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GUIDE TO ARTICLE 17

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 17 with PECL Article 2:203
CISG Article 17


An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.

PECL Article 2:203 [Rejection of Offer]
(complete and revised version 1998)

When a rejection of an offer reaches the offeror, the offer lapses.


Editorial Remarks

Remarks on the manner in which the Principles of European Contract Law
may be used to interpret or supplement Article 17 of the CISG

Cecila Carrara and Joachim Kuckenburg [*]

February 2003

1. Introduction
2. Scope of Application
3. Conflicting Declarations
4. Implicit Rejection

a) Rejection by implied terms
b) Rejection by conduct
5. Obligation to Negotiate in Good Faith?

1. Introduction

Art. 17 CISG forms part of the set of rules (Arts. 15 to 18 CISG) which provides for grounds upon which the offeror, after having dispatched his offer, may be freed from the binding effects of his offer and therefore reallocate the resources committed. Before the offer has reached the offeree, the offeror may withdraw the offer (Art. 15(2) CISG). Arts. 16 to 18 CISG contemplate actions which can be taken after the offer has reached the offeree: the offeror may revoke the offer unless it is irrevocable (Art. 16). The offeror is also freed from his offer upon the expiry of the time for its acceptance (Art. 18(2), 2nd and 3rd sentences CISG). Art. 17 CISG further foresees, as a cause of termination of the offer, an initiative emanating from the offeree, i.e., the rejection of the offer.

Art. 2:203 PECL, in almost identical terms as Art. 17 CISG, regulates the same issue. There are two minor differences in the wording, i.e., on the one side, Art. 17 CISG contains the clarification that the general rule, whereby the offer terminates when the rejection reaches the offeror, applies also if the offer is irrevocable; on the other side, Art. 17 CISG uses the word "terminate" as opposed to the term "lapse" in Art. 2:203 PECL. This second difference is of no significance, since no regulatory difference may be inferred from the use of the words "terminate" or "lapse". With respect to the first difference, it can be observed that the clarification contained in Art. 17 CISG, i.e., "even if irrevocable", was inserted because this rule was not applicable in all legal systems [1]. However, the Comments and Notes on Art. 2:203 PECL state that the same is true for the latter although this has not found its way into the text of the PECL.

2. Scope of Application

Both Arts. 17 CISG and 2:203 PECL only deal with the issue of termination of the offer through rejection of the same by the offeree. Other causes for termination of the offer, such as death, incapacity or insolvency of the offeror, are by intent not covered under the CISG.[2] The PECL do not address the issue either. Accordingly, given the absence of a specific rule for these cases, they need to be resolved on the basis of the applicable national law.[3]

3. Conflicting Declarations

Both Arts. 17 CISG and 2:203 PECL make it clear that the rejection must reach the offeror within the meaning of Article 24 CISG: mere dispatch of the rejection is not sufficient. In case of contradicting declarations by the offeree (acceptance sent after rejection or vice versa), the declaration which first reaches the offeror is effective.[4] Where the contradicting declarations reach the offeror at the same time, the latter may only rely on the declaration which has been sent the latest as this corresponds to the real intent of the offeree.[5]

4. Implicit Rejection

Both commentaries to the texts specify that the offeree's rejection does not need to be express, but may be implicit, including by conduct. Of course, the determination of whether a certain statement or conduct amounts to a rejection is a question of interpretation (Art. 8 CISG).

     a) Rejection by implied terms

Art. 19 CISG, by providing that an acceptance in terms which materially alter the offer "is a rejection of the offer" and "constitutes a counter-offer", takes care of most of the situations. By the clear wording of Art. 19 CISG, an acceptance which must be considered as a counter-offer terminates the initial offer.

By contrast, an acceptance which does not materially alter the terms of the offer, only amounts to a rejection if the offeror thereto objects (Art. 19(2) CISG).

