70 THE FORMATION OF THE CONTRACT

or could reasonably have been expected this also seems sufficient (see Medicus,

Allgemeiner Teil, Rn. 276).

Oral declarations of intention are not expressly dealt with in the BGB. Such declarations are deemed to have been communicated if the receiver was actually capable of understanding the declaration—whether he comprehended it correctly or not does not matter, provided that it could be reasonably expected that he would comprehend it.

Finally, a number of problems have arisen in connection with acts committed by the addressee that prejudice the communication of a declaration of intention. This problem arises because under German law the declaration of intention must come into the sphere of influence of the addressee. This approach faces difficulties when the addressee deliberately prevents this from happening (eg, refuses to accept the letter, which he suspects to be the notice of termination of his labour contract, his lease, etc and thus seeks to delay its coming into effect). These problems are usually dealt with under the heading of good faith (abuse of rights; as to which see chapter 3, p 123) and need not be covered in detail here, for they seldom if ever arise in connection with offers. (For details see, Brox, Allgemeiner Teil, Rn. 157 et seq.)

Given the revocable nature of an offer under English law, many of these situations for which German law has made provision have received far less attention. In the absence of valid consideration, there can be no ‘binding contractual effect’ of the offer in any case. Instead, the cases have focused more on the question of the acceptance of an offer since it is the event of this acceptance that constrains the offeror’s freedom to change his mind in the great majority of cases (particularly if the acceptance can also be construed as sufficient consideration in itself). It is questions of acceptance to which we now turn.

3. THE ACCEPTANCE (ANNAHME)

The acceptance must be free and unreserved, corresponding to the offeror’s declared intention. As a general rule, it must be communicated to the offeror.

(a) Free

Freedom of contracts is as essential a tenet of German contract law as it is of the common law of contract. As a result of this in the vast majority of cases, there is no obligation to accept an offer; indeed, in the case of unsolicited goods, there is no obligation to do anything whatsoever about them. (See however, § 362 of the Commercial Code discussed briefly under the sub-heading of ‘silence’, below. See also, Directive 97/7/EC [1997] OJ L144/19 on consumer protection in distance selling which has led to a presumption in English law that any goods sent without being requested in advance by their recipient may amount to a gift rather than an offer that might or might not be accepted: Consumer Protection (Distance Selling) Regulations 2000, SI 2000/2334, regs 22 and 24; and cf § 241a BGB.)

Modern conditions have created a number of exceptions where there is a duty to contract (Kontrahierungszwang). The following are the two most important instances. (Note, also, that as will be explained below in the section on culpa in

THE ACCEPTANCE (ANNAHME) 71

contrahendo the offeree may become liable in damages if he creates the impression that he will accept and subsequently does not communicate to the offeror that he has changed his mind.)

The first deals with public utilities such as electricity, gas, rail and aerial transportation and in these cases the consumer (or traveller) is, generally speaking, ‘entitled’ to have his offer to use these services accepted by the providers of these services.

The second exception to the rule that the offeree is, in principle, entitled to refuse an offer to enter into a contract can be found in § 20 II (previously: § 26 II) of the Law against Unfair Competition (Gesetz gegen Wettbewerbsbeschränkungen). This law, as the title suggests, prohibits certain discriminatory practices by enterprises that hold a dominant position in the market or operate restrictive price practices, thereby preventing smaller firms from having access to the market. (Similar considerations may arise in all EU Member States as a result of certain aspects of EC competition law, such as mandating access to facilities that are ‘essential’ to competition in downstream markets (eg, non-replicable infrastructure such as high voltage transmission lines: see Case C–7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungsund Zeitschriftenverlag [1998] ECR I-7791) or in requiring ‘non-abusive’ licensing of intellectual property rights (see Joined Cases C–241 and 242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications (ITP) Ltd v Commission [1995] ECR I-743 (also known as ‘Magill’ or ‘TV Guides’)).

