Block 3

BLOCK-3
BUSINESS CONTRACTS
Unit 5 General Principles of Contracts
Unit 6 International Contracts of Sale
Business Contracts
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General Principles of
UNIT 5 GENERAL PRINCIPLES OF Contracts
CONTRACTS
Objectives
After studying this Unit, you should be able to:

Identify different Sources of Mercantile Law
Understand the process of Formation of Contracts
Explain the completion of Contracts and Jurisdiction
Appreciate essentials of Valid Contract and Performance of the Contracts
Describe the consequences of Breach of Contract
Structure
5.1 Introduction
5.2 Sources of Mercantile Law
5.3 Formation of Contracts
5.4 Completion of Contracts and Jurisdiction
5.5 Essentials of Valid Contract
5.6 Performance of the Contracts
5.7 Doctrine of Frustration or Agreement to do an Impossible Act
5.8 Appropriation of Payments
5.9 Consequences of Breach of Contract
5.10 Summary
5.11 Self Assessment Questions
5.12 Further Readings/References
5.1 INTRODUCTION
Every human being owes certain obligations to his family members and society.
These obligations fall under the Law of obligations that covers rights and duties
arising between the individuals which are collateral in nature. The concept of
obligations existed since the ancient period where the word of mouth was
considered to create a bond. In other words, people will never leave from their
words i.e., promises. The concept of primary obligations is one of humanity’s
greatest moral inventions. Wherever the promises are breached they will be
brought before the panch system for resolving the dispute between the parties.
The law that is applicable to mercantile transactions is called the mercantile law
which includes General Contracts, Special Contracts and the law of Insolvency
and Bankruptcy. This law relates to the rights and obligations arising out of
mercantile transactions between traders or merchants. The movable property
connected with mercantile is of two types namely Choose in possession and
Choose in action. If person ‘A’ had a ring on his hand which is stolen by a thief,
‘A’ is a person having choose in possession. In other words, it means an Individual
who had legal possession of any property of movable nature and physically visible.
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Business Contracts Person ‘A’ can resist the thief from snatching and recover it in a court of law.
Recovering the amount due on a promissory note is considered as choose in
action. This right of the payee or holder is not visible as compared to the ring.
Further, it must also be noted that the law of Contracts is applicable even to non-
mercantile transactions.
5.2 SOURCES OF MERCANTILE LAW

The main sources of Mercantile Law in England are: The Law of Merchant or
Lex Mercatoria; Acts of Parliament or Statutes; Common Law of England and
Principles of Equity. Lex Mercatoria is the set of customs and usages which are
recognised and enforced between merchants and part of the Common Law of
England. The second one is the sanction of the State and most superior and
powerful source and it overrides any rule of Common Law of Equity. The phrase
common law is used to denote the law that can be based on judicial
pronouncements delivered from generations. King Henry II in 12th Century
established the Common Law Courts or King’s Courts which were also known
as Chancery or Equity Courts. Equity courts were not bound to grant relief in
every case, as it was always a matter in discretion and governed by certain maxims.
There are two maxims which the courts of Equity act: “he who seeks equity
must do equity” and “he who comes to Equity must come with clean hands.”
Prior to the Indian Contract Act, 1872, the English Common Law with some
modifications suited to Indian conditions for some time in the British India Courts.
After the Establishment of courts at Madras, Bombay and Calcutta the Hindu
Law and Mohmeddan law and the law of defendants are to be considered for the
application of law.
The introduction of judicial system during the British India paved the way to
introduce a legislation to recognize and legalize the concept of obligations and
the practices among the people by the Contract Act, 1872. The principles of Law
of contract are divided into four categories namely the formation of the contracts,
content of contracts, excuses for non-performance, and enforcement of
contracts.1
5.3 FORMATION OF CONTRACTS

A contract is an agreement enforceable in a court of law. An agreement is a set
of reciprocal promises between the parties to the contract. These set of promises
arises from an offer and acceptance from the parties to the contract.
The contract may be express or implied i.e., it may be oral words or in writing
and even inferred from the conduct of the parties.2 It may be bilateral or unilateral
contract. The former one refers to the involvement of two parties and the latter
refers one party alone can perform without the other.
Agreements: Two or more persons agree mutually to undertake to do or not do

certain things through an agreement, for example, to deliver goods and to pay
for them. This is not through a process of offer and acceptance.
Offer: The offer is a proposal by the offeror to undertake to do or abstains from

doing something provided the offeree will also undertake to do or abstains from
112 doing something.3 The offer contains two things namely ‘an expression of a
willingness to be bound’ and ‘a statement of what each party to the proposed General Principles of
Contracts
agreement must do or not to do.’ The person making the proposal is said to be
called as ‘Promisor’, ‘Offeror,’ or‘Proposer.’4 The offer is of two types namely
specific offer and General offer. An offer to a specific person is specific offer
and the offer to public at large is general offer. ‘A’’s offer to sell his watch to ‘B’
is specific and ‘X’ offer to pay Rs.1,000/- to one who finds his lost dog is the
example of general offer.
Acceptance: The person to whom the proposal is made signifies his assent thereto,
the offer/proposal has been accepted and which raises a promise.5 The person to
whom the proposal is made or the person from whom the promisor seeks the
assent is said to be called as ‘Promisee’or ‘Acceptor.’6
Example: When ‘A’ signifies his willingness to sell his motor cycle for Rs.55,000/- to
B, and B express his willingness to purchase for the said price, A is the proposer/
promisor or offeror and B is the promisee/acceptor.
The proposal/offer/promise must possess the following characteristics:
1) It must be intended and capable of creating legal relationship between
the parties to give rise to legal consequences: The set of promises rise
between the parties must create legal relations. In the above example, if A
does not deliver the vehicle after receiving the price or if B does not pay the
price, the other party having right for breach of promise/obligation undertaken
by the party in the offer/acceptance as the case may be. The set of promises
between parties which are not capable of giving rise to legal relationship or
those which are not enforceable in a court of law are called as social
obligations/agreement. If a person makes a promise to his friend to take him
to dinner at a restaurant and the other agrees and if the promisor failed to
perform his obligation, the promise could not be enforceable in a court of
law as it was a social obligation. In other words, the social obligations through
set of promises are incapable of giving rise to create legal relations between
the parties.7
2) The terms of it must be certain or capable of being certain: The terms of

the offer must be certain i.e., without ambiguity or vagueness. In other words,
the person to whom it was made must be in a position to understand and
respond with his assent.
3) It must be different from the following:

a) Quotation, catalogue, Auction, Tenders etc.: These are regarded as
invitation to make an offer for a particular thing specified therein by
the person who gave the quotation /catalogue. Calling for tenders and
auctioning of goods also come under invitation to make offer.
b) Window displays at show rooms: This is also considered as an
invitation to make an offer by the showroom owner from the public.
c) Railway timetables: Issuing of ticket by the Railway authorities against
payment to a commuter is amounting to an offer but the time tables of
the railways not regarded as an offer.
4) It must be offered to an individual or to the public at large: The offer is

of two types namely specific offer and General offer. An offer to a specific
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Business Contracts person is specific offer and the offer to public at large is general offer. A’s
offer to sell his watch to B is specific and X offer to pay Rs.1,000/- to anyone
who finds his lost dog is the example of general offer.
5) It must be communicated to the offeree: The offeror is having obligation

to communicate to the respective offeree within reasonable time and manner.
In order to convert a proposal into a promise, the acceptance must be absolute

and unqualified.8 It must be expressed in some usual and reasonable manner. If
the acceptance is conditional the promisor can withdraw the proposal before the
acceptance becomes absolute. Performance of the conditions of the offer or
acceptance of any consideration for reciprocal promise which may be offered
with a proposal is an acceptance of proposal.9
Essentials of valid acceptance:

1) The acceptance is not valid if it was communicated in the manner otherwise
than mentioned in the offer. English law invalidates such acceptance. But
Indian law10 says that after receiving the acceptance in different manner, the
receiver must inform the acceptor that your acceptance is not accepted unless
and until it is communicated in the specified manner, failing which the
proposer accepts the acceptance.
2) The offeror may waive the communication of an acceptance.11
3) Acceptance must be made before the offer lapses or revoked by the proposer.
4) It should be absolute in terms with the offer. Variation or addition of terms
to the original offer is not valid acceptance. A statement of fact to an offer
does not amount to acceptance.12
Lapse or revocation or rejection of offer: The proposal of the offeror lapses on

the death of the proposer and before the offeree accepts. There will be no contract
in English law even the acceptance was made in ignorance of the death of the
offeror. But under Indian law, there will be a valid contract except where the
acceptance is made with knowledge of the death of the offeror.13This rule will be
applicable in case of insanity of the offeror also.
If the offeree does not respond to the offer in the manner prescribed or within
reasonable time there will be no contract. The term ‘reasonable time’ is used in
wider sense which varies from the circumstances of each case.
The offeror is at liberty to revoke the offer by communication at any time before
the offeree makes the acceptance of it. Even if the offer is valid for a fixed term
or period; the offeror can communicate the revocation of the offer before the
offeree accepts.
The offeree can communicate his rejection to the offeror or he may make counter
offer or he may accept with certain conditions.
5.4 COMPLETION OF CONTRACTS AND

JURISDICTION
Generally, the contract completes when the acceptance of the offeree is posted
or put in to transmission. It was made at the place where the acceptance is received
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by the offeror. It was easy to determine the completion of contract when the General Principles of
Contracts
parties negotiate in person. But it will be difficult to determine in case of
negotiation by post, telegram, telephone and mail, etc. The contract in case of
instantaneous contracts completes only when the communication of the
acceptance is received by the offeror. In other words, the contract is said to be
made at the place where the acceptance received but not at the place where it is
transmitted.14
The United Nations Commission on International Trade Law (UNCITRAL)

adopted the Model Law on Electronic Commerce in 1996. As a result the
Information Technology Act, 2000, governs the rules relating to the e-commerce
contracts. The offeror and acceptor are substituted by expression soriginato15
and addressee. The electronic record sent by the originator may be received
intact or it may vary. The addressee has to acknowledge the receipt of electronic
record by communication automated or any mode or by conduct.16 The contract
completes where the principal place of business of the originator, in case of
more than one place of business of originator or addressee the principal place of
business of the originator or addressee and in case of no place of business his
usual place of residence will be considered as the completion of the contract for
the purpose of jurisdiction.17
5.5 ESSENTIALS OF VALID CONTRACT

