In my practice as a lawyer in international trade, few matters are more underrated than knowing when an overseas binding commitment is effectively concluded. How is it formed and when is it enforceable?

Setting up the stage, a valid and effective binding commitment is an obligation: a transaction that entered the “legal realm”, which means it exists, is confirmed by the rules of the system and produces legal effects. It is non-discretionary, as it may be enforced by the same system without a party’s objection, and its breach without fix leads to payable damages.

As paradoxical as it seems, most entrepreneurs do not know with clarity the elements that trigger the binding commitment to supply and to purchase at international level, lest the implications of turning back from an already accepted proposal.

This risk is often reflected in the rather chaotic process of transmission and acceptance of an offer. A key element for those involved in trade, understanding the rationale of a binding offer saves resources, reputation, and credibility, true currencies of international business.

In my experience, the best approach is to first understand when we have a valid offer, and second, when we have its valid acceptance.

We will use the CISG as key legal reference for this analysis (the UN Convention for the International Sales of Goods – please check my last article clarifying the broad application of CISG in international trade).

An offer, to be valid and effective, (a) must have been addressed to a specific person or persons, (b) must indicate the goods it refers to, (b) must, at least and implicitly, make a provision for determining the goods’ quantity and price – for example by referencing trade usages or authoritative third parties such as a commodity exchange, and (d) must have reached the counterparty. It does not require quality information neither will it require specific forms or signatures, save for rare exceptions.

A valid and effective acceptance of an offer consists of (a) the counterparty’s statement indicating assent to the offer – this may include performing an act towards the offer, such as paying the price (buyer’s assent), or signalling start of goods’ production (seller’s assent) and (b) that such assent is provided within the deadline proposed, when applicable. A counterparty’s silence is not deemed as an acceptance. 

Note that a party can revoke an offer pending the counterparty’s acceptance if the offer does not provide a fixed time for the counterparty to accept it.

The formation and conclusion of the international sale is a rich subject that also leads to controversial aspects and additional points of attention, including that of who in the company has the mandate to close deals, and additional risks associated with counterproposals and partial acceptance. More to come in the next article.

My take for today: international trade law leans towards a practical approach to proposals and tends to favour commercial usage and the conclusion of the potential deal. Subtle and non-formal communication prevails over form and procedure. Extra care is therefore required from entrepreneurs in overseas commercial mail exchange – these may quickly become binding commitments should key elements of goods, price and quantities be present in the communication.