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Reproduced with the permission from 27 American Journal of Comparative Law (1979) 311-323

[This is a commentary on provisions on Formation of the contract, contained in the 1978 Draft. Except as indicated by an Editor's note added to this text, there are only minimal differences between the 1978 Draft provisions on Formation of the contract and the provisions on Formation of the contract contained in the CISG.]

excerpt from

Problems of Unifying Law on the Formation of Contracts for the International Sale of Goods

Gyula Eörsi

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Receipt Theory v. Dispatch Theory

A classic instance of conflict between the Common law and the Civil law is posed by the following case: A posts an offer to B. B immediately posts a letter of acceptance to A, but B's letter is seriously delayed (or lost) in transmission. Are the parties bound by contract?

The classic Common law rule is that in these circumstances a contract was completed when the offeree (B) posted the acceptance; the risk of delay or loss in transmission falls on the offeror (A) when the offeree dispatched an acceptance by a medium expressly or impliedly authorized by the offeror. Most Civil law systems take the opposite view. Closer study reveals variations among the approaches of Common law and Civil law countries; and one also must take into account rules on the revocability of offers which, under both legal systems, minimize the practical consequences of any difference between rules on the moment of acceptance.[l9] Nevertheless, the classic conflict between "receipt" and "dispatch" theory complicated UNCITRAL's work on uniform formation rules.

Behind the debate over the receipt and dispatch theories lurks this situation: For some time one party knows something the other party does not know; during this time both parties are exposed to the risk of an irregularity beyond the control of either party. In the specific setting of contract formation, under the dispatch theory their regularity does not affect the effectiveness of the declaration, while the receipt theory will affect its effectiveness.

Both alternatives have substantially equal justification -- or lack of justification. In fact either of the parties acting in good faith might be at a disadvantage.

For the most part, the Draft Convention, in accordance with Civil law tradition, applies the receipt theory. The offer (art. 13(1) [became CISG art. 15(1)]), the withdrawal of an offer (art. 13(2) [became CISG art. 15(2)]), the revocation of an offer (art.14(1) [became CISG art. 16(1)]), and the acceptance by declaration (art. 16(2) [became CISG art. 18(2)]) all become effective only when they reach the other party. Art. 22 [became CISG art. 24] makes clear when a declaration must be presumed to have reached the addressee.[20]

There is ground for objecting to the rule of art. 18(1) [became CISG art. 20(1)] that when the offeror by letter fixes a period of time for acceptance, the period begins to run from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. The significant point is that the date on the envelope can be relied on only if there is no date on the letter. When there is a discrepancy of several days between the dates on the letter and the envelope, it is probable that the latter date is authentic. The offeror either antedated his letter or negligently posted it only after the lapse of several days. If recourse is had to this provision, the offeree might find himself at considerable disadvantage. In extreme cases, even the whole period of time for acceptance might expire before the letter reaches the offeree; in any case the time for acceptance will be shortened.[21]

In one important situation the Draft Convention does not follow the receipt theory. Under art. 16(3) [became CISG art. 18(3)] "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 paragraph (2) of this article." Here something like the dispatch theory is followed: the offeree may be protected when he dispatches the goods, although he would not be protected by dispatching a letter of acceptance if the letter is delayed in the mails and reaches the offeror late.

The adoption of the dispatch theory in this case might be justified by the fact that the receipt of the goods as soon as possible would be in the interest of the buyer. In addition, acts related to sending goods or paying the price usually involve a more serious change of position, calling for legal protection, than sending a letter. Moreover, the declaration of acceptance might involve a waste of time, and is not important to the buyer. Finally the special provision for acceptance in art. 16(3 [became CISG art. 18(3)] is available only pursuant to the terms of the offer or in accordance with usage or practices established between the parties.

