Chapter 2: International business transactions: formation of the contract

Chapter learning objectives

Upon completion of this chapter you will be able to:

• explain the sphere of application and general provisions of the United Nations Convention on Contracts for the International Sale of Goods 1980 (UNCCISG)
• explain the meaning and effect of the International Chamber of Commerce (ICC) Incoterms
• explain and be able to apply the rules for creating contractual relations under UNCCISG.

United Nations Convention on Contracts for the International Sale of Goods 1980 (UNCCISG)

UNCCISG is a Convention adopted by parties to the Convention togovern the way contracts for the sale of goods are carried out betweenthose states.

1 Sphere of application

The Convention applies to:

• sales of goods (Article 1(1))
• made between parties whose places of business are in different states and
• when the states are contracting states (Article 1(1)(a)) or
• where the private international law rules appoint the law of a CISG state in a case of international sales (Article 1(1)(b)).

Sale of goods

Sale of goods means the sale of goods, that is, the supplier providesthe materials and produces goods or obtains goods to be sold to theseller.

Sale of goods

The following are not sales of goods:

• the supply of goods to be manufactured when the buyer undertakes to supply a substantial part of the materials necessary for the manufacture (this is in essence a contract for labour and manufacture only) (Article 3(1))
• contracts where the preponderant part of the obligations of the seller is the supply of labour or other services, even though he provides the raw materials ( Article 3(2)).

The following types of sales are specifically excluded from the scope of the Convention:

• goods bought for personal, family or household use unless the seller didn't know they were for such use and had no way of so knowing (Article 2(a))
• auction sales (Article 2(b))
• sales made on execution or otherwise by authority of law (Article 2(c))
• sales of stocks, shares, investment securities, negotiable instruments or money ( Article 2(d))
• sales of ships, vessels, hovercraft or aircraft (Article 2(e))
• sales of electricity (Article 2(f)).

Place of business

• If a party has more than one place of business, the relevant place of business is the one which is most closely connected with the contract (Article 10(a)).
• If a party has no place of business, reference will be made to his habitual residence (Article 10(b)).

Place of business

The 'place of business' rules are important to determine whetherthe Convention applies or not. This is because a company may have placesof business in many countries, some of which are contracting parties tothe UN Convention, some of which may determine by their national lawthat the UN Convention applies even though they are not a party to it,some of which may not apply the UN Convention.

In such a situation, the other party needs to be clear whether theConvention applies or not. This is determined by looking at which partof the business (in which country) the contract applies.

Illustration 1 – Sphere of application

Company A, a company in Country Y (a contracting state to theConvention) is entering into a contract for the sale of goods withCompany B, a company in Country Z (which is not a contracting state, butwhose national law states that the provisions of the Convention shouldbe applied in such contracts). In this case, the place of business rulesfor the purposes of qualifying as CISG under the Convention are met.

In a different scenario, you might have Company C, a multinationalcompany which has operations in Countries X, W, V and U. While X, W and Vare contracting states to the Convention, U is not, and its nationallaw does not apply the Convention. Company D, from Country T, acontracting state, wants to enter into a contract (CISG) with Company C.In order to determine whether the Convention will apply to thecontract, Company C will have to tell Company D which branch of Company Cit is contracting with, and which country that branch is in.

Please note that:

• The examiner may use real countries or made up ones in the examination.
• You do not need to know which real countries are actually contracting states to the UNCCISG for the purposes of the examination.
• If place of business rules are relevant in a scenario question, the examiner will spell out whether countries mentioned are contracting states or whether their national law makes the Convention relevant.
• For an example of this, refer to question 9 of June 2004 on the old syllabus.
• You therefore need only learn the rules concerning place of business and apply them in the examination.

Summary

• 'CISG will apply where the private international law rules appoint the law of a CISG state in a case of international sales.'

Extent of application of the Convention

The Convention only governs:

• the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from the contract (Article 4).

The Convention is therefore not concerned with:

• the validity of the contract, its provisions or any usage (Article 4(a))
• the effect which the contract may have on the property in the goods sold (that is, who owns the property) (Article 4(b))
• liability of the seller for death or personal injury caused by the goods to any person (Article 5).

The parties to the contract may:

• state that the Convention does not apply to the contract between them (Article 6)
• amend the effects of any specific clauses of the Convention subject to Article 12 – Article 6.
• if they are in states that apply Article 96 of the Convention, any contractual agreement must be in writing.

