CHAPTER 1: FUNDAMENTAL LEGAL ISSUES IN CONNECTION WITH INTERNATIONAL SALE OF GOODS CONTRACTS A typical trade transaction starts with a contract of sale, A seller and a buyer agree a price for a specified quantity and type of goods to be purchased under specified terms and conditions. From the buyer's point of view the legal objective of such a contract is to obtain ownership of the goods, and from the seller's to receive the price. Thus the essence of the contract is the transfer of property in goods for financial consideration. Like any other contract, a contract of sale depends on an agreement between the seller and the buyer-which is usually shown by the acceptance of an offer." The contract of sale of goods is characterized in a majority of countries by the principle of "freedom of contract": the parties are free to fix the terms and conditions of the con- tract of sale-what prices will be charged, how payment will be handled, who will bear which costs of delivery, who will support which risks subject to the general principles of law and to domestic legislation governing unfair contract terms.
The rules as regards the making and communication of offer and acceptance and the revocation and termination of offers are common to all contracts, and may be found in general works on the law of contracts. An exchange of goods is not therefore a contract for the sale of goods bui a barter. Likewise a gift for no consideration is not a contract of sale. The contract of sale has been characterized as the "master" contract' since the series of contractual arrange- ments which follow-as regards transport, insurance and payment should accord with its provisions.
Thus to avoid unwanted disputes and litigation it is essential that the contract of sale is carefully drafted and that specific reference is made to existing trade terms, like the current Incoterms, when stipulating the delivery point and the allocation of rights and responsibilities between the buyer and the seller. Moreover, if paymnent is to be by letter of credit, the requirements under the credit need to be clearly spelt out. International sales of goods differ from domestic sales in a number of ways: they generally involve long distances during which the goods are in the custody of the carrier the risks involved in such transit are greater, and the transaction is normally irreversible, in that the physical return of the goods to the seller is in practice unlikely to be a realistic option, Furthermore, because of its nature, the transaction might be subject to a number of different jurisdictions with diverse legal systems. To cope with these problems, the business community has developed a number of standard contracts' and rules which cater for the peculiar needs of international commerce.
Preparation of a uniform law for the international sale of goods began in 1930 at the International Institute for the Unification of Private Law (UNIDROIT) in Rome. It was felt at the time that it would be of great value to the international business community to unify the law relating to international sales, to avoid providing different answers to questions such as when an offer or acceptance becomes effective, when possession, property or risk in the goods sold passes, what the rights of a buyer are when goods not conforming to the contract are tendered, and similar questions. After a long interruption in the work as a result of the Second World War, a draft was finally submitted to a diplomatic conference in The Hague in 1964, which adopted two conventions, the Convention relating to a Uniform Law on the International Sale of Goods and the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods. Almost immediately upon the adoption of the two conventions, there was widespread criticism of their provisions as reflecting primarily the legal traditions of continental western Europe.
One of the first tasks undertaken by the United Nations Commission on international Trade Law (UNCITRAL) upon its establishment in 1968 was to study the two conventions to ascertain which modifications might render them capable of wider acceptance by countries of different legal, social and economic systems. The result of this study was the adoption by diplomatic conference on 11 April 1980 of the United Nations Convention on Contracts for the International Sale of Goods," which combines the subject matter of the two prior conventions. 1 The CISG came into force on 1 January 1988. According to the "Shipping, Transport, Marine Insurance and Intemational Trade Newsletter" of Dibb Lupton Alsop, (Match 1998), the States which have adopted the Convention to date are responsible for more than 60 per cent of the total volume of worldwide trade.
On December 18th, 2015, Vietnam officially ratified its accession to the CISG to become the 84th member of the Convention. Effective date: 1 January 2017 Declarations and reservations: "This State declared, in accordance with articles 12 and 96 of the Convention, that any provision of article 11, article 29 or Part II of the Convention that allowed a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing, would not apply where any party had his place of business in its territory." It is the purpose of this course to familiarize students with some of the most important tools used in international trade to: (a) Allocate the rights and responsibilities of exporters and importers regarding the arrangements and payment for the delivery of the goods; (b) Secure the payment by the buyer of the merchandises contracted (chapter III); (c) Protect the buyer against the non-performance of the contractual obligations by the seller. The basis of International Sale of Goods Contracts 2. International Sale of Goods Contracts of sale are governed by either national law the law of the domicile of the seller or the buyer or by an international treaty, the United Nations Convention on Contracts for the International Sale of Goods (CISG).
