Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 172-181. 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.]
§157 The first four articles of Part II deal with the offer; we turn now to the acceptance. This initial article sets forth the criteria and also the time and manner for an acceptance.
"(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
"(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
"(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph."
§ 158 A. Criteria for Acceptance
Under paragraph (1), an acceptance is effected by a statement or other conduct of the offeree "indicating assent." The words "indicating" and "assent" epitomize the two major problems of contract formation: (1) communication and (2) agreement. The present article concentrates on problems of communication; Article 19, infra at §165, addresses questions concerning assent.[page 172]
Paragraph (2) of Article 18 governs the time when an acceptance becomes "effective"—a concept that paragraph (2) uses in stating rules on whether an acceptance is too late to form a contract. The time when an acceptance becomes "effective" is also employed to decide whether an offeree may withdraw an "acceptance" after transmission (Article 22, infra at §177) and to specify the time when a contract is concluded (Article 23, infra at §178).
§159 B. Indication of Assent; Communication
In connection with assent the Convention uses a delicate term—"indicating." A stronger word such as "stating" would not have been appropriate since assent may be shown not only by a "statement" but also by "other conduct." The mode of expression is unrestricted but communication of assent in some form is essential. This is suggested by the statement in paragraph (1) that "silence or inactivity" does not in itself amount to acceptance and, more clearly, by the rule in paragraph (2) that the indication of assent must "reach" the offeror. (At §161, infra, we shall consider whether paragraph (3) deviates from this principle by providing that, in some circumstances, the offeree "may indicate assent by performing an act.")
Principles of fair dealing do not permit an offeror to impose on the offeree the duty to reply. Such is the predominant rule of domestic law. The Convention’s approach, embodied in Article 18(1), may be illustrated as follows:
Example 18A. On June 1 Seller sent Buyer an offer to sell a specified type and quantity of goods at a stated price, and added: "This is such an attractive offer that I shall assume that you accept unless I hear from you by June 15." Buyer did not reply. Seller shipped the goods on June 16.[page 173]
By virtue of Article 18(1), no contract was formed and Buyer may reject the goods. This provision states that silence or inactivity does not "in itself" amount to acceptance, and thus indicates that in special circumstances silence may constitute acceptance. This possibility may be explored in the following setting:
Example 18B. On June 1 Buyer delivered the following to Seller: "Please rush price quotation for the following goods [specifying quantity and quality]. If you do not hear from me within three days after I receive your quotation, consider your offer as accepted." Seller delivered the quotation to Buyer on June 3; Buyer did not respond until June 10, when he objected to the prices that Seller had quoted.
In this case, Buyer’s silence was an acceptance of Seller’s offer. Unlike Example 18A, where the offeror tried to force the offeree to respond, the duty to respond was here assumed by the offeree—the one who failed to respond. The provision regarding silence in Article 18(1) is no barrier: Article 6 permits the parties to "derogate from or vary the effect" of any of the provisions of the Convention. Buyer proposed that if Seller sent a quotation Buyer would be bound if he failed to reply within three days, and Seller sent the quotation with this understanding. (If Seller had shipped the goods before Buyer objected to Seller’s price quotation, the problem could have been solved under paragraph (3), which provides for acceptance by performing an act. See infra at §163.)
Under Article 9 the parties are also contractually bound "by any usage to which they have agreed and by any practices which they have established between themselves." (Art. 9, supra at §114.) In Example 18A, an applicable usage or practice that no response was required could provide a basis for the making of a contract without an explicit response to the offer. Intriguing questions are presented by domestic rules on the effect of silence after receiving a letter "confirming" the terms of an "agreement" that had not been finalized. These domestic rules vary and present distinct problems of relationship to the Convention. To the extent that these rules create rebuttable presumptions regarding the actual practices of the parties or usages of the trade, questions of incompatibility with Article 18(1) are avoided by Article 9 which gives contractual effect to such practices and usages. However, more serious problems are presented by [page 174] rules that reach beyond Article 9 since they may invade and conflict with the Convention’s rules on formation of the contract. Assume, for example, that in a transaction between parties in States A and B, only State B has a rule of law giving effect to silence after receipt of a letter of confirmation. In this setting application of the domestic rules of State B raises serious questions of conflict with Article 18 and the Convention’s basic goal (Art. 7) to achieve uniformity in application.
