Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 169-171 Reproduced with permission of the publisher, Kluwer Law International, The Hague.
[See also Honnold Text, Formation of the Contract (Articles 14-24):
Introduction to Part II of the Convention.]
§152 The role of this brief article (quoted below) can be illustrated as follows:
Example 17A. On May 1 Seller delivered to Buyer an offer that stated: "I will hold this offer open until June 1." On May 7, Buyer delivered to Seller the following: "I cannot accept your offer since the price is too high," but on May 10 he delivered to Seller the following: "I hereby accept your offer of May 1." Seller immediately informed Buyer that this "acceptance" was not effective because of the earlier rejection; Buyer replied that this was not true because Seller had promised to hold the offer open.
This issue is settled by the following provision:
"An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror."
§153 A. Explicit Rejection
In the above example, Buyer’s rejection of May 7 "terminated" the offer even though it would otherwise have been binding until June 1; there was no contract. In such cases, Article 17 avoids doubt that might arise from the rule of Article 16 that the offer was "irrevocable." In addition, the rule that a rejection terminates an offer is supported by practical considerations. When an offer is rejected the offeror has no reason to expect that the offeree will change its mind; Article 17 enables the offeror to make plans promptly and make maximum use of its resources.[page 169]
The approach of Article 17 is widely supported in civil law systems, and probably in most common-law jurisdictions. Decisions in the United States have held that one who has purchased an option for a specified term does not destroy the "option" by a rejection. However, most of these cases involve situations, like the rental of premises with an option to purchase, where substantial value has been given for the option and forfeiture or substantial loss would result from termination of the option. There is ground for skepticism that courts would extend this approach to an offer to sell or buy goods which becomes irrevocable merely on the basis of a statement that the offer is "firm." (See UCC 2–205 quoted under Art. 16, supra at §141.)  In contrast to these doubts, Article 17 is clear.
§155 B. "Acceptance" that Modifies an Offer Followed by Unqualified Acceptance
An offeree can create difficult problems by a response that is not a clearcut acceptance or rejection; the ambiguity may be a bargaining tool in the attempt to secure better terms while trying to hold the offer open. Whether an "acceptance" that includes modifications is an acceptance or a rejection is addressed by Article 19 and can best be considered under that article. However, the link between Articles 17 and 19 can be usefully illustrated at this point:
Example 17B. On May 1 Seller made the "firm" offer that was described in Example 17A. On May 7 Buyer delivered the following: "I accept your offer, as evidenced by my purchase-order which is enclosed." The purchase-order included a provision that the parties agreed to binding arbitration of any dispute arising under the contract; Seller’s offer did not refer to arbitration. On May 8, Seller replied that he could not accept the Buyer’s proposal and that the offer had terminated. On May 10, Buyer notified Seller: "I hereby accept your May 1 offer without qualification."[page 170] Seller immediately responded: "As I informed you on May 8, my offer has been terminated."
As we shall see more fully in examining Article 19, Buyer’s May 7 communication, although it "purported to be an acceptance", probably was a "rejection" because of the additional material term and, in any event, gave Seller the power to terminate its offer. (Cases where the parties proceed with performance: Art. 19 at §167.)
§ 156 C. Rejection Overtaken by Acceptance
Example 17C. On May 1 Seller made an offer as in Example 17A. On May 7 Buyer mailed a rejection but on May 8, before the letter reached Seller, Buyer phoned (or telexed) to Seller as follows: "Ignore my May 7 letter. I accept your offer." Seller contended that Buyer’s letter of May 7 terminated the offer.
Article 17 states that an offer is terminated when a rejection "reaches" the offeror. Similarly, under Article 18(2), infra at §161, an acceptance becomes effective when the indication of assent "reaches" the offeror. In Example 17C the acceptance reached the offeror before the rejection, and a contract was concluded.[page 171]
FOOTNOTES: Chapter on Article 17
1. This Article is the same as Art. 15 of the 1978 Draft Convention. There is no comparable provision in ULF; see note 2, infra.
2. In 1964 a proposal that ULF should include a provision like Art. 17 was rejected by the UNIDROIT Commission: "This solution is so evident that it would seem superfluous to state it." II Records 1964 Conf. 473, 474.
3. I Schlesinger, Formation 127 (general report). Civil law, II id. 1013 (various E. Eur. countries), 1018–1020 (France; renunciation of "option" must be unequivocal), 1022–1025 (Austria, Ger. & Sw.), 1035–1036 (Italy; rejection of option contract must be very clear), 1041 (Poland), 1043 (So. Af.). Common law: 1014–1015 (Eng., Aus., Can. & N.Z.), 1029 (India); Farnsworth, Contracts 174–175.
4. See MacNeil in II Schlesinger, Formation 1005–1008. Cf. Restatement, Second of Contracts §37. The UCC does not deal with this question; answers must be developed from relevant common-law principles which, in cases like Example 17A, may include estoppel.
5. The principle that a communication that is en route may be nullified by another communication that arrives first is also illustrated in Arts. 15(2) and 22. On "general principles" of the Convention, see Art. 7(2), supra at §85.