On the other hand, it should be noted that in the world of the Telex the loss of time involved in sending an acceptance is usually negligible. Further, in practice the seller would be expected to notify the buyer that he has sent the goods, especially when the goods will be en route for an extended period of time. Under paragraph (2) a notice that the goods have been sent, or some other "indication" of assent, would qualify as a notice of acceptance. It may, therefore, be argued that paragraph (3) is superfluous.[22]

Revocation of Offer or Acceptance

Under the receipt theory, since an offer or acceptance is not effective on dispatch it is still subject to withdrawal. As we shall see, the Draft Convention restricts "revocation" of offers, but these restrictions do not apply to the withdrawal of an offer that is not yet effective; on such withdrawal, the offer is stillborn.[23]

Withdrawal is barred where the dispatch theory is applied; the declaration becomes effective on dispatch. This approach also applies when assent is indicated under art. 16(3) [became CISG art. 18(3)] (discussed above) by "performing an act." Here the offer cannot be withdrawn, nor is there need to apply rules restricting revocation: performance of the act is an acceptance of the offer, and a contract has been made.

On the other hand, where the receipt principle is applied, the written offer or its acceptance is not effective unless it reaches the other party. It can therefore be withdrawn before it has reached the other party, and also, for similar reasons, when the offer and its withdrawal or when the acceptance and withdrawal reach the other party at the same time -- e.g., by the same mail (Arts. 13(2), (20) [became CISG arts. 15(2), 22]).

If therefore the offer has become effective, the question may be asked whether it may be revoked. This question cannot emerge in connection with the acceptance, for once the acceptance has become effective the contract is in being and a revocation is out of the question.

The General Rule: Revocability

Art. 14 [became CISG art. 16] of the Draft Convention opens with the following general rule: "(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance." [24] However, this general rule favoring revocability is subject to two exceptions, one of a Civil law and one of a Common law nature.[25] Unlike the above compromise between the dispatch and the receipt theories, this compromise inclines more closely to the Common law.

The cardinal question under the general rule is this: How long will the offer be revocable? The answer appears to be a simple one: The offer is revocable until the contract is made, i.e., until the acceptance is effective. However, in the event of revocation by a letter or telegram, the application of this rule is far from simple. Thus, a revocation may reach the offeree when he has already dispatched the acceptance, but the acceptance has not yet reached the offeror. At this point, art. 14(1) [became CISG art. 16(1)] of [the] draft Convention favors the moment of dispatch: "An offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance." [26] Yet, as we have seen, assent may also be indicated by "performing an act"; such an act concludes a contract.

The question arose whether acts like payment of the price may be construed to amount to the "dispatch of acceptance." To meet this problem, art. 14(1) [became CISG art. 16(1)] (quoted above) opens with the words, "Until the contract is concluded. . . ." Unfortunately the relationship between the two parts of art. 14(1) [became CISG art. 16(1)] is not perfectly clear. It is necessary to recall the basic principle: Until the contract has been made, the offer may be revoked, subject to exceptions set forth in art. 14 [became CISG art. 14]; one of these exceptions is that the right to revoke terminates when the offeree "has dispatched an acceptance." The puzzle is that, under art. 16(2) [became CISG art. 16(2)], the mere dispatch of an acceptance does not conclude a contract but does end the offeror's power to revoke his offer.

The uncertain position of the offeror under this rule can lead to problems. The offeror cannot know when his revocation reached the offeree, and even less when the offeree "indicated" his assent by "performing an act." Therefore, it might be useful to state in the Convention that the offeree is bound to give notice if the revocation has reached him late. The requirement (rejected by UNCITRAL) that the parties act in good faith would be helpful in dealing with such problems; it is doubtful whether the good faith clause hidden in art. 6 [became CISG art. 7(1)] among the rules on the interpretation and application of the Convention could be fully effective. Perhaps the most helpful avenue would be to draw an analogy from art. 19(2) [became CISG art. 21(2)], which requires the offeror to notify the offeree when, owing to abnormalities in transmission, an acceptance posted in due time arrives late and the offeror considers that his offer has lapsed.

Exceptions

The draft on formation prepared by the Working Group set forth three exceptions from the general rule of revocability. The first two were: "(a) if the offer indicates that it is firm or irrevocable; or (b) if the offer states a fixed period of time for acceptance."

These exceptions, particularly the second, provoked extended discussions at the 1978 session of UNCITRAL. One delegation strongly urged that when the offer states a fixed period for acceptance, the businessmen of Common law countries would interpret this to mean not only that the offer would terminate at the end of this period, but also that during this period the offer was revocable at any time.[27] When it was suggested that such a reading of the offer would be inconsistent with the statutory rule, the delegation replied that in the relations between the businessmen of two Common law states, the meaning they give to their own contract must be respected.