Test your understanding 1

Alison carries out a business manufacturing and selling kitchenequipment in Burchania, which is a contracting state to the UNCCISG.Chet carries out a similar business in Dimistan, a contracting state.

Edwin, from Francia, a contracting state, wants to enter into contracts with both Alison and Chet.

Alison is to manufacture 1,000 saucepans for Edwin to his design.As the quality of metal Alison can obtain in Burchania is not up to thestandard that Edwin requires, he is to provide the metal for casting thebody of the saucepans. Chet is to manufacture 1,000 colanders forEdwin. Chet will source the materials from his usual supplier.

Subsequent to the contracts being completed, it is discovered thatthe colanders have a flaw. The handles are prone to coming loose. Anumber of claims have been made to Edwin from members of the publicsustaining personal injury through burns.

(1)The contract between Alison and Edwin potentially comes within the scope of the Convention because:

(2)The contract between Chet and Edwin comes within the scope of the Convention because Edwin's country is a contracting state.

(3)The contract between Alison and Edwin is:

(4)Therefore, the contract comes within the scope of the Convention.

(5)Edwin cannot transferresponsibility for the personal injury claims as a result of the faultycolanders to Chet under the Convention because:

2 General provisions

Interpretation

According to Article 7, when interpreting the Convention, parties should bear in mind:

• its international character
• the need to promote uniformity in its application
• the observance of good faith in international trade
• questions not expressly settled within the Convention should be settled in conformity with the general principles on which it is based.

Intent

Rules for interpreting the meaning of intent have been provided in Article 8.

• The statements of a party should be interpreted according to their intent.
• The conduct of a party should be interpreted according to their intent.

This can only be the case where:

• the other party was aware of that intent, or
• the other party could not have been unaware what that intent was.

If one party could not have been aware of the other party's intent:

• statements and conduct should be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances
• all relevant circumstances (including negotiations, established practice between the parties, usages and subsequent conduct of the parties) of the case should be considered.

Established practice

• The parties are bound by established conduct between themselves if they have made similar contracts before (Article 9(1)).
• The parties are bound by a usage which they both knew of (or ought to have done) and which is widely known and used in international trade contracts of the same type (Article 9(2)).

Established practice

If the parties had contracted between themselves many times for thesame items and it was always the case that the items were delivered bysea, then it would be an implied term of future contracts between themthat the goods were to be delivered by sea, unless they clearly statedto the contrary in their agreement.

If two parties had never contracted before, but they had hadsimilar contracts with other parties and the contract involved goodsthat are habitually delivered by sea in international contracts, itwould be implied in the contract that the goods should be delivered bysea unless they clearly stated to the contrary in their agreement.

Example

Ali, whose place of business is Baru, a contracting state, andCelia, whose place of business is Damico, a contracting state, arenegotiating a contract for the international sale of goods.

Ali has many times contracted for Celia to source and supply metalparts which are a key component in his manufacturing process. In thisinstance, he requires 300 units of Part TIX345, which he has bought fromher on a number of occasions. The price of a Part TIX345 is $40 andCelia usually ships them to Ali within 30 days.

If they make no further reference to the price, or the method andtiming of delivery for this order for 300 parts of TIX345, then due tothe established practice between the parties, the price under thecontract for each unit of TIX345 will be $40 and Celia will be requiredto ship the goods within 30 days of the contract being agreed.

Form

Under Article 11 a contract under the Convention:

• does not have to be concluded in writing
• does not have to be evidenced in writing
• is not subject to any other requirement as to form
• may be proved by any means, including witnesses.

Unless:

• the relevant contracting state has made a declaration under Article 96 of the Convention stating that contracts or variations from the Convention must be made in writing.

Under Article 13, the word 'writing' includes:

• telegram
• telex.

Test your understanding 2

Adele has her place in business in Binaria, a contracting state.Celeste has her place of business in Doman, a contracting state. Estellehas her place of business in Finisterre, which is not a contractingstate. Gracia has places of business in Hinland, a contracting state,and Idistan, which is not a contracting state. The business in Hinlandis a manufacturing operation, while Gracia sources most of the rawmaterials required in production from her operation in Idistan. Adeleneeds to make contracts to buy goods from Celeste, Estelle and Gracia.

