Revocation of offer – a comparative view

Business LawLuca FahrionSabina Mirza-Akhmedova

Revocation of offer – a comparative view

 

 

1. Introduction

 

An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed. Revocation refers to the canceling or annulling of that offer.

 

The binding force of an offer has been one of the most controversial and debated issues in uniform laws. The controversy arises from the fact that the issue is treated in a different manner in different legal systems and that different parties might apply different domestic legal systems.

 

The question whether an offer is revocable or not is treated differently in Common Law and in Civil Law countries.

 

 

2. Common Law countries and Civil Law countries

 

The contemporary legal systems of the world are generally based on civil law, common law or a combination of those two.

 

Civil Law1

• The most widespread type of legal system in the world, applied in various forms in approximately 150 countries
• Laws are organized into systematic written codes
• Courts base their judgments on the provisions of codes and statues

 

Common Law2:

• In force in approximately 80 countries formerly part of or influenced by the former British Empire
• Court judges are bound in their decisions in large part by the rules and other doctrines developed by judges of earlier courts
• Common Law legal systems draw abstract rules from specific cases

 

 

3. Revocation of offer in Common Law and in Civil Law systems

 

Seeing the diversity between laws of states, there have been many attempts to harmonize certain rules used in the international field. Unification has been made in many areas of law to achieve stability, predictability and clarity. E.g. in the area of international trade, the United Nations Convention on Contract for the International Sale of Goods (CISG) was adopted. However, the domestic rules of the trade of goods tend to remain without serious changes.

 

a) Common Law

 

The traditional view that Common Law takes is that every offer is revocable at any time before it was accepted (Mailbox-Rule) as long as the revocation is communicated properly. That means you can revoke every offer before the offeree has dispatched his acceptance.

 

But there are also certain cases, where an offer is irrevocable.

An irrevocable offer is held open for the offeree for a specified time or until a condition occurs. During this time the offer cannot be taken back. Important to mention is, that if an offer calls for an acceptance by a conduct, the offer cannot be revoked, when the offeree has started to perform the expected conduct.

 

Common law also developed some exceptions concerning the communication of the revocation. In two special cases the revocation does not have to be delivered directly to the hands of the offeree:

 

1. If there was an offer made to a company, it is sufficient to deliver the revocation to the company and not to the employee, with whom the offeror was negotiating. The company is responsible for a delay in the internal delivery of documents.

 

2. It is sufficient to send the revocation to the last known address of the offeree. It is the offeree’s problem if he or she has moved to another place without informing the offeror about this change.

 

b) Civil Law

 

The general rule under civil law is that no offer ever can be revoked after it has been received by the offeree. Revocation will only have the effect to revoke an offer if it is received by the offeree previously or simultaneously to the offer. Afterwards the revocation will not have any binding effect.

 

If the offer states a certain date until which the offeror will be bound by the offer and this date passes by without receipt of the acceptance by the offeror, then the offer ceases to exist and will therefore be considered as revoked.

 

 

4) Article 16 CISG

 

The CISG is the result of a legislative effort that started at the beginning of the twentieth century trying to provide a modern, uniform and fair regime for contracts for the international sale of goods The CISG provides a neutral body of rules that can be easily accepted in light of its transnational nature and of the wide availability of interpretative materials. Additionally it provides a careful balance between the interests of the buyer and of the seller3

 

In our case – the revocation of an offer – article 16 of the CISG applies.

Article 16 (1) provides that:

 

“Until a contract is concluded, an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance”4

 

• This provision mirrors the common law

 

Article 16 (2) states that an offer cannot be revoked, if:

 

1. it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable
2. it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer5

 

Subsection 2a of Article 16 CISG becomes effective, if the offer contains a fixed time of acceptance or a phrase actually stating that this offer is “not revocable”.

Subsection 2b of Article 16 CISG protects the offeree from injustice by suspending the offeror’s right to revoke his offer.

 

• closer to the principles of civil law

 

 

5. Conclusion

 

 

Common Law	Civil Law	Art 16 CISG
Offers are generally revocable	Offers are not revocable after given to the offeree	Offers are generally revocable, if the revocation reaches the offeree before he has dispatched his acceptance
Until offeree has dispatched his acceptance	Revocation must reach offeree before or at the same time than the offer
Offers are irrevocable if:	The offer ceases to exist if:	An offer is irrevocable if:
It contains a specific time period The offeree has already started to perform an expected conduct	It was not accepted within a given or reasonable time period It wasn’t accepted at all	It indicates that it is irrevocable It was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer

 

 

In civil law systems a contract is concluded only if the acceptance reaches the offeror. Before that, the offeror impliedly gives the offeree a reasonable time to consider the offer, during which time the offer is irrevocable unless otherwise indicated by the offeror. If the offer states a time limit for acceptance, the offer is usually irrevocable, and if it does not, the offer is irrevocable for a reasonable period.

 

In common law systems, however, the contract is concluded as soon as the offeree dispatches the acceptance. Prior to that point in time, the offer is revocable at any time, even if it must be accepted within a time period. This may sometimes also be the case even if the offeror expressly states that the offer is irrevocable.

 

As it can be seen in the table above, the structure of Article 16 CISG mixes the two competing approaches. Civil law countries approved of laying down the general rule of revocability in Article 16(1) CISG. In turn, the civil law idea of irrevocability in situations where there is a fixed time for acceptance or irrevocability is otherwise indicated, was embodied in Article 16(2a). The second exception from the general rule of revocability, i.e., Article 16(2b) is of common law nature.

 

Although Article 16 of the CISG takes into account both, civil and common law legal systems, it is a rather controversial provision of the convention. Most of the difficulties derive from the different interpretative approaches of civil law and common law regarding the revocability of offers. While the drafters of the CISG provision were determined to create a compromise solution between the approaches of the two systems, practical application of Article 16 CISG still reflects several ambiguities of interpretation.

1 The World Factbook. Central Intelligence Agency, http://www.cia.com

2 The World Factbook. Central Intelligence Agency, http://www.cia.com

 

3 United Nations Commission on International Trade Law

4 Art 16 (1) CISG

5 Art 16 (2) CISG