Consideration, capacity to contract, free consent, and legality of consideration
and object are some of the essentials of a valid contract. These are explained in
detail below:
1) Consideration:
Consideration is one of the essential conditions for the validity of contract.18 The
essential condition for the enforceability of simple contacts is consideration,
and the rule is expressed by the Latin maxim: ex-nudopacto non orituractio
which means out of nude pact no cause of action arises. It can be understood in
the sense quid pro quo.
“ A valuable consideration in the sense of the law may consist either some right,
interest, profit or benefit accruing to one party, or some forbearance, detriment,
loss or responsibility, given suffered undertaken by the other.”19
“An act or forbearance of one party or the promise thereof, is the price for which
the promise of the other is brought and the promise thus given for value is
enforceable.”20
“When at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promise to do or
abstain from doing something, such act or abstinence or promise is called a
consideration for the promise.”21
The analysis of the above definitions says that the consideration may be executed
or executory. In a contract to deliver a watch by A to B for Rs.100, A and B
gained money and watch and in another stand point A and B lost watch and
Rs.100, respectively. The law insists more upon the presence of the element of
detriment to the promisee B and then the presence of benefit to the promisor A.
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Business Contracts A promise from one party to the other and a promise from the other to the former
support the consideration. In other words, the reciprocity of promises between
the parties establishes the consideration.
The absence of consideration makes the contract void.22 This principle has certain
exceptions recognized under the provisions of law. They are:
i) Where the contract reduced in to writing and registered and made out of
natural love and affection between the parties standing in near relationship
to each other.
ii) Where the contract is to compensate the person who voluntarily rendered
services in past. In other words, past services rendered at the desire of the
promisor constitute a valid consideration in India.23 But under English law
past consideration is not valid.
iii) Where a promise is made to pay a time-barred debt does not require a fresh
consideration.
iv) Where a gift between the donor and donee is not affected for want of
consideration if it is registered and attested by two witnesses.
Though consideration is necessary it need not be adequate. The adequacy and

sufficiency of consideration is immaterial. It is said that pepper corn is sufficient
for purchase of an elephant.
The consideration is to move from whom is the question to be determined for the
enforceability of the contract. It must proceed or move from the promisee. Under
English law a stranger to a consideration cannot sue. In other words, the promisee
cannot sue the promisor if the consideration doesn’t move from him. But under
Indian law, a stranger to consideration can sue.
The rule stranger to contract cannot sue is the same both under English law as
well as under Indian law. This principle was explained by the doctrine of Privity
of Contract.24 Under English law there are certain principles which are
fundamental. A person who is a party to the contract can sue on it. This principle
has certain exceptions recognized by the provisions of law, as stated hereunder:
a) Where a trust is created for the benefit of a party, the beneficiary can enforce
it though he is a stranger to contract.25
b) Where there is an acknowledgement of liability or estoppel. For example,
‘A’ receives money from ‘B’ to pay it to ‘C’, ‘A’ admits to ‘C’ the receipt of
this amount and liable to pay it to ‘C’.
Apart from the above the Indian law recognizes two more exceptions:
c) A benamidar in whose name a property was registered is entitled to enforce
though he is not a party to the contract.
d) In family arrangements such as maintenance or expenses for marriages of
female members, the beneficiaries can sue though they are not party to the
contract.
Consideration and Discharge of Contract:

The doctrine of consideration is not extended to the discharge of contract. The
116 reciprocal promises between the parties constitute consideration. Subsequently,
if both the parties agree not to enforce the contract also constitute consideration General Principles of
Contracts
in India. But it is not so in English law. Till 1947 the law of England applied the
doctrine of consideration not only to the formation of a contract, but also to its
discharge. It was pointed out that a creditor ‘might accept anything in satisfaction
of his debt except a less amount of money’26 A canary or pepper corn may be
accepted in full discharge of a debt, but a part payment of the debt cannot be
accepted so as to operate as full discharge of the debt. The following are the
exceptions to the rule in Pinnel’s case.27
a) Under the scheme of composition if the debtor agrees to pay a portion of the
debt discharges liability without application of the doctrine of consideration
under English law.
b) In case a third party pays a part of the amount less than the amount due from
the debtor discharges the debtor without application of the doctrine of
consideration under English law.
c) The doctrine of estoppel or quasi-estoppel neutralized the rule in Pinnel’s
case.28
Under Indian law, a contract may be discharged by what is called “an accord
and satisfaction” i.e., mutually agreed settlement.29 The English law allows the
delivery of horse against the payment of debt but not accept the delivery in future
to discharge the debt. The part payment of debt is also not accepted as accord
and satisfaction.
2) Capacity to Contract:
There are certain persons in law who are incapable wholly or in part, of binding
themselves by a promise or of enforcing a promise made to them. In mercantile
contracts lexloci contractus i.e., the law of the place will prevail whereas in case
of land lexsitus i.e., the law of the place where the land situate will be applicable.
The incapacity of a party to enter into a contract will arise in two ways namely,
on account of status, or on account of mental deficiency. The former would occur
on the grounds of political consideration and expediency, the latter is imposed to
protect the interest of the disabled person.
The incapacity of a party is broadly divided into two;
one which arises out of status of an individual for the following reasons:
a) Political or Civil status e.g., where the contracting party is a ruler of a foreign
state, Ambassador or envoy or alien enemy, or a convict or a bankrupt.
b) Profession of the contracting person e.g., barrister
c) Incorporation
d) Marriage
The other which arises from mental deficiency (soundness of mind) of the person
contracting in case of:
a) Minors
b) Insane persons
c) Idiots
d) Drunken persons 117
Business Contracts The person below the age of 21 is called as an infant as per the Infant Relief Act,
1874 under the Common Law and the person below the age of 18 is a minor as
per the Family Reforms Act, 1969, under English law and Indian law respectively.
He is a person who is not a major. The Infant Relief Act, 1874 which modified
the Common Law of England allows an infant to enter into a contract for the
following:
a) For necessaries
b) Beneficial contracts of service
c) Contracts involving recurring rights and duties e.g., an interest in property
binding on him unless he rescind them either during infancy or within
reasonable time of becoming a major
d) An isolated act or a contract to pay for goods supplied other than necessaries,
were voidable and not binding on him unless he ratified them within
reasonable time after attaining majority.
The law relating to infants/minor contracts is at present provided in Minor’s

Contract Act, 1987, under English law.
The Indian contract Act, 1872, provides that the contracting party must be a
major.30 A person becomes major on attaining the age of 18 years.31 The provision
of the Contact Act does not specify whether a minor’s contract is void or voidable.
The analogy of English law made such contracts as voidable and becomes valid
by ratification on attaining majority. The Privy Council in Mohori Bibi v.
Dharmadas Ghose32 pointed out this erroneous view and held that a minor’s
contract is void abintio. There will be no question of avoiding it or ratifying it.
Similar to English law the person supplying necessaries to minor is protected
under Indian law.33 The binding nature of a guardian contract on the minor is
depending on the legal power of the guardian to enter into a contract or not.
There will be no estoppel against a minor as both the parties are aware of the
truth. The power to order restitution in India is wider than England. It was clear
under Indian law that any benefit, even cash received, may be directed to be
restored. But it must be shown that the minor or his estate derived some benefit
therefrom.34
Mutuality of mind: The parties to the contract must have consensus-ad-idem35

which means mutuality of mind as to the subject matter of the contract. The lack
of mutuality of mind makes the contract void. ‘A’ had two houses namely ‘X’
and ‘Y’. ‘A’ enters into contract with ‘B’ to sell keeping ‘X’ house in his mind
and ‘B’ entered into contract with ‘A’ by keeping ‘Y’ house in his mind. This
results the contract void due to lack of consensus-ad-idem on the subject matter
of the contract.
3) Free Consent:
“The consent of the party to the contract is said to be free36 if it is not caused by;
coercion, undue influence, fraud, misrepresentation and mistake. These are
explained hereunder:
i) Coercion:37 “The committing, or threatening to commit, any act forbidden

by the Indian Penal code, or the unlawful detaining, or threatening to detain,
any property to the prejudice, of any person whatever, with the intention of
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causing any person to enter in to an agreement.” The term duress in English General Principles of
Contracts
law defined as causing, threatening to cause, bodily violence or imprisonment,
with a view to obtain the consent of the other party to the contract. Coercion
in Indian law has a much wider connotation than duress in English law. The
main distinction between coercion and duress as the first denotes the offense
forbidden by Indian Penal Code whereas the latter confined only to bodily
violence and imprisonment. The presence of coercion or duressin both Indian
and English law was an invalidating element for the enforceability of contract.
ii) Undue Influence:38 This was also called as constructive fraud. It covers all
the contracts where one party will be in a position to dominate the will of
the other because of relationship while entering the contract. This influence
can be presumed in existence among the following relationships:
a. Parent and child b. Guardian and ward
c. Trustee and beneficiary d. Spiritual master and Disciple
e. Lawyer and client f. Doctor and patient
The contract between the parties with above relationship turns it voidable
by presuming the existence of undue influence of the former against the
other. It is the burden on the former party to prove that he was not in
dominating position and that his position was not used to obtain the consent
of the other.
iii) Fraud:39 The following acts of a party to a contract establish fraud while
entering into a contract with the other:
a) the suggestion of a fact, of that which is not true by one who does not
believe it to be true
b) the active concealment of a fact by one having knowledge or belief of
the fact
c) a promise made without intention of performing it;
d) any other act fitted to deceive
e) any such act or omission as the law specially declares as fraudulent.
The mere silence on the part of party does not amount to fraud. But silence
amount to fraud where there is a duty on the party to speak.
iv) Misrepresentation:40 A party may give his consent to enter into a contract
because of misrepresentation of the other. These false statements or
misrepresentations may be either inducing cause of contract. These statements
may be called as innocent misrepresentation and willful or actionable
misrepresentation which amounts to fraud.
A misrepresentation consists of the following ingredients:
a) Failure to disclosure of a fact
b) Such non-disclosure must relate to a fact not to an opinion
c) Such representation must be untrue
d) It must be material to influence the other to enter into a contract
Any representation made by a party with full knowledge of the fact that it is
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Business Contracts not true, or without belief in its truth or recklessly, not caring whether it is
true or false, it is said to be fraudulent. 41
Whenever the consent of the party is obtained in the absence of free consent
the contract is voidable at the option of the party whose consent is not free
because of the presence of coercion, or fraud, or misrepresentation. The
aggrieved party of such voidable contract had an option to continue the
contract or rescind the contract42 and entitled for damages. Further, the
contract induced by undue influence can be set side or it is voidable at the
option of the party whose consent was obtained by dominating the will of
the aggrieved party.43
v) Mistake:44 While entering into a contract the parties to the contract may be
under a mistake. This mistake may be as to a fact or law. Mistake of fact
may be as to subject matter of the contract e.g., regarding the existence,
quality or quantity etc.; nature of contract; person entering into contract.
Mistake of law may be regarding foreign law, or ordinary law, law of our
country, or private rights of the contracting parties. Another classification
of these mistakes is bilateral and unilateral.
A mistake of fact in the minds of both the parties negatives the consensus ad
idem and the contract in such cases is void. Where both parties to an
agreement are at mistake as to a matter of fact essential to the agreement,
the agreement is void.45 This will come under the classification of bilateral
mistake.
In case of unilateral mistake, i.e., where only one party to a contract is under
a mistake, the contract, generally speaking, is not valid. A contract is not
merely voidable because it was caused by one of the parties to it being under
mistake as to a matter of fact.46
A contract is not voidable because it was caused by mistake as to any law in

force in India but a mistake as to a law not in force in India has the same
effect as a mistake of fact.47
4) Legality of Consideration and Object:

