preface - BPHN

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PREFACE

Praise to Allah SWT's blessings for the gift of His grace the team can complete the Final Report on the Academic Paper Draft Law on the United Nations Convention on Contracts for the International Sale of Goods just in time.

International sale of goods is an area of law that is very crucial in the era of globalization, especially in supporting activities in international trade and transaction business. One of the international conventions governing the contract for the international sale of goods is called the United Nations Convention on Contracts for the International Sale of Goods (CISG). This 1980 Vienna Convention is different from previous conventions. This convention applies to contracts between parties whose companies are sited in different countries, therefore the formulation is applied much more widely. This convention has shown alignment with international standard that is more appropriate than the previous formulation of the convention. CISG includes international contract formation aimed at negating the purpose of the law of a particular country in international sales contracts as well as to facilitate the parties in the event of a conflict between the legal systems. CISG applies to contracts for transactions between parties whose companies are sited in different countries, article (1 (1)). Thus, the key factor is the place of trade and not the nationality.

Indonesia has not yet ratified CISG, but because it is considered essential, National Law Development Agency established a Working Group on Preparation of an Academic Bill on the Convention for the International Sale of goods by Decree No. PHN. UN-‐416.HN.01.03 Year 2013. In a study of Academic Text, the team tries to discuss the importance of Indonesia ratifying CISG. Assessments of academic texts to ratify the CISG are based on research conducted and the results of previous seminars. The study and the seminar developed a recommendation for the Government of Indonesia to ratify the CISG.

Finally the team would like to thank those who have provided valuable inputs to the team both during the meetings and at the time of preparation of the final report. Hopefully the results of the team can be a useful input for the development of national law in general and can be used as a guide in the preparation of the Draft Law on the International Sale of Goods Contract or amendment to the Civil Code, especially Book III.

Jakarta, November 2013 Team Leader,

Prof. Hikmahanto Juwana, SH, L.LM., Ph.D

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TABLE OF CONTENTS

INTRODUCTION

TABLE OF CONTENTS

CHAPTER I

INTRODUCTION

CHAPTER II

THEORETICAL STUDY OF THE AGREEMENT ACCORDING TO THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOOD

PRACTICE AND EMPIRICAL

CHAPTER III

IMPORTANCE TO INDONESIA OF RATIFICATION CISG

CHAPTER IV

REGULATORY ANALYSIS ON RELATED LEGISLATION

CHAPTER V

MATERIAL CONTENT

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CHAPTER I

INTRODUCTION

1. Background

Today almost all businesses run the trading of goods by passing through its borders. Trading goods with foreign traders is a basic need of the traders to expand the opportunity to make a profit, as well as to divert their traded products that are not absorbed in their own markets. Seen from the perspective of relations between countries, international trade becomes a fundamental requirement for survival in a world of economic interdependence. International trade is a cross-‐border sale and purchase transaction, which involves two parties across state lines. These parties are often those originated from different countries or have different nationalities.

Based on the basic assumption described above, it is no wonder today we are witnessing a rapid development in the field of international trade that is characterized by the application of various trade agreements between the countries of the world such in the GATT / WTO, NAFTA, AFTA, APEC, and the EU, including important development occurring recently in ASEAN, namely the desire to realize the ASEAN Economic Community (ASEAN Economic Community).

Legally speaking, international trade transaction means a transaction involving the interests of more than one national law. A trade is said to be an international trade, if the sale and purchase transactions have led to the choice of law between two different legal systems, and the objects traded must be submitted across state boundaries, and the existence of foreign elements or elements foreign to the legal system.

Areas of law that are important to consider in international trade is a legal contract. Differences in the legal contracts in international sale and purchase transactions involving businesses of two or more different countries would cause a lack of legal certainty. For example, the international sale and purchase transactions conducted by a Singapore businessman with an Indonesian businessman will involve two different systems of law. Singapore contract law, which is derived from the Anglo-‐Saxon systems of law, has different arrangements with the Indonesian contract law that is derived from Continental European legal tradition. Legal uncertainty arises when there is a dispute in which these businesses are likely to be faced with a system of contract law that is really foreign and unpredictable to the businessman.

The phenomenon of international trade has led to a need for rules that are universal to govern the rights and obligations of the merchants in international trade transactions. Laws that are different in different countries have resulted in legal uncertainty and difficulty among the traders in making international trade contracts.

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Recognizing these needs, the United Nations (UN) through one of its bodies took the initiative to develop an international legal instrument, later known as the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). This convention is one of the documents created through diplomatic efforts of the United Nations Commission on International Trade Law ("UNCITRAL"). CISG seeks to bridge the gap between different legal systems in the world, especially among civil law (sub-‐traditions of France and Germany) and common law (sub-‐traditions of British and American), by harmonising the law for the international sale of goods (opening CISG). CISG governs the making of the contract of sale, and the rights and obligations of buyers and sellers (including legal measures for them). CISG entered into force on January 1, 1988 for countries that are parties to it at that time.

CISG includes international material contract formation aimed at negating the purpose of the law of a particular country in international sales contracts as well as to facilitate the parties in the event of a conflict between the legal systems. CISG applies to contracts for goods made between the trading parties from different countries.

In accordance with the purpose of establishing UNCITRAL itself, which is to harmonize and unify private international law, the CISG is an instrument of the law governing the contract of international sale of goods. This means that the more countries in the world are ratifying the CISG, the faster the realization of the unification and harmonization in the field of international goods purchase contracts. Thus, in turn, it will reduce legal barriers often faced by businesses in international trade transactions. With membership of 79 countries from different legal backgrounds, the CISG has gained recognition as a legal instrument that could accommodate all of the interests of the countries.

