The UN Convention on Contracts for the International Sale of Goods - Assignment Example

The UN Convention on Contracts for the International Sale of Goods 1. Within the context of the UN Convention on Contracts for the International Sale of Goods, explain with relevant case examples: (a) an offer; (b) an invitation to treat; (c) a counter offer; The law of contract stipulates three fundamental requirements for the formation of a legally enforceable contract; namely; offer, acceptance and consideration (it is important to note that contracting parties must have legal capacity to enter into a contract and it is presumed from the facts given that capacity is not an issue in this case). Lord Wilberforce presiding in the case of New Zealand Shipping Co Limited v A M Satterhwaite, The Eurymedon1 asserted the rule for contract formation thus: “English law having committed itself to a rather technical…… doctrine of contract, in application takes a practical approach……. Into the market slots of offer, acceptance and consideration.2 An “offer” in the context of contract law has been described as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree.3” The “expression4” may take different forms and Article 14(1) of the UN Convention on Contracts for the International Sale of Goods5 (“the UN Convention”) defines an offer as a: “Proposal for concluding a contract addressed to one of 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 quantity or price”. Moreover, the intention element is an objective consideration and the case of Smith v Hughes 6emphasised the relevant consideration as being a focus on how a reasonable person would view the situation. Furthermore, the law distinguishes between an offer and an invitation to treat, which is not an offer but an indication of willingness to negotiate a contract7. For example, in the case of Gibson v Manchester City Council8, the words “may be prepared to sell” constituted an invitation to treat and not a distinct offer. Moreover, the Gibson decision arguably reshaped the conventional principles regarding formation of contract. For example, Lord Denning suggested that when determining whether there was in fact a legally enforceable contract, there was no need to look for strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and see therefore whether the parties have come to an agreement on everything that was material” ([1978] 1 WLR 520). Advertisements can be prime examples of invitations to treat as evidenced by the decision in Partridge v Crittenden9, where the printed advert described the “Quality British… Bramblefinch cocks” with details of the price but there were no specific indication that the advertised product was on offer for sale. On these grounds, it was held that the advert constituted an invitation to treat. Additionally, Article 14(2) of the UN Convention provides that “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”. It is common in commercial contractual negotiations for there to be numerous correspondences and McKendrick highlights the fact that commercial contractual negotiations will often result in offers and counter offers being communicated10. In addressing this conundrum, the decision in Hyde v Wrench11 determined that any counter offer during negotiations will result in a termination of the original offer. This position is reiterated by Article 19(1) of the UN Convention, which provides that: “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”. However, Article 19(2) of the UN Convention makes a distinction and provides that if a reply to an offer includes additions that do not “materially alter” the terms of the offer, then unless the offeror objects to such additions; this scenario will not constitute a counter offer. In providing further guidance as to what will constitute a material addition for the purposes of falling within the counter offer category, Article 19(3) of the UN Convention provides that additions and alterations relating to price, delivery, liability and dispute resolution will constitute material additions. 2. In order to consider the potential liability of both parties under the UN Convention, it is necessary to evaluate the Convention provisions on conformity of goods, remedies for breach of contract by the seller and remedies for breach of contract by the seller. As an initial observation it is evident from the outset that whilst part of the consignment provided by Beni was the wrong colour and therefore prima facie in breach of contract; Axel has been able to use the material and sell the product at no apparent loss and the essence of breach of contract claims against a seller is actual loss12. Accordingly, this will place Beni in a strong position to claim that non-payment from Axel is in breach of contract. With regard to Beni providing the wrong coloured goods, this clearly breaches Article 35(1) of the UN Convention which provides that a seller’s obligation is to “delivery goods which are of the quantity, quality and description required by the contract”. Additionally, while Axel’s use of the material would suggest that the goods were still “fit for the purposes for which goods of the same description would be used;”13the fact that Beni provided the wrong colour falls into Article 35(2)(c) of the UN Convention, which provides that goods do not conform where “they possess qualities of goods which the seller has held out to the buyer as a sample or model”. On this basis, Article 46 of the UN Convention entitles Axel to correct the lack of conformity and require delivery of substitute goods. However, notwithstanding Beni’s prima facie breach under Article 36; Article 38 imposes a positive obligation on buyers to inspect goods on arrival. Additionally, Article 39 provides that a buyer loses the right to “rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he discovered it or ought to have discovered it”. If we apply this by analogy to the current scenario, it is evident that Axel was aware of the change in colour from that which he requested during contractual negotiations, however he went ahead and used the cloth for the furniture without notifying Beni of the mistake regarding the colour. Additionally, Axel had no problem selling the product. On this basis, it would appear that Axel cannot rely on the Article 35 provisions regarding the seller’s breach of contract for supplying goods that do not conform. As such, it would appear that Axel’s actions upon receipt of the cloth has precluded his rights under Section III, Articles 45-52 of the UN Convention regarding remedies for breach of contract by the seller. In contrast, this then places Axel potentially liable to Beni for non payment. Article 53 of the UN Convention imposes a positive obligation on a buyer to pay the price for the goods and take delivery. Moreover, Article 54 of the Convention provides that “the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made”. These payment obligations are further bolstered by Article 59 of the Convention, which provides that the buyer must: “Pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller”. Accordingly, on the basis of the facts in failing to make payment Axel is arguably in breach of contract, which entitles Beni to require Axel to make payment under Article 62. Additionally as Axel has indicated that he is not going to make payment, then Beni can initiate proceedings to seek remedies for breach of contract under the UN Convention provisions. Article 64 of the Convention provides that a seller can “declare the contract avoided” in the event of buyer non payment. Additionally, Article 64(1)(a) provides that buyer non payment amounts to fundamental breach of contract. In summary, Beni’s delivery of the wrong coloured material was prima facie in breach of contract however Axel’s failure to notify Beni of the error coupled with the fact that Axel used the cloth and was able to sell the furniture effectively forfeits his right to sue Beni for breach of contract. As a result, Axel’s refusal to pay constitutes breach of contract and Beni can sue Axel for fundamental breach of contract under the UN Convention rules. Bibliography Chitty (2007) Chitty On Contracts, 29th Edition, Sweet & Maxwell Eliot, C. & Quinn, F. (2009) Contract Law 7th Edition Pearson Longman, Furmston, M. P. (20070 Cheshire, Fifoot & Furmston’s Law of Contract. 15th Edition Oxford University Press McIntyre, E. (2008) Business Law 4th Edition Pearson Longman McKendrick, E.(2008) Contract Law: Text, Cases and Materials. 3rd Edition Oxford University Press Treitel, G. H.(2007) The Law of Contract. 12th Revised Edition Sweet & Maxwell The UN Convention on Contracts for the International Sale of Goods 1980 available at www.uncitral.org/pdf/english/texts/sales/cisg/CISG.pdf accessed February 2010. Read More