This area of the law is quite technical; but its general aim and operation are well illustrated by the ‘Rossignol skis’ litigation, which was resolved by the Bundesgerichtshof in 1976 (BGH NJW 1976, 801, case no 11). The action was brought by a sports shop in Bavaria against the sole German distributor of the said mark of skis who refused to supply the plaintiffs because they were selling them below the recommended price. This practice was deemed to be legally unjustifiable and the supplier was thus forced to resume contractual delivery of skis to the plaintiff. (It is disputed whether the right to force the other party to enter into a contract is based on the general rule contained in § 249 BGB which requires restoring the pre-existing state of affairs in specie or whether this right stems from § 20 II of the Unfair Competition Act; but the outcome itself is not in doubt.) Protection against monopolistic abuse may, in fact, go beyond the purely economic sphere. Thus a doctor or a pharmacist may be liable if he refuses his services without proper cause. (Compare, on this last point, Hurley v Eddingfield 156 Ind. 416, 59 N.E. 1058 (1901) and, for further details on the whole matter see: Münchener Kommentar-Kramer, Vor § 145 Rn. 15. For a discussion in French, see: Pedamon, ‘De quelques traits essentiels du droit allemand de la concurrence’ Cah dr Entr (1987) 28.)

(b) Unreserved Acceptance; Dissent

As in English law, the acceptance must be unreserved and it must not introduce new elements into the offer. (This is sometimes referred to as the ‘mirror image’ rule.) As § 150 II BGB states, ‘an acceptance under extensions, limitations or other alterations is deemed a refusal combined with a new offer’ (which, of course, can then be accepted by the original offeror). (For English law, see the discussion by the various members of the Court of Appeal in Butler Machine Tool Co Ltd v Ex-Cell-O-Corporation (England) Ltd [1979] 1 WLR 401.)

72 THE FORMATION OF THE CONTRACT

The German Code goes into the question of discord of offer and acceptance in greater detail than English law. This discord is often referred to as ‘dissent’ (Dissens) and, since it comes close to the notion of ‘error’ (Irrtum), it will be reviewed in the third chapter of this book. Here, suffice it to say that under the Pandectist regime of the nineteenth century, Irrtum and Dissens used to have the same consequence, ie, to make the transaction void. Nowadays, however, a transaction tainted by error (‘mistake’) is voidable whereas a transaction afflicted by dissent makes the transaction non-existent. A further distinction should, perhaps, be borne in mind. In the case of error there is a divergence between the real and declared will, whereas in the case of unconscious dissent, the parties erroneously believe that they have concluded a contract.

Dissent is best discussed if a distinction is drawn between disagreement concerning essential terms of the contract (Hauptpunkte) or merely subsidiary terms (Nebenpunkte). In the former case the contract usually fails, while in the latter case the gap left by the dissent may be more easily filled by means of interpretation. The guiding principle in all these cases is the intention of the parties so far as it discernable and the Code provides two rules of interpretation in §§ 154, 155 BGB. Somewhat unhappily, however, the Code distinguishes between open (or conscious) dissent (offener Dissens: § 154 BGB) and hidden (or unconscious) dissent (versteckter Dissens: § 155 BGB), which we follow here for the sake of convenience.

In the first case—open dissent—if the discord is over essential terms such as the price, generally speaking there is no contract. (Yet, see for instance BGH NJW 1997, 2671, amount of rent left open; BGH NJW 2002, 817, commission of a broker left open; where the court held that there was a contract and filled the gap by applying §§ 612 II, 632 II BGB by analogy. See, as to these provisions, the section on completeness of the offer, above, including the discussion of terms that can be supplied by looking to a reasonableness standard under legislation such as the Sale of Goods Act 1979.) If, on the other hand the open dissent refers to subsidiary terms—eg, who will bear the cost of delivery of sold goods—§ 154 I BGB establishes the harsh presumption that if one point has been left open which according to one of the parties was to be part of the contract, however insignificant its purpose, the contract is deemed to be void. The prevailing opinion nowadays seeks to limit this provision by emphasising that one must search for the true intention of the parties taking into account the type of contract they have concluded or by resorting to an analogical application of § 315 BGB (cf BGHZ 41, 271, 275; BGH NJW 1975, 1116, 1117). The contract may thus still be saved if this emerges to be the true intention of the parties. This conclusion may be helped by the fact that one of the parties has commenced delivery of the goods. Thus, if the parties have commenced performance, the chances are that the contract will be treated as having been validly concluded. If, on the other hand doubts remain as to whether the agreement was concluded then, according to § 154 I BGB, the contract will be deemed not to have come into existence. Thus, if performance has commenced, the clear inclination of the courts in both England and Germany has been to try to leave in place a sensible contractual structure between the parties. However, if sufficient consensus on key elements cannot be found, a restitutionary remedy in the form of payment of the cost of services rendered in anticipation of a contract being concluded may be available (see the discussion in section 2(b), above).

