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LUMSA – International Commercial Law 31 October 2014 Prof. Avv. Roberto Pirozzi

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1 LUMSA – International Commercial Law 31 October 2014 Prof. Avv. Roberto Pirozzi

2 LUMSA – International Commercial Law CISG The United Nations Convention on Contracts for the International Sale of Goods (1980) [“CISG” or the “Convention”] represents the most recent attempt to unify or harmonize international sales law. The Convention is an attempt to create a uniform law for the international sale of goods.

3 LUMSA – International Commercial Law CISG The CISG applies to international contracts for the sale of goods between parties whose businesses are located in countries which have adopted the treaty. The CISG permits adopting countries to "opt out" of several provisions so it is important to verify not only that your trading partner's country is a signatory to the treaty, but also whether and to what extent it has made acceptable variations to the treaty terms as applied in its national law.

4 LUMSA – International Commercial Law CISG The CISG governs some key terms and conditions of contracts for international sales of goods, but not all terms and conditions. It covers formation of contracts, rights and obligations of sellers and rights and obligations of buyers. It does not cover liability of a seller for death or personal injury caused by the seller's goods. It also does not cover transfer of title, existence of agency relationships, forum selection, statutes of limitations, interest rate issues, currency of payment or even the validity of the contract itself.

5 LUMSA – International Commercial Law CISG The CISG does not apply to contracts for the sale of services. Where, as is common, the sale of goods includes the sale of services, a court determines which element constitutes the preponderance of the obligation to decide applicability. Generally the CISG does not apply to distributorship agreements unless they include definite terms on material issues like quantity to be sold, price of sales and delivery of goods.

6 LUMSA – International Commercial Law CISG Formation of the contract Part II of the CISG consists of Articles These articles provide the offer-acceptance rules for the formation of contracts under the CISG. Articles and 24 govern the criteria for an offer and its revocability (including the CISG equivalent of the common law “mailbox rule”). Articles 18 and 20–23 govern the acceptance. Finally, Articles 14(2) and 19 describe the “Battle of the Forms” under the CISG.

7 LUMSA – International Commercial Law CISG Formation of the contract Unlike the common law, the CISG does not include elements such as “consideration” or the “intention to create legal relations” in its regime. Also, the CISG contains no reference to a statute of frauds or to the parol evidence rule. These functions are filled in by other parts of the CISG, such as Art. 8, which, for purposes of determining the intent of a party, takes into consideration all relevant circumstances related to the formation of the contract, and Art. 11 which allows a contract to be concluded or evidenced without the need for a writing.

8 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 (1) 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 case of acceptance. 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. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

9 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Proposal sent to one or more specific persons In order for a person to accept an offer, that offer must have been addressed to him. In the usual case, the requirement causes no difficulties since the offer to buy or sell goods will have been addressed to one specific. The specifications of the addressee will usually be by name, but it could be made in some other way such as "the owner or owners of... ".

10 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Proposal sent to one or more specific persons It is also possible that an offer will be made simultaneously to a large number of specific persons. An advertisement or catalogue of goods available for sale sent in the mail directly to the addressees would be sent to "specific persons," whereas the same advertisement or catalogue distributed to the public at large would not. If an advertisement or catalogue sent to "specific persons" indicated the intention to be bound to a contract in case of acceptance and if it was "sufficiently definite", it would constitute an offer under article 14".

11 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Proposal sent to other than one or more specific persons, par.(2) Some legal systems restrict the concept of an offer to communications addressed to one or more specific persons while others also admit of the possibility of a "public offer". Public offers are of two types, those in which the display of goods in a store window, vending machine or the like are said to be a continuing offer to any person to buy that article or one identical to it, and advertisements directed to the public at large.

12 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Proposal sent to other than one or more specific persons, par. (2) In those legal systems which admit of the possibility of a public offer, the determination as to whether an offer in the legal sense has been made depends upon an evaluation of the total circumstances of the case, but does not necessarily require a specific indication of intention to make an offer. The fact that the goods are on display for sale or the wording of the advertisement may be enough for a court to determine that there was a legal offer.

13 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Proposal sent to other than one or more specific persons, par. (2) This Convention takes a middle position in respect of public offers. It states that a proposal other than one addressed to one or more specific persons is normally to be treated merely as an invitation for the recipients to make offers. However, it constitutes an offer if it meets the other criteria for being an offer and the intention that it be an offer is clearly indicated. Such an indication need not be an explicit statement such as "this advertisement constitutes an offer" but it must clearly indicate an intention to make an offer, for example, by a statement that, "these goods will be sold to the first person who presents cash or an appropriate banker's acceptance".

14 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Intention to be bound, paragraph (1) In order for the proposal for concluding a contract to constitute an offer it must indicate "the intention of the offeror to be bound in case of acceptance“. Since there are no particular words which must be used to indicate such an intention, it may sometimes require a careful examination of the "offer" in order to determine whether such an intention existed.

15 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Intention to be bound, paragraph (1) This is particularly true if one party claims that a contract was concluded during negotiations which were carried on over an extended period of time, and no single communication was labelled by the parties as an "offer" or as an "acceptance". Whether there is the requisite intention to be bound in case of acceptance will be established in accordance with the rules of interpretation.

16 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Intention to be bound, paragraph (1) The requirement that the offeror has manifested his intention to be bound refers to his intention to be bound to the eventual contract if there is an acceptance. It is not necessary that he intends to be bound by the offer, i.e. that he intends the offer to be irrevocable.

17 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 An offer must be sufficiently definite, paragraph (1) Paragraph (1) states that a proposal for concluding a contract must be "sufficiently definite" in order to constitute an offer. It goes on to state that an offer is sufficiently definite if it: indicates the goods, and expressly or implicitly fixes or makes provision for determining the quantity, and expressly or implicitly fixes or makes provision for determining the price.

