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LAW 724 (58)

Chapter 7 Negotiation of International Sale of Goods.docx

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Law and Business
LAW 724
Alyssa Brierley

Chapter 7: Negotiating the International Sale of Goods Essential elements 1. Intention to create legally binding obligation of a contract A. DOES NOT include promise made in family/social relationships 2. Offer +Acceptance of the offer A. INVITATION TO TREAT = NOT OFFER but indication of willingness to receive offer. (i.e. advertisements/displays of priced products on shelves B. Counter offer: offer made in response to a previous offer, terminates the original offer 3. Legal Capacity: alcohol, drugs, mental capacity (contract not binding) 4. Legal purpose: cannot violate moral or legislative rules such as antitrust, currency control, anti- corruption or workers compensation provision, will not be enforceable by the parties 5. Consideration (exchange of value between parties) a. every contract must be supported by consideration = no consideration not enforceable (this Civil law = no requirement not shared by civil law) consideration b. promises do not have to be equal in valuecourts do not consider whether the parties made a good bargain Gratuitous promise Agreement that is not supported by consideration (not enforceable) Exception Unless parties sign under seal (enforceable) Contracts not Undue influence: “Special relationship enforceable -person of power dominates a weaker person with whom he/she makes a contract -child/parent, doctor/patient,lawyer/client -DOES NOTAPPLY TO INTERNATIONAL CONTRACTS, only personal relationships Duress: one party use economic/physical threats to extract contractual promises Mistake: parties are not “on the same page” Misrepresentation: an untrue statement or material fact, reasonably expected to influence the decision of the other party to enter the contract –false, misleading Breach of condition -breach of an IMPORTANT term of the contract a. entitles innocent party to walk away from the contract/no further obligation Breach of warranty -failure to perform LESS IMPORTANT + non essential term of the contract a. innocent party can sue for damages for the reduced value of the contract b. innocent party not excused from the obligation to perform under the contract c. injured party must mitigate, reduce the loss if possible Elements of tort 1. “defendant” owed duty of care to “plaintiff” action 2. “defendant” breached duty of care 3. “defendant’s” conduct caused the injury -all three requirements have to be met to obtain damage Tort of Product -product liability = contract NOT tort.Applies to financial or consulting services liability Product liability in -product liability is based on fault Canada must prove manufacturing defect, proof of design defect, failure by the manufacturer to warn of an inherent danger Product liability in -based on the doctrine of strict liability the United States applies to sellers of defective/unreasonably dangerous products. -MANUFACTURER RESPONSIBLE FORANY DAMAGE, without proof of negligence -even if product is not defective/unreasonably dangerous, manufacturer liabile if the consumer was not adequately informed of potential hazards arising from the products reasonably foreseeable use. -Product advertising can contribute to liability for manufacturers because consumers have suffered injury while using a product for the purpose which it was advertised = breach of warranty -can be used where products are sold to doctors or other intermediaries whose expertise places Learned them in a better position to communicate warnings to ultimate user intermediary defence Product liability in -Liability without fault for manufacturer the EU -not required to prove negligence or fault of the producer -ONLY have to proveACTUAL DAMAGE -3 year statute of limitation period -no provision for class actions or punitive damages Primary contract -parties entering into negotiations involving an international sale should be aware: -MORE THAN ONE contract may be necessarysale of goods -other contracts necessary to deal with transportation, insurance, financing -Will likely be w/ THIRD PARTIES -It is essential that the obligations of the two main contracting parties for such matters as insurance, finance, transportation be stated in primary contract because the failure to meet any of these obligations may be just as serious to the parties as a breach of the sale of goods obligations Incoterms -Incoterms deals exclusively with the obligations of buyers + sellers and stipulate which party bears the risk of loss during transit -ONLYAPPLY TO THE CONTRACT OF SALE, NOT SEPARATE CONTRACTS FOR CARRIAGE, INSURANCE, FINANCING Incoterms -the term deals with: a. sellers obligation to place good at the disposal of the buyer/deliver them to a carrier/destination b. distribution of risk to the parties at the various stages of production, carriage,delivery c. buyers obligation to take delivery, acknowledge seller’s obligations are fulfilled Incoterms do not cover: a. Transfer of ownership/property b. Breach of contract/consequences of such breach c. Exemption from liability Commonly used “E” term incoterms 1. Seller places goods at buyers disposal 2. Seller not obligated to clear the goods for export 3. OR loan them onto collecting vehicle 4. Buyer bears all costs involved in taking good from seller’s premises “F” term (Free on Board) 1. COMMON LAW RULES APPLY IF FOB NOT SPECIFIED 2. If FOB specified, term will be defined by law of the contract, if there is some connection to Canada, may involve common law rules 3. Applies only to waterborne transport 4. Seller delivers when goods have been cleared for export and have passed the ship’s rail at the named port of shipment 5. Buyer responsible for arranging freight/marine insurance 6. Buyer can postpone inspection until it reaches final destination, if goods defective =right of rejection 7. Difference betweenAmerican and British use of “FOB” – the U.S. = free delivery, UK = vessel “C” term (cost, insurance and freight) 1. Applicable only to waterborne transport 2. Seller delivers when the goods pass the ships rail (loaded onto the ship) in the port of shipment 3. Seller must pay costs and freight necessary to bring the goods to the name port of destination 4. Risk of loss/ additional cost arising from events occurring after delivery=buyers responsibility 5. Buyer bears the risk of loss, seller must obtain marine insurance on the buyers behalf “Carriage Paid To” – CPT 1. Seller delivers the goods to the carrier chosen by him, but must also pay the cost of carriage to the name destination 2. Buyer bears all risk/costs occurring after the goods have been delivered Cost and freight “CFR” 1. Seller must pay the costs/freight necessary to bring the goods to the named destination 2. The risk of loss of damage to the goods is transferred from the seller to buyer when the goods pass the ship’s rail in the port of shipment 3. Buyers goal in CIF sale = obtain the right to resell the goods because frequently the original buyer never takes possession of the goods Insurance policy/certificate of insurance a. = document is issued by insurance company/underwriter b. dated on or before the date of shipment, and is effective on that date c. should be in an amount at least equal to CIF value of the goods plus 10% and be in the currency of the credit commercial invoice a. accounting document by which the seller chargers the goods to the buyer b. includes: date, names, address of buyer/seller, quantity/description of goods…(pg 197) clarifying responsibility for goods + insurance a. sellers responsibility for goods under CIF contract ends when the goods are delivered into the carrier’s custody b. once w/ carrier, goods are the responsibility of the carrier right of rejection of goods a. goods are deemed to be delivered, and property in the goods passes, when the bill of lading is delivered to buyers agent b. when property in the goods passes w/ delivery of the billing of lading, it is a conditional property right only, subject to the goods reverting to the seller if they do not conform to the contract Bill of lading definition = shipping document that acts as a contract, a receipt and a title of ownership Payment is due upon presentation of the documents a. Payment of purchase price of the goods due when documents conform to the contract b. Presentation of ducments = condition of sales contract, significant delay in presenting these documents = buyer may rescind contract Importance of anticipating problems/clarifying terms a. Port of shipment and port of destination = conditions of the contract breach of either term= buyer can refuse to accept the documents tendered ****ADVISABLE: include in the contract a clause protecting the seller if dispatch of goods from the intended port becomes impractible*** Goods are lost/destroyed -goods are shipped/lost, seller still entitled to tender proper shipping documents + claim purchase price -buyer: if the goods are fully ensured, collect the value of the good from insurer “D” terms (Arrival contracts) Delivered ex ship - DES -seller makes the goods available to the buyer on board the ship at the destination named in the sales contract -seller must bear the full cost/risk involved in bring the goods to the destination Delivered ex quay – DEQ -seller makes the goods available to the buyer on the quay (wharf) at the destination named in the sale contract -seller must bear the full cost/risk involved in bringing the goods to the destination Ex quay – two contracts in use ex quay (duty paid and ex quay (duty on buyers account), in which the liability to clear the goods for import is to be borne by the buyer instead of by the seller ***these terms should be included because there may be uncertainty = who is responsible for the liability to clear the goods for import Delivered at frontier – DAF a. Sellers obligations are fulfilled when the goods have arrived at the frontier, but before the customs border of the country named in the sales contract b. Intended to be used when goods are to be carried by rail or road Delivered duty paid – DDP -“EX WORKS” signifies the seller’s minimum obligation, the term “ -Delivered Duty Paid” when followed by words naming the buyers premises, denotes the other extreme – sellers maximum obligation Opting out of the - Party may specifically opt out of the CISG --------- C/L = CISG CISG - Why would they opt out of CISG? Parties have an established + successful relationship based on a contract that is founded on common law or US Uniform commercial code, no reason to change the contractual basis of relationships -IF parties OPT out of CISG, in whole or part, wording of the exclusion must be CLEAR + UNAMBIGUOUS NOT sufficient to state: “Ontario law shall apply to this contract”, since Ontario law will result in the application of the CISG Asafer clause would be: “the parties exclude the application of the provisions of the CISG, and agree that the domestic sale of goods law of Ontario shall apply to this contract” **** applies to commercial sale of goods, not services, household or domestic goods, goods sold by auction, sales of securities, electricity or aircraft*** The provisions of -CISG governs the formation of the contract of sale, rights/obligations of the seller+buyer the CISG HOWEVER, it does not deal w/ validity of contract (i.e. fraud, title of goods, product liability) Parol evidence rule – prevents parties from successfully bringing evidence before a court to contradict the terms in a written contract CISG provides that: -parties are bound by any usage to which they have agreed and by any practices which they have established between themselves Has a valid contract -Commercial contracts for the sale of goods should be in WRITING (C/L) been formed? -Civil law = no writing  exception to this rule = eastern europe What constitutes COMMON LAW an offer under -first contract between the parties will take the form of an advertisement, quotation or common/law advertisement of an offer = invitation to do to business (C/L) Exception: if all elements of a contract are quoted Under uniform commercial code UCC The UCC provides that an offer should contain all the essential elements of a contract” 1. Aclear description of the goods 2. Statement of purchase price + terms of payment 3. List of all details of deliver (i.e. packaging, invoicing, transportation, insurance) Under the CISG CISG -CISG provides that a proposal addressed to one or more specific persons is an offer if it is sufficiently definite and indicates the intention of the offeror to be bound  i.e. includes quantity and price Revocation of an Under common law, an offer can be revoked anytime before acceptance offer  Only if the revocation is communicated to the offeree Under common Two circumstances in which a commitment to leave an offer open for a specified time will be law legally binding: 1. Under seal 2. If there is consideration (offeree pays) Under the CISG a. No consideration under the CISG b. Firm offer = binding for the period specified c. Such promise of irrevocability does not have to be signed or in writing Under the UCC 1. offer for the purchase or sale of goods is effective for a limited period if it is signed in writing, offeree relied on the offer Requirements for a Common Law ValidAcceptance -offer must be unconditional + unqualified - if acceptance alters the original offer, it is a counter offer and must be accepted by the original Under common law offeror before a contract is formed Under UCC 1. an acceptance containing minor additional/diff. terms = valid However, minor additional + different terms will not become a part of the contract ***Terms that MATERIALLYALTER the offer =NOT CONSIDERED minor terms under this rule*** Under the CISG a. acceptance containing new ter
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