According to the CISG, a proposal which indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price is sufficiently definite. Yet, it is debated that, in practice, a proposal which only comprises of these terms is often incapable of giving rise to a valid offer where the time or place of delivery or even the type of packaging may be of significance for the subject matter agreement.
By Fatma Esra Güzeloğlu and Abdülkadir Güzeloğlu
19 May
2016
Definition of “Sufficient Definiteness”
Comprising a “sufficient definiteness” is a condition
that a proposal is to meet in order to constitute a binding offer under the United
Nations Convention on Contracts for the International Sale of Goods (the “CISG”
or the “Convention”) as stipulated under Article 14(1). Meaning, the essential
terms of the future agreement, essentialia
negotii, must have been introduced in the offeror’s proposal; such that,
when that respective proposal is accepted, as it is, by the offeree; it must be
capable of leading to conclusion of a valid and binding agreement.
Second sentence of the aforementioned article provides
a presumption on the sufficient definiteness of a proposal. Accordingly, a proposal which indicates the
goods and expressly or implicitly fixes or makes provision for determining the
quantity and the price is sufficiently definite. It is accepted that the
description of the goods does not have to entail a great detail. Such that, a
simple indication of the goods and their amounts suffice provided that such
indication is at least interpretable. Yet, it is debated that, in practice, a proposal which only comprises
of these terms is often incapable of giving rise to a valid offer where the
time or place of delivery or even the type of packaging may be of significance
for the subject matter agreement. That said, one shall assume that, typically, an offeror would refrain
from demonstrating an intention to be bound by its proposal where there are
certain other essentialia negotii which
are yet unspoken and, in converse, if the addressed offeree considers that
certain essential points are missing in a given proposal, it shall bring them
up within the meaning of Article 19 of the Convention. However, in practice, the situation may not be as clear cut as assumed
herein. In this respect, due consideration shall be given to, if any, express
agreements between the parties, such as a framework agreement, trade usages or
previous course of dealings between the parties when assessing whether a
proposal lacks sufficient definiteness due to its failure to make reference to
certain additional points which are yet to be agreed upon between the parties;
such as place of delivery. In this respect, Articles 8 and 9 shall play a significant role in
assessing whether parties have agreed on the essential terms of the contract.
Interaction between Article 14 and 55 of the CISG
On the other hand, Article 14 raised quite an academic
debate in relation to its interaction with Article 55 of the Convention. The
reason being, the Article 14 stipulates that only sufficiently definite
proposals qualify to become an offer and in order to achieve that level of
sufficiency the price and quantity of the specified goods should be determined
or determinable in the proposal. Article 55, on the other hand, provides that
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 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, unless the contrary is indicated.
The question is “Under
what circumstances could the Article 55 possibly be invoked since the CISG
appears to exclude the possibility of an offer which does not, at least
implicitly, make provision for determining the price in the first place?” This is also referred
to as a “price paradox” within the Convention. The reason underlying this conflict can be traced back to the drafting
history where two positions were disputed between the states which approached
the “open-price term” contracts with hostility in view that it puts the weaker
party in disadvantage and those favored its adaptation. In the end, the reconciliation was achieved by introducing two
different rules under two different Parts of the CISG instead of amending the
wording of the Article 14 because it was assumed that the jurisdictions in
favor of open-price contracts could invoke Article 92(1) of the CISG in order
to opt-out from the Part II of the Convention. However, in consideration of the fact that none of the Contracting
States currently have such a reservation under the Article 92 of the Convention, there remains the question of how to handle this discrepancy.
The views diverge on the issue: some consider that it
is impossible to conclude a contract without the price determined (except for
when the Article 92 Reservation is made); others submit that the Article 55 is
obviously introduced in order to give effect to open-price offers and is
adequate to fill the gap concerning the price. Some commentators also submit a different reading of the Article 14
according to which: “…There are two
sentences in Article 14. The first sentence states that an offer needs definiteness,
but does not require a price term. The second sentence simply sets out a safe
harbor which provides that if there is a price term and the goods are
specified, then the offer will not fail for indefiniteness…” Whereas, another view gives precedence to parties’ intentions and
invokes Article 8 to resolve the issue. Accordingly, if it is the parties’ intention to be bound by a contract
where the price of the goods remains undetermined, the contract should,
nevertheless, be deemed concluded and Article 55 should be used for the price
determination. The intention of the parties should be assessed in accordance
with Article 8 of the Convention. In circumstances where the parties begin
performing the contract, such intention is easy to detect. Under two circumstances, however, an open-price contract cannot be
deemed as concluded: first, where the agreement on the price is a condition to
the formation of the contract and second, where it is impossible to determine a
market price for the specified goods. Hence, in very simple terms, as the Parties are given the power to
derogate from or vary the effect of any of the provisions of the Convention
pursuant to Article 6, it is up to them to decide whether or not they would
like to conclude a contract without determining a contract price in prior.
Where it is understood from the intention of the Parties that they have agreed
on an open-price contract, as evaluated in accordance with the Article 8, then
it is accepted that the Parties have derogated from the reign of Article 14,
triggering the application of the rule stipulated under Article 55.
Under Turkish Law
Under Turkish Law, although it is stipulated that
parties have to agree on essential terms in order to conclude a contract; it
does not specify what constitutes an essential term of a contract. However, the Article 207 of Turkish Code of
Obligations (“TCO”) provide a specific definition for sale contracts under
which it is stipulated that it is a contract where the seller undertakes to
transfer the possession and ownership of the sold good and in turn the Buyer
assumes the obligation to pay a price. Accordingly, it is clear that the price
is an essential term of a sales contract. That being said, for particular
contracts, the TCO provides rules on how to determine essential terms which are
not, explicitly or implicitly, agreed by the parties. Article 207(3) provides
that if the contract price is determinable in accordance with the facts and
circumstances of the case, it is deemed as determined price. Moreover, Article
233(1) stipulates that where the buyer, without indicating a purchase price,
explicitly states that it will purchase the goods in question, the sale
contract is deemed as concluded on the average market price in the place and at
the time of the performance. Hence, unless the parties intentionally leave the
price of a sales contract to be agreed upon at a later stage of the
negotiations (i.e. as a condition to conclude a contract), it is possible to
conclude an agreement without explicitly or implicitly determining a contract
price under Turkish Law.
Under the PICC
UNIDROIT Principles of International Commercial
Contracts (the “PICC”), Article 2.1.2 provides that a proposal for concluding a
contract constitutes an offer if it is sufficiently definite and indicates the
intention of the offeror to be bound in case of acceptance. This provision is elucidated
by the Official Comment of the PICC as:
“…Even essential terms, such as the
precise description of the goods or the services to be delivered or rendered,
the price to be paid for them, the time or place of performance, etc., may be
left undetermined in the offer without necessarily rendering it insufficiently
definite: all depends on whether or not the offeror by making the offer, and
the offeree by accepting it, intend to enter into a binding agreement, and
whether or not the missing terms can be determined by interpreting the language
of the agreement in accordance with Articles 4.1 et seq., or supplied in
accordance with Articles 4.8 or 5.1.2. Indefiniteness may moreover be overcome
by reference to practices established between the parties or to usages (see
Article 1.9), as well as by reference to specific provisions to be found
elsewhere in the Principles…”
As seen, the solution of the PICC concerning the
open-price contracts is identical the one achieved under the CISG by means of
resorting Article 8 of the Convention.
Thank you for your interest. You
may reach as at info@guzeloglu.legal for your
questions in relation to international commercial law as well as Turkish law.
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