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International Contract Law

International Contract Law

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International Contract Law

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  1. International Contract Law United Nation Convention on Contracts for the International Sale of Goods (Vienna, 1980)

  2. United Nations Convention on Contracts for the International Sale of Goods (CISG) • Adopted 11 April 1980 • Convention establishes a comprehensive code of legal rules governing the formation of contracts for the international sale of goods • Obligations of the buyer and seller • Remedies for breach of contract • Other aspects of the contract • The Convention entered into force on 1 January 1988.

  3. Scope of applicationCISG applies to ”international sale of goods” It does notapply to: • consumer sales • sales by auction • sales on execution or otherwise by authority of law • sales of stocks, shares, investment securities, negotiable intstruments or money • sale of ships, vessels, hovercraft or aircraft • sale of electricity

  4. Scope of application • Neither does it apply to: • manufacturing contracts, where the party ordering the goods supplies a substansial part of the material • contracts, where labour or other services is the preponderant part of the obligations • It does not govern: • matters of validity, at least not as a rule • matters concerning the right to the property of the goods • product liability

  5. When Does It Apply? • Sale of goods between parties in “contracting states.” • If only one party is in a contracting jurisdiction, CISG will not apply, unless both contracting parties agree.

  6. Is the CISG “Law”? • Only if you agree to it! • Can opt out of provisions via contract language • Specify an alternate choice of law to avoid CISG • Both parties must agree to the choice of law

  7. Provide coverage of: • Warranty of merchantability • goods are fit for their ordinary purpose(s) • Warranty of fitness for a particular purpose • goods match any purpose made known to the Seller, where Buyer relied on Seller’s skill and judgment in choosing goods

  8. CISG -- Article 35 • The Seller must deliver goods which are of the quantity, quality, and description required by the contract and which are contained or packaged in the manner required by the contract • Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

  9. Are fit for the purpose for which goods of the same description would ordinarily be used; • Are fit for any particular purpose expressly or implied made known to the Seller at the time of the conclusion of the contract, except where the circumstances show that the Buyer did not rely, or that it was unreasonable for him to rely, on the Seller's skill and judgment; • Posses the qualities of goods which the Seller has held out to the Buyer as a sample or model; and • Are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

  10. Remedies • The right to “cover,” meaning to purchase alternative /replacement goods in case of a breach of contract; • Consequential damages • loss suffered as a result of the breach, calculated in addition to the breach itself, like lost profits

  11. Buyer’s rights include: • Delivery of conforming goods; • Right to receive the difference in the price paid versus the value of the goods received from Seller

  12. Seller’s rights include: • Forcing the Buyer to pay, take delivery, or perform its obligations; • Lost profits

  13. CISG - Article 46 • If the goods do not conform with the contract, the Buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under Article 39 or within a reasonable time thereafter. • If the goods do not conform with the contract, the Buyer may require the Seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances.

  14. Damages Must be Foreseeable! • CISG requires that the consequences of breach only be possible at the time of contract formation,

  15. Contract Interpretation • Contracts are often ambiguous in certain areas • Course of dealing • how parties have interacted through previous contracts • Course of performance • how parties have interacted throughout this contract • Usage of trade terms • how other similar companies in the industry tend to act

  16. Must the Contracts be Written? • CISG does NOT require a writing; oral contracts are enforceable for any contract amount. • CISG – Article 11 • A contract of sale need not be concluded in, or evidenced by, writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

  17. Are Electronic Contracts Valid? • Not addressed under the CISG; it is addressed by the United Nations Convention Use of Electronic Communications in International Contracts • This is not settled law, though, so companies should be careful when hoping to create contracts written in electronic formats

  18. Contract Formation: Offer and Acceptance

  19. The CISG follows the “mirror image” rule – the offer and acceptance must match in order to establish a contract • Any non-matching response to an offer operates as a rejection and becomes a counter-offer, creating many offer/counter-offer situations during which companies must negotiate, but during which there is no actual contract • Note that this applies only to “material terms,” including price, payment, quality and quantity of goods, delivery requirements, and liability issues.

  20. CISG requires both the quantity and the price terms to be spelled-out; otherwise, no contract is formed.

  21. Contract Formation:Timing Issues

  22. Mailbox Rule: Once an acceptance is placed in the mail, it becomes effective, despite whether the offeror has received it or not. • No "Mailbox Rule": • So; • Acceptance becomes effective only when it reaches the offeror. • Offers, rejections, and revocations also only become effective upon reaching appropriate recipient.

  23. Irrevocable or “Firm” Offers Offers to be kept open as long as the parties desire – there is no maximum time limit

  24. When Do I Own the Goods? • CISG does NOT provide guidance as to when title passes. • CISG defaults to domestic law: • Usually when goods pass to the Buyer • BUT domestic systems can differ • It is best to include provisions for passage of title in the contract!

  25. What Happens if You Don’t Get What You Ordered? Buyer must give the Seller specific notice of the non-conformities within a reasonable time after discovering the problems. This is to allow Seller an opportunity to “cure” (make the goods conform) Exact problems must be noted in detail. This has been strictly interpreted by a number of foreign jurisdictions, so this is important when trying to enforce a contract under the CISG.