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Reproduced with permission from 6 Temple International and Comparative Law Journal (1992) 193-215

excerpt from

Contract Formation under the United Nations Convention on Contracts for the International Sale of Goods and the Uniform Commercial Code: Pitfalls for the Unwary

Burt A. Leete [*]

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The Offer

1. Price and Definiteness

The CISG is more restrictive and at the same time less comprehensive than the U.C.C. in its treatment of the offer -- the first part of the contract formation process. There is some debate concerning the degree of definiteness that the CISG requires for a statement to qualify as an offer, particularly concerning the specificity of price. At least part of the ambiguity of the CISG in this area stems from the effort to compromise the contrasting approaches taken by different legal systems.

The common law requires a statement to be "definite" in order to qualify as an offer.[36] Statements which do not contain the price or quantity of goods are subject to being construed as lacking sufficient definiteness to qualify as an offer.[37] Similarly, the French civil law system, for instance, provides that a contract of sale which does not give a definite price is null and void.[38] During the negotiations at the Convention, socialist countries also desired specificity with regard to price; further, developing countries did not favor open price terms because of the uncertainty as to terms regarding raw materials.[39]

The Uniform Commercial Code, on the other hand, has a number of provisions that liberalize the common law rule so that the offer need not specifically state a number of items, such as price [40] and quantity,[41] which would be fatal to the formation of a contract if not addressed under the common law. The U.C.C. states that "[e]ven though one or more of its terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy."[42]

As a result of these two positions, the United Nations Conference enacted language stating that "[a] proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price."[43] Dissatisfied, the United States found this language to be too restrictive and attempted to amend Article 14(1) to state "[a] proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance."[44] The United States' proposal, consistent with the approach taken by the U.C.C., would have deleted any reference to the necessity of a provision to determine the quantity and the price.[45] However, similarly dissatisfied, other UNCITRAL members found Article 14(1)'s language to be too permissive. In an effort to strengthen the language to require at least some reference to price and quantity, the United Kingdom and Norway submitted amendments with language stating that "[a] proposal is sufficiently definite if it contains terms relating to matters such as the goods, the quantity or the price which enable the offeree to decide whether or not to accept the proposal."[46] Both the United States' amendment, and those of other countries, were rejected.[47] The intent of these amendments seems to have been to require a proposal mandating more specificity with regard to quantity and price than the language that was enacted. However, the result is something of a compromise between the two positions.

There was also some controversy among the participants at the 1980 Convention regarding the required amount of definiteness.[48] The conflict about the degree of definiteness required for an offer was not resolved by amending Article 14(1), which is located in the section of the CISG dealing with contract formation, but rather by enacting Article 55, located in the section dealing with buyer obligations.[49] The purpose of the original language of Article 55 proposed by the drafters was to provide "a means for the determination of the price when a contract has been validly concluded but the contract does not state a price or expressly or impliedly make provision for its determination."[50] Several countries favoring language requiring greater specificity as to price made attempts to eliminate this provision but those amendments were rejected.[51]

The effect of Article 55 on the requirement for the statement of a definite price in the offer is the subject of some debate. Some argue that when Articles 14(1) and 55 are read together, there can be an enforceable contract without stating the price while others believe that since Article 55 begins with the phrase "[w]here a contract has been validly concluded," the provision does not apply in the case where an offer does not refer to the price of the goods.[52] The circular reasoning of the latter argument is that since Article 14(1) requires a statement of price in order to have an offer, the language of Article 55 has no effect because there cannot be a "contract . . . validly concluded" unless there is an offer which in turn requires some explicit or implicit reference to price.[53]

Until subsequent case law clarifies the issue, perhaps the most significant point for drafters of contracts in this area to note is that the matter is open to question. The approach taken by the CISG on this matter is certainly far different from that taken by the U.C.C.. For instance, there is no provision in the CISG similar to Section 2-305 of the U.C.C. regarding open price terms. This section makes it quite clear that a contract can be concluded if the parties have the requisite intent, "even though the price is not settled."[54] In fact, under the U.C.C. a contract can be concluded if "nothing is said as to price."[55] This is far different from CISG Article 14(1) which requires an implicit or explicit reference to price.[56] Despite Article 55, and given that all of the proposed amendments to Article 14(1) were rejected, a reasonable interpretation of the CISG is that the offer need not specifically state price but must make reference to a standard for determining it.[57] Thus, a communication could be considered an offer under the U.C.C. even though there is no reference as to price. Conversely, under the CISG, the communication would not ripen into a contract because of the omission of a standard for determining price.