Adele has contracted with Celeste on a number of occasions for similargoods, and so negotiations with Celeste are limited. Celeste and Adeleagree on the telephone that Celeste will deliver 200 units. They make nofurther provisions in the contract.

Adele has never contracted with Estelle or Gracia before, someticulous negotiations take place and the contract between them isdetailed with regard to price and delivery. The contracts are in writingand signed by both parties.
Adele intends to use the goods delivered by Celeste for her privateuse. She has not done this before, and has not made Celeste aware ofthis fact.

(1)Explain whether the contracts with Celeste, Estelle and Gracia fall within the scope of the Convention.

(2)Explain what terms will exist in the contract between Adele and Celeste and why.

(3)Explain the rules in theConvention regarding form of the contract and discuss the impact theserules have on the contracts with Celeste, Estelle and Gracia.

3 International Chamber of Commerce (ICC) Incoterms

Incoterms is an abbreviation of International Contract Terms. They are acollection of standard contract terms published by the InternationalChamber of Commerce, most recently in 2000. Most contracts for theinternational sale of goods will include these standard terms.

There are 13 standard terms, divided into 4 categories:

• Departure (E terms)
• Main Carriage Unpaid (F terms)
• Main Carriage Paid (C terms)
• Arrival (D).

The terms all start with the first letter of the category they fall in.

Departure (E terms)

• EXW. This stands for Ex works. The seller has carried out his requirements with regard to delivery when he makes the goods available to the buyer at his own place of work. The buyer is responsible for collecting the goods and loading them on his collection vehicle himself. This means that the buyer bears all the costs and risks of delivery, unless otherwise agreed between the parties.

Main Carriage Unpaid (F terms)

• FOB. This stands for Free on Board. This Incoterm is specific to delivery by ship. The seller has delivered the goods when they pass the ship's rail at the named port of shipment. The seller bears the responsibility for clearing the goods for export, but the buyer is responsible for the goods from when they are placed on the ship and bears the costs from then on.
• FAS. This stands for Free Alongside Ship. This term is also specific to delivery by ship. In this case the seller also has to bear export charges, but has delivered the goods once they are standing alongside the ship at the port. The buyer is responsible for getting them on the ship and from them on.
• FCA. This stands for Free Carrier. This means that the seller has discharged his obligations when he delivers the goods, cleared for export, to a carrier named by the buyer. In practice, the person named does not have to be a carrier, but can be another agent. In this case, the seller has discharged his obligations when the goods are with the agent.

Main carriage paid (C terms)

• CFR. This stands for Cost and Freight. This means that the seller must pay the cost and freight involved in getting the goods to a named destination, but the risk passes to the buyer when the goods are placed with on the ship.
• CIF. This stands for Cost, Insurance and Freight. This means the same as CFR, except that, in addition, the seller must pay for insurance to cover the goods when they are in transit. The seller need only pay for the minimum insurance, so if the buyer wants more comprehensive insurance, the buyer must make arrangements for that.
• CPT. This stands for Carriage Paid to. This means that the seller pays for the freight of the carriage of the goods to the named destination. The seller is required to clear the goods for export. The risk passes from the seller when the goods are at the named destination.
• CIP. This stands for Carriage and Insurance Paid to. This means the same as CPT, except that, in addition, the seller must pay for insurance for the goods during carriage. CPT and CIP may be used irrespective of the mode of transport of the goods.

Illustration 2 – ICC icoterms

Ali and Brenda have negotiated a contract for the internationalsale of goods. The clause on delivery contains the followingabbreviation, 'CPT'. This means that Brenda, the seller, will beresponsible for paying for the carriage of the goods to a nameddestination, and clearing them for export.

