FORMATION OF

THE CONTRACTA CONTRACT IS FORMED AND THE PARTIES ARE BOUND WHEN AN OFFER TO BUY

OR SELL IS ACCEPTED

CONTRACTS ARE THE BUILDING BLOCKS OF

BUSINESS LAW• THE AGREEMENT

• CONSIDERATION

• CAPACITY

• LEGALITY

THE OFFER• AN OFFER IS A PROPOSAL ADDRESSED TO SPECIFIC PERSONS INDICATING AN

INTENTION BY THE OFFEROR TO BE BOUND TO THE SALE OR PURCHASE OF PARTICULAR GOODS FOR A PRICE

• SHOULD THERE BE SOME DOUBT WHETHER THE COMMUNICATION IS AN OFFER OR NOT, CISG DIRECTS THE COURT TO ASCERTAIN IF THE OFFEROR COMMUNICATED AN INTENTION TO BE BOUND

• THIS CAN BE DETERMINED FROM THE GENERAL RULES OF INTERPRETATION IN ARTICLE 8 OF THAT CONVENTION – THAT IS, BY LOOKING AT THE OFFEROR’S PROPOSAL WITHIN ITS FULL CONTEXT, INCLUDING ANY NEGOTIATIONS, ANY PRACTICES BETWEEN THE PARTIES, AND USAGES, AND ANY SUBSEQUENT CONDUCT

DEFINITE OFFER

ARTICLE 14 OF CISG REQUIRES AN OFFER TO BE

DEFINITE

WHEN IS AN OFFER DEFINITE?

• UNDER ARTICLE 14 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

• IN OTHER WORDS, AN OFFER MUST DESCRIBE THE GOODS WITH SUFFICIENT CLARITY THAT THE PARTIES KNOW WHAT IS BEING OFFERED FOR SALE, AND IT MUST ALSO STATE THE QUANTITY AND PRICE

• WITH REGARD TO THE “PRICE,” ARTICLE 14 OF THE CISG MUST BE READ IN CONJUNCTION WITH ARTICLE 55 – THE CISG SUGGESTS THAT IT IS THE DUTY OF THE OFFEROR TO COMMUNICATE THE MEANS FOR FIXING A PRICE

SPECIFIC OFFEREES• FOR A PROPOSAL TO BE AN OFFER, IT MUST BE ADDRESSED TO

“ONE OR MORE SPECIFIC PERSONS”

• PROPOSALS MADE TO THE PUBLIC ARE ORDINARILY INTENDED TO BE NOTHING MORE THAN INVITATIONS TO NEGOTIATE

•CISG ADOPTS THE RULE THAT PUBLIC OFFERS ARE ONLY INVITATIONS TO NEGOTIATE “UNLESS THE CONTRARY IS CLEARLY INDICATED”

EFFECTIVENESS OF OFFERS, REVOCATION

• AN OFFER BECOMES EFFECTIVE ONLY AFTER IT REACHES THE OFFEREE – THE OFFERS, INCLUDING OFFERS THAT PROMISE THAT THEY ARE IRREVOCABLE – CAN BE WITHDRAWN BEFORE THEY REACH THE OFFEREE

• OFFERS THAT DO NOT STATE THAT THEY ARE IRREVOCABLE CAN BE REVOKED AT ANY TIME BEFORE THE OFFEREE DISPATCHES AN ACCEPTANCE – THIS RULE IS BASED ON THE FAMOUS ENGLISH COMMON LAW MAILBOX RULE WHICH LIMITS THE ABILITY OF THE OFFEROR TO CANCEL AN OFFER WHERE THE OFFEREE HAS REASONABLY RELIED ON IT

• AT COMMON LAW, THE ACCEPTANCE HAD TO BE RETURNED USING THE SAME MEDIUM IN WHICH THE OFFER WAS ORIGINALLY SENT (E.G., A MAILED OFFER HAD TO BE ACCEPTED BY MAIL). UNDER THE CISG THE ACCEPTANCE CAN BE SENT BY ANY MEANS

FIRM OFFERS• UNDER TRADITIONAL ANGLO-AMERICAN COMMON LAW RULES, THE DOCTRINE OF CONSIDERATION PREVENTS

AN OFFEROR FROM MAKING AN OFFER IRREVOCABLE – AN OPTION CONTRACT (I.E., ONE IN WHICH THE OFFEREE PAYS THE OFFEROR FOR THE PROMISED TO KEEP THE OFFER OPEN) HAS TO BE USED.

