Go to Database Directory || Go to Table of Contents to Annotated Text of the CISG

GUIDE TO ARTICLE 14

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 14 with PECL Article 2:201; see also PECL Articles 2:101 through 2:104 and 2:111
CISG Article 14


(1) 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. 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.

(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

PECL Article 2:201 [Offer]
(complete and revised version 1998)

(1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract.

(2) An offer may be made to one or more specific persons or to the public.

(3) A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.

SEE ALSO:

PECL Article 2:101 [Conditions for the Conclusion of a Contract]

(1) A contract is concluded if:(a) the parties intend to be legally bound, and (b) they reach a sufficient agreement without any further requirement.

(2) A contract need not be concluded or evidenced in writing nor is it subject to any otehr requirement as to form. The contract may be proved by any means, including witnesses.

PECL Article 2:102 [Intention]

The intention of a party to be legally bound by contract is to be determined from the party's statements or conduct as they reasonably understood by the other party.

PECL Article 2:103 [Sufficient Agreement]

(1) There is sufficient agreement if the terms: (a) have been sufficiently defined by the parties so that the contract can be enforced, or can be determined under these Principles.

(2) However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached.

PECL Article 2:104 [Terms Not Individually Negotiated]

(1) Contract terms which have not been individually negotiated may be invoked against a party which did not know of them only if the party invoking them took reasonable steps to bring them to the other party's attention before or when the contract was concluded.

(2) Terms are not brought appropriately to a party's attention by a mere reference to them in a contract document, even if that party signs the document.

PECL Article 2:211 [Contracts Not Concluded through Offer and Acceptance]

The rules in this Section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance.


Editorial remarks

Remarks on the manner in which the PECL may
be used to interpret or supplement Article 14 CISG

Predrag Cvetkovik [*]
January 2002

Both the CISG (art. 14(1)) and the PECL (art. 2:101) recognize the traditional "offer-acceptance" model of contracting. The PECL also has a provision (art. 2:211) on contracts not concluded through the traditional offer and acceptance mode.

Offer-acceptance, the only model explicitly addressed in the CISG, is the principal model in most legal systems of the world. However, it seems to be universally agreed that rules on the traditional model of offer-acceptance can be applied by way of analogy to other models, insofar as this is reasonable and with appropriate adaptations. The Comments on art. 2:211 PECL may, in this respect, be relevant to the proper interpretation of the CISG.[1]

1. Animus contrahendi

The offeror expresses with his proposal the intention to give an option to the offeree: with the acceptance, the offeree can conclude the contract according to the terms of the offer. This intention has its Latin name: animus contrahendi. Both the CISG and the PECL demand animus contrahendi in an offer: the offer should show the offeror's "intention to be bound" in the case of acceptance (CISG art. 14(1)); an offer must be "intended to result in a contract if the other party accepts it" (PECL art. 2:201(1)(a)).[2]

2. The "sufficient definition" of an offer

An offer is not only the manifestation of the offeror's intention to conclude the contract: as a project of a possible future contractual relationship, the offer must contain all of the elements necessary for the successful conclusion of a valid contract. The completeness of an offer with regard to the contract itself (i.e., considering its terms) should be established ex ante: the necessary elements of proposal are those needed for validity of the future contract. More precisely, only an offer containing all of the requisite ingredients -- thus making it suitable for acceptance -- can lead to the successful formation of a contract. It is not necessary that these fundamental elements be regulated in the contract in a rigid and thorough way; there is a sufficient grade of determination if such elements are definable, e.g., if a contract provides the criteria for such a determination.

The type of a contract determines the requisite elements of the offer. The terms of the contract (using the criteria of their necessity for the formation of the contract) can be divided into three main groups: (i) essentialia negotii (terms without which the contract would have no sense); (ii) naturalia negotii (terms which regulate the parties' obligations logically stemming from the contract itself); and (iii) accidentalia negotii (terms which are not common for the type of contract in question, but which could be the subject of its terms).

The offer must determine the essentialia negotii (the fundamental terms of the contract). The content of other elements of the contract can be derived from the parties' statements and behavior,[3] or determined by a court, arbitrator or third person.

The relevant provisions in the PECL and the CISG demand the "sufficient definition" of a proposal for it to constitute an "offer" for the purposes of formation of the contract. While the PECL establishes this condition only in one laconic sentence (see art. 2:201(1)(a)), the CISG in art. 14(1) is more thorough in defining the key conditions for a sale of goods contract. This difference in treatment is due to the different scope of application of the two instruments. The CISG is the uniform code for the international [commercial] sale of goods with its scope limited to international sales contracts, in the sense of art. 1 CISG, which defines the CISG's concept of internationality, and art. 2(a) CISG, which excludes consumer sales. The PECL, on the other hand, is designed to "be applied as general rules of contract law in the European Communities."[4] The redactors of the PECL sought to create a frame applicable not only to international commercial contracts for the sale of goods, but to all contract transactions -- contracts for services as well as goods and domestic as well as international contracts, including contracts with consumers.

      2.1. In national codes, the fundamental elements (essentialia negotii) of a sales contract, and, in accordance with that, of the offer for concluding such contracts, are the goods, the quantity, and the price. As the subject of a sales contract, the goods are specified or determined by kind, quantity and quality.

According to art. 14(1) CISG, the quantity of the goods can be determined expressly or implicitly.[5] The quality of goods is not expressly regulated by the formation provisions of the CISG. However, art. 35 CISG can be used for the determination of the goods' quality, when it is not determined by the contract itself.[6] As the CISG does not mention the determination of the goods' quality as an element necessary for an offer to be deemed "sufficiently definite", the best solution is for the parties to regulate themselves the importance of fulfilling the obligation concerning the quality of the goods. If one party insists on a certain quality, and the offer does not express a clear agreement, there is no valid contract, since there is no valid offer and acceptance.[7]

The PECL has a provision on "average quality" that is more specific than the CISG and that would appear to be consistent with the intent of the CISG legislators. The PECL demands that, "if the contract does not specify the quality, a party must tender performance of at least average quality" (art. 6:108). As the definition of average quality is not incorporated in the PECL, it leaves open the question of how courts and arbitrators will determine the average quality of performance or goods.[8]

      2.2. When the content of the contract is in question, there is a disagreement as to the CISG requirements on specification of [ability to determine] the price in the offer.

The CISG rules on price determination are in contradiction. Firstly, art.14(1) CISG states that a determined price is a necessary part of an offer.[9] However, art. 55 CISG provides that if the contract does not expressly or impliedly make provision for the price, "the buyer must pay the price generally charged by the seller at the time of the conclusion of the contract."[10] By prescribing the criteria for the determination of a price that is not defined by the contract, it is presumed that a contract could be valid[11] without a determined price, either by the contract itself or in the offer for its conclusion.

The further requirement of a fixed or determinable price in art. 14(1) CISG was the subject of intensive debate both in the UNCITRAL deliberations and at the Vienna Diplomatic Conference.[12] Proposals to eliminate the requirement of a fixed or determinable price failed as a result of the opposition by the Soviet Union, a number of developing countries, France and other States.[13]

The contradiction between CISG articles 14(1) and 55 is evinced in the different approaches adopted in the literature. Professor Honnold's view is: the meaning of art. 55 CISG is that "a contract may be 'validly concluded' even though it does not expressly or impliedly fix or make provisions for determining the price."[14] On the other hand, Professor Farnsworth is of the opinion that the requirement in art. 14(1) CISG must be met, so that the offer must contain the price.[15]

This academic debate concerns whether article 14(1) CISG should be read alone, or in conjunction with article 55.[16] Some scholars[17] hold that the most justified approach regarding the open-price term is that:

The ultimate criteria for deciding whether a price is the necessary part of an offer or not must be determined by using the rules of the interpretation of the parties' statements.[18] If, even without the price term, the parties consider an offer sufficiently determined and, on the basis of such offer, conclude a sales contract, then there is no reason for the courts and arbitrators not to accept the contractors' will.

Gabuardi has contributed to the substance of the debate by providing an insightful review of the legislative history and doctrine on arts. 14(1) and 55 plus the available CISG case law on open-price terms, concluding that:

"[W]hile being silent about the discussion within the academic community, the courts have approached the issue of open-price terms in sales contracts acknowledging that articles 14 and 55 of CISG deal with different issues; that is, article 14 deals with the issue of open-price terms at the time of the formation of the contract, while article 55 deals with open-price terms once the parties have already entered into a sales contract."[19]

Should the problem of the open-price term appear in regards to a sale contract governed by the PECL as lex contractus, it could be solved by a PECL provision which takes care of the situation in which the price for goods or services in international is not determined in the contract. By way of contrast with the CISG, when the price for goods or services is not determined by the contract, the PECL presumes that "a reasonable price" is in effect.[20] In commercial practice, the price can be determined as the prevailing price, or as the average price, or in other similar ways.[21] In this sense, the rule of art. 6:107 PECL becomes quite important. According to this rule, if the price (or any other contractual terms) is to be determined by reference to a non-existed, ceased or non-accessible factor, the nearest equivalent factor shall be substituted.[22] The provisions of the PECL on "reasonable price" where the price cannot be determined by the contract do not appear relevant to the proper interpretation of the CISG.

The PECL also deals with the possibility that the right to determine the price is given to a third party.[23] If the third party will not or cannot determine the price, "the parties are presumed to have empowered the court to appoint another person to determine it."[24]

In addition, the PECL regulates the situation in which the determination of the price (or any other contractual term) is left to one of the contract parties. When this is the case, and the determination is "grossly unreasonable, then notwithstanding any provision to the contrary, a reasonable price or other term shall be substituted."[25]

      2.3. Non-fundamental elements of an offer are elements whose determination is not necessary for the validity of the offer and, consequently, for a contract to be concluded on the basis of such an offer. Those elements can be turned into fundamental elements if the parties express their will to have them so regarded. In the CISG, it can be concluded from art. 14(1), that the fundamental elements of an offer are the price, the quantity, and the goods. A contrario, other elements are non-fundamental,[26] but can be turned into fundamental elements, if that is what the parties want. The redactors of the PECL explicitly sanction this possibility. According to art. 2:103(2) PECL (sufficient agreement), "if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached."[27] However, if parties did not determine the content of the contract's non-fundamental elements, this content should be evaluated according to the rules for the interpretation of parties' intention,[28] or according to art. 6:102 PECL (implied obligation).[29]

3. The determination of offer ad personam

Besides animus contrahendi and the element of "sufficient definition," an additional condition for a proposal to be considered an offer is the determination of the person for whom the offer is intended (determination of offer ad personam).

The importance of this is especially relevant to offers made using price lists, catalogues, public advertisement or other similar methods. Some national laws explicitly provide that such proposals are not offers.[30] The PECL, on the other hand, prescribes that an offer "may be made to one or more specific person or to the public."[31] Moreover, even "a proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or catalogue, or by a display of goods, is presumed to be an offer to sell or supply at the price until the stock of goods, or the supplier's capacity to supply the service, is exhausted."[32]

This provision of the PECL is not relevant to the proper interpretation of the CISG because, conversely, the general rule in the CISG seems not to regard such proposals extended to the public as offers. The CISG deems such a proposal as only an "invitation ad offerendum;" CISG article 14(2) states that a proposal addressed to other than one or more specific persons is to be "considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal."