Arrival (D terms)

• DAF. This stands for Delivered at Frontier. The seller fulfils his obligations when the goods are delivered, cleared for export, at an arranged place at the 'frontier', that is, before the customs barrier of the next country. It is important to specify which frontier is meant. Generally this term is used for rail or road transport, but can be used for any mode of transport.
• DES. This stands for Delivered ex Ship. The seller discharges his obligations when the goods are available to the buyer on the ship at the destination. The seller does not have to clear the goods for import at that destination.
• DEQ. This stands for Delivered ex Quay. The seller discharges his obligations when the goods are available to the buyer on the quay at the destination. In this case, the seller must have cleared the goods for importation.
• DDU. This stands for Delivered Duty Unpaid. The seller discharges his obligations when the goods are made available to the buyer at a named place in the country of destination. The seller is not responsible for paying any relevant duty or taxes of the country of importation.
• DDP. This stands for Delivered Duty Paid. This is the same as DDU, except that the seller is also responsible for paying any duties or taxes that arise on the goods in the country of importation. This is in effect the opposite of EXW, the first Incoterm outlined above, and imposes the minimum requirements on the buyer.

Illustration 3 – ICC icoterms

Caroline and Daudi have negotiated a contract for the internationalsale of goods. The clause on delivery terms includes the abbreviation,'DES'. This means that the seller, Daudi, is responsible for deliveringthe goods to the named port of destination. Caroline will have access tothe goods on the ship there, and will be responsible for the goods fromthen on, including paying import costs on those goods.

Test your understanding 3

Define the following incoterm: FCA.

Test your understanding 4

State the most appropriate Incoterm for a buyer who wants to avoid as many of the costs and burdens of delivery as possible.

4 Formation of contract

A contract is concluded at the moment when an acceptance of an offerbecomes effective in accordance with the provisions of this Convention.The rules relating to offer and acceptance were regularly examined underthe old syllabus.

5 Offer

An offeris a proposal for concluding a contract addressed to one or morespecific persons which is sufficiently definite and indicates theintention of the offeror (person making the offer) to be bound in caseof acceptance (Article14).

It must be sufficiently definite:in the context of an offer it means that the proposal indicates thegoods in question and expressly or implicitly fixes or makes provisionfor determining the quantity of the goods and the price.

Illustration 4 – Offer

Compare the following proposals:

(1)'To: Seller, MainCo

(2)'Ben, I have 200 units of 2AW2594 available at the moment, do you want some at the usual price?'

(3)(Posted on a website) 'I am interested in buying some plastic parts. Can anyone do business with me?'

There are a number of points illustrated in the illustration above that you might want to look at again more closely.

Intention of the parties

This matter is judgemental, as people will rarely end theirproposal to another party with a statement such as 'I am prepared toenter into a contract with you'. In other words, their intention isimplied in the level of detail in their proposal. For example, Proposal 1clearly shows that the Buyer at BuyCo wants to place an order withMainCo and is prepared to enter a contract with them by the detail andtone in his message. By contrast, in proposal three, the request is verygeneral – it is not addressed to one person. It more represents'window-shopping', that is, an attempt to find out what is out there,than a firm intention to contract with anyone who might reply. The factthat the matter is judgemental is why Proposal 2 is marked 'almostcertainly yes'. Although the proposal is specific, it could be aproposal made to several people, hoping that one person will take it up.In this case, the seller would not be prepared to enter into contractwith all interested parties. However, as the proposal is addressed toBen, it is most likely that it is specific to Ben and the seller wantsto make a contract with Ben.

Specific goods

In order to constitute an offer, a proposal has to 'indicate thegoods'. All three proposals above refer to 'goods' but there is acontrast between the specific, named parts indicated in Proposals 1 and2, and the more general 'plastic parts' indicated in Proposal 3. Thereis likely to be a large range of plastic parts available in the world,and therefore use of the phrase 'plastic parts' is insufficientlyspecific to constitute an indication of the goods required for theproposal to be an offer.

An invitation to treat is the name given to a mere proposal that does not constitute an offer.

Test your understanding 5

Define 'offer' according to the rules laid out in the Convention.

Test your understanding 6

Define 'invitation to treat' according to the rules laid out in the Convention.

Offer becoming effective

An offer becomes effective when it reaches the offeree (personbeing made the offer). Under Article 15 an offer reaches the offereewhen:

• it is made orally to the offeree (Article 24)
• it is delivered to the offeree personally at their business or mailing address (Article 24)
• (if they have no business address) it is delivered to them personally at their habitual residence (Article 24).

6 End of offer

An offer may be terminated in three different ways:

• withdrawal (Article 22)
• revocation (Article 16)
• rejection (Article 17)
• by replying to the offer as a purported acceptance but contains addition, limitations or other modifications.