Where the parties are unaware of their discord, and this discord refers to an essential part of their agreement, then no contract is considered to have come into

THE ACCEPTANCE (ANNAHME) 73

existence. The contrary presumption in § 155 I BGB is then disproved. This applies, for instance, where parties have bought and sold goods in dollars, the buyer thinking in terms of (the weaker) Canadian dollar and the seller in terms of (the stronger) US dollar (a standard example given by the German text books. See, for instance, Flume, Allgemeiner Teil, II, § 34, 4; Köhler, Allgemeiner Teil, § 8 Rn. 41.) See also, RGZ 104, 265 (case no 12), where each of the parties believed that the other intended to buy: no contract concluded (the case is discussed further in section 5 on culpa in contrahendo). But if the disagreement refers to a minor point in the contract, then one may fall back on § 155 BGB, which stipulates that that ‘which is agreed on is valid if it may be assumed that the contract would have been concluded even without a settlement of this point.’ This means that the judge has to search for the ‘presumed intention’ of the parties (hypothetischer Parteiwille), taking into account all relevant surrounding circumstances. For an illustration of these problems, see also the battle of forms cases discussed below.

English law’s insistence on a sufficiently unqualified acceptance might seem to leave little or no room for manoeuvre in matters such as those referred to in the immediately preceding paragraphs. Indeed this is its basic position. Nevertheless, certain statements made alongside an acceptance of an offer may be treated as a sufficient acceptance to conclude the contract, while also making a further offer concerning the matters under that first contract: eg, a request for extra time to complete work or to pay a sum will not always prevent the contract being concluded on the original terms, so long as the offeree makes it clear that he does accept the original terms if his request is refused (Treitel, The Law of Contract, p 19, referring to Global Tankers Inc v Amercoat Europa NV [1975] 1 Lloyd’s Rep 666, at 671). This will be a matter of careful interpretation of the terms of the offer and acceptance in every individual case.

(c) Communication of the Acceptance

The acceptance must, in principle, be in response to an offer made by the offeror. Hence, the general rules as discussed in the previous section (communication of the offer) apply. The offeree must not only accept the offer in his innermost mind; he must also communicate this to the offeror. This is also the general rule in English law (see, eg, Allied Marine Transport Ltd v Vale do Rio Doce Navigacao SA (‘The Leonidas D’)

[1985] 1 WLR 925, at 937).

The acceptance is deemed to be complete, as explained in relation to the communication of the offer, when it reaches the sphere of influence of the offeror (Empfangstheorie) though, again, it is not necessary that he actually becomes aware of it, eg, by reading the offeree’s letter. (RGZ 50, 191, case no 10, and settled law since. For English law see Entores Ltd v Miles Far East Corp [1955] 2 QB 327, at 322.) As a rule, actually bringing the acceptance to the notice of the offeror is required so that if, for instance, a passing aeroplane drowns the sound of the acceptance out, this would prevent a contract from having been concluded, although there are exceptions to this (eg, unilateral contracts (see above, section 2(f)), communication to the offeror’s agent and the postal rule—see Treitel, The Law of Contract, p 23 ff).

The Common law ‘postal rule’ (that an offer is deemed to have been accepted when the letter of acceptance is posted: Dunlop v Higgins (1848) 1 HLC 381; 9 ER 805,

Henthorn v Fraser [1892] 2 Ch 27 and Holwell Securities v Hughes [1974] 1 WLR 155;

74 THE FORMATION OF THE CONTRACT

Treitel, The Law of Contract, pp 24–9, McKendrick, Contract Law (2003), pp 117–24 and Gardner, ‘Trashing with Trollope: A Deconstruction of the Postal Rules in Contract’ (1992) 12 OJLS 170) is thus not adopted by German law, largely because the irrevocability of offers (made possible, as we have seen, by the absence of the doctrine of consideration) means that the offeree is sufficiently protected during a reasonable period after the offer has reached him. (Compare BGH NJW-RR 1989, 757 with Byrne & Co v Leon van Tienhoven & Co (1880) 5 CPD 344. However, see McKendrick, Contract Law, p 123, who criticises the English position, preferring instead the approach that the offer can no longer be withdrawn once the acceptance has been posted as providing sufficient protection for the offeree. This approach is also in line with the CISG and the Unidroit Principles.) Incidentally, one must note that offer and acceptance are both declarations of intention and thus treated identically: they produce their effect on reaching the other party’s sphere of influence. Once again, however, the German Code provides for some exceptions.