Indonesia has not yet to become a signatory to the CISG, but from the results of the study and also from various discussion forums on the CISG the Indonesian government is advised to accede to the CISG. The need to accede to the CISG is increasing today when there is a commitment of ASEAN countries to strengthen regional cooperation through the establishment of the ASEAN community (Community ASEAN), including the ASEAN Economic Community, which is expected to materialize in 2015. In order to realize an ASEAN Economic Community, the ASEAN has recommended to its member countries to harmonize the law of international sales contract through the ratification of the CISG.

Indonesia’s need to accede to CISG is not solely due to external “forces”, but is also based on legal requirements and national interest. As a country that adheres to the Continental European legal systems, Indonesia already has a contract law in book III of the Civil Code Part II, under the heading "Regarding agreements" -‐ an agreement born of the contract or agreement; but given a lengthy time span since its formulation

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until now, it is a fitting question whether the various provisions of the law of contract are still able to accommodate the variety of activities that today's rapid business growth is experiencing. It is necessary to study what are the things that are not in accordance with the development of today's business activities and what improvements and refinements that should be implemented, so that Indonesia can have a modern contract law, which can accommodate today's business activities. Repair and improvement of this absolutely must be done considering that in today's global era the contracts of Indonesian legal system, which is based on the civil law tradition, have to meet and interact with a variety of other legal systems, primarily with the Anglo-‐American legal system. There are undoubtedly similarities between Indonesian contract law and the contract law of the countries applying Anglo American law, but there are also very significant differences between them. Differences arise either at the stage of preparation of the contract or the stage of implementation; so that in order to ensure cooperation contained in an agreement can take place properly and achieve its objectives it is necessary to build harmonization of the legal contract between the two systems. In this regard, Indonesian accession to the CISG will be able to promote and hasten the changes to legal agreements set forth in the Civil Code for the system of contract law so that Indonesia can be more modern and at the same time in harmony with the law of contract in other countries.

Considering the importance of the CISG, the National Law Development Agency (or BPHN) thinks that it is necessary to form a working group to develop an academic paper on the ratification of the United Nations Convention on Contracts for the International Sale of Goods. Prior to preparing this academic paper, BPHN has made a report on the Convention on the International Sale of Goods in its relation to the national law, during the year of 1999 and also has arranged a seminar on International Contract Law in the Era of Free Trade. From the results of the assessment and the seminar we recommend the need for Indonesia to ratify the Convention. The reasons why it is necessary include:

a. With the increasing of the opening the Indonesian economy as a result of the globalization of more commercial transactions conducted by Indonesian citizens with foreign parties, it is necessary to have the legal principles that support international trades.

b. The convention is a convention that unifies the rules of international trade law in the field of International Sale of Goods Contract prepared by UNCITRAL. The Convention is a positive law in force since 1 January 1988. Among the participants of the convention there are also participants from developing countries.

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In supporting international trade transactions done by citizens of Indonesia, Indonesia needs to be a participant of the convention on the following grounds:

a. The Convention specifies the principles contained in the law of contract in general and these principles do not conflict with the Civil Code;

b. At the time Indonesia becomes a party to the convention, Indonesia can express a declaration that is made possible by the Convention, which is based on Article 92 (1), Article 93 (1), Article 94, Article 95 and Article 96. With the possibility to make the declaration, the rules of the International Sales Contract law can be used as the basis or altered by the parties in relation to the Contract on International Sale of Goods. Thus the principles of freedom of contact are respected.

c. In support of efforts to conduct contract law reform in Indonesia, Indonesia ratifying the convention means trying to hold legal harmonization between National Purchase Contracts (domestic) and the International Sales Contract.

However, before ratifying the Convention there are some tasks to be completed. Due to the fact that ratifying an international treaty is not the end of a job, but is instead the beginning of a job. Therefore there are some national laws that need to be adjusted, such as the need to renew Book III of the Civil Code, and the needs to make a national contract law for the international sale of goods contract is closely associated with contract law developed in line with the growth of the national economy.

2. Identify the Problem

1. What are the principles of the law appearing in the CISG? 2. What are the advantages and disadvantages / challenges if Indonesia

ratifies the CISG? 3. What are the necessary preparations to be conduct so that after the

accession the CISG can be effectively applied in practice?

3. Purpose and Objectives

1. To determine what principles there are in the CISG. 2. To examine and obtain a comprehensive overview of the advantages and

disadvantages / challenges if Indonesia ratifies the CISG. 3. To identify the necessary preparations so that after the accession CISG

could apply effectively in practice.

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4. Period of implementation and financing

This activity is made within 9 (nine) months from March to November 2013. Financing activities result from the budget of the National Law Development Agency in 2013.

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CHAPTER II

THEORETICAL STUDY ON TRANSACTION AGREEMENT ACCORDING TO THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL

SALE OF GOODS AND EMPIRICAL PRACTICE

I. Theoretical Study

CISG is a convention that governs the rules of material law that will apply to every international trade transaction. In this respect, the Convention relates to the choice of law, not the conventions governing the rule of law in international trade transactions, but only enforce the provisions of domestic law in an international trade transaction1.