• THE DOCTRINE OF CONSIDERATION DOES NOT APPLY TO CISG AND FIRM OFFERS (I.E., ONES WHERE THE OFFEROR PROMISES TO KEEP THE OFFER OPENED FOR A FIXED PERIOD) ARE ENFORCEABLE.

• MOST COMMON LAW COUNTRIES HAVE MODIFIED THE TRADITIONAL RULE, ALLOWING OFFEREES TO ENFORCE FIRM OFFERS MADE BY MERCHANTS IF THEY ARE MADE IN WRITING, ARE SIGNED BY THE OFFEROR, AND ARE EFFECTIVE FOR ONLY A LIMITED TIME PERIOD (UCC §2-205)

• CISG GOES FURTHER THAN THIS – THE PROMISE OF IRREVOCABILITY DOES NOT HAVE TO BE SIGNED, DOES NOT HAVE TO BE IN WRITING, AND THERE IS NO TIME LIMITATION– A FIRM OFFER IS ENFORCEABLE IF THE OFFEROR MAKES THE OFFER A REVOCABLE OR THE OFFEREE CAN REASONABLY RELY ON CONDUCT IT IMPLIES THAT THE OFFER IS FIRM.

ACCEPTANCE OF THE OFFER

• A CONTRACT COMES INTO EXISTENCE AT THE POINT IN TIME AN OFFER IS ACCEPTED

• ACCEPTANCE IS A STATEMENT OR CONDUCT BY THE OFFEREE INDICATING ASSENT THAT IS COMMUNICATED TO THE OFFEROR

• THE FORM OR MODE IN WHICH AN OFFEREE EXPRESSES ASSENT IS UNLIMITED; THE OFFEREE MUST COMMUNICATE ASSENT TO THE OFFEROR

SILENCE• SILENCE OR INACTIVITY DOES NOT, IN AND OF ITSELF

CONSTITUTE ACCEPTANCE

• EXAMPLE: IF A SELLER SENDS A BUYER AND OFFER THAT SAYS “I KNOW THAT THIS IS SUCH A GOOD DEAL THAT I WILL ASSUME THAT YOU HAVE ACCEPTED UNLESS I HEAR OTHERWISE” – THE FACT THAT THE BUYER DOES NOT RESPOND DOES NOT CREATE A CONTRACT

• A DIFFERENT RESULT WILL OCCUR IF THE SELLER SENDS THE BUYER AN INVITATION TO NEGOTIATE THAT SAYS “AND UNLESS YOU HEAR OTHERWISE FROM ME WITHIN THREE DAYS AFTER I RECEIVE YOUR ORDER I WILL DELIVER THE WIDGETS YOU NEED AT $100 EACH” IN THIS TYPE OF THE CASE THE SELLER’S SILENCE CONSTITUTES ACCEPTANCE

TIME OF ACCEPTANCE• ACCEPTANCE MUST BE RECEIVED BY THE OFFEROR WITHIN THE TIME PERIOD SPECIFIED IN THE

OFFER

• IF NO TIME PERIOD IS GIVEN, ACCEPTANCE MUST BE RECEIVED WITHIN A REASONABLE TIME

• IF THE OFFER IS ORAL, THE ACCEPTANCE MUST BE MADE IMMEDIATELY, UNLESS THE CIRCUMSTANCES INDICATE OTHERWISE

• IN DEVISING THE ACCEPTANCE RULE FOR CISG, THE DRAFTERS OPTED FOR THE RECEIPT THEORY USED IN CIVIL LAW COUNTRIES

• IN COMMON LAW COUNTRIES, THE DISPATCH OR MAILBOX THEORY IS USED – THE DIFFERENCE BETWEEN THESE TWO RELATES TO THE ALLOCATION OF RISK WHEN AN ACCEPTANCE IS LOST OR DELAYED.