Withdrawal is where the person making the offer changes his mind(withdraws the offer). An offer can only be withdrawn before, or at thesame time as, the offer reaches the offeree.

Revocation is where the person making the offer changes his mind(revokes the offer). An offer can only be revoked before the offeree hasdespatched an acceptance.

An offer cannot be revoked if:

• It indicates that it is irrevocable. It might state that it is irrevocable, or it might have a fixed time for acceptance, indicating that the person being made the offer may use that time to decide and the offer will not be revoked during that time. It is worth noting at this stage that this is different under English law.
• It was reasonable for the offeree to assume the offer was irrevocable and they have relied on that fact (that is, they have not accepted immediately because they believed the offer to be irrevocable). This might be the case if, e.g. the parties have contracted before and all previous offers have been irrevocable.

Rejection is where the person receiving the offer does not accept theoffer. Rejection may be express (the offeree tells the offeror they arenot accepting the offer) or implied (the offeree's conduct indicates theoffer is not being accepted). Acceptance will be detailed in the nextsection. Something that is not acceptance is rejection.

Conduct of the offeree implying rejection of the offer might beaccepting the offer of another party in respect of the same goods, forexample. Silence does not generally constitute acceptance.

End of offer

The difference between withdrawal and revocation is timing. Theintention on the part of the person making the offer is the same – theperson no longer wants to be bound in contract.

If this notice of no longer wanting to be bound in contract arrives before the original offer, it is withdrawal.
If it arrives after the original offer but before the acceptance has been despatched, it is revocation.

If it arrives after acceptance has been despatched, it is pointless.Once acceptance has been despatched, the offeror is bound in contractwith the offeree.

Test your understanding 7

Explain the 'reaching' rule in the context of an offer.

Test your understanding 8

Hayley, from Kyrovia, is interested in forming a contract withIbrahim, from Jaipae. Both countries are contracting parties with regardto the convention.

Hayley sends Ibrahim a letter stating that she wants to commissionIbrahim to make a specialised part for her new invention, to herspecification. Ibrahim would obtain the necessary materials for theparts. Hayley indicates in her letter she would accept any reasonableprice based on their former dealings.

A week later, Hayley discovers a fundamental flaw in the design forthe overall invention. She therefore sends a fax to Ibrahim, tellinghim she no longer wants the specialised part she had written about. Thefax arrives in Ibrahim's office two hours before the post, which wasdelivered to the office premises four hours earlier, is delivered toIbrahim by the post room staff.

Analyse the above in the context of the Convention's rules relating to offer.

7 Acceptance

Acceptance is a statement made by, or other conduct of, the offereeindicating assent to an offer. Silence and inactivity do not amount toacceptance (Article 18(1)).

Counter-offer is a reply to an offer which appears to be acceptance butwhich contains additions, limitations or other modifications regardingthe price, payment, quality of the goods, quantity of the goods,delivery, extent of liability or dispute settlement. Counter-offer is arejection of the offer. However, minor amendments to the terms of theoffer are permitted and will not constitute a rejection of the offer(Article 19).

Illustration 5 – Acceptance

Compare the following statements

'I accept your offer of 12.12.06.'

'I accept your offer of 12.12.06, but I only want 10 items, not 20.'

In the first instance, the statement is unequivocal acceptance ofthe offer. In the second, the offeree wants to change the terms of theoffer relating to the quantity of the goods under the contract. This istherefore a counter-offer, not acceptance. However, note that acounter-offer is a valid offer capable of being accepted, so if theoriginal offeror wants to accept the counter-offer, he may do so, andthereby create a contract.

Effectiveness of acceptance (Articles 18 to 21)

Acceptance of an offer becomes effective when indication of assentreaches the offeror (Article 18). Note that the 'reaching rule' is thesame as that outlined in respect of offer:

• acceptance is made orally to the offeror
• it is delivered to him personally at his business or mailing address
• (if he has no business address) it is delivered to him personally at his habitual residence.

Acceptance is not effective if:

• it does not reach the offeror within the time fixed by him with the original offer
• if no time was fixed, it does not reach the offeror within a reasonable time
• the offer was oral, and is not accepted immediately (unless circumstances indicate later acceptance is reasonable, for example, the offeror says 'I'll leave you to think about it', or 'let me know by close of business tomorrow').