The first of these exceptions has already been encountered above, when we discussed sales through vending machines. There we saw that, according to § 151 BGB, no communication of the acceptance need be made to the offeror: all that the offeree need do is externalise his intention through an appropriate form of conduct (Willensbetätigung). (As to the possibility of acceptance pursuant to § 151 BGB, see the illustration in BGH NJW 1957, 1105, case no 13.) § 152 BGB contains another such exception for contracts which have to be notarially authenticated and are concluded by parties who are not simultaneously present for the event. Here, in the absence of a contrary intention, the contract is concluded on authentication of the acceptance to the notary of the acceptor and no further communication to the offeror need take place.

From these simple cases others, far more complicated, have arisen which have prompted what must be seen as a typically Germanic theoretical debate (although cf the debate that Gilmore started in the US with his book The Death of Contract (1974)). Thus, a young child gets on a bus and travels without his parent’s permission without a ticket or with an expired ticket; or a driver enters into an open air parking lot where he fervently believes he is allowed by ancient custom to park without paying the parking fee demanded from the attendant (BGHZ 21, 319); or, finally, a house owner takes electricity directly from the power lines, by-passing the company’s meters (BGH JZ 1957, 275).

These cases, where no will has (apparently) been declared (indeed, in the parking lot case it was expressly withheld), were once treated as examples of what became known as a factual contract (faktischer Vertrag). The term came from Günter Haupt’s inaugural lecture in 1941 and was subsequently reprinted (with some modifications) in the Festschrift für Siber, vol I, p l. (For more details, see Spyros Simitis, Die Faktischen Vertragsverhältnisse als Ausdruck der gewandelten sozialen Funktion der Rechtsinstitute des Privatrechts (1957).) This view was subsequently justified by such eminent jurists as the late Professor Karl Larenz (Allgemeiner Teil, § 28, II) as involving a declaration of a will which is manifested simply by the use of the service provided (Inanspruchnahme). According to Larenz, in such cases typical social conduct (sozialtypisches Verhalten) replaced the formal element of overt acceptance in the process of creating a contractual obligation. However, despite the authority of its academic patron, this view has now been abandoned both by scholars (among the strongest critics one finds Lehmann,

THE ACCEPTANCE (ANNAHME) 75

Medicus and Nipperdey) and the courts (see: BGH NJW 1965, 387, 388, case no 14; BGH MDR 1968, 406; although cf BGH FamRZ 1971, 247) on the double grounds that

(a) it finds no support in the Code (a favourite argument of German jurists), but also (b) because it is often seen as being not necessary and indeed dangerous. This, for instance, would be the case as far as infants (or young children) are concerned to the extent that it may deprive them of the protection given to them by other provisions in the Code (eg, §§ 105 I, 107 BGB) which can be greater than that provided by English law. This school of thought, which has opposed the notion of factual contract, thus believes that most cases brought under the heading can also be seen as cases where there was implicit or tacit acceptance (konkludente Annahme); and where this seems too far fetched—as in the case of the child getting a free ride on the tram or the driver parking his car in the parking lot without paying the required fee—the legal solution can be sought either in the law of tort or, even, unjust enrichment. (See Brox, Allgemeiner Teil, Rn. 194, and Medicus, Allgemeiner Teil, Rn. 245 ff. Cf, however, Wieacker, ‘Willenserklärung und sozialtypisches Verhalten’ in Göttinger Festschrift für das Oberlandesgericht Celle

(1961), pp 263, 267–8 doubting the suitability of these other causes of action.)

Thus, for all intents and purposes, the ‘faktischer Vertrag’ is now part of recent legal history. Yet in the area of partnership (Personalgesellschaft) and labour relations (Arbeitsverhältnis) we find some vestiges of this idea. For here relationships may have ‘defectively’ (fehlerhaft) been brought about but, because of their continuing nature (Dauerschuldverhältnis) cannot, pragmatically speaking, be ignored and are thus brought to a juristic end only ex nunc. (These cases are currently known as fehlerhafte Gesellschaft and fehlerhaftes Arbeitsverhältnis. See, for details: Maultzsch, ‘Die fehlerhafte Gesellschaft: Rechtsnatur und Minderjährigenschutz’ JuS 2003, 544; Goette, ‘Fehlerhafte Personengesellschaftsverhältnisse in der jüngeren Rechtsprechung des Bundesgerichtshofs’ DStR 1996, 266; Preis in Erfurter Kommentar zum Arbeitsrecht (4th edn, 2004), § 611 Rn. 170 et seq.)

