Chanderprabhu Jain College of Higher Studies

&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi & Bar Council of India)

E-NOTES

Class : BBA LL.B VIII Semester

Paper Code : LLB 410

Subject : International Commercial Law

UNIT-1

INTERNATIONAL SALES CONTRACTS

Introduction:

International Commercial Law is a body of legal rules, conventions, treaties, domestic legislation
and commercial customs or usages, which governs international commercial or business
transactions. A transaction will qualify to be international if elements of more than one country
are involved. The United Nations Convention on Contracts for the International Sale of Goods
(CISG) is the main convention for international sale of goods. Established by UNCITRAL, the
Convention governs the conclusion of the sale contract; and buyer and seller obligations.

International organizations that attempt to harmonies international commercial law include:

 UNCITRAL: Important in the areas of international carriage of goods, international bills

of exchange and promissory notes, and international arbitration.

 UNIDROIT: Important in the area of international financial leasing and sale of goods.
Notably UNIDROIT has created the ‘Principles of International Commercial Contracts’
which in the future could provide the source of lex mercatoria.

 Hague Conference on Private International Law: The organization drafts conventions in

the field of private international law.

 ICC: Influential in harmonizing international contract terms and global arbitration

practices.

International Conventions relevant to international sale of goods include:

 UN Convention on the Limitation Period in the International Sale of Goods 1974

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 Chanderprabhu Jain College of Higher Studies
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School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi & Bar Council of India)

 UNIDROIT Convention on Agency in the International Sale of Goods 1983

 UN Convention on International Bills of Exchange and International Promissory Notes

1988

 UN Convention on Independent Guarantees and Stand-By Letters of Credit 1995

Formation of contract

The United Nations Convention on Contracts for the International Sale of Goods ("CISG")
regulates the formation of contracts under Part II,

In general terms, with regard to contract formation, the CISG adopted the 'traditional' concept of
contractual obligations, similar to Turkish and Swiss Law of Obligation principles. Both Turkish
and Swiss laws provide that contracts shall be formed as a result of two declarations of intent -
offer and acceptance.

In the doctrine it is accepted that in cases where complex negotiation processes have taken place
and where it is difficult to distinguish between offer and acceptance, substantive consensus can
generate solutions, and the CISG will establish the scope of application. The formation of the
contract is where the contractual journey begins; if no contract is formed, neither of the parties
can be under any obligations. Therefore, it is very important to have an understanding of each
part of a contract’s formation.

In order for a legally binding agreement to be formed, there are four basic requirements to be
met:

2.1 Offer

2.2 Acceptance

2.3 Certainty & Intention to Create Legal Relations

2.4 Consideration & Promissory Estoppels

These four sections operate together, but have distinct rules and you will need to understand each
one to be able to understand the formation of a contract.

The initial offer and acceptance will form an agreement. This is not legally binding unless there
is certainty, intention to create legal relations, and consideration.

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Offer:

The offer is the first core requirement of the formation of a contract. Despite an ‘offer’ being a
seemingly simple term, an offer will not always be explicit, and at this point it is the job of the
courts to identify what does and does not constitute 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.

Sufficient Definiteness

Article 14 provides that "a proposal is sufficiently defined if it identifies the goods, and expressly
or implicitly fixes, or makes provision for, determining the quantity and the price." Another
component of the proposal is the intention of the offeror to sell the product. An offer does not
always seem like a proposal. It can be in the form of an invoice or a letter of acknowledgement.

Articles 8 and 9 will also find its place in understanding the principles surrounding formation. In
a general sense, Article 8 stipulates that the intent of a party is interpreted in accordance with his
intent. Article 9 provides that parties are bound by usages and practices that have been agreed
upon between them.

Other articles of the CISG can also be in question in relation to Article 14. Scholars have
discussed the relationship between Articles 14 and 55, in depth. Article 14 can be interpreted as
an offer not being made where the price is not designated. On the other hand, it can be derived
from Article 55 that a contract can be validly established without determining the price,
expressly or implicitly. In these cases, it is accepted that the price is determined with reference to
the same products sold under similar cases. In the doctrine, it is accepted that if the price can be
established when all of the terms and conditions are considered, it must be accepted that a valid
offer has been made.

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Intention of the Offeror to be Bound

Offers that are not addressed to one or more specific persons are considered as invitations for
offers. Mass distribution of catalogues, brochures and websites will not constitute an offer, but
will be accepted as invitations, unless it is clearly established to the contrary.