18 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Quantity of the goods, paragraph (1) Although, according to article 14, the proposal for concluding a contract will be sufficiently definite to constitute an offer if it expressly or implicitly fixes or makes provision for the quantity of goods, the means by which the quantity is to be determined is left to the entire discretion of the parties. It is even possible that the formula used by the parties may permit the parties to determine the exact quantity to be delivered under the contract only during the course of performance.

19 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Quantity of the goods, paragraph (1) For example, an offer to sell to the buyer "all I have available" or an offer to buy from the seller "all my requirements" during a certain period would be sufficient to determine the quantity of goods to be delivered. Such a formula should be understood to mean the actual amount available to the seller or the actual amount required by the buyer in good faith.

20 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Article 14 provides the same rule in respect of the price that it does in respect of quantity. Thus, for the proposal to constitute an offer it must expressly or implicitly fix or make provision for the price. It is not necessary that the price could be calculated at the time of the conclusion of the contract. For example, the offer, and the resulting contract, might call for the price to be that prevailing in a given market on the date of delivery, which date might be months or even years in the future. In such a case the offer would expressly make provision for determining the price.

21 LUMSA – International Commercial Law CISG - OFFER CISG Article 14 Where the buyer sends an order for goods listed in the seller's catalogue or where he orders spare parts, he may decide to make no specification of the price at the time of placing the order. This may occur because he does not have a price list of the seller or he may not know whether the price list he has is current. Nevertheless, it may be implicit in his action of sending the order that he is offering to pay the price currently being charged by the seller for such goods. If such is the case, the buyer has implicitly made provision for the determination of the price and his order for the goods would constitute an offer.

22 LUMSA – International Commercial Law CISG - OFFER CISG Article 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

23 LUMSA – International Commercial Law CISG - OFFER CISG Article 15 Article 15 provides that an offer becomes effective when it reaches the offeree. Therefore, until that moment even though the offeree may have learned of the dispatch of the offer by some means, he cannot accept it. For most purposes the rule as stated above is only of theoretical interest. However, it assumes practical importance if the offeror changes his mind after dispatch of the offer but prior to the time the offer reaches the offeree.

24 LUMSA – International Commercial Law CISG - OFFER CISG Article 15 If the offeror withdraws the offer and the withdrawal reaches the offeree before or at the same time as the offer, the offer never becomes effective. Therefore, an offer which, once it became effective, would be irrevocable under article 16(2), can nevertheless be withdrawn so long as the withdrawal reaches the offeree no later than the offer reaches him.

25 LUMSA – International Commercial Law CISG - OFFER CISG Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

26 LUMSA – International Commercial Law CISG - OFFER CISG Article 16 Article 16 CISG deal with the problem of whether an offer is binding and when it is irrevocable. Both the Convention and the PECL distinguish between the revocation of an offer and the withdrawal of an offer. In the Convention, revocation of an offer that has reached the offeree and is effective is regulated by Article 16; withdrawal of an offer that has not yet reached the offeree is regulated by Article 15(2). Similarly, under the PECL, an offer becomes effective when it reaches the offeree (Article 1:303(2) and (6)) and a subsequent revocation of the offer is regulated by PECL Article 2:202. However, the offer may be withdrawn before it reaches the offeree. In that situation, it will not become effective (PECL Article 1:303(5)).

27 LUMSA – International Commercial Law CISG - OFFER CISG Article 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.

28 LUMSA – International Commercial Law CISG - ACCEPTANCE CISG Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.

29 LUMSA – International Commercial Law CISG - ACCEPTANCE CISG Article 18 (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.

30 LUMSA – International Commercial Law CISG - ACCEPTANCE CISG Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) 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 acceptance, 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.

31 LUMSA – International Commercial Law CISG - ACCEPTANCE CISG Article 19 (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

32 LUMSA – International Commercial Law CISG Formation of the contract - Artt (Acceptance) The mirror image rule and modified acceptance (counter-offer or acceptance?) An acceptance must coincide with each and every term of an offer in order to conclude a contract (see articles 19(1) CISG ). This requirement is known as the "mirror image rule" since the acceptance must be the very reflection of the offer in a mirror. An exception is established for the possible introduction of new terms into the acceptance that do not substantially alter the offer.

33 LUMSA – International Commercial Law CISG Formation of the contract – Artt (Acceptance) In that case, the acceptance will be valid; the contract will consist of both the terms of the offer and those included in the acceptance that do not substantially alter the offer, so long as the offeror without delay does not object to the new terms (articles 19(2) CISG), or the offer does not expressly limit acceptance to the terms of the offer ; or the offeree does not make his acceptance conditional upon the offeror's assent to the additional or different terms, and the assent reaches the offeree within a reasonable time (article 2:208(3)(c) PECL).

34 LUMSA – International Commercial Law CISG Formation of the contract - Acceptance On the other hand, if an element that is included in the acceptance adds new terms, modifies the terms of the offer or introduces any other type of limitation to the offer that substantially alters it, the contract will not be considered concluded; the response to the offer will be regarded as a counter-offer - that is, if it meets all requirements under the CISG or the PECL to be considered an offer in and of itself (see articles 14 CISG, and 2:208(1) PECL.

35 LUMSA – International Commercial Law CISG Formation of the contract - Acceptance To determine when an element of an acceptance materially alters the corresponding offer, a list of items is provided by the Vienna Convention. However, the list merely provides examples of such elements, as can be inferred from the expression "among other things", in Art. 19(3) CISG. Furthermore, the list has a presumptive nature since it predetermines that such "[a]dditional or different terms … are considered to alter the terms of the offer materially"


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