Apart from the above essentials for the formation of a valid contract the legality
of consideration and object48 is must. The unlawful agreements may be classified
as follows:
1) Illegal-where the agreement is contrary to the statute law
2) Immoral- where it is opposed to public morals e.g., agreement for illicit
cohabitation, or separation between husband and wife
3) Opposed to public policy- where the agreement is forbidden as conflicting
with the well-being of the state e.g., agreements tending to the abuse of
legal process, agreements in restraint of trade, agreements in restraint of
marriage, agreements in restraint of parental rights, etc.
Where a part of consideration or object of an agreement is unlawful the agreement

is void. In case of non-separation of the unlawful part from the agreement the
total transaction will be void. The rule applicable to separate the unlawful and
lawful part is known as blue pencil rule. In such cases the lawful part which
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separated by drawing blue pencil lining from the unlawful part can be General Principles of
Contracts
enforceable.49. A contract without consideration is said to be void with certain
exceptions;50
a) Every agreement in restraint of marriage of any person, other than a minor
is void.51
b) An agreement in restraint of trade is void with an exception where goodwill
is sold or as per the provisions of the Partnership Act, 1932.52
c) Any agreement in restraint of legal proceeding is void with an exception of
arbitration agreement.53
d) Where the meaning of an agreement is not certain, or capable of being certain
are void,54
e) Agreement by way of wager is void.55
f) The performance of the contract is depending on the happening or non-
happening of an event at a future date is called as contingent contract.56 If
the happening of the event is impossible the contract becomes void.57
g) The enforcement of a contingent contract is possible before the impossibility
of its occurrence.58 The promise of A to pay B a sum of money if B marries
C. C marries D. Marriage between B and C is impossible during the life
time of A makes the agreement void.59
h) The contingent contract to do or not to do within a specified becomes void
after the expiry of the time.60
i) Any agreement contingent on impossible events is void.61
5.6 PERFORMANCE OF THE CONTRACTS

Both the parties to the contract either perform, or offer to perform their respective
promises until such performance is dispensed with or excused under any
provisions of this Act or any other law in force. Even the death of one of the
party makes his legal representatives liable unless the intention of the parties to
the contract differs.62 The promisee’s non-acceptance of offer of performance of
the promisor, the promisor is not responsible for the performance, nor does he
lose his rights under the contract subject to the following conditions:63
a) The offer must be unconditional.
b) It must be made at a proper time and place, and in the circumstances that
the person to whom it is made must have a reasonable opportunity to ascertain
that the person is able and willing to do i.e., accept
c) If it is the delivery of anything to the promisee, he must have an opportunity
of seeing the delivered thing which the promisor is bound by his promise to
deliver.
In case of anticipatory breach of contract by the promisor, the promisee may put
an end to the contract, and sue for damages immediately though he had a right to
keep open the contract until the performance is actually due.64 Keeping the promise
alive may lead the promisor to take advantage of supervening circumstances.
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Business Contracts The performance may by the person who makes the promise, the promisor or his
representatives may employ a competent person to perform depending on the
intention of parties to the contract.6 If the performance from the third person is
accepted by the other party, later the promisee can’t enforce against the promisor.7
When the promise is made jointly, it is to be performed by all such joint promisors
during their living and after the death any of them, his representative jointly with
surviving promisor. After the death of the last survivor, the representatives must
fulfill the promise jointly. This is subject to a contrary condition of the contract.67
The promisee may compel one of the joint promisor to perform in the absence of
express agreement to the contrary. On such performance by one of the promisor
he can compel the other promisor to contribute. In an occasion where one of the
promisor failed to contribute the remaining promisors has to share the loss of
contribution.68This is also subject to a contrary appears in the language of the
contract. The release of the joint promisor from performance does not discharge
the other from liability. There is a point of difference in English law and Indian
law. In India, they are presumed to be jointly and severally liable.69 When a party
makes a promise to two or more persons, the right to claim the performance rests
between him and them, with them during the life time of the parties and on the
event of death of either party, between the representative and survivor/
representative as the case may be, with joint promisee or survivor/representative
or representatives.70 This is subject to a contrary condition of the contract.
Time and Place of Performance:

When the promisor has to perform without the application of the promisee, and
no time is specified in the contract to perform, the performance must be done
within reasonable time. What is reasonable time is a question of fact?71 When the
time is specified but no application to be made by the promisee, the promisor
may perform it any time during the usual hours of business on such day, and the
place at which the promise ought to be performed.72 It is the duty of the promisee
to make the application for performance on certain day to be at proper time and
place during the usual hours. What is proper time and place is a question of
fact?73 It is the duty of the promisor to make an application to the promisee as to
the time and place to perform when a promise is to be performed without
application.74 The promisee may prescribe or sanction the manner, the time and
place of performance.75
Performance of Reciprocal Promises:

In case of existence of reciprocal promises, the promisor needs to perform only
when the promisee is ready or willing to perform his part of promise in the
contract.76 The reciprocal promises are to be performed as per the order specified
in the contract, in the absence of such specification of order they must be
performed in the order of the transaction requires.77 The party preventing the
other ready to perform his part of the reciprocal promise, the contract becomes
voidable at the option of the party so prevented; he is entitled for compensation
for loss because of non-performance of the contract.78 The order of the
performance of the reciprocal promises in the sequence as specified. The non-
performance does not entitle the performance of the reciprocal promise and must
make compensation to the other party for any loss because of his non-performance
of the contract.79 The performance to do a thing at or before specified time has to
be performed accordingly. Failing which the contract becomes voidable in case
122 the contract specifies the time is essence of the contract. The intention of the
contract does not specify time as essence of contract, the contract is not voidable General Principles of
Contracts
and the promisee is entitled for compensation for any loss because of non-
performance of the contract.80 If the promisee agreed the acceptance of
performance by the promisor other than at the agreed time, he can’t claim damages
for the delay in performance. However, he is entitled for compensation if he
gives notice to the promisor of his intention to do so at the time of acceptance.81
5.7 DOCTRINE OF FRUSTRATION OR

AGREEMENT TO DO AN IMPOSSIBLE ACT
The agreement between two parties to do an impossible act itself is void. A
contract may also void because of an event which makes the performance of
promise impossible or unlawful after the completion of the contract. Any person
who makes promise to perform by knowing it to be impossible or unlawful is
liable to pay compensation to the promisee that is not aware of impossibility or
unlawful nature of the contract at the time of arriving it.82 This is known under
the doctrine of frustration. This will be applicable in two classes of cases:
1) Where a supervening event makes the performance of a contract impossible
2) Where a supervening event or events have frustrated the object of both the
parties and the changing circumstances the promise fails to be performed.
The dislocation of business in the wake of the first and second World Wars brought
before courts a large number of ‘frustration cases’ and it has now been recognized
the term ‘frustration’ includes the cases of ‘impossibility’ as well as the ‘frustration
of adventure.’
Supervening impossibility:
The very object of the subject-matter relating to the contract disappears; the
contract is discharged by frustration on the ground of destruction of subject matter.
A contract is also considered as frustrated in case of non-occurrence of expected
events. The musician who failed to perform a concert due to illness as agreed in
a theatre was held to be frustrated and so discharged by supervening
impossibility.83 The requisitioning of land by government for military purposes
from the contract of sale of land by a company which undertook to construct
drains and roads on the land to make it suitable for residential purpose is not
considered as supervening impossibility as it was a temporary interruption and
does not discharge the parties from the performance of the contract.84
Supervening Illegality:
The contracts entered with the enemy nationals prior to the outbreak of war are
suspended during the war and revived after restoration of peace only if it is not a
continuous mutual duty between the parties. The changes in law also make the
contract unlawful and the performance of the contract impossible. The judiciary
expressed different theories for the judicial basis on the subject. The implied
theory propounded by Viscount Simon says that no term could be implied to put
an end to the contract in those circumstances.85 According to the disappearance
theory, if the foundation of the contract disappears either by the destruction of
the subject-matter or by reason of interruption of performance, it must be regarded
as frustrated. In case of Just and reasonable solution theory, even the express
term in the contract render the performance impossible, and the contract purporting
123
Business Contracts to be alive, courts may hold the parties discharged from liability under the doctrine
of frustration.
Doctrine of frustration limitations:

The party who himself responsible for frustration can’t invoke the doctrine. This
doctrine is not applicable to leases. In England, this doctrine is not applicable to
the contract of sale of land as the buyer becomes the equitable owner of the
property. In India, there is no equitable estate as such and so the doctrine is
applicable even to contracts for sale of immovable property.86
When there are two sets of reciprocal promises between the parties, one is legal
and the other is illegal based on the circumstances, the legal one becomes a valid
contract and the other is a void agreement.87 In case of alternative promise, the
legal one can be enforced and the other is void.88
5.8 APPROPRIATION OF PAYMENTS

When the payment is made by the debtor, the payment has to be remitted by the
creditor towards the amount outstanding as suggested by the debtor.89 If the debtor
not specified to which debt the payment is to be adjusted, the creditor had a right
to pay even the time-barred debt also.90 Neither the debtor or creditor appropriated
the payment made by the debtor; the payment must be adjusted towards the first
debt which is outstanding between the creditor and the debtor.91 The above rules
for the appropriation of payments are known as Rule in Clayton’s case.
Contracts which need not be performed:

