International business transactions- Lectures notes part three part two

INTERNATIONAL BUSINESS
TRANSACTIONS
Lecture 3: The CISG
Fitsum G. Tiche
Bahir Dar University School of
Law

AGENDA
Choice of law in international sales
The CISG
Introduction to the CISG
Contractual formation
Performance
Remedies
2

CHOICE OF LAW IN IBT – I
The issues:
How is the determination made on what substantive law governs the international sales contract?
What choice of law approach will courts use in determining the applicable law in a case involving a
choice b/n domestic & foreign law?
What factors will the court consider in making the choice of law determination?
3

CHOICE OF LAW IN IBT – II
Conflict rules (PIL) determine what country’s substantive law governs the contract
The vast majority of PILs allow parties to choose the governing law
How to Choose Governing Law?
No need to choose a connected law
Choose a law particularly developed in the area
Choose a stable law which is sufficiently known
Avoid the other party’s law (not always necessary)
4

CHOICE OF LAW IN IBT – III
How to Choose Governing Law (cont’d)
Identify particularly favourable law (difficult):
What protection/remedy is most likely to be needed
What law provides that protection/remedy
Is a literal interpretation of the contract expected?
Is a contextual evaluation of the relationship expected?
5

CHOICE OF LAW IN IBT – IV
Lacking parties’ choice, a forum’s conflict of law rules apply
For instance, the Rome Convention provides that the contract is to be governed be the LAW OF THE
COUNTRY “with which it is most closely connected.”
Issues:
nationalistic interest might dominate choice of law decisions
Too vague: lack of predictability in applying the rules of PIL
Solution: CISG—a uniform SUBSTANTIVE LAW without the need for a choice of law analysis
6

THE CISG
§ Introduction
§ Contractual formation
§ Performance
§ Remedies
7

INTRODUCTION – I
What is it?
a multilateral Convention drafted and promulgated under the auspices of UNICITRAL
Entered into force on Jan1, 1988 up on ratification by 11 countries
Currently, 89 Contracting States, covering more than 80 per cent of global trade
Major goal: uniform treatment of contracts in the light of international commercial usage & practice
8

INTRODUCTION – II
What is it?
NOT a mandatory public law but a supplementary private one; parties can exclude the application of
the CISG
Not a comprehensive contract law
It governs 2 basic aspects the Contract:
Part II: the formation of a contract and
Part III: the obligations of the parties to the contract.
Contracting states can exclude either Part II or III by a specific declaration under Article 92.
9

INTRODUCTION – III
What is it?
Note: important issues such as validity of the contract, third-party rights, and property rights in the
goods are not governed by the CISG [Left for Domestic Law]
Where the parties have not explicitly agreed on a domestic law to govern issues that are excluded
from the CISG, the court must engage in a choice of law analysis
10

APPLICABILITY (ARTICLES 1-6) – I
The CISG covers:
The formation of contracts for the international sale of goods; and
The rights and obligations of the parties to those contracts
The CISG does not cover:
Issues relating to contractual validity;
Property consequences of a sales contract;
Liability for death caused by a defect in goods sold; or
Contracts that are ancillary to a sales contract, such as distribution agreements, contracts of carriage and
insurance, and dispute resolution clauses
11

APPLICABILITY (ARTICLES 1-6) – II
The CISG applies to (Article 1):
Contracts for the sale . . .
of goods . . .
when the transaction is international.
12

APPLICABILITY (ARTICLES 1-6) – III
“Contracts for the sale”
Must be a commercial sale
“Commercial” does not include consumer sales for personal, family, or household use
“Sale” does not include leases or licenses
Seller must deliver the goods, hand over any documents relating to them, and transfer the property in the goods
Buyer must pay the price for the goods and take delivery of them
13

APPLICABILITY (ARTICLES 1-6) – IV
“of goods”
The CISG does not define “goods,” but the term is generally understood to mean “tangible movables”.
Software?
Does not apply to sales of ships, vessels, hovercraft, aircraft, or electricity
Does not cover contracts for services (e.g., construction contracts)
In case of mixed contracts covering goods and services (Article 3), the CISG will apply unless “the
preponderant part of the obligations of the party who furnishes the goods consists in the supply of
labour or other services.”
14

APPLICABILITY (ARTICLES 1-6) – V
“when the contract is international”
A contract is international when
the seller and buyer have their places of business in different countries and both such countries have ratified the CISG (Article 1
(1) (a))
the rules of private international law lead to the application of the law of a Contracting State (Article 1 (1) (b))
When there are multiple business locations, the applicable place of business is the one “which has the
closest relationship to the contract and its performance”
15

“when the contract is international”
If the contract is international within the meaning of the CISG, the CISG will apply automatically unless
the agreement between the parties specifies otherwise
Art. 95 allows a party to make a reservation at the time of ratification that it will NOT be bound by
Art 1.1.b.
Note that the application of 1.1.b increases the application of the CISG as it will apply even when one
of the parties is from a non-contracting state if a PIL analysis chooses the law of a contracting state.
16