Late acceptance can be effective, if;

• the offeror orally tells the offeree so
• the offeror despatches a notice to the offeree stating late acceptance was effective
• lateness was due to circumstances which were not normal (e.g. a postal strike).

Late acceptance due to circumstances which were not normal will be ineffective if:

• the offeror orally tells the offeree that he believes that the offer had lapsed
• the offeror despatches a notice to the offeree stating that the offer has lapsed.

'Reasonable time' in the context of acceptance of offer will be judgedaccording to the circumstances of the transaction. This includes therapidity of the means of communication used by the offeror.

Illustration 6 – Acceptance

Imagine, for instance, that Violet has sent Winnie an offer. Winnieaccepts by post. However, Violet has used airmail and Winnie has usedsurface mail. Winnie's acceptance has taken four times as long to get toViolet than her offer took to get to Winnie. In the meantime, Violethas assumed that Winnie does not want to contract and has enterednegotiations with someone else. In this case, it could be argued thatWinnie has not answered in a reasonable time, as it reasonable tosuppose she would reply by the same method that Violet originallyoffered. If Winnie had used a different but faster method of responding,such as fax, telephone or email, her acceptance would have been valid.

Consider also the following situation:

Yazmin is negotiating with ZinZan to purchase a specific batch ofperishable goods. Yazmin sends ZinZan an email, offering to buy thegoods, but ZinZan does not accept her offer for a week. In the meantimethe goods have perished and Yazmin has bought similar goods from someoneelse. ZinZan's acceptance is not in a reasonable time due to the natureof the goods, and Yazmin is not bound in contract with him.

Acceptance by an act

A party may accept an offer by an act if:

• the parties have established practices between themselves setting precedent for acceptance of an offer being made by an act
• the act is performed within a given timetable or a reasonable timetable if none is given, according to the rules set out above.

If acceptance is indicated by an act, it is effective once the act has been carried out.

Illustration 7 – Acceptance

Hudson is Imogen's sole supplier of Part AB135. He has supplied herwith the same part for a number of years. They agree a price annually.In order to place an order, Imogen emails Hudson the number of partsthat she needs and Hudson processes the order and sends the parts thenext day.

In this case, Hudson's action of delivering the goods the next dayis his acceptance of Imogen's offer and it is effective when he deliversthe goods (in other words, she cannot refuse to pay for those goods).The terms of the contract formed between them by Imogen's email andHudson's delivery of the goods are set by the established usage betweenthem.

If Hudson did not deliver the goods the next day, but failed todeliver them for a week, then his acceptance by an act would not bevalid, and Imogen would be entitled not to accept the goods as therewould be no contract between them.

Test your understanding 9

Define 'acceptance' according to the rules laid out in the Convention.

Test your understanding 10

Define 'counter-offer' according to the rules laid out in the Convention.

Test your understanding 11

Acceptance is not effective if the indication of assent does not reach the offeror:

Abefore a notice of revocation reaches the offeree

Bbefore the time fixed by the offeror

Cin reasonable time of the offer being made (assuming no fixed time was specified)

Dby the same method that the offeror dispatched the offer.

Acceptance: other timing issues

A period of time for acceptance fixed by the offeror begins to run:

• (telegram) when the telegram is handed in for dispatch
• (Letter) the date shown on the letter, or, if none appears, the date on the envelope
• (telephone/telex/other instantaneous communication such as email) the moment that the offer reaches the offeree.

The period of acceptance includes:

• official holidays
• non-business days.

However, if a notice of acceptance cannot be delivered on the lastday of the stated period because it is an official holiday or anon-business day, the period is extended until the first business daywhich follows.

Withdrawal of acceptance

Acceptance may be withdrawn if the withdrawal reaches the offerorbefore or at the same time as the acceptance would have become effective(Article 22).

8 Offer and acceptance: summary

Test your understanding 12

Desmond sends a proposal to Erin. He would like to buy 12 UF949parts at the price listed in Erin's catalogue, to be delivered to hisbusiness premises by 29 June. Desmond confirms that he can supply thegoods, but that Erin would have to collect them.

Faisal has received a letter from Gertrude. She is interested in buying some FLD457 parts.

Hee has received a letter from Ingrid. She states she would like tobuy some ET396 parts at the catalogue price to be delivered to Ingridby Hee. Hee receives a fax from Ingrid cancelling her interest in hisparts before he has contacted her to accept.