Thus, there is in general no room for considering that the initial offer may survive a negotiating process conducted on the basis of such initial offer without the offeree losing the benefit thereof.[6] For example, if A offers to sell x quantity for (a) price to B and B answers to be ready to buy 2x quantity for 2(a) - 10% discount, what happens if A does not react to the answer? According to Arts. 19(1), (2) 1st sentence, (3) and 17 CISG, B has implicitly rejected A’s offer and may not rely on it any longer.

If, however, B’s statement should be interpreted to the effect that B accepts the initial offer, but would indeed prefer to make the deal on the basis of his proposed terms, it is suggested that a first contract -- on the terms of the initial offer -- is concluded, but that its effectiveness depends upon whether A accepts B’s counterproposal, within the time of acceptance. If A does accept B’s counterproposal within such time, only the second contract is concluded and the first contract never becomes effective.

     b) Rejection by conduct

The CISG, the PECL and the respective commentaries do not address the issue of whether the offeree's conduct implying rejection of the offer may be directed towards a third person rather than towards the offeror, and yet free the latter. For example, this may arise in a bid situation where the issuer of the bid invites a plurality of irrevocable offers (Art. 14(2) CISG). Offeror A may learn that the issuer of the bid (i.e., the offeree) has accepted the offer of a competitive bidder, offeror B. Does this imply the rejection of A's offer?

The answer depends on whether the issuer of the bid has a legitimate interest to rely on the irrevocable offer of several bidders, having them all bound for the entire duration of the offer.

If the issuer of the bid has accepted B’s offer, generally A should be considered freed from his offer. It would in fact not be comprehensible why A, once aware of the fact that he has been ruled out, should still commit his resources to the benefit of the issuer of the bid. This same conclusion should apply even in cases where the issuer of the bid has reserved a right of withdrawal from the first contract (or has reserved a trial period), unless it is clear from the terms of the bid that the purpose of soliciting irrevocable offers was precisely that of granting the issuer of the bid a fall-back solution.

If, however, the issuer of the bid has selected B’s offer only for entering into further negotiations, A should not be considered freed from his offer. Indeed, the very purpose of a bid is to keep available the resources of all bidders within the time frame initially fixed in the bid until one offer only is finally accepted.

5. Obligation to Negotiate in Good Faith?

The example proposed above under 4 a) shows that the CISG system tends to lead to "take it or leave it" situations, whenever there is a reply to an offer which purports to be an acceptance but contains modifications: indeed, if the modifications are substantial, the purported acceptance is a new offer which must, in turn, be accepted to form a contract; but even if the modifications are not substantial, the offeror may withdraw from the negotiations by simply objecting to the reply of the offeree (Art. 19(2) 1st sentence CISG). It appears that this rule may provide a pretext for the offeror to interrupt the negotiations at any time, even in cases where the proposed modifications to the initial offer are of no material relevance. May the offeror be held liable towards the offeree, who may have relied on the conclusion of the contract?

Whilst the CISG does not contain any specific rule concerning the parties’ liability for breach of an obligation to negotiate in good faith, Art. 2:301 PECL provides that a party negotiating or breaking off negotiations contrary to good faith is liable for the losses caused to the other party.[7]

The CISG does not regulate the issue of pre-contractual liability [8] (including the sub-categories of unjustified interruption of the negotiations, misrepresentation, entering into negotiations without any real intention of coming to the conclusion of the contract, etc.[9]). Indeed, the CISG deals with the negotiations only in order to determine whether a contract has been concluded or not. May pre-contractual liability nevertheless find its way in the system of the CISG by virtue of Art. 7(2) CISG, considering that Art. 2:301 PECL recognizes such liability as a general principle?

It is submitted that Art. 7(2) CISG is not applicable to this situation because pre-contractual liability is a matter which is not governed by the CISG and therefore the absence of a rule on the issue does not constitute a gap. However, even if one were to consider that a general duty to negotiate in good-faith could be read into the system of the CISG, the latter does not provide for a specific remedy in case of breach of such a duty: clearly, Art. 74 CISG is not applicable because its plain wording limits it to damages for breach of contract. In addition, the Comments to Art. 2:301 PECL, para. G, expressly state that the party in good faith cannot claim to be put in a situation in which it would have been if the contract had been correctly performed (positive interest), but the damages which it may claim are limited to the costs and expenses incurred (negative interest).[10] This limited protection does not fit in with Art. 74 CISG, which allows for recovery of full damages, as it is always the case for damages out of breach of contract.

