Eastern Mediterranean University BANK406 Corporate Banking Law and Practice CHP 3

Form of International Sale Contracts ● An international sale contract is an agreement between a seller and the buyer for the sale of the goods. Usually an international sale contract includes following items; -Goods to be delivered by the seller -The price to be paid by the buyer -Carriage of the goods -Insurance of the goods -Machinery set up for the payment * It should be noted that it is not compulsory for the parties to choose this form. There are different forms accepted in different international conventions.

Vienna Convention (1980) ● International trade law knows many international conventions of different kinds. However there are conventions that create uniform law for international cases, which is equal to all parties. ●1980 Vienna Convention (referred as Convention or CIGS) is the most important convention on the international sale of goods. Since 1980, a great number of states have become party to the Convention, which means that an increasing number of international sales will be governed by this Convention.

Reasons for the success of the Convention; ● Non-mandatory character, the parties to a sales contract remain totally free to deviate in their contract from the rules of the Convention. The foundation of the Convention is this respect for the freedom of contract. ● This principle is laid down in Article 6 of the CISG ‘The parties may exclude the application of this Convention or…derogate from or vary the effect of any of its provisions.’ * This principle of freedom of contract has utmost importance.

Interpretation of the Convention ● Article 7 of the CIGS deals with the interpretation of the Convention. The main feature of this article is the importance it attaches to the need of a uniform interpretation. ● According to the 2nd section of the article, it is only permitted to apply national law when a question concerning some matter is not expressly settled by the Convention. ● Mistake is a matter of validity of the contract, which is explicitly excluded from the scope of the Convention. This means that the question is subjected to domestic law, and that the remedies of the CIGS are not applicable.

The important role of usages ● Article 9 of the CISG contains rules on the binding force of usages. The Convention does not define what ‘usages’ are. Parties can agree to be bound by the usages of a certain trade. ● More important in section 2, which states that parties can be bound to usages they did not agree to also parties can even be bound by usages of which they are unaware. This will be the case when they ought to have known them. * Parties ought to have known certain usages when they are ‘widely known to (in international trade) and regularly observed by the parties to contracts of the type involved in the particular trade concerned.’

Formation of the Contract ● A sales contract is formed by way of offer and acceptance. ● An offer must be sufficiently definite, and this is the case when it indicates the goods (quantity and quality), and when the price can be determined. *The price does not have to be fixed by the contract, but the contract must contain some way of fixing the price, for example by reference to a market-price at some moment. ● Offer as well as acceptance become effective when they reach the other party. Offer and acceptance can be withdrawn when the withdrawal reaches the other party before offer or acceptance becomes effective.

Formation of the Contract (cont…) ● As regards offers, we can distinguish offers which can be revoked from offers which cannot be revoked. An offer can be revoked, unless it states that it cannot be revoked, or unless the offer states a fixed time for acceptance. ● When the offer can be revoked, this has to be done before the other party has dispatched the acceptance. ● When the acceptance is different from the offer, it is not regarded as an acceptance and no contract is formed. For instance, when the acceptance contains exemption-clauses and the offer did not, this ‘reply to an offer which purports to be an acceptance’ is regarded as a counter-offer.

Substantive Sales Law Obligations of the seller ● Delivery ● Conformity ● Inspection and notification Obligations of the buyer ● Payment of price ● Taking delivery ● Transfer of risk Remedies ● The right to demand repair or substitution ● Additional period of time ● Cure ● Avoidance

Obligations of the Seller ●Delivery -Delivery is regarded as what actions the seller has to do to fulfill his obligation. -It is generally accepted that a sales contract involves carriage when the seller is either entitled or obligated to conclude a contract of carriage. * When the sales contract involves carriage, delivery takes place when the goods are handed over the first carrier. If the contract does not involve carriage, the seller has to place the goods at the buyer’s disposal, either at the place where the goods are at the time of the conclusion of the contract, or the seller’s place of business.

● Conformity -The goods have to be of the quality an quantity specified in the contract. -The goods have to be of merchantable quality, which means that they must be of at least such a quality that they can be easily traded. -When the goods will be used for a specific purpose and the seller knows this, or should have known this, the goods must be fit to be used for this specific purpose.

● Inspection and notification -The buyer must inform the seller when the goods do not conform to the contract. *If he fails to do so, he loses all rights in respect of that non- conformity. He must do this within a certain period usually within 2 years after the goods have been actually handed over to the buyer. -The buyer must examine the goods or have them examined by a third party as soon as possible, without a delay. -When the contract involves carriage, it is always wise for buyers to have the goods inspected by independent controllers at the moment when risk will pass to the buyer.

