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Reproduced with permission from 23 International Lawyer (1989) 443-483

excerpt from

Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods

Alejandro M. Garro [*]


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Perfection of Sale Contracts

A classic instance of theoretical conflict between common law and civil law approaches is found in the area of formation of contracts. The classic civil law approach is that an acceptance is not effective, hence the contract is not perfected, until it reaches the offeror,[47] thus placing the risk of transmission of a written offer on the offeree. Because the offeree was the party that selected the medium of communicating the acceptance, the offeree is considered in the best position to insure against possible delays and hazards. The common law takes the opposite view, according to which a contract is completed when the offeree dispatches the acceptance.[48] Accordingly, the risk of delay or loss of the acceptance rests on the offeror, provided the offeree dispatched the acceptance by a medium expressly or impliedly authorized by the offeror.[49]

This difference of approach proved to be of minor practical consequence. According to article 18(2) of the Convention, an offer is effective when it reaches the offeror.[50] However, article 16(1) of the Convention provides for the most important consequence of the common law "mail-box rule," that is, an offer may not be revoked if the revocation reaches the offeree after it has dispatched an acceptance.[51] Thus, while receipt is crucial for the effectiveness of the offer, dispatch remains the standard to determine the timeliness of its revocation. Moreover, in one important situation the Convention does not follow the receipt theory. According to article 18(3), the acceptance is effective at the moment the offeree indicates assent by performing an act, "such as one relating to the dispatch of the goods or payment of the price." Therefore, although the Convention adopts the receipt theory for the most part, a closer look at the practical consequences of the provisions on the formation of contract reveals a well-balanced compromise between civil law and common law principles.

Irrevocability of an Offer with a Fixed Time for Acceptance

Most civil law systems operate under the assumption that when one makes an offer, the offeror impliedly gives the offeree a reasonable time to consider it and respond. Accordingly, in most civil law systems offers are presumed to be irrevocable for a reasonable time unless otherwise indicated by the offeror.[52] In contrast, the common law approach has been to grant the offeror the freedom to abandon the deal until the formation process of the contract is quite advanced.[53] This is the general approach taken by the Convention in article 16(1), which sets forth the common law presumption of revocability.[54]

Having made a concession by agreeing on the general principle of revocability, delegates from civil law countries urged their common law counterparts to agree that where a businessman states in his offer a particular period during which the offer is to remain open, the offeror should be held accountable during that period of time. Thus, article 16(2) of the Convention carves out two important restrictions to the general principle of revocability. First, it provides that an offer is irrevocable "if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable." Second, offers on which the offeree has acted in reliance are also irrevocable.[55]

The first exception from the general rule of revocability provoked extended discussions at the 1978 session of UNCITRAL. One delegation from a common law jurisdiction urged that when the offer states a fixed period for acceptance, 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.[56] This observation is consistent with traditional common law principles, according to which an offer may be revoked until it is accepted unless the offeree has paid consideration. Article 2 of the Uniform Commercial Code distinguishes between a firm offer, which cannot be revoked, and a merely open offer, which lapses at the end of the stated time but can be revoked at any time.[57]

This distinction has not been adopted in most civil law countries, where every "open offer" is a "firm offer" simply because it expressly states that it is irrevocable or implicitly indicates so by stating a fixed period for acceptance. When a delegation from a civil law jurisdiction answered that such a peculiar reading of an open offer would be inconsistent with the plain meaning of article 16(2)(a), another delegate from a common law country replied that in the relations between the businessmen of two common law States, the meaning they give to their own contract must be respected.[58]

The language adopted in article 16(2)(a) is described in the summary of UNCITRAL deliberations as a compromise, but its drafting history indicates that at least two interpretations of this provision are possible. For a civil law lawyer it is obvious that if a fixed time for acceptance of the offer is stated, as provided under article 16(2)(a), this indicates that the offer is irrevocable until the expiration of the stated period, though not thereafter. For a common law lawyer, the time fixed for acceptance only means that an answer has to be given within this period: more precise language would be necessary to make the offer irrevocable.[59]

Therefore, the compromise solution of article l6(2)(a) does not bridge the gap between common law and civil law conceptions on the irrevocability of offers that state a fixed time for acceptance: the compromise only covers it up.[60] The offer is not likely to be treated as irrevocable when a trader in one common law country states a fixed time for acceptance to a trader in another common law country,[61] but it will be deemed irrevocable if the parties are from civil law countries.[62] Should each party belong to a different legal tradition, then the irrevocability of the offer must be ascertained under a closer analysis of the language of the parties' communications and the volitional context in which they were made.[63] Obviously article 16(2)(a) is not likely to help the parties in a specific situation by indicating when it is too late to withdraw from an offer, for which reason this compromise has been strongly criticized.[64] This is a clear example of a "compromise" entered into with mental reservations on each side, each one keeping its own view on what was agreed.

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Go to entire text of Garro commentary


FOOTNOTES

* Alejandro M. Garro, Lecturer in Law, Columbia University. This paper was submitted to the 81st Annual Meeting of the American Association of Law Libraries, June 26-29, 1988.

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47. See, e.g., German Civil Code art. 130: Swiss Federal Code of Obligations art. 5; see also Mexican Civil Code for the Federal District art. 1807; Venezuelan Civil Code art. 1137.