Decisions on silence and duty to reply: (1) USA, U.S.D.Ct. S.D.N.Y., Filanto v. Chilewich, 789 F. Supp. 1229, 984 F.2d 58 (1993): B’s offer, including a master agreement for arbitration in Russia, was not promptly answered by S. Course of dealing (Art. 8(3)) gave S a duty to respond promptly; S was bound by the above agreement. CLOUT 23, UNILEX D.1992-9. See Brand & Flechtner, 12 JLC 239 (1993). (2) Cf. GER. OLG Köln, 22 U 202/93, 22 February 1994: S offered to terminate a contract with B; B did not reply. Under Art. 18(1) silence alone is not effective, but here conduct of the parties was binding. CLOUT 120, UNILEX D. 1994-6. (3) SWITZ. HG K Zürich, HG 940513, 10 July 1996. After agreement on the price for printed chips, S (Ger.) notified B (Switz.) of an increase in price because of higher production costs; B did not reply. S sued B to recover the price, including the price increase notified by S. The court rejected S’s claim for the increase in price; under CISG 18(1) & (3) B’s silence (absent other conduct) did not give consent. CLOUT 193. (For the court’s decision on interest see Art. 78.) See: Schlechtriem, Com. (1998) 129-130.
Domestic rules on Letters of Confirmation: BELG. Rechtbank v. Koop., Hasselt, A.R. 2532/93, 24 January 1995. Wilvorst...v. Erarts. One issue: Did CISG apply? The seller (S) was located in Germany, a party to CISG; the buyer (B) was located in Belgium, not then a party to CISG. The conflict (PIL) rules of the Belgian forum pointed to Germany; pursuant to CISG Art. 1(1)(b) the Convention would apply. However, the German seller (S) argued that CISG was excluded by a clause in S’s standard terms, which S had sent B after the conclusion of the contract, and that B had not objected to this provision. The Belgian court applied German domestic law on letters of confirmation, and held that this standard term was binding to exclude the Convention. UNILEX D. 1995-1.0. (Query: When, as in the above case, the law of a Contracting State is applicable, should a forum apply that State’s domestic law or the law of the Convention? Under the latter view, the rules applicable to the seller’s standard term would, e.g., be CISG Article 9(1) on usages and practices [page 175] of the parties and Article 9(2) on international usages. On letters of confirmation, see Bonell/Ligouri, ULR (1997-3) 587-588, n.79-84, and fn. 4, supra.); Schlechtriem, Com. (1998) 99-101, 127-128, 138-139.
§ 161 C. Time Limits for Acceptance
Paragraph (2) of Article 18 provides that acceptance is not effective unless and until the offeree’s "indication of assent reaches the offeror" and that this communication must take effect within prescribed time limits.
Paragraph (2) states that an "oral" offer (when the parties speak face-to-face or over the telephone) "must be accepted immediately unless the circumstances indicate otherwise." (The most normal and decisive "circumstances" that indicates "otherwise" would be the offeror’s consent to a later reply.) In other cases, if the offeror has not fixed a time, the reply must be received within "a reasonable time" in the light of all the circumstances. As has been suggested at §144, a delay that permits the offeree to speculate at the offeror’s expense may not be "reasonable," particularly in the light of Art. 7(2) ("good faith" at §95).
Work on this article encountered two competing theories concerning the time when an acceptance becomes effective: the "dispatch" (or "post-box") theory and the "receipt" theory.
