2

The Formation of a Contract

1. INTRODUCTORY REMARKS

Two observations of a general nature are called for before we go into the details of the material discussed in this chapter.

The first is that the German law of contract, from its birth (discussed in this chapter) to its death (considered in chapters 8 and 9), immediately reveals its basic ‘theoretical’ differences with English law. Their nature is so obvious at first sight that they may also conceal the equally interesting similarities so a special effort will also be made to make these apparent to the reader. But, theoretically, their significance cannot be underestimated, while also revealing the impact that history has had on the shaping of modern law. Two differences will be noted at this stage; others of a more specific nature will unfold as the reader progresses with the study of the text.

The first of these differences is the idea that in German (and indeed continental European law) the obligation arises out of the promise of the parties (with its almost religious connotations in the Middle Ages) and not, as in the common law, from the notion of a bargain or (in later times) the idea of detrimental reliance. The second is linked to the continental search for principle which contrasts with the common law attachment to casuistry. The principle is that of agreement; and as one has come to expect, it finds its simplest and purest expression in the laconic Article 114 of the French Code civil. But what we mean by agreement is another matter; and the importance attributed to the presence of this notion (objective or subjective determination etc) has given rise to much debate and the adoption of varying positions in different systems. Agreement or, to use the Latin expression consensus at idem, is just as important to English law; but here the requirement is satisfied through the examination of a very rich set of factual examples which have become rules of law in accordance with the common law tendency to harden fact into law. The point just made is worth stressing, not just because we find it repeated in other parts of the law of contracts (eg, the area of damages for bad performance), but because it often makes it difficult to find exact factual litigated parallels in other systems. This has, at times, made our task more difficult since we have striven, in this book and its companion volume to find factually analogous cases for the purposes of attempting the comparison of the two systems. The difficulty is due to the fact that the foreign system, the French in an even more pronounced way than the German, having declared that the presence of agreement is what is required in law to create the contractual bond, then leaves it the triers of fact—ie, the lower courts—to determine whether this has been satisfied in each concrete case.

Secondly, the first chapter has already stressed that the Pandectist structure of the German Code is particularly evident in the sections that deal with the law of

56 THE FORMATION OF THE CONTRACT

obligations in general, the law of contracts in particular. As a result, special efforts have to be made by the comparatist to re-shape the material (without, of course, betraying the spirit of the system) in order to place it in some kind of logical juxtaposition with the English and American law and make it ‘user-friendlier’ to the common lawyer. This is not a task that is easily accomplished. And this general warning is, as we shall see, particularly appropriate for the topics that will be studied in chapters 5 (policing the contract), 9 and 10 (irregularities of performance). But it also has some bearing on the present chapter. Thus, reference has to be made in this chapter to the doctrine of culpa in contrahendo, which sets out the obligations of the parties during the phase of negotiations leading up to the conclusion of a contract, as well the German notion of representation (Stellvertretung). The latter is a notion approximately the equivalent of, but not identical (as we shall explain later) to, the English notion of agency, which deals with the question of how contracts can be formed through the participation of third parties in German law. These topics will also re-appear in later sections of this book (for instance, in chapters 3, section 2, and 6, section 4).

The preceding preliminary observations bring out a peculiarity of the German treatment of our topic, to which we have already alluded in chapter 1. This is that many questions related to contract law find, in the BGB, their treatment not only in the contract sections proper of the Code, but in its first book, which deals with matters of general (ie, wider) importance, and indeed even in other codes such as for instance the Commercial Code. This, for instance is the case with commercial agency which finds many of its rules not in the Civil but the Commercial Code.

It bears repeating that to the German systematically inclined mind, such a division of the material is obvious since both the offer (Antrag or Angebot) and the acceptance (Annahme) are declarations of a person’s intention; and the treatment of such declarations (what form should they take; when do they become effective etc) may be of relevance not only to the specifically regulated types of contracts in the special part of the law of contract (Book Two of the Code) but other areas of the law as well. Contracts giving rise to obligations (Verpflichtungsgeschäft) as opposed to those transferring or altering rights directly (Verfügungsgeschäft) can be found not only in the special part of the law of contract, but in family law (Book Four)—eg, setting out obligations between spouses (§§ 1353 et seq)—and in the law of succession (§§ 2274, 2346). Furthermore, according to the principle of separation, discussed in chapter 1, p 27 ff, the transfer of ownership rights does occur through contract, yet under a different contract from the contract stipulating the obligation to transfer the right. Thus, the rules governing offer and acceptance in Book One, General Part, are also relevant to Book Three, ie, Property Law (§§ 929, 925, 873).

2. THE OFFER (ANTRAG, ANGEBOT)

Bailas, Das Problem der Vertragschließung und der vertragsbegründende Akt (1962); Bydlinsky, ‘Kontrahierungszwang und Anwendung des allgemeinen Zivilrechts’ JZ 1980, 378; Dieterich, ‘Der Kauf im Selbstbedienungsladen’ DB 1972, 957; Henrich,

Vorvertrag, Optionsvertrag, Vorrechtsvertrag (1965); Hilger, ‘Die verspätete Annahme’ AcP 1985 (1985), 559; EA Kramer, Grundfragen der vertraglichen Einigung

THE OFFER (ANTRAG, ANGEBOT) 57

(1972); Leenen, ‘Abschluss, Zustandekommen und Wirksamkeit des Vertrages’ AcP 188 (1988), 381; Lutter, Der Letter of Intent (1982); Lindacher, ‘Die Bedeutung der Klausel „Angebot freibleibend“’DB 1992, 1813; Mayer-Maly, ‘Vertrag und Einigung’ in Festschrift für Nipperdey (1965), I, p 509; Mayer-Maly, ‘Die Bedeutung des Konsenses in privatrechtsgeschichtlicher Sicht’ in Rechtsgeltung und Konsens (1976); R Raiser, ‘Schadenshaftung bei verstecktem Dissens’ AcP 127, 1; M Wolf,

