United Nations Conventions on Contract - Essay Example

?UNITED NATIONS CONVENTIONS ON CONTRACT Module Module ID: The present paper aims to discussthe business and trade deals conducted at international scale between SamCo with DeanCo on the one hand, and between SamCo and CastielCo on the other, in the light of 1980 United Nations Vienna Convention on international trade and business contracts. In the first case under consideration, SamCo & DeanCo appear to be the parties to the contract, where a deal in respect of buying and selling five dark blue bonnets was to be executed. Similarly, the second case looks for giving legal advice to the above-described Swedish company SamCo in respect of its deal with the Brazilian reseller company CastielCo. However, before embarking upon the topic under consideration, and providing them with a piece of advice in the light of the Vienna Convention on and International Sale of Goods Contracts, it would be advisable to elucidate the terms that create responsibilities and liabilities to the parties to the contract, in order to explore whether or not any contract has been entered into between the parties, could bind them to execute some specific performance, which is as following: The 1980 Vienna Convention1 provides the parties to the contract with a complete and wide-ranging procedure while entering into a legal relationship between one another during foreign trades and business ventures. The main objective behind the Vienna Convention includes the protection of the rights and privileges of the individuals on the one hand and enforcement of the promises and agreements the individuals and parties have entered into2 at the international scale on the other. In addition, since globalisation has encouraged the trade between the nations and organisations conducting their businesses in different states of the world, there was an urgent need for the introduction and enforcement of some laws that could regulate the activities of the parties to contract from foreign lands and overseas countries. Hence, the statutes of Vienna Convention 1980 lay stress upon the parties to the contract to fulfil their contracts they have entered into out of their free consent and without any coercion, undue influence, fraudulence, deceit and misrepresentation.3 In addition, 1980 Vienna Convention also protects the rights of the people who have either not entered into any contract with the persons and organisations outside their countries, but are falsely claimed to be having entered into the same. Consequently, 1980 Vienna Convention also endorses the statutes of Contract Law, which have defined and determined some conditions, fulfilment of which is vehemently necessary for a valid contract. “An agreement”, according to section 2 (h) of the English Contract, “creating obligations to the parties, and enforceable at law is a contract”4 Young (2010) has defined contract in these words: “A contract is an agreement (usually between two persons) giving rise to obligations on the part of both persons which are enforced or recognised by law”.5 Consequently, social contracts do not create legal enforcement due to the very fact that there is no intention of any legal remedies against non-fulfilment of the same. The same is also applied to the international contracts, all of which aim to create legal responsibilities on the parties to the contract. Vienna Convention, according to its statutes, applies to contracts of sale of goods between parties whose places of business are in different States.6 In order to comprehend with the elements of an international contract, it is essential to explore the basics of an agreement. According to English Contract Law, “Every agreement is a contract if it is made by the free consent of the parties, competent to contract for a lawful consideration and with a lawful object, and not hereby expressly declared to be void.”7 In other words, a valid contract maintains the following elements in it; accomplishment of all of them is essential for making it an international legal contract, which includes: a Agreement between two or more parties b Motive of legal binding c Free consent d Lawful consideration e Lawful object f Has not been declared to be voidable or void by any statute of national/international law And in case of an international contract, the agreement between two states, as well as the parties or organisations belonging to different states comes under the definition of international trade agreements, though the above-mentioned conditions also apply in international contracts too. “The CISG governs contracts for the international sales of goods between private businesses, excluding sales to consumers and sales of services, as well as sales of certain specified types of goods.”8 An agreement is made between two parties, where one of them makes an offer, while the other accepts the same. An offer is described in these words: “When one person signifies to another his willingness to do or abstain from doing something with a view to obtain the consent of the other to such act or abstinence, he is said to make an offer/proposal”9 The same has also been an essential element according to Vienna Convention for a valid offer, as Article 14 of Vienna Convention states an offer or proposal in order to enter into a contract between one or more specifically defined persons or parties constitutes an offer provided 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.”10 Consequently, an offer constitutes by: a Determination of a specific person or party for accepting the offer b Intention of binding the offeror and offeree in a legal relationship c Express/implied as well as specific determination of the good d Specific determination of both the quantity and price of the goods11 As a result, if the offeror enters into an agreement with the public at large, where the person to whom the offer is being made has not been specifically mentioned, the offer could not be valid one according to the Contracts for the International Sale of Goods (CISG). It is equally applied on both express and implied offers at large. Express agreement: The agreements made through words, either written or verbal, are called express agreements. For instance, Angelica agrees to live in Adam’s house by paying $400 per month as rent, through an agreement; it would be the express agreement. Similarly, Pamela verbally promises to buy Anthony’s car against $ 9000, and Anthony agrees with the same; it is also an express agreement. Implied agreement: The agreements made otherwise than words come under the definition of implied agreements. For instance, Parks boards a bus without entering into negotiation with the driver or conductor. Consequently, it is understood that she has submitted to the terms and conditions the bus company has decided for the passengers travelling to different routes. In the case under examination, a Swedish car retailing company SamCo sought a bid regarding the purchasing of five blue bonnets from the French car spare parts manufacturing company DeanCo, which is actually invitation to offer, not the offer itself actually. In Pharmaceutical Society of England v. Boots Cash Southern Limited12 the court held that the tags mentioned on a product serve to be invitation to offer, instead of the offer actually; on the other hand, offer is the bid made or raised by the customer or party with the intention of seeking acceptance against the same. However, in international trade and business agreements, invitation to offer is considered to be offer in the light of CISG statutes, which fulfil the requirement of a valid offer, though 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.13 In Harvey v Facey [1893]14, Facey offered to sell his property to Harvey against ?900, which Harvey accepted. However, Facey refused to sell the same to Harvey. The court held that the bid made by Facey was just an invitation to offer, while Harvey had made an offer of purchasing the above-mentioned property against ?900, which Facey refused to accept. The same is applied to SamCo, where the company had not made an offer altogether. Thus, since there has not been made an offer, the question of acceptance does not appear altogether. Consequently, SamCo has not entered into any legal binding with DeanCo. The same is also applied to the international contracts but only in case the offer has been made to more than one persons or parties. In other words, defining the person(s) to whom an offer is being made makes the offer valid according to CISG. Similarly, acceptance is defined by CISG in these words: “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.”15 Hence, offer and acceptance are entered into through communication between the two parties to the contract. In other words, in order to enter into an agreement, the parties are considered to be making an offer and accepting the same in some specific, desired or appropriate manner, as well as within some reasonable time period. Hence, without communicating to one another, offer and acceptance could not be completed altogether. On the contrary, in the case under investigation, neither SamCo has made any offer to buy the bonnets, nor has it entered into any legal binding with DeanCo altogether. However, instead of sending any reply to the invitation of offer made by SamCo, DeanCo started making arrangements for the bonnets being looked for by SamCo without informing the Swedish company regarding the developments being made by the French car spare-parts manufacturing company. In simple terms, DeanCo must have informed SamCo in respect of its dispatching the bonnets in the wake of receiving the offer from SamCo. However, Vienna Convention exempts the parties to the contract, in a sale agreement, from any written proof for entering into the agreement. According to Article 11 of the Vienna Convention: “A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.”16 Witnesses could be the mailbox, dispatching carrier agency and the persons receiving the goods from the sender(s). Even then, the acceptance must reach to the offeror through some prescribed mode, as CISG states the acceptance against an offer could only be effective only at the time when the indication of assent reaches the offeror.17 Since offer to some specific performance appears to be complete one at the time it is communicated to the person to whom offer is being made, without communication no agreement could be stated to be valid one. For instance Tom makes an offer to Steve for purchasing his house against $12 million in written during their face to face interaction; however, Steve makes the counter offer of selling the same against $13 million, which not only counters the offer made by Tom, but also generates a new offer, which could either be accepted or rejected by Tom. However, since the offer is made in an appropriate mode, it fulfils the condition of communicating it to the owner of the house, which could generate acceptance and may lead to making of an agreement subsequently. On the other hand, without making communication in respect of offer and acceptance, no agreement could be made altogether (Beale 2012).18 Thus, at least an indication for the acceptance of an offer must be made in order to convey to the offeror regarding the offeree’s intention to perform some act or refrain from the same as per the terms of the offer.19 In addition, DeanCo has never mentioned executing of the invitation to offer regarding the selling of the bonnets to SamCo. As a result, there appears to be no acceptance to any offer from any of the parties. Consequently, in the absence of communication essential to be made between the parties to the contract, no legal binding could be created between SamCo and DeanCo at all. Nevertheless, SamCo, in its fax to DeanCo, had mentioned that an immediate