EXAMPLE• BUYER SENDS SELLER AN ACCEPTANCE THROUGH THE MAIL AND THE

ACCEPTANCE IS LOST.

• IF THE DISPATCH THEORY WERE APPLIED, THE CONTRACT WOULD HAVE COME INTO EXISTENCE AT THE TIME THE ACCEPTANCE WAS MAILED, AND THE SELLER WOULD BE REQUIRED TO PERFORM.

• UNDER THE RECEIPT RULES ADOPTED BY CISG, HOWEVER, NO CONTRACT WOULD EXIST, AND THE BUYER WOULD BE LEFT EMPTY-HANDED

• THE REASON THE DRAFTERS CHOSE THE RECEIPT RULES WAS A PERCEPTION THAT IT MORE FAIRLY ALLOCATES RESPONSIBILITY FOR LOSS OR DELAY.

ACCEPTANCE BY PERFORMANCE

OF AN ACT• IF AN ACT IS REQUESTED BY THE

OFFEROR AS ACCEPTANCE OF THE OFFER IT IS EFFECTIVE AT THE MOMENT THE ACT IS PERFORMED

• THE OFFER, TRADE USAGE, OR THE PRACTICE OF THE PARTIES MUST MAKE IT CLEAR THAT THE OFFEREE IS NOT REQUIRED TO NOTIFY THE OFFEROR

WITHDRAWAL/REJECTION

•BECAUSE AN ACCEPTANCE IS NORMALLY NOT EFFECTIVE UNTIL THE OFFEROR RECEIVES IT, AND OFFEREE MAY WITHDRAW HIS ACCEPTANCE ANY TIME BEFORE OR SIMULTANEOUSLY WITH RECEIPT

•A REJECTION BECOMES EFFECTIVE WHEN IT REACHES THE OFFEROR – IF AN OFFEREE WERE TO DISPATCH BOTH A REJECTION AND AN ACCEPTANCE AT THE SAME TIME, THE ONE THAT REACHED THE OFFEROR FIRST WOULD BE THE ONE GIVEN EFFECT

ACCEPTANCE WITH MODIFICATIONS

• SELLER SENDS AN OFFER TO BUYER – THE BUYER RESPONDS WITH AN ACCEPTANCE THAT MODIFIES SOME OF THE TERMS IN THE ORIGINAL OFFER – IS THERE A CONTRACT?

• THIS SCENARIO – COMMONLY CALLED THE BATTLE OF THE FORMS– OCCURS WHEN MERCHANTS USE PREPRINTED FORMS BOTH TO MAKE OFFERS AND SEND BACK ACCEPTANCES

• THE TYPE-IN DESCRIPTIONS COMMONLY MATCH UP; IT IS THE “FINE PRINT” ON THE BACK OF THE FORMS, HOWEVER THAT CONTAINS DIFFERENCES

• UNDER CISG, IF INCONSISTENCIES ARE “MATERIAL” THE WOULD-BE ACCEPTANCE IS A COUNTER OFFER

• TERMS THAT ARE NOT MATERIAL ARE CONSIDERED TO BE PROPOSALS FOR ADDITION THAT WILL BECOME PART OF THE CONTRACT UNLESS THE OFFEROR PROMPTLY OBJECTS

GENERAL STANDARDS OF PERFORMANCE

•CISG IMPOSES GENERAL STANDARDS OF PERFORMANCE ON BOTH THE BUYER AND THE SELLER

• IN GENERAL, BOTH PARTIES ARE ENTITLED TO GET FROM THEIR CONTRACT WHAT THEY EXPECT

•A PARTY THAT FAILS TO PERFORM ACCORDINGLY IS IN BREACH OF CONTRACT

•WHEN ONE PARTY BREACHES, THE OTHER PARTY MAY AVOID THE CONTRACT OR MAKE A DEMAND FOR SPECIFIC PERFORMANCE

AVOIDANCE

• IF THERE HAS BEEN A FUNDAMENTAL BREACH, ONE REMEDY AVAILABLE TO THE INJURED PARTY IS AVOIDANCE (I.E., NOTIFICATION BY THE PARTY THAT HE IS CANCELING THE CONTRACT)

