International Sales Contract

1. International Sales Contract

2. Introduction • Export and imports are carried out by traders who are residents of different countries • Goods have to cross national frontiers and several types of physical and financial risks are to be faced. • Laws and regulations of the exporting and importing countries are also to be observed. • It is important to decide the Law that will be applicable in case of any dispute that arises. • To solve this issue, a number of conventions and laws have been looked into to arrive at a common law.

3. Lex Mercatoria • Refers to all international trade laws and conventions • Is made up of a multitude of international agreements and international trade customs • Complements domestic laws • Is used when the contract is between two parties in different countries

4. Convention for the International Sale of Goods – CISG • Created in 1980 • Also known as the Vienna Convention • Emerged from the Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) • Has become the Law of International Contracts • Adopted by most countries as part of their Commercial Law • In effect since January 1988

5. Application of CISG • International Sale of Goods • The buyer and seller must have their places of business in different states • Additionally either: • Both of the states must be contracting parties to the convention, or • The law of either of the contracting state apply • Note: CISG may apply even if the buyer’s and seller’s places of business are not in a contracting state. • Exception: The final provisions of the Convention allow a ratifying state, if it wishes, to declare that it will apply the CISG only when the buyer and seller are both from contracting states.

6. Opting In and Out • The parties to a contract may exclude or modify the CISG’s application by a “choice of law” clause. • Whether parties can exclude a domestic law and adopt the CISG in its place depends on the rules of the state.

7. Sale and Goods- CISG Definition • CISG does not directly define a sale and goods. • Implied definition • The delivery of the goods and their supporting documentation by the seller and the payment of their price by the buyer. • CISG only applies to goods that are movable and tangible

8. CISG Excludes Sales of • Goods bought for personal, family or household use • Auction sales. • Stocks, shares, investment securities, negotiable instruments or money. • Ships, vessels, hovercraft or aircraft. • Electricity.

9. CISG deals with • The formation of contracts. • The remedies available to the buyer and seller.

10. CISG doesn’t deal with • The legality of the contract. • The competency of the parties. • The rights of third parties. • Liability for death or personal injury.

11. Formation of Contract • A Contract is Formed when an offer to buy or sell a good is accepted

12. I. Offer • The initial step in the formation of a contract • It is a proposal addressed to specific persons indicating an intention by the offeror to be bound to the sale or purchase of particular goods for a price. • The proposal must be definite. • Describes the goods, and • States or provides a means for determining the quantity

13. A proposal should also state or provide a means for determining the price. • Otherwise the price will be, the price generally charged at the time of the contract for like goods sold under comparable circumstances in the trade concerned. • The proposal must be addressed to one or more specific persons.

14. Effectiveness of an Offer • An offer becomes effective only after it reaches the offeree. • Offers may be withdrawn any time before they reach the offeree. • Offers that promise that they are irrevocable can be withdrawn prior to their reaching the offeree. • Offers that do not state that they are irrevocable • Can be revoked anytime before the offeree dispatches an acceptance.

15. Offer under CISG • The offer made by one of the parties is valid until its stated expiration date and cannot be cancelled

16. II. Acceptance • The second step in the formation of a contract • A contract comes into existence at the point in time when an offer is accepted. • It is a statement or conduct by the offeree indicating assent that is communicated to the offeror. • Any form or mode is allowed in which an offeree can express assent • The offeree must communicate his assent to the offeror. • Under the CISG, the second party must completely agree with all the terms presented in the offer; otherwise, it is a rejection of the offer.

17. Acceptance • Silence • Generally, silence or inactivity does not constitute acceptance. • Time of Acceptance: Acceptance must be received by the offeror within the time period specified in the offer. • If no time period is given: Acceptance must be received within a “reasonable” time. • If the offer is oral, acceptance must be made immediately unless the circumstances indicate otherwise.

18. UNITED TECHNOLOGIES INTERNATIONAL, INC. v. MAGYAR LÉGI KÖZLEKEDÉSI VÁLLALAT • Pratt and Whitney (P&W) offered to sell Málev Hungarian Airlines (MHA) either two or threePW4000 series engines for installation in a Boeing aircraft or two or threePW4100 series engines for installation in an Airbus aircraft. • The offer stated different prices for the different series engines. • It also said that it was subject to Hungarian and US government approval. • One week later, MHA sent a letter accepting the offer for the PW4000 series engines. • When MHA reneged on going forward with the purchase, P&W sued to obtain a declaratory judgment that a contract existed.