A. The Structure and Substance of the CISG

CISG contains 101 chapters arranged in a structure that is divided by 4 (four) main parts, namely:

a. Part I: Governing the scope (Article 1 -‐ 6) and the general provisions (Article 7 -‐ 13)

b. Part II: Rules governing the formation of contracts for the international sale of goods (goods 14 -‐ 24)

c. Part III: Rights and Obligations of the seller and the buyer of the written contract i. Chapter I: General Terms & Conditions (Article 25, -‐ 29) ii. Chapter II: Seller Obligations

a. General: Article 30 b. Section 1: The delivery of goods and document setting c. Section 2: Conformity of the goods and third party claims (Article

35 -‐ 44) d. Section 3: Losses due to breach of contract by the seller (Article 45

-‐ 52) iii. Chapter III: Buyer Obligations

a. General: Article 53 b. Section 1: Payment (Article 54 – 59) c. Section 2: Submission (Article 60) d. Section 3: Losses due to breach of contract by the buyer (Article 61

–65)

1 Gunawan Wijaya, Licence [Series Business Law, King Grafindo Persada Jakarta, 2001, p 30

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iv. Chapter IV: Risks (Article 60 s / d 70) v. Chapter V: General Conditions of Seller and Buyer Liability

a. Section 1: Anticipatory breach of contract and reimbursement (Article 71 -‐ 73)

b. Section 2: Losses (damages) (Article 74 s-‐ 77) c. Section 3 Gain (interest) (Article 78) d. Section 4 Exceptions (Article 79 -‐ 80) e. Section 5 Impact of cancellation

vi. Part IV: Final Provisions

B. Application of the CISG

The terms of CISG do not provide a specific definition of the international goods sale and purchase agreement. The provisions of Article 1 of the CISG contains the following provisions:

(1) This Convention applies to contracts of sale of goods between parties whose place of business are in different states:

a. When the states are signatories to the Convention; or

b. When the rules of private international law lead to the application of the law of a signatory to the Convention;

Thus, according to Article 1 of the CISG, CISG is known to apply to a sale and purchase between the parties in the different countries and where the countries are signatories to the Convention or when Private International Law would otherwise require the application of the one of the law of the signatory states.

A problem arising from Article 1 (1) (b) is whether or not the CISG will apply, if there is a clause on choice of law by the parties in the sale and purchase contact, in which the parties have chosen the law of one of the States participating in the Convention?

Some argue that the choice of law of the parties is not sufficient to apply the CISG. To be able to apply the CISG there must be an objective relationship factor, because we must able to determine whether it is only a legal choice for sale and purchase based on domestic law (domestic sales law) or a choice of law that includes the CISG. If the CISG has become a domestic law, the CISG will automatically apply and on the contrary, the Article 6 of the CISG has made it possible for the parties to apply the CISG itself. This means that Article 1 (1) (b) is not applied.

Expansion of the scope of the convention, which is based on Article 1 (1) (b) caused a controversial view. As a compromise, there is a provision in Article 95 of the CISG, which allows participating countries at the time of depositing the

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instrument of ratification, acceptance (acceptance), Approval or accession to declare that they are not bound by Article 1 (1) (b).

Article 1 (3) provides that to apply the convention of 1980, the citizenship/nationality of the parties or the civil or commercial character of the parties or the contract in question is not considered.

Article 4 of CISG only provides for the establishment of an international trade contract, the rights and obligations of the seller and the buyer mentioned in the international trade contracts, and does not regulate issues concerning the legal consequences that may arise as a result of the status of ownership of the goods that are the objects of sale. Article 5 CISG does not apply to obligations of the seller in case of death or personal injury of any person caused by objects that are traded. The parties to this Convention are free to waive the application of the CISG, or to regulate differently according to their intention, as stated in Article 6 of the CISG.

Article 11 CISG stipulates that a contract of sale does not need to be made or evidenced in writing, and do not have to meet any other requirements of the form. Any evidence, including testimony, may prove the existence of a contract of sale. It says further in Article 18 CISG, that a statement made or then conduct by the party receiving the offer (does not absolutely have to be the buyer) indicating approval of the offer submitted by other parties is treated as a form of acceptance. Thus, an international trade contract is only valid when there is an offer made, and acceptance must be manifested in the form of action or a declaration made by the party receiving the offer. Meanwhile, an acceptance is effective upon receipt by the offeror of acceptance, provided that acceptance of the offer should be accepted within a time period determined by the offer or within a time period that is generally considered appropriate to accept an offer of transaction.

According to Gunawan Wijaya, there are four (4) aspects to determine the application of the CISG, namely2:

a. Regarding the parties to an international trade contract : i. The parties must be parties whose places of business are located in

different countries, which are both signatories to CISG; ii. The parties must be parties whose places of business are located in

different countries, which are both signatories to CISG; but the law refers to international legal norms of a country (signatory to CISG) as the applicable law for the purchase and sale transactions;

b. Regarding the content of international trade contracts

2 Ibid

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i. International trade of buying and selling contracts regulated in the CISG is the international trade and commercial contracts and it does not include sales to consumers or end users; and

ii. Not all objects can be traded subject to the provisions of the CISG.

This can be seen from the provisions of Article 2 CISG which excludes:

a. goods bought for personal, family and household use, unless the seller at a time before or at the time of closing the contract in question neither knew nor ought to have known that the goods had been purchased for that purpose (for personal, family or household use)

b. Buying and selling by auction; c. Buying and selling in order to execute a court decision; d. Sales of Shares, securities, investment securities, negotiable instruments or

money; e. Vessels, hovercraft or aircraft; f. sale of electricity

From the formulation of Article 2 CISG, it seems that its provisions are only applied to moveable goods and tangible goods.

C. The scope of the CISG

CISG only governs the establishment of international sales contract and the rights / obligations of the Seller and the Buyer

a. Requirements on Contract Form

Article 11 CISG stipulates that a contract of sale does not need to be made and prove its existence in writing, and does not have to meet any requirements of form. Any evidence, including testimony, may prove the existence of a contract of sale.

In line with the principles contained in Article 11 above, Article 29 CISG stipulates that changes to the content of the terms or termination of the validity of a contract of sale can be done only by agreement of the parties. If the written contract contains a provision that the contract changes or termination of the contract must be in writing, it is imperative for the parties3.