delivery would be required. It is therefore DeanCo followed the same and managed for dispatching the required goods to SamCo. Thus, DeanCo focused on fulfilling the requirements made by SamCo without informing SamCo that it had dispatched the bonnets as per to their demand made via fax. Sale of Goods Act 1979 states that a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a money consideration, called the price.20 As a result, delivery of the goods as per the demand made by one party to contract creates legal responsibilities against some suitable consideration. Thus, another essential element of a valid contract is this that no contract could be valid without the determination of some lawful consideration for the same. Contract law defines consideration in these words: “When at the desire of the promiser, the promisee or some other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such an act, abstinence or promise is called consideration.”21 In the case under analysis, SamCo and DeanCo have not decided any consideration against the five blue bonnets to be paid on the part of the former on receiving the bonnets from the latter. Since without performing something against the bonnets or making reasonable amount on receiving the same does not make the relationship between both the parties to be legal one in nature, none of the parties could seek any legal remedies for the performance of any act on their part subsequently. A contract, Weitzenbock (2012) argues, without specific and clear determination of a lawful consideration is void ab initio.22 Consequently, the “promisee must show that they have “bought” the promise either (i) by doing some act in return for it, or (ii) by promising to do or refrain from doing some act in return for it.”23 Somehow, SamCo has never mentioned its budget, nor did DeanCo demanded any amount on selling five blue bonnets, there does not appear any question of arising of any legal bindings between the two. Hence, the concepts of promiser and promisee do not have any concern with either of the companies under examination. One more important aspect of the execution of the acceptance in a valid contract includes that the acceptance must be made within appropriate time period since an offer has been concluded. Otherwise, the acceptance would be time barred one, and would have no legal status altogether. Thus, unnecessary delay in making acceptance creates the legal issue of lapse of time.24 On getting no reply from DeanCo manufacturing company, SamCo had entered into contract with some other company in order to escape delays in the arrangements of the exhibition it intended to launch. Consequently, there appears to be no validity of receiving both the acceptance in proper mode and the products (i.e. bonnets) after its entering into contract with some other company. As a result, it does not create any legal bindings between the companies under discussion. Similarly, the legal relationship always arises at the eve of receiving the unconditional performance instead of the execution of some part of the same. The same is applied to SamCo and DeanCo, where the latter had provided four blue bonnets to the latter instead of five actually. The seller must, according to CISG, deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.25 Thus, since DeanCo had already applied fraudulent measures while executing the performance in the wake of purported acceptance, it is not capable of seeking any remedy, relief or compensation at the court after the bonnets caught fire eventually. DeanCo Company could not make delivery of the bonnets till 17th January; the same was the case with SamCo, administration of which did not bother to look into them immediately. However, the next day it was found that one out of five bonnets is not only of black colour, but also there is a big dent on the same. Hence, the company received only four bonnets from DeanCo, only one day prior to the exhibition it aimed to install at its display centre. As a result, the management of SamCo Company decided to stop the payment to be made against the products it had received in the form of the four blue bonnets. Contract law manifestly declares that the acceptance against an offer must be in accordance with the terms and conditions mentioned by the offeror. Consequently, partial, deficient and incomplete execution of an offer could not create legal responsibilities on the parties to the contract altogether due to the very fact that the contract in such a case would be voidable. On the other hand, the offer made in this regards could be revoked by the offeror. Somehow, incomplete contracts, Cohen (1999) views, may be efficient contracts, even if the incompleteness is unintended.26 In other words, the voidable agreements could become valid provided the remaining essential terms and conditions as per the offer are executed. As a result, sending all the five flawless blue bonnets could make the contract valid provided it fulfils all other elements necessary for making an agreement to be a valid legal contract. While discussing the liability of bonnets on SamCo, it is evident that the admin of SamCo could not inform DeanCo regarding the damaged bonnet, colour of which was also different from the ones demanded by SamCo in their invitation to offer. The delay in respect of informing DeanCo about the dented black bonnet was made in the wake of the fire that had broken out in the premises of SamCo Company after they had received the five bonnets from DeanCo. Since no contract had been entered into, SamCo does not maintain any liability to pay against the bonnets. If the seller, CISG submits, is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract.27 SamCo can also claim damages in the light of CISG articles 74 to 77. Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach.28 Thus, DeanCo would have to make payment to SamCo provided it had inspected and detected the black bonnet soon after its delivery, and have reported the same to the seller. The burning of bonnets due to outbreak of fire creates Doctrine of Frustration, where no one could be declared liable for the circumstances created in the wake of natural disasters, political unrest or any uncontrollable circumstances. English law defines doctrine of frustration in these words: “a contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of the entry into the contract.”29 Hence, frustration discharges the contract, which may arise due to outbreak of war, regulation of emergency, change in economic or political policy and some natural calamity or disaster etc. The Brazilian BMW and Ferrari reseller company CastielCo contacted SamCo in order to buy 100 BMW leather steering wheels on 16th January, to which SamCo replied the same immediately via e-mail. CastielCo also made further contact and demonstrated its interest in buying 10 Ferrari engines, to which SamCo also replied immediately with the promise of providing with the same ‘as soon as possible’. Here the offer and acceptance have been made in an appropriate mode as well as within appropriate time period, and in accordance with CISG Article 14, which manifestly states that “communication of an offer is complete when it comes to the knowledge of the person to whom it is made.”30 The same is also applied to the concepts of acceptance and revocation of an offer as well. Since both CastielCo and SamCo have communicated with one another within appropriate period of time, and in an apposite manner, communication between the two is complete revealing the intention of entering into legal relationship between the two eventually. However, the question of consideration also appears here, where the parties to the contract are bound to decide a suitable consideration in order to fulfil one of the most essential conditions for a legal contract, as it has been mentioned above while analysing the case SamCo v DeanCo that only a lawful and clearly determined consideration could create legal responsibilities for the parties to the contract at large.31 Similarly, in Yu Bun Guan v. Elvira Ong32, the court held that contracts that were inexistent due to lack of an essential requisite such as cause or consideration would be void ab initio. Somehow, the lines indirectly reveal that both SamCo and CastielCo had determined some price for both wheels and engines as consideration, which makes the agreement to be a valid contract. While discussing the case further, it becomes evident that contract of sale could be entered into in words either written or verbal or both.33 Hence, contract of sale may be made in writing (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties.34 Since fax and e-mail serve as the written mode of expressing one’s intention in respect of selling and buying the goods, and hence entering into legal relationship with one another, both SamCo and CastielCo appear to be interested in creating legal corporate relationship between each other. In addition, delivery of goods and receiving the same also come under the definition of implied acceptance made by the parties to the contract, as transferring of the property in the goods or agreeing to perform the same to the buyer creates legal liabilities on both the sides35, though determination of price also serves to be an essential element in the fulfilment of the conditions for a valid contract. In a valid contract, according to Putman (2009), the parties must mention quantity and price of the goods.36 Another important legal issue arises while studying the case includes the nature of offer and acceptance. In this case, CastielCo had made an invitation to offer by enquiring about the availability of 100 BMW leather wheels, which SamCo appears to be interested in delivering the same. However, instead of endorsing and ratifying the same demand, CastielCo made another demand in respect of buying 10 Ferrari engines, to which SamCo also replied in positive. Apparently, CastielCo displays its interest in buying both the goods from SamCo, but the former never confirms through a valid acceptance in respect of buying the same. Nevertheless, delivery of goods to CastielCo and its receiving the same from SamCo within sixteen days of first communication entered into between both the parties could make the contract to be valid in nature due to the very fact that incompleteness of the contract could be unintentional.37 However, since CastielCo had received the goods from SamCo, it ratifies the very fact that the former has accepted the offer made by the latter, which creates a legal relation through both express and implied agreements in words and conduct respectively. However, Contract of International Sale of Goods 1980 lays stress upon the fulfilment of promise in a perfect and unconditional manner as per the requirements clearly mentioned in Contract Law. In simple words, SamCo was legally bound to make supply of 100 BMW leather wheels as well as 10 Ferrari engines to CastielCo as per the requirement mentioned by the Brazilian company. CISG states: “The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.38 Nevertheless, instead of receiving the same from SamCo, CastielCo claimed of being supplied with 80 BMW leather wheels as well as 10 BMW engines instead of Ferrari engines, demanded by CastielCo. Thus, SamCo appeared to be not fulfilling the demand made by CastielCo due to the very fact that it not only supplied incomplete number of leather wheels, but also provided it with 10 BMW engines, which were not required by CastielCo altogether. Since the court of law strictly prohibits the corporate firms, buyers, sellers and merchants from fraudulence39, misrepresentation and cheating, by taking advantages of others that looks entering into the deal in good faith, taking advantage of others makes the contract voidable on the part of the party being cheated, 