48. At common law, the so-called "mailbox rule" which makes a written acceptance effective upon dispatch, dates back tot he beginning of the 19th century. See Adams v. Lindsell, 1 Barn & Ald. 681 (K.B. 1818). In this case, the offeror misdirected the offer, thus delaying the offeree's acceptance. After dispatch of the acceptance, but before its receipt, the offeror had sold the goods to a third party. Upon a claim for damages, the court ruled for the offeree because the mishap occurred as a result of the offeror's neglect.

49. See Rosett, supra note 25, at 283 (noting that the so-called "mailbox rule" raises the issue of consideration and the traditional Anglo-American notion that contracts are bargains, according to which a contract is perfected by the delivery of the bargained for equivalent of the promise).

50. The offer, the withdrawal of an offer, the revocation of an offer, and the acceptance by declaration all become effective only when they reach the other party. Convention, supra note 3, arts. 15, 18 22-23. Art. 24 makes clear when a declaration must be presumed to have reached the addressee. See J. Honnold, Uniform Law, supra note 13, at 186-87.

51. For a comprehensive discussion of the Convention's provisions on formation of contracts, providing examples of their practical consequences, see Winship, Formation, supra note 39, at 14.

52. See, e.g., German Civil Code art. 147; Swiss Code of Obligations art. 5 (offer irrevocable during the time the offeror may reasonably expect to receive an answer); see also Mexican Civil Code for the Federal District art. 1806; Venezuelan Civil Code art. 1137.

53. See E. Farnsworth, Contracts 3.17, at 148-51 (1982); Restatement (Second) of Contracts 42, at 113-15 (1979) [hereinafter Restatement Contracts]. The offeror's freedom to revoke an offer enjoyed at common law has been limited by open-ended doctrines such as promissory estoppel. See, e.g., U.C.C. 2-205 (1977); N.Y. Gen. Oblig. Law 5-1109.

54. Convention, supra note 3, art. 16(1): "Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance."

55. Id. art. 16(2). See generally Winship, Formation, supra note 39, at 7.

56. See Eörsi, supra note 30, at 321 (citing U.N. Doc. A/CN.9/XI. CRP. 18. add. 9. para. 5).

57. Section 2-205 of the UCC provides:

"An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror."

58. Eörsi, supra note 30, at 321; Eörsi, supra note 4, at 354; see also Date-Bah, supra note 44, at 58:

"At the Plenipotentiary Conference, some of the common law delegations suggested that in a transaction between traders from common law countries in which the offeror fixed a time for lapse of the offer and was so understood by the offeree not to have made an irrevocable offer, this would be a situation where the stating in an offer of a fixed time for its acceptance could not be interpreted by a reasonable court to mean that the offer was irrevocable. This result could easily be reached by a common law court; but it is to be doubted whether a civil law court would come to this conclusion."

59. The different viewpoints on this provision are summarized in Report of the United Nations Commission on International Trade Laws on the work of its eleventh session (New York 30 May - 16 June 1973), [1978], 9 UNCITRAL Y.B. 41 U.N. DOC. A/CN. 9/SER.A/(1978):

" 135. In support of this proposal [the compromise text ultimately adopted in art. 16(2)(a)], it was stated that the principal test to determine that an offer could not be revoked was whether the offer indicated that it was irrevocable. Whether the offer was irrevocable could be determined by the fact that it stated a fixed time for acceptance or otherwise. However, the mere fact of stating a time for acceptance would not automatically lead to the result that the offer was irrevocable if, under the circumstances of the case, such a result was not intended. In particular, it was said, where a merchant from one common law country made an offer to a merchant from another common law country, the fixing of a time for acceptance without more would not indicate that the offer was irrevocable."

" 136. However, there was considerable support for the view that the interpretation placed on the words of the text by its proposers was unjustified. It was considered that this text clearly adopted the rule that, if the offer stated a fixed time for acceptance, it automatically was irrevocable.

" 137. The Commission decided to accept the wording of the compromise proposal. . . ."

60. Eörsi, supra note 4, at 355.

61. The parties' communications, of course, must be examined in light of their course of dealing and usage of trade. Convention, supra note 3, arts. 8, 9. Moreover, under art. 16(2)(b), the offer will be deemed irrevocable if the offeree reasonably believed the offer was irrevocable and acted in reliance on this belief. Winship, Formation, supra note 39, at 8-9. See also Eörsi, supra note 4, at 356 (stating that subparagraphs (a) and (b) of art. 16(2) are not two different cases of irrevocability, but (a) expresses "continentally" when the common law "reliance doctrine" incorporated in (b) may come into action.

62. See Feltham, supra note 32, at 352.

63. See generally Winship, Formation, supra note 39, at 8 (furnishing an example where the offeror used the word "lapse" while fixing a time for acceptance, thus inferring that the offeror did not intend to make an irrevocable offer because the word "lapse" at common law merely refers to an "open" offer and not to one inteded to be irrevocable). But see Eörsi, supra note 30, at 321 (indicating that an offer which states the time for acceptance must be deemed irrevocable regardless of the parties' subjective intent, because art. 7 of the Convention requires that it be interpreted with due regard to "the need to promote uniformity").

64. Rosett, supra note 25, at 291-92 (pointing out that "identification of the moment in the course of negotiation at which it is too late to turn back produces the most significant variations in attitudes toward formation"). Rosett adds, id. at 292:

"The question of intention and of indications of intention raises the whole problem of cultural expectations about which no worldwide agreement exists. As a result, the provisions of the Convention defining an offer and its revocability are unclear. This indefiniteness is not due solely to the lack of clarity or conflicting nature of the terms of the Convention, but to the fact that different parties continue to entertain conflicting understandings of what the terms mean."

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