The original contract between the parties need not be performed in case of
novation, rescission and alteration of such contract. If the parties agree to
substitute a new contract instead of the original one, or to rescind or to make an
alteration of the contract, the parties to the original contract need not perform the
obligations therein.92 The promisee is at liberty to dispense with performance of
the promisor wholly or partly or extend the time of performance or may also
accept instead of it any satisfaction which he deems just.93 When a person having
the option of rescinding the voidable contract, exercises his option to rescind the
other party need not perform his part of promise in the contract.94 Further, the
party rescinding receives any benefit under voidable contract is liable to restore
the benefit to the other. When a contract becomes void afterwards, the party
deriving benefit or advantage of such contract is under obligation to restore it.95
In case of rescission of a voidable contract, the party exercising the option must
communicate the rescission of contract in the same manner as followed for
communication of the revocation of the proposal.96The neglect or refusal of the
promisee to afford the reasonable facilities for the performance of the promisor,
the promisor is excused for the non-performance caused thereby.97
Of certain relations resembling those created by contract:

These are also called as implied contracts or quasi-contracts or Constructive
contracts which are created by lawyers and judges, based on certain equitable
considerations. The early common Law of England had only two kinds of
remedies: contractual and delictual. The absence of contract, the remedy could
only be in tort. Quasi is a Latin term which means ‘as if.’ In quasi contracts,
there will be no actual contract between the parties but the law attributes to a
124
particular situation consequence which is similar to that of a contract. Action of General Principles of
Contracts
account is the early quasi-contractual liability. This was available against Bailiffs,
receivers and guardians who had to account for money kept with them. The 14th
and 15th century extend to every case where money is paid to the defendant by a
third party to the use of plaintiff. The underlining principle to determine the
liability of the defendant is unjust enrichment at the expense of plaintiff. The
equity courts applied the principle of preventing unjust enrichment in evolving
the concept of trust.
There is no exact definition of a quasi-contract given anywhere even in the

Contract Act. Those given by Dr. Winfield98 and Dr. Jenks99 may be accepted in
the absence of a better one. ‘A’ delivers goods to ‘B’ without any contract either
expressly or in writing. ‘B’ consumed the goods delivered by ‘A’. The obligation
of ‘B’ to pay ‘A’ the price arises from his promise implied by his conduct. This
kind of contract is called a tacit contract. Similarly, if ‘A’ delivers to ‘C’ assuming
him to be ‘B’, and ‘C’ consumed them, the obligation of ‘C’ to pay compensation
to A for their value. This is quasi or implied contract.
The following are the examples of quasi-contract:

1) Action for money had and received:100 This was based on the equitable
principle that no person shall enrich himself at the expense of the other.
Even the payments made under mistake of law may be recovered. The
payment made under coercion is also recoverable under this principle.
2) Money paid to plaintiff for use of defendant:101 Where tenant A pays the
taxes due from his landlord B to C in order to protect his possession from
being processed against in execution of B’s debt. In such cases, there is an
obligation on B to repay the amount paid for his benefit. The enforcement
of obligation under this head depends on two conditions namely the payment
must be bonofide to protect his interest and it should not be a voluntary one.
3) Quantum meruit:102 The person derived benefit from an act of another has
to compensate the other even there is no contract or invalid contract. This
was based on the principle of quantum meruit which means ‘as much as he
deserves.’ The compensation is subject to the face that the delivery of goods
is not made gratuitously and the defendant enjoyed the benefit.
4) Obligation of finder of last goods:103 Though there is no contract between
the finder and looser of the last goods the finder is having an obligation to
return the goods find to the owner as a bailee.
5) Necessaries supplied to a person incapable of contracting:104 This will
discuss the contractual liability of a minor or lunatic to whom the necessaries
are supplied which are suited to his condition of life. The person supplied
necessaries entitled only to the property of the incapable party but he can’t
make him personally liable for the dues of the supply.
5.9 CONSEQUENCES OF BREACH OF

CONTRACT
Any party who is responsible for breach of contract is liable to pay damages/
compensation to the other party who suffers loss because of non-performance by
the other. In other words, the party aggrieved by the default of performance of 125
Business Contracts the other’s obligation leads to breach of contract and entitles him for
compensation. There were two remedies available in case of breach of contract
by a party.
1) Common Law Remedy, i.e, damages: The remedy of damages, therefore,

only tries to evaluate in terms of money, the loss which a party sustains as a
result of breach of contract.
2) Equitable Remedy, i.e., specific performance of contract, injunction,

rectification and cancellation, etc.: Keeping in mind that Specific
performance is not available in every case, subject to several limitations;
there is no other alternative for courts than to award damages which, of
course, is available in every case.
Measure of damages is the value of performance of the contract to the plaintiff,

and not what it costs the defendant to perform it.
There are four kinds of damages:
A) General, or ordinary, or substantial damages:105These are the damages

which are to be paid as a consequence of breach of contract. In other words,
it means the natural following consequences out of breach.
B) Special damages:106These are the damages which are to be paid for the loss
of the profit in case of breach of contract of sale by the buyer. In other
words, it was a kind of damages which are to be paid on account of usual or
extra ordinary circumstances of the case.
C) Vindictive, or Punitive or Exemplary damages: These are awarded with a
view to punish the defendant. Generally, vindictive damages are not awarded
in case of contracts, but will be awarded in actions in tort. But they may be
awarded in contracts like breach of contract to marry and the breach of
payment of the customer to honor the cheque.
D) Nominal damages: These are paid in case of technical violation but no
substantial loss. Proof of damage necessary even for claiming nominal
damages.
The English law on the question of damages is laid down in Hadely v.
Baxendale.107 The following are the rules relating the award of damages for breach
of contract:
1) The injured party is to be placed in the same financial position as if the
contract has been performed.
2) Damages which are fair and reasonable arising from breach of contract can
be recovered.
3) Damages which are contemplated in the contract at the time of contract108
can be recovered though they are not naturally arising. These are called as
liquidated damages.
4) Damages which will not fall under 2 or 3 above, but arise of special
circumstances called special damages are not recoverable, unless they are
brought to the notice of the other party before the contract is made.
5) It is the duty of the aggrieved party to minimise the damages.
126
6) It should not be more than agreed amount of the damages. General Principles of
Contracts
7) The injured is not disentitled to damages because of difficulty to assess
them.
8) Vindictive or exemplary damages can’t be awarded, except for the breach
of contract of marriage.
9) The party rightfully rescinding the contract on the non-performance of the
other is entitled to compensation,109
5.10 SUMMARY
The law that is applicable to mercantile transactions is called the mercantile law
which includes General Contracts, Special Contracts and the law of Insolvency
and Bankruptcy. This law relates to the rights and obligations arising out of
mercantile transactions between traders or merchants. Prior to the Indian Contract
Act, 1872, the English Common Law with some modifications suited to Indian
conditions for some time in the British India Courts.
A contract is an agreement enforceable in a court of law. An agreement is a set of

reciprocal promises between the parties to the contract. These set of promises
arises from an offer and acceptance from the parties to the contract. The contract
may be express or implied i.e., it may be oral words or in writing and even
inferred from the conduct of the parties. It may be bilateral or unilateral contract.
Generally, the contract completes when the acceptance of the offeree is posted
or put in to transmission. It was made at the place where the acceptance is received
by the offeror. It was easy to determine the completion of contract when the
parties negotiate in person.
Consideration, capacity to contract, free consent, and legality of consideration

and object are some of the essentials of a valid contract.
The agreement between two parties to do an impossible act itself is void. A

contract may also void because of an event which makes the performance of
promise impossible or unlawful after the completion of the contract.
5.11 SELF ASSESSMENT QUESTIONS

1) Discuss the origin and sources of Mercantile Law.
2) Explain the formation of contract.
3) Describe the completion of contract and jurisdiction.
4) What are the essentials of a contract?
5) Briefly give a not on the capacity of party to the contract.
6) Critically analyze “a contract without consideration is void.”
7) When consent is said to be free?
8) Differentiate valid, void and voidable contracts.
9) Elucidate the performance of the contract and the reciprocal promises.
10) ‘Time is not the essence of contract.’ Comment.
11) How is the doctrine of frustration applicable in a contract?
127
Business Contracts 12) Define the applicability of rule in Clayton’s case for the appropriation of
payments.
13) State the contracts which need not be performed or discharge of contract.
14) Enumerate the obligations which resemble the contracts under the head quasi-
contracts.
15) Mention the consequences of the breach of contract.
5.12 FURTHER READINGS/ REFERENCES