(d) Waiver of Notification of Acceptance; Silence and Letters of Confirmation

Can the notification of the acceptance be waived? According to § 151 BGB the answer is positive if: (a) such a waiver is normal in the circumstances or (b) the offeror has waived the requirement. Little need be said about the second possibility. So far as the first is concerned, suffice it to say that such waiver of communication of the acceptance is commonly found in mail order businesses and in situations where the parties are in a continuing business relationship. One must note however that what can be waived is the notification of the acceptance and not the intention to accept. The result is that the intention to accept must have in some way been externalised and in some instances this could raise problems of proof (see: BGH NJW 1957, 1105, case no 13; Treitel, The Law of Contract, pp 18–19 on acceptance by conduct discusses some of these problems, pointing out that the requisite evidence of the intention to accept must be assessed on the facts of each case: sometimes, the conduct is clearly consistent only with the conclusion that there was no intention to accept—see, eg, Beta Computers (Europe) v Adobe Systems (Europe) 1996 SLT 604).

It follows from the preceding paragraph that, like English law (Feldthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037, affirmed (1863) New Rep 401 (see Miller (1972) 35 MLR 489)—an unsatisfactory case since on its facts it may be that the offeree had

76 THE FORMATION OF THE CONTRACT

done enough to indicate his acceptance to the offeror’s proposal (see Treitel, The Law of Contract, p 32)) and French law (Cass Civ 25 mai 1870, D 1870.1.257, but with the important exception that silence may constitute an acceptance where the offer is to the exclusive interest of the offeree: see Cass Req 29 mars DP 1938.1.5; Cass Civ 1 dec, 1969, D 1970.422.), German law takes the view that silence cannot amount to an acceptance since contracts cannot be forced upon unwilling partners. Furthermore, silence is often equivocal as to the intentions of the offeree: inactivity could just as well evince an intention not to accept in many cases (see, eg, Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA (‘The Leonidas D’) [1985] 1 WLR 925). But this is only the position in principle; and one can find some exceptions created either by the Codes (Civil or Commercial) and the case law.

The BGB exceptions include the following.

The first can be found in § 455 BGB and deals with sales on approval or inspection. If the item offered for sale was delivered to the purchaser for the purposes of trial or inspection, the latter’s silence after the lapse of the stated time (or, if no time was stated, a reasonable period) will be deemed as approval (whereby, strictly speaking, parties are considered to have concluded a contract which however is subject to this approval).

A second exception can be found in § 516 II BGB. If a donor offers to make a donation and sets a time limit within which the donee must express his willingness to take the gift, the offer is deemed to have been accepted through silence after the fixed period has expired (unless the donee has expressly declined it within the said period). Likewise, §§ 545, 581 II and 625 BGB allow for the tacit renewal of contracts of lease and a contract of services. § 177 II 2 BGB treats the principal as having denied ratification if the third party demanded a decision to that effect and two weeks lapsed since then (cf § 108 II 2 BGB concerning the ratification of acts by minors). More important in practice are §§ 346 and 362 of the Commercial Code (Handelsgesetzbuch, HGB). The former, § 346 HGB, states that acts or omissions will in general have the effects common usage and good faith attribute to them, and in practice this mean that in appropriate circumstances, commercial usage may ascribe legal consequences to silence (which aligns nicely with the position apparently accepted in English law relating to a course of dealing between the parties, where previous offers to buy have been accepted simply by sending the product ordered. See Treitel, The Law of Contract, p 33, who cites the American case of Cole-McIntyre-Norfleet Co v Holloway 141 Tenn 679; 214 SW 817 (1919)). The latter provision, § 362 HGB, deals with merchants whose ‘business includes solicitation or conclusion of business transactions for others’ in an independent manner and who are placed under a duty to reply without delay if they receive an offer concerning the performance of such services from a person with whom they maintain business relations. Thus, not every merchant is covered by this rule but only those who either have the kind of relationship with the client envisaged by this article or who have offered their services to such a client. Thus, this provision would typically cover brokers or other financial agents who pay, transfer, or otherwise in their professional capacity take care of the business affairs of others.