Despite this contrast, it seems that even under the CISG a specific price need not be stated, as long as a means for determining it exists. Clearly, a reference to a catalogue would make it implicit that the buyer is willing to pay the catalogue price.[58] The Commentary on the Draft Convention on Contracts for the International Sale of Goods clarifies the intent of the drafters when it states the following in regard to what was eventually adopted as Article 14(1):

"It is not necessary that the price could be calculated at the time of the conclusion of the contract. For example, the offer, and the resulting contract, might call for the price to be that prevailing in a given market on the date of delivery, which date might be months or even years in the future. In such a case the offer would expressly make provision for determining the price.[59]

"Where the buyer sends an order for goods listed in the seller's catalogue or where he orders spare parts, he may decide to make no specification of the price at the time of placing the order. Nevertheless, it may be implicit in his action of sending the order that he is offering to pay the price currently being charged by the seller for such goods."[60]

One might assume that the interpretation of a contract which leaves the issue of price open will receive an unfavorable reception in those countries where the basic contract law requires specificity as to price. In other countries, such as the United States, where the courts are accustomed to dealing with contracts where price or output remain open, the outcome might be more favorable. In any event, if a contract is to be interpreted under the CISG, the prudent drafter will certainly make some reference to the price in the offer.

2. Quantity

Article 55 of the CISG refers only to price, not quantity.[61] However, Article 14(1) does refer to a "provision for determining the quantity and the price."[62] Thus, in order to be definite enough to qualify as an offer, a statement must include a provision regarding this element. Requirements and output contracts, typically used to specify quantity, are certainly not unique to the common law and are recognized by most legal systems in one way or another.[63] Although the U.C.C. specifically approves of requirements and output contracts,[64] the CISG makes no reference to them. However, since these contracts deal with quantity, their terms are sufficiently definite, under a reading of Article 14(1), to also be covered by the CISG. The comments to the draft of the CISG make clear that the language of Article 14(1) contemplated the validity of requirements and output contracts. The commentary states:

"[A]n offer to sell to the buyer 'all I have available' or an offer to buy from the seller 'all my requirements' during a certain period would be sufficient to determine the quantity of goods to be delivered. Such a formula should be understood to mean the actual amount available to the seller or the actual amount required by the buyer in good faith."[65]

Thus, any valid contract under the CISG should include, preferably in the form of requirements or output contracts, stipulations as to the quantity of merchandise.

3. Invitation to Deal or Negotiate

One issue that often arises regarding contractual intent concerns whether advertisements or circulars are offers or merely invitations to deal. Common law countries typically treat an advertisement sent to the general public as an invitation to deal or negotiate.[66] The U.C.C. has no provision that derogates from the position of the common law relating specifically to this point.[67] In some other legal systems, a "public offer" can be made by an advertisement for the sale of goods to the public at large by displaying goods in a window or other similar situation.[68] The courts in these systems may then determine that a valid offer exists under the circumstances. However, no contract would result under the common law because no intention to contract is expressed by an advertisement to the general public.[69] This is not to say that an advertisement can never result in an offer under the common law but that in order to result in an offer, an intent to enter into a contract must be present.[70] In some other legal systems, however, offers must be restricted to one or more specific people.[71]

The CISG takes a modern approach and states that an offer must be directed to one or more specific persons unless the person making the proposal clearly indicates an intention to make an offer.[72] One may make an offer to the public through an advertisement by stating that it "constitutes an offer" or that the goods "will be sold to the first person who presents cash."[73] Attorneys in the United States should feel fairly comfortable with this approach, which makes clear that mere advertising circulars would not be construed as an offer, as it is consistent with U.S. law.[74] However, some care must be taken with the technicalities. The drafters of the CISG indicated the possibility of different outcomes where "an advertisement or catalogue of goods available for sale sent in the mail directly to addresses would be sent to 'specific persons,' whereas the same advertisement or catalogue distributed to the public at large would not."[75] One can imagine a scenario where there has been some discussion between the parties at the end of which the seller sends a catalogue directly and specifically to a buyer. In that situation the courts might construe the sending of the catalogue as an offer under the CISG; under common law, however, a greater expression of intent to enter into a contract might be required.

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Go to entire text of Leete commentary


FOOTNOTES

* Professor, College of Business and Management, University of Maryland at College Park; B.S., Juniata College; M.B.A., University of Maryland; J.D., American University.

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36. See John D. Calamari & Joseph M. Perillo, Contracts 2-9, at 53 (3d ed. 1987) (stating that when content of contract too uncertain no contract formed).

37. See id. (fatal indefiniteness makes agreement void when material terms uncertain; such material terms include subject matter, price, payment terms, and quantity).

38. See Code Civil [C. civ.] arts. 1129 (Fr.) (1908) (subject matter must be certain), and 1591 (price or method of arriving at price must be agreed upon).