3 Furthermore, one of the parties because of the behavior or actions themselves can be excluded from the use of written requirements, if the other party has relied on the behavior or actions of the first party. This is roughly equal to what is called the inconsistent behavior set out in Article 1.8 UNIDROIT Principles of International Commercial Contracts, UNIDROIT, UNIDROIT Principles of International Commercial Contracts, 2004, Rome, p. 21. Dalan Bayu Hardjowahono Seto, " Aspects of International Trade and Sale Theory based on CISG In Comparison With Indonesian Law on Sales-‐Purchase loose paper presented at the Workshop on the Future

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Note also that Article 11 and Article 29 CISG are some of the provisions in the CISG which can be overridden by a state that is a party of the CISG (Article 12 CISG), to ensure that the requirements regarding the form and procedures for modification or termination of contract applicable in the domestic legal system remains valid even if the country ratifies this convention4.

b. Offer and Acceptance

In the CISG, matters relating to the offer and acceptance are contained in Section II, Article 14 through Article 24. Article 14 relates to minimum criteria for an offer, Articles 15 and 16 concerning the withdrawal of an offer, Article 17 concerns the termination of the offer, Article 18 related to the indication of the time of receipt of an offer, Article 19 regarding acceptance accompanied by a change or Counter-‐offer, Article 20 and 21 regarding acceptance of a period, Article 22 regarding withdrawal against a receipt. Articles 23 and 24 relating to the time when the contract has been agreed.

Offer

Article 14 CISG regulates the supply, and establishes the requirements for the existence of the offer, as follows:

(1) Proposals to agree on a contract addressed to one or more specific parties constitutes an offer if it is sufficiently clear and indicates the intention of the offering party to be bound in case of acceptance. The proposal is considered quite clearly demonstrated if the goods do explicitly or implicitly set or make provision for determining the quantity and price.

Of the provisions of Article 14 paragraph (1) it can simply be concluded that a proposal does not in itself be regarded as an offer. That is, so that a proposal can be considered as an offer, it must be sufficiently definite/specific and contains adequate instructions concerning the offering party's intention to be bound if his offer is accepted by the offeree.

An offer must be "sufficiently definite" in the sense that in the offer must be presented key elements of the agreement. The subject of this agreement is commonly called as elements essentialia5. D nature of buying and selling, there must

Prospect of Indonesian's Accession to the CICG, organized by the Development Board of National Law, 8 July 2010 4 Bayu Seto Hardjowahono, " Aspects of International Trade and Sell Theory based on CISG In Comparison With Indonesian Law on Sales-‐Purchase "Paper freelance presented at the Workshop on the Future Prospect of Indonesian's Accession to the CICG, organized by the National Law Development Board, 8 July 2010 5 R. Subekti, "Assorted Agreement", Alumni, London, 1985, p 2.

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be clarity and certainty regarding the three elements, namely the certainty of / certain of the aspects:

a. Description / description of the goods offered (in terms of the quality of the goods)

b. Description of the amount of goods on offer (in terms of quantity of goods) c. Description of the price of the goods offered

Other matter (outside of the three items above) are basically left to be negotiated between the parties.

Article 14 paragraph (2) of the CISG:

(2) A proposal other than one addressed to one or more specific parties is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the party making the proposal.

This article states that the proposal that is not clearly directed at one or more specific parties (specific person) will only be considered as an invitation / invitation to bid, unless the submitting proposals clearly stated otherwise.

Thus the binding offer is the offer that indicates an intention to be bound. This is a requirement of the common law, commonly called Intention to Create Legal Relations (ICLR). Given this condition, the expression or the will to transact or conduct negotiations but not included in the offer is not categorized as an invitation to bid (invitation to treat)

Article 15 paragraph (1) provides that:

"A bid will be considered effective when he reached the offeree"6

CISG has a principle that if the offer has been submitted by the offeror to the offeree, the offeror is considered to have had a purpose / intention to bind themselves to the bid submission. That's what causes the CISG system to apply the principle that: At the time the offer is accepted by the offeree, the offer is considered BINDING the Offeror.

Article 15 paragraph (2) of the CISG establishes an exception to the above principle, which is as follows:

6 Article 15 CISG (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the

same time as the offer.

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An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

So an offer (though it may be irrevocable and can not be withdrawn), still may be withdrawn if withdrawal of the offer reaches the addressee before or at the same time as the offer.

Article 16 paragraph (1) and (2) CISG further open the possibility that:

(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

(2) However, an offer cannot be revoked:

(A) If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or

(B) If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

So according to Article 16 paragraph (1) of the CISG, an offer can still be canceled (revoked), if notice of the cancellation to the offeree arrives before the offeree sends his Acceptance.

However, Article 16 paragraph (2) of the CISG also provides that: An offer CANNOT be canceled (revoked), if:

a. Time span specified for acceptance, unless otherwise specified can not be undone;

b. If there is acceptable reasonable cause to the offeror that the offer is an irrevocable offer and the offeror has acted in accordance with the offer.

CISG principle that:

"An offer will be considered as FIRM OFFER (which is irrevocable), where in it is stated explicitly as a Firm Offer, or if there are instructions / indication in the offer which can be used as a basis by the offeree as a sign that the Offer is a Firm Offer and the offeree has performed actions by relying on it."

Acceptance

According to the Theory of Acceptance, the contract will occur after the statement. CISG uses Acceptance Theory as a general rule for all statements made in writing and any form of communication. In the Common Law system, it has been quite clear that mail box rules do not apply if the offeree uses means of communication other than letter or telegraph. Acceptance theory is used to

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determine the composition of the contract at the time the offeree uses means of direct communication, such as facsimile, telex, Electronic Data Interchange (EDI) and e-‐mail.

