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Reproduced with permission from 8 Journal of Law and Commerce (1988) 11-51

excerpt from

An Essay on the Formation of Contracts and Related Matters under the United Nations Convention on Contracts for the International Sale of Goods

John E. Murray, Jr. [*]

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Revocable and Irrevocable Offers -- "Firm" Offers

American lawyers believe that offers are revocable unless they are made irrevocable through an option contract or alternate statutory or judicial devices which have the effect of an option contract in making an offer irrevocable. Upon first glance, CISG appears to provide a similar structure in stating a general rule that, subject to certain exceptions which appear similar to American devices, an offer may be revoked if it reaches the offeree before he dispatches an acceptance.[57] The exceptions, however, may be quite different from those familiar to an American lawyer. The Uniform Commercial Code contains a section permitting a merchant[58] to make a "firm" (irrevocable) offer to buy or sell goods if he does so in a signed writing which "gives assurance that it will be held open. . . ."[59] There is, however, a limitation on the duration of such a firm offer. Whether the firm offer expresses a duration or a reasonable duration is supplied by a court, the maximum time for the firm offer is three months, i.e., at the end of three months, the offer becomes revocable even if the firm offer stated the duration for a longer period or a reasonable time would exceed three months. No such limitation is found in CISG.[60] There is, however, a much more important difference between the UCC and CISG firm offer concepts.

American lawyers may not focus upon a distinction between a statement designed to make an offer firm or irrevocable and a statement that simply provides a period after which the offer will lapse. For an offer to be "firm" under the UCC, the terms of the offer must "give assurance that it will be held open. . . ." There is no definition or elaboration of this requirement in the UCC section. There is, however, no doubt that courts will insist upon sufficient evidence of such an "assurance."[61] Moreover, the common law has never displayed any doubt on the question of measuring the duration of revocable offers.[62] Absent a genuine option contract, there has never been any question that a common law offeror who merely states the duration of an offer in terms of when it will lapse does not surrender the power of revocation prior to the completion of that duration. This rubric of the common law is not shared by the civil law tradition.[63] While Article 16 begins with the statement that offers may be revoked,[64] the Article quickly moves from that common law influence into a civil law posture: "However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time or otherwise, that it is irrevocable. . . ."[65] It would be a gross mistake to construe this provision of Article 16 as if it were identical to the UCC firm offer of 2-205. The mere statement of the duration of the offer will be sufficient to createan irrevocable offer under CISG because this subsection partakes of the civilian tradition.[66] Even if an offer were stated in terms of lapse, e.g., "this offer will lapse thirty days after the date of this letter," it is conceivable that the language of Article 16(2)(a) would permit a court to interpret such offer as irrevocable for the period stated therein.[67] CISG offers can be made irrevocable through the use of other language, i.e., any language that would create a UCC firm offer would be sufficient to create an irrevocable offer under CISG. If, therefore, an American offeror sought to make an offer intended to be revocable notwithstanding a lapse date, the only certain route to that result would be a clear statement to that effect in the offer, e.g., "this offer is revocable at any time prior to the offeree's dispatch of acceptance[68] and remains revocable though, absent prior revocation, it will expire (lapse) at 12 noon, Eastern Standard Time (United States) on June 22,1989."

Before considering additional ways in which an offer may be made irrevocable under CISG, it is important to emphasize another provision. If an offeror sends an irrevocable offer, the irrevocable offer may nonetheless be revoked under CISG "if the withdrawal reaches the offeror before or at the same time as the offer."[69] This sensible position is predicated upon the failure of such an offer to raise any expectations on the part of the offeree.

CISG also permits an offer to become irrevocable through the offeree's reasonable reliance.[70] This provision would certainly include a situation familiar to American lawyers. Where a subcontractor's bid is used by a general contractor in making an offer to construct a building, the foreseeable reliance by the general contractor will make the sub's bid irrevocable.[71] The CISG provision, however, is so broadly drafted ("an offer cannot be revoked . . . 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") that it may be said to encompass numerous situations well beyond any yet recognized under the common law of contracts in the United States. Thus, mere preparation to accept an offer, absent substantial expense, substantial commitments or foregoing alternatives, would not constitute justifiable reliance under the common law concept.[72] Certain commentary on the CISG Article, however, suggests that "[e]xtensive investigation to determine whether he should accept an offer" may constitute such justifiable reliance as to make an otherwise revocable offer irrevocable.[73] The civilian proclivity toward the irrevocability of offers in general may induce a much wider use of reliance to achieve irrevocability. Suggestions that this particular provision of CISG will prove to be "substantially the same" as the Restatement Second of Contracts provision may be premature.[74]