Summary
When both parties are from contracting states, the CISG applies under subparagraph 1.a.
When only one party is from a contracting state, either the CISG applies or the domestic law of the
noncotracting state applies under subparagrph 1.b.
When only one party is from a contracting state and the state has excluded subparagraph 1.b through
a declaration under Art 95, then the domestic law of one of the states will apply.
17

CONTRACTUAL FORMATION – I
Offer:
Art. 14 – definition/minimum content [cf. Art. 1687 CC]
Differs from proposal: addressed to one or more specific person(s);
sufficiently definite (goods and price determinable, see art. 55 for price determination);
indicates intention to be bound if accepted
18

CONTRACTUAL FORMATION – II
Offer
“effective” (not necessarily irrevocable) when it reaches the offeree (unless withdrawal reaches earlier
or at the same time) (Art. 15) [cf. Art. 1693 CC]
But still revocable (until the offeree has dispatched acceptance), unless irrevocability indicated (eg
period for acceptance) or reasonably relied upon (Art. 16) [cf. Art. 1690 and Art. 1691 CC]
It is terminated when a rejection reaches the offeror (Art. 17)
Effect: if accepted during period of validity (and before revocation) (rules concerning the calculation
of the period in Art. 20, 21) a contract is formed when the acceptance becomes effective (Art. 23)
19

CONTRACTUAL FORMATION – III
Acceptance:
not by mere inactivity (Art. 18 (I)) [cf. Art. 1682 CC]
It becomes effective when it reaches the offeror within the time fixed or, if no time is fixed, within a
reasonable time (Art. 18 (2)); possibly already when an act is performed (18 (3)). [cf. Art. 1692 CC]
Modified acceptance (Art. 19): do the modifications “materially” alter the terms of the offer ? [cf. Art.
1694 CC]
Yes > counter-offer (19 (1));
No > accepted with modifications unless protest (“last shot”) (19 (2)).
20

CONTRACTUAL FORMATION – IV
Acceptance:
Acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the
acceptance would have become effective (Art. 22) [cf. Art. 1693(2) CC]
The “battle of the forms”
No special rules for “battle of forms” (i.e. general clauses contained in the forms exchanged between the offeror and the
offeree are contradictory).
See Art. 19
21

PERFORMANCE – I
Seller’s obligations
1. Obligation of Delivery
Place of performance (Art. 31: default rules):
Carriage involved: first carrier
No carriage involved and contract relates to (a) specific goods, (b) unidentified goods to be drawn from a specific stock or (c)
goods to be manufactured of produced and parties knew that the goods were at, or were to be manufactured of produced at,
a particular place: place of the goods.
In other cases: seller’s place of business.
22

PERFORMANCE – II
1. Obligation of Delivery
Time of performance (Art. 33)
Fixed date
Fixed period of time
In other cases: reasonable time after conclusion of the contract
Duty to preserve the goods if buyer fails to take delivery (Art. 85 ff.)
23

PERFORMANCE – II
2. Conformity of goods (Art. 35)
There is conformity only if the goods are :
1) in conformity with specifications of the contract (quantity, quality, packaging)
2a) fit for ordinary purposes (But fit where (in which place)?)
2b) fit for particular purpose made known to seller
2c) in conformity with the qualities of the sample
2d) usual or adequate packaging;
Exception: visible non-conformity at the time of conclusion of contract (Art. 35(3))
24

PERFORMANCE – III
Buyer’s obligations
1. Payment of the Price
Includes all of the measures agreed upon in the contract to enable payment to be made
Price not fixed nor mode of determination? Normal price (Art. 55)
Place of payment (Art. 57)
seller’s place c.q. place of handing over
25

PERFORMANCE – IV
Time of payment (Art. 58):
When control is given to the buyer
At the condition that he has had the opportunity to examine the goods
The seller does not need to send any advance reminder or other formal request for payment
Concrete rule will depend on clauses (often ‘payment against documents’).
26

PERFORMANCE – V
Payment instruments: no provisions in CISG.
The seller must accept partial payment or early payment if he is required to do so by contract.
27

REMEDIES – I
Overview of remedies for non-performance
Specific performance (Art. 46 and 62)
Suspension (Art. 71)
Avoidance of the contract (Art. 49 and 64)
Damages (Art. 45 and 61)
28

REMEDIES – II
General principles
Free choice, no hierarchy of remedies (but sometimes fundamental breach required. See Art. 49 for
instance)
Combinability, esp. of damages and other remedies
Largely self-help (unilateral declaration)
By notification (usually within a reasonable time)
Fundamental objective: saving the contract and avoiding restitution
29

International business transactions- Lectures notes part three part two

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International business transactions- Lectures notes part three part two