The International Sale

Chapter 7

1

Incoterms
See page 193 for incoterms applicable to International sales. I expect they have been covered in earlier courses.

2

The Process
Sales efforts lead to an indication of interest from a potential customer. Information, quotation or “invitation to do business” has been provided to customer. An offer (Proposal) is made, “solicited”, “unsolicited”, or through tender by either Buyer or Seller. Offer is accepted or not, cleanly or with conditions, and the Parties may agree to negotiate to a purchase agreement (Contract). At every step disputes, misunderstandings can arise and, depending on the jurisdiction and applicable law, different outcomes can arise.
3

What is a Proposal
An act of putting forward something for consideration. (Webster) An offer to purchase, sell, lease or otherwise enter into a business relationship pertaining to a specific good or goods where sufficient information is provided to establish a basis for performance of an anticipated agreement.
4

What is a Contract
1. A binding agreement between two or more parties, 3. Evidence of an agreement between two parties which is legally enforceable 5. document specifying conditions for business relationship e.g. goods, services, licensing, franchising, etc. detailing rights and obligations of parties
5

Contract Law
• body of law for contract enforcement • differences between civil code, common law • CC - short, less specific • CL – detailed, written only (normally)

6

Basic Common Law Contract Features
• • • • 5. 6. 7. agreement results from “offer” (promise to enter into contract on terms in offer) when offer is unconditionally “accepted” “consideration” – something of value given or promised in exchange. If no consideration, no contract “condition” – essential term of contract “warranty” – less essential contract term
(“implied warranties” – not expressly given by seller but “read into contract” by the law)

parties intend agreement to be “binding” terms of agreement are certain and sufficiently precise to be enforceable contract is in writing (some exceptions)
7

Breach of Contract
“breach” – when one or both parties fail to perform contract as required “remedies” - rights each party has if contract breached depend on terms of contract and seriousness of breach - breach of “condition” – innocent party can “avoid” (refuse to perform) contract and is entitled to damages - breach of “warranty” – innocent party entitled to damages but must honour contract - if “non-performance” – innocent party can sue for damages, claim “specific performance” (defaulting party must perform contract), or both
8

Special Remedies of Seller in Ontario
Sale of Goods Act: - “an action for price”seller sues buyer for price of goods - “lien”- seller has right to retain possession” -“stoppage in transit” – unpaid seller orders carrier not to deliver goods Bankruptcy and Insolvency Act: - seller can “repossess” goods if seller delivers goods without receiving full payment and buyer becomes bankrupt or insolvent. - must notify trustee in writing within 30 days - goods must not have been sold to innocent third party
9

Excuses for Non-performance
- “force majeure” – unanticipated impediment beyond control of breaching party e.g. war, natural disasters “frustration” – if physically or legally impossible to comply (but not if selfinduced) - if purpose of contract no longer exists - change in environment makes contract financially impractical
10

International Contract Law Modern Codification
UNIDROIT – International Institute for the Unification of Private Law -Rome, 56 members including Canada -independent, intergovernmental agency for harmonizing and coordinating private law of countries -drafted agreements on sale and carriage of goods, financing and insurance UNCITRAL – United Nations Commission on International Trade Law - Vienna, 36 members elected by UN on rotating basis -harmonize and unify law of international trade CISG - United Nations Convention on Contracts for the International Sale of Goods 1980, 61 members, 70 % + of world trade 1992 - Canada/provinces, Notable exceptions are Japan and United Kingdom
11

CISG - Purpose
- uniform body of international commercial law - to harmonize common and civil laws - to fairly balance interests of buyers and sellers - covers - formation of contracts for international sale of goods, rights, obligations of buyers and sellers, breach of contract - excluded - fraud, product liability, title of goods

12

CISG - Choice of Law
- a “default” law - applies unless specifically excluded - e.g. - “ parties specifically exclude application of CISG and agree domestic sale of goods law of Ontario should apply to this contract”

13

CISG - Interpreting Sales Contracts
If CISG contract, courts should look at: - “subjective intent” - actual intent and understanding of parties. - if can’t be determined - “objective intent” reasonable intent - negotiations leading to contract - “established practices”- how did parties act - “customary practices” - practices common to specific industry
14

Formation of a Contract
CISG: - when offer to buy or sell is accepted - “offer” - proposal of intention to enter into contract under specified terms - offeror is “bound” - “ firm offer” - goods, quantity, price, addressed to specific party Note: if not specified, court looks at intent or comparable trade circumstances Common Law: - simple quotation not offer - normally buyer must make offer based on quotation, ad info UCC:- if detailed offer (i.e. goods, price, payment terms, delivery, packing, invoicing, transportation and insurance) accepted - offer “bound”
15

