Reproduced with permission from 8 Journal of Law and Commerce (1988) 11-51
John E. Murray, Jr. [*]
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What Is An "Offer" Under CISG?
An American lawyer will be pleased to discover what may appear to be a familiar description of an offer in CISG: "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. The Second Restatement of Contracts emphasizes the second portion of this definition: "An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." Under CISG, the proposal must "indicate the intention of the offeror to be bound in case of acceptance." Such an intention must be "indicated" to the party to whom the proposal is addressed. How is that "indication" to be interpreted? Another Article provides the interpretation guide: "[S]tatements made by and other conduct [together, constituting 'indications' or manifestations] 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. Thus, if the indications (manifestations) of the proposer justify the addressee in understanding that his acceptance will form a contract, the proposal, if otherwise sufficiently definite, constitutes an offer. The concept is indistinguishable from the Second Restatement definition.
B. Sufficiently Definite -- The Use or Misuse of Article 55
The CISG definition requires the proposal to be "sufficiently definite" to constitute an offer. At first glance, this appears to be well within the ambit of concepts familiar to the American lawyer. If a proposal is not sufficiently definite, it could not reasonably be understood as an offer. Moreover, the UCC requires sufficient definiteness to permit a court to fashion an appropriate remedy.[l2] CISG, however, defines "sufficiently definite" in a fashion that will be troublesome for an American lawyer: "A proposal is sufficiently definite if it indicates the goods and expressly or implicitly makes provision for determining the quantity and price."[l3]
While the phraseology may be angular, the requirement that the proposal must "indicate the goods" is not troublesome since it can only mean that the goods must be sufficiently described. Neither is the requirement that the proposal must expressly or implicitly allow for the determination of the quantity term. American contract law requires that the quantity be determined or determinable to permit an appropriate remedy and to satisfy the statute of frauds.[l7] If, however, the price is not expressly set forth, how may the price be implicitly determined? Consider a simple illustration.
Ames Corporation in Contracting State X sends a purchase order to Barnes Corporation in State Y which evidences an offer to buy 1000 units of M-33 Plastic. If Barnes accepts, is there an enforceable contract?
Under the UCC, the question scarcely survives its statement. If the parties intend to be bound and there is a reasonable basis to afford a remedy, the absence of a price term will not deter a court from discovering an enforceable contract. Under CISG, however, the question is not so easily answered. If the parties had dealt with each other in the past in such a fashion that their prior course of dealing would allow a price to be implied, or if trade usage would perform the same function, a contract could be found under CISG which expressly allows for trade usage, prior course of dealing and course of performance in determining the intention of the parties.[l9] Absent such "relevant circumstances", however, there would seem to be no basis for discovering an implicit price under CISG. The UCC would allow a court to insert "a reasonable price . . . if nothing is said as to price." Article 14(1) of CISG on its face, however, does not permit the insertion of a reasonable price. Moreover, earlier efforts by CISG delegates to resolve the question through the insertion of other language were unsuccessful. There is a difference of opinion between the two leading American authorities on CISG, Professors John Honnold and Alan Farnsworth, as to whether this problem was effectively solved. Professor Honnold suggests that Article 55 of the Convention solves the problem; Professor Farnsworth disagrees.
Article 55 is in Chapter III, Part III of CISG, dealing with the obligations of the buyer under a sales contract within the Convention:
Professor Honnold reads the foregoing as making clear that ". . . a contract may be 'validly concluded' even though 'it does not expressly or impliedly fix or make provision for determining the price.' More specifically, the added provision, that in such a case the parties are considered 'to have impliedly made reference' to the prices generally charged, precludes argument that failure to state the price produces a fatal gap in the contract that contravenes the provisions on definiteness in Article 14."
Notwithstanding this assertion, argument has not been precluded. Professor Honnold's colleague in UNCITRAL and elsewhere, Professor Farnsworth, views the unstated price problem in Article 14(1) as one of four problems within Part II of CISG that is "especially worthy of consideration." Farnsworth points out that the requirement in 14(1), that a proposal will not be sufficiently definite to constitute an offer unless it expressly or implicitly makes provision for determining the price, carries with it what he terms "the unfortunate implication" that such a proposal "is not sufficiently definite unless it does this." The consistent opposition of the United States to this language failed to convince the other delegates to delete it. Farnsworth discovers no solution in Article 55 since that Article becomes operative only after it has been determined that a contract "has been validly concluded." He joins others who believe that Article 55, in Part III of CISG dealing with the obligations of the parties to an existing contract, was designed for use only where a Contracting State made a declaration under Article 92(1) that it will not be bound by Part II of the Convention. If the non-CISG law of that State found a contract without a price to have been "validly concluded" but litigation ensued concerning the obligations of the parties under that contract to which Part III of CISG, ratified by the Contracting State, would apply, Article 55 of Part III would permit a court to insert the "price generally charged" in such a "validly concluded" contract. It is difficult to quarrel with this analysis of Article 55 since it finds considerable support in what may be called the legislative history of CISG.