Acceptance will be a statement of acceptance by the parties offered. Acceptance includes terms and conditions in its offer. Conditional acceptance cannot be assessed as acceptance but rather as a counter-‐offer. Acceptance is effective when there is consent to the offering party. Acceptance is not effective if the approval does not come to the party that makes the offer during the duration specified or a reasonable period of time.

In a lengthy negotiation process, counter offer often occurs because the acceptance does not fit/match with its bid. In the event of a counter offer, the bid may lose its power due to rejection.

Article 18 Paragraph (1) of the CISG governs Bid Receipt / Acceptance, by providing the following meaning:

(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.

Thus an offer can be considered acceptable if there is acceptance by the statements made or may be inferred from the party's subservience to the bid. Silence or inactivity cannot be considered as acceptance. Instead, offer becomes ineffective when the approval is not arrived to the offeror within the time specified, or if no time is specified then to a reasonable time according to the usual custom adopted in the transaction, including the speed of communication used by the offeror.

Article 18 Paragraph (2) of the CISG provides that:

An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the cırcumstances of the transaction, Including the rapidity of the means of communication employed by the offeror. An

oral offer must be accepted immediately unless the cırcumstances indicate otherwise.

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The arrival of acceptance at the hands of the offeror signifies the validity of a contract. Observing the difference in principle between systems Common Law and the principles adopted by the CISG, it would seem that7:

• Under Common Law which uses the Mailbox Rule, acceptance is considered to occur when the acceptance is sent by the offeree to the Offeror

• So, for the contract to be valid, an acceptance does not need to be accepted in advance by the offeror. The risk of the acceptance not arriving in the hands of the offeror will be borne by the offeror. The legal consequence is that the risk of the goods or risk due to late arrival of acceptance by the Offeror switches to the Offeror at the time of the offeree sending acceptance.8

• Instead, based on the CISG, the acceptance occurs when the acceptance is considered sent by the offeree to the offeror, and received by / to the Offeror at the address. At that moment the contract is considered created. The legal consequence is that the risk of the goods or risk due to late arrival of acceptance in the hands of the Offeror is borne by the offeree (not yet transferred to the Offeror) before Acceptance was received by / to the Offeror at the address. Because it is based on the system of the CISG, an offeree is concerned to ascertain whether the Acceptance has arrived at the address of the offeror or not.

Article 18 Paragraph (3) of the CISG establishes exceptions as follows:

However, if, by virtue of the offer or as a result of practices in the which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of

the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid

down in the preceding paragraph.

If the offeree adds to the requirements, imposes restrictions or conducts other changes, this action is considered as a rejection or a counter offer (Article 19 paragraph (1)). But if the answer to the offer contains additional requirements that do not materially change the terms of the offer, it constitutes acceptance of the offer, unless the offeror verbally objected to the incompatibility or delivery of a statement. 7 Bayu Seto, op.cit. 8 See and compare with UNIFORM COMMERCIAL CODE United States, or principle generally accepted in the common law tradition that uses this Principle of Dispatch. Gillette, Clayton P., Walt, Steven D., Sales Law -‐ Domestic and International, Foundation Press, New York, 1999, p. 45 ff.

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If the bid does not object to the requirements of the contract then they would be stated in acceptance.

In the presence of different requirements in respect of premises on goods, the price, payment, quality and the large number of goods, place and time of sale, compensation problems may arise and it will also affect the other party. Similarly, if a dispute arises then it must be considered as well.

Time of receipt of the offer would be, if the offer made by telegram, namely when the telegram was sent. Meanwhile, if the bidding is done through the mail, it can be seen on the date that is stated on the envelope. If the bidding is done by telephone, telex or other communication devices, the time of receipt of the offer is started when the parties receive offers.

If the notice of the notification could not be delivered due to a holiday or a business day, while the final day of the notice period is specified, then a holiday or a day without business will be extended to the next business day.

In terms of late acceptance, then the receipt cannot be legally valid. If the delays are due to the fault of the recipient of the bid, the contract agreement is not reached. However, if the delay is caused by the problems in the delivery of the contract, the agreement is valid. If, on the one hand, the delay is caused by the offeree inhibiting the contract agreement, and on the other hand, the delay is not caused by any communication means to inhibit the contract, then the contract agreement is not reached when the delays in the receipt are specifically caused by the offerer.

According to Article 23 CISG, a contract occurs when the acceptance of the offer becomes effective in accordance with the provisions of this Convention. Offers, statements, receipts, or other actions that will be considered to indicate the presence of the target if done verbally directly to the party or sent by any means to the party personally, or the place of his business or to a postal address, or if the party does not own a place of business or mailing address to the usual place of residence

Rights and Obligations of the Seller

CISG provisions specifically regulate the obligations of the parties. It can be concluded that the seller’s rights would be the duty of the buyer and vice versa.

As for the seller’s rights (that are the buyer's obligations) under the CISG are:

a. Receive payment of the price on a predetermined date in the contract (Article 59 CISG).

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b. If the buyer fails to perform its obligations under the contract or convention, the seller may: i. Take its right in accordance with Article 62-‐65 of the CISG ii. Claim damages in accordance with Article 74-‐77 of the CISG

c. The seller may set an additional period of time to give the buyer more time to carry out its obligations9 unless the seller has received notice from the buyer that he will not execute in a predefined period of time10.

d. The seller may declare the contract void, if11: i. If the failure of the buyer to carry out its obligations under the contract /

convention is such that it can be used as a basis of a breach of the contract, or

ii. If the buyer does not, within the extended period to perform its obligations to pay the price / accept delivery of the goods, or if the buyer declares that he will not do so within the time specified.

Seller Obligations

Article 30 CISG stipulates that the primary obligation of the Seller is:

a. Deliver the goods at the place agreed upon in the contract b. Submit documents relating to the goods specified in the contract. c. Transfer the ownership of goods; as agreed in the contract

The following articles set the principles about the three things mentioned above, if the parties have not explicitly set in their contract of sale, then it is associated with Place of Delivery, CISG recognizes three (3) types of Delivery Terms (Article 31 CISG), namely:

(A) A contract of sale involving carriage of goods with no determination about the place of delivery (called a shipment contract), then the seller is obliged to deliver the goods to the first carrier who will deliver the goods to the buyer;

(B) Contract of sale made in a certain place known by the parties, without any intention of being transported to a particular place. If the contract does not involve carriage of goods, and contracts related to specific items (specific goods), or goods which must be determined from a particular stock, or goods manufactured or produced in advance, and the parties realize that the goods mentioned are in a particular place or will be produced in a certain place,

9 Article 63 paragraph (1) of the CISG 10 Article 63 paragraph (2) of the CISG 11 Article 64 CISG

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then the seller is obliged to put the goods in a certain place where the goods will be controlled by the buyer.

(C) In other situations, the seller is obliged to prepare the goods for buyers in the business center controlled by the seller at the time the contract is closed.

Other matters relating to the delivery of goods (transport documents, the contract of carriage, or insurance on the item), set in Article 32 paragraph (1) -‐ (3) CISG12.

In terms of time of delivery of goods, Article 33 CISG establishes the following requirements:

The seller must deliver the goods:

(A) If a date is fixed by or determinable from the contract, on that date;

(B) If a period of time is fixed by or determinable from the contract, at any time within that period unless cırcumstances indicate that the buyer is to choose a date; or

(C) In any other case, within a reasonable time after the conclusion of the contract.

In connection with the documents for the goods, Article 34 CISG stipulates that the seller must submit such documents at a time and at a place specified in the contract. Determinations in this contract are often closely related to the payment system agreed by the parties, especially when using undocumented payment (letter of credit). Article 34 also establishes that, in the event of the seller handing over documents before these times in the contract, the party still has the opportunity to enhance or complement these documents. The latter can only be done if it does not cause inconvenience or increase costs for the buyer. In addition, the same article asserts that even though the seller seeks to enhance these documents, the buyer retains the right to claim compensation under the provisions of the CISG.

a. Suitability of Goods (Conformity Of Goods)

CISG establishes requirements regarding the obligations of the Seller detailed enough to ensure that the goods, which he submitted, are appropriate (in

12 Article 32 (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must a make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the cırcumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance.

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conformity) with the specifications established and agreed upon in the contract. Basically, the seller is obliged to deliver the goods in quantity, quality and specifications in accordance with what is stipulated in the purchase contract, and placed or packaged in the manner specified in the contract (Article 35 paragraph 1 of the CISG).

CISG further sets the criteria that can be used to determine compliance (conformity) of the goods if the parties have not explicitly set in the contract (Article 35 paragraph 2 of the CISG). Goods deems not in accordance with the contract, if:

(A) Is not suitable for general purpose of the goods seen from the description that is usually used

(B) Not suitable for the use or special use which is explicitly or implicitly told by the seller at the close of the contract, except where the circumstances show that the buyer does not trust or it is appropriate for him not to trust the expertise of the seller.

(C) Does not show the quality that has previously been shown by the seller through a sample or model;

(D) Not placed at and packed in an adequate manner to preserve and protect the goods.

However, the seller can release themselves from the responsibility as mentioned above, if at the time of conclusion of the contract the buyer was aware of the incompatibility of goods or at least should be deemed to know that these items do exist in the condition in point a to d above (paragraph 3 of Article 35 CISG).

From the foregoing it appears that the CISG does not specify further requirements that may be imposed on the seller’s obligations to ensure the eligibility of goods for use as normal (fitness for ordinary use). In this regard, the major legal issues that can arise are: Under what circumstances, the definition of " ordinary use " should be used? Is it based on common standards in place of the seller or the buyer? In the international trade practice, if the parties do not set otherwise, the general principles apply to determine that the common standard used is a buyer's standard, as the party that will be assumed to use the goods. However, if such a common standard cannot be determined or does not exist, then the goods shall be deemed to have a special designation (particular purposes).

Obligation of the seller to ensure the feasibility of the goods in the “special designation" only exists when:

• This special designation is notified by the buyer to the seller, on or before the contract is closed

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• Buyers within the reasonable limits, recognizing and relying on expertise and discretion of the seller (reasonable reliance principle)

Sellers may be released from liability for faulty goods if the buyer already knows or could be unaware (could not have been unaware) that the defect already existed at the time the contract is closed. There is a difference of opinion on the understanding of the principles could not have been unaware under Common Law, the principle could not have been unaware is interpreted more subjectively, meaning by looking at the buyer's awareness of the mind. While based on the Civil Law tradition, it is interpreted more objectively by looking at the knowledge of the buyer after he or she has researched and obtained information about the goods to be bought.

b. Seller Responsibilities And Risk Transition

According to article 36 of the CISG, the seller is responsible for the discrepancy; although it has already been identified after risk passes to the buyer. The seller is also responsible for the discrepancy after passing risk posed by violations of its obligations. In this case, a violation of the obligation to ensure that at a certain period the goods remain in good condition.

Furthermore, the CISG stipulates that the seller is also responsible for the mismatch of the goods when the risk has been passed, but those caused by violation of its obligations, including a breach of the obligation to ensure that for a certain period of time the goods will remain fit (warranty) for normal use or special use, or will still have the quality or certain characteristics (Article 36 paragraph 2).

If the Seller has executed submission before the due date specified in the contract, then up to the limit of that date, the Seller is entitled to do:

§ Redelivery of the lost goods or

§ Additional delivery to meet the shortage of the amount of goods that have been sent previously, or

§ Delivery of substitute goods to replace goods that are considered incompatible with items that are considered non-‐conforming goods, or

§ To repair any deficiencies or discrepancies contained in the goods that have been shipped.