Revocation
CISG: - offer can be revoked any time before acceptance but binding if it states fixed time for acceptance (firm offer), or states “irrevocable” Common Law: - normally offer can be revoked at any time if communicated UCC: - firm offer for limited period in writing is binding
16

Valid Acceptance
CISG:- either unqualified or even if acceptance contains minor changes to terms, changes added to contract, if not rejected by offeror - but, invalid if major changes (price, payment, quality, delivery, dispute settlement etc.) Common Law: - acceptance must be unconditional and unqualified UCC: - same as CISG except changes not added to contract
17

silence
– CISG:- non-response by offeror to conditioned acceptance does not mean agreement to amended terms and conditions

18

Verbal Variations of Written Contracts
CISG: - all relevant circumstances written and verbal considered, including preagreement Common Law: - oral variations not valid when made at time of contract but valid if after contract signed (if you can prove) UCC: -oral variations invalid but considered in context
19

missing terms
CISG: - contract OK if goods specified and price and quantity implied, using industry custom Common Law: - courts look at intention of parties. More important the missing term, less likely a contract UCC: - reasonable price presumed

20

Standards for Performance
CISG: “fundamental breach” - failure to perform that causes significant injury to other party “avoidance” - if “fundamental breach”, injured party, with notification, can cancel contract and return everything received (Common Law has “reasonable time” concept) “specific performance” - if “fundamental breach”, injured party can get court to force other party to complete contract (Common Law, Civil Code concepts as well)
21

Seller’s Obligations
CISG: – “deliver the goods” – a) - place for delivery per contract or first carrier’s place of business b) - “time for delivery” - by contract date or reasonable time – “provide documents on delivery” (Note: ensure correct invoicing) – “ensure goods conform to contract” - quantity, quality, description, packaging Note: - certificate of quality - certificate of inspection – no third party claims, clear title – “waiver” - buyer can excuse seller from

compliance

– “time for examining goods by buyer”- as short as practical – “notice of defect by buyer” - ASAP, max 2 years (unless goods guaranteed) – “curing defects” - buyer may still claim damages even if seller resolves defects

22

Buyer’s Obligations
– “pay the price” - as required, after examination of goods – “take delivery” - must facilitate transfer – “allow reasonable time for delivery” “Nachfrist Notice” - buyer can give seller reasonable added time to “make good” Common Law - if time expired, contract repudiated
23

Passage of Risk
CISG: - when shipping documents drawn up, buyer notified and goods handed over to carrier (per INCO term) - when goods handed over to buyer if direct delivery Note: improves on contradictory national laws
24

Remedies
CISG: - cumulative and immediate - “specific performance”- seller must deliver substitute goods or make repairs (Common Law, UCC – less likely to be granted) - “avoidance” - seller’s fundamental breach releases buyer from contract but “Nachfrist Notice” should be given - reduction in price - pay less for nonconforming goods if not entitled to damages - can refuse early delivery and excess quantity

25

Seller’s Remedies
CISG: - “specific performance” - buyer must take delivery and pay agreed price - missing specifications - seller can determine if not provided in reasonable time

26

Buyer and Seller Remedies
CISG, Common Law, UCC: - “suspension of performance” - refuse obligations if other party in breach - “avoidance” of instalment contracts - if any instalment breached, other party can cancel contract - “damages” - if breach of contract can seek damage for losses and loss of profit ( if breach was or could have been foreseen) - “mitigation” - party claiming damages must keep them to minimum
27

Excuses for Non-Performance
CISG: - “force majeure” - unanticipated impediment beyond control of breaching party e.g. war, natural disasters, bankruptcy - other impediment - unforeseen or beyond control, and/or notice given of impediment and effect on contract - “dirty hands” - party whose actions cause other party to breach can’t complain Common Law: see page 6 UCC – but more effort to keep contract alive - excuse of “commercial impracticability” - when contract can only be performed at an “excessive and unreasonable cost”
28

When to Use CISG
General Terms and Conditions on a Sellers Standard Contract: for price lists, catalogues, estimates, offers, acceptances 1/ seller’s general conditions apply 2/ retention of title of goods until full payment 3/ price escalation 4/ interest on unpaid balances 5/ ‘force majeure’ clause 6/ dispute settlement (court system, arbitration, applicable law)
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