Assume that the UNCCISG applies when answering the following questions.

(1)Desmond's letter to Erin is classified as:

(2)Gertrude's letter to Faisal is classified as:

(3)Ingrid's letter to Hee is classified as:

(4)Ingrid's fax to Hee is classified as:

(5)Who of the following may accept to create a valid contract?

Chapter summary

Test your understanding answers

Test your understanding 1

(1)C. D is untrue. A and B areincorrect because both parties have to be subject to the Convention forthe Convention to apply or the parties have expressly chosen theConvention to apply.

(2)True. This is true because both Edwin and Chet are in countries which are contracting states.

(3)D. Alison is going tomanufacture saucepans. The key raw material of these will be the metalthat is being provided by Edwin. Therefore the contract is predominantlyfor the supply of labour making the saucepans.

(4)False. Therefore, as the contract is not for the sale of goods, it does not come within the scope of the Convention.

(5)The contract between Chet andEdwin does not come within the scope of the Convention. Although thesecond statement is also in theory true, it is irrelevant because of thefirst statement.

Test your understanding 2

(1)Contract with Celeste

(2)Terms of the contract with Celeste

(3)Form of the contract

Test your understanding 3

This stands for Free Carrier. This means that the seller hasdischarged his obligations when he delivers the goods, cleared forexport, to a carrier or other agent named by the buyer.

Test your understanding 4

The most appropriate Incoterm would be DDP (Delivered duty paid),as this represents the lowest responsibility and cost for the buyer.

Test your understanding 5

An offer is a proposal for concluding a contract. It must be:

• addressed to one or more specific persons
• indicate intention to be bound in contract with those persons
• indicate the goods in question
• fix or make provision for determining the quantity of goods
• fix or make provision for determining the price of the goods.

Test your understanding 6

An invitation to treat is a mere proposal that does not meet the requirements of an offer.

Test your understanding 7

An offer reaches the offeree when:

• it is made orally to him
• it is delivered to him personally (at his business or mailing address).

Test your understanding 8

There are two issues here. The first is whether Hayley has made avalid offer to Ibrahim capable of being accepted to form a contract. Thesecond, if a valid offer has been made, is whether the offer has beenor can be terminated legitimately, or whether Ibrahim can still acceptthe offer.

The first issue is whether Hayley has made a valid offer. Theproposal Hayley issued is addressed to Ibrahim specifically, itindicates the goods (a specialised part to her specification) and itmakes provision for determining the price (reasonable price to be set byIbrahim).

Hayley's proposal appears to be sufficiently definite so it constitutes a valid offer.

An offer becomes effective when it 'reaches' (that is, is deliveredpersonally) to the offeree. Until an offer is effective it can bewithdrawn. Once an offer has become effective, it can be revoked, unlessit is irrevocable or it has been accepted.

The offer is not delivered to Ibrahim until after he receivesHayley's notice that she no longer wants the part. In this case,therefore, the offer has been withdrawn, and can no longer be accepted.

Test your understanding 9

Acceptance is a statement made by the offeree, or some otherconduct of the offeree, indicating assent to an offer. Silence andinactivity cannot constitute acceptance.

Test your understanding 10

Counter-offer is a statement purporting to be acceptance, butcontaining modifications (which are more than minor) causing it not tobe acceptance.

Test your understanding 11

Acceptance is not effective if the indication of assent does not reach the offeror:

• before the time fixed by the offeror
• in reasonable time of the offer being made (assuming no fixed time was specified).

A notice of revocation has to reach the offeree before the offereedispatches the acceptance to be effective. The offeree does not have touse the same method of dispatch as the offeror, but the acceptance mustreach the offeror within reasonable time, and method of dispatch will betaken into account when determining whether acceptance has arrivedwithin reasonable time.

Test your understanding 12

(1)C.

(2)B.

(3)A.

(4)C.

(5)B. As Desmond's reply to Erinconstitutes a counter-offer, he has rejected Erin's original offer andcan no longer accept it. However, Erin can accept his counter-offer andtherefore form a valid contract. Faisal cannot accept Gertrude'sproposal because it is insufficiently definite (an invitation to treat).Hee cannot accept Ingrid's offer because she has withdrawn it.

Rating :	Ratings & Comments  (Click the stars to rate the page)

Tags: