Elements of Shipping Contract

The four elements of the basic contract are:

  1. The Offer
  2. The Acceptance – this must be in identical terms to the offer, otherwise it will be a counter-offer, and it must be given in a reasonable manner and in a reasonable time.
  3. Consideration – this is the ‘price’ of the two sides of the bargain – what each person will receive ‘in consideration for’ performing his part of the contract.
  4. An Intention to create Legal Relations – the parties must intend legal consequences to attach to their agreement.

In a contract for the sale of goods, therefore, there are three important points, which have to be considered. Firstly, the time or circumstances under which the ownership of the goods passes from the seller to the buyer, when payment is due and at what stage the risk of damage to or loss of the goods moves from seller to buyer. In International Sales it is common for one party to make an offer on his own Standard Terms, and another party to accept that offer on his own Standard Terms. If these terms are different, there will not, in strict legal theory, have been an acceptance in identical terms to the offer. This may well lead to the conclusion that there was no valid contract. The adoption of an internationally recognised set of standard terms of governing International Sales prevents this by ensuring that both parties are in agreement as to the terms contained in their contract, there is a valid contract and both parties are well aware of their rights and obligations. A widely used form of such terms is the INCOTERMS form produced by the International Chamber of Commerce, which will be considered later in the lesson. Under English law a sale of goods is defined as ‘A contract to pass the property in goods for a money consideration, the price.’ So the ownership of the goods will be transferred in exchange for a payment of money.