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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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The Effect of a Late Acceptance

If an offeree attempts to accept after the offer has lapsed, the common law would view such an attempt as useless since the power of acceptance no longer exists. A different analysis awaits the American lawyer under CISG. Assume, for example, an acceptance reaches the offeror, as required under CISG,[103] but, because the offeree was tardy in sending the acceptance, it arrives beyond the time fixed in the offer or, if no time was fixed, beyond a reasonable time. If the offeror wants to form the contract notwithstanding the late acceptance, CISG empowers him to do so by "orally [informing] the offeree or [dispatching] a notice to that effect."[104] This provision leaves a number of questions.

It should be recalled that an acceptance may be withdrawn by an offeree if the withdrawal reaches the offeror before or at the same time an acceptance would have become effective[105] (an acceptance normally becomes effective when it reaches the offeror if it is timely).[106] In the late acceptance situation, the acceptance will not be effective because it did not reach the offeror within the time prescribed in the offer. Yet, because the offeror may treat such a late acceptance as effective, an offeree cannot assume he will not be bound to a contract because his acceptance was tardy. Thus, if the offeree who sends a late acceptance decides that he does not wish to be bound to a contract with the offeror, he must withdraw the acceptance. If his withdrawal is not received before he is orally notified of the offeror's treatment of the late acceptance as effective, however, a contract is formed. Moreover, if the offeror merely dispatches such a notice before receiving the offeree's notice of withdrawal, the withdrawal is inoperative. It is particularly interesting that CISG merely requires dispatch of the offeror's notice that he will treat the late acceptance as effective. Since offers,[107] revocations of offers,[108] acceptance[109] and withdrawals of acceptances[110] must reach the other party to be effective, the choice of dispatch as the operative moment when a notice that a late acceptance will be effective appears quite deliberate. Moreover, the language of that CISG provision does not suggest that the dispatched notice must be received at any time, i.e., it does not appear that dispatch is used in the same fashion in this provision as it is used in Article 16(1) where it operates to preclude a revocation by the offeror rather than to make an acceptance effective upon dispatch.[111] Thus, in this isolated situation, the dispatch rule of the common law apparently lives under CISG.

If the acceptance arrives late even though the writing indicates that it was sent in timely fashion, i.e., the lateness was due to transmission delays beyond the control of the offeree, the acceptance is effective notwithstanding its late arrival unless the offeror, without delay, informs the offeree that the offeror considers the offer as having lapsed or dispatches a notice to that effect.[112] Unlike the situation described above where the offeree is at fault in sending a tardy delay,[113] CISG here deals with the situation where the offeree is diligent in sending an acceptance and, by virtue of the writing, the offeror knows or reasonably should know that the delay occurred through the fault of the intermediary rather than the offeree. The acceptance, therefore, is treated as effective to protect the offeree. The offeror, however, may have changed his position after the acceptance failed to reach him in a timely fashion. To protect the offeror, therefore, CISG permits him to orally inform the offeree that he considers his offer as having lapsed, or to dispatch a notice to that effect.[114] Again, the language appears to permit the offeror to achieve the effect he desires merely by dispatching such a notice, i.e., the risk of transmission is on the offeree.