Finally, an otherwise revocable offer will become irrevocable through the dispatch of an acceptance under CISG.[75] This phenomenon occurs as a result of the general rejection of the "dispatch" or "mailbox" rule of the common law. It will be explored, infra, in the discussion of the time when acceptance becomes effective.[76]

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FOOTNOTES

* University Distinguished Service Professor of Law, University of Pittsburgh, School of Law.

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57. See CISG, supra note 7, art. 16.

58. The U.C.C. definition of "merchant" is found in U.C.C. 2-104 (1978).

59. U.C.C. 2-205 (1978).

60. See CISG, supra note 7, art. 16(2)(a).

61. See, e.g., Friedman v. Sommer, 63 N.Y.2d 788, 471 N.E.2d 246 (1984); E. A. Coronis Assoc. v. M. Gordon Constr. Co., 90 N.J. Super. 69, 216 A.2d 246 (1966); Ivey's Plumbing & Elec. Co. v. Petrochem Maintenance, Inc., 463 F. Supp. 543 (N.D. Miss. 1978).

62. The classic case in Dickinson v. Dodds, 2 Ch. D. 463 (1876) where the offer was stated to be open until Friday, June 12, and was revoked on Thursday, June 11, the court holding that the promise to keep the offer open, unsupported by consideration, was a mere nudum pactum.

63. See Formation of Contracts: A Study of the Common Core of Legal Systems 780-783 (R.Schlesinger ed. 1968).

64. See CISG, supra note 7, art. 16(1).

65. Id., art. 16(2)(a).

66. See supra note 63, at 780.

67. Professor Honnold suggests that such an offer be revocable. Honnold, supra note 22, at 171. Professor Farnsworth notes that delegates from some civil law countries argued for the irrevocable offer result even where the time was fixed for lapse while delegates from the United States and other common law countries argued that such an offer should be revocable. He concludes, "The Convention, by limiting irrevocability to cases in which the fixing of the time 'indicates . . . that it is irrevocable,' seems to support the position we took in this regard. Nevertheless, under the Convention an offeror wishing to fix a time for lapse but not for irrevocability should make his intention plain." Farnsworth, supra note 26, 3.04, at 3-11, 3-12.

68. This statement is consonant with the language of Art. 16(1). See CISG, supra note 7, art. 16(1).

69. Id., art. 15(2).

70. Id., art. 16(2)(b).

71. The classic case is the opinion by Justice Traynor in Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958) which has been adopted by the overwhelming majority of courts. See, e.g., Arangon Constr. Co. v. Success Roofing, Inc., 46 Wash. App.314, 730 P.2d 720 (1986); Powers Constr. Co., Inc. v. Salem Carpets, Inc., 283 S.C. 302, 322 S.E.2d 30 (1984); Illinois Valley Asphalt, Inc. v. J.F. Edwards Constr. Co., 90 Ill. App. 3d 768, 413 N.E.2d 209 (1980); Montgomery Ind. Int'l Inc. v. Thomas Constr. Co., 620 F.2d 91 (5th Cir. 1980); Janke Constr. Co. v. Vulcan Mat. Co., 386 F.Supp. 687 (W.D. Wis. 1974).

72. See Restatement (Second) of Contracts 87(2) comment e (1981).

73. Official Records, supra note 31, at 22 (emphasis supplied). While the Second Restatement of Contracts suggests that American contract law permits reliance to be used as a device to make offers irrevocable prior to acceptance, none of the language or illustrations would suggest that "investigation" by the offeree, even extensive investigation, would create that result.

74. See Farnsworth, supra note 26, 3.04, at 3-12. Professor Honnold also reminds us of the requirement of Article 18(2) in connection with the reliance concept. Thus, notwithstanding the offeree's justifiable reliance, 18(2) still requires a manifestation of acceptance that must reach the offeror with the time fixed in the offer or, absent such a fixed time, within a reasonable time. Honnold, supra note 22, at 173.

75. See CISG, supra note 7, art. 16(1).

76. See infra notes 103-24 and accompanying text.

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