Rechtsgeschäftliche Entscheidungsfreiheit und vertraglicher Interessenausgleich (1970). Ben Abderrahmane, Le droit allemand des conditions générales dans les ventes commerciales francoallemandes (1985); Horn, Kötz and Leser, German Private and Commercial Law: An Introduction (translated by Tony Weir) (1982), pp 76–80; Lorenz, ‘German Report’ in E Hondius (ed), Precontractual Liability, pp 159–77 (1991); Nussbaum, ‘Comparative Aspects of the AngloAmerican Offer-and- Acceptance Doctrine’ 36 Columbia LR. 920 (1936); Pedamon, Le contrat en droit allemand (1993); Rabel, Recht des Warenkaufs, vol. 1 (1936), pp 69–93; Rieg, Le rôle de la volonté dans l’acte juridique en droit civil français et allemand (1961); Schlesinger et al, Formation of Contracts. A study of the Common Core of Legal Systems, 2 vols (1968); von Mehren, ‘The Formation of Contracts’ in International Encyclopedia of Comparative Law, vol VII, chapter 9 (1992); Winfield, ‘Some Aspects of Offer and Acceptance’ (1939) 55 LQR 499; Witz, Droit privé allemand, I, (1992); Zimmermann ‘Vertrag und Versprechen’ in Festschrift für Andreas Heldrich (2005), p 467.

(a) General Observations

A contract is an agreement, typically between two parties who wish to bring about certain legal consequences. (In modern conditions more than one party may be involved on one side: eg, a husband and wife take out a lease on a flat. Obviously, in commercial settings, the factual context can become more complex.) For these consequences to come about in law one of the parties must declare to the other his intention to enter with the other into a binding arrangement provided certain conditions are met, and the other must then assent to this proposal. A contract thus, essentially, involves two reciprocal, corresponding declarations of intention (Willenserklärungen) of the future contracting parties which subject each other to the contractual bond. Normally, this vinculum iuris does not affect third (ie other) parties; but, as we shall see in chapter 4, both the Code and case law of the German courts have expanded the contractual relationship (in some, at least, of its effects) to cover third parties. As a result of the Contact (Rights of Third Parties) Act 1999 English law has now moved closer to German law but (as will be noted) is not identical. Needless to say the law will ascribe legal consequences to such a reciprocal exchange of declarations only if the other conditions laid down by the BGB (eg, formality where this is required, capacity etc) have been observed and the contract does not offend against the legal and moral order. These will be discussed in chapter 5, p 227.

Though in theory the constituent elements of a contract, one declaration of intention of each party, can easily be distinguished the one from the other, in practice it may be exceedingly difficult to analyse the formation of contract in such simple terms. As von Mehren has pointed out: ‘In real life, the contracting process is frequently more disorderly than the neat categories of negotiation, offer, and acceptance suggest.’ (Int Enc Comp Law VII, para 9-112.) He continued as follows (9-113):

58 THE FORMATION OF THE CONTRACT

At one extreme, negotiation is absorbed by offer and acceptance; at the other, negotiation takes the form of a protracted exchange of information, a slow identification of party interests and differences followed by a series of compromises that may ultimately result in tentative agreement . . ., general agreement, when reached, may then be refined into a detailed contract.

To reflect this phenomenon, some more recent approaches have indeed departed from the concepts of offer and acceptance. (See, for instance, UNIDROIT Principles, Article 2.1: ‘A contract may be concluded either by acceptance of an offer or by conduct of the parties that is sufficient to show agreement.’ Cf Principles of European Contract Law, Article 2.211.)

But the German Code is already one hundred years old and thus proceeds on the basis of traditional thinking namely, that offer and acceptance can and should be notionally separated. This traditional approach fits best the exchange of sequential written declarations of intention inter absentes. However, identifying a declaration which embodies all elements of an ‘offer’ may sometimes involve a fiction, as has been noted also by German writers. Nevertheless, in practice this difficulty does not result in any major problems. (See: MünchKomm-Kramer, § 145 Rn. 2.)

Some rules attached to the traditional approach, as for instance the question whether an offer is binding, may have less significance when a contract is concluded by compromise negotiations at a conference table. Indeed, in such negotiating situations it is often difficult to establish precisely what was agreed and when, let alone which of the numerous statements and suggestions might be characterised as ‘offer’ or ‘acceptance’ in any formal sense. (For an excellent example of the English approach to these matters, see G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25, where work had already commenced before final terms had been agreed between the parties. The court was even prepared to give retroactive effect to the agreement to encompass the work already performed.) But even here the traditional terms can be relevant, as for instance if one party does not sign the document instantly then the rules as to the binding nature of an offer and the time for acceptance may come into play.

On the other hand, certain crucial problems in the formation of contracts cannot even be formulated if one does not assume that offer and acceptance are different legal concepts. This concerns the question (referred to above) of the binding nature of an offer, the problem of distinguishing offer and invitation to treat, the ‘battle of the forms’ etc. Thus, although we are fully aware of the limitations of this approach, in this exposition we follow the German pattern of distinguishing between offer and acceptance.