The above can be done as long as they do not cause inconvenience or additional costs to the buyer.

The possibility for the buyer to claim against the Seller on the basis of lack of conformity by the CISG is limited by Article 38 of the CISG, which puts an obligation on the part of the Buyer to inspect the goods in the shortest possible time after such

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examination may be implemented, in accordance with the real situation. If the contract of sale involves carriage of goods to a place or a specific purpose, then the examination of the goods can be postponed until the arrival of the goods at the destination. If the shipping destination was changed in a place of transit or sent back to another destination without any reasonable possibility for the buyer to inspect the goods, and by the time the contract is made the buyer knows or should have known of the possibility of a change of purpose or further delivery, the examination of the goods can be deferred until the goods arrive at your new destination.

CISG also establishes that the buyer will lose the right and the chance to use the excuse of lack of conformity if the buyer does not give notice to the Seller on the matter within a reasonable period after the party knows or should have been aware of any lack of conformity (Art. paragraph 39 (1 ) CISG). CISG further provides that "a reasonable period" it should not exceed two (2) years from the date of the goods handed over to the buyer, unless the time limit is not in accordance with the warranty time limit stipulated in the contract.

Be aware also that the right of the Seller to hold on Articles 38 and 39 would be lost if the nonconformity of goods with respect to the facts which he had seen, or not may not have known, but not communicated to the buyer (Article 40 CISG).

c. Seller Obligations on Third Party Claims

Article 41 CISG requires the seller to deliver goods independent from the rights or claims of any third party, unless the buyer has agreed to accept goods containing such claims. However, based on Article 42 of the CISG, determined that the seller is obligated to deliver goods free from third party rights or claims regarding the property rights of the sort, which at the time of conclusion of the contract the seller knows or should have realized that there will be a claim on industrial property rights or other intellectual property rights:

(A) Under the laws of the country where the goods would be resold or used, if the parties are aware at the closing of contracts that they will be resold or used in the country;

(B) Beyond that, it is based on the law of the place of business of the buyer.

Seller's obligation cannot be enforced if:

(A) At the close of the contract, the buyer has known or impossible not to have known the existence of the right or claim, or

(B) Right or claim arising from the actions the seller to comply with technical drawings, designs, formulas or other such specifications provided by the buyer.

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Furthermore, Article 43 of the CISG limits the right of the Buyer to hold on to Articles 41 and 42 if seller does not tell the buyer about the nature of the rights or claims of third parties in a reasonable period after it is known or considered aware of the claim. On the contrary, the Seller cannot reject claims of third parties to rely on the absence of notice from the Buyer above, if Seller discovers any third party rights or claims as well as the origin of these rights.

d. Remedies Against Default Seller

This problem is set in Section III of the CISG. Article 45 paragraph (1) of the CISG stipulates that in the event the seller fails to perform its obligations under the contract (or under the CISG), then the buyer may (a) exercise their rights in accordance with articles in in Section III, the Article 46-‐52, and (b) may sue for damages in accordance with the general provisions of the CISG damages as contained in Article 74 -‐ 77.

Article 45 paragraph (2) also confirms that the rights of the buyer to claim damages cannot by itself be dismissed if the buyer uses his or her right to make efforts in other laws. If buyer is undergoing legal measures against the defaulting seller, the court (or arbitration) is not allowed to give additional period of time for the Seller to carry out the achievements that have been denied.

Types of Remedies

Article 45

If the seller does not fulfill its obligations as specified in the contract, the buyer may request:

a. To use rights specified in Article 46 s / d52 (breach of contract losses caused by the Seller)

b. To seek redress under Article 74 s / d 77 (article/regulation about losses (& damage))

Article 46 paragraph (1) of the CISG stipulates that the Buyer may require Seller to perform its obligations, except in the case of buyers having used the remedy, which was inconsistent with those obligations.

If the goods are not in accordance with the contract, the buyer may require the seller to deliver substitutes. This right can only be exercised if the goods are fundamentally a mismatch, and the buyer's request must be filed after the notice (notice -‐ in accordance with Article 39) in advance, or within a reasonable period after it (paragraph (2)). Moreover, in same situation, the Buyer has the right to also require the Seller to make repairs / improvements to the goods, unless it is

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considered as unnatural way in certain concrete situations. Requests for repairs must be done through notification or within a reasonable period of time after the notification (verse 3).

In order to implement the legal rights to make this effort, buyers can specify an additional period of time for the Seller to perform its obligations, and in an additional period of time, the buyer is not allowed to use any legal remedy on the basis of breach of contract, unless the seller has declared that he will not be able to perform its obligations within the additional period of time. Nevertheless, we need to also realize that, although the buyer allows additional time as above, this does not eliminate the right of the Buyer to claim damages as a result of delay in execution of the contract by the Seller (Article 47 paragraph (1) and (2) CISG).

Article 48 paragraph (1) of the CISG stipulates that if the buyer does not refuse to prolong the contract, the seller may, even after the date of submission, implement and or improve his performance at his own expense, if it can be done without any delay and without causing significant hardship or creating uncertainty for the right of buyer to demand repayment of the costs previously incurred by the Buyer. If the seller is asking the buyer to tell about their willingness to accept execution of the contract, and the buyer does not respond to the request within a reasonable period of time, the Seller is entitled to carry out his performance in the time period contained in the request. During this time period, Buyer cannot use any legal measures that are not in line with the implementation of achievement that is run by Seller (verse 2). For Sellers, CISG stipulates that they would carry out its achievements in a certain period of time and is considered to contain a request that the Buyer notifies the Seller of the decision on the plan.