However, an additional question may arise, namely whether the absence of any specific provision on pre-contractual liability must be interpreted to the effect to exclude any recourse to national applicable laws.[11] The answer, once more, is provided by the fact that pre-contractual liability simply falls outside the scope of the CISG: Art. 2:301 PECL shows that pre-contractual liability is a widely recognized principle and the party in good faith should be able to have recourse to extra-conventional remedies under national law.

[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) 307-311.]


FOOTNOTES

* Avv. Cecilia Carrara is a research fellow at the CERADI - Luiss Guido Carli University in Rome and an Italian attorney, of counsel to the law firm MACCHI CELLERE GANGEMI; Joachim Kuckenburg, FCIArb, is a German attorney in the Paris law-firm De Busschère Kuckenburg.

1. Secretariat Commentary to Art. 15 of the 1978 Draft Convention [Art. 15 of the 1978 Draft Convention and Art. 17 of the CISG are identical], no. 1, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-17.html>. However, it is worth noting that, already in 1964 during the preparatory works for the 1964 Hague Convention on the Uniform Law for the Formation of Contracts (ULF), the UNIDROIT Commission expressly rejected the proposal to include such a proviso considering that it was "so evident that it would seem superfluous" (Honnold, Uniform Law for International Sales, 3rd ed., The Hague, 1999, p. 169, fn. 2). The same rule is contained in Art. 15 of the Code Européen des Contrats which states, under para. 2: "L'offre, même si irrévocable, cesse d'avoir des effets à partir du moment où parvient à l'auteur une déclaration de refus de la part du destinataire, fût -elle jointe à une nouvelle offre" (Code Européen des Contrat, coordinated by Gandolfi, Milano, 2001).

2. Rapport du Groupe de travail sur la vente internationale des objets mobiliers corporels sur les travaux de sa 9ième session (Genève, 19-30 septembre 1977, Doc. A/CN.9/142 n. 283).

3. Cf. P. Schlechtriem, in: Schlechtriem, Commentary on the UN Convention on the International Sales of Goods (CISG), 2nd edition (in translation by G. Thomas), Oxford 1998, p. 125, Art. 17, note 6: "[...] domestic law continues to govern the effects of such events on an existing offer." Schlechtriem goes on to state: "At most where an offer has already become binding owing to the dispatch of an acceptance, could it be argued, in accordance with the prevailing view in may legal systems, that the offer has become "so depersonalised" that at least the offeror's death or lack of capacity cannot prevent the conclusion of a contract. However, Article 7(2) does not permit recourse to general legal principles derived from a comparative study of the law, but only to the principles upon which the Convention is based. On the other hand, not only does the Convention not contain any principles concerning that problem, but it basically assumes that questions of legal capacity continue to be governed by domestic law. The position must be the same as regards the fate of an offer which has become irrevocable in such cases."

4. Cf. Enderlein/Maskow, International Sales Law, New York-London-Rome, 1992, Art. 18, no. 15, p. 91, available online at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art18.html>, "Consequently, if the offeree accepts the offer, for instance by telex, before his letter containing a rejection has reached the offeror, a contract is made."

5. According to Heuzé, in: La vente internationale des marchandises, Paris, 2000, p. 162 : "des articles 15 et 22 il paraît pouvoir être déduit sans témérité que la convention de Vienne a entendu ériger en principe général la règle suivant laquelle l’auteur d’une expression de volonté peut valablement revenir sur celle-ci, dès lors qu’il met son correspondant en mesure de connaître son changement d’intention avant, ou en même temps que sa position initiale."

6. This rigidity is criticized by Heuzé, op. cit., p. 163, "cette solution n’est sans doute pas très opportune, dans la mesure où elle décourage la négociation, puisqu’elle expose le destinataire de l’offre à ne plus pouvoir accepter celle-ci, s’il a au préalable vainement tenté d’obtenir une modification de ses conditions."