• TO BE ENTITLED TO AVOID A CONTRACT, HOWEVER, THE INJURED PARTY MUST – IN ALL CASES – NOTIFY THE OTHER PARTY AND BE ABLE TO RETURN ANY GOODS HE IS ALREADY RECEIVED

• WHEN A PARTY AVOIDS, ONLY THE OBLIGATION TO PERFORM IS AFFECTED – AVOIDANCE DOES NOT CANCEL (1) ANY PROVISION IN THE CONTRACT CONCERNING THE SETTLEMENT OF DISPUTES (SUCH AS ARBITRATION, CHOICE OF LAW, OR CHOICE-OF-FORUM CLAUSES) OR (2) ANY OTHER PROVISIONS GOVERNING THE RIGHTS AND DUTIES OF THE PARTIES “ CONSEQUENT UPON THE AVOIDANCE OF THE CONTRACT.”

REQUESTS FOR SPECIFIC PERFORMANCE

•CISG AUTHORIZES AN INJURED PARTY TO ASK A COURT “TO REQUIRE PERFORMANCE” IF THE OTHER PARTY FAILS TO CARRY OUT HIS OBLIGATIONS – DEMAND FOR SPECIFIC PERFORMANCE

•A COURT IS NOT OBLIGED TO GRANT THIS REQUEST, HOWEVER, UNLESS THE COURT CAN DO SO UNDER ITS OWN DOMESTIC RULES

WHAT CONSTITUTES SPECIFIC PERFORMANCE

• THIS VARIES FROM COUNTRY TO COUNTRY, AND THE RULE IN CISG REFLECTS THE DIFFICULTIES THE DRAFTERS HAD IN DEFINING THIS CONCEPT

• IN COMMON LAW COUNTRIES THE CONCEPT IS FAIRLY NARROW, REFERRING TO A COURT DECREE THAT COMPELS A DEFENDANT TO DO A SPECIFIC ACT SUCH AS DELIVERING GOODS

• DISOBEYING THE DECREE CAN BE SERIOUS – IT IS TREATED AS A CONTEMPT OF COURT PUNISHABLE BY FINE OR IMPRISONMENT

• IN THE CIVIL LAW COUNTRIES, THE IDEA OF REQUIRING PERFORMANCE IS MUCH BROADER AND INCLUDE SUCH THINGS AS THE BUYING OF A SUBSTITUTE AT THE DEFAULTING PARTY’S EXPENSE; THE SANCTIONS ARE NOT AS BURDENSOME – A COURT MAY NOT IMPOSE A FINE OR THROW A DISOBEDIENT PARTY INTO JAIL

PREREQUISITES TO SPECIFIC PERFORMANCE

• PREREQUISITES WILL VARY – THE UNITED KINGDOM’S SALE OF GOODS ACT OF 1893, WHICH IS WIDELY FOLLOWED IN THE COMMON-LAW WORLD STATES THAT A COURT “IF IT THINKS FIT,” MAY ENTER A DECREE REQUIRING A PARTY IN BREACH OF CONTRACT TO DELIVER “SPECIFIC OR ASCERTAINED GOODS.”

• THE DIFFICULTY OF DETERMINING WHEN GOODS ARE SPECIFIC OR ASCERTAINED, HOWEVER, IS A PROBLEM THAT LIMITS APPLICATION OF THIS SECTION.

• IN THE UNITED STATES, THE UNIFORM COMMERCIAL CODE ALLOWS FOR DECREES OF SPECIFIC PERFORMANCE THAT “A COURT MAY DEEM JUST,” SO LONG AS THE GOODS ARE UNIQUE” OR “IN OTHER PROPER CIRCUMSTANCES.”

• IN CIVIL LAW COUNTRIES, A PARTY IS “ENTITLED” TO REQUIRE PERFORMANCE – CIVIL JUDGES DO NOT HAVE THE DISCRETION TO DESIGNATE A DECREE AS THEIR COMMON LAW BRETHREN DO, NOR IS THE REMEDY LIMITED BY THE NATURE OF THE GOODS INVOLVED