clarification: that the offer terminates when the rejection reaches the offeror, even if the offer is irrevocable. It may be observed that the clarification contained in CISG Article 17, i.e., "even if irrevocable", was inserted because this rule is not accepted in all legal systems.
2. Scope of Application
Both CISG Articles 17 and UNIDROIT Principles Article 2.5 deal only with the issue of the termination of the offer by the offeree. Other causes for termination of the offer, such as death, incapacity or insolvency of the offeror, are by intent not covered under the CISG.
The comment to UNIDROIT Principles Article 2.5 specifies that it applies to both revocable and irrevocable offers. Accordingly, it is no longer necessary to distinguish between revocable and irrevocable offers. An offer can be irrevocable not only by its own nature or the description, but also because of the reliance of the offeree on its irrevocability.
While CISG lacks specific definition and explanation of what is the effect of a termination, UNIDROIT Principles Article 7.3.5 provides that "termination of the contract releases both parties from their obligation to demand and receive future performance." Termination occurring by rejection of the offer by the offeree then extinguishes future obligations of the offeror.
Both CISG Articles 17 and UNIDROIT Principles Article 2.5 make it clear that the rejection must reach the offeror; mere dispatch of the rejection is not sufficient.
In the case of contradicting declarations by the offeree (acceptance sent after rejection or vice versa), the declaration which first reaches the offeror is effective. Where the contradicting declarations reach the offeror at the same time, the offeror may only rely on the declaration which has been sent last, as this corresponds to the real intent of the offeree. There are sufficient and consistent definitions and explanations as to when a certain communication "reaches" the addressee. Here in the clause at issue, we should apply the same rules as universally applied. Most important of these, of course, is the language of CISG Article 17 itself.
What kind of information in what form constitutes a valid rejection has long been an unsettled matter. CISG Article 19 provides that:
"A reply to an offer which purports to be an acceptance but contains material additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer."
On the other hand,
"... [a] reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect ..."
Since it is a commonly accepted rule that acceptance with modification is considered a counter-offer, both the CISG and the UNIDROIT Principles are careful in their approaches to the subject. The CISG names the items that can be taken as immaterial modifications, while the UNIDROIT Principles describe what are modifications that do not change the nature of the acceptance. Accordingly, a certain degree of vagueness remains. The comment to UNIDROIT Principles Article 2.5, allows that "[a]n offer may be rejected either expressly or impliedly." This enlarges the scope of the means of acceptance and is consistent with the modes of acceptance described in UNIDROIT Principles Article 2.6.
Moreover, both commentaries to the texts specify that the offeree's rejection need not be express, but may be implicit, including through conduct. Of course, the determination of whether a certain statement or conduct amounts to a rejection is a question of interpretation (CISG Article 8; See also the discussion of CISG Article 19 above).
(c) Implied Terms
Perhaps, the easiest of the non-explicit rejections is this "material / immaterial" variant. CISG Article 19, by providing that an acceptance in terms which materially alter the offer "is a rejection of the offer" and "constitutes a counter-offer", takes care of most of the situations. By the clear wording of CISG Article 19, an acceptance that must be considered as a counter-offer terminates the initial offer. By contrast, an acceptance which does not materially alter the terms of the offer only amounts to a rejection if the offeror thereto objects (CISG Article 19(2)). There is then generally no room for considering that the initial offer may survive a negotiating process conducted on the basis of such initial offer without the offeree losing the benefit thereof.
Perhaps more difficult is this nonverbal approach, whether directed to the offeror or another. This creation of a tri-party paradigm leads to market inefficiency and unfairness not usually seen in either the CISG or the UNIDROIT Principles.
Further, neither the CISG nor the UNIDROIT Principles and their respective commentaries address the issue of whether the offeree's conduct implying rejection of the offer may be directed toward a third person rather than toward the offeror, and yet free the latter. The answer depends on whether the offeree has a legitimate interest in relying upon the irrevocable offer, and being bound by it for its entire duration.