7. See also Art. 2.15 UNIDROIT Principles.

8. Stoll, in Schlechtriem, Commentary on the UN Convention on the International Sale of Goods, Oxford, 1998, Art. 74, n° 10; Bonell, Vertragsverhandlungen und culpa in contrahendo nach dem Wiener Kaufrechtsübereinkommen, RIW 1990, p. 693 et seq..

9. The elaboration and definition of the different sub-categories of pre-contractual liability vary in each national legal system, e.g. for Anglo-American legal systems see Farnsworth, Pre-contractual Liability and Preliminary Agreements: Fair dealing and Failed Negotiations, Col. L. Rev. 1987, p. 218 et seq.; Kessler & Fine, Culpa in contrahendo, Bargaining in good faith and Freedom of contract: A comparative study, Harv. L. Rev. 1964, p. 401 et seq.; for Italy, Patti, Responsabilita' contrattuale, Il Codice civile commentato, Giuffré 1993; Bianca, Diritto civile 3, Il Contratto, Giuffré 1994, p. 159 et seq.; for Germany, new § 311(2) BGB codifying the institute of culpa in contrahendo, cf. Koller, in Koller/Roth/Zimmermann, Schuldrechtsmodernisierungsgesetz 2002, München, 2002, p. 63-64; Faust, in Huber/Faust, Schuldrechtsmodernisierung, Einführung in das neue Recht, München, 2002, pp. 69-72; Huber, in Huber/Faust, op. cit., pp. 387-390.

10. This reflects the general position in the various legal systems recognizing pre-contractual liability.

11. According to Schlechtriem, op. cit., Introduction to Arts. 14-24, no. 6, fn. 36, the possibility to go back to national remedies should be possible "only in cases where the parties have not been moving towards a contract through corresponding offer and acceptance.", since Arts. 16 and 17 CISG regulate the issue to the exclusion of all other national rules.


Comment and notes on PECL 2:203

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) 168.


COMMENT AND NOTES: PECL Article 2:203: Rejection of Offer

When a rejection of an offer reaches the offeror, the offer lapses.

Comment

When a rejection of an offer reaches the offeror, the offer lapses, even if the offer is irrevocable under Article 2:202(3) and even if the time for acceptance has not yet run out.

The rejection need not be express but may be implied by the offeree’s conduct, for instance if the offeree makes a counter-offer or states that it would consider a lower bid or a smaller consignment than the one offered.

An acceptance which contains a modification of the offer may be, but is not always, a rejection, see Article 2:208.

A rejection may be withdrawn provided that the withdrawal - whether accompanied by an acceptance or not - reaches the offeror before or at the same time as the rejection, see Article 1:303.

A promise which need not be accepted may be rejected, see Comment B to Article 2:107.

An offer will normally also lapse if, when the time for acceptance provided in Article 2:206 has run out, the offer has not been accepted.

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

In most if not all the countries of the Union, an offer lapses if it is rejected, see for instance, the NORDIC Contracts Act § 5; the GERMAN BGB § 146; GREEK CC art. 187; for PORTUGAL, Cordeiro 1, 606; and see also CISG art. 17 and the UNIDROIT Principles art. 2.5.

The rejection takes effect when it reaches the offeror so that, as stated in art. 235(2) of the PORTUGUESE CC, the offer will be regarded as accepted if an acceptance which is dispatched later than the rejection reaches the offeror before or at the same time as the rejection.

Similar rules apply in countries where there is no statutory provision on rejection, see on SCOTLAND Mc Bryde, Contract 64 f. In ENGLAND it is probable that the offer lapses if the rejection reaches the offeror before an acceptance sent earlier by the offeree reaches him, even if the acceptance was posted, and therefore would have concluded the contract, before the rejection reached the offeror, see Treitel, Contract 41. There is no case authority for this rule. In IRELAND there is, see Kelly v. Cruise Catering [1994] 2 ILRM 394. [page 168]

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