,CHAPTER 17 NEGOTIATION AND FORMATION OF THE CONTRACT International Trade Negotiation Formation of Contract,1 INTERNATIONAL TRADE NEGOTIATION,ENQUIRY,OFFER,COUNTER OFFER,ACCEPTANCE,Enquiry Invitation to offer By the seller or the buyer Not bind the two parties Not a necessary step But usually start of a deal e.g. “We are interested in your Butterfly Brand sewing machines. Please make us a quotation at your earliest convenience.”,2. Offer Proposal Definite in its terms Indicates the offerors intention to make a deal Bind the offeror Selling offer, buying offer (bid) Necessary step,“We are making you an offer for 2000 dozen sport shirts as Sample No. 1234 at a unit price of US$90 per dozen CIF New York. The packing is of export standard and shipment is to be effected in May/June 2008. Payment is to be made by irrevocable sight L/C. This offer is subject to your reply reaching here on 20th inst.”,3. Counteroffer A reply to an offer that makes material change (s) to the terms of the offer. A new offer The original offer becomes null and void.,legally ineffective invalid,“Your letter dated Sept. 3rd has been received. We regret that we are unable to accept it as your competitors are quoting for goods of similar quality at a price of US$55. Please reply immediately.”,4. Acceptance An unconditional assent to an offer or an assent to an offer with only minor changes that do not affect any material terms of the offer. “We accept your offer of 14th.”,2 Formation of Contract,OFFER,ACCEPTANCE,FORMATION OF CONTRACT,Offer Constitution of an offer Term of validity of an offer Withdrawal and revocation of an offer Termination of an offer,(1) Constitution of an offer,CISG Article 14(1),Sufficiently definite, To specific person (s) The specifications of the addressee will usually be by name. Advertisement? Catalogue? Price list? Generally NOT! Unless clear, specific and definite Esp. indicates intention of making a deal “The price is for your reference.” “The price is subject to alteration.” (价格得予变动 ), Sufficiently definite (i) Name and quality (ii) Quantity (iii) Price,CISG Article 14(2),Usual practices; Provisions in part III of CISG.,Other Terms?,In practice, Complete: 6 trade terms & conditions Clear: Not result in misunderstanding Without reservation：Subject to our final confirmation,Quality Quantity, Price, Packing, Shipment, Payment., Indicating the intention of the offeror to be bound in case of acceptance. To be deemed as an offer, a proposal should also indicate the intention of the offeror to be bound if the addressees accept the proposal. A buyer was found to have indicated its intention to be bound when it sent the seller “an order” that stated “we ordered” and that called for immediate delivery.,(2) Term of validity of offer A period within which the offeree can make an acceptance, and the offeror is only bound. The latest time A period of time,If no, how long?,Reasonable time,(3) Withdrawal & revocation of offer Withdrawal: An offer becomes effective when it reaches the offeree. May be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer., Revocation: CISG, Article 16 (i) May be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (ii) However, an offer cannot be revoked:,(a) indicates irrevocable； e.g. states a fixed time for acceptance firm offer (b) reasonable for the offeree to rely on the offer being irrevocable and acted .,Case Study:,Reasonable to rely on the offer Acted,A Call for bid,B Bidder Buyer of steel,C Seller of steel,BID,Enquiry,Offer,(4) Termination of offer The term of validity is over； The offer is rejected or declined； The offer is legally revoked.,2. Acceptance (1) Constitution of acceptance; (2) The moment when an acceptance becomes effective; (3) Withdrawal of acceptance.,Constitution of acceptance CISG Article 18(1): “A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not itself amount to acceptance.”,The acceptance must be made by the offeree. It must conform to the offer. Basically unqualifiedly accept the offer.,(i) A reply to an offer which contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter offer. (ii) But if the additional or different terms do not materially alter the terms of the offer, then the reply constitutes an acceptance.,The offeror may say NO immediately.,The changes become part of the terms of the contract.,If not,Material alteration?,Price,Payment,Quality,Quantity,Place and time of delivery,Extent of one partys liability to the other,The settlement of disputes,Case Study:,2006/03/01: A made an offer to B for 1000M/T sugar packed in sound bags. 2006/03/10: B accepted As offer with an alteration of packing, i.e. packing in new bags is required. 2006/03/20: The price of sugar dropped sharply. B wanted to know if he wa