40 as Contract law states “an agreement which is enforceable by Law at the option of one or more of parties thereto, but not at the option of the other or others is a voidable contract.41 In Dunlap, 878 A.2d at 44242, the court held that implied contracts are entered into with good intention and faith behind them, where it does not mean that the parties to the contract would take advantage of one anther in future. The same is also applied to SamCo, where its conduct shows that it has not entered into any legal relationship with CastielCo. Similarly, CastielCo does not appear to be bound to make payment to SamCo. Consequently, it should have refused to accept 80 leather wheels and 10 BMW engines from SamCo. Since 10 Ferrari engines were required by CastielCo to be delivered by SamCo, there is no use of receiving the same. While discussing the email sent by CastielCo to SamCo in respect of the remaining 20 leather BMW wheels, it becomes evident that it has every right of claiming the same. Somehow, since the computer section of SamCo had undergone termination in the wake of the outbreak of fire, there was certainly a delay in respect of informing CastielCo about the lateness in accessing their message via e-mail. Article 18(2) of the CISG adopts a receipt rule: “An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror.”43 But this provision must be read in conjunction with Article 16(1), which says that "an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance" (emphasis added). In other words, once the offeree has dispatched an acceptance, the offeror may no longer revoke, but if the acceptance is lost in the mail there is no contract. So the CISG and the common law both protect the offeree against the possibility of revocation once the acceptance is dispatched, but the CISG places the risk of a lost communication on the offeree rather than the offeror.44 Here again it appears the Doctrine of Frustration45, which sets SamCo free from the responsibility of ensuring delivery of the remaining 20 leather wheels within three remaining days from reading the e-mail as per the requirement of CastielCo. Doctrine of Frustration, Seth (2005)46 argues, is of great significance in the overseas and international trade business and transactions. It is partially due to the very fact that delivery to foreign lands not only appears to be time taking, but also expensive and difficult, where problems could arise during the shipment. It is therefore, SamCo could make an urgent request to ensure the delivery within shortest possible period of time. Somehow, since SamCo did not fulfil its obligation in respect of sending 100 leather wheels on time, and it has also breached the contract by delivering 10 BMW engines instead of Ferrari engines, CastielCo has every right to revoke the agreement with SamCo partially to the extent of engines, though it is legally bound to make payments of 80 leather wheels it has received from SamCo. SamCo could seek relief from the court of law on the delay occurred in making delivery of remaining 20 wheels in the light of doctrine of frustration, and hence would obtain payment against 80 leather BMW wheels it has managed to deliver to CastielCo even under very unfavourable circumstances. However, since SamCo has failed to send even a single Ferrari engine, CastielCo maintains the right to revoke the agreement by proper communication. Even then, the management of CastielCo must have inspected the goods delivered by SamCo. CISG lays stress upon it that the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.47 Nevertheless, article 45 (b) of CISG provides some remedies to the buyer, where he can claim damages as provided in articles 74 to 77 of CISG i.e. double the amount of the price of the leather wheels and engines requested by CatielCo at large. Somehow, since CastielCo could not inspect the goods within few days of its delivery by SamCo, it has lost its right of claiming the missing items. Thus, SamCo does not appear to be responsible for the insufficient and incomplete delivery it has made because of the negligent delay observed by CastielCo in inspection of the goods.48 Bibliography 1 Cara C. Putman, Business Law (Alpha Inc. 2009) 158 2 William S. Dodge Teaching the CISG in Contracts Pace Law School Institute of International Commercial Law (CISGW3, 28 December 2000) accessed 28 December 2012 3 D.P. Jain, Mercantile Law (Stosius Incorporated/Advent Books Division 1991) 11 4 Emily M. Weitzenbock, English Law of Contract: Consideration (Universitetet i Oslo, 2012) accessed 24 December 2012 5 Francis Rose, Blackstone’s Statutes of Contract, Tort & Restitution (Oxford University Press 2007) 101-2 6 Frederick Pollock, & Dinshah Fardunji Mulla, Indian Contract Act 1872 (Sweet & Maxwell 2008) 38-69 7 George M. Cohen, Implied Terms and Interpretation in Contract Law (Encyclo Find Law 1999) 81 accessed December 24 2012 8 Hugh Beale, Chitty on Contracts (31st edition volume 1 Sweet & Maxwell 2011) 38-39 ISBN 0414027116, 9780414027114 9 Karnika Seth, Frustration of Contract & Impossibility of Performance (Cyber Laws Consulting Centre 2005)1-4 < http://cyberlawsconsultingcentre.com/wp-content/uploads/FRUSTRATION%20OF%20CONTRACT.pdf> accessed December 26 2012 10 Max Young, Contract Law: the Basics (Taylor & Francis 2010) 7 11 Randy E. Barnett, Contracts (Aspen Publishers 2003) ISBN 0-7355-6535-2 12 V. Susanne Cook, The U.N. Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricity (16 J.L. & Com., 1997) 257-60 13 Sales of Goods Act 1979 section 2-6 (Legislation Govt. 1979) accessed December 25 2012 14 The Doctrine of Frustration in English Law (steptoe.com) accessed December 24 2012 15 1980- United Nations Convention on Contracts for the International Sale of Goods’ (CISG uncitral.org 2012) accessed 23 December 12 16 1980- Convention on the International Sale of Goods 1980 (BU School of Law 1980) accessed December 26 2012 Read More