Since the CISG and most national laws are based on the customs of the business community (the lex mercatoria) it is not surprising that they exhibit a great degree of similarity. Among the most authoritative definitions ofthe lex mercatoria are the following: "A set of general principles, and customary rules spontaneously referred to or elaborated in the framework of international trade, without reference to a particular system of law. "3 The ICC model international sale contract is developed for sales of manufactured goods intended for resale, where the buyer is not a consumer and where the contract is an independent transaction rather than part of a long-term supply arrangement. It is flexible enough to allow users to either incorporate the general conditions common to all contracts or the specific conditions, which set out standard terms common to all contracts incorporating the ICC general conditions of sale.
The specific conditions are prepared in order to permit parties to agree to the particular terms of their sale contract and cover aspects such as: • Information about the seller and the buyer (name, address, contact, etc.) • Description of the goods sold • The contract price • The delivery terms according to incoterms • Inspection of the goods by buyer 2 • Payment conditions (irrevocable documentary credit or electronic fund transfer) • Resolution of disputes (arbitration or litigation) Failing contrary agreement between the parties, the ICC Model International Sale Contract subjects the transaction to the CISG, which, for ease of reference, is appended to the model contract as annex 1. By means of this incorporation of the CCISG into the model contract, the Convention will apply whether or not the countries of the seller and buyer have ratified the Convention. Morcover, while the model contract subjects the transaction to the United Nations Convention for the International Sale of Goods (CISG), it also, in certain circumstances, permits the parties to incorporate specific conditions of national law. ICC provides guidance on each box of the form, and in some instances, lists of terms are defined, with the responsibilities of the parties clearly set out.
On transport documents, for example, the model lists those in common use, such as the bill of loading, the multimodal transport document and the air waybill. Types of contracts The ITC Model Contract is greatly influenced by the CISG, which is widely accepted by lawyers of different traditions and backgrounds. The contract articulates practical requirements arising from commercial practice within the general rules of the CISG. The ITC Model Contract may not be suitable for the sale of perishable goods.
Apart from the fact that perishable goods are often sold by reference to branch- established trading terms and conditions, such goods require a different and more concise conformity criterion, short periods of time for notifying non-compliance, and a specialized quality inspection procedure. The ITC Model Contract is presented in two versions a standard and short version. The standard version contains definitions of relevant notions (e. lack of conformity), special comments (e.
on the notice of non-conformity), explanations and warnings to the parties (e. on the limitation of the seller's liability or on the validity of the agreed interest clause). The short version is more practice-oriented, covering the main rights and obligations of the parties with no special explanations. In addition, the short version contains only selected boilerplate clauses, whereas the standard version provides all the relevant boilerplate clauses included in the other ITC Model Contracts.
If the parties enter into a continuous relationship for the supply of goods, the ITC Model Contract on the International Long-term Supply of Goods is intended for use in connection with manufactured goods, rather than commodities, which have their own special features and are often sold on standard forms provided by associations of producers or dealers. The Model Contract is not intended for use in cases where goods are supplied for resale by a distributor (for those cases, see the ITC Model Contract for the International Distribution of Goods). While a contract for a long-term supply of goods would mainly be a sales contract, the parties can focus on various relational elements to improve the quality of logistics, delivery and the goods themselves. The larger contracted sales volumes give the parties more freedom to tailor their relationship.
The purpose of such a contract is not only to arrange for the sales-related aspects, but also to improve the supply relationship by providing for: • Continuity of supply; • Logistical aspects of supply aimed at a shortened lead time (the time between order and delivery); • Improvement of product quality; Continuity in product specifications (and a mechanism for changing product specifications in case of technical developments, a change in raw materials or other developments); 3 • Flexibility in modifying the applicable incoterm; • Fluctuations in purchase prices (including price developments related to raw materials or components); Flexibility about payment (i. No costly l/c or other payment mechanism is required); • A limitation of liability by reference to the (long) duration of the contract; Permissible events of force majeure, tailored to the particularities. How to decide which contract - supply or manufacturing. A supplier may or may not be the manufacturer of the goods under contract.
If the manufacturing aspect is predominant, it is recommended to use the itc model international contract manufacture agreement. Certain types of clauses in the CISG perspective This ITC Model Contract can be viewed as a general framework for numerous types of sales contracts in international trade. For implementation, the parties should adapt it to the nature of each particular sales contract as well as to the specific requirements of the applicable law, where such requirements exist. Scope: The contract contains the substantive rules for an international sales contract, i.