Books:
1) J.C.Smith, 1976, Legal Obligation, University of London, TheAthlone Press
2) Stefen Smith, Atiyah’s Introduction to the Law of Contract, CLARENDON
LAW SERIES 6thedition Oxford Press.
3) J.Beaston, A.Burrows, J. Cartwright, Anson’s Law of Contract, 29th edition,
Oxford press.
4) Michael Frumton, Chesire & Fifoot’s Law of Contract, 14thedition, Lexis
Nexis Butterworths.
5) Richard Stone, Contract Law, The Cavendish Q & A Series, 2nd edition,
Cavendish Publishing Limited
6) Ewan McKendrick, Contract Law, Palgrave Law Series, 5th edition
7) Prof.G.C.V.SubbaRao, Law of Contracts I & II 11th edition , Narendra Gogia
& Company.
8) E.Venkatesam, 1969, Hand Book on Contracts and Negotiable
Instruments,7th edition .M.L.J.Office, Madras.
9) Anirudh Wadhwa, Mulla, The Indian contract Act, 15th Edition, Lexis Nexis
10) Dr. Avatar Singh, Contract Act and Specific Relief Act, 12th Edition, EBC
Publishers.
11) Dr. R. K. Bangia, Indian Contract Act, 15th Edition, Allahabad Law
Publishers.
12) Dr. V. Kesava Rao, Contract I Cases and Materials, Lexis Nexis Students’
Series.
References:
1
Atiyah’s Introduction to the Law of Contract,6thEdn Oxford University Press
at p.29
2
Section 9 of the Indian Contract Act, 1872.
3
Sec.2(a) of the Indian Contract Act, 1872 “when one person signifies to another
his willingness to do abstain from doing anything, with a view to obtaining
the assent of that other to such abstinence, he is said to make a proposal.”
4
Sec.2(c) of the Indian Contract Act, 1872
5
Sec.2(b) of the Indian Contract Act, 1872
6
Supra note 2
7
Lord Atkin Balfour v.Balfour 1919 (2) KB 571
128
8
Section 7 of the Indian Contract Act,1872 General Principles of
Contracts
9
Section 8 of the Indian Contract Act,1872
10
Section 7(2) of the Indian Contact Act, 1872
11
Carlilv. Carbolic Smoke Ball co. (1893) 1 Q.B 256
12
Harvey v.Facey 1893 AC 552
13
Section 6(4) 0f the Indian Contract Act,1872
14
Lord Denning in Entoresv. Miles Far East Corporation 1955 2QB 327; see
also BhgawandasKediav.Giridharilal AIR 1966 SC 543
15
Section 11 of the Information Technology Act,2000
16
17
18
Section 10 of the Indian Contract Act, 1872
20
As per Sir Frederick Pollock approved by House of Lords
21
Section 2(d) of the Indian Contract Act,1872
22
23
Supra 20
24
Dunlop Pneumatice Tyre Compayv. Selfridge& Company 1915 Ac 847
25
Under English law Rights of Third Parties Act,1999.
26
Pinnel’s case 1602 77 ER 237
27
Central London Property Trust Ltd. V. High Trees House Ltd 1947 KB 130 ;
see also Foakesv. Beer 1884 9AC 605
28
ibid
29
Section 63 of the Indian Contract Act,1872.
30
Section 11
31
The Indian Majority Act, 1875
32
ILR 1903 (30) Cal.539 (PC)
33
see quasi- contract under Sec.68 of the Indian Contract Act,1872
34
Section 33 (1) of the Specific Relief Act,1963
35
36
37
38
39
40
41
Supra note 38
42
43
Section 19-A of the Indian Contract Act,1872
44
Sections 20,21,22 of the Indian Contract Act, 1872
45
46
Section 22 of the Indian contract Act, 1872
129
Business Contracts 47
48
49.
50
See supra note 22
51
52
53
55
56
57
Section 32of the Indian Contract Act, 1872
58
Section 33of the Indian Contract Act, 1872
59
60
61
62
Section 37 of the Indian contract Act, 1872
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
81
82
83
Robinson v. Davidson 1871 LR 6 Ex.269
84
SatyabrataGhosev.MugneeramBasngur AIR 1954 SC 54
85
Crickelwood Property and Investment Trust Ltd v. Leighton’s investments
Trust Ltd 1945 AC 221
86
Supra note 82.
87
130
88
Section 58 of the Indian Contract Act, 1872 General Principles of
Contracts
89
90
91
92
93
Section 63 of the Indian Contract Act, 1872; see also Pinnel’s case at
Consideration.
94
95
96
97
98
“as liability not exclusively referable to any other head of law imposed on a
particular person to pay money to another , on the ground of unjust benefit.”
99
“a situation in which law imposes upon one person, on grounds of natural
justice, an obligation similar to that which arises from true contract, although
no contract, express or implied, has in fact been entered into by them.”
100
Section 72 of the Contract Act, 1872
101
102
Section70 of the Contract Act, 1872
103
Section71 of the Contract Act,1872
104
Section68 of the Contract Act, 1872
105
106
ibid
107
1854 9Ex. 341
108
109
131
Business Contracts
UNIT 6 INTERNATIONAL CONTRACTS OF
SALE
Objectives
After studying this unit you should be able to:

Explain the meaning and relevance of the Contracts for International Sale of
Goods
Understand the historical background of the Contracts for International Sale
of Goods
Discuss the Applicable Law And Rules for International Sale of Goods
Describe the different Model Contracts And Clauses Contracts for
International Sale of Goods
Structure
6.1 Introduction
6.2 Historical Background
6.3 Applicable Law and Rules
6.4 Model Contracts and Clauses
6.5 Assessment of Sale of Goods by Transfer of Property with Certainty and
Flexibility
6.6 CISG Influence on Individual National Systems
6.7 Regional Efforts
6.8 Covid-19 Pandemic and its Impact on the Performance of International
Sale of Goods Contract
6.9 Summary
6.10 Self Assessment Questions
6.11 Further Readings/References
6.1 INTRODUCTION
The Liberalisation, Privatisation and Globalisation (LPG) wiped out the
boundaries amongst countries and made the world as a global village. There
were different substantive laws relating to contracts in different legal systems
which will conflict in legal scenario. It paves the way for thinking of uniform
laws comfortable to both the parties from different countries when they enter
into contract with flexibility and without bias.
The transactions of sale at the international level are considered to be the backbone
of international trade through international contracts. The contracts are regarded
as international contracts when the parties to the contract are coming from two
different States (Countries).1 More flexible definitions are possible, such as
contracts with “significant connections with more than one State,’’ ‘involving a
choice between the laws of different States’, or ‘affecting the interests of
international trade.’2 As described in the Hague Principles, one approach to
identifying a contract as “commercial” may be where “each party is acting in the
132
exercise of its trade or profession.” (Hague Principles, Article 1(1)). Another International Contracts of
Sale
approach is found in the United Nations Convention on Contracts for the
International Sale of Goods (CISG), which limits its scope to commercial matters
by excluding, for example, consumer contracts, such as those for “goods bought
for personal, family or household use” (CISG, Article 2(a)).3
There were two important questions which are vital to be answered when a dispute
arises between two parties in an international commercial contract. They are:
1) Where the dispute of the parties is to be heard i.e., seat of settlement of
dispute?
2) What are the law or rules that govern the contract i.e., choice of law by the
parties?
Answers to the above questions are to be made by the parties to an international
contract where they opted an ‘arbitration Clause’ in their contract with an intention
to avoid the litigation in the local legal system and the application of the
substantive law of countries to which the parties belonging. International
commercial arbitration may be particularly popular because, unlike court
proceedings, there is a single nearly comprehensive regime for enforcement of
foreign arbitral awards. 4
6.2 HISTORICAL BACKGROUND

The differences in laws are the by –products of different histories, philosophies
and worldviews, uniformity is often difficult to achieve. One of the major
challenges faced by an international contract of sale is the diversity of legal
systems. The conflict of laws exacerbated world-wide because of the global supply
chains and contractual networks which operates across the globe. The 20th century
focuses on uniform framework to tackle the situation of the diversified legal
system. Before the Second world war Ernst Rabel suggested the possibility of
uniform sales law to the Institute for the Harmonisation of Private Law. In 1930,
the UNIDROIT initiated the project to prepare a law unifying the substantive
rules governing international sales contracts under the auspices of the League of
Nations. In 1935, the Commission of European Scholars under the leadership of
Rabel prepared a preliminary Report. Though the Second world war interrupted
the work, it was resumed in 1951 in the Hague Conference. In 1964, two
conventions namely Uniform Law on the International Sale of Goods (ULIS)
and Uniform Law on the Formation of Contracts (ULF) unifying the law of
international sale of goods were adopted and came into force in 1972. These are
still not widely recognised outside Western Europe as instruments of international
harmonisation. The establishment of UN Commission for International Trade
Law in 1968 paved the way to draft a new unified sales law. The final draft of the
Convention on the International Sale of Goods (CISG) approved by the General
Assembly of UN in 1980 and came into operation on 1st January 1988.
The CISG is now supported by number of Conventions like the UN Convention
on the Limitation Period in the International Sale of goods, the 1983 Geneva
Convention on Agency in the International Sale of Goods, the 2005 Convention
on the Use of Electronic communications in International Contracts, the
1983Uniform Rule on Contract Clauses for an Agreed Sum Due upon Failure of
Performance. 94 countries ratified and acceded to the Convention as of 2020.
The CISG is the best example of unification of private law till date. 133
Business Contracts There are no statistics available to prove the success of the CISG in developing
international trade. The ratification does not mean the unification of international
sales law effectively; it provides the contractual parties with a useful or efficient
regulatory framework.
The CISG is based on the principle of party autonomy. The parties are at liberty
to adopt or exclude the applicability of the principles laid down thereon in the
CISG. The ratifying State may ratify in total or with certain restrictions which
creates un-certainty to the fact that the Convention is a unifying law on
international sale of goods. This creates gaps in the provisions of the Convention.
In interpretational disputes, the national courts and arbitral tribunals have to take
the international character and the uniformity in its application and the observance
of good faith in international trade into consideration. The CISG does not specify
or state a list what these principles are and, consequently, they have to be deduced
from the other provisions of the Convention through a process of analogy. The
judge may venture outside the four corners of the CISG and settle the matter in
conformity with the applicable law. It is clear that the CISG does not unify the
law of international sales in an exhaustive manner but instead operates in a
supplementary and symbolic relationship with national law, trade usage, party
autonomy and other international instruments of harmonisation.
6.3 APPLICABLE LAW AND RULES

I) Conventions
In some international sale contracts, the law applicable to a contract will be
provided for in a Treaty. The United Nations Commission on International Trade
Law (UNCITRAL) has created three treaties that provide the applicable rules
governing certain contracts.
a) United Nations Convention on Contracts for the International Sale of

Goods (CISG):
The United Nations Convention on Contracts for the International Sale of
Goods is the most widely adopted treaty providing substantive contract
rules.5 The CISG’s scope is limited to commercial contracts for the cross-
border sale of goods6 Successful implementation of the CISG requires more
countries to adopt it and parties to use it. Courts and arbitral tribunals must
interpret the CISG in a uniform manner and not through the lens of domestic
laws.7
b) The Convention on the Limitation Period in the International Sale of

Goods:
The Convention on the Limitation Period in the International Sale of
Goods (the “Limitation Convention”) is a sister treaty to the CISG. Originally
adopted in 1974, it was amended in 1980 in order to operate seamlessly with
the CISG.8 The Limitation Convention applies to the same types of
international sales contracts as the CISG with the same scope of application,9
but its substantive provisions deal solely with limitation or prescription,
providing a sort of statute of limitations for international sales disputes. The
general period of limitation provided in the Limitation Convention is four
years.10
134
Till date, there are 30 State parties to the Limitation Convention whereas 84 International Contracts of
Sale
State parties in the CISG’s. As is the case with the CISG, parties may opt out
of its provisions.11 The rules of uniform interpretation for the Limitation
Convention generally mirror those found in the CISG.12
c) United Nations Convention on the Use of Electronic Communications

Convention in International Contracts:
The United Nations Convention on the Use of Electronic Communications

in International Contracts 13 is a much more recent Treaty than the CISG or
Limitation Convention. Adopted in 2005, it currently has seven State parties.
The purpose of the treaty is to remove any legal obstacles to the use of
electronic communications in international contracting, creating certainty
for contractual parties that contracts and other communications exchanged
electronically are as valid and enforceable as their traditional paper-based
equivalents.
The scope of the Electronic Communications Convention is broader than

that of the other UNCITRAL Treaties in that it is not limited to sales contracts,
although it is still aimed at only commercial contracts. Contractual parties
may, of course, opt out of its provisions.14 Like the Limitation Convention,
the rules of uniform interpretation for the Electronic Communications
Convention mirror those found in the CISG,15 making the same general
categories of research resources relevant.
II) National Laws