The German judge-made exception to the rule that silence cannot amount to an acceptance refers to so-called ‘confirmation letters’ and these play an even more significant role in everyday German life. A number of decisions dealing with this issue

THE ACCEPTANCE (ANNAHME) 77

are reproduced below so here it suffices to state the topic in its barest outline. (See, for instance, BGH NJW 1965, 965, case no 15; OLG Köln RBRK 1980, 270, case no 16; BGHZ 54, 236, case no 17; BGH NJW 1974, 991, case no 18.)

Confirmation letters (kaufmännische Bestätigungsschreiben) are usually sent following oral negotiations for the conclusion of a contract. The party sending such a letter may in such cases add in that letter terms which may not have been envisaged or agreed on at the oral stage of negotiations but which the writer of the letter believes to have been part of the negotiations. When the ‘co-contractor’ receives such a letter of confirmation he must, according to consistent case law since the beginning of last century, inform the writer of the confirmation letter of his disapproval of any new terms; and if he does not, his silence will be taken as an acceptance of these terms. (See, for instance: BGH NJW 1974, 991, case no 18; NJW 1994, 1288.) In examining such letters the courts will not enquire whether, in fact, a contract has already been concluded, but only whether there were negotiations between the parties. Additionally, this judge-made rule is applied to merchants (and more recently has also come to be applied to professional people) who compose such letters and send them to the opposite side immediately after the negotiations asserting the validity of such terms— terms, one might add, which one might normally expect to find in the kind of contract that has allegedly been concluded.

But by far the clearest limitation to the possibility of introducing new terms into a contract comes from one of the most important general clauses of the Code—§ 242 BGB (discussed in greater detail in chapters 3 and 7). Thus, the ‘deviation’ by means of addenda or modifications must not be contrary to the principle of good faith—an exhortation which clearly allows plenty of room for judicial policing of the parties’ behaviour. The burden of proof for the existence of a significant deviation rests on the addressee of such a confirmation letter, yet is for the sender to show that the letter was preceded by contract negotiations which the letter is meant to ‘confirm’. (See, eg, BGH NJW-RR 2001, 680, which contains a useful summary of the applicable rules.)

The German position on confirmation letters contrasts with that which obtains in English law. As the case of Jayaar Impex Ltd v Toaken Group Ltd ([1992] 2 Lloyd’s Rep 437: see Treitel, The Law of Contract, p 18) makes clear, any such attempt to use such a confirmation letter to incorporate written terms which are substantially different from those agreed in the original oral contract will not be treated as having been accepted by the recipient of that letter merely by his conduct in taking delivery of the goods (and his subsequent silence as to the ‘new’ terms). Any such conduct refers to the oral contract itself, not to the varied terms in the confirmation letter. The English courts ask whether a contract has been concluded and do not allow this subsequent communication to vary that contract, in the absence of acceptance and consideration for such a variation. At the same time, it should be pointed out that such cases concerning ‘confirmations’ can often bear strong factual similarities to cases involving a ‘battle of the forms’ between prospective contracting parties, particularly if no firm agreement can be established on which terms were actually agreed on orally and/or accepted by conduct. Sometimes, gaps left in the agreement will be filled by the courts using various methods of implication (see p 59, section 2(b)), but on other occasions the last shot fired in the battle may well prevail. We will return to ‘the battle of the forms’ below (see section 3(f), p 79).

78 THE FORMATION OF THE CONTRACT

(e) Pre-contracts; Option Contracts; and Letters of Intention

In German law, a pre-contract (Vorvertrag) allows one or both parties to make a legally binding agreement to enter at a later date into what is known as the principal contract (Hauptvertrag). (For English law, see Treitel, The Law of Contract, pp 51–66 for a discussion of issues of certainty and conditional agreements, with which some of this discussion overlaps.) This postponement of the principal contract may be due to technical reasons (prices may be fluctuating, the place of delivery may be undecided, etc) or legal reasons (the necessary licence has not yet been granted etc) though this assumes that the outstanding terms are either determined or determinable, if necessary through an equitable interpretation of the contract in accordance with § 157 BGB. Such a pre-contract must contain all the terms necessary for the main contract (see RGZ 124, 81, case no 1). This differs from the situation discussed in the wellknown English case of Walford v Miles [1992] 2 AC 128, where the principal agreement was subject to contract and therefore not binding, while the attempt to imply a term into a collateral agreement that negotiations should continue in good faith was rejected by the House of Lords (see McKendrick, Contract Law, pp 535–43). Treitel (citing Donwin Productions Ltd v EMI Films Ltd, The Times, 9 March 1984) suggests (The Law of Contract, pp 61–2) that where all essential points have been resolved between the parties but some issues remain open, a term might be implied by the court that negotiation in good faith was required to resolve those other issues.