(a) Irrevocability v. rejection
One inconsistency arising from CISG Article 17 is that because of the irrevocability of the offer, the offeree may claim that even if it has issued a rejection which has reached the offeror, the offeree should still have the right to keep the offeror obligated to perform on the original offer. This may seem incongruous since the provision clearly rules out such claims, but query: do situations like the following one justify clarification?
Illustration: B receives an offer from A, which includes the following sentence: "A cannot withdraw or revoke this offer in any situation within one month and B can accept this offer at any time during the period." B rejects the offer in the next week but decides to accept it soon afterward. Does A not need to keep the offer open since B's rejection has trumped his right to accept the offer? In this case the offer was terminated by B's rejection. A need not keep open, withdraw, or revoke his offer.
(b) Counter-offer as rejection
Where the offeree replies to the offer by raising some material alterations, even if the parties do not call the communication a rejection, it will be regarded as a rejection because such a communication constitutes a counter-offer. (See discussion of Notice, § 5 above)
Illustration: In response to A's offer, B asks for lower price. A does not accept the new price. Even if there is still time before the expiration of A's offer, A does not need to carry out the original offer even if now B agrees to the original price offered by A, as B's counter-offer has terminated A's obligation.
(c) Is silence an acceptance or a rejection?
Both the UNIDROIT Principles and the CISG make distinctions between the situations where the offeree sends out a counter-offer and where the offeree's communication is regarded as acceptance. However, it is not always easy to distinguish a counter-offer from an acceptance, even if both the documents try to define what are material modifications. As if this is not troublesome enough, what if, no response is made?
Illustration: In response to A's offer, B agrees with all the material conditions that A offers, but asked A to put a sticker on each box of the commodity with B's contact information on it. A makes no response to this request within a reasonable time. Accordingly, A is bound to carry out the offer with the obligation to put these stickers on each box as A has failed to establish that this additional request was material. Without timely communication from A after B's response, B's response has been taken as an acceptance of the original offer with this nonmaterial addition.
As can be seen from the above discussion, the most nettlesome issue addressed by a comparison of CISG Article 17 and UNIDROIT Principles Article 2.5, with the inclusion of those ancillary articles of both necessary for such a comparison, is the termination of an irrevocable offer by the offeree. Hopefully, this short article has shed some light on this issue and its resolution. The counterpart provisions adopt a similar approach and are also worded in almost identical terms.
* Stephen E. Smith, Esq. is a Senior Lecturer at Northwestern University School of Law and the faculty advisor for their Willem C. Vis International Commercial Arbitration Moot team. Mr. Smith wishes to thank David Tahan and Peng Zhao for their research assistance and Jennifer A. Woyan for her patient revisions and useful suggestions as to its format.
1. See Shahdeen Malik's insightful work regarding CISG Article 16, "Offer: Revocable or Irrevocable. Will Article 16 of the Convention on Contracts for the International Sale Ensure Uniformity?", 25 Indian J. Int'l L. (1985) 26-49; <http://cisgw3.law.pace.edu/cisg/biblio/malik.html>.
2. Cf Honnold, J.O., Uniform Law for International Sales under the 1980 United Nations Convention (Deventer Kluwer), 1999 (3rd ed.) p. 154, no. 3 . See also Text of Secretariat Commentary on article 15 of the 1978 Draft [draft counterpart of CISG Article 17], Comment 2, <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-17.html>. See the Legislative history of CISG Article 17: Match-up with 1978 Draft to assess relevance of Secretariat Commentary <http://cisgw3.law.pace.edu/cisg/text/matchup/matchup-d-17.html>. "CISG Article 17 and 1978 Draft Article 15 are identical. The Secretariat Commentary on 1978 Draft CISG Article 15 should therefore be relevant to the interpretation of CISG Article 17." Ibid.
3. Report of the Working Group on the international sale of the movable objects on work of its 9th session (Geneva, September 19-30, 1977, Doc. A/CN.9/142 N. 283). [trans.]
