The UN Convention on Contracts for the International Sale of Goods and ICC Incoterms
Most of area B is about one instrument: the UN Convention on Contracts for the International Sale of Goods, the CISG. This lesson covers when it applies and how a contract is formed, plus the ICC Incoterms traders use to divide costs and risk. Formation is tested by application: given a sequence of emails, you decide whether, and when, a contract was made. The CISG's answers differ from the common law, so learn its rules on their own terms.
When the CISG applies
The CISG was prepared by UNCITRAL, adopted in Vienna in 1980 and came into force on 1 January 1988. Not every country has joined (the United Kingdom has not); questions say which states are Contracting States.
Under Art. 1, the CISG applies to contracts for the sale of goods between parties whose places of business are in different states, when either both states are Contracting States, or the rules of private international law lead to the law of a Contracting State (some states have reserved against this second route). Nationality is irrelevant. With several places of business, the one most closely connected with the contract counts (Art. 10).
| The CISG does not cover (Arts. 2 to 5) | Notes |
|---|---|
| Goods bought for personal, family or household use | Unless the seller neither knew nor ought to have known of that use |
| Sales by auction, or on execution or by authority of law | |
| Shares, securities, negotiable instruments, money, ships, aircraft and electricity | |
| Contracts mainly for labour or services | Goods to be manufactured are covered, unless the buyer supplies a substantial part of the materials |
| Validity of the contract, and the passing of property (title) | Left to national law |
| Liability for death or personal injury caused by the goods | Left to national law |
The parties may exclude the CISG or vary its provisions (Art. 6), but the exclusion must be clear: choosing "the law of Country X", where X is a Contracting State, normally brings the CISG in as part of that law.
General provisions
- Interpretation (Art. 7). Read with regard to its international character, uniformity and good faith; gaps are filled from its general principles, failing which from the applicable national law.
- Statements (Art. 8). Interpreted by a party's intent if the other knew it; otherwise as a reasonable person would understand them.
- Usages (Art. 9). The parties are bound by usages they agreed, practices between them and widely known international trade usages.
- Form (Arts. 11 and 12). No writing is needed, unless a party is based in a state that has declared its own writing rule applies.
Forming the contract
| Step | CISG rule |
|---|---|
| Offer (Art. 14) | A proposal to specific persons, sufficiently definite (it indicates the goods and fixes, or provides for fixing, quantity and price) and showing an intention to be bound. A proposal to the public is only an invitation to make offers |
| Effect and withdrawal (Art. 15) | An offer takes effect when it reaches the offeree; even an irrevocable offer can be withdrawn if the withdrawal reaches the offeree first or at the same time |
| Revocation (Art. 16) | Possible if it reaches the offeree before the offeree dispatches an acceptance. Not possible if the offer indicates it is irrevocable, for example by fixing a time for acceptance, or if the offeree reasonably relied on it as irrevocable |
| Rejection (Art. 17) | Ends the offer when it reaches the offeror |
| Acceptance (Art. 18) | A statement or conduct showing assent; silence alone is not acceptance. It takes effect when it reaches the offeror within the time fixed or a reasonable time. Where the offer or practices allow, an act such as dispatching the goods accepts |
| Counter-offer (Art. 19) | A reply with additions or changes is a rejection and counter-offer. If the changes are not material, it is an acceptance unless the offeror objects without undue delay. Changes to price, payment, quality, quantity, place or time of delivery, liability or dispute settlement are material |
| Late acceptance (Art. 21) | Effective if the offeror promptly says so; if late only through a transmission delay, effective unless the offeror promptly says the offer lapsed |
| Conclusion (Art. 23) | The contract is concluded when the acceptance takes effect. An acceptance can be withdrawn if the withdrawal reaches the offeror first or at the same time (Art. 22) |
Unlike the common law, acceptance takes effect on receipt, not posting; and with no doctrine of consideration, an offer can be irrevocable without payment and a contract can be modified by mere agreement (Art. 29).
ICC Incoterms
Incoterms are standard trade terms published by the International Chamber of Commerce. The study guide names them simply as ICC Incoterms; the edition in force is Incoterms 2020. They are not law: they apply only when the contract incorporates them, for example "CIF Lagos Incoterms 2020".
Each rule fixes the delivery point, where risk passes from seller to buyer, and allocates costs (main carriage, insurance) and formalities (export and import clearance). Incoterms do not deal with property in the goods, the price, payment, remedies or the governing law. The seller clears the goods for export under every rule except EXW.