The pre-contract is also subject to the same formalities as the principal contract whenever the purpose of the formality is not merely probative but aims at protecting one of the parties against precipitous action. It is enforceable against the party who has bound himself to enter into the main contract (or indeed it is enforceable against either party if both have assumed such an obligation) by means of a declaratory judgment. It differs from the Option Contract (Optionsvertrag), which gives to one party the legal option (Optionsrecht) to force, by means of a unilateral declaration of his will, a contractual relationship on the other. Once again, the option contract is subject to the same formalities as the main or final contract; but it is not settled whether the exercise of the option itself also has to comply with the same requirements.

The weakest and least binding of the preliminary skirmishes in the process of concluding a binding contractual relationship is the letter of intent. Such an Absichtserklärung, though the Germans themselves use the term ‘letter of intent,’ is usually made by one of the parties as he is feeling his way towards a potential, future contract and, according to standard practice, has no binding legal effects (the standard work on this is Lutter, Der Letter of Intent (3rd edn, 1998); see also Treitel, The Law of Contract, pp 167–8).

It should be noted that such pre-contractual representations might have other consequences for the validity and enforceability of a contract finally entered into (eg, if they are misrepresentations that have induced the other party to accept the offer). We will discuss this issue in chapter 6, below. Otherwise, in English law the possibility of claims based on estoppel to bring an enforceable agreement into being will not be successful in the absence of pre-existing contractual relations between the parties (although cf Thornton Springer v NEM Insurance Co Ltd [2000] 2 All ER 489, at 519, criticised by Treitel, The Law of Contract, p 113 note 44). Further, a right founded on an estoppel cannot be used as a cause of action to pursue the offeror or hold him to

THE ACCEPTANCE (ANNAHME) 79

his word—rather, it acts as a shield to protect (typically) the reliance by the other contracting party on the statements or conduct of the offeror (see Treitel, The Law of Contract, pp 105–24 and McKendrick, Contract Law, pp 231–67). (The only place where in English law an estoppel is capable of founding a cause of action is in the sphere of real property, where a right can be based on an assurance relating to the ownership of real property, coupled with detrimental reliance on that assurance and in circumstances where repudiation of that assurance would be unconscionable: see, for a recent example, Gillett v Holt [2001] Ch 210. See generally, Treitel, The Law of Contract, pp 134–49; Sparkes, A New Land Law (2nd edn, 2003), chapter 23 and Harpum, Megarry & Wade—The Law of Real Property (6th edn, 1999), chapter 13.)

(f) The Battle of the Forms

We have already seen that an acceptance of an offer that departs from the contents of the latter, typically by introducing different terms will, in the absence of a contrary indication, mean that no contract has been concluded. The starting point of German (and Anglo-American) law is that such an ‘acceptance’ should be treated instead as a rejection of the original offer as a counteroffer. The use of standardised clauses and the rapid exchange of documents as a result of improved communications brought a change in the area of the law, especially since the parties themselves were not always quick to pick up the differences that arose in the process of their communications. As a result, the legal problem known as the ‘battle of forms’ became increasingly acute. § 150 II BGB suggests that any deviation, however minor, contained in the acceptance constitutes a counter-offer. Silence is not, as such, capable of acquiring the meaning of an acceptance of the counter-offer. What about the carrying out of the main purported contractual obligations? Does this amount in the absence of an express protest to a ‘tacit’ acceptance of the counter-offer? If this were the case one would force the parties to seek to take the last ‘shot’ before performance commences. This seems somewhat arbitrary, yet the other extreme in concluding that the contract never came into being for failure of complete and unreserved acceptance, does not seem satisfactory either.