This difference between the PECL and the CISG could be explained again by the different scope of application of the PECL and the CISG. The CISG was brought to life with the intention to be applied only to commercial sales. On the other hand, the PECL is designed to be applied as general rules of contract law in the European Communities;[33] there is no restriction for PECL application only to commercial contracts.[34] The rule in the PECL, which allows a public advertisement, a catalogue, etc. to be presumed as an offer, is the logical consequence of this PECL scope of application. The PECL rule protects the interest of consumers, who are in most cases the persons to whom such advertisements or similar proposals are intended, an area outside the realm of the CISG.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 295-301.]


FOOTNOTES

* Predrag N. Cvetkovic, Faculty of Law, Department for Trade Law, University of Nis, Serbia, received his LL.B and LL.M. from the University of Nis [Dissertation title: Formation of Contracts for the International Sale of Goods]. His Ph.D. dissertation (in process) is on International Protection of Foreign Investments].

1. Art. 2:211 PECL explicitly extends its formation provisions to contractual situations that do not fit the traditional offer-acceptance model. The Comments to this provision of the PECL <http://www.cisg.law.pace.edu/cisg/text/peclcomp14.html#2211> cite as examples of situations covered by an analogical application of the rules found in PECL provisions on offer and acceptance:

(a) the situation in which it is not easy to tell where in the negotiation process the parties reach an agreement which amounts to a binding contract of sale (see the elements required by article 2:201 PECL, which are sometimes hard to establish);

(b) the situation in which a certain type of contract is made by conduct alone (e.g., car park tickets, etc. [the explanation for this listing of a typical contract transaction with a consumer is that the PECL, which is applicable to consumer as well as commercial contract transactions, has a broader scope than the CISG]).

2. This presumption is also found in art. 2.2 of the UNIDROIT Contract Principles [UCP].

In addition, PECL article 2:102 deals with the determination of the parties' intention to be legally bound. Whether a party in fact has such intention is immaterial if the other party has reason to infer from the first party's statement or other conduct that the first party intends to be bound.

3. See art. 8 CISG and its PECL counterparts, arts. 2:101, 5:101 and related PECL provisions <http://www.cisg.law.pace.edu/cisg/text/peclcomp8.html>.

4. See art. 1:101(1) PECL. Cf. the UNIDROIT Contract Principles whose scope is broader than that of the CISG, but not as broad as the scope of the PECL. The UNIDROIT Principles "set forth general rules for [all] international commercial contracts" (see the Preamble of UCP, para. 1): the UNIDROIT Principles thus apply to international commercial contracts for the sale of goods as well as other international commercial contracts.

5. In a contract of sale for which the PECL is the governing law, the quantity can also be determined not only expressly, but implicitly as well. This conclusion can be derived from art. 6:102 of the PECL, which provides criteria that establish "implied obligations."

6. See art. 35(2) CISG. Through this article, the criteria for the determination of the conformity of goods in the sale contract are established.

7. In accord, see Oberlandsgericht [Appellate Court] Frankfurt am Main [Germany] 31 March 1995 (25 U 185/94, <http://cisgw3.law.pace.edu/cases/950331g1.html>). The buyer alleged that, through the course of negotiation, the parties agreed on test tubes of "Duran" quality. The seller delivered tubes of "Fiolax" quality. The buyer refused to pay the price. The Court ruled that there was no valid contract, since the acceptance of the seller's offer was missing as the seller and the buyer had not reached an agreement on quality. Hence, there was no valid offer and acceptance; consequently, no validly concluded contract.

8. Art 5.6 UCP (which deals with the determination of a quality of performance which is neither fixed nor determinable by the contract) introduces the criteria of reasonable quality of performance, besides "average quality." The PECL has defined the term "reasonableness" (art. 1:302). The reason why this criterion was not incorporated in the PECL as the supplemental remedy for determination of the quality of performance could not be seen, unless this is to be regarded as an implicit element of the PECL.

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

10. "Where a contract has been validly concluded but does not expressly or implicitly fix or make provisions for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned." (art. 55 CISG).

11. CISG art. 55 commences: "Where a contract has been validly concluded" (emphasis added). Khoo calls attention to the meaning of this reference to validity. He states: "Article 55 … deals with cases in which a contract has apparently been concluded but without any agreement on provision as to price. In these instances, Article 55 makes it clear that its provision takes effect subject to the contract having been validly concluded by the criteria of the applicable domestic law …" Warren L.H. Khoo, in: Bianca-Bonell Commentary on the International Sales Law, Guiffrè: Milan (1987), p. 46. The pre-Vienna Diplomatic Conference legislative history of the CISG is in accord. See UNCITRAL Yearbook VIII, A/CN.9/SER.A/1977. pp. 48-49, paras. 323-330, 336-340; see also Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 2d ed. (1991), p. 201.

12. For a clear account of relevant recorded details in these drafting debates, go to:

(i) <http://www.cisg.law.pace.edu/cisg/firstcommittee/Meeting8.html>. Here one can access the summary records of the 8th meeting of the First Committee (Monday, 17 March 1980) on CISG arts. 14 and 55 [A/CONF.97/C.1/L.29, L.36, L.37, L.38, L.46, L.55 and L.69]. One will find in this record some very interesting comments and drafting alliances formed between countries irrespective of the level of industrial/economic development. Note especially the position of France, whose representative (Mr. GHESTIN) said that it was "important to retain the sentence as the essential terms of a sale were quality, quantity and price, the main difficulty being the question of the price. The issue was one of balance and fairness. It should be borne in mind that contracts frequently covered raw materials that were to be delivered over a period of years at prices that were difficult to fix (e.g., petroleum products)."

(ii) <http://www.cisg.law.pace.edu/cisg/firstcommittee/Meeting11.html>. Here one can access the Summary Records of the 11th Meeting of the First Committee (Tuesday, 18 March 1980) on CISG arts. 14 and 55. Report of ad hoc working group on paragraph 1 (A/CONF.97/C.1/L. 103). A report on the significance of the deliberations on article 14 CISG based on notes taken at the Conference and published shortly thereafter was prepared by Prof. Schlechtriem, and is available on-line at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-14.html>.

13. See Jacob S. Ziegel, "Article 14" in Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, July 1981: "The Francophone countries and delegates from a substantial number of developing states felt that art. 12(1) [became 14(1) CISG] was doctrinally sound and necessary to prevent buyers being confronted by sellers with unreasonable prices after the goods had been delivered;" available at <http://www.cisg.law.pace.edu/cisg/text/ziegel14.html>.

"Socialist countries objected to the conclusion of contracts with open-price terms, because the parties are expected to conform their contracts to a predetermined macroeconomic governmental plan. This view makes sense in a planned economy, in which contracts with open-price terms are a nullity from the perspective of the superintending state planning agency. Also, in some civil law systems, contracts of sale with open-price terms are viewed with hostility, particularly when the unilateral fixing of the price works to the disadvantage of the weaker party;" Helen Elizabeth Hartnell, "Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale Of Goods", 18 Yale Journal of International Law 1, 66 (1993) <http://www.cisg.law.pace.edu/cisg/biblio/hartnell.html>. See also Alejandro M. Garro, "Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods", 23 International Lawyer 443, 463 (1989) <http://www.cisg.law.pace.edu/cisg/biblio/garro1.html>.

14. John O. Honnold, Uniform Law for International Sale under the 1980 United Nations Convention, 1982, pp. 163. Honnold states: "[T]he added provision, that in such 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."

15. E. Allan Farnsworth, Formation of Contract, 1984, § 3.04, at. 3-8. By his opinion, art. 55 in Part III of the CISG (which deals with the obligations of the parties according to an existing contract) was designed for use only where a Contracting State made a declaration under art. 92(1) CISG that it will not be bound by Part II of the Convention, and, more precisely, by art. 14 placed in Part II of the CISG.

16. "The Honnold position is that the provisions may be read together, while the Farnsworth position is that they cannot." Paul Amato, U.N. Convention on Contracts for the International Sale of Goods -- the Open Price Term and Uniform Application: an Early Interpretation by the Hungarian Courts, 13 Journal of Law & Commerce 1, 10 (1993) <http://www.cisg.law.pace.edu/cisg/biblio/amato.html>. See also Carlos A. Gabuardi, "Open Price Terms in the CISG, the UCC and Mexican Commercial Law", available at <http://www.cisg.law.pace.edu/cisg/biblio/gabuardi.html>. The author provides an excellent comparative review of the issue of open-price terms. On point, Gabuardi agrees with Honnold that articles 14 and 55 regulate different issues and are not contradictory. "I think that article 14 only establishes a rule for those cases in which the parties exchange 'offer' and 'acceptance' without making an express commitment to be bound even if the price has not been fixed, while article 55 establishes a rule for those cases in which the parties enter into an agreement in which they commit themselves to be bound by it, even though the price has not been fixed." Idem.

17. Amato supra note 16, at pp. 1-27; J.E. Murray, Jr., An Essay on the Formation on Contracts and Related Matters under the United Nations Convention on Contracts for the International Sale of Goods, 8 Journal of Law & Commerce, (1988), pp. 11-51 <http://www.cisg.law.pace.edu/cisg/biblio/murray.html>.

18. Those rules are contained in CISG art. 8, PECL arts. 1:302 and 5:101 and in UCP art. 4.1, art. 4.2. and art. 4.3.

19. Gabuardi supra, at note 16.

20. See art. 6:104 PECL.

21. Some national codes also use terms such as the "prevailing price", for example, UCC § 2-724, Italian Codice Civile art. 1474(2), Yugoslav Code of Obligation (art. 465(2) (3).

22. It is necessary to remember that art. 55 CISG prescribes that, subject to a validly concluded contract that does not expressly or implicitly fixed price or provision for determining the price, "the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."

23. It should be emphasized that regulation of this question is quite justified and welcome with regard to the practical needs in commercial relations in which the parties can agree that the determination of the price is to be entrusted to commercial agents, trade chambers, stock exchanges, etc.

24. See art. 6:106(1) PECL. The rule adopted in the PECL trails the "in favorem contractus" principle, which is in accord with the needs and nature of international commercial exchange of goods, money and services. The UCP also follows this approach in its art. 5.7(3), which presumes the validity of a "reasonable price" in the event the third party did not determine the price.

25. See art. 6:105 PECL. Art. 57(2) UCP is to the same effect. In practice, a contract clause that authorizes one party to determine the price is, in most cases, the consequence of a huge economic power inequality between the parties. National codes that allow only one party to be empowered to determine the price often restrict this discretion with the principle of good faith (see, for example, § 2-305(2) UCC). In that way, arbitrary or fraudulent use of this right is prevented. A similar interpretation is also valid for art. 6:105 PECL.

26. Form, measurement and other features of the goods are examples of elements of offers and their acceptances that the CISG does not appear to regard as fundamental. See art. 65 CISG.

27. See also art. 2.13 UCP.

28. See note 22 supra and accompanying text. By way of comparison, it should be mentioned that the UCP has a particular rule for "supplying an omitted term", e.g., for the situation in which the parties did not agree with respect to a term which is important for a determination of their rights and duties.