In cases where it is difficult to establish the intent of the offeror, Article 8 can be taken into
consideration. In considering the third subsection, "in determining the intent of a party or the
understanding that a reasonable person would have had, due consideration is to be given to all
relevant circumstances of the case, including the negotiations, any practices that the parties have
established between themselves, usages and any subsequent conduct of the parties."

Effectiveness of the Offer

An offer will become effective when it reaches the offeree. Article 24 provides that an offer will
reach the addressee when it is orally made to the addressee, or delivered in any way personally to
his place of business, or to his mailing address or to his habitual residence. In cases where the
contract is formed through electronic messaging, the ICC's Terms, 2004, Article 2, states that the
addressee accepts an electronic message when it enters the addressee's information system, and
in order to apply this provision, the addressee musthave an information system. If the electronic
message is sent to another information system designated by the addressee, the message is
deemed to be received when the addressee becomes aware of the message.2

Withdrawal and Revocation of the Offer

In order for an offer to be withdrawn, Article 15 states that the withdrawal should reach the
offeree before or at the same time as the offer. It should be noted that revocation and withdrawal
are distinct terms from each other, having different meanings under the CISG.

Revocation of an offer is regulated under Article 16 of the CISG. An offer is revocable when it
reaches the offeree before the acceptance is dispatched. In some instances, the offer cannot be
revoked if there is a fixed time, or it has been established that it is not irrevocable, and if the
offeree relies on the offer and has acted in reliance thereof, the offer cannot be revoked.

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Rejection of an Offer

Rejection of an offer is stipulated under Article 17; accordingly, a rejection must reach the
offeror in order to terminate an offer, even if the offer is irrevocable.

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 offersand
acceptances. In cases where any usage or practices agreed upon between the parties suggest
otherwise, silence or inactivity can also be interpreted differently.

Effectiveness of the Acceptance

An acceptance is effective when it reaches the offeror. If an oral offer is in question, it should be
accepted immediately, unless circumstances imply otherwise. In some instances, there is a fixed
time within which to accept the offer. Pursuant to Article 20, for those periods that are stated in a
letter or a telegram, the time begins to run when the telegram is handed over for dispatch, or the
date indicated in the letter, or if not so stated, the date shown on the envelope. Official holidays
and non-business days are included in this period. Only if the last day of the fixed period is an
official holiday or a non-business day the period shall be extended to the first business day. If
such a fixed time is not regulated, then the acceptance shall be made within a reasonable time. A
late acceptance is not effective unless an oral statement or notification is made to the offeree.

In order for a contract to be formed under the CISG, Article 23, an acceptance to an offer should
become effective. Once the contract is formed, all of the following engagements can only be
interpreted as amendments to the offer.

Counter-offer

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 affect the terms of the offer, is

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An ISO 9001:2015 Certified Quality Institute
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considered to be an acceptance unless the offeror objects thereto otherwise, orally, or through a
notification. Factors that can materially affect 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.

Certainty & Intention to Create Legal Relations Lecture

An agreement may not qualify as a valid and enforceable contract if it lacks certainty, and not all
agreements are legally binding or have an intention to create legal relations. It is for these
reasons that this topic is of importance, as these elements must be proven for a successful
contract.

The chapter begins with an introduction to the concept of certainty, before considering the issues
of vagueness and incompleteness. Intention to create legal relations is then outlined in light of
the developed case law. The test of reasonableness is discussed. The chapter further moves on to
the presumptions under social, domestic and commercial agreements and their effects on the
intention to create legal relations. Finally, intention is contrasted with consideration.

Consideration & Promissory Estoppels

This chapter will examine and analyze two principles of contract law. The first is consideration,
which along with the offer, acceptance and intention to create legal relations, helps form a
legally binding contract. Promissory Estoppels is a related principle which can act as the
exception to one of the main rules of consideration – that for consideration to be valid, it must
have economic value and involve an exchange of benefit/detriment between the parties. This
chapter will ensure you understand the rules of consideration and when exactly promissory
estoppels can operate.

This chapter will begin by examining what consideration is, as well as the types and whether the
exchange of a benefit or detriment can constitute as it. Following this the requirements and
limitations of consideration will be outlined and discussed. The chapter will then move on to
consider promissory estoppels , specifically how it operates and its interplay with consideration.

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Rights and Duties of Buyers and Sellers

Rights of the Buyer:

1. To have delivery of the goods as per contract. (Sec. 31 & 32)

2. To reject the goods when they are not of the description, quality or quantity as specified.

3. To repudiate the contract when goods are delivered in installments without any agreement.

4. To be informed by the seller, when the goods are to be sent by sea route

5. To have a reasonable opportunity to examine the goods for ascertaining (Sec. 41)

6. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver.