Parties may also choose national laws to apply to their international commercial
contracts. The party with greater bargaining power may insist on its national
laws, or parties may instead choose the law of a third State, usually one considered
to have a well-developed law with regards to commercial transactions.
English law is frequently used in international transactions, in particular with

reference to reinsurance, charter parties, and sea trade, among other areas.16 Parties
may select Swiss law because of the perception that Switzerland’s political
neutrality makes this a neutral law. Nonetheless, political neutrality may not
always be the best guide as to the suitability of a chosen law for a specific
transaction.17 The ICC International Court of Arbitration 2013 Statistical Report
mirrors the 201018 survey and also indicates frequent choice of German and
French law.19 When considering these types of surveys, it is important to recall
that, generally, the choice of law of any CISG State will also include the CISG
unless the Convention’s application is clearly excluded by the parties.20
Soft Law and Trade Usages

There are many international texts and standards that may be chosen by traders
to govern their contracts. These rules may be referred to variably as “rules of
law,” “soft law” or “trade usages,” 21 but they are connected by their use in
international contracting and potential direct application by arbitral tribunals.
Even otherwise binding texts, such as the CISG, may fall into this category when
chosen by parties to apply to their contracts without reference to a specific State
law22. Like arbitral tribunals23, State courts may recognize and apply these rules,
but, depending on the relevant domestic law, they may do so simply as a set of
rules that are considered to be part of the contract and not overriding any
135
Business Contracts mandatory law.24 The Hague Principles, where followed, may serve to further
legitimize some of these sources. The Hague Principles, in Article 3, allow for
the law chosen by contracting parties to be “rules of law that are generally accepted
on an international, supranational or regional level as a neutral and balanced set
of rules, unless the law of the forum provides otherwise,” specifically naming
the CISG, the UNIDROIT Principles, and the Principles of European Contract
Law (PECL) in the accompanying commentary. A few of the more prominent
texts and standards generally discussed in this category of “rules of law,” “soft
law” or “trade usages” are as follows:
UNIDROIT Principles
The UNIDROIT Principles of International Commercial Contracts (the
“UNIDROIT Principles”) were first finalized by UNIDROIT in 1994 and revised
in 2004 and 2010. UNIDROIT continues to revise the Principles as appropriate,
currently considering revisions meant to deal with specific aspects of long-term
contracts. While following the CISG’s approach in many instances, the
UNIDROIT Principles are a set of general rules for international commercial ,
addition, they are able to cover areas that the drafters of the CISG were not able
to agree upon, such as validity, agency, and assignment, among others. Also
unlike the CISG, the UNIDROIT Principles are not a binding text and will
generally only be applied where chosen by the parties or through application by
an arbitral tribunal with the authority to do so.25
Significantly, the UNIDROIT Principles contain rules of interpretation almost

identical to CISG,26 making case law and academic writings of great use in
interpreting the Principles. In addition, the UNIDROIT Principles have a built-
in commentary that gives detailed guidance.
The advantage of Principles of International Commercial Contracts (PICC) is

that they do not favour one particular domestic system of contract law or even
legal system but rather provide a neutral set of rules that combine the best practices
from legal systems around the world. The UNCITRAL on its’ endorsement of
the 2010 PICC stated that these Principles and the CISG principles are
complementary relationship and that PICC can be used to interpret and supplement
the convention.27 The 2015 Hague principles on choice of law in International
Commercial Contracts, which were adopted by the Hague Conference on Private
International Law might trigger welcome change.28Continuously improved since
their first inception in 1983, the PICC have been described as a ‘restatement of
international contract law’29 The PICC could function as a new lex mecatoria.
Lex mercatoria
The lex mercatoria has been described as “a synthesis of generally held and
generally accepted commercial principles that may be expected to be applied to
contracts among the major trading nations.”30 There is a controversy31 surrounding
the lex mercatoria and, in particular, the specifics of its content,32but arbitral
tribunals can, nonetheless, where authorized, apply these principles.33 Certainly,
the content of the lex mercatoria may be informed by or, in fact, contain the
content of international instruments, such as the CISG and the UNIDROIT
Principles.34 For an example of a contract clause containing choice of such broad
principles, consider the United Nations General Conditions of Contract, which
state, with regard to dispute settlement, that “the decisions of the arbitral tribunal
shall be based on general principles of international commercial law.”35
136
Incoterms International Contracts of
Sale
In the specific area of delivery of goods, the International Chamber of Commerce
(ICC) has developed a set of rules governing trade terms that describe the
obligations of buyers and sellers and supplement any other rules governing the
contract. The terms are in combination of three letters. One example is FOB,
standing for “Free on Board”, and the Incoterms rules cover who bears the risks
and obligations when the seller has contracted to deliver goods in this way, namely
“on board the vessel nominated by the buyer at the named port of shipment or
procures the goods already so delivered.”36The Incoterms come with instructions
as to how parties can incorporate them in their contracts. There have been many
versions of the rules, and the most recent are the Incoterms 2010 and 2020. They
were first published in 1936. Incoterms 2010 defines 11 rules. They are upgraded
as per the trade practices.
The Uniform Customs and Practice for Documentary Credits (UCP 600)
This was another creation of International Chamber of Commerce for the
convenience of international trade. The Uniform Customs and Practice for
Documentary Credits, 2007 revision UCP 600, is the soft-law instrument for
regulating letters of credit, a common payment method in international
transactions. The contract must indicate the application of UCP 600 towards the
credit document. It contains rules specifically for electronic records.
6.4 MODEL CONTRACTS AND CLAUSES

International contracts refer to a legally binding agreement between parties, based
on different countries, in which they are obligated to do or not to do certain
things. International contracts may be written in a formal way. Most businesses
create contracts in writing to make the terms of agreement clear, often seeking
legal counsel when drafting important contracts. Contracts can cover all aspects
of international trade, although the most commonly used are:
International Sale Contract
International Distribution Contract
International Agency Contract
International Sales Representative Contract
International Supply Contract
International Manufacturing Contract
International Service Contract
International Strategic Alliance Contract
International Joint Contract
International Franchise Contract
Model contracts are particularly useful for preparing international business
transactions, but they are often expensive. The International Trade Centre offers
for free online its Model Contracts for Small Firms and Legal Guidance for Doing
International Business. The ICC offers (for purchase) an array of model contracts
for international transactions, including an influential model for sales contracts.
The contracts are the products of some of the finest legal minds in the field of
international commercial law. They are constructed to protect the interests of all 137
Business Contracts the parties, combining a single framework of rules with flexible provisions
allowing the parties to insert their own requirements.
Arbitration institutions and rules typically offer model clauses that can be useful
for incorporating an arbitration clause in a contract. For example, the model
clauses of the Arbitration Institute of the Stockholm Chamber of Commerce,
the LCIA, and the International Centre for Dispute Resolution.
Choice of law clauses can be found in the model contracts mentioned above, but
there are also other sources. UNIDROIT, for example, has prepared Model
Clauses for the use of the UNIDROIT Principles of International Commercial
Contracts. Some arbitration institutions also offer model choice of law clauses.
For example, the clauses from the Chinese European Arbitration Centre.
The ICC Confidentiality Agreement is the latest in a series of widely used model
contracts published by the International Chamber of Commerce.
The ICC Force Majeure Clause2003 and the ICC Hardship Clause 2003 are the
examples of the model readymade clauses to be inserted by the parties in their
International Commercial contract.
6.5 ASSESSMENT OF SALE OF GOODS BY

TRANSFER OF PROPERTY WITH CERTAINTY
AND FLEXIBILITY
The transfer of property takes place when the contract is concluded even the
delivery and payment of price happens subsequently. This principle was adopted
by French law by Code Civil of 1804. The same appears in English rule set out in
Sale of Goods Act (SOGA), 1893. The other system of transfer of property is
stipulated by the delivery which was seen in German Law and Australian Law;
the former talks of abstract delivery and the latter with casual delivery. The transfer
of property i.e., the ownership belongs to the realm of general formulas, while
the solutions of the various practical problems belong to the realm of operational
rules. Thus, it is observed that even legal systems with contrasting general
formulas can share identical operational rules.
When questions emerge from the perspective of the ownership, the judge must
refer to the domestic law applicable according to the usual rules of conflict. The
absence of precise rule in the CISG is not a loophole; it was a deliberate choice
by the drafters to leave it the judge to decide as it was a highly sensitive aspect in
the sale of goods. This facilitated the adoption of CISG by divergent legal systems
that adopt one solution or the other for domestic sales.
A certain degree of certainty is attributed to the sale laws that guarantee the
maximum predictability of the solutions asked by the judges and arbitrators.
This implies that legal rule must be as precise as possible and must avoid
loopholes, generic directive for the parties or interpretation gapes for the decision
of cases. On the other hand, any sale law that contains general clauses, such as
the good faith principle, binding the contracting parties to behaviour, whose
legitimacy is decided after the event by Judge or arbitrator, is considered flexible.
In particular, the English law considered a bulwark of certainty, and German law
is considered as very flexible. The former does not have an obligation to act in
138
good faith, while the latter, good faith and reasonableness permeate the entire International Contracts of
Sale
spectrum of contract relationships. The tension between certainty and fairness is
solved by the CISG principles.
6.6 CISG INFLUENCE ON INDIVIDUAL