We have met the "dispatch" theory in connection with attempts by the offeror to revoke his offer. (Art. 16 supra at §140.) In that setting the rule that an acceptance is effective when it is dispatched has been useful to limit the offeror’s power to revoke an offer—a power that has been given wide latitude (even when the offeror promised not to revoke) by the common-law doctrine of "consideration." Article 16(2), as we have seen, gives effect to the offeror’s promise not to revoke. Once this specific problem was solved, it was possible to consider whether the "dispatch" or "receipt" approach is more appropriate for the problem presented by [page 176] the delay or loss of a communication sent by the offeree. This problem can be illustrated as follows:
Example 18C. On June 1 Seller mailed to Buyer the following letter: "I offer you, for your prompt acceptance, the following goods: (details as to quantity, price, etc.)." The mails between Seller and Buyer normally require a week for delivery and Seller’s offer reached Buyer in due course on June 8. On June 9 Buyer mailed a letter to Seller accepting the offer. The letter was properly addressed and stamped but it was lost in the mails; Seller learned of the letter a month later when Buyer complained that the goods had not arrived.
Article 18(2) provides that an acceptance "is not effective if the indication of assent does not "reach" the offeror within the time he has fixed." (In Example 18C the offeror asked for "prompt acceptance.") Article 18(2) puts the risk of transmission on the offeree—the one who sent the message; in Example 18C, the acceptance was not "effective" within the time limit fixed by the offer. (The result would be the same if the offeree’s reply, after a month’s delay in the mails, had reached the offeror. However, under Art. 21(2), the offeror must notify the offeree that the offer has lapsed when the late acceptance shows that the period of transmission has been abnormal. See the Commentary to Art. 21, infra at §176.)
Should the hazards of communicating an acceptance fall on the sender (the offeree) or on the addressee (the offeror)? The balance of interests is about even but the following considerations may tip the scale. When the transaction reaches the point of acceptance, delays or mishaps in communication become crucial, for acceptance creates a duty of performance, and failure to perform leads to disappointment and legal liability. The "receipt" principle calls for special care by the sender, and the sender has a greater opportunity to know whether the medium he uses is then subject to hazards or delays. At any rate, the "receipt" approach is widely followed in the civil law world, and the reasons that contributed to the common-law "dispatch" or "post-box" approach have been met by the Convention’s rules (Art. 16) restricting revocation by the offeror.
§163 D. Assent by Performing an Act
Paragraph (3) confronts the difficult questions that arise when the offeror requests performance of an act rather than a verbal acceptance or promise. It will be prudent to start with a relatively simple illustration:
Example 18D. On June 1 Buyer delivered to Seller the following: "Please rush shipment of the following goods: (description of the [page 177] goods)." On June 2 Seller shipped the goods to Buyer. The next morning (June 3) Seller drafted a telex to Buyer informing him that the goods were on the way. Before Seller could transmit the telex, Buyer phoned Seller and said: "Do not ship goods ordered June 1." Seller replied that it was too late to countermand the order since the goods had already been shipped. Seller’s telex of the shipment reached Buyer on June 3 and the goods arrived on June 20. Buyer rejected the goods on the ground that there was no contract.
Under the Convention it seems clear that a contract was formed and the Buyer is liable to Seller for breach of contract. Buyer’s instruction "rush shipment" would invoke Article 18(3): "by virtue of the offer...the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods."
In addition, as we shall see infra at §164, the same result follows from the rules on revocability in Article 16(2)(b). In view of the request for prompt shipment, "it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer" by shipping the goods. Thus Article 16(2)(b) and 18(3) respond to the same interest; the protection of one who changes position in reliance on a request contained in an offer.
Example 18E. On June 1 Seller received a letter from Buyer dated May 28 requesting Seller to ship certain goods, at a price that was specified in Seller’s catalogue. Seller did not reply to Buyer’s offer but dispatched the goods on June 2. Normal delivery time was two weeks, and the goods arrived in Buyer’s city in due course on June 16. On that date the carrier notified Buyer that the goods had arrived. When the carrier notified Buyer that the goods had arrived, Buyer notified both Seller and [page 178] the carrier that he would not accept the goods since Seller had failed to accept Buyer’s offer and added that, in the meantime, he had procured substitute goods.
