ALIGARH MUSLIM UNIVERSITY

MALAPPURAM CENTRE, KERALA

International Trade Law

GCT- Ist
Topic- FORMATION OF CONTRACT.

Submitted to Submitted by

Dr.Azmat Ali Kunjali Singh

Assistant Professor GK7931
Department of law 18BALLB34
Content TABLE TS Page No. Page No.

Introduction 03

Formation of an International Contract 03

Offer 04

1.Sufficient Definiteness 05

2.Intention of the Offeror 05-06

3. Effectiveness of the offeror 07

Acceptance 08

Conclusion 09
 INTRODUCTION

In India, contracts are governed under The Indian Contract Act, 1872, but internationally contracts
are governed under the “Contract of International Sale of Goods”. “CISG” is a multilateral
international treaty which offers standardised laws around the world for international sale of
goods. This treaty has a long history, it was developed and approved by “UNCITRAL”[3] and was
adopted in 1980, in Vienna. It is also known as the Vienna Convention. The main aim or purpose
of CISG is to provide a modern, uniform, and fair regime for the International sale of goods
contracts. It governs the contracts between various states and gives them various powers. The
CISG as on August 2010 has been signed by 76 countries out of which some include superpowers
like China, Russia and Japan.

Articles Dealing with the Formation of International Contract

“CISG” in total consists of 101 articles, the articles that deal with the Formation of International
Contract are in Part II of the Convention i.e., from Article 14 to Article 24. The said articles deal
with Offer, Acceptance of an Offer & additional particulars relating to Offer and Acceptance.

FORMATION OF AN INTERNATIONAL CONTRACT

The formation of Contracts amongst States is similar to contracts amid person(s). It starts with an
Offer to a specific or unspecific person(s), where the person on the receiving end either accepts or
declines the offer, in case of Acceptance, the same is then communicated to the person making the
offer (Offeror).

A contract is an exchange of assents between two or more persons that creates an Enforceable
legal obligation. In order to create a binding contract, the exchange of Intentions of the contracting
parties must be necessary and real. Where the exchange of Assent of parties is inconsistent, if must
be interpreted according to the rules of good faith.
 OFFER

An Offer is a proposal made by one person to another person(s). It is the first step for making a
contract. It has to be sufficiently definite and should represent the intention of the person making
the offer (also known as the Offeror). There are two essential elements that are needed while
making an Offer:-

An offer is an act of law; therefore, it has to comply with the applicable national laws, aside from
the CISG. Pursuant to CISG, Article 14, “a proposal for concluding a contract addressed to one or
more specific persons constitutes an offer, if it is sufficiently definite, and indicates the intention
of the offeror to be bound in the event of acceptance.” It can be derived from this definition that
in order to establish an offer, two conditions should be present, the intention of the offeror to be
bound, and a sufficiently defined proposal.

The basic criteria for an offer are set Out under Article 14 of the CISG, thus, each proposal does
not mean an offer and According to the CISG, proposal to constitute an offer must fulfill certain
requirements Which are:

(a) Sufficient definiteness of the offer;

(b) Intention to be bound in case of acceptance;
(c) Effectiveness of the offer, in order to be accepted as an offer

1.Sufficient Definiteness
Article 14 says that “A proposal is sufficiently definite if it indicates the goods and expressly or
implicitly fixes or makes provision for determining the quantity and the price.”

Definiteness means to be definite; it is used in context of goods, quantity of goods, price of goods
and to whom the offer is addressed. Sufficient Definiteness means that the proposal/offer should
be certain and not ambiguous.
A certain good, quantity of goods and price of goods should be mentioned and communicated to
the person accepting the offer. Goods, quantity and price are the three most essential elements
(Essentilia Negotii) of a contract and therefore, they have to be sufficiently determined.
Definiteness is not only in terms of goods, quantity and price but also in regard to whom the offer
is addressed to. At times an offer is specifically made to one or more persons, but sometimes it is
made to unspecific person or persons. In that case it is known as a ‘Public Offer’. According to
article 14, a person is permitted to make an Offer to unspecific person(s). Under Article 14(2)[5]
when a proposal is made to one or more persons, it is considered as an Invitation to make Offers,
lest the contrary is specified in the Offer.

2.Intention of The Offeror

The second element is the intention of the Offeror. “A proposal has to include the 0fferor’s
intention to show his willingness to be bound in case of acceptance.”[6] Intention to be bound is
known as Animus Contrahand, it is an essential condition for an making an Offer under CISG. In
order to make an Offer binding, the intention of the Offeror has to be bound in case of acceptance
by the opposite party.

A. Withdrawal of an 0ffer

An Offeror may withdraw an offer after it has been sent to the Offeree. In a situation where the
Offeree has accepted the Offer, after the withdrawal was dispatched, it becomes vital to distinguish
the stages when the Offer and Withdrawal are effective. Article 15 of CISG determines when an
Offer becomes effective and administers Withdrawal of an Offer. An Offer, revocable or not, can
be withdrawn “if the withdrawal reaches the offeree before or at the same time as the offer.” Notice
of withdrawal prevents formation of a contract.
 B. Revocation of an 0ffer

An Offer can be revoked if the revocation reaches the Offeree before he has sent his acceptance
to the Offeror. “However, an Offer cannot be revoked: If it indicates, whether by stating a fixed
time for acceptance or otherwise, that it is irrevocable; or if it was reasonable for the Offeree to
rely on the other as being irrevocable and the Offeree has acted”. An Offer, even if it is Irrevocable
will be ended as soon as a negation is received by the Offeror.