19. ISSUES • Was there an offer? Yes • Was there an acceptance? Yes • Was the requirement of governmental approval meant to be a condition precedent? No

20. Explanation • The offer described the goods, and the fact the buyer had the right to choose between the listed engines does not affect the description of the engines. • The offer stated a quantity, even though the buyer could choose between two or three engines. • The offer stated a price and the offer stated a time for delivery. • Thus, there was a valid offer. • MHA’s letter unambiguously stated its acceptance. • A contract was therefore concluded at the time of acceptance. • The offeror did not mean for the proposed government approval to function as either a condition precedent or subsequent, but as only the need to obtain appropriate licenses, etc.

21. ORDER • The parties entered into a contract.

22. III. Rejection • An intermediary step in the formation of a contract • After an offer has been made by one of the parties, the other party may not agree with all of the terms of the offer, and may want to modify them. • Under the CISG, this response is construed as a rejection of the original offer.

23. IV. Counteroffer • An intermediary step in the formation of a contract • After an offer has been made by one of the parties, the other party may not agree with all of the terms of the offer, and may want to modify them. • Under the CISG, this response is construed as a counteroffer, which has then to be formally accepted by the other party before a contract is recognized to exist.

24. V. Acceptance with Modifications • A would-be acceptance that contains material differences from the offer is a counter-offer. • Terms relating to the following constitute material differences: • Price. • Payment. • Quality of the goods. • Place or time of delivery. • The extent of one party’s liability to the other. • The manner of settling disputes. • Additions that are not material are proposals for addition that will become part of the contract unless the offeror promptly objects.

25. FILANTO, SPA v. CHILEWICH INTERNATIONAL CORP. • Chilewich (a US export-import firm) had a contract to deliver footwear to Russia. • This contract contained an arbitration provision that called for all disputes to be arbitrated in Moscow. • Chilewich then engaged Filanto (an Italian corporation) to supply it with footwear that Chilewich had contracted to deliver to Russia. • Chilewich’s correspondence to Filanto said that the arbitration provision in the Russian contract was to be part of their contract as well. • Filanto supposedly sent Chilewich a counteroffer rejecting the arbitration provision. • Chilewich meanwhile proceeded to obtain a letter of credit benefiting Filanto and proceeded as if there was a contract. • Filanto, however, signed a contract on August 7 that contained this provision, although it said in its cover letter that it was not bound by the provision. • When a dispute arose and Filanto sued in a US court, Chilewich invoked the arbitration provision and asked the court to dismiss Filanto’s suit.

26. Issue • Was the August 7 reply a counteroffer? Yes • If it was, was there a contract anyway based on unobjected-to performance? Yes

27. EXPLANATION • The objections to the arbitration provision in the August 7 cover letter were a material modification amounting to a rejection of the offer. • Because Chilewich went ahead with the contract (getting the letter of credit) and Filanto did not timely object, Filanto accepted the terms of the Chilewich’s proposed contract.

28. Order • Case dismissed; the matter must be arbitrated in Moscow.

29. V. Fundamental Breach • In the event that one of the parties to a contract does not meet its obligation, that party can be found in breach of the contract. • If the party did not fulfill its obligations because of an event beyond its control, the nonperformance can be excused under the force majeure clause. • CISG allows the buyer to unilaterally apply a price reduction to the amount agreed upon in the contract for non-conforming goods, without breach.

30. VI. Avoidance • The right to be excused from having to perform any obligation required by the contract. • Requirements: • The other party must have committed a fundamental breach. • The injured party must notify the other party.

31. VII. Seller’s Obligations • To deliver the goods. • To hand over any documents relating to the goods. • To insure that the goods conform to the contract. • If the Contract Fails to Specify How the Seller is to Perform the CISG provides rules to fill in the gaps.

32. VIII. Place for Delivery • The place agreed in the contract, otherwise: • The first carrier’s place of business if the contract involves the carriage of goods, or • The place where the parties knew the goods were: • Located, or • Were to be manufactured or produced.