Following this discussion, UNCITRAL contracted points (a)-(b)(quoted above) of the Working Group draft into a single provision in art. 14(2)(a) [became CISG art. 16(2)(a)]: An offer cannot be revoked, "if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable."

To some, this wording will seem similar to point (a) in the Working Group Draft (the so-called Civil law position). Nevertheless, the delegation in question concluded that, under the compromise version, when the sellers and buyers of Common law countries state a fixed time for acceptance, this in itself would not necessarily indicate that the offer was irrevocable. It might however be asked whether such a position would be consistent with the requirement of art. 6 that "in the interpretation and application of the provisions of this Convention regard is to be had to . . . the need to promote uniformity. . . ."

The Draft Convention sets forth a second exception from the general rule of revocability -- an exception "of Common law character" based on reliance. Under art. 14(2)(b) [became CISG art. 16(2)(b)] an offer cannot be revoked "if it was reasonable for the offeree to rely upon the offer as being irrevocable and the offeree has acted in reliance on the offer." The main significance of this rule is the protection it gives an offeree "who had to carry out investigations or make inquiries before deciding whether to accept an offer.[28] The Civil law affords such protection, in a manner characteristic of the Civil law (as does the ULF (art. 5(2)), by prohibiting revocation in bad faith. However some delegations from Civil law countries opposed the above-quoted reliance rule of art. 14(2)(b) [became CISG art. 16(2)(b)]; its wording seemed unusual to Civil law jurists. It is true though that similar protection could be derived from the provision in art. 16(2) [became CISG art. 18(2)] which makes the period of time within which the acceptance can effectively reach the offeror dependent (inter alia) on the "circumstances of the transaction." In view of the compromise character of the article, the opponents acquiesced and agreed to art. 14 of the Draft Convention [became CISG art. 16].[29]

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FOOTNOTES

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19. See Schlesinger, Formation of Contracts -- A Study of the Common Core of Legal Systems, Vol. I: 158-163, Vol. II: 1437-1441 (English), 1446-1463 (French), 1464-1473 (Austrian, German, Swiss). See also UCC 2-206(1)(a).

20. Art. 22 of the 1978 Draft Convention [became CISG art. 24] provides: "For the purposes of Part II of this Convention an offer, declaration of acceptance or any other indication of intention ‘reaches’ the addressee when it is made orally to him or delivered by any other means to him, his place of business or mailing address, or, if he does not have a place of business or mailing address, to his habitual residence." This provision is by far more explicit than the comparable provision of ULF art. 12(1): "For the purposes of the present law, the expression ‘to be communicated’ means to be delivered at the address of the person to whom the communication is directed."

21. ULF art. 8(2) provides that attention should be given only to the "day the letter was dated," i.e., the time here criticized.

22. It is clear from the text that the "performance of an act" must be such as to indicted assent. See v. Caemmerer, supra n. 5 at 124, and ULF Art. 6(2).

23. ULF (art. 5(1), (2)) uses the terms "withdrawal" and "revocation" in connection with the offer in the same way as the Draft Convention. In connection with acceptance it speaks, however, of "revocation" in situations comparable to those for which it refers to "withdrawal" of an offer.

24. ULF art. 5(2), (cf. the Rome draft) also opens with a general rule that an offer "can be revoked." See v. Caemmerer, supra n. 5 at 199, who remarks that the hardest nut to crack for ULF was the question of the binding force of the offer. The same may be said of UNCITRAL’s draft. Also see Herber in Dölle (ed.), Kommentar zum Einheitlichen Kaufrecht, art. 5, I.1 (1976).

25. In art. 5(2) ULF there is only a "Civil law" exception; as we shall see, both ULF and the Draft Convention on this point speak "the language of the Common law."

26. See also art. 4(4) of the Rome draft, art. 5(4) ULF.

27. A/CN.9/XI. CRP.18, add. 9. para. 5.

28. Id., para. 9.

29. A proposal that the reliance rule of art. 14(2)(b) [became CISG art. 16(2)(b)] would be applicable only "if the offeror knew that the offeree had relied on the offer or if this reliance derived from an act of the offeror" did not receive the required support. Id. para. 10.

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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