NATIONAL SYSTEMS
It was noted by the scholars that CISG is having impact regarding both sales of
goods, obligations law and contractual law generally on the numerous legal
systems.37 Its’ influence on individual legal systems may be felt by the courts,
by doctrine, by legal practice and law-makers. The Dutch judges used the CISG
principles in interpreting the national law regarding the formation of contract,
breach of contract and non-conformity of goods sold.
The Scandinavian countries except Denmark revised their national Sale of Goods
Acts in line with the most of the principles of CISG: Finland in 1988, Norway in
1989, Sweden in 1991, and Iceland in 2000.
The CISG influenced the Europe by the Law of Obligations Act in 2002 which is
the identical transposed binding’s nature of usages and practices, the objective
interpretation of the declaration of intent, the freedom of form, the mitigation of
harm and the prohibition of abuse of rights38. The Tokelu Islands has adopted the
rules of the CISG as domestic law both for the sale of goods and for general
contract law. The largest economy, China, the CISG has essentially become part
of domestic law. The Contract Law 1999 was amply supported by CISG rules.
The drafters of new Chinese Civil code were able to find in the CISG a very
important resource of rules both for the sale of goods and the contract law in
general.
In some legal systems reforms in the national laws have begun or have been
suggested. New Zealand Sale of Goods Act, 1908 is the example of this reform.
The largest economy in Africa, Nigeria though not ratified the CISG; Nigerian
Law Reform Commission began to consider a reform of the Sale of Goods Act,
189339. It reproduces the old English law on sale of goods and now there is a call
for the reform to take the CISG as model law40.
Japan didn’t ratify the CISG for a long period. The scholars noted that CISG
rules are arguably better than the Japanese sales law41. The on-going reform42 of
the Japanese law of obligation could raise the level of reception of CISG principles
and rules in the Japanese legal system. The Turkey new Code of Obligations
deeply reformed the contract law which was, based on the Swiss model adopted
in 192043.
Seventeen central African countries who are currently the members of the
Organization for the Harmonization of business law in Africa (OHADA) intended
to remedy the legal and juridical uncertainty that exists among the signatory
states. In 1997 they adopted a uniform law governing commercial law which
was modified and modernised in 2010. This regulates all the sales of goods
between companies, and excludes the sales to consumers. With French culture
they adopted the CISG principles to domestic sale of goods, including several
rules deriving from English Common Law.
139
Business Contracts
6.7 REGIONAL EFFORTS
The preamble to CISG states that: The adaptation of uniform rules which govern
contracts for the international sale of goods and take into account the different
social, economic, and legal systems would contribute to the removal of legal
barriers in international trade and promote the development of international trade.
The European Commission proposed a new uniform law on the sale of goods,
intending to solve the problems arising from this diversity of national contract
laws. The Common European Sales law (CESL) governs sales to both consumers
and businesses. The CESL would then offer a new choice between the legal
systems that the parties can make freely; any national law either of EU members
or of other states.
The Association of Southeast Asian Nations (ASEAN) approved the ASEAN

Trade in Goods Agreement. These treaties expand the free trade area beyond the
borders of the community of ASEAN countries, and envisage the gradual
implementation of the free circulation of goods between ratifying state, elimination
of customs and protectionist barriers. However, these treaties do not contain rule
to be applied to the international trade contracts, but are limited to encouraging
strong regional standardisation.
The UNCITRAL and The Hague have recently established regional centres that
offer a significant opportunity to promote the various private international law
instruments, including those relating to international contract law.44 In the light
of the importance of the issue, efforts by the UNCITRAL Secretariat are welcome
to explore other means of promoting and maintaining uniformity in the
interpretation of the CISG. The Secretariat recently proposed the establishment
of a system of national centres of expertise in the field of commercial law that go
beyond the current national correspondent system of Case Law on Uncitral
Texts (CLOUT).
According to the Secretariat, the system would
a) Collect, analyse, and monitor national case law related to UNCITRAL texts
b) Report the findings to UNCITRAL, and
c) Address the need of the judiciary to better understand the internationally
prevailing application and interpretation of UNCITRAL standards and
achieve effective cross-border co-operation.45
Resources are the biggest obstacle to such a proposal as noted by the Secretariat.
Cooperation:
The UNCITRAL and its sibling operations, UNIDROIT and the Hague
Conference should continue to coordinate and cooperate on all matters regarding
the international contract law in order to ensure that the organisations’ agendas
remain complimentary. The UNIDROIT and UNCITRAL have recently supported
consideration of joint collaboration between the two organisations on substantive
law projects as suggested by US46. These two may consider a joint project on
long-term contracts.
Naturally evolving harmonisation through progressive interpretation and the use

140 of existing instruments will continue to ensure that harmonisation is workable
and feasible. The CISG and PICC working together, have been remarkably International Contracts of
Sale
successful in addressing the needs of commercial players in international
commerce. There are more practical, positive and forward-looking alternative
that build on the existing platform of the CISG and the PICC. The UNCITRAL
must continue its efforts to assist States in maintaining uniform interpretation
and implementation of the CISG.
Battle of forms:
Battle of the forms is one of the unresolved legal problems to which different
counties’ courts have their own approach. There are three main approaches in
the literature as to the battle of forms; domestic approach, last shot rule and
knock-out rule. The last shot rule and knock-out rule are in competition with
each other. The courts are required to answer two questions; a. Is there a valid
contract between the parties? b. If yes, which terms of the standard forms are the
parts of the contract? The CISG has not given uniform answers to solve the
arisen disputes.47 The battle of forms dilemma can’t be resolved by single formula
as there are different situations of collusion and the various positive behaviours
of the parties.
The CISG is not concerned with validity of contract. Which standard terms should
be incorporated into the contract shall be solved by the applicable domestic law.48
The courts are required to look to the general principles of the CISG first, before
recourse to domestic law. Domestic approach is not widespread as this is
inconsistent with the main reason with the existence of CISG, namely unification
of the sales law.
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. The traditional common law rule namely the ‘mirror image ‘ rule
, which produces the last shot rule in order to answer to the battle of forms issue.
The last shot rule ‘treats every statement made with reference to confliction
standard terms as a rejection of the earlier offer, combined with counteroffer.49
In other words, the contract is concluded on the terms of the final form used,
without being objected by the other party.50 The conflicting standard terms knock
each other out and the provisions of CISG are applied instead of them. The courts
are to find the actual or deemed consensus of the parties based on their negotiations
in respect of the essential elements of transaction.
The aforesaid analysis of the battle of the forms makes it clear that knock-out
rule is supported by scholars and cases, because of advantages such as conformity
with the intention of the parties to the business, balanced and fair approach,
supportive approach to the contract validity issue, and providing uniform
application of the Convention by referring to its provisions in case of knock –out
terms.
6.8 COVID-19 PANDEMIC AND ITS IMPACT ON

THE PERFORMANCE OF INTERNATIONAL
SALE OF GOODS CONTRACT
A force majeure clause in international sale of goods contract relives a party
from performing its contractual obligations when certain circumstance beyond
its control arise, making performance inadvisable, commercially impracticable,
illegal or impossible. 141
Business Contracts The CISG Article 79 provides that “(a) Party is not liable for a failure to perform
any of his obligations if he proves that the failure was due to an impediment
beyond his control and that he could not reasonably be expected to have taken
impediment into account at the time of conclusion of the contract or to have
avoided or overcome it, or its consequences”
The treatment of impediment under CISG is different from the treatment under
common law. Generally, four conditions must be satisfied to assert the force
majeure protection under the CISG:
1) The impediment must be beyond the party’s control
2) The impediment is unforeseeable at the time the contract was signed.
3) The impediment and its consequences could not be reasonably avoided or
overcome.
4) The non-performance of the party is the result of the impediment.
Under Article 2 of the Uniform Commercial Code (UCC) of US a seller may be
excused from delay or non-delivery of the goods if performance has been made
impracticable by either:
1) The occurrence of an event “The non occurrence of the which was a basic
assumption on which contract was made” or
2) Good faith compliance with foreign or domestic government regulation
The Common law doctrines of frustration and impossibility may be invoked, but
they have higher threshold to overcome.
Predating the Covid-19 pandemic, well known examples such contractual

arrangements are found in model clauses issued by International Chamber of
Commerce (ICC), namely ICC’s 2003 force majeure clause, and the ICC’s
Hardship clause. This has changed with the ICC’s 2020 Hardship clause which
suggest three different legal consequences in the event of failed renegotiations,
any of which the parties can choose when concluding the contract;
1) The termination of the contract by one of the parties,
2) The termination of the contract by a Judge (or Arbitrator) or
3) finally, the adjustment or termination of the contract by a Judge (or Arbitrator)
To combat uncertainties for future crises like COVID-19, it is therefore advisable
to negotiate individual contractual clauses pertaining to force majeure and
hardship in order to determine the desired distribution of contractual risk in
advance51.
6.9 SUMMARY
In business-to-business international transactions, it would appear that the market
is operating affectively on that differences in contract law do not pose a serious
obstacle to cross-border trade. The conventions, the national laws, soft laws and
trade usages, Unidriot principles, lex Mercatoria, incoterms, UCP 600, model
contracts and clauses, CISG, PICC, Uncitral principles will help to overcome the
obstacles faced by the parties in their cross-border trade through international
contracts of sale of goods.
142
International Contracts of
6.10 SELF ASSESSMENT QUESTIONS Sale
1) Explain the importance and significance of international contracts.

2) Discuss in detail the law and rules applicable to international contracts
3) Write a note on the historical back ground of the international sale of goods
contracts.
4) Analyse the assessment of sale of goods by transfer of property with certainty
and flexibility.
5) Make a brief note on CISG influence on individual national systems
6) Elucidate the regional efforts and cooperation in unifying the sales law.
7) Critically evaluate the methods of battle of forms.
8) Discuss the unforeseen circumstances which resulted the non-performance
by a seller in an international contract of sale.
6.11 FURTHER READINGS

