There are certain vital questions that must be addressed in order to assess whether, when and in what scope a valid contract is concluded under the CISG. One of the questions is “What differentiates a valid and binding offer from a mere proposal?"
By Fatma Esra Güzeloğlu
13 April 2016
According to the offer and acceptance model of
contract formation, an offer constitutes the starting point in the contract
formation process.[1] Following the manifestation of an offer, a contract is concluded when
it is reciprocated with an acceptance by the offeree. Although the general
outline is as simple as that, there are certain vital questions that must be
addressed in order to assess whether, when and in what scope a valid contract
is concluded. One of these questions is “What differentiates a valid and
binding offer from a mere proposal?”
Under CISG, there are certain criteria that a
proposal must meet in order for it to constitute a valid and effective offer in
the sense of the Convention. These criteria, which are laid down under Article
14 of the Convention, can be categorized under three points: firstly, the proposal
must be addressed to one or more specific persons, secondly it must indicate
the intention of the offeror to be bound by such proposal in case of acceptance
and thirdly, it must be sufficiently definite.
Definiteness of the addressee
Article 14(2)[2] of CISG establishes that a proposal is considered as a mere invitation
to make offer if it is not addressed to one or more specific persons; unless
the offeror clearly indicates otherwise.
In other words, in principle, an offer must be addressed to a specific
person or group of persons in order to hold a binding effect; otherwise such
manifestation is considered only as “an invitation to make an offer” for the
other party (invitatio ad offerendum).
Hence, when the addressee of an offer is indefinite, the offer would not bind the offeror, unless otherwise
is indicated by the offeror. [3]
Nevertheless, an offer which is addressed to
an indefinite group of persons may still be binding upon the offeror if the
offeror clearly demonstrates its intention to be bound by such offer[4]. Under English law, on the
other hand, there is no such requirement that a proposal must be addressed to
one or more specific persons[5]; rendering the public offers binding upon the offeror provided that the
“consideration” requirement is fulfilled.[6] Similarly, under Article 8 of Turkish
Code of Obligations, exhibition of goods with their prices or delivery of
tariffs, price lists or etc. is considered to be an offer unless otherwise is
clearly and easily understood. Therefore, under both English and Turkish law,
the approach adopted in relation to public offers differs from the one set out
under the CISG.
Intention to be bound in case of acceptance
According to Article 14(1), a party’s
intention to be bound in the event of acceptation, animus contrahandi, is one of the essential factors in determining
whether subject matter proposal constitutes a binding offer, or not, in terms
of the Convention. So much that; when a party lacks intention to be bound by
its proposal which was directed to a specific person and comprised sufficient
definiteness; in which case, still, there exists no binding offer due to
absence of intention to conclude a binding agreement in the event of
acceptation. This is because a proposal does not always aim at concluding a
contract but may perhaps be aimed at taking up negotiations on a sale.[7]
Sufficient definiteness
Comprising a “sufficient definiteness” is the
last condition that a proposal is to meet in order to constitute a binding
offer under 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.[8]
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.[9] 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.[10] 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.
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[1]
LOOKOFSKY, J., Convention on Contracts for the International Sale of Goods (CISG),
Alphen aan den Rijn, The Netherlands, Kluwer Law International, 2012, p.
65.
[2]
Article 14(2) of the Convention: “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.”
[3]
LOOKOFSKY, J., Understanding the CISG in the USA: A Compact guide to the 1980 United
Nations Convention on Contracts for the International Sale of Goods, 4th
ed., The Hague, Kluwer Law International, 2012, p. 47.
[4]Provided
that the respective offer fulfills the “sufficiently definiteness” test, which
shall be elaborated further in section 2.2.3.
[5]
ZIEGEL, J. & SAMSON, C., Report to
the Uniform Law Conference of Canada on Convention on Contracts for the
International Sale of Goods, 1981. Retrieved on 25 October 2015 from:
http://www.cisg.law.pace.edu/cisg/wais/db/articles/english2.htm
[6]
UNITED KINGDOM, Carlill v Carbolic Smoke Ball Co., 1893, 1 QB 256.
[7] ENDERLEIN, F., & MASKOW, D., International sales law: United Nations
Convention on Contracts for the International Sale of Goods: Convention on the
Limitation Period in the International Sale of Goods: Commentary, New York,
Oceana, 1992, p. 84.
[8]
HUBER, P., & MULLIS, A., The CISG
a new textbook for students and practitioners, München, Sellier, 2007,
p. 72.
[9] VURAL, B., “Formation of Contract According to the CISG”, In Ankara Bar Review 2013/1, pp.
135-136. Retrieved on 13 October 2015 from:
http://www.ankarabarosu.org.tr/siteler/AnkaraBarReview/tekmakale/2013-1/5.pdf
[10] HUBER, P., & MULLIS, A., The CISG a new textbook for students and practitioners,
München, Sellier, 2007, p. 72.