Obligations of the Buyer ●Payment of price -The Convention specifies time and place of payment. -Place of payment; If the buyer is not bound to pay the price at any other particular place, he must pay the price to the seller at the seller’s place of business. If the payment is to be made against the handing over of the goods or documents, the place of payment is the place where the handing over takes place. -Time of payment; As a rule the buyer must pay when the goods are placed at his disposal. In that case the buyer must pay before the goods are in his power, but are no longer in the control of the seller. * The buyer does not have to pay unless he has had an opportunity to examine the goods.

●Taking delivery -The buyer has to take the necessary steps to enable the seller to deliver. -This could be to notify the seller of the time and place a ship will be ready to load, to make known when he expects delivery, to contract longshoremen and to facilitate loading or unloading. ●Transfer of risk -When the risk is on the buyer he will have to pay the full price notwithstanding any damages to goods. This is true unless the damages have been caused by an act, or an omission of the seller. -The act or omission of the seller does not need to be a breach of an obligation. An act or omission compromises all contingencies that can happen to the goods.

Remedies ● The right to demand repair or substitution -Article 46 of the CISG gives the buyer the right to demand performance -When the goods have been delivered, but are defective, the buyer can choose to demand repair, or to demand substitute goods. -The right to demand substitute goods is limited to the case of fundamental breach. The reason behind this limitation is that the cost of substitute goods can be very high, and therefore the seller should not be burdened with them too easily.

● Additional period of time -Article 47 of the CISG gives the buyer the possibility to fix an additional period time for performance. The buyer is never under any obligation to do so and it is not a condition for the exercise of a remedy. -The function of the additional period of time is to provide security for the seller and the buyer. -The security for the seller consists of knowledge, that the buyer will not be allowed to resort to a remedy which is inconsistent with performance of contract and the seller know how much time is available for the performance. This period must be reasonable.

● Cure -Article 48 of the CIGS gives the seller the right to perform the contract even after the period in which he should have performed. -When the cure is possible, it is not likely that the breach is fundamental. We can distinguish the cure when delivery is late, the cure by repair and cure by substitution. -When repair is possible and the seller is willing to repair, he should be given the possibility to cure. When the defective performance cannot be repaired, the only way to cure is by substitution, and the breach is fundamental thus the buyer may avoid the contract without having to give the seller an opportunity to cure.

● Avoidance -Article 49 of the CISG, which contains the basis rules for the avoidance is divided in two sections; late delivery and other breaches. -In the case of late delivery, the buyer can always avoid the contract when the seller does not deliver within the additional period of time fixed by the buyer. In other cases the contract can only be avoided when a party to the contract commits a fundamental breach. * One of the consequences of avoidance is that, the party has performed can claim restitution. When its is impossible for the buyer to make restitution in substantially same condition, he cannot avoid the contract.

Suspension and Anticipatory Breach ● Article 71, allows a party to suspend his performance when it is likely that the other party will not perform. -It becomes apparent and giving right to suspend. ● Article 72, allows a part to avoid when it is quite certain that the other party will not perform. There must be more than subjective fear to justify the suspension of the performance. -It becomes clear and giving right to avoid. ●In order the suspend the performance , the suspending party must notify the other party, so that the other party has the opportunity to provide adequate assurance of his performance. ● If a party wants to avoid the contract in accordance with article 72, he must give notice only if time allows. This could call for abuse.

Damages ● All damages must be compensated. This means not only the damages to the goods, but also any consequential damages. Consequential damages can consist of the loss of profit, the loss of customer and the loss of sales. ● Articles 75 and 76 of the CISG provide two alternative ways of assessing damages. - According to article 75 the buyer can, when the seller commits a breach, buy substitute goods and claim as damages the difference between the price he has to pay and the contract price. -According to article 76 the buyer may recover the difference between the price fixed by the contract and the current price at the time he has avoided the contract.

Exemptions ● Article 79 of the CISG indicates under which circumstances a party is not liable when he commits a breach of contract. ● Article 79 consists of four elements; -The failure to perform must be due to an impediment. -The impediment must be beyond control of the failing party. -The impediment could not have been taken into account at the time of the conclusion of the contract. -And the consequences of the impediment could not have been avoided. * When these circumstances occur, the party in breach will not be liable for damages.

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