29. According to art. 6:102 PECL, along with express terms, a contract may contain implied terms based on the intention of the parties, the nature and purpose of the contract, and good faith and fair dealing. In a wider sense, the content of non-fundamental elements can be derived from this rule. See also arts. 5.1 and 5.2 of the UCP.

Note that under PECL arts. 2:101 and 2:103, a contract is only concluded if the parties have agreed on its express terms. This rule must also apply when a party invokes standard terms or other not individually negotiated terms as part of the contract; see the effect of PECL art. 2:104.

30. See, for example, art. 7(2) of the Swiss Code of Obligation.

31. See art. 2:201(2) PECL.

32. See art. 2:201(3) (offer) PECL.

33. See art. 1:101(1) PECL.

34. By way of contrast, the UCP is strictly intended to be applied to international commercial contracts (see Purpose of the UNIDROIT Principles, par. 1.)


Comment and notes on PECL 2:201, PECL 2:101 to 2:104 and PECL 2:111

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 158-163, 137-152, 187-188.


COMMENT AND NOTES: PECL Article 2:201: Offer

(1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract.

(2) An offer may be made to one or more specific persons or to the public.

(3) A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.

Comment

A. The "offer and acceptance model"

This section deals with contracts concluded by an offer followed by an acceptance, which is the usual model for the conclusion of contracts.

However, there are other models for the conclusion of a contract. Agreements are often made under circumstances where it is not possible to analyse the process of conclusion into an offer and an acceptance. The rules of this section may sometimes apply to these cases, see Article 2:211 below. [PECL 2:111 states: "The rules in this section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance".]

B. Requirements for an offer to become effective

An offer is a proposal to make a contract. If it is accepted it becomes a contract provided that the conditions in Article 2:201 are met.

For a proposal to become effective it must

(a) be communicated to one or more specific persons or to the public;

(b) show an intention to be bound, see Article 2:102 and chapter 5 on Interpretation; and

(c) contain terms which are sufficiently definite, see Article 2:103.[page 157]

C. Proposals to the public

Proposals which are not made to one or more specific persons (proposals to the public) may take many shapes advertisements, posters, circulars, window displays, invitations of tenders, auctions etc. These proposals are generally to be treated as offers if they show an intention to be legally bound. However, proposals made "with an eye to the person" are generally presumed to be invitations to make offers only. This applies to an advertisement of a house for rent at a certain price. Further, an advertisement for a job-opening for persons who meet certain requirements does not oblige the advertiser to employ the one offering his or her services and meeting the requirements. Construction contracts are often made on the basis of public bidding. Owners generally only invite tenders, which are the offers.

Other considerations may also lead to the assumption that, unless otherwise indicated, a proposal is only an invitation to make an offer.

Putting up of an item for auction is generally only an invitation to bid. The auctioneer need not accept a bid and may withdraw the goods, even when the bid is the highest made, if it is too low. The bid is the offer which is accepted by the fall of the hammer. A clear indication that the goods are sold "without reserve" or the like may, however, turn putting them up for auction into an offer.

On the other hand, in order for a proposal to have effect it may be necessary for the proposer to make an offer which may bind it if accepted. This applies for example to an offer of a commission if an agent effects a sale of the proposer's property. Furthermore, persons who make advertisements etc. may wish prospective suppliers or purchasers to know that they will be able to deliver or acquire the goods or services by accepting the proposal, and that they do not risk refusal of their "acceptance" and the consequent waste of their efforts and reliance costs. Therefore, proposals which are sufficiently definite and which can be accepted by anybody without respect of person are to be treated as offers. This consideration has led to the provision in paragraph (3) and will also result in a proposal being an offer in other cases.

Illustration 1: Merchant A advertises in a trade paper that he will buy "all fresh eggs delivered to him before 22 February" and pay a certain price. A's advertisement is to be considered an offer which may be accepted by bringing the eggs to his premises.

Illustration 2: In the local paper Bell advertises a plot of land for sale to the first purchaser to tender 25,000 Euros in cash. This constitutes an offer and when Mart tenders 25,000 Euros there is a contract..

D. Goods and services offered at stated prices

Article 2:201(3) provides that a proposal to supply goods and services at stated prices made by a professional supplier in a public advertisement or a catalogue or by display of goods is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.[page 160]

The professional supplier which advertises goods in the way described is, unless it indicates otherwise, taken to have a reasonable stock of goods and a reasonable capacity to provide services.

The rule states a presumption. A different intention may appear from the advertisement, etc. and may follow from the circumstances. Thus, if the goods or services are offered on credit terms the supplier may refuse to deal with persons of poor credit-worthiness.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. The "offer and acceptance" model in the laws

The "offer and acceptance" model, by which one person makes an offer to another person which the latter accepts, has been the prototype for the conclusion of contracts in all the legal systems of the Union, see GERMAN BGB §§ l45-l50, AUSTRIAN AGBG §§ 861- 864a, NORDIC Contract Acts §§ l-9, GREEK CC arts. 185-192, ITALIAN CC arts. l326-l329, and DUTCH BW art. 6:2l7- 6:225. It is also the main model used in CISG part II, arts. 14-24, and in chapter 2 of the UNIDROIT Principles. In all the countries of the Union, including those which do not have any statutory provisions on the conclusion of contracts in general, writers treat the offer and acceptance as the principal model. On situations in which the model is not easy to apply see the notes to Article 2:211.

2. What is required for an offer to be binding?

All the laws of the UNION require that the offer must show an intention to be bound, and that it must be sufficiently definite to establish an enforceable contract, see notes to Articles 2:101 - 2:103. Thus the AUSTRIAN ABGB § 869 provides that "the acceptance of an offer as well as the offer itself must be declared freely, seriously, precisely and intelligibly." SPANISH law also requires seriousness of intention, definitiveness and completeness, see Supreme Court decisions of 28 May l945 RAJ (1945) 692 and 10 October l980, RAJ (1980) 3623. Under ENGLISH and IRISH law a proposal does not amount to an offer if it expresses some reservation on the part of the maker or if the terms proposed are not sufficiently specific. On both points see, e.g. the English case of Gibson v. Manchester City Council [1979] 1 W.L.R. 294, H.L.

3. Proposals to the public

All the legal systems accept that in some situations proposals to the public may amount to an offer. However, in a number of situations the laws reach different results on the question whether a proposal is an offer. Most of them have general principles, and provide special rules applicable to special situations.

(a) In general
(aa) Statutory provisions

The ITALIAN CC art. 1336(1) provides that a proposal to the public which contains the main elements of the contract towards whose formation the proposal is directed is effective as an offer unless it appears otherwise from the proposal or from usages, see Bianca, Il contratto II 251, who stresses the necessity of a clear undertaking.

For the international sale of goods, CISG art. 14(2) provides that a proposal other than one addressed to one or more specific persons is to be considered merely an invitation to make offers unless the contrary is clearly indicated by the person making the proposal.

Art 2:201(2) differs from the ITALIAN rule and CISG in that it does not establish a presumption one way or the other, but leaves the issue to be decided by the rules of interpretation. This also appears to the attitude taken by the UNIDROIT Principles which do not provide rules on offers to the public, see Comment 2 to art. 2.2.

(bb) Case law

Apart from these rules there are no general statutory provisions on the subject in the European Union. Its regulation is left to the courts. Whether a proposal to the public is an offer or only an invitation to make an offer has been a question of interpretation of the proposal. However, the rules of interpretation which the courts have established differ.

In FRANCE the courts have shown an inclination to treat proposals to the public as offers, see Ghestin, Formation no. 297. However, in some contracts the offeror wants to know with whom he is dealing. Therefore in France, as in BELGIUM and LUXEMBOURG, the proposal is probably only an offer if the proponent will be ready to conclude [page 161] a contract without further investigations once the proposal has been accepted, see for Belgium Cornelis, TBH 1983, 39.

In the COMMON LAW and in SCOTLAND proposals to the public are in general treated as invitations to make an offer, see below at (b), but they may amount to an offer, see Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256. C.A.; Treitel, Contract 13; and the IRISH case of Billings v. Arnott (1945) 80 ILTR 50, H.C. In SCOTLAND they may also amount to a unilateral promise, see note 1 to Article 2:107 above. In AUSTRIAN law the proposal to the public does not, as a rule, qualify as an offer since it is not sufficiently definite and therefore does not show any intention of the offeror to be bound, see OGH 3 October 1972, SZ 45/102. It is treated as a mere invitation to anybody who might be interested to negotiate.

In THE NETHERLANDS there is no general rule. An offer in an advertisement to sell real property will generally be an invitation to submit an offer, even if the person who is the first to respond agrees to pay the full price charged. But a department store which offers a free teddy bear to every purchaser who buys goods for over 100 Hfl will generally be bound.

(b) Specific issues

(aa) Proposals to supply goods and services at stated prices

The presumption established in Article 2:201(3) applies in several countries to proposals made in advertisements in the press and in the television, and to advertising material and price lists communicated to a large number of addressees: for DENMARK, see Lynge Andersen 52 ff.; for GERMANY, see Münchener Kommentar (-Kramer) § l45 Rz 8; and for ITALY, see Bianca, Il contratto II 256.

In FRANCE and LUXEMBOURG it has been held that such proposals constitute offers "which bind the offeror to the first acceptor" unless the contrary follows from the proposal or from the circumstances, see French Cass. civ. 28 November 1968, Bull. civ. III 389. A proposal for an employment, a lease, the granting of loan or other contracts where the proponent may want to know with whom he is dealing are only invitations to make an offer, see Ghestin, Formation no. 297. BELGIAN law does not generally regard proposals made in advertisments in papers as offers, see Cornelis, Tidschridt voor Belgisch Handelsrecht 1983, 39.

In the COMMON LAW public advertisements of goods are generally invitations to make offers, see Grainger & Son v Gough [1896] A.C. 325, H.L.) and Treitel, Contract 13. SCOTS law is to the same effect, see Hunter v. General Accident Corporation 1909 SC 344, aff'd. 1909 SC (HL) 30. The AUSTRIAN courts also generally do not treat such proposal as offers.

In SWEDEN advertisements are invitations to make offers and it is uncertain whether the special rule in the Contracts Act § 9 on the effects of silence by the offeree applies, see Ramberg, Avtalsrätt 49 and 113, Adlercreutz I 52, and on § 9 note 2(b) to Article 2:204, below. This is also the prevailing view in FINLAND, see Hemmo, Sopimusoikeus I 1997, 78, and in PORTUGAL, unless the offer contains all the elements required for an offer including the price, see Almeida, Negocio juridico 804 and Hörster 457.

In SPAIN there is reported to be no case law.

(bb) Display of priced goods

In FRANCE, LUXEMBOURG and BELGIUM, displays of priced goods in windows and self-service stores are held to be offers, see Ghestin, Formation no. 297 and Dekkers, Handboek van Burgerlijk Recht II nr 92. The same applies in SPAIN, see Retail Trading Act (1996), art. 9, where special rules apply to consumer contracts. In ITALY too a priced display is considered an offer to the public, see note (a) (aa) above. Bianca, Il contratto II 256 maintains that in the retail business such proposals remain offers as long as there is stock at hand, see on the cases, the Court of Cassation 4 February l986, no. 708 and 10 January l986, no. 63.This is also true of PORTUGAL, see Almeida, Negocio juridico 804 and Hörster 457. In DENMARK a shopkeeper is taken to have made an offer of the displayed goods, but not of all goods which are in stock, see Lynge Andersen 52.