There is one aspect of the formation of contract, however, which cannot be squeezed into such a straitjacket. It concerns the much-debated issue of precontractual obligations. This topic raises intricate issues, such as whether the parties are required to act ‘equitably’ or in ‘good faith’ towards each other, or whether they are under an obligation not to endanger the other party, etc. German law has developed rules, separate from the concepts of offer and acceptance, which attempt to solve these issues. We will find some answers to the question when the relevant formation phase begins, whether the parties are free to break off contract negotiations, etc, in the section on culpa in contrahendo, below. It suffices here to point out that German law thus acknowledges the limitations of the concepts of ‘offer’ and ‘acceptance’ and

THE OFFER (ANTRAG, ANGEBOT) 59

provides a more flexible device in dealing with the obligations of the parties prior to the conclusion of a contract, or where the purported contract later turns out to be void. These problems are accommodated within the framework of pre-contractual liability.

(b) Necessary Content of an Offer

An offer must be precise and complete as to the essential elements of the proposed contract (essentialia negotii). The duties of the parties must be at least ascertainable. One often finds statements in German books to the effect that a declaration of intention is an offer if it can mature into a contract when its recipient can respond to it by a simple ‘yes’ or ‘I accept’. (Cf RGZ 124, 81, case no 1, concerning a pre-contract to a contract of sale. Contrast OLG Hamm NJW 1976, 1212, case no 2, which however must be approached with extreme caution. For English law see Treitel, The Law of Contract (11th edn, 2003), pp 49–51.)

What is an essential element of the contract depends on the nature and type of the contract. The requirements of completeness and definiteness apply to the main obligations under the contract which, in turn, are usually spelled out in the very first paragraphs regulating the type of contract in question. For instance, an offer concerning a lease must state the beginning and the end of the term of the lease, the rent, and the specific property leased, corresponding to the obligations of the parties under § 535 BGB. (Cf Harvey v Pratt [1965] 1 WLR 1025, where failure to specify the commencement date rendered the agreement sufficiently incomplete as to be unenforceable. See further chapter 3, p 144 ff, for a discussion of the main features of the types of contract dealt with in the BGB.) In the sale of goods, it is essential that the goods sold and the purchase price agreed are determined by the parties to the agreement: see § 433 BGB.

This general rule as to completeness is subject to two exceptions.

First, German law (unlike other systems, for instance French law) accepts that, provided this is stated in the contract itself, the price or, indeed any other aspect of performance, may be fixed at a later stage. This can be done either by one of the parties themselves acting freely ( freies Ermessen) or equitably (billiges Ermessen: see § 315 BGB), or by a third party acting freely or equitably (see §§ 317 et seq BGB). (For an English example concerning place of performance see David T Boyd & Co v Louis Louca [1973] 1 Lloyd’s Rep 209: an agreement to sell goods for delivery ‘free on board

. . . good Danish port’ was a good contract requiring the buyer to specify the port of shipment: see Treitel, The Law of Contract, p 50.) If the parties have stipulated for equity to be respected, which is presumed, the court is empowered to review the exercise of discretion of the contracting party (§ 315 III BGB) or of the third party (§ 319 BGB) and if necessary replace it with its own determination. (For illustrations see: BGHZ 41, 271, case no 3; BGHZ 55, 248.)

Secondly, one should also note that in some instances even if the parties do not specify a certain price and do not leave the determination of the price to one of the parties or a third party, the contract will not be void for the sake of incompleteness but the court may fix the remuneration. There are rules in the Code as to certain types of contract which imply that if no price is fixed, while at the same time the performance of the contract can be expected only in return for remuneration, the parties are

60 THE FORMATION OF THE CONTRACT

presumed to have agreed that the compensation is to be set under existing statutory tariffs. (In the absence of such a tariff, the price is to be fixed at the level of ‘customary’ remuneration, provided it is discernable: § 612, contract for services; § 632, contract for work; § 653, brokerage contract. See also, OLG Hamm NJW 1976, 1212, case no 2, a decision which, arguably, in the absence of an equivalent rule in sales law, goes too far in supplementing the parties’ intention in respect of the purchase price. Cf

Münchener Kommentar-Kramer, § 154 Rn. 5.)

English law is also open to enforcing contracts where the price has not been stipulated expressly. Thus, section 8(2) of the Sale of Goods Act 1979 provides for a reasonable price to be paid where no price is specified in the contract, while section 15(1) of the Supply of Goods and Services Act 1982 covers the same situation with regard to the supply of services. However, as Treitel points out (The Law of Contract, p 51), the absence of an agreed price may be evidence that there is no contract between the parties because agreement on the price was to be fixed through further negotiations. (For an example, see Russell Bros (Paddington) Ltd v John Elliott Management Ltd

(1992) 11 Const LJ 337.) In such a situation however any work completed without a contractual basis may still be recovered under the law of restitution where the work was done in anticipation of the conclusion of a contract between the parties at a later date (see British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504). This argument will not succeed however where the party performing the work has taken the risk that a contract might not eventually be concluded between the parties, eg, where the work was done with the intention of securing the contract (Regalian Properties plc v London Docklands Development Corp [1995] 1 WLR 212). (We return to this below in our discussion of culpa in contrahendo in section 5(c).)

It is necessary to emphasise that the requirements of specificity (Bestimmtheit) and completeness are applied much more strictly where a contract directly transfers property rights (which, it will be recalled, is to be distinguished from the contract establishing the obligation to transfer the property right, eg, contract for the sale of goods. On this see the discussion of the principle of abstraction in chapter 1, p 27 ff). Regarding such transactions immediately affecting rights in rem, it is required that the parties exhaustively determine the object of the contract at the time of contracting. They cannot, as far as the contract of transfer is concerned, leave this matter of specificity to be determined by a future appropriation of goods to a contract.