1) Michael J. Dennis, Modernizing and harmonizing International Contract
law: The CISG and the UNIDROIT Principles continue to provide the best
war forward, Unif.L.Rev.Vol.19,2014,114-151
2) Jurgen Basedow, Some conflict-of-Laws Perspectives on the European
Banking Union,Texas Inernational Journal Vol.54:2 p.245
3) Kamal Huseynli, different Aproaches to conflicting Standard Terms under
the United Nations Convention on Contracts for the International Sale of
Goods, BAKU State University Law Review, vol.2. Issue 2, May 2016 p.197
4) J Cotzee, A Pluralist Approach to the Law of International Sales,PER/PELJ
2017(20) p.1
5) Angelo Chianale, The CISG As a Model Law: A Comparative Law Approach,
Singapore Journal of Legal Studies(2016) 29-45
6) Phillip Hellwege, Understanding Usage in International Contract Law
Harmonization,Vol.66 The American Journal of Comparative Law,127-171
7) Marija D. Mijatovic,The Currentness of the UNIDROIT Principles of
International Contracts-Effects of bottom –up method of Law Harmonization
8) Luca G. Castellani, Review: LRethinking Choice of Law in Cross-Border
Sales, NJCL2019/1
9) Petra Butler, Book Review: UNIDROIT Principles of International
Commercial. Contracts
10) IEckart Broderman, Book Review:UNIDROIT Principles of International
Commercial. Contracts
11) Andre Janssen and Christian Johannes Wahnschaffe, COVID-19 and
international sale contracts: unprecedented grounds for exemptions are
business as usual? Uniform Law Review, 2021 February 2, published online
2021 Feb 2. doi: 10.1093/ulr/unaa026.
143
Business Contracts References:
1
see United Nations Convention on Contracts for the International Sale of
Goods (Vienna, 1980) (the “CISG”), Article 1(1); Principles on Choice of
Law in International Commercial Contracts (2015) (the “Hague Principles”),
Article 1(2)).
2
Preamble Comment UNIDROIT Principles of International Commercial
Contracts 2010
3
Cyril Emery , International Commercial Contracts, Published in March 2016
4
governed by the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York, 1958) (the “New York Convention”) with 156
State parties
5
(Vienna, 1980, the “CISG”)
6
see CISG, Part I, Articles 1-5
7
Renaud Sorieul et al., Possible Future Work by UNCITRAL in the Field of
Contract Law: Preliminary Thoughts from the Secretariat, 58 VILL. L.
REV. 491, 500 at n.25 (2013) (citing John O. Honnold, The Sales Convention
in Action—Uniform International Words: Uniform Application?, 8 J.L. &
COM. 207, 208 (1988)).
8
References in this text are to the amended Convention unless stated otherwise.
9
see Limitation Convention, Articles 1-6
10
Limitation Convention, Article 8
11
Limitation Convention, Article 3(2)
12
Limitation Convention, Article 7
13
New York, 2005-the “Electronic Communications Convention”
14
Electronic Communications Convention, Article 3
15
Ibid, Article 5.
16
See, e.g., GIUDITTA CORDERO-MOSS, INTERNATIONAL COMMERCIAL CONTRACTS:
APPLICABLE SOURCES AND ENFORCEABILITY 137 (2014); Gerhard Dannemann,
Common Law-Based Contracts under German Law, in BOILERPLATE CLAUSES,
INTERNATIONAL COMMERCIAL CONTRACTS AND THE APPLICABLE LAW 62, 63
(Giuditta Cordero-Moss ed., 2011).
17
Ingeborg Schwenzer & Christopher Kee, International Sales Law – The Actual
Practice, 29 PENN ST. INT’L L. REV. 425, 440-441 (2011).
18
2010International Arbitration Survey:Choices in International Arbitration
19
2013 Statistical Report, 25 ICC INT’L CT. OF ARB. BULL., no.1, 2014 at 5, 13.
20
A few States have made declarations under CISG, Article 95, including the
United States, indicating that they will not be bound by Article 1(1)(b). With
regard to choice of law, it should be noted that courts and arbitration tribunals
have generally found that, for the purposes of considering which law should
apply when parties have generically chosen the law of a CISG State, the
CISG forms part of the law of that State and will apply unless the parties
have excluded its application or have specifically referred to the domestic
law of the State, for example, by identifying the particular code in
144
question. UNCITRAL D IGEST OF C ASE LAW ON THE U NITED N ATIONS International Contracts of
Sale
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS Art. 6, paras.
9-17 (2012).
21
See, e.g., CORDERO-MOSS, supra note 16, at 31.
22
see section 3.1.1
23
see section 2.2
24
Consider, for example, the UCP 600 (see section 3.3.4). While very widely
used and applied, State courts have, in some instances, overridden the UCP
600 with State law despite party choice to be governed by its
provisions. CORDERO-MOSS, supra note 16, at 64-68.
25
MODEL CLAUSES FOR THE USE OF THE UNIDROIT PRINCIPLES OF INTERNATIONAL
COMMERCIAL CONTRACTS 4-6 (2013).
26
, Article 7, (UNIDROIT Principles, Article 1.6)
27
Report of the United Nations Commission on International Trade Law, 45th
Session UN Doc A/67/17 (2012)
28
These principles were endorsed by UNCITRAL at its 48th session. Report of
the United Nations Commission on International Trade Law,48th Session Un
Doc/A70/17(2015)
29
Michael Joachim Bonell “The Law governing International Commercial
Contracts: Hard law Versus Soft law” in collected courses of the Hague
Academy of International law (Brill Leiden-2018) vol 388
30
WILLIAM F. FOX, INTERNATIONAL COMMERCIAL AGREEMENTS AND ELECTRONIC
COMMERCE 31 (5th rev. ed. 2013).
31
Regarding the customary, trade practice and normative understanding of
contractual terms in the international sales contracts with regard to dispute
between the parties to an international sales contract.
32
INGEBORG SCHWENZER ET AL., GLOBAL SALES AND CONTRACT LAW (3d ed. 2012)at
49-50
33
ibid
34
See, e.g., Alexis Mourre, Applications of the Vienna International Sales
Convention in Arbitration, 17 ICC INT’L CT. OF ARB. BULL., no.1, 2006 at 43,
49; SCHWENZER, supra note 27, at 49-50.
35
The term that was used in an international sales contract keep in view the
meaning of the term as per customary, trade practice or normative
understanding of the said term.
36
INCOTERMS 2010: ICC RULES FOR THE USE OF DOMESTIC AND INTERNATIONAL
TRADE TERMS 87 (2010).
37
Cf Franco Ferrari, ed, The CISG and its Impact on National Legal Systems
(Munich: Sellier European Publishers 2008); Peter Schlechtriem, “Basic
Structures and General Concepts of the CISG as models for harmonisation
of Law Obligations” (2005) 10 Juridica Int’l. 27
38
Cf Irene Krull, “Reform of Contract Law in Estonia: Influences of
Harmonisation of European Private Law” (2008) 14 Juridica Int’l 1 22.
39
At a workshop on 2nd September 2014, the Nigerian Law Reform Commission
began to consider a reform of the Sale of Goods Act, 1893 though CISG was
not ratified by Nigeria. 145
Business Contracts 40
Cf Nkiruka Maduekwe, “The CISG and Nigeria: is there a Meeting Point”
(2009/10) 14 CEPMLP Ann. Rev., online.
41
Cf Noboru Kashiwagi, “Accession by Japan to Vienna Sales Convention
(CISG)” (2008) 25 J Japan L 207 at page 214.
42
Ibid.
43
The New Code (Article 208) follows the solution of the CISG (arts. 67, 68)
regarding risk of accidental destruction and deterioration of the goods sold.
The old code connected the passage of risk with the conclusion of the contract
where as risk and benefit on the goods sold in the new code pass to the buyer
at the moment of the transfer of possession.
44
See UN Information Service, New UNCITRAL Regional Center for Asia
and the Pacific opens Republic of Korea, Press release UNIS/L/159(26
January 2012); see Hague Permanent Bureau, Report on the Activities of the
New Regional Offices of Latin America and the Pacific, Doc Information no
1(March 2013)
See Unicitral Secretariate, Technical Cooperation And Assistance Un Doc
A/CN.9/775(May2013) Para 11.
45
See Renaud Sorieul, Emma Hatcher and Cyril Emery, “Possible Future work
by UNICITRAL in the field of Contract Law: Preliminary Thoughts from
the Secretariat” 58 VillanovalLaw Review 491, 505
46
US proposal on UNCITRAL Future Work (n 10) 4-5; UNIDROIT Governing
Council, 92nd Session (n 133) para 35.
47
See Larry A. Dimatteo et.al., The interpretive turn in International Sales law:
An Analysis of Fifteen years of CISG Jurisprudence, 24Nw.J.Intl & Bus.299,
pp.349-357(2004)
48
Freancois Vergne, The “Battle of the Forms” Under the United Nations
convention on Contracts for the International Sale of Goods, 33 Am.J. Comp.
L 233 pp.256-257(1985)
49
Andre Corterier, A Peace Plan for the Battle of the Forms, 10 Int’l Trade &
Bus.L.Rev.195 p .197 (2006)
50
Peter Huber, Standard Terms under the CISG, 13 Vinodnona Journal of
International Commercial law & Arbitration 123, p.129( 2009)
51
Andre Janssen and Christian Johannes Wahnschaffe, COVID-19 and
international sale contracts: unprecedented grounds for exemptions are
business as usual? Uniform Law Review, 2021 February 2, published online
2021 Feb 2. doi: 10.1093/ulr/unaa026.
146

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After studying this Unit, you should be able to:

5.2 SOURCES OF MERCANTILE LAW

5.3 FORMATION OF CONTRACTS

Agreements: Two or more persons agree mutually to undertake to do or not do

Offer: The offer is a proposal by the offeror to undertake to do or abstains from

2) The terms of it must be certain or capable of being certain: The terms of

3) It must be different from the following:

4) It must be offered to an individual or to the public at large: The offer is

5) It must be communicated to the offeree: The offeror is having obligation

In order to convert a proposal into a promise, the acceptance must be absolute

Essentials of valid acceptance:

Lapse or revocation or rejection of offer: The proposal of the offeror lapses on

5.4 COMPLETION OF CONTRACTS AND

The United Nations Commission on International Trade Law (UNCITRAL)

5.5 ESSENTIALS OF VALID CONTRACT

Though consideration is necessary it need not be adequate. The adequacy and

Consideration and Discharge of Contract:

The incapacity of a party is broadly divided into two;

The law relating to infants/minor contracts is at present provided in Minor’s

Mutuality of mind: The parties to the contract must have consensus-ad-idem35

i) Coercion:37 “The committing, or threatening to commit, any act forbidden

A contract is not voidable because it was caused by mistake as to any law in

4) Legality of Consideration and Object:

Where a part of consideration or object of an agreement is unlawful the agreement

5.6 PERFORMANCE OF THE CONTRACTS

Time and Place of Performance:

Performance of Reciprocal Promises:

5.7 DOCTRINE OF FRUSTRATION OR

Doctrine of frustration limitations:

5.8 APPROPRIATION OF PAYMENTS

Contracts which need not be performed:

Of certain relations resembling those created by contract:

There is no exact definition of a quasi-contract given anywhere even in the

The following are the examples of quasi-contract:

5.9 CONSEQUENCES OF BREACH OF

1) Common Law Remedy, i.e, damages: The remedy of damages, therefore,

2) Equitable Remedy, i.e., specific performance of contract, injunction,

Measure of damages is the value of performance of the contract to the plaintiff,

There are four kinds of damages:

A) General, or ordinary, or substantial damages:105These are the damages

A contract is an agreement enforceable in a court of law. An agreement is a set of

Consideration, capacity to contract, free consent, and legality of consideration

The agreement between two parties to do an impossible act itself is void. A

5.11 SELF ASSESSMENT QUESTIONS

5.12 FURTHER READINGS/ REFERENCES

After studying this unit you should be able to:

6.2 HISTORICAL BACKGROUND

6.3 APPLICABLE LAW AND RULES

a) United Nations Convention on Contracts for the International Sale of

b) The Convention on the Limitation Period in the International Sale of

c) United Nations Convention on the Use of Electronic Communications

The United Nations Convention on the Use of Electronic Communications

The scope of the Electronic Communications Convention is broader than

II) National Laws

English law is frequently used in international transactions, in particular with

Soft Law and Trade Usages

Significantly, the UNIDROIT Principles contain rules of interpretation almost

The advantage of Principles of International Commercial Contracts (PICC) is