Displays of priced goods in shops and markets are treated as invitations to make an offer in the COMMON LAW and in SCOTS law, see for ENGLAND, Fisher v. Bell [1961] 1 Q.B. 394 (display of goods in shop window) and Pharmaceutical Society of GB v. Boots Cash Chemists (Southern) Ltd [1953] 1 Q.B. 401, C.A. (display of goods marked with prices on self-service shop shelves) and, for IRELAND, Minister for Industry and Commerce v. Pim [1966] I.R. 156. The same holds true of GERMANY, see BGH in NJW [page 162] l980, 1388; AUSTRIA, see Rummel § 831 Rz 7; SWEDEN, see Grönfors, Avtalslagen 28; and in FINLAND, see Hemmo, Sopimusoikeus I 1997, 78.

(cc) Auctions

Applying the offer-acceptance model, some laws consider the putting up of property for an auction as an invitation, and each bid as an offer which lapses when a higher bid is made; the final bid is then accepted if and when the auctioneer lets the hammer fall. This rule, which means that either party may withdraw his offer before the hammer falls, is applied in GERMANY, BGB § 156, see Münchener Kommentar I (- Kramer) 1316; GREECE, see CC art. 199; PORTUGAL, see Almeida, Negocio juridico 804 and Hörster 457; BELGIUM, see Kruithof & Bocken 307, the NETHERLANDS; DENMARK, see Lynge Andersen 53; SWEDEN, see Grönfors, Avtalslagen 37; and FINLAND, see Finnish Contract Act § 9. The same rule applies in ENGLAND, SCOTLAND and IRELAND, see the English Sale of Goods Act 1979, s. 57, and Treitel Contract 11.

However, in ENGLAND, SCOTLAND and IRELAND, if the sale has been an advertised as being ‘without reserve', the highest bidder will have a remedy. However, this will be not against the seller but against the auctioneer who allows the goods to be withdrawn, see the English case of Warlow v Harrison (l859) 1 E&E 309 and the Irish case of Tully v. Irish Land Commission (1961) 97 ILTR 174, H.C. For Scotland, see Gloag, Contract, 22-3.

In contrast, in FRANCE, LUXEMBOURG, ITALY and SPAIN the proposal to the public to bid is the offer, and the highest and last bid is the acceptance, see for France, Malaurie & Aynès, Obligations no 334; Spanish Retail Trading Act 1996 art. 56 and Diez-Picazo 300 f.; and for Italy, Bianca, Il contratto 234 f.

(dd) Rewards

It appears that in most, if not all the systems, an offer for a reward is held to have been accepted by performing the act for which the award is offered. This rule is expressly provided in the DUTCH BW art. 6:120, and is adopted in DENMARK, see Ussing, Aftaler 51 and in SPAIN, see Supreme Court 17 October 1975, RAJ (1975) 3675 and 6 March l976, RAJ (1976) 1175. In GERMANY, GREECE, and ITALY the offeror must pay the reward to the person who performs the rewarded act even though that person did not act in response to the award, in most cases because he did not know of it, see the GERMAN BGB § 657, GREEK CC art. 709 ff. and ITALIAN CC 1989. This is also the unanimous opinion of AUSTRIAN writers, see e.g. Korio/Welser, Grunriss des bürgerlichen Rechts 10th ed. (1995) 203.

In ENGLAND an advertisement of a reward is an offer but he who acts must have been conscious of the offer. A person cannot claim a reward for information given if when he gave the information he did not know of or had forgotten the offer. His act is then not an acceptance of the offer see R. v. Clarke (1927) 40 C.L.R. 227, H. Ct of Australia, and Treitel, Contract 13 and (on unilateral contracts in the English sense of the word) 36 ff. In SCOTLAND advertisements of rewards are offers, see Hunter v. General Accident Corporation, 1909 SC (HL) 30 or promises, see Petrie v. Earl of Airlie (1834) 13 S. 68.

In FRANCE and LUXEMBOURG the issue is not settled by statute or precedent. The French authors are divided. Some regard the promise of a reward as an offer: thus an offer of a reward to the one who returns a lost dog will only bind the offeror to pay the person who returns the dog, if that person in awareness of the offer has accepted it (Nicolas 39).Others regard it as an engagement unilatéral, see Malaurie & Aynès, Obligations no 345. In BELGIUM it is held to be a promise which does not need acceptance, see De Page, Traité II nos. 528-530.

In FINLAND and SWEDEN the law on this point is unsettled.[page 163]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:101: Conditions for the Conclusion of a Contract

(1) A contract is concluded if:(a) the parties intend to be legally bound, and (b) they reach a sufficient agreement without any further requirement.

(2) A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses.

Comment

A. Contract

In these Principles the notion contract covers:

- agreements under which two or more parties have undertaken an obligation to make a performance,

- agreements where the offeree accepts the offer by doing the act or suffering the forbearance which the offeror asks of it,

- agreements where only one party has obligations and where its promise needs acceptance by the offeree,

- promises to which one party is bound without acceptance by the other, as provided in Article 2:107 below.

The rules on contract also govern agreements to modify or end existing contracts, see Article 1:107.

B. Intention

In order to be bound by a contract a party must have an intention to be legally bound. Whether in fact it has such intention is immaterial if the other party has reason to infer from the first party's statement or other conduct that it intends to be bound, see Article 2:102.[page 137]

C. Agreement

Where more than one party is to be bound the parties must agree. Their agreement may be reached by one party's acceptance of the other's offer, see Section 2, by agreeing to a contract which has been drafted by a third party, or in other ways. What constitutes sufficient agreement is spelled out in Article 2:103.

In some cases where only one party is to be bound an expression of agreement by the other party is not needed. Promises which are intended to become binding without acceptance are to be treated as contracts, see Article 2:107.

D. No further requirement

Whether or not agreement is needed there are no further requirements. No form is required, see Comment F. Nor is it necessary that a promisee undertakes to furnish or furnishes something of value in exchange for the promise (consideration). Even an undertaking to lend money and a promise to receive a deposit are effective before they have been performed. A contract is not invalid because at the time of its conclusion it was impossible to perform the obligation assumed, see Article 4:102.

E. Binding character of a "gratuitous" promise

Some legal systems do not enforce a party's "gratuitous" promise. Some do so but only if it is couched in a solemn form or is found to serve a socially desirable purpose which cannot be achieved by other means.

The fear that the enforcement of such "gratuitous" promises, even though no formality has been observed, will lead to socially undesirable results is not well founded. In fact many of these promises serve legitimate commercial purposes.

Nor is it necessary to inquire into the social desirability of the promise if it is sincerely made. Experience shows that the legal systems which enforce gratuitous promises do not encounter problems. "Crazy" promises made by persons of a sound mind are so rare that they may be disregarded, while even the presence of a formality or of an exchange does not guarantee that the contract is a sensible one. On the other hand, those legal systems which do not enforce "gratuitous" promises have faced problems when such promises sincerely made have since been revoked. These problems do not only arise when the promisee has acted in reliance on the promise, and injustice can be avoided only be enforcing the promise, but also in other situations. For this reason these promises should be enforced.

F. No formal requirement

Article 2:101(2) lays down the principle that, unless the parties otherwise agree, the conclusion as well as the modification and the termination by agreement of a contract are valid without any form, be it writing, sealing, authentication by a notary, filing in a public registry etc. This principle is widely accepted among the legal systems at least as far as commercial contracts are concerned. For international contracts it is particularly important since many such contracts have to be concluded or modified without the delays which the observance of formalities will cause.

This provision also applies to unilateral promises, see Article 2:107.[page 138]

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Introduction, national laws

In BELGIUM, FRANCE and LUXEMBOURG the rules on formation are laid down in the decided cases which are inspired by the 18th century writer Pothier, Obligations Art. 1108 of the Code civil of BELGIUM, FRANCE and LUXEMBOURG is the only provision of the codes dealing with the formation of contracts. It provides that the necessary conditions for the validity of a contract are consent of the party which assumes an obligation, capacity to contract, a certain object which forms the matter of the agreement and a lawful cause. The SPANISH CC. has similar rules in arts. 1261 and 1262. It mentions that the agreement of the parties manifests itself by the offer and acceptance.

In ENGLAND, IRELAND and SCOTLAND the rules on the formation of contracts are based on case law. In the other Member States rules on the conclusion of contracts are provided in codes and statutes.

2. Art. 2:101(1) "A contract is concluded when . . ."

The concept of contract as adopted in the Principles is an agreement which creates legal obligations. It generally involves two or more parties whose obligations are reciprocal. However, contract also covers promises to perform, for instance to pay a sum of money, if the other party performs an act, and it covers obligations assumed only by one party, such as a promise for a gift, and promises which are binding without acceptance, see Article 2:107.

In this and other respects there are differences between the legal systems, mostly of a terminological character. FRENCH, BELGIAN and LUXEMBOURG CCs art. 1101 define contract as an agreement by which one party binds himself to another to give, to do or not to do something. The Codes distinguish between contrats synallagmatiques and contrats unilatéraux, see CCs arts.1103 and 1104. The former create reciprocally binding obligations for the parties; the seller, for instance, must deliver the goods and the buyer in return pay the purchase money. Les contrats unilatéraux only create obligations for one party and rights for the other. They need acceptance by the offeree in order to be concluded.

Promises which are not accepted by the promisee are generally not binding as contracts. However, certain unilateral engagements, for example a promise to fulfil a "natural obligation", may under certain conditions bind the promisor without acceptance, see Terré, Simler & Lequette, Obligations nos. 47 ff.

In ENGLAND Treitel describes a contract as an agreement giving rise to obligations which are enforced or recognized by law, see Treitel, Contracts 1 The common law makes a distinction between bilateral and unilateral contracts. A bilateral contract is a synallagmatic contract. A unilateral contract is one under which a counter promise of the offeree is not required. His acceptance consists in doing the act or suffering the forbearance which is asked of him. Under the doctrine of consideration, see note 3(a) below, the act or forbearance is the counter-performance which makes the promise of the offeror binding. An offer for a reward made to the public is accepted when a person being aware of the offer does the act which is asked for. Gift promises are not enforceable unless made in the form of a deed which is not considered to be a contract. Unilateral promises which are binding without acceptance are very seldom recognized in English law, see notes to Article 2:l07.

In GERMAN and AUSTRIAN law a contract is one of several juristic acts. A juristic act (Rechtsgeschäft) is an act by one or more persons the purpose of which is bring about legal effects. Every juristic act must consist of at least one declaration (or conduct) which expresses a person's intention to be legally bound by the effect which the declaration purports to bring about, also called a declaration of will (Willenserklärung), and to which the law gives that effect because it is intended. A promise is a Willenserklärung which binds the promisor, and it may bind him without acceptance. Some promises, such as a promise of a reward made to the public (Auslobung), are binding on the promisor even though they do not reach the promisee. Others are only binding when they reach the offeree, such as an act whereby a person confers upon another person the power to act for him (Auftrag). The rules on "Willenserklärungen" are to be found in title 2 of book 1 part 3, of the BGB.