Seller would rely on paragraph (3) of Article 18: "By virtue of the offer" Seller had "indicated assent by performing an act" (dispatching the goods) and thereby had closed a contract. Buyer would reply that paragraph (3) must be read in conjunction with the more general rule of paragraph (2) which states that an acceptance becomes effective only when "the indication of assent reaches the offeror," and that this must occur "within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror." Moreover, under Article 18(3) acceptance "is effective at the moment the act is performed" only if the offer has authorized not only "assent by performing an act" but also assent "without notice to the offeror".
This issue of acceptance by an act without notice needs to be examined in relation to the limits on the time for acceptance by communication. Article 18(2) states: "An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction..." Let us assume that in Example 18E Buyer’s order had stated, "Your acceptance of this offer must reach me by June 18"; in the alternative, assume that "the circumstances of the transaction" lead to the conclusion that June 18 would be a "reasonable time". Either assumption, of course, leads to a quick solution for Example 18E since Seller’s acceptance reached Buyer on June 16 via the carrier’s notice that the goods had arrived.
Let us now suppose that Buyer’s offer, or the "reasonable time" required by Article 18(2), sets June 8 as the time within which Seller’s acceptance must reach Buyer to be "effective". An acceptance by letter or telex that reached Buyer on June 16 would not be "effective": Buyer’s offer had expired (lapsed) on June 8. On the same assumption that the "reasonable time" under Article 18(2) was June 8, does Article 18(3) on "assent by performing an act" mean that Seller’s shipment on June 2 alone constituted an "effective" acceptance? The answer should be No; Buyer should be bound by contract only if notice of shipment or other indication of acceptance reaches him by June 8. A different result would be required only if (e.g.) Buyer’s offer (Art. 18(3)) or the parties’ practices or trade usage authorized acceptance by shipment alone without notification within a specified or reasonable time.
We now return to the unadorned facts of Example 18E. In the absence [page 179] of special circumstances, Buyer may reject the goods. This case is unlike Example 18D, in which Buyer’s request to "rush shipment" should be understood to authorize immediate shipment with notice delayed until the following day. In Example 18E Buyer’s request to ship could arguably authorize shipment followed promptly by phone or telex notice, but nothing in Buyer’s order or the circumstances of the case can be construed to authorize a two-week delay in notification: Seller should have realized that Buyer needed to know whether Seller was sending the goods so he could decide whether to order the goods elsewhere.
This conclusion is consistent with the theme that runs throughout Article 18—that an acceptance calls for communication; Paragraphs (1), (2) and (3) all state that the offeree must "indicate assent." The indication of assent can be communicated via the act itself—by the prompt arrival of the goods or by a notice that the act has been performed. The statement in paragraph (3) that the offeree "may indicate assent by performing an act...without notice to the offeror means that if an act (arrival of goods), or a communication that the act has been performed, gives the offeror the information he needs within the time he needs it, the offeree has made a contract without a separate communication that he promises to ship and thereby "assents" to the offer of a contract. Article 18(3) thus preserves the substance of the Convention’s theme that acceptance calls for communication. What the Convention does is to relax the form of the communication sufficiently to permit the offeree safely to take prompt action in response to an offeror’s request.
Does interpreting Article 18 to require timely communication create danger for an offeree (either seller or buyer) who takes action invited by an offer before he communicates acceptance? The danger in this setting would come from the offeror’s revocation of the offer. As was noted at §163, supra, this problem is met by Article 16(2): "an offer cannot be revoked... (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer". For discussion of this provision see §144, supra.