4. Official Comment on UNIDROIT Principles Article 2.5, Comment 1, <http://cisgw3.law.pace.edu/cisg/principles/uni17.html#official>.
5. "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." CISG Article 16.2
6. Cf. Enderlein F. and Maskow D., International Sales Law, New York-London-Rome, 1992, Article 18, no. 15, p. 91.
7. According to Heuzé, in: The International Sales of Merchandise, Paris, 2000, p. 162: "From Articles 15 and 22, it appears to be able to be deduced without temerity that the Vienna Convention intended to set up a general rule whereby the author of an expression of will can validly rescind the offer, since it puts its correspondent on notice to know his change of intention, or be placed in his initial position." [trans.]
8. CISG-AC Opinion No 1, Electronic Communications under CISG, 15 August 2003. Rapporteur: Professor Christina Ramberg, Gothenburg, Sweden. The opinion is available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op1.html>. Regarding the impact of electronic communications in the context of CISG Article 17, the Opinion states:
17.1. An offer is terminated when rejection reaches the offeror. In electronic environments the exact time of "reaches the offeror" can be determined. The offeree can no longer create a contract by dispatching an indication of assent. If the offeree changes his mind after having dispatched a rejection of the offer and wishes to conclude a contract, the indication of assent must enter the offeror's server before the rejection enters the offeror's server.
9. A rejection "reaches" the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence. CISG Article 24. According to the UNIDROIT Principles, an oral rejection reaches the addressee when it is made personally to the personal qualified as the addressee, while other communications reach the addressee when they are delivered personally to the addressee or his working place. In the latter situation, not only the addressee does not need to be personally handed the rejection, but also it will become effective once it is in the addressee's mailbox, fax, computer, etc. UNIDROIT Principles Article 1.9.4. Both Article 1.9 of the UNIDROIT Principles and Article 24 of the Convention define the point of time at which a communication reaches the addressee. The counterpart provisions adopt the same "receipt" principle, make the same distinction between oral and other communications, and provide similar definitions of the relevant concepts. See, Felemegas J., "Comparison between provisions of the CISG (Article 24) and the counterpart provisions of the UNIDROIT Principles (Article 1.9)", <http://cisgw3.law.pace.edu/cisg/principles/uni24.html#ed>.
10. "Acceptance with modifications normally to be considered a counter-offer. In commercial dealings it often happens that the offeree, while signifying to the offeror its intention to accept the offer ("acknowledgement of order"), nevertheless includes in its declaration terms additional to or different from those of the offer. Para. (1) of this article provides that such a purported acceptance is as a rule to be considered a rejection of the offer and that it amounts to a counter-offer by the offeree, which the offeror may or may not accept either expressly or impliedly, e.g. by an act of performance." See Official Comment to UNIDROIT Principles Article 2.11. <http://www.unilex.info/instrument.cfm?pid=2&do=Comment&pos=1>.
11. "Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially." CISG Article 19(3).
12. "What amounts to a "material" modification cannot be determined in the abstract but will depend on the circumstances of each case. Additional or different terms relating to the price or mode of payment, place and time of performance of a non-monetary obligation, the extent of one party's liability to the other or the settlement of disputes, will normally, but need not necessarily, constitute a material modification of the offer. An important factor to be taken into account in this respect is whether the additional or different terms are commonly used in the trade sector concerned and therefore do not come as a surprise to the offeror." See Official Comment to UNIDROIT Principles Article 2.11. <http://www.unilex.info/instrument.cfm?pid=2&do=Comment&pos=1>.
13. Text of Secretariat Commentary on CISG Article 15 of the 1978 Draft [draft counterpart of CISG Article 17], Comment 2, <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-17.html>; Official Comment on UNIDROIT Principles Article 2.5, Comment 1, <http://cisgw3.law.pace.edu/cisg/principles/uni17.html#official>.
14. This rigidity is criticized by Heuzé, op. cit., p. 163, "this solution is undoubtedly not very convenient, insofar as it discourages negotiation, since it exposes the recipient of the offer to accept the offer, without a modification of the conditions." [trans.]