A contract (Vertrag) is a legal transaction which consists of at least two declarations of will which express agreement. It may be unilaterally binding or bilaterally binding. A unilaterally binding contract, such as a promise to make a gift or to stand surety for another person, only creates duties in one person. In principle it needs acceptance by the other party. However, acceptance of a promise to make a gift is presumed when the other party remains silent, see BGB § 516(2). A bilaterally binding contract is one which creates reciprocal duties on both parties, such as a sale and a lease. It presupposes the parties' concordant intention to be legally bound, see Larenz/ Wolf, AT §§ 22 and 23, RGRK - Piper § 145, Rz. 42/43, Erman (-Hefermehl), Vor § 145, Rz. 1. The formation of a contract (Vertrag) is treated in title 3 of book 1 part 3 of the BGB.[page 139]

DUTCH and PORTUGUESE law also treat juristic acts and contracts separately in their Codes. In Portuguese law a unilateral promise, which only binds the promisor, and which requires an acceptance, is a juristic act not a contract.

3. "without any further requirement"

Article 2:101 also provides that a contract is concluded if the parties intended to be legally bound and they reach a sufficient agreement, "without any further requirement". On the intention to be bound, see notes to Article 2:102 and on sufficient agreement, notes to Article 2:103.

As was mentioned in the Comment, the words "without any further requirement" implies that the Principles do not require consideration or cause, nor do the Principles require that to create certain contracts, property must be handed over to the party who is to receive it (real contracts).

(a) Consideration

In ENGLAND and IRELAND a promise by one party which is not supported by consideration is generally not binding. The doctrine of consideration is complex and unclear, but its essence seems to be that a promise, even if seriously meant and accepted by the promisee, will not be binding unless the promisee gives or does something (‘unilateral' contract), or promises to give or do something (‘bilateral' contract), in exchange for the promise. Thus a ‘gratuitous promise' for which there was no exchange is not binding, see e.g. Re Hudson (1885) 54 LJ Ch 811. Equally, a promise made in respect of an act which has already been performed (e.g. a promise to reward someone who has just rescued the promisor) is not binding, since the rescue was not exchanged for the promise, cf. Re McArdle [1951] Ch 669, C.A.; "past consideration is no consideration".

It is not necessary that the action taken or promised is of direct benefit to the promisor. What is important is that the promisee has in some sense acted to his detriment in exchange for the promise. Thus a promise to a bank to guarantee a loan made to a third party is made for good consideration though the guarantor may obtain no benefit; the bank incurs a detriment by advancing the money to the debtor. But if the money has been advanced already, and the bank does not give the debtor any concession as a result of the guarantee, e.g. extra time to pay, the guarantee will be without consideration, see Treitel, Contract 75; compare Alliance Bank v. Broom (1864) 2 Dr & Sm 289 (actual forbearance by creditor, therefore consideration).

Certain actions, or promises of actions, are treated as not being good consideration because they involve the promisee in no detriment. For example, a promise to pay someone to perform an act he is already obliged to do under the general law is usually treated as being for no consideration: Glasbrook Bros.v. Glamorgan CC [1925] A.C. 270, H.L.

However, consideration is not required if the promise is made by a deed. This is a document which is expressed to be a deed and which must be witnessed. It no longer has to be sealed, see Law of Property (Miscellaneous Provisions) Act 1989, s. 1. Further, the doctrine does not often prevent enforcement of a promise which the courts wish to enforce. There are a number of points:

(i) The consideration need not be ‘adequate', i.e. of equivalent value, so that a small or even a purely nominal payment is good consideration, e.g. Thomas v. Thomas (1842) 2 QB 851.

(ii) The courts seem to ‘invent' consideration by fixing on some action, or the possibility of some action, by the promisee and treating it as exchanged for the promise: e.g. de la Bere v. Pearson [1908] 1 KB 280. In that case a newspaper's promise to give readers financial advice was held to be contractual, because the newspaper had the right to publish the readers' letters if it so wished. See generally Treitel, Contract 67-68. Atiyah argues that this means that the doctrine is incoherent and means no more than ‘a good reason to enforce the promise': Essays 241.

(iii) In cases of promises to convey property, if the promisee has acted on the promise to his detriment, it may be enforceable even without consideration on the basis of ‘proprietary estoppel': e.g. Crabb v. Arun DC [1976] Ch. 179, C.A.

However, ENGLISH law has not yet followed American law in treating a gratuitous promise on which the promisee has reasonably relied as binding (cf. Restatement, 2d. Contracts, § 90). In ENGLAND the doctrine of promissory estoppel applies only to promises not to enforce existing rights, Combe v. Combe [1951] 2 K.B. 215, C.A. In IRELAND, however, the Supreme Court in Webb v. Ireland [1958] I.L.R.M. 565 held that a promise by the Director of the National Museum to a finder of historic artifacts that he would be honourable treated, would be enforced against the State, see McMahon & Binchy 155 ff. with references.

In relation to agreements to alter the terms of existing contracts, there were formerly in ENGLISH law considerable difficulties when the terms were varied in a way [page 140] that benefited only one of the parties; e.g. one party promised to release the other from part of his obligation (Foakes v. Beer (1884) 9 App. Cas. 605, H.L.) or to increase the price payable to the other (Stilk v. Myrick (1809) 2 Camp. 317). More recently, the courts have prevented the promisor from going back on his word (unless it was unfairly extorted from him) via, in the first situation, the doctrine of promissory estoppel (see WJ Alan & Co Ltd v. El Nasr Export & Import Co [1972] 2 Q.B. 189, C.A.) or, in the second, by treating the promise as being for good consideration if the promisor got a ‘practical benefit', even though the promisee was doing no more than it was previously bound to do (Williams v. Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, C.A.).

SCOTLAND and the CIVIL LAW COUNTRIES do not require consideration.

(b) Cause, causa

The Principles do not expressly provide for a requirement of cause or causa. Causa is, however, mentioned as a requirement for the formation of a contract in AUSTRIAN law, in FRENCH, BELGIAN and LUXEMBOURG CCs arts. 1108 and 1131-1133, ITALIAN CC arts. 1325 and 1343-45 and SPANISH CC art. 1261.

In AUSTRIAN law the causa signifies the economic purpose of the contract, which has to be transparent from the contract itself or the circumstances. A promise which has no apparent purpose is not binding.

It is not possible to give a definition of cause in FRENCH law which will be accepted universally. However, many authors distinguish the "objective and abstract cause" that would apply to all parties to a contract of a particular type (e.g. in a contract of sale, to obtain the property or the money) and the "subjective and concrete cause" or motive (e.g. the seller sells the property to raise money to pay his other debts, or the buyer buys property in order to smuggle it out of the country): see, e.g. Terré, Simler & Lequette Nos. 312 ff. A contract will not be valid unless it has an objective and abstract cause; the mere intention to incur an obligation is not sufficient. If for example the cause is erroneous, the contract will not be valid. Thus a person who has promised to pay a debt, but who had forgotten that he had already paid it , is not obliged to do so, because his obligation had a false cause, see notes to Article 4:103 on Mistake as to Facts or Law. Under the second aspect the cause must be legal. Therefore, the sale of an object intended to be used for committing a crime is void. On French law, see Malaurie & Aynès, Obligations no. 492 ff., and on BELGIAN law, t'Kint 138. On illegality, see Article 4:101.

Some DUTCH authors argue that causa, although no longer mentioned in the DUTCH BW, does remain a requirement for the validity of a contract - see van Schaick (with summaries in English, French and German) and Smits (with a summary in English). Other authors consider causa as "the content of the contract as a whole", see on these theories Becker 237. If used in this sense the causa is hardly a requirement other than that the contract must contain legal obligations for the debtor.

The GREEK and PORTUGUESE civil codes do not require cause as a condition for the formation of the contract, but articles 174-178 of the Greek CC provide that contracts the contents of which is unlawful are invalid and arts. 904-913 that payments made without a cause or without a lawful cause may be recovered. On this basis, some Greek writers infer that cause is an essential element for the validity and enforceability of contracts (Kerameus-Kozyris 65 f). The same is the predominant view in Portugal, see Fernandes s. 287.

Causa has no role in the formation and validity of contracts in the COMMON LAW. Nor is the concept used in GERMANY, see Zweigert & Kötz 381, the NORDIC COUNTRIES, see for DENMARK, Ussing, Aftaler 113, or SCOTLAND, see Smith, Short Commentary 742 f.

(c) Real contracts

In FRANCE, BELGIUM and LUXEMBOURG it has been held that the so-called "real contract" (contrat réel) was not validly concluded until the property to which it relates had been handed over to the creditor or some other person authorized to receive it. This applied to donations, loans of money and other property, bailment (dépot) and pledge. However, the writers do not like the idea that these contracts are not enforceable. Today these agreements are often intepreted as a promise to make a contract to lend, deposit, pledge, etc. which is enforceable (see on the formal requirments note 4 below), and when performed these contracts are governed by the same rules as the other contracts (see for France Ghestin, Formation nr 447 ff. and for Belgium de Page, Traité II nr 505). Under the PORTUGUESE CC the rules on real contracts are applied to loans, bailment and pledge. However under the influence of C. Mota Pinto's Cessào da posicao contractual, 11 ff., it has been held that the mere agreement between the parties makes these contracts enforceable.[page 141]

In SPAIN, AUSTRIA and the NETHERLANDS the concept of the "real contract" still exists: in Spain for loans, including gratituous loans, bailment (deposito), and pledge, see Diez-Picazo p 139; and in Austria for bailments, loans for use, loans of money and "orders to sell" (Kaufaufträge), see ABGB § 1086 and Rummel § 86, Rz 9. In the Netherlands the rules only apply to loans.

"Real contracts" are not known in the other countries. It is not necessary as a condition for the coming into existence of a contract that the goods or money contracted for should be handed over to the creditor. However, in the common law a unilateral contract requires an act or the commencement of an act by the offeree for completion, see note 1(b) above.

The handing over may, however, be a condition for the perfection of a security interest in relation to third parties.

Some laws also require the existence of an objet. On this see the notes to Article 4:102.

4. Formal requirements

(a) No formal requirements for contracts in general

In the majority of countries of the European Union, writing or other formalities are not required for the validity of contracts in general. This holds true of DENMARK, see Danske Lov art. 5.1.1, SWEDEN, see Adlercreutz I 147; FINLAND, see Hoppu, 36; GREECE, CC art. 158; GERMANY, BGB § 125 (impliedly); AUSTRIA, AGBG § 883; PORTUGAL, CC 219 ff.; and of the UK. The DUTCH BW art. 3:37 lays down that unless otherwise provided declarations, including communications, may be made in any form. The same rule applies in SPAIN, see CC art. 1258, Commercial Code art. 5l and art. 11 of the Retail Trading Act (l996). The GREEK CC provides that contracts and other juridical acts have to be made in a certain form when the law so provides (CC art. 158) or the parties have agreed on it (art. 159 (1)) and this holds true of the other laws which do not require form. On merger- and no oral modification clauses, see notes to Articles 2:105 and 2:106 below.