Let us examine the combined effect of Articles 16(2)(b) and 18(2) & (3) if the Buyer-offeror in Examples 18D and 18E attempted to revoke [page 180] the offer. In Example 18D, on June 1 Buyer said "Please rush shipment" and Seller shipped the goods on June 2. Article 16(2)(b) would bar Buyer’s attempt to revoke his offer on June 3, even though Seller had not yet telexed notice of the shipment. On the other hand, in Examples 18D and 18E suppose that Seller promptly shipped the goods but Buyer received no notice of acceptance or shipment, from either Seller or the carrier, until after the expiry of a time for acceptance prescribed by Article 18(2). In this setting the combined effect of Articles 16 and 18 leads to the conclusion that Buyer is not bound by contract and may reject the goods. (Suppose Buyer attempts to revoke his offer before the Article 18(2) period for acceptance has expired. In this setting Seller, if he has not already done so, can then give notice of the shipment and of his acceptance of Buyer’s order.)
Revocation of an offer after the goods have been dispatched to a distant point can place the seller in an awkward position with respect to the disposition of the goods. However, a seller can (and normally will) avoid this difficulty by giving the buyer prompt notice that the goods will be, or have been, shipped.[page 181]
FOOTNOTES: Chapter on Article 18
1. Art. 18 of the Convention is the same as Art. 16 of the 1978 Draft Convention, except for a drafting change in paragraphs (1) and (2). Cf. ULF 2(2), 6 and 8.
2. Sutton, Formation of Contract: Unity in International Sales of Goods, 16 U. W. Ont. L. Rev. 113–121 (1977); Cigoj, International Sales: Formation of Contracts, 23 Neth. Int. L. Rev. 257, 267–268 (1976); Farnsworth, Formation of International Sales Contracts, 110 U. Pa. L. Rev. 305, 324 (1962); Houin, Sale of Goods in French Law, in Comp. Sales (I.C.L.Q.) 16, 22; Corbin §§72–75; Restatement, Second of Contracts §69. Cf. Laufer, Acceptance by Silence: A Critique, 7 Duke Bar Assn. J. 87 (1939).
3. If one of the parties has its place of business in a State that, by a declaration under Article 96, has preserved its domestic rules as to written form (cf. Arts. 11 and 12), it would be necessary to consider whether those rules are applicable to the contract and, if so, whether they are satisfied by the written communications set forth in Example 18B. See Art. 12, supra at §128.
4. See Esser, Commercial Letters of Confirmation, 18 Ga. J. Int. & Comp. L. 427 (1988).
5. An offer by a medium as instantaneous as telex is not "oral", both under the normal understanding of the word and pursuant to Art. 13: "‘writing’ includes telegram and telex." However, under Art. 18(2) "the rapidity of the means of communication employed by the offeror" will bear on what is a "reasonable time" for reply.
6. Domestic law: Farnsworth, Contracts 152–155, §3.19; Cigoj, supra n.2 at 297; Sutton, supra n.2 at 138; Restatement, Second of Contracts §41(1) and (2); Corbin §§35–36.
7. Domestic rules dealing with acceptance by an act: Cigoj, supra n.2 at 288; Farnsworth, supra n.2 at 324; Sutton, supra n.2 at 137–139; Schmidt, supra n.7 at 15–19; I Schlesinger, Formation 141–143 (general report), II id. 1203–1296 (individual reports). See ULF 6(2): acceptance may consist of "despatch of the goods or of the price...." ULF appears in Appendix D.
The (U.S.A.) UCC (§2–206(1)(b)) states: "an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods...." This rule on how the offer "shall be construed" provides less leeway for construction of the offer than Art. 18(3) but reaches the same result as the Convention in cases like Example 18D.
8. The importance of communication between the parties is a theme that recurs frequently in the Convention. Examples are given in the discussion of the "general principles" of the Convention in the Commentary to Art. 7, supra at §100.
9. As was mentioned under Example 18D, supra at §163, revocation of an offer may be barred under Art. 16(2)(b) by action in reliance on the offer. In any event, sending the goods or the price may constitute the "dispatch" of an acceptance which, under Art. 18(1), cuts off the power of revocation.
10. The importance of the Article 18(2) time limits for acceptance to avoid speculation at the other party’s expense has been discussed under Article 16 at §144, supra.