7. To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the goods.

8. To sue the seller the damages for anticipatory breach of contract (Sec 60)

9. To sue the seller for interest where there is a breach of contract on the part of the seller and
price has to be refunded to the buyer (Sec 61).

Duties of the buyer:

1. To accept the delivery of goods, when the seller is willing to make the delivery as per contract.

2. To pay the price in exchange for possession of the the goods.

3. To demand delivery of the goods at a reasonable hour [Sec 36 (4)]

4. To accept delivery of the goods in installments and pay for them, in accordance with contract.

5. To bear the risk of deterioration in the course of transit, when the goods are to be delivered at
a place other than where they are sold (Sec 40)

6. To inform the seller in case the buyer refuses to accept or rejects the goods (Sec 43)

7. To take the delivery of the goods within a reasonable time after the seller tenders the delivery
(Sec.44)

8. To pay damages for non-acceptance of goods ( Sec 56)

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Rights of the Seller:

1. To reserve the right of disposal of the goods until certain conditions are fulfilled.

2. To assume that the buyer has accepted the goods , where the buyer.

3. To make delivery of the goods in installments, when so agreed (Sec 39 (1)]

4. To exercise lien and retain possession of the goods, until payment of the price ( Sec 47

5. To stop the goods in transit and resume possession of the goods, until payment of the price.

6. To withhold delivery of the goods when the property in the goods has not passed to the buyer.

7. To sue the buyer for price when the property in the goods has passed to the buyer or when the
price is payment on a certain day, in terms of the contract, and the buyer fails to make the
payment (Sec 55)

Duties of the seller:

1. To make the arrangement for transfer of property in the goods to the buyer.

2. To ascertain and appropriate the goods to the contract of sale

3. To pass an absolute and effective title to the goods, to the buyer.

4. To deliver the goods in accordance with the terms of the contract ( Sec 31)

Case law

Communication of Offer is Necessary

Lalman Shukla v. Gauri Dutt- Under the Law of Contract an offer can be accepted only after the
same has come to the knowledge of the offeree. It means that the offer has to be communicated
to the offeree in order that the offeree can accept it. Section 4 of the Indian Contract Act states
that the communication of a proposal id completes when it comes to the knowledge of the person
to whom it is made. Lalman case the defendant’s nephew absconded from home. The plaintiff

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who was defendant’s servant was sent to search for the missing boy. After the plaintiff had left in
search of the boy, the defendant issued handbills announcing a reward of Rs. 501 to anyone who
might find out the boy. The plaintiff, who was unaware of this reward, was successful in
searching the boy. When he came to know of the reward, which had been announced in his
absence, he brought an action against the defendant to claim this reward. It was held that since
the plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not amount to
the acceptance of the offer and therefore he was not entitled to claim the reward

Carlill v. Carbolic Smoke Ball Co.- in the case, the defendants advertised their product Carbolic
Smoke Ball for a preventive remedy against influenza and in the ad they offered to pay £100 as
reward to anyone who contacted influenza, cold or any disease caused after having used the
product in prescribed manner. The plaintiff relying on the ad purchased a Smoke Ball and used
the same in accordance with the directions, but she still caught influenza. Thus, she sued the
defendants to claim the reward of £100. It was held that this being a general offer addressed to
all the world had ripened into contract with the plaintiff by her act of performance of the required
conditions and thus accepting the offer. Hence, the plaintiff was held entitled to claim the reward

A Minor’s Capacity to Contract

Mohori Bibee v. Dharmodas Ghose – In this case it was held that an agreement by a minor is
void

Intention to create legal relationship

Balfour v. Balfour- The concept of intention to create legal relationship was implied in the case
of Balfour v. Balfour. In this case, the defendant who was employed on a government job in
Ceylon went to England with his wife on leave. For health reasons the wife was unable to
accompany the husband Ceylon. The husband promised to pay £300/ month as maintenance to
wife for the time she lived apart. The husband however failed to pay the amount and was
eventually sued by his wife.

In the case it was held that the husband was not liable to pay as there was no intention to create a
legal relationship between the parties.

Powell v. Lee – In order that an acceptance is treated as valid, it is necessary that the same must
be communicated to the offeror either by the offeree or by some duly authorized person on his
behalf. If the communication is made by an unauthorized person, it does not result in a contract.