CISG art. 11 provides that a contract for the sale of goods need not be concluded in writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Under art. 29(1) a contract may be modified or terminated by the mere agreement of the parties. A State which is party to the Convention may, however, make a declaration to the effect that articles 11 and 29 do not apply where any party has his place of business in that State. None of the Members of the European Union has made such a declaration.

Art. 1.2 of the UNIDROIT Principles provides that nothing in the Principles requires a contract to be concluded in any form. It may be proved by any means, including witnesses.

(b) Writing required

Unless the defendant is a merchant, the FRENCH courts will not admit proof of contracts for the value of FF 5000 or more unless it is in writing, see CC art. 1341. But the requirements of writing are not great. A "commencement de preuve par écrit" (a first step towards evidence in writing) is sufficient, see CC art. 1347, and in special cases where it was not possible for a party to provide a written document, oral testimony is allowed, see art. 1348. Under art. 109 of the Commercial Code, oral testimony of contracts made between merchants is allowed. BELGIUM and LUXEMBOURG have similar rules. In BELGIUM writing is needed for contracts for a value of 15000 francs or more.

In ITALY proof will not be allowed for contracts above the value of 5000 lire unless they are in writing, see CC art. 2721 (1), but there are a number of exceptions from this rule. Thus art. 2721(2) provides that the court can admit proof by witness even beyond that limit, taking into account the character of the parties, the nature of the contract and any other circumstances.

In FRANCE, BELGIUM, LUXEMBOURG and ITALY, where CISG is in force, an international contract of sale which is governed by the Convention is not subject to any requirement as to form, see CISG art. 11.

(c) Specific contracts

In all the countries, specific contracts need to be in writing or in a notarial document in order to be valid.

(aa) Formal requirements for special agreements are found in some conventions. For arbitration clauses, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, art. II requires writing. Art. 17 of the Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters puts formal requirements on a jurisdiction clause. See also arts. 12 and 96 of CISG.[page 142]

(bb) In IRISH law informality is the rule but a considerable number of contracts must be evidenced in writing: contracts of guarantee, contracts for which the consideration is marriage, contracts for the sale of land or an interest therein, contracts that will not be performed within one year (see Statute of Frauds (Ireland) 1964, s. 2), contracts for the sale of goods in excess of £10 (Sale of Goods Act 1893, s. 4) and hire purchase contracts (Consumer Credit Act, 1995, s. 30)

In ITALY writing is required for the sale of land, see CC art. 1350, which includes a number of other contracts regarding land. In GERMANY, BGB § 313 requires a notarial document, as do PORTUGUESE CC art. 875 and SPANISH CC art. 1280. In the U.K., contracts for the sale of land must be in writing and signed by both parties (not by deed - that is required for the conveyance), see Requirements of Writing (SCOTLAND) Act 1995 s. 1 and ENGLISH Law of Property (Miscellaneous Provisions) Act 1989, s. 2. (replacing the earlier requirement that the contract be evidenced in writing; the Statute of Frauds 1664 still requires that guarantees be evidenced in writing). In SWEDEN writing and in FINLAND writing and the signature of an official sales witness are required, see SWEDISH Land Code ch. 4, 1§ and FINNISH Land Code ch. 2, 1§.

In several systems a contract for the sale of land will not transfer the property to the buyer; further formalities are necessary to achieve this.

(cc) Also a promise for a gift, but not a perfected gift, requires form in a number of countries. In FRANCE, BELGIUM and LUXEMBOURG it must be made before a notary, see CCs art. 931; for ITALY, see CC art. 782; for the NETHERLANDS, see BW art. 7A:1719; for GERMANY, see BGB § 518, for AUSTRIA, see the Law on Compulsory Notarial Acts of 1871; for SPAIN see CC arts. 632 and 633; and for PORTUGAL see CC art. 947. In the COMMON LAW gratuitous promises are enforceable only if made in the form of a deed or for a nominal consideration.

In SCOTLAND gratuitous promises not undertaken in the course of business must be in writing, see s. 1 of the Requirements of Writing Act 1995. In the NETHERLANDS a draft for a title on gifts in the BW purports to strike out the present requirement of the old code for a notarial document for a promise to make a gift. Writing will then suffice. In FINLAND and SWEDEN a promise for a gift must be made in writing or made public, for instance in the press, see Finnish Act on Gift Promises § 1 and Swedish Act on Gifts § 1. DENMARK is, as far as is known, the only Union country where a promise to make a gift is valid without any formality.

This enumeration is not exhaustive. In some legal systems mandatory rules require form for some specific contracts such as consumer contracts, for the establishment of companies, loans, guarantees, sales of motor vehicles, employment contracts and tenancies.[page 143]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:102: Intention

The intention of a party to be legally bound by contract is to be determined from the party's statements or conduct as they were reasonably understood by the other party.

Comment

A. Intention

As provided in Article 2:101(1)(a) a contract is only concluded if the parties to it indicate an intention to be legally bound. Parties often make preliminary statements which precede the conclusion of a contract but which do not indicate any intention to be morally or legally bound at that stage.

Sometimes the person who makes a statement intends only to be morally but not legally bound. Depending on the words used and the circumstances, letters of intent and letters of comfort may be regarded as statements which are morally binding only.[page 143]

Illustration 1: When subsidiary company asked the plaintiff bank to grant it a loan of 8 million Euros, the plaintiff asked the defendant parent company to guarantee the loan. The defendant refused, but gave a letter of comfort instead. This read: "It is our policy to ensure that the business of (the subsidiary) is at all times in a position to meet its liabilities to you under the loan facility arrangement". The letter also stated that the defendant would not reduce their financial interests in the subsidiary company until the loan had been repaid. When during the negotiations the plaintiff learned that a letter of comfort would be issued rather than a guarantee, its response was that it would probably have to charge a higher rate of interest. When later the subsidiary company went into liquidation without having paid, the plaintiff brought an action against the defendant to recover the amount owing. The action failed since the defendant had not made a legally binding promise to pay the subsidiary's debt.

However under certain circumstances the person may incur liability when it has acted contrary to good faith, see Article 2:301.

Letters of intent and letters of comfort may also be couched in terms which show an intention to be legally bound.

Illustration 2: Parent company M declares to a bank which lends money to its subsidiary company D that M is aware of D's engagement towards the bank, that by all appropriate means it will see to it that D is able to meet its obligations towards the bank, and that it will give notice to the bank if it wishes to change this policy. Before M has given such notice to the bank D goes bankrupt.

M's letter of comfort is to be considered as a guarantee which obliges M to pay D's debt.

See also Illustration 2 of Comments to Article 2:107. A party's statement is sometimes an invitation to one or more other parties to make an offer. Such an invitation is not meant to bind the party which makes it. It may, however, produce effects later if it has provoked an offer and acceptance which refer to the terms and conditions stated in the invitation. See also Article 6:101.

B. The appearance of intention

Article 2:102 lays down a general principle on the effects of a party's statement or other conduct. They are to be determined as they reasonably appear to the other party. If the party's true intention is actually understood by the other party, the former is bound. The way in which it expressed its intention does not matter. This is in accordance with the rule of interpretation provided in Article 5:101(1) that the common intention of the parties prevails even if this departs from the literal meaning of the words used. In other cases the contract is to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the circumstances, see Article 5:101(2).

Other rules of interpretation such as arts. 5:102, 5:103(a) and (c-f) and 5:104 may also be applied to determine the offer.[page 144]

C. Silence or inactivity

Silence or inactivity will generally not bind a person, see Article 2:204(2). However, exceptions from this rule are provided in several articles of these principles, see for example articles 2:209, 2:210 and 3:208.

Silence and inactivity may also cause a party to lose a right, see for example Articles 4:113, 8:102(3) and 8:303.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Social engagements, engagements involving patrimonial interests, moral engagements

In all the legal systems, a party's intention to be legally bound is a condition of the formation of a contract. Promises given as a joke do not bind. A party is not bound if the other party to whom it makes a statement knows or ought to know that the first party does not intend to be bound.

In all the systems an intention to be legally bound is presumed when the transaction involves a patrimonial interest for the parties, but not when it is only a social engagement, such as a dinner appointment. Friends and family members often offer to help each other, and such offers are not legally enforceable, the help given is not to be paid for, see Kötz, European Contract l18 who cites the ENGLISH case Balfour v Balfour [1919] 2 KB 571, C.A., FRENCH Cass. 19 March 1974 Bull. Cass. I no. 117, and the GERMAN BGH 22 June 1956 BGHZ 21, 102. See also for DENMARK Gomard, Kontraktsret 30 and for IRELAND, Friel 78.

Even in business relations, parties make undertakings which only oblige them morally, not legally. It may follow from the language of an undertaking or be implied from the circumstances that the promisor, or the parties, assumed only a moral obligation, for example if the agreement provides, ‘this agreement shall be binding in honour only', as in the English case of Rose & Frank .v JR Crompton & Bros Ltd. [1925] AC 445, H.L.), see further Cheshire, Fifoot & Furmston 111 f. and 116 f. and, for Ireland, Cadbury Ireland Ltd v Kerry Co-operative Creameries Ltd [1982] ILRM 77, HC. See also notes to Article 2:107 below.

In ENGLAND collective labour agreements are presumed not to be intended to create legal relations: Ford Motor Co Ltd v AUEFW [1969] 2 Q.B. 303, Q.B. In IRELAND statements made obiter in several cases suggest that they are, see Goulding Chemicals Ltd v Bolger [1977] IR 211, SC and Ardmore Studios v Lynch [ 1965] IR 1, HC.

2. Real or apparent intention?

(a) Party bound by apparent intention

Even if in his inmost mind a party had no intention to be legally bound, most of the laws will hold that he is bound if the other party to whom the statement or other conduct was addressed had reason to assume that the first party intended to be bound. Whether this is the case is to be decided under the rules of interpretation, see notes to chapter 5.

The rule is provided in the DUTCH BW art. 3:35: a person's absence of intention cannot be invoked against another person to whom his declaration or conduct was addressed and who gave it a meaning which was reasonable in the circumstances. In AUSTRIA, a similar rule is inferred from ABGB §§ 861 and 863, see Schwimann (-Apathy) § 863 comments 1-4 and § 863 comments 1-2, where the author uses the term "normativer Konsens". In NORDIC LAW, the rule is based on an interpretation e contrario of the Contracts Acts § 32, according to which an error in expression does not bind the promisor if the promisee knew or should have known of the mistake, see for DENMARK Dahl (-Møgelvang) 231 and Gomard, Kontraktsret 56; for SWEDEN, Ramberg, Avtalsrätt 34. In GREECE the rule is based on CC art. 200, which provides that contracts are to be interpreted in accordance with good faith, see AP l340/l977, NoB l978.l053; see also for GERMANY, Larenz/Wolf § 28 Rdnr. 16 ff. In ITALY and PORTUGAL the rules on interpretation apply to ascertain the intention of the parties; good faith and reasonableness play an important part, see on Italy: Bianca, Il contratto 397-402 and on Portugal Almeida, Negocio juridico 719 ff. However, the statement is not binding if the party who made it was convinced that the other party would realize that his statement was not serious or where he was not conscious of having made a statement, see CC arts. 245 and 246.