Originally, German law took the position found in current English law (exemplified by such cases as British Road Services Ltd v Arthur V Crutchley Ltd [1968] 1 All ER 811) and opted for the ‘theory of the last word’ which corresponds to the English ‘last shot’ doctrine. In practice, this meant that the contract was concluded on the sellers’ terms since they tend to ‘fire the last shot’ and buyers do not object (because they want the goods or services for which they have contracted). A defensive mechanism thus became fashionable. Parties, usually buyers, started to include a defensive clause (Abwehrklausel) which protected them against all contrary clauses of the other party (present or future) to which they did not formally assent in writing. Initially, the courts seemed favourably inclined towards such a device; in fact, they still pay much attention to it. (See, for a similar defence strategy, Butler Machine Tool Co Ltd v Ex- Cell-O Corp Ltd [1979] 1 WLR 401, where the seller signed a slip incorporating the buyer’s terms and returned it to them failing explicitly to refer once again to all terms of his offer. Cf Treitel, The Law of Contract, p 21, suggesting that by careful drafting one can avoid losing the battle of the forms but one cannot win it if the other party is equally careful: no contract is then concluded.)

80 THE FORMATION OF THE CONTRACT

Overall, however, the approach of the Bundesgerichtshof has become more sophisticated, with much attention being paid not only to the intention of the parties, butto custom, usage in a particular trade and good faith (§§ 133, 157 and 242 BGB are frequently relied on to justify the final outcome). (For illustrations, see: OLG Cologne RBKR 1980, 270, case no 16; BGHZ 54, 236, case no 17; BGH NJW 1974, 991, case no 18.) The end result may thus vary. Different clauses may survive to the extent that they are compatible with those of the other party; alternatively, where they are irreconcilable with one another they may be removed and replaced by statutory rules, see § 306 II BGB, and finally, in certain circumstances, one set of clauses may prevail over the other. This, for instance, occurred in an important case decided in the mid-1980s (BGH NJW 1985, 1838, case no 19) where the seller’s attempts to sell his goods subject to an extended property reservation clause (verlängerter Eigentumsvorbehalt) until the buyer had paid the purchase price failed, in particular because of the presence in the buyer’s contract of one of the above-mentioned Abwehrklausel. (In BGH NJW 1995, 1671, for instance the buyer did not object in this qualified way and the extended retention clause survived the battle of the forms.) However, this was not the sole reason for this result. For in contracts containing conflicting provisions, where the issue is the validity of the seller’s ‘retention of title’ clause, solutions are more nuanced (for discussion of such clauses in English law, see McCormack, Reservation of Title (1995) and Sealey and Hooley, Cases and Materials on Commercial Law (3rd edn, 2003), pp 428–46). For a rich, recent case law (see, for instance, BGH NJW 1982, 1749; BGH NJW 1982, 1751; BGH WM 1986, 643, BGH NJW-RR 2001, 484 etc) has distinguished between simple retention clauses and the extended kind (verlängerter Eigentumsvorbehalt) both of which actually serve to protect the seller’s rights. In the first category of ‘retention of title’ clauses the sellers’ claims tend to be upheld (at the expense of the buyers’ contrary clauses) whereas in the case of the ‘extended retention of title’ clauses they tend to be set aside and the buyers’ position seems to prevail. The ‘simple’ retention of title clause is stronger because it is rationalised in property law terms. The buyer cannot obtain by means of the contract for the transfer of the right (§ 929 BGB) more than the seller is willing to give up. The ‘extended’ retention clause is weaker because it is based not on a legal power of the seller, but on the buyer’s consent to transfer to the seller as security the claims he acquires against his buyers. The seller is interested in such a security because by processing the goods sold the seller is likely to lose all his proprietary interest reserved by a ‘simple’ retention of title clause. This was, in fact, the case in the aforementioned decision of the BGH (NJW 1985, 1838, case no 19) where the seller’s contract contained a clause according to which any claims that the buyer had against its customers for the sale of goods produced by the buyer using the goods supplied by the seller were automatically assigned to the seller. As already noted, the buyer’s general objection to accepting any different terms prevailed in the end and the seller’s contentions were rejected. The decision has been interpreted to signify a departure from the ‘theory of the last word’ derived from § 150 II BGB (noted by de Lousanoff NJW 1985, 2921). Instead, while taking the successful formation of the contract as such for granted, the court also focuses on the substance of the terms and how material the conflict of the terms is. The courts have, however, never openly questioned the approach of § 150 II BGB and prefer to solve the conflict at an earlier level by applying subtle reasoning as to what actually was the ‘last word’ of the parties and allowing a protest ‘in advance’. It is tempting to say that the