The foregoing analysis suggests the solution does not lie in Article 55. A better approach may be found in Article 8 of the Convention, which requires an interpretation "according to the understanding that a reasonable person of the same kind as the other party would have had in the circumstances." The UCC rejects any notion that the omission of a price term will cause the agreement to be deemed unenforceable where the dominant intention of the parties was to enter into a binding agreement. If a reasonable person would regard the deal as binding, the interpretation of the parties' manifestations requires recognition of that agreement. The price term may be implicitly recognized through an expanded reading of trade usage, which CISG authorizes in determining the intent of the parties. This analysis will reject artificial and technical interpretations and "promote uniformity in its [CISG's] application and the observance of good faith in international trade." Unlike the UCC, CISG does not contain a clear directive that the purpose of courts is to discover the bargain of the parties in fact which imports a consequent rejection of technical barriers to the effectuation of that purpose. Yet, emphasis upon the reasonable understanding of the parties and their dominant intention within CISG could overcome any notion that the language of Article 14(1) concerning an explicit or implicit fixing of the price should be construed to permit technical barriers to that understanding and intention.
C. The Mysteries of Article 14(2)
From the perspective of an American lawyer, a literal application of this language is absurd. Certainly, American lawyers are well aware of proposals constituting offers though the offerees are not identified at the time the offer is made. On the other hand, the mere identification of the addressee of the proposal at the time it is made does not, in itself, constitute an offer. The question of whether an offer has been made can be very difficult in a given fact situation since it is a question of intention -- a question of fact. Certainly, the dominant guide in American case law is not whether the proposal was addressed to one or more specific persons. Rather, courts properly focus on whether the proposal contains a statement amounting to a commitment or promise as contrasted with a statement of present intention or a statement of opinion or prediction. Absent a commitment or promise, it is impossible to arrive at the conclusion that a party would be reasonable in assuming that his assent would conclude a contract, or, in the language of CISG, Article 14(1), there would be no indication that the offeror intended to be bound in case of acceptance. In suggesting the Article 14(2) test to determine whether a proposal is an offer by selecting only one subsidiary factor of very limited use in that determination, CISG creates the possibility of considerable confusion. What of a trade circular or catalogue addressed to one or more specific persons? It has been suggested that an offer should not be found in such cases under CISG because 14(1) still requires the document to indicate the proposer's intention to be bound. But this interpretation seems diametrically opposed to the language of 14(2)which, by its terms, requires any proposal to indicate clearly that the proposal is an offer except proposals addressed to one or more specific persons. The requirement in 14(1) that the proposal must indicate the intention of the offeror to be bound is hardly a test. It is a conclusion that can be supported by numerous guides or tests familiar to American lawyers. Those guides or tests, however, are conspicuously absent from CISG, which, again, mentions only the "specific person" in 14(2) and fails to identify it as, at best, a subsidiary guide among other much more important factors. Thus, the suggestion that the language of 14(1) overcomes the problem appears to be based on a construction that an American lawyer would bring Article 14(2) in conformity with fundamental notions of the common law of contracts. While such a preference is laudable, it hardly confronts the problems engendered by 14(2).
To ascertain compliance with CISG, should a typical American seller who distributes trade circulars or the like to specifically addressed parties in other countries be advised to include a conspicuous statement that the material is intended to be a mere solicitation rather than a statement offering to sell the described goods, assuming that to be the seller's intention? A client would be well advised to recognize the problem created by the language of 14(2). On the other hand, should a proposal that is not addressed to one or more specific persons "clearly indicate" that it is an offer, if that is the proposer's intention and CISG might apply? Again, a client would be well advised to recognize the problem created by the language of 14(2).
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Go to entire text of Murray commentary
* University Distinguished Service Professor of Law, University of Pittsburgh, School of Law.
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10. See CISG, supra note 7, art. 14(1).
11. Id., art. 8(2). This subsection of Article 8 is sometimes characterized as the "objective" standard of interpretation as contrasted with Article 8(1) which suggests a subjective standard. As will be seen later, the subjective standard of 8(1) is rarely applicable. Id., art. 8(2).
12. U.C.C. § 2-204(3) (1978).
13. See CISG, supra note 7, art. 14(1).
14. Cf. U.C.C. § 9-110 (1978) stating that a sufficient description of collateral requires only that the description "reasonably identify" what is described.
15. Requirements or output contracts need not state the quantity term at the inception of the contract since the quantity term will be determined at the end of the contract period. See U.C.C. § 2-306 (1978) which favors such contracts and eschews any notion that they are fatally indefinite.
16. U.C.C. § 2-204(3) (1978).
17. See U.C.C. § 2-201 comment 1 (1978), indicating that, beyond identifying the goods and the parties, the quantity term is the critical term in the memorandum evidencing the contract for statute of frauds purposes.