The offer to enter into a contract of obligation need not be (and hardly ever is) complete as to all the detailed, auxiliary terms which the parties themselves may be willing to leave for subsequent determination by the default rules contained in the Code and developed by the courts. It is a recurrent theme of this book that the net of default rules is wider in German than it is in English law and one practical consequence of this is that the parties need not attempt to anticipate in the contractual drafts all eventualities. The nature of codified law explains this phenomenon; but the increased significance of default rules can also be accounted for by the fact that German judges seem to be more willing to interfere with the contract than their English counterparts, as can be noticed in particular in relation to ‘pre-formulated’ and/or standard form contracts discussed in chapter 3, p 163 ff. For, although offers can run into many pages, in practice matters can be made quite simple due to the sophisticated system of default rules governing all aspects of the transaction. In such cases it is thus for the parties to decide whether, in addition to agreeing on the object of the transaction and

THE OFFER (ANTRAG, ANGEBOT) 61

the price, they wish to spell out the detailed terms of the contract or to rely on default rules (and save transaction costs).

When the most frequently used contracts are concluded (such as sale of goods, hire etc), in the absence of any contrary indication, it can be assumed that the parties are leaving the details of their contract to be regulated by the appropriate codal provisions. (For an overview, see the next chapter.) Thus, if I enter a general store and take an electrical appliance to the counter at the exit, the purchase price will be assumed to be the one mentioned on the label and all other related contractual obligations of the parties (eg, what will happen if the appliance does not work or if the purchaser is injured because the product’s instructions are obscure) are regulated by the law of sales (§§ 433–79 BGB) without the parties having to say anything about these matters in the course of the transaction. The same is—in principle—true for contracts involving more complex transactions, such as the sale of a company, though in such cases the parties will no doubt seek to adapt the default rules to their needs where they prove unsatisfactory because they do not meet the demands of business in a particular situation.

From a comparative perspective, it should be noted that the English approach to implied terms can provide a degree of coverage in this field of ‘default’-type rules. For example, some such terms are implied by operation of law in particular generic types of contract (see Treitel, The Law of Contract, pp 206–13). Such terms were frequently implied by the courts at common law (particularly relating to employment contracts: see, eg, Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169) though many have since been reduced to statutory form. Particularly important examples concern the sale of goods (sections 12 to 15 of the Sale of Goods Act 1979), the supply of services (sections 13 and 14 of the Supply of Goods and Services Act 1979), and hirepurchase agreements (Supply of Goods (Implied Terms) Act 1973, sections 8 to 11). While some such implied terms cannot be excluded (and are thus perhaps better viewed as terms imposed by law—see, eg, section 2(1)(b) of the Landlord and Tenant (Covenants) Act 1995), it is generally the case that such implied terms can be excluded by clear agreement to do so or if an express term is in conflict with the term claimed to be implied. The effect of the above is that many such terms amount to ‘default rules’ in a manner similar to those contained in the German Civil Code. Overall, however, the reach (in terms of areas covered) of such terms in English law is more limited.

In certain areas of German law, standard terms of business have to a considerable extent modified or replaced the rules of the Code. (The most famous example is perhaps the Verdingungsordnung für Bauleistungen (VOB), which contains an optional body of rules and pre-formulated clauses adapting the rules in §§ 632 et seq. BGB (contracts for work) to the needs of the construction industry. On the sale of a company see Holzapfel and Pöllath, Unternehmenskauf in Recht und Praxis (11th edn, 2003) including tax aspects. A selection of model contracts in the various areas of private law can be found in: Beck’sches Formularbuch Bürgerliches, Handelsund Wirtschaftsrecht, (8th edn, 2003), and similar books.) This task of adjusting or replacing default rules and terms implied by law is more often than not a delicate one, as the extensive commentary on the individual clauses of these contracts proves (as we will see also in the section on pre-formulated contract terms in chapter 3, section 5). The reason is an interventionist attitude of the courts which are, in principle, prepared to step in and strike out clauses that in their view have gone too far in protecting one

62 THE FORMATION OF THE CONTRACT

party at the expense of the other. As already stated, in practice, this can result in much shorter contractual documents compared with those found in comparable AngloAmerican transactions where the lawyers of the parties vie with one another to anticipate every possibility and to insert them into the contractual document.

At the other extreme we find the consumer protection measures of Community (EC) law which, with its ‘minimum harmonisation’ policy increasingly establishes mandatory regimes of contract rules (as noted in chapter 1, p 43 ff). Thus, in some instances, the parties are restrained from determining the terms of the contract except for little more than the contractual object and the price. Directive 99/44/EC [1999] OJ L171/12, on certain aspects of the sale of consumer goods and associated guarantees, is a recent example of these ever-stronger inroads into freedom of contract (discussed in chapter 10, p 515).

(c) Offer and Invitation to Treat

A declaration to indeterminate persons (ad incertas personas) is possible. Offers made through vending machines come into this category. In such an instance the offer is binding so long as there are goods of the appropriate kind in the machine. The acceptance here does not need to be ‘notified’ to the offeror but is seen as an act of intent governed by § 151 BGB. Case law and academic opinion are also at one in treating newspaper advertisements, prospectuses, merchandise catalogues, displays in shop windows, as invitations to treat (invitatio ad offerendum) and not as offers. (Thus, see: RG JW 1919, 325; RGZ 133, 388, 391; BGH NJW 1980, 1388. For academic references see Staudinger-Bork, § 145 Rn. 3 ff; Flume, Allgemeiner Teil, vol II, para 35, I, 1.) But not all Germanic systems have taken this stance. Thus, Article 7(3) of the Swiss Code of Obligations has expressly stated that ‘[t]he display of goods along with an indication of price is deemed to be an offer.’

The basic German position is shared by English law (see Partridge v Crittenden [1968] 1 WLR 1204), although on particular facts the courts have been prepared to find such an advertisement to amount to an offer (see Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 and cf Lefkowitz v Great Minneapolis Surplus Store 251 Minn. 188; 86 NW 2d 689 (1957) for an American example of similar reasoning).