The "late acceptance" situation under CISG may be summarized rather easily as follows. Where the acceptance arrives late due to the tardiness of the offeree, no contract will result absent a notice from the offeror that a contract does result. Where, however, the late acceptance is the fault of the intermediary, a contract is formed upon the arrival of the late acceptance absent a notice from the offeror that he will treat the offer as having lapsed because of the late acceptance. Each of the rules in Article 21 appears to serve a desirable purpose. Thus, if the offeree is tardy in sending an acceptance, presumably he wants to be bound to the deal notwithstanding the late acceptance. That desire, however, will depend upon the offeror who must, in effect, assent to this late acceptance by informing or dispatching a notice to the offeree. The rule protects the offeror against a late acceptance but permits a contract to be formed if the offeror acquiesces. The power to form the contract is appropriately in the offeror since the offeree was tardy in sending the acceptance. The second rule in Article 21 initially protects the diligent offeree against delays caused by the intermediary by treating the late acceptance as effective. To avoid harm to the equally innocent offeror, however, the rule then allows the offeror to treat the late acceptance as inoperative by informing or dispatching a notice to the offeree to that effect. There is, therefore, an affirmative duty on the offeror to notify the offeree that the acceptance will be treated as inoperative if the offeror chooses to avoid being contractually bound at a time beyond that which he required in his offer. Unfortunately, there is another possibility, superficially redolent of a ramification described earlier where one party is apparently permitted to speculate at the expense of the other.[115]

Assume a situation to which the second rule in Article 21 clearly appears to apply, i.e., the offeree has mailed an acceptance in ample time for it to reach the offeror within the time prescribed in the offer. Transmission delays beyond the awareness or control of the offeree, however, cause the acceptance to arrive quite late. The offeror had assumed that his offer was not accepted prior to receiving the delayed acceptance. Substantial changes in the market price for the goods now favor the offeror, i.e., the market price has dropped precipitously and the offeror would be delighted to sell the goods for the price in his original offer. The literal application of Article 21(2) would permit the offeror to treat the late acceptance as effective, regardless of the current desire of the offeree. Such an offeror appears to be given the power to speculate at the expense of the offeree. Yet, the situation would be rare in that it must assume no communication between the parties during the delay in transmission. Remembering the power of an offeree to withdraw an acceptance until it reaches the offeror,[116] if the offeree were aware of the delay in transmission and a plummeting market price, such an offeree could withdraw the acceptance through an instantaneous medium such as the telephone. If the offeree were not aware of the delay in transmission, presumably he assumed he was bound to a contract that has become undesirable because of market changes. In the latter case, it does not seem anymore harsh to hold the offeree to the contract than it does to hold any party to a contract that becomes undesirable because of market changes. Thus, unlike the earlier "speculation" situation, this possibility is not necessarily one that permits conduct by the offeror bordering on bad faith. Professor Honnold, who said nothing about the earlier possibility of speculation which manifests no redeeming virtue, is concerned about this one.[117]

Unfortunately, his discussion is difficult to follow. His example[118] clearly requires the application of Article 21(2). The offer fixed June 30 as the time for the acceptance to reach the offeror as required under Article 18(2), and the offeree mailed the acceptance on June 15 in ample time; therefore, it should have reached the offeror by June 20, but was delayed in transmission until July 20. Yet, Honnold insists on discussing Article 21(1) with respect to this hypothetical.[119] It provides: "But if the [offeror][120] may be given a free choice to approve or disapprove an 'acceptance' that has been delayed in transmission while conditions radically change, . . . [it provides] an opportunity to speculate at the expense of the other party."[121] He then suggests:

"This opportunity will be avoided in such extreme cases by construing Article 21(1) in relation to the basic rule of Article 18(1) that a statement is an acceptance only if it indicates 'assent' to the offer in the light of the objective facts available to both parties when . . . the reply 'reaches the offeror.' This result would also respond to the rule of Article7(1). . . ."[122]

Assuming that the Article 21(1) was intended rather than 21(2),[123] since Article 21(1) refers to the situation where the late acceptance is caused by the fault of the offeree, why is there any unfairness to an offeree who is at fault in sending a late acceptance that is made operative by the offeror's notification? Such an offeree is not required to send any acceptance and should reasonably know that if he sends a late acceptance, it may be given operative effect. Moreover, even after sending the late acceptance, the offeree may still withdraw it at any time before it reaches the offeror.