The same rule applies in the COMMON LAW law. ENGLISH contract law is concerned with objective appearance rather than with the actual fact of agreement. The classic statement of the principle is that of Blackburn J. in Smith v. Hughes (187l) L.R. 6 Q.B. 597, 607: [page 145]

"If, whatever, a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that the other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."

See also The Hannah Blumental, [1983] 1 A.C. 854 (H.L.) and Treitel, Contract 1; for IRISH law, see Friel 78 ff. In SCOTLAND the majority view is to the same effect. In Muirhead & Turnbull v. Dickson [1905] 7 S.C. 686, 694, Lord Dunedin said: "... commercial contracts cannot be arranged by what people think in their inmost minds. Commercial contracts are made by what people say." See also McBryde, Contract 51-54 and 1992 Juridical Review 274; cf. Stewart, 1991 Juridical Review 216 and 1993 Juridical Review 83.

(b) Subjective intention governs

In contrast to most other laws, FRENCH law will only hold a person bound in contract if it is his real intention to be bound, see Malaurie & Aynès, Obligations nos. 347 ff. However, a party alleging that, contrary to his statement, he had no intention to be bound must make this allegation plausible. If he succeeds he is not contractually bound, but may be held liable in damages in tort if he has acted negligently, see Terré, Simler et Lequette, Obligations no. 87, no. 131. The same rules apply in LUXEMBOURG. PORTUGUESE CC arts. 245 and 246 impose liability on a person who acted negligently when making a statement which he did not mean seriously or when making a statement unconsciously, see (a) above.

(c) Divided opinion

In BELGIUM there is one school which sticks to the traditional FRENCH "doctrine of the intention", see e.g. Verougstraete 1195-96, and another school which will apply the same rule as the one in Article 2:102, see van Ommeslaghe, R.D.I.D.C. 1983 144 and M.E. Storme, Tijdschrift voor belgisch burgerlijk recht 1993, 336. The rule in Article 2:102 has been applied by the Cour de Cassation in a decision of 20 June 1988, Pas. 1988 I 1256, where it was held that a principal was bound by an act done by the agent when the third party had reason to rely on the agent's apparent authority; see also Court of Appeal of Brussels 26 May 1996, Tijdschrift voor belgisch burgerlijk recht 1996, 333 where the rule was also applied.[page 146]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:103: Sufficient Agreement

(1) There is sufficient agreement if the terms: (a) have been sufficiently defined by the parties so that the contract can be enforced, or (b) can be determined under these Principles.

(2) However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached.

Comment

A. Agreement on the terms

Where two or more parties conclude a contract agreement must be reached on the terms which are necessary for determining their mutual rights and obligations and which are decisive for each of them.

Thus, sufficient agreement covers two requirements: terms which are determinable, and consensus on disputed terms.[page 146]

B. Terms which are determinable

The parties must have made an agreement the terms of which are so definite that it can be enforced.

Most contracts belong to the usual types of contract (sale of goods, supply of services, employment, insurance, etc.). For these contracts the parties' agreement on the type of contract (e.g. sale) and a few crucial terms (type of goods and quantity) will suffice. If the parties are silent on other issues (e.g. price and quality) these issues will be decided by the rules of Chapter 6, notably Articles 6:104 - 6:108 of these Principles. These issues may also be determined by other means such as usages and practices between the parties, see Article 1:105, or by supplying an omitted term, see Article 6:102.

If it is not apparent what type of agreement is being made, the agreement cannot be enforced unless the parties' essential rights and duties have been agreed upon.

Illustration 1: Two enterprises have entered into negotiations about their "future co-operation in the market". There will be no contract between them until they have agreed upon the essential features of their co-operation, viz. the main rights and duties of both parties.

See also on offers Article 2:201.

C. Terms made essential

An agreement to negotiate a contract (a contract to contract) is in itself a binding contract which entails a duty on both parties to make serious attempts to conclude the planned contract, see also comment A to Article 2:102 on letters of intent. However the parties are not obliged to reach agreement, see Article 2:301(1).

A party may consider a term to be so essential for it that it will make its assent to the contract dependent upon agreement on that point. For example, if the parties bargain over the price of the goods to be sold, they show that the price is a decisive term. Even points which are normally not considered essential points can be made so by one party.

However a party which has made one or more points essential to its assent to the contract may nevertheless accept performance of the envisaged contract by the other party. In that case the contract is to be considered concluded by the conduct of the parties, and the Principles and other factors, see comment B, will supply the disputed terms.

Although two parties have not agreed on all terms they may agree to commence performance of the contract. In that event, the factors mentioned in comment A will supply the missing terms.

Illustration 2: A has negotiated with B to maintain B's computers. Although they have not agreed on A's fee they have decided that A shall begin. After one month they realize that they cannot reach agreement and B asks A to stop. B will have to respect the agreed notice of termination and to pay A a reasonable fee, see Article 6:104.[page 147]

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Terms determinable

Under all the systems, there is only a contract when the terms of the parties' agreement can be determined. The question may arise when the parties have left terms open, see notes to Article 6:104 - 6:107, when they have agreed that they will later make a contract, and when they have made a framework agreement (contrat cadre).

(a) Object required

The Romanistic systems require that a contract has an objet. Art. 1108 of the FRENCH, BELGIAN and LUXEMBOURG CCs makes it a condition for the validity of a contract that the contract has an object which constitutes the subject matter of the agreement; see also the rules in arts. 1126-1130. This object must be legal and determined or determinable. Similar provisions are found in ITALIAN CC art. 1325(3) and arts. 1346-1349, in SPANISH CC arts. 1261 and 1271-1273 and in PORTUGUESE CC art. 280(1).

The purpose of the object is also to prevent agreements where one of the parties arbitrarily fixes the contents of his or the other party's obligation, and the other party is left at his mercy. On recent developments in FRENCH law concerning the price, see notes to Article 6:104 and Ghestin, Formation 516 f.

(b) No requirement of object

Objet is not mentioned as a requirement in the other legal systems. However, as provided in the NETHERLANDS BW art. 6:227, it is everywhere a condition for the formation of a contract that "the obligations which the parties assume are determinable". The parties' agreement must make it possible for a court which is asked to enforce it (either specifically or by awarding damages) to do so, with the help of the terms of the contract and the rules of law, see the UNITED STATES Restatement 2d, § 33, and for AUSTRIA Schwimann (-Apathy) § 869 no. 3 ff.; for DENMARK, Ussing, Aftaler 33; for FINLAND, Kivimäki & Ylöstalo, 167 f.; for GERMANY, RKGK - Piper; Introduction before § 145 Rn. 3; and for GREECE, Full Bench of Areios Pagos 138l/1983, NoB 1984.1193-1194 and Athens 1027/197l, NoB 1971 1277-1278.

The common law of ENGLAND also requires that the parties' agreement is sufficiently definite to be enforced. There is no fixed minimum content ; but if a critical term of the contract is left open or vague, and the court has no way of determining what was intended, the contract will fail, e.g. Scammell & Nephew Ltd v Ouston [1941] A.C. 251, H.L., where an agreement to 'sell' a truck ‘on hire purchase terms' was held to be too imprecise, since the precise terms of the hire purchase were not settled and at that date such contracts took a variety of forms. The rule is the same in IRELAND, see Central Meat Products v. Corney (1944) 10 Ir. Jur. Rep. 34. Also under SCOTS law the contract must be sufficiently clear to be enforceable, see Mc Bryde, Contracts 44-5l.

2. Terms left open

Agreement between the parties to a contract is a condition for its formation. This is expressed in several laws, for instance FRENCH, BELGIAN and LUXEMBOURG CCs art. 1108, ITALIAN CC arts. 1321 and 1325(1) and SPANISH CC arts. 1258 and 1261.

However, the agreement of the parties need not always be perfect. After having ended their negotiations the parties may not have reached agreement on a term. Some point brought up by them or one of them has not been settled. Several of the laws seem to agree on the following rules: If the unsettled point is one which is generally regarded as material, there is no contract until agreement on that point is reached. If the term is generally considered to be immaterial the contract is considered to have been concluded, and the rules of law - or a later agreement - will settle the matter.

Parties may, however, have agreed expressly or by implication that their failure to settle a point which is normally material, such as the price, shall not prevent the contract from coming into existence. In these cases the rules of law will supply the term which the parties have not agreed. Conversely, one part may state or let the other party understand that he considers a term, which is normally held to be immaterial, to be material, and the parties' failure to reach agreement on that term will then prevent the conclusion of a contract, see for AUSTRIA, Rummel, § 869 no. 10; FRANCE, Ghestin, Formation no. 319 ff.; BELGIUM, Kruithof & Bocken 313f.; DENMARK, Lynge Andersen 66 ff.; FINLAND, Kivimäki & Ylöstalo, 188 f. and SGA § 45; SPAIN, Durany, 1059 ff.; and SWEDEN, Adlercretutz I 62.

The DUTCH BW art. 6:225 provides that where a reply which was intended to accept an offer only deviates from the offer on points of minor importance, the reply is considered to be an acceptance and the contract is formed according to the terms of the reply, unless the offeror objects to the [page 148] difference without delay, see also notes to Article 2:208. This principle also covers terms which have been left open without there having been an offer and a reply. In that case the rules of law will decide the issue.

PORTUGUESE law makes no distinction between material and non-material terms. Every term is material if one of the parties consider it necessary for the agreement, see CC art. 232 and Vaz Serra 130 ff.

In the COMMON LAW the parties must have reached agreement, and if some matter is left ‘to be agreed' there will be no concluded contract (May & Butcher Ltd v R [1934] 2 KB 17n, H.L.) unless there are clear indications that the parties intended to be bound nonetheless (e.g. the matter was minor and they have commenced performance: Foley v Classique Couches [1934] 2 KB 1, C.A.). In SCOTLAND there are essentials in law for particular contracts on which the parties must have agreed before there is a contract, see also Rt. J Dempster v Motherwell Bridge & Engineering Co 1964 SC 308; Avintair v Ryder Air 1994 SLT 613.

The GERMAN BGB provides in § 154 that in case of doubt a contract is not concluded until the parties have agreed on all the points on which they or one of them require agreement. § l55 BGB lays down that if the parties regard a contract to have been concluded, without realizing that in fact agreement has not been reached on some term, then what has been agreed upon is binding if it is shown that the contract would have been concluded even without agreement on that term, see Münchener Kommentar (- Kramer) §§ 154, 155; Staudinger (- Dilcher, §§ 154, 155. GREEK CC arts. l95 and 196 has similar provisions as the BGB, see on their application, AP 69/1966, NoB 1966,800; 827/1986, EEN 1987 265, 266 I; Athens 1010/1976, NoB 1976.737, 738 I.

A different question is where the parties have put forward differing proposals and neither has agreed to the other's proposal. On this see the notes to Articles 2:208: Modified acceptance, 2:209: Conflicting general conditions and 2:210: Professional's written confirmation.[page 149]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:104: Terms Not Individually Negotiated

(1) Contract terms which have not been individually negotiated may be invoked against a party which did not know of them only if the party invoking them took reasonable steps to bring them to the other party's attention before or when the contract was concluded.