Whether the display of goods on shop shelves amounts to an offer or an invitation to treat does not appear to have been resolved by the German courts (see BGHZ 66, 51, 55), while academics seem divided on the subject. Thus, Münchener Kommentar (-Kramer, § 145 Rn. 10) favours the view that such displays should be treated as offers, while other writers (eg Dietrich, ‘Der Kauf im Selbstbedienungsladen’ DB 1972, 957) prefer the view (invitation to treat) which finds most favour in AngloAmerican law (see, for instance, Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401) but seems to have been rejected by French and Italian courts. As in Anglo-American law however these are essentially policy decisions; and in the case of advertisements and the like they are often explained by the wish to avoid the kind of consequences that might follow if the opposite solution were adopted and the prospective vendor/offeror ran out of the goods he was proposing to sell (see, eg, Esso Petroleum Co Ltd v Customs & Excise Commissioners

[1976] 1 WLR 1, at 5, 6 and 11). Yet in practice these awkward consequences could be avoided if these situations were construed as involving offers subject to a condition of

THE OFFER (ANTRAG, ANGEBOT) 63

continued existence of supplies. The best explanation therefore for the prevailing solution may be the willingness of the legal system to accept that in such cases the offeror typically wishes to retain the opportunity of deciding at a later stage whether and with whom he wishes to conclude a contract. Though the theoretical explanation for this solution may be debatable (see Treitel, The Law of Contract, pp 12-13), the end result generally is not. Thus, in German law (as indeed in Anglo-American law) it is the customer who makes the offer; and the contract is concluded only when the first person (typically the prospective vendor) indicates, by words or deeds, that he is prepared to conclude the transaction.

The same position is reached in those cases where the offeror declares his willingness to enter into a contract but expressly suspends its performance through the use of such expressions as ‘subject to contract’ or ‘while stocks last’ etc. (See, for a recent application of these principles to internet auctions and the distinction between offer and invitation to treat, BGH NJW 2002, 363, case no 4.)

(d) The Duration of the Offer

As in Anglo-American law, so too in German law an offer made to another person who is in the same place as the offeror (or is using means of instant communication such as a telephone: see § 147 I, sentence 2 BGB) must be accepted immediately and, if it is not, then it will normally lapse. (See § 147 I BGB.) But in cases of transactions inter absentes the offer normally remains binding until such time as it expires in accordance with § 146 BGB (referring to §§ 147–49 BGB) or is rejected by the offeree.

The period during which the offer should be kept open is determined by the offeror or by what is reasonable in the circumstances (see: § 147 II BGB. Münchener Kommentar-Kramer, § 147 BGB Rn. 7; cf Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Ex 109 for a similar approach in the English case law). In deciding this one must take into account the offeror’s expectations, the time needed for his offer to reach the offeree, the time necessary for the latter to accept (including, where appropriate, the need to make enquiries or test samples etc), and generally prepare an appropriate reply. Circumstances likely to delay a reply and known to the offeror (eg, the offeree’s absence from his office, illness, strikes, etc) must also be taken into account in determining the period during which the offer remains ‘open’ (cf RGZ 142, 402, 404; and for more details, see: Staudinger-Bork, § 147 BGB Rn. 10–11).

In appropriate circumstances, the offeree may even be placed under a duty to make up for such initial delays by, for instance, sending his acceptance by express delivery rather than an ordinary letter. A telegram response is, in any event, normally expected from offers made in such form or, otherwise, indicating the need of a speedy reply. There are even occasions when the acceptance may be deemed to have arrived in time even if this did not actually occur. This is envisaged by § 149 BGB, which states that if an acceptance reaches the offeror late but was sent in such a way that it would have arrived within the ordinary forwarding time (and the offeror can see this, for instance from the postmark) then the offeror must, on receipt of the acceptance, notify the offeree of the delay. (See, for instance, RGZ 105, 255, 256, case no 5.) If such a notification is not made immediately, then the acceptance is deemed to have arrived in time. (For other cases dealing with problems of transmission of a declaration of

64 THE FORMATION OF THE CONTRACT

intention, see: RGZ 144, 289, case no 6; BAG NJW 1963, 554, case no 7; RGZ 125, 68, case no 8, also discussed below.)

If the offer is accepted after it has lapsed then, according to § 150 I BGB, it will be deemed to be a new offer. The same, of course, would be true of Anglo-American law. German case law, however, has refined this situation even further where the lateness of the acceptance is minimal (a matter of fact). Such a (barely) late acceptance will, in principle, make the offeror’s offer lapse according to the general rules; but it may also put him under an obligation to respond instantly if he does not wish to accept this counter-offer. Thus, contrary to the general rule that silence cannot normally amount to acceptance (see below), in such cases the original offeror’s silence may thus end up by binding him to this slightly delayed acceptance which has now become a counteroffer (cf RGZ 103, 11, 13). This last-mentioned case, however, is regarded as exceptional, containing as it does what is, in essence, a kind of extension to the ratio legis of § 149 BGB. Moreover, it presupposes that the offeror has not set any time limit for the acceptance; and it also assumes that the offeree (ie, the new offeror) reacted immediately. In general, therefore, it must be stressed that the Bundesgerichtshof does not regard the silence of the offeror in response to the new offer as an acceptance. (See, for instance, BGHZ 18, 212; BGHZ 61, 282, 285. For further discussion, see: Schlesinger,

Formation of Contracts, II, 1568 and note 18.)