18. See U.C.C. § § 2-204 (3), 2-305 (1978).
19. See CISG. supra note 7, art. 8(3). The language of this section differs from the U.C.C. characterizations: ". . . any practices which the parties have established between themselves, usages and any subsequent conduct of the parties." See also CISG, Article 9 which amplifies the significance of trade usage and prior course of dealing (termed "practices which they have established between themselves" under CISG). Article 9(2) emphasizes the implication of trade usage as part of the contract on formations. The U.C.C. insists upon the implication of trade usage and prior course of dealing in the definition of "agreement" in § 1-201(3). Course of dealing and usage of trade are defined in U.C.C. § 1-205(1), (2). For a leading case emphasizing the importance of such implied terms, see Columbia Nitrogen Corp. v. Royster, 451 F.2d 3 (4th Cir. 1971).
20. See CISG, supra note 7, art. 8(3).
21. U.C.C. § 2-305(1)(a) (1978).
22. Professor Honnold indicates that the issue arose in relation to the corresponding Article of the 1978 Draft Convention (Art. 51) which provided that the buyer must pay the price generally charged by the seller. Fearing that the seller's price might be abused, some delegates suggested language that would permit the price "generally charged." J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention § 137 at 163 (1982) [hereinafter Honnold].
23. See CISG, supra note 7, art. 55 (emphasis added).
24. Honnold, supra note 22, at 163-64 (emphasis in original).
25. UNCITRAL stands for the United Nations Commission on International Trade Law, which first met in 1968.
26. Farnsworth, Formation of Contract, in International Sales: The United Nations Convention on Contracts for the International Sale of Goods § 3.04, at 3-8 (1984)[hereinafter cited as "Farnsworth"].
29. Article 92(1) permits a Contracting State to declare, at the time of signature, ratification, acceptance, approval or accession, that it will not be bound by Part II of the Convention, or that it will not be bound by Part III of the Convention. See CISG, supra note 7, art. 92(1).
30. See Note, The United Nations Convention on Contracts for the International Sale of Goods: Contract Formation and the Battle of the Forms, 21 Colum. J. Trans. L. 529, 537-38 (1983).
31. The United Nations Conference on Contracts for the International Sale of Goods -- Official Records, U.N. Doc. A/Conf. 97/19, at 44, art. 51 comment 2, Sales No. E.811V.3 (1981). This collection of documents characterized as "Official Records" includes previous drafts of CISG and commentary by various governments and organizations as well as commentary by the U.N. Secretary General on the penultimate draft.
32. See CISG, supra note 7, art. 8(2).
33. U.C.C. § 2-305 comment 1 (1978).
34. See CISG, supra note 7, art. 8(3). See also CISG Article 9(2) which elaborates the importance of trade usage and its application to questions of formation.
35. Id., art. 7(1).
36. For an analysis of the "factual bargain" philosophy of the U.C.C., see Murray, The Underlying Philosophy of Article 2 of the Uniform Commercial Code, 21 Washburn L.J. 1 (1981). There are many illustrations of the anti-technical nature of Article 2 of the Code. They include U.C.C. § 2-204(3) (contract does not fail for indefiniteness notwithstanding absence of one or more terms if parties intended to make a contract and there is a basis for giving an appropriate remedy); § 2-206 comment 1 ("[f]ormer technical rules as to acceptance . . . are rejected"); § 2-209(1) comment 1 ("[t]his section seeks to protect and make effective all necessary and desirable modifications of sales contracts without regard to the technicalities which at present hamper such adjustments").
37. Perhaps the best-known illustration is Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (1893) where a 100 Pound reward was promised to any person using the smoke ball in accordance with directions who contracted "the increasing epidemic influenza, colds or any disease caused by taking cold." Numerous advertisement cases can be found in the American Case law. Among these, one finds Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188, 86 N.W.2d 689 (1957) where advertisements constituted offers because they made the offeree clearly identifiable: "First Come, First Served."
38. See, e.g., Interstate Ind. v. Barclay Ind., 540 F.2d 868 (7th Cir. 1976) (quoting from Williston on Contracts, § 27, at 62 (3d ed. 1957): "Even where the parties are dealing exclusively with one another by private letters or telegrams, or by oral conversation, the same question may arise; and language that at first sight may seem an offer may be found merely preliminary in character."
39. See, e.g., Thos. J. Sheenan Co. v. Crane Co., 418 F.2d 642,644 (8th Cir. 1969) (present intention vs. promise or commitment); Anderson v. Backlund, 159 Minn. 423,199 N.W. 90 (1924) (predictions vs. promises).
40. This is the Restatement (Second) of Contracts § 24 (1981) conclusory test of an offer as discussed in Barnum v. Review Board of Indiana Employment Sec. Div., 478 N.E.2d 1243 (Ind. Ct. App. 1985) and Contempo Constr. Co. v. Mountain States Telephone & Telegraph Co., 736 P.2d 13 (Ariz. Ct. App. 1987).
41. See Honnold, supra note 22, at 162.
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