• Formation of Contracts under CISG
  • January 5, 2016
  • Law Firm: Erdem Erdem Law Office - Istanbul Office
  • Introduction

    The United Nations Convention on Contracts for the International Sale of Goods (“CISG”) regulates the formation of contracts under Part II, Articles 14 to 24. Articles 11, 13 and 29 also provide insight for formation of contracts. In general terms, with regard to contract formation, the CISG adopted the ‘traditional’ concept of contractual obligations, similar to Turkish and Swiss Law of Obligation principles. Both Turkish and Swiss laws provide that contracts shall be formed as a result of two declarations of intent - offer and acceptance.

    In the doctrine it is accepted that in cases where complex negotiation processes have taken place, and where it is difficult to distinguish between offer and acceptance, substantive consensus can generate solutions, and the CISG will establish the scope of application[1].

    Offer

    An offer is an act of law; therefore, it has to comply with the applicable national laws, aside from the CISG. Pursuant to CISG, Article 14, “a proposal for concluding a contract addressed to one or more specific persons constitutes an offer, if it is sufficiently definite, and indicates the intention of the offeror to be bound in the event of acceptance.” It can be derived from this definition that in order to establish an offer, two conditions should be present, the intention of the offeror to be bound, and a sufficiently defined proposal.

    Sufficient Definiteness

    Article 14 provides that “a proposal is sufficiently defined if it identifies the goods, and expressly or implicitly fixes, or makes provision for, determining the quantity and the price.” Another component of the proposal is the intention of the offeror to sell the product. An offer does not always seem like a proposal. It can be in the form of an invoice or a letter of acknowledgement.

    Articles 8 and 9 will also find its place in understanding the principles surrounding formation. In a general sense, Article 8 stipulates that the intent of a party is interpreted in accordance with his intent. Article 9 provides that parties are bound by usages and practices that have been agreed upon between them.

    Other articles of the CISG can also be in question in relation to Article 14. Scholars have discussed the relationship between Articles 14 and 55, in depth. Article 14 can be interpreted as an offer not being made where the price is not designated. On the other hand, it can be derived from Article 55 that a contract can be validly established without determining the price, expressly or implicitly. In these cases, it is accepted that the price is determined with reference to the same products sold under similar cases. In the doctrine, it is accepted that if the price can be established when all of the terms and conditions are considered, it must be accepted that a valid offer has been made.

    Intention of the Offeror to be Bound

    Offers that are not addressed to one or more specific persons are considered as invitations for offers. Mass distribution of catalogues, brochures and websites will not constitute an offer, but will be accepted as invitations, unless it is clearly established to the contrary.

    In cases where it is difficult to establish the intent of the offeror, Article 8 can be taken into consideration. In considering the third subsection, “in determining the intent of a party or the understanding that a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case, including the negotiations, any practices that the parties have established between themselves, usages and any subsequent conduct of the parties.”

    Effectiveness of the Offer

    An offer will become effective when it reaches the offeree. Article 24 provides that an offer will reach the addressee when it is orally made to the addressee, or delivered in any way personally to his place of business, or to his mailing address or to his habitual residence. In cases where the contract is formed through electronic messaging, the ICC’s eTerms, 2004, Article 2, states that the addressee accepts an electronic message when it enters the addressee’s information system, and in order to apply this provision, the addressee must have an information system. If the electronic message is sent to another information system designated by the addressee, the message is deemed to be received when the addressee becomes aware of the message[2].

    Withdrawal and Revocation of the Offer

    In order for an offer to be withdrawn, Article 15 states that the withdrawal should reach the offeree before or at the same time as the offer. It should be noted that revocation and withdrawal are distinct terms from each other, having different meanings under the CISG.

    Revocation of an offer is regulated under Article 16 of the CISG. An offer is revocable when it reaches the offeree before the acceptance is dispatched. In some instances, the offer cannot be revoked if there is a fixed time, or it has been established that it is not irrevocable, and if the offeree relies on the offer and has acted in reliance thereof, the offer cannot be revoked.

    Rejection of an Offer

    Rejection of an offer is stipulated under Article 17; accordingly, a rejection must reach the offeror in order to terminate an offer, even if the offer is irrevocable.

    Acceptance

    Acceptance is regulated under Articles 18 to 22 in line with the Turkish and Swiss laws of obligation provisions. An acceptance can be made as a statement or by other conduct. It is important to note that silence or inactivity is not considered as an acceptance under Article 18. As is indicated, above, Article 8 and 9 play an important role when interpreting offers and acceptances. In cases where any usage or practices agreed upon between the parties suggest otherwise, silence or inactivity can also be interpreted differently.

    Effectiveness of the Acceptance

    An acceptance is effective when it reaches the offeror. If an oral offer is in question, it should be accepted immediately, unless circumstances imply otherwise. In some instances, there is a fixed time within which to accept the offer. Pursuant to Article 20, for those periods that are stated in a letter or a telegram, the time begins to run when the telegram is handed over for dispatch, or the date indicated in the letter, or if not so stated, the date shown on the envelope. Official holidays and non-business days are included in this period. Only if the last day of the fixed period is an official holiday or a non-business day the period shall be extended to the first business day. If such a fixed time is not regulated, then the acceptance shall be made within a reasonable time. A late acceptance is not effective unless an oral statement or notification is made to the offeree.

    In order for a contract to be formed under the CISG, Article 23, an acceptance to an offer should become effective. Once the contract is formed, all of the following engagements can only be interpreted as amendments to the offer.

    Counter-offer

    A Counter- offer is regarded as a rejection of the offer when it includes additions limitations and modification. However acceptance, which is intended to be a reply to an offer, includes additions, modifications, or limitations, which do not materially effect the terms of the offer is considered to be an acceptance unless the offeror objects thereto otherwise, orally, or through a notification. Factors that can materially effect the terms of an offer are listed under Article 19, subsection 3, and are the price, payment, quality, quantity of the goods, place and time of delivery, extent of one party’s liability to the other, or the settlement of disputes.

    Conclusion

    In order to validly form a contract under the CISG, there has to be two declarations of intent - acceptance and offer. This traditional approach is parallel to Swiss and Turkish laws of obligations. The offeror should have a definite proposal and the intention to be bound by that proposal. The offeree, on the other hand, can accept the offer by a statement, or through its conduct. Both Articles 8 and 9 play an important role while interpreting an offer and acceptance. It should be emphasized that when formation is interpreted, the CISG should be considered as a whole.


    [1] Schwenzer, Mohs, Sözlesmenin Kurulmasi in Yesim M., Atamer (eds), Milletlerarasi Satim Hukuku, Volume I, 2008, p. 85.
    [2] See also UN Convention on Electronic Convention Article 10 (2).