A more interesting variation from English and French law can be found in § 153 BGB. Here German law provides that, in the absence of a contrary intention on the part of the offeror, his subsequent death (or incapacity) does not prevent the acceptance of his offer by the offeree. In such an event the acceptance must, of course, be directed to the heirs of the deceased or, in the event of legal incapacity, to his legal representative. Treitel (The Law of Contract, p 44) takes the view that in English law ‘the death of either party should not of itself terminate the offer except in the case of such “personal” contracts as are discharged by the death of either party.’ The operation of this area of the law will depend greatly on the precise construction of the offer made and how performance was to be rendered.

(e) The Irrevocability of the Offer

The binding effect of an unaccepted offer—inconceivable in systems such as the English, which take the doctrine of consideration very seriously—has a number of interesting consequences which will be discussed below (see sections 2(f) and (g) and 3(c), below). Here, suffice it to make two observations.

First, this binding effect can be avoided if the offeror expressly states this in the offer using, for instances, such words as ‘offer subject to change’ (Angebot freibleibend) or ‘revocable offer’ (Angebot widerruflich). It has been disputed whether such ‘qualified’ offers are real offers after all. In the past, the case law of the Reichsgericht on the whole treated them as non-offers (see RGZ 102, 227; 105, 8, 12; also: BGH NJW 1996, 919, 920). However, if an offer was subsequently made by the other party the offeree’s silence is treated as an acceptance. The person making the ‘revocable offer’ is thus in the end compelled to revoke the initial ‘offer’ if he does not wish the contract to be concluded. The alternative view is that they are offers, though they are freely revocable before acceptance; or even that they are contractual clauses which allow the offeror to revoke the contract if he changes his mind, though such an

THE OFFER (ANTRAG, ANGEBOT) 65

option must be exercised promptly and in accordance with the requirements of good faith. (See Medicus, Allgemeiner Teil, Rn. 366; Flume, Allgemeiner Teil, vol II, § 35 I 3c.) In the end, it is safer to say that the precise effect of such qualifying statements depends on the facts of each case and is a matter of construction. (See, eg, BGH NJW 1984, 1885, where it was found that a revocable offer was intended.)

Secondly, such an approach is largely dictated by the belief that since the initiative for the contract has come from the offeror he can, normally, be expected to have made up his mind whether he wishes to be bound or not before externalising his intention to contract. As for the period during which the offer remains binding, one notes that this can either be stipulated expressly by the offeror himself (in which case the acceptance must take place during this stated period: § 148 BGB); or it can remain ‘open’ until such time as the offeror could expect to receive a reply under ordinary circumstances. (See § 147 II BGB.)

(f) The Rationale of the German Approach

A few further observations should be made about the way German law deals with the consequences of the rule that an offer may be irrevocable even before it has been accepted. Though this problem does not arise in the English common law, other systems, notably the American and the French, have had to address it once they were eventually forced to abandon their original positions and accept that commercial realities required (in some cases at least) that offers be irrevocable. The American courts achieved this result via the use of the doctrine of promissory estoppel alongside an offer to enter into a unilateral contract: the offeree’s change of position in reliance on the original offer is reasonably foreseeable, thus giving a basis for an implied further promise from the offeror that the offer will not be revoked (see Drennan v Star Paving Co 51 Cal 2d 409, 333 P 2d 757 (1958)). This estoppel can be used as a cause of action by the offeree. Interestingly, this approach has not been applied to bilateral contracts in the US (see James Baird Co v Gimbel Bros Inc 64 F2d 344 (2d Cir 1933)); further, the English courts have recognised the detriment that could be suffered by an offeree under a unilateral contract and came to the conclusion that revocation is no longer possible in such contracts once the offeree has started to perform (see Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231). This approach functions by identifying an implied promise not to revoke, which leaves the offeree free to accept the original offer by means of commencing performance (see, further, Treitel, The Law of Contract, pp 37–9).

This latter-day conversion, however, has not brought the French and American systems entirely into line with the German Code since, unlike the latter which treats such a premature revocation as being without effect, the former systems (American Restatement (Second) Contracts, para 90(1); France, Cass civ 17 dec. 1958, D1959, I, 33; Civ 10 mai 1968, Bull civ, III, no 209) regard such a revocation as effective, but require the offeror to pay to the disappointed offeree damages equal to his ‘reliance interest’: ie, damages that will restore him to the position he was before the offer was made. (For France see; Bordeaux 17 jan 1870, S 1870, 2, 219.) The German position was justified thus in the Motive zu dem Entwurfe eines Bürgerlichen Gesetzbuches für das Deutsche Reich, 165-6 (1888) (translation from von Mehren and Gordley, The Civil Law System (2nd edn, 1977), pp 877–8) and deserves to be quoted more fully:

66 THE FORMATION OF THE CONTRACT

The binding effect of the offer is a requirement of commerce. If someone receives an offer, he must be able to count on a contract arising when he on his side makes a timely acceptance of the offer. The recipient of the offer requires a sure point of departure for the decision that he is to make; he must in certain circumstances at once take the steps necessary if the contract is to be concluded; he will refuse and ignore other offers dealing with the subject matter in question, he will, for his part, make offers based on the offer made to him. If a recall of the offer that has reached the offeree were still permissible before the effectiveness of the acceptance, the offeree would feel himself severely injured. Likewise, the inclination to enter into contract negotiations would, in general, become less; commerce would be rendered more difficult and would decrease. The binding effect of the offer also corresponds to the rationally probable intention of the offeror himself. This is most apparent in the cases in which the offeror has set a certain time within which the declaration as to acceptance is to take place. The setting of such a period has, according to everyday conceptions, not only the meaning that the period within which the offer may be accepted is limited, but at the same time the meaning that the offeror binds his hands for this period . . . The impracticability of the doctrine of the revocable offer was also recognized by the Pandecten School [ie, before the adoption of the BGB]. One sought to correct the danger to which the offeree would be exposed by various theories [very similar to those advanced in France by authors such as Colin and Capitant, Cours Elémentaire de Droit Civil français (10th edn by J de la Morandière 1948) pp 35–6; Cf Drennan v Star Paving Co 333 P 2d 757 (1958)] which placed a duty on the revoker to compensate the other party for what he would have had if the possibility of the contract arising had not been presented to him. Commerce is not, in view of the great practical importance of the question, adapted to such an action for damages. Commerce requires a smooth and rapid resolution of transaction, while limiting recourse to an action in damages leads to difficult suits whose chances of success are doubtful and hinders commerce.