| Rule | Mode | Seller delivers, and risk passes | Seller pays main carriage | Seller insures | Import clearance and duties |
|---|---|---|---|---|---|
| EXW Ex Works | Any | At its premises, at the buyer's disposal, not loaded | No | No | Buyer |
| FCA Free Carrier | Any | To the buyer's carrier at the named place (loaded, if that is the seller's premises) | No | No | Buyer |
| CPT Carriage Paid To | Any | To the first carrier | Yes | No | Buyer |
| CIP Carriage and Insurance Paid To | Any | To the first carrier | Yes | Yes, all risks (Institute Cargo Clauses (A)) | Buyer |
| DAP Delivered at Place | Any | At the named destination, ready for unloading | Yes | No | Buyer |
| DPU Delivered at Place Unloaded | Any | At the named destination, unloaded | Yes | No | Buyer |
| DDP Delivered Duty Paid | Any | At the named destination, ready for unloading | Yes | No | Seller |
| FAS Free Alongside Ship | Sea | Alongside the buyer's vessel at the port of shipment | No | No | Buyer |
| FOB Free on Board | Sea | On board the buyer's vessel at the port of shipment | No | No | Buyer |
| CFR Cost and Freight | Sea | On board the vessel at the port of shipment | Yes | No | Buyer |
| CIF Cost, Insurance and Freight | Sea | On board the vessel at the port of shipment | Yes | Yes, minimum cover (Institute Cargo Clauses (C)) | Buyer |
Under the C rules, risk passes at shipment but the seller pays carriage to the destination, so the cost and risk points differ. Where the seller insures (CIP, CIF), cover is at least 110% of the contract price. Only under DPU must the seller unload at destination.
Worked example
Kaduna Cotton Ltd, in Country A, and Lyon Textiles SA, in Country B, are fictional; both countries are CISG Contracting States. On 1 March Kaduna emails an offer of 200 bales of cotton at $400 a bale, CIF Marseille Incoterms 2020, "open for acceptance until 15 March". On 5 March, after prices rise, Kaduna emails that the offer is withdrawn. On 8 March Lyon accepts by email, adding "please send two copies of the invoice". Is there a contract?
| Step | Analysis |
|---|---|
| Issue 1 | Was the revocation on 5 March effective? |
| Rule | An offer cannot be revoked if it indicates it is irrevocable, including by fixing a time for acceptance (Art. 16(2)). |
| Application | The offer fixed 15 March for acceptance, so it was irrevocable. |
| Conclusion | The revocation was ineffective. |
| Issue 2 | Was Lyon's reply an acceptance or a counter-offer? |
| Rule | Changes that do not materially alter the offer leave the reply an acceptance unless the offeror objects without undue delay (Art. 19). |
| Application | Two invoice copies touch none of the material matters, and Kaduna did not object. |
| Conclusion | A contract was concluded on 8 March, when the acceptance reached Kaduna, for 200 × $400 = $80,000. |
The Incoterm. The cotton is loaded at Lagos on 2 April, and on 10 April the vessel sinks in a storm. Under CIF, risk passed to Lyon when the goods were on board, so Lyon must still pay $80,000. It claims under the insurance Kaduna arranged, which covers the vessel's loss.
Common mistakes
- Applying the common law postal rule. Under the CISG, acceptance takes effect when it reaches the offeror.
- Assuming an offer can always be revoked before acceptance. A fixed time for acceptance, or reasonable reliance, makes it irrevocable.
- Treating every change in a reply as a counter-offer: only material changes are.
- Thinking that under CIF or CFR risk stays with the seller until arrival because the seller pays the freight.
Exam technique
For formation questions, build a dated timeline of when each communication was sent and when it reached the other party, then test each in order: offer, revocation, rejection, acceptance, counter-offer. For Incoterms, ask separately where risk passes and who pays carriage and insurance: most wrong options assume the answers are the same.
Study with AI
I am studying ACCA Corporate and Business Law (LW-GLO), sub-area B1: the CISG and
ICC Incoterms 2020. Give me three dated email exchanges between a seller and a buyer
in two CISG Contracting States, one at a time, involving revocation, counter-offers
or late acceptance, and ask whether and when a contract was formed. Then give me two
Incoterms scenarios asking who bears a loss in transit. Mark each answer and explain
the article or rule that decides it.AI assistants sometimes apply the common law postal rule to the CISG or describe older Incoterms editions: check every answer against these notes.
Lecturer's note: One word unlocks the formation rules: "reaches". An offer takes effect when it reaches the offeree, a withdrawal works if it reaches first, and an acceptance takes effect when it reaches the offeror. The one rule that looks at dispatch is the cut-off for revocation: it must reach the offeree before the acceptance is sent. Get the timeline of arrivals right and the answer follows.
Key points
- The CISG governs international sales of goods where both parties' states are Contracting States, or conflict rules lead to a Contracting State's law; it can be excluded.
- It excludes consumer sales, auctions, securities, money, ships, aircraft and electricity, and leaves validity and property to national law.
- An offer must be definite and show intent to be bound; it is irrevocable if it fixes a time for acceptance or is reasonably relied on.
- Acceptance takes effect when it reaches the offeror; a reply with material changes is a counter-offer.
- Incoterms 2020 apply only when incorporated; under the C rules, risk passes at shipment while the seller pays carriage to destination.
Quick check
- A company in Country P buys 50 laptops for its staff from a seller in Country Q. Both are Contracting States. Does the CISG apply?
- An offer fixes no time for acceptance. The offeror emails a revocation after the offeree has dispatched its acceptance but before it arrives. Is the revocation effective?
- Under FOB Lagos, goods are damaged on the truck taking them to the port. Who bears the loss?
Answers
- Yes: the parties are in different Contracting States, and the laptops are for business, not personal or household, use.
- No. A revocation must reach the offeree before it dispatches its acceptance.
- The seller: under FOB, risk passes only when the goods are on board the vessel.