C. Counter 0ffer

In cases where the Offeror receives a response to the Offer which imposes restrictions and
modification, will be vetoed and considered as a “Counter-Offer”.

“However, a reply to an offer which purports to be an acceptance but contains additional
or different terms which do not materially alter the terms of the offer constitutes an acceptane,
 unless the offeror, without undue delay, objects orally to the discrepancy or

dispatches a notice to that effect. If he does not so object, the terms of the contract are the
terms of the offer with the modifications contained in the acceptance.”

A Counter- offer is regarded as a rejection of the offer when it includes additions limitations and
modification. However acceptance, which is intended to be a reply to an offer, includes additions,
modifications, or limitations, which do not materially effect the terms of the offer is considered to
be an acceptance unless the offeror objects thereto otherwise, orally, or through a notification.
Factors that can materially effect the terms of an offer are listed under Article 19, subsection 3,
and are the price, payment, quality, quantity of the goods, place and time of delivery, extent of one
party's liability to the other, or the settlement of disputes

3.Effectiveness of the Offer.

According to article (14) (1) of the CISG, for an offer to be effective, it must efficiently. indicate
the goods and expressly or implicitly fixes or makes provision for determining the quantity and
price. Therefore, all essential elements must be stated in an offer for it to be effective. It is obvious
that if the essential terms of the contract are explicitly fixed, there will be no problem of
determination (Cisg, 2015).

For the sake of clarity and express understanding of an offer, the following are to be. clearly
indicated.

i Price indication: According to the construction of article 14 of the CISG, the contract is not to
be concluded without specifying the price as such, the indication of price. Price has to be
determined or at least determinable one, an effective offer does not exist (Mistelis & Viscasillas,
2011: p.102-105) moreover, in case a proposal refers to a price list or a market price, it is adequate
to accept a determination impliedly.

ii. Indication of nature and quantity of goods: The nature and quantity of good offered must be
spelt out or at least determinable in the offer but it has also been said by some learned authors that
the explicit description of the goods is not strictly required and may be impliedly determined
(Schelchtriem, 1986). Schlectriem accepts that there may be just a simple indication of the goods
andtheir amounts but at least, that indication must be interpretable. So also, besides written form
of indications, a verbal/oral indication of the goods in nature and quantity is also acceptable.

ACCEPTANCE
Acceptance is the declaration of intent by the Offeree which in order to conclude an effective
contract, has to be communicated to the Offeror. Articles 18-22 of the CISG, are related to
acceptance. Acceptance is regulated under Articles 18 to 22 in line with the Turkish and Swiss
laws of obligation provisions. An acceptance can be made as a statement or by other conduct. It is
important to note that silence or inactivity is not considered as an acceptance under Article 18. As
is indicated, above, Article 8 and 9 play an important role when interpreting offers and
acceptances. In cases where any usage or practices agreed upon between the parties suggest
otherwise, silence or inactivity can also be interpreted differently.
Request for modifications, issuance of credit, confirmation of invoice, and execution and/or
performance of condition set forth in the offer or contract in general would not as been taken as
fact of assent. Silence or inactivity does not amount to acceptance. It is noteworthy to state that,
former usage to which parties have agreed and any practices which parties may have established
in their past contractual relations may indicate assent to an offer

A. Types of Acceptance

Acceptance is of several types. It can be expressed through Explicit Declaration or Performance

of an act or by the Conduct of the Offeree.

Silence or Inaction does not depict acceptance.

Acceptance by Explicit Declaration

Acceptance by explicit Declaration can be divided into two categories: Written Declaration and
Oral Statement. Generally, written declaration is favoured and can be done in any form such as
fax, e-mail, letter, etc. but it has to reach the Offeror. The declaration has to be given to the Offeror
by either the Offeree himself or through his Legal Representative or an Agent.

Acceptance by Performance

Acceptance by performance means through an act, such as payment of goods, shipment of goods,
etc. The Acceptance becomes effective as soon as the act is performed. The Offeree doesn’t have
to specially notify the 0fferor in such situation.

B. Late Acceptance
It is only acknowledged in the cases where the Offeree informs the Offeror, orally or through a
notice along with a justified reason. The Offeror has complete right to refuse the Late Acceptance.
Whereas, Offeror’s silence, in case of late acceptance will be considered as consent.

C. Withdrawal of Acceptance

An acceptance can only be withdrawn if the communication of withdrawal reaches the Offeror
before or at the same time of communication of acceptance.

D. Conclusion of Contract
“A contract is concluded at the moment when, Acceptance of an Offer becomes effective in
accordance with the provisions of CISG.” The declaration of acceptance has to reach the Offeror
in any way. It can be delivered to his house or place of business or mailed.

CONCLUSION
CISG only talks about the traditional approach of contract between the parties. It has been
acknowledged as an effective instrument that is helping in upholding harmony and unison amid
the states. Though, CISG does not govern some issues that are substantial for the formation of a
contract. It doesn’t discuss about the validity of a contract or consideration. It is up to the domestic
laws to decide whether a contract is void or voidable as a result of distortion, fraud, undue
influence, etcetera.

In order to validly form a contract under the CISG, there has to be two declarations of intent –
acceptance and offer. This traditional approach is parallel to Swiss and Turkish laws of obligations.
The offeror should have a definite proposal and the intention to be bound by that proposal. The
offeree, on the other hand, can accept the offer by a statement, or through its conduct. Both Articles
8 and 9 play an important role while interpreting an offer and acceptance. It should be emphasized
that when formation is interpreted, the CISG should be considered as a whole.