Four brief observations are called for in response to this interesting extract.

First, the general assumptions made at the beginning of this extract are correct and German law was, probably, the first to recognise the need to mitigate the rigours of the school of thought which, for whatever doctrinal reasons (consent, consideration), favours free revocability of offers.

Secondly, one must note the emphasis laid here (and repeated in many other contexts of German contract law) on the exigencies of commerce and the security of commercial transactions. This line of justification also resonates strongly throughout English contract law in general, yet it contrasts strongly with the French emphasis on ‘consent’ and ‘autonomy of the will,’ though in fairness to French law one must add that these starting positions have been considerably modified with the passage of time.

Thirdly, one must ponder over the two italicised sections. In particular, the validity of the first of these italicised sections seems dubious; and there is nothing in other systems which have taken a different view on this matter to suggest that the fears of the German legislator are justified.

The last italicised section poses difficulties of its own. To be sure, the German view (according to which a claim for damages is a cumbersome way of protecting the disappointed offeree who is best served by a rule which plainly proclaims that the revocation is without effect) may appear at first glance to be convincing. On closer inspection, however, one may be permitted to wonder about the validity of such an argument. For in the final analysis how can a frustrated offeree protect himself against an offeror who has revoked his offer and refuses to perform other than through an action for damages? The question thus seems to boil down to: what should

THE OFFER (ANTRAG, ANGEBOT) 67

the measure of damages be? And the German insistence on the irrevocability of the offer suggests that the frustrated offeree (whenever he cannot claim specific performance of the offeror’s promise) will be able to claim a full, contractual measure of damages rather than the lesser ‘reliance’ loss, which the American and French systems allow. Whether this is a preferable solution, however, is one on which views may legitimately differ. The paucity of case law on the subject could be taken to suggest that these are academic squabbles which have not bothered the real world unduly. (See further, Zimmermann, Festschrift Heldrich, pp 476–7.)

Before closing this sub-section one should add that the practice in English law of requiring the withdrawal of an offer to be communicated to and received by the offeree (see section 3 on acceptance, below) often achieves some of the goals at which the German approach to the irrevocability of offers aims. The well known case of Byrne & Co vLeon van Tienhoven (1880) 5 CPD 344 illustrates this point clearly. There a postal offer had been received on 11 October and immediately accepted by telegram, yet the offeror had posted a withdrawal of the offer on 8 October: despite the absence of a consensus at the point in time when the offer was accepted, the court held that there was a contract in existence due to the failure to communicate the withdrawal of the offer before it had been accepted. As Treitel states (The Law of Contract, p 41), ‘the rule is based on convenience; for no one could rely on a postal offer if it could be withdrawn by a letter already posted but not yet received.’ Naturally, problems of this nature become less acute as the speed of communication of offers, acceptances and withdrawals gets ever closer to instantaneous.

(g) Communication of the Offer

For an offer to have binding effect it is necessary that it be communicated to the other party. An offer is a declaration of intention (Willenserklärung). Consequently, it is governed by the rules applicable to such declarations generally, which are contained in §§ 130–2 BGB. These provisions form part of the General Part of the Code and thus apply to all declarations of intention. Accordingly, from a German perspective declarations of intention are discussed in abstract and the application of these rules to ‘offers’ is only an incident of these rules. This must be kept in mind when reading the following remarks. Thus, the cases dealing with problems of transmission of a declaration of intention generally (see: RGZ 144, 289, case no 6; BAG NJW 1963, 554, case no 7; RGZ 125, 68, case no 8; BGHZ 67, 275, case no 9; RGZ 50, 191, case no 10) apply mutatis mutandis to offers just as much as to an acceptance letter. Since we present the material wherever possible from the point of view of a common lawyer, we will give here a general outline of these rules as applicable to offers and in the next section return to them to add considerations special to the acceptance of an offer.

The first distinction to make is that between declarations which are directed at an addressee (empfangsbedürftig) and those which do not have a particular addressee.

The latter category includes the making of a will (§§ 2229 et seq BGB) but also the ‘public’ promise of a reward for the performance of an act (Auslobung, §§ 657–61 BGB). They are examples of ordering one’s private affairs through unilateral (as opposed to contractual) ‘legal transactions’ (Rechtsgeschäfte). Unlike offers (§ 145), promises of this kind are, generally speaking, freely revocable (§ 2254, § 658—until the act is performed).

