Formation of an International Contract

Introduction

In India, contracts are governed under The Indian Contract Act, 1872[1], but internationally contracts are governed under the “Contract of International Sale of Goods”[2]. “CISG” is a multilateral international treaty which offers standardised laws around the world for international sale of goods. This treaty has a long history, it was developed and approved by “UNCITRAL”[3] and was adopted in 1980, in Vienna. It is also known as the Vienna Convention. The main aim or purpose of CISG is to provide a modern, uniform, and fair regime for the International sale of goods contracts. It governs the contracts between various states and gives them various powers. The CISG as on August 2010 has been signed by 76 countries out of which some include superpowers like China, Russia and Japan.

This article will be focused on the Formation of International Contract.

Articles Dealing with the Formation of International Contract

“CISG” in total consists of 101 articles, the articles that deal with the Formation of International Contract are in Part II of the Convention i.e., from Article 14 to Article 24. The said articles deal with Offer, Acceptance of an Offer & additional particulars relating to Offer and Acceptance.

Formation of an International Contract

The formation of Contracts amongst States is similar to contracts amid person(s). It starts with an Offer to a specific or unspecific person(s), where the person on the receiving end either accepts or declines the offer, in case of Acceptance, the same is then communicated to the person making the offer (Offeror).


OFFER

An Offer is a proposal made by one person to another person(s). It is the first step for making a contract. It has to be sufficiently definite and should represent the intention of the person making the offer (also known as the Offeror). There are two essential elements that are needed while making an Offer:-

  • Sufficient Definiteness

Article 14 says that “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.” [4]

Definiteness means to be definite; it is used in context of goods, quantity of goods, price of goods and to whom the offer is addressed. Sufficient Definiteness means that the proposal/offer should be certain and not ambiguous.

A certain good, quantity of goods and price of goods should be mentioned and communicated to the person accepting the offer. Goods, quantity and price are the three most essential elements (Essentilia Negotii) of a contract and therefore, they have to be sufficiently determined. Definiteness is not only in terms of goods, quantity and price but also in regard to whom the offer is addressed to. At times an offer is specifically made to one or more persons, but sometimes it is made to unspecific person or persons. In that case it is known as a ‘Public Offer’. According to article 14, a person is permitted to make an Offer to unspecific person(s). Under Article 14(2)[5] when a proposal is made to one or more persons, it is considered as an Invitation to make Offers, lest the contrary is specified in the Offer.

  • Intention of The Offeror

The second element is the intention of the Offeror. “A proposal has to include the 0fferor’s intention to show his willingness to be bound in case of acceptance.”[6] Intention to be bound is known as Animus Contrahand, it is an essential condition for an making an Offer under CISG. In order to make an Offer binding, the intention of the Offeror has to be bound in case of acceptance by the opposite party.


A. Withdrawal of an 0ffer

An Offeror may withdraw an offer after it has been sent to the Offeree. In a situation where the Offeree has accepted the Offer, after the withdrawal was dispatched, it becomes vital to distinguish the stages when the Offer and Withdrawal are effective. Article 15 of CISG determines when an Offer becomes effective and administers Withdrawal of an Offer. An Offer, revocable or not, can be withdrawn “if the withdrawal reaches the offeree before or at the same time as the offer.” Notice of withdrawal prevents formation of a contract.

B. Revocation of an 0ffer

An Offer can be revoked if the revocation reaches the Offeree before he has sent his acceptance to the Offeror.[7] “However, an Offer cannot be revoked: If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or if it was reasonable for the Offeree to rely on the other as being irrevocable and the Offeree has acted”[8]. An Offer, even if it is Irrevocable will be ended as soon as a negation is received by the Offeror.

C. Counter 0ffer[9]

In cases where the Offeror receives a response to the Offer which imposes restrictions and modification, will be vetoed and considered as a “Counter-Offer”. “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.”[10]


ACCEPTANCE

Acceptance is the declaration of intent by the Offeree which in order to conclude an effective contract, has to be communicated to the Offeror. Articles 18-22 of the CISG, are related to acceptance.

A. Types of Acceptance

Acceptance is of several types. It can be expressed through Explicit Declaration or Performance of an act or by the Conduct of the Offeree.

Silence or Inaction does not depict acceptance.

  • Acceptance by Explicit Declaration

Acceptance by explicit Declaration can be divided into two categories: Written Declaration and Oral Statement. Generally, written declaration is favoured and can be done in any form such as fax, e-mail, letter, etc. but it has to reach the Offeror. The declaration has to be given to the Offeror by either the Offeree himself or through his Legal Representative or an Agent.

  • Acceptance by Performance

Acceptance by performance means through an act, such as payment of goods, shipment of goods, etc. The Acceptance becomes effective as soon as the act is performed. The Offeree doesn’t have to specially notify the 0fferor in such situation.

B. Late Acceptance[11]

It is only acknowledged in the cases where the Offeree informs the Offeror, orally or through a notice along with a justified reason. The Offeror has complete right to refuse the Late Acceptance. Whereas, Offeror’s silence, in case of late acceptance will be considered as consent.

C. Withdrawal of Acceptance[12]

An acceptance can only be withdrawn if the communication of withdrawal reaches the Offeror before or at the same time of communication of acceptance.

D. Conclusion of Contract

“A contract is concluded at the moment when, Acceptance of an Offer becomes effective in accordance with the provisions of CISG.”[13] The declaration of acceptance has to reach the Offeror in any way. It can be delivered to his house or place of business or mailed.

CONCLUSION

CISG only talks about the traditional approach of contract between the parties. It has been acknowledged as an effective instrument that is helping in upholding harmony and unison amid the states. Though, CISG does not govern some issues that are substantial for the formation of a contract. It doesn’t discuss about the validity of a contract or consideration. It is up to the domestic laws to decide whether a contract is void or voidable as a result of distortion, fraud, undue influence, etcetera.

Footnotes:

[1] The Indian Contract Act, 1872 (9 of 1872) [2] United Nations Convention on Contract of International Sale of Goods, 1980 (hereinafter cited as CISG ) [3] UNCITRAL- United Nations Commission on International Trade Law, it was established on 7th December, 1966 [4] CISG, Article 14(1) [5] CISG, Article 14(2) [6] CISG, Article 14 [7] CISG, Article 16(1) [8] CISG, Article 16(2) [9] CISG, Article 19 [10] CISG, Article 19 (2) [11] CISG, Article 21 [12] CISG, Article 22 [13] CISG, Article 23

Submitted by,

Smridhi Duggal,

Delhi Metropolitan Education (Guru Gobind Singh IPU)).

© 2019 by AmicusX