(2) Terms are not brought appropriately to a party's attention by a mere reference to them in a contract document, even if that party signs the document.

Comment

A. Acceptance required

Under Articles 2:101 and 2:103 a contract is only concluded if the parties have agreed on its express terms. This rule must also apply when a party invokes standard terms or other not individually negotiated terms as part of the contract. The other party can only be held to terms which the first party took appropriate steps to bring to the other's knowledge before or when the latter accepted the contract.

This requirement will be fulfilled when the standard terms form part of the contract document which the other party has signed. It is also fulfilled when the terms are printed on the back side of the letter containing the offer or on a separate enclosure when reference has been made to the standard terms in the offer.

However, terms are not brought appropriately to a party's attention by a mere reference to them in the contract document, even if signed on behalf of that party, unless it knew of them beforehand - for instance, because in earlier similar contracts [page 149] between the parties the other party has brought the terms to the first party's attention; then a reference to them may suffice. If the first party does not know of the terms referred to, they must be included in the document or other steps taken to inform the party of them. It is not sufficient, for instance, to send the terms with the letter which contains the offer without making a reference to them in the letter.

B. Before or at the time of conclusion

General conditions must be brought to the attention of the party when the contract is made or before. Standard terms sent with a supplier's acceptance of the customer's offer may be treated as a modified acceptance, see Article 2:208. Terms which the seller sends with the goods which the buyer has ordered may be considered as accepted by the buyer when it accepts the goods. However, terms sent with a supplier's bill which the customer receives after it has received the performance will not bind the customer.

C. Waiver

A party cannot unilaterally discharge the duty to bring its general conditions to the attention of its contracting partner by a term in its offer or at a notice board in its premises. However, before or after the conclusion of the contract, the other party may waive its right to be informed of the terms, and such a waiver can be implied when under the circumstances it would not be reasonable to require such information.

Illustration: On Friday A sends an advertisement to B, a newspaper, asking B to publish it on Sunday. B receives A's letter on Saturday. It cannot be required to inform A about its general conditions regarding advertising before it publishes the advertisement in the paper.

D. Usage

It may follow from a usage that not individually negotiated terms may be binding upon a party who did not know of them. Thus, in a particular trade, terms which have been published by the association of suppliers as the terms which its members will apply, may be binding upon customers without further steps by suppliers who are members of the association. Such usages may even bind foreign customers, see on usages Article 1:105.

E. Effects

Terms which have been duly brought to the attention of a party will become part of the contract. If a party has not taken appropriate steps to bring the terms to the other party's attention the contract is treated as having been made without the terms.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. In general

The mere reference in the contract document to terms which were not included in the document and which the stipulator had not brought to the notice of the adhering party will generally bind the latter if it knew of them.[page 150]

In ENGLAND, if a party has signed a contract document, all the terms in the document, or referred to in it, form part of the contract (L'Estrange v. F Graucob Ltd [1934] 2 K.B. 394, C.A.) However, the degree of notice given will be highly relevant to whether the terms are unfair under the Unfair Terms in Consumer Contract Regulations 1994 or unreasonable under Unfair Contract Terms Act 1977. If the terms were not in a signed document, they will not form part of the contract at all unless either reasonable notice was given of them when or before the contract was made (Parker v. South Eastern Railway Co (1877) 2 C.P.D 416) or they are incorporated by a course of previous dealing (Hollier v. Rambler Motors AMC Ltd. [1972] 2 Q.B. 71, C.A.) or trade understanding (British Crane Hire Corp. Ltd v. Ipswich Plant Hire Ltd [1975] Q.B. 303, C.A.) See also on the "Red Hand Rule" below.

Some laws like the ITALIAN CC art. 1341(1) provide that general conditions of contract prepared by one party are binding upon the other party if at the time of the conclusion of the contract the latter knew them or, using ordinary diligence, should have known them.

Other countries have general rules which protect both businessmen and consumers. Under AUSTRIAN AGBG § 864a, enacted in 1979, unusual terms in general conditions and standard form contracts which a party uses do not become part of the contract, if, considering the circumstances and the appearance of the contract document, they are disadvantageous and surprising for the other party, unless the stipulator has explicitly referred to them. Art 1135-1 of the LUXEMBOURG CC, as amended in 1987, provides that general contract conditions which have been established in advance by one of the parties, are not binding upon the other party, unless the latter has had the opportunity of acquainting himself with them when he signed the contract, or if under the circumstances he must be considered to have accepted them.

DUTCH BW art. 6:233(b) lays down that general conditions of contract are voidable if the stipulator has not offered the other a reasonable opportunity to take notice of the general conditions. Art. 6:234 enumerates the ways in which the stipulator gives the other party a reasonable opportunity. One way is to give the other party a copy of the conditions before or at the time of the conclusion of the contract. These provisions protect consumers and smaller enterprises.

Under the PORTUGUESE Decree Law 446 / 85 of October 25 1985, art. 5 the stipulator shall communicate the general contract terms in their entirety to the adhering party, and the communication shall be made in an adequate manner and at such an early stage that, taking into consideration the importance, the length and complexity of the clauses, it is possible for a person using ordinary care to acquire complete and effective knowledge of them. Under art. 6 the stipulator must also where appropriate supply all the explanations necesaary of for their clarification.

ITALIAN CC art. 1341(2) provides that in order to be valid, certain contract terms which have been drafted in advance by one of the parties must be specifically approved in writing by the other party. This applies, inter alia, to exemption clauses, cut-off clauses, and jurisdiction and arbitration clauses.

2. The "red hand rule"

In GERMANY and the NORDIC COUNTRIES, the stipulator must give the other party a particularly clear and perceptible notice of unusually burdensome terms. In GERMANY, General Conditions of Business Act of 1976, § 3 protects both consumers and businessmen. In the Nordic countries the rule is based on case law, see for DENMARK, Lynge Andersen 78 ff., for FINLAND, Wilhelmsson, Standardavtal 87 and for SWEDEN, Grönfors, Avtalslagen 40 f.

This rule, which is called the "red hand rule", applies also in ENGLAND, see Interfoto Picture Library Ltd v. Stiletto Visual Productions Ltd [1989] Q.B. 433, C.A., and probably also in SCOTLAND. However, unless the contract is a consumer contract governed by the 1994 Unfair Terms in Consumer Contracts Regulations, which implements the EEC Directive, the "red hand rule" does not apply if the party against whom the clause is invoked has signed the contract document.

3. Rules covering consumers only

The ‘Indicative and illustrative list of terms which may be regarded as unfair' which is annexed to the EEC Council Directive on Unfair Terms in Consumer Contracts of 3 April 1993, and which have been inserted in the Comments to Article 4:110, includes in para. 1(i) a term which has the object or effect of "irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract". This provision seems to presuppose that in the absence of a clause as the one mentioned in 1(i), such inaccessible terms will not be binding upon the adhering party in any of the Member States of the European Union. On the Council Directive on Unfair Terms in Consumer Contracts and the Indicative and illustrative list of terms mentioned above, see notes to Article 4:110.

§ 2 of The GERMAN General Conditions of Business Act of 1976 requires that the stipulator makes express reference to his general conditions of business, and that the other party agrees to them, an agreement which does not need to be express and may be implied from the circumstances, see Münchener Kommentar (-Kötz) I 1816. This provision protects only consumers, see § 24 of the Act.[page 151]

§ 6 of the AUSTRIAN Consumer Protection Act of 1979 contains a provision similar to § 864a of the AGBG dealt with at no. 2 supra.

Under art. 30 of the BELGIAN Act of 14 July 1991 on Commercial Practices and Information and Protection of Consumers, the supplier, acting in accordance with the requirements of good faith, shall provide the consumer with correct and useful information on the characteristics of the goods or services supplied and the conditions of supply, having regard to the information needs expressed by the consumer and the use which he has indicated to make of the good and services or which were foreseeable for the supplier (italics added).

The SPANISH Act of 19 July l984 on Consumers and Users art. 10(1)(a) requires the clauses, terms or stipulations generally applied by the suppliers to be written in a specific, clear and simple language which may be easily understood without resort to texts or documents not provided prior to or at the time of conclusion of the contract, and to which in all events an express reference shall be made in the contractual document.

The GREEK Law 2251/1994 on Consumer Protection requires that the stipulator brings the standard terms to the consumer's attention so that the consumer is able to learn their contents.[page 152]

Go to PECL Abbreviations || Go to PECL Bibliography || Go to full texts of Parts I & II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 2:211: Contracts Not Concluded through Offer and Acceptance

The rules in this Section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance.

Comments

A. Other Models than the Offer and Acceptance Model

The conclusion of a contract may not always be separated into an offer and an acceptance. The parties may start with a letter of intent or a draft agreement made by one party or a third party. Then follow negotiations either in each other's presence or in an exchange of letters. Or they start by sitting down together to negotiate, sometimes with rather vague ideas of where they will end. It is not easy to tell where in this process the parties reach an agreement which amounts to a binding contract, see Comments to Article 2:201. The same may be true of the many contracts that are made by conduct alone, as when a motorist parks his car in a car park and gets a ticket from a machine or a traveller takes out travel insurance by putting money into a slot machine and receiving the policy from the machine.

B. Application of Section 2

The rules in section 2 cannot always be applied to such other models. Sometimes, however, they may apply:[page 187]

Illustration 1: Two parties meet to draft a written contract. When they have made the draft they agree that each party shall have two weeks to decide whether it will accept it. The draft is treated as an "offer". If after the two weeks each of them has not received the other party's acceptance there is no contract. The same applies if before that time a party receives the other's rejection. If during the respite a party makes proposals for additions which materially alter the terms of the draft, this is to be treated as a rejection and a "new offer".

Illustration 2: After conclusion of an oral agreement the counsel for two professional parties is asked to submit a written contract. She then sends both parties a draft accompanied by a letter saying that she considers this to be their agreement unless she does not hear from any of them. The draft contains the terms which the parties had agreed upon and some additional terms which reflect usual commercial practices in the trade. The rule in Article 2:210 applies so that the parties will be bound by their silence.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

The conclusion of a contract by way of an offer and acceptance is, as was mentioned in the notes to Article 2:201, the principal model in all the legal systems. Other models are only sparsely regulated in the statutes, and several of the problems are not solved in the case law, see for ENGLAND Treitel, Contract 45-47.

It seems, however, to be universally agreed that the rules on the principal model apply by way of analogy to the other models, in so far as this is possible and reasonable. In the civil law countries this follows from the general principle of analogous application of the laws. The authors are in agreement on this; see for GERMANY, impliedly Larenz/Wolf 8 ed. 574 f. and 592 f.; for DENMARK, Lynge Andersen 85 ff.; and for SWEDEN, Grönfors, Avtalslagen 35 f. This also appears to be the position in ENGLAND, see Treitel, Contract 45-47.

See generally Schlesinger II, 1583-1620.[page 188]

Go to full texts of Parts I & II of Principles of European Contract Law


© Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
Go to PECL Bibliography || Go to PECL Schedule of Abbreviations
Comments/Contributions