33. IX. Time for Delivery • The date fixed in the contract, otherwise: • Within a reasonable time after the making of the contract. • If a time period is provided, the seller may deliver at any time within that period, unless the contract expressly says that the buyer is to choose the time.

34. X. Documents • At the time and place for delivery, a seller must turn over any documents relating to the goods that the contract requires.

35. XI. Conformity of Goods • A seller must deliver goods that are: • Of the quantity, quality, and description required by the contract, and • Which are contained or packaged in the manner required by the contract. • To determine conformity: • Use rules agreed to by the parties. • Otherwise, the goods do not conform to the contract unless they are: • Fit for the ordinary purposes of such goods.

36. Of the same quality as a sample or model provided by the seller. • Contained or packaged in a same manner that is: • Usual for such goods, or • Adequate to preserve and protect the goods

37. Goods also do not conform if they are subject to third party claims. • Third party claims include: • Assertions of ownership. • Rights in intellectual property.

38. XII. Waiver • A buyer may waiver a seller’s obligation to conform: • Expressly. • Impliedly, if the buyer knew or “could not have been unaware” that the goods were non-conforming.

39. XIII. Time for Examining Goods • The buyer must examine the goods for defects within as short a period as is practicable after delivery. • If the goods are shipped, the examination may be deferred until after the goods have arrived at their destination. • If the goods have to be redirected or redispatched, examination may be deferred until after the goods have arrived at their new destination.

40. XIV. Notice of Defect • The buyer must notify the seller of any defects he discovers within a reasonable time after delivery or within a reasonable time after discovering the defect. • If the buyer fails to do so he waives his right to require performance. • The seller will not be responsible for a defect that arises not more than two years after delivery, unless: • He knew or ought to have known of a non-conformity and did not disclose it to the buyer, or • The contract establishes a longer period of guarantee. • What constitutes notice is not described in the CISG. • It probably must be sufficient to inform the seller of the problem.

41. XV. Curing Defects • A seller who delivers goods early may correct or “cure” any defect up to the agreed date for delivery. • The cure may not cause the buyer any unreasonable inconvenience or expense. • Even if the seller does make a cure, the buyer retains the right to claim any damages that are provided for in the CISG.

42. XVI. Buyer’s Obligations • Paying the Price • Take whatever preliminary steps are necessary under the contract or any laws or regulations to enable payment to be made. • Pay the price at the time and place designated in the contract. • If no time is specified, the buyer is to pay when the goods or the documents controlling their disposition are delivered. • The buyer must pay even if the seller makes no formal request. • The buyer may delay payment until he has had time to examine the goods. • If no place for payment is specified, the buyer is to pay at: • The agreed place for the delivery of either the goods or their controlling documents, or • The seller’s place of business.

43. Taking Delivery • The buyer must: • Cooperate with the seller to facilitate the transfer, and • Actually “take over the goods.” • A buyer who fails to cooperate will be responsible for any resulting costs. • A buyer who fails to take delivery assumes the risk for any damage to the goods after that time

44. XVII. The Passing Of Risk • The shifting of responsibility for loss or damage from the seller to the buyer • Once the risk passes: • The buyer must pay the agreed-upon price for the goods involved. • Only if the buyer can show that loss or damage was due to an act or omission of the seller is he excused from paying the price. • The buyer must absorb the cost of any loss, or lodge a claim against his insurer. • CISG allocates risk by considering the agreement of the parties and the means of delivery.

45. XVIII. Agreement of the Parties • The parties may agree to allocate risk among themselves and to specify when the risk will pass between them. • Commonly this is done through the use of trade terms.

46. XIX. Means of Delivery • Goods Transported by Carrier. • Prerequisite for risk to pass: The goods must be clearly identified to the contract.

47. Kinds of Contract

48. Shipment Contracts • The seller is to deliver the goods to a carrier for shipment and does not require them to be delivered to a particular place. • Risk passes when the goods are handed over to the first carrier.

49. Transshipment contracts • The seller is to deliver the goods to a carrier for shipment at a named place. • Risk passes when the goods are handed over to the carrier at that place.

50. In transit contracts • Contracts made after the goods are already aboard a carrier. • Risk passes at the time the contract is made. • Exception: If the seller knew or ought to have known that the goods had been lost or damaged, and he did not disclose this to the buyer, the risk does not pass to the buyer.