Assuming that the number 21(1) is a misprint and Article 21(2) was intended, the diligent offeree would be bound to a contract if he chose not to withdraw his acceptance before it reached the offeror. If the market price of the goods he was attempting to buy plunged after his acceptance reached the offeror, the offeree would not be excused from performing. Professor Honnold suggests this example except that the acceptance did not reach the offeror. His example then suggests that, when the acceptance letter arrived a month later (after the market price has plunged) and the seller (offeror) "was glad to close a deal at the higher level reflected in his June offer," the seller wires the buyer that he will treat the June 15 letter as an acceptance, notwithstanding its late arrival. The question is, why did the seller bother sending any notice to the buyer (offeree)? Since the late acceptance was due to a delay in transmission rather than the fault of the offeree, the late acceptance "is effective" under Art. 21(2) unless the offeror chooses to treat it as rejection by notifying the offeree. Indeed, by treating the acceptance as effective under these circumstances, Article 21(2) is providing quasi "mailbox" rule protection to the offeree. It is not genuine mailbox rule protection because the acceptance is still not effective until it reaches the offeror, and the offeror may choose to negate the effectiveness of the late acceptance. Yet, by treating the late acceptance caused by a delay in transmission as an effective acceptance upon arrival subject to the power of the offeror to negate it, CISG is removing some of the risk of transmission from the offeree. As to the offeror's power to negate such a late acceptance, he must be permitted to do so if he is not to suffer because of the delay in transmission for which he, like the offeree, is not responsible. In sum, Articles 21(1) and (2) appear to be sound in principle and operation. The opportunity for "speculation" by the offeror is very limited but does not appear to be at the expense of the offeree who, at least under the Honnold hypothetical, appears to assume that he was bound to the contract and would have been surprised to learn of the delay in transmission. In any event, the level of speculation at the expense of the other party in this situation pales by comparison to the possibility of speculation by an offeree who takes his time to decide upon withdrawal of an acceptance as explored earlier.[124]

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Go to entire text of Murray commentary


FOOTNOTES

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

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103. See CISG, supra note 7, art. 18(2).

104. Id., art. 21(1).

105. Id., art. 22.

106. Id., art. 18(2).

107. Id., art. 15(1).

108. Id., art. 16(1).

109. Id., art. 18(2).

110. Id., art. 22.

111. CISG Art. 21(1) requires the offeror either to orally inform the offeree that the offeror will treat the late acceptance as effective or to dispatch a notice to that effect, i.e., there is no suggestion that the dispatched notice must be received. Id., art. 21(1).

112. Id., art. 21(2).

113. That situation is dealt with at id., art. 21(1).

114. Id., art. 21(2).

115. See supra notes 83-87 and accompanying text.

116. CISG Article 22 permits such a withdrawal if it reaches the offeror before or at the same time as the acceptance would have become effective, and the acceptance would be effective when it reaches the offeror under Art. 18(2).

117. Honnold, supra note 22, at 201-02. This is not intended to suggest that Professor Honnold is necessarily unconcerned about the earlier example of possible speculation, see supra note 83 and accompanying text. He simply fails to mention it.

118. Id. at 200 (example 21B).

119. See Honnold's discussion of "Lateness Because of Transmission Delays." id. 175, at 200. That section begins with, "It may now be useful to examine Article 21(1) when this provision is subject to stress." Yet, his previous 174, at 200, deals with the Art. 21(1) problem of "tardy dispatch."

120. "Offeror" is substituted for "offeree" since the former was undoubtedly intended.

121. Honnold, supra note 22, at 202. In footnote 3 on page 202 of his book, Professor Honnold notes how strongly courts resist the possibility that one party may speculate at the expense of another. He refers to the discussions of Article 46 and 62, later in his book. Presumably, he is referring to 285 at 302 with respect to Art. 46, and 346 to 349 of his Article 62 discussion at 355-359.

122. Id. Article 7(1) requires the observance of good faith in international transactions.

123. There was a misprint earlier on page 202 as suggested in supra note 120.

124. See supra note 83 and accompanying text.

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