68 THE FORMATION OF THE CONTRACT

It is worth pausing at this stage to consider the offer of a reward more closely. The general rule of the BGB is that in order to create a relationship of obligation the parties must enter into a contract (§ 311 I BGB, see also chapter 1, p 25 ff; see for a comparative historical discussion of the ‘contract dogma’ Zimmermann, Festschrift Heldrich (2005), p 467). The offer of a reward (Auslobung) is a textbook example for an exception to this rule. Such promises for reward do not require to be accepted and therefore do not constitute ‘offers’ in a strict sense of that term. In this context the following problem tends to arise. What if the ‘offeree’ has done what the ‘offeror’ would like him to do even though he is unaware of the promise? The problem has divided Anglo-American courts but, on the whole, tend to opt for the view that in such circumstances there is no contract, suggesting that the key element is the need to come to some agreement where the promise or conduct amounting to acceptance must be rendered in return for that which was offered. German law, on the other hand contains a specific regulation of the matter and, in its basic position (contained in § 657 BGB), it differs from the prevailing common law view, accepting that the reward has to be paid even if the other party who performed the act was unaware of the public promise, in other words the ‘offer’ need not be communicated to an ‘offeree’. (For the US, see: Vitty v Eley 54 App Div 44, 64 NYS 397 (1900); Glover v Jewish Veterans of US 68 A 2d 233 (DC App 1949). For England, see Treitel, The Law of Contract, p 36 criticising Gibbons v Proctor (1891) 64 LT (NS) 594 and preferring the Australian judgment in The Crown v Clarke [1927] 40 CLR 227. In the famous case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 the plaintiff knew of the offer though it was presumably not the dominant motive for using the smoke ball: so long as knowledge of the offer played some part in motivating the conduct treated as acceptance, this will be sufficient; Lark v Outhwaite [1991] 2 Lloyd’s Rep 132, at 140. But if the conduct were completely referable to another motive, then the courts have refused to find the offer to have been accepted; The Crown v Clarke (above), although cf Mitchell and Phillips, ‘The Contractual Nexus: Is Reliance Essential?’ (2002) 22 OJLS 115).

‘Offers’ in the technical sense, ie an offer to enter into a contract, are subject to acceptance and therefore in the end must reach a particular addressee (however, see the possibilities of offers ad incertas personas, above). This is true of all declarations of intention which affect the content or the validity of a contract (eg, rescission, § 143 BGB). The first condition for a declaration of intention is that the intention is declared externally. An offer, being a declaration with a particular addressee, must be communicated to that person. A number of specific requirements must be satisfied before the offer can be regarded as properly communicated to the offeree. This is of great importance, for unless the offer is communicated it does not have any of its desired legal effects (for instance it is not binding in the sense of § 145 BGB). Furthermore, the offer can be withdrawn according to § 130 I 2 BGB (Widerruf) provided that the withdrawal is communicated at the same time or before the offer itself is communicated. (As noted above in discussing the irrevocability of offers in German law, English law takes a rather different view: an offer may be withdrawn at any point in time, unless it has been accepted. Often, the apparent rigours of this approach are mitigated by the use by the offeror of specified time limits within which acceptance must be made, or by the conclusion that merely acting inconsistently with the offer (eg, by selling the item offered to a third party in the interim) does not, without more, amount to a withdrawal of the offer (Adams v Lindsell (1818) 1 B & Ald 681; 106 ER 250).)

THE OFFER (ANTRAG, ANGEBOT) 69

The conditions for communication of an offer under German law are twofold. First, the declaration containing the offer must be transmitted to the offeree

(Abgabe). The initiation of the transmission must be supported by the intention of the offeror. This was self-evident to the drafters of the BGB (Motive, vol 1, p 157) but is controversial nowadays. The question can make a difference, for instance where the offer was posted accidentally by a third person (eg, a secretary; see for details, Medicus, Allgemeiner Teil, Rn. 266).

The second condition, which completes the process of communication, is referred to as Zugang (receipt). This concept is referred to but not defined in § 130 I 1 BGB. At least four answers are possible (see, Motive, vol 1, pp 156 et seq) moving, on the timescale, from the earliest possible point to the latest point in time at which a declaration of intention may come into existence: the declaration (or externalisation of the will) as such (Äußerungstheorie), the dispatch of the declaration in the direction of the addressee (Entäußerungstheorie), the receipt of the declaration in the sense of its arrival in the hands of the other party (Empfangstheorie), and the actual notification of the content of the declaration been received by the addressee (Vernehmenstheorie). Choosing the right moment depends on an evaluation of the competing interests between sender and recipient of a declaration of intention.

To this problem the BGB offers a compromise solution and regards it as sufficient that the addressee has the possibility to take notice of the content of the declaration and can reasonably be expected to do so (Empfangstheorie). As a result, the sender bears the risk of destruction or postponement during transport. This seems sensible for it is he who has chosen the method of communication. Furthermore, it would not be practicable to make communication dependent on the actual notice by the addressee, for it would be difficult to establish for the sender that the receiver had actually become aware of the declaration. Thus, the latter bears the risks that stem within ‘his sphere of influence.’ The full legal effect of a declaration, therefore, does not require that the other party actually knows of it. The communication of the declaration only requires that the addressee is reasonably able to learn of it.

The BGB deals only with declarations of intention inter absentes in § 130 BGB and two special provisions: §§ 131–2 BGB. § 130 I 1 BGB does not define the requirement of proper communication. § 130 I 2 BGB introduces the already explained right to withdraw an offer before it is communicated. § 130 II BGB clarifies that a declaration of intention will not be affected by the death or incapacity of the sender once it has been transmitted (abgegeben). A special qualification of this rule in relation to offers is contained in the already mentioned § 153 BGB: the offer remains valid if the offeror dies or loses capacity before the acceptance of the offer, unless the intention of the offeror was otherwise (this negative formulation indicates that it is presumed that the offeror intended that the offer remains valid).

An offer inter absentes is communicated in the sense of § 130 I 1 BGB as soon as the offer enters the sphere of influence (Verfügungsgewalt, Machtbereich) of the addressee (eg, letterbox) and under normal circumstances (eg, usual office hours) it can be expected that the letter will be opened and its content noted. (See, for useful illustrations of this principle, RGZ 144, 289, case no 6; BAG NJW 1963, 554, case no 7; RGZ 125, 68, case no 8; BGHZ 67, 275, case no 9; RGZ 50, 191, case no 10.) Whether the addressee actually read the letter is immaterial, but if the letter is read before it would