39. Garro, supra note 5, at 463.

40. See U.C.C. 2-305(1) (parties may conclude contract even though price not settled).

41. See U.C.C. 2-306(1) ("quantity" constitutes whatever seller can produce).

42. U.C.C. 2-204(3).

43. CISG, supra note 11, art. 14(1). Article 14 states:

"(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

"(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal." Id.

The United Nations Conference enacted this originally proposed language without change. Compare Text of Draft Convention on Contracts for the International Sale of Goods Approved by the United Nations Commission On International Trade Law, U.N. GAOR, 33d Sess., Supp. No. 17, art. 12, U.N. Doc. A/33/17 (1979), reprinted in CISG Conference, supra note 1, at 6, with CISG, supra note 11, art. 14.

44. Report of the First Committee, U.N. Doc. A/Conf. 97/11 (1980), reprinted in CISG Conference, supra note 1, at 92 (quoting U.S. proposed amendment).

45. The U.S. amendment proposed to create a contractual offer when the offer was sufficiently definite and indicated the offeror would be bound by an acceptance. Id. at 92-93.

46. Id. at 92 (quoting proposed amendments of United Kingdom and Norway).

47. See supra note 44 and accompanying text.

48. See CISG Conference, supra note 1, at 92 (all amendments deal with possibility of when offer is sufficiently definite to be considered actual offer).

49. CISG, supra note 11, art. 55.

50. Commentary on the Draft Convention on Contracts for the International Sale of Goods, Prepared by the Secretariat, U.N. Doc. A/Conf. 97/5 (1979), reprinted in CISG Conference, supra note 1, at 14, 45 [hereinafter CISG Draft].

51. The USSR and France were among those offering amendments to delete Article 55. Report of the First Committee, U.N. Doc. A/Conf.97/11 (1980), reprinted in CISG Conference, supra note 1, at 82, 120-21 [hereinafter First Committee Report].

52. For a description of opposing positions taken by Professor J. Honnold and Professor A. Farnsworth, both of whom participated in the diplomatic negotiations, see Garro, supra note 5, at 464.

53. CISG, supra note 11, art. 55. Article 55 states:

"Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned." Id.

54. U.C.C. 2-305(1) states:

"(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or

(b) the price is left to be agreed by the parties and they fail to agree; or

(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded." U.C.C. 2-305(1).

55. Id. 2-305(1)(a).

56. CISG, supra note 11, art. 14(1).

57. Peter Winship, Formation of International Sales Contracts under the 1980 Vienna Convention, 17 Int'l Law. 1, 5-6 (1983).

58. See CISG Draft, supra note 50, art. 12, cmt. 15.

59. Id. at 21, cmt. 14.

60. Id. at 21, cmt. 15.

61. CISG, supra note 11, art. 55. For full text of Article 55, see supra note 53.

62. Article 14(1) states:

"(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provisions for determining the quantity and the price. Id. art. 14(1).

63. See CISG Draft, supra note 50, art. 12, cmt. 13 (stating that most if not all legal systems recognize contract where one party agrees, for example, to buy all the ore which is produced from a mine).

64. U.C.C. 2-306(1) states:

"A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded." U.C.C. 2-306(1).

65. CISG Draft, supra note 50, art. 12, cmt. 12.

66. See Lovett v. Frederick Loeser Co., 207 N.Y.S. 753, 755 (1924) (advertisement is invitation to enter negotiations, not an offer); Craft v. Elder & Johnston Co., 38 N.E.2d 416 (Ohio Ct. App.) (1941) (advertisement in newspaper not contract and can be withdrawn if no consideration given); Restatement (Second) of Contracts 26, cmt. (b) (1981) [hereinafter Restatement (Second)].

67. See generally U.C.C. 2-206 (no mention of advertisements as offers).

68. CISG Draft, supra note 50, art. 12, cmt. 4.

69. See Calamari & Perillo, supra note 36, 2-6(e), at 37 (stating that advertisement only invites offers or statements of intention to sell unless quantity and language of commitment are present in advertisement). See Lefkowitz v. Great Minneapolis Surplus Store, 86 N.W. 2d 689, 690 (Minn. 1957) (noting that the following was found to be offer: "1 Black Lapin Stole, Beautiful, Worth $139.50 . . . $1.00 First Come, First Served").

70. See Arthur L. Corbin, Corbin on Contracts 11, at 25 (1963 & Supp. 1992) (statement of will or intention sufficient to lead offeree to reasonably believe power to contract is conferred upon him or her is offer).

71. CISG Draft, supra note 50, art. 12, cmt. 4.

72. CISG, supra note 11, art. 14(2).

73. CISG Draft, supra note 50, art. 12, cmt. 5.

74. Craft, 38 N.E. 2d at 417 (remarking that advertisement in newspaper not offer made to any specific person and thus can be withdrawn at will and without notice unless consideration accepted).

75. CISG Draft, supra note 50, art. 12, cmt. 3.

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