According to Article 49 CISG, although after the date of delivery, the seller can sue for damages and costs for any failure of performance of its obligations. This is done if he can prove that the cause of the difficulty and uncertainty is negligence of the buyer to the seller. However, the buyer retains the right to claim damages as provided for in the convention.

However, Article 49 paragraph (2) establishes also that in the event that the Seller has sent the goods, the buyer will lose his right to reject the execution of the contract, except when stated that:

(A) In the case of any late delivery, at a reasonable time after it is known that the submission has been made

(B) In connection with other types of defaults, and the statement was given in a reasonable period of time after:

(i) The buyer knows or should have known of the existence of the Seller defaults;

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(ii) After the expiration of the agreed additional period time by the Buyer, or after the Seller states that the Seller would not carry out his achievements in the relevant time period.

(iii) The expiration of the additional period specified by the seller or buyer after stating that both would not accept the contract execution.

CISG Article 50 further stipulates that: "If the goods are not in accordance with the specifications in the contract, then regardless of whether the price of the goods has been paid or not, the Buyer may reduce the price of the goods in a proportional amount to the value of the goods that have been delivered if at the time of delivery goods has been considered in accordance with the contract specifications. However, if the seller seeks to correct errors or deficiencies in the implementation of its obligations under Article 37 or 48 of the CISG, or in case the Buyer refuses to accept the execution of the contract by the Seller in accordance with articles, then the buyer is prohibited from reducing the price of the goods".

Article 51 paragraph (1) of the CISG provides that: "If the seller is only to give up some of the goods, or only a portion of the deposit of the goods that are considered in accordance with the contract, then Article 46 s / d 50 applies to the portion of the amount of goods that are not delivered, or the of goods that do not fit.

Article 51 paragraph (2) confirms that the buyer may declare to not complete the contract as a whole only if the seller's failure to turn over the entire amount of the goods or in accordance with the contract can be categorized as a fundamental breach of contract (see Article 25).

CISG basically requires the Seller to deliver the goods at the time or a predetermined date or within a period agreed in the contract. However, according to Article 52 paragraph (1) of the CISG, if the seller delivers the goods before the delivery date has been set, then the buyer can accept or reject delivery of the goods. Similarly (paragraph (2), if the seller delivered the goods in the amount greater than what is stipulated in the contract, the buyer may accept or reject delivery of the excess quantity of goods, and if the buyer receives all the goods, then the buyer has the obligation to pay excess goods that fit the price set in the contract.

3. Buyers Obligations

The obligations of the Buyer in an international contract of sale are set out in Chapter III of the CISG, ranging Article 53 through Article 65.

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Article 53 CISG establishes rules / principles regarding the obligations of a buyer, while the following chapters will discuss details of the basic obligations of the buyer.

Article 53 CISG provides:

The buyer is obliged to pay the price of goods and accept delivery of the goods in accordance as required in the contract and according to this Convention.

Furthermore, Part I arranges various matters relating to Payment of the price of goods, followed with Part II which regulates various things around the obligations of the Buyer in accepting the goods. While Section III regulates the legal measures or remedies that can be executed against the default made by the Buyer.

a. Buyer's Obligation on Payment of the Goods

Article 54 of the CISG provides that:

"The buyer has an obligation to pay the price including actions to be taken and fulfill the formalities required in the contract or laws or regulations to allow payment to be

made"

Article 54 of the CISG provides freedom for the parties to establish and agree upon, within the contract, ordinances and procedures that must be followed by the buyer to make payment. CISG purposely does not specify which payment procedures should be used in international contracts of sale given that in practice, in addition to various known methods of payment that can be used by the parties internationally, payment processes in international transactions are often subject to the setting of the regulatory provisions of the governing laws of the parties’ respective states, such as traffic regulations on foreign exchange, banking regulations regarding the opening of L / C for export, and so on.

Article 55 CISG stipulates that:

"Prices are set by both parties, but if the price is not set, then the price is generally determined at the time the contract was made based on similar items customarily

sold in the trade"

Pursuant to Article 55, when a sales contract does not include the price charged for the goods, then the parties are considered agreed to use the market price prevailing in the same trade at the time the contract was made. In terms of the price of goods shall be determined by the size of the weight of the goods, then in terms when size of the weight is considered doubtful, then the parties must use size net weight of the goods (Article 56 CISG).

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Article 57 CISG governs the location where payment must be made. According Article 57 (clause 1), if the buyer is not obligated to make payment in a particular place, then he must make payment to the Seller:

(A) At a business of the Seller, or

(B) The place where delivery must be made, when payment must be made at the time of delivery of goods or the delivery of documents.

If at the time of payment the seller turns out to have a new business address after the closing of the contract, the seller is obliged to bear any additional cost beyond the price of goods that may be incurred by the Buyer as a result of a change of address (clause 2).

Article 58 CISG governs moment/time of the payment by the Buyer. Subsection (1) provides that if the buyer does not have to make payment at a time / other specified time, then he must make payment for the goods when the seller puts the goods or documents stating the status of goods in the power of buyers, according to the requirements in the contract and the CISG. Sellers can even specify that the payment in this manner is a requirement for the delivery of goods or documents (paragraph 1). If the contract of sale involves carriage of goods, the seller may deliver the goods by setting the condition that the goods or documents stating the status of the goods will not be handed over to the buyer except upon payment of the price of goods (paragraph 2). On the other hand, buyers are basically not bound to pay the price of the goods until they have the opportunity to examine the goods, unless the procedures for delivery or payment procedures agreed upon by the parties was not consistent in providing said opportunity for the buyers (verse 3).

Article 59 CISG ends the rules regarding the payment, by providing that: “The buyer is obliged to pay the price of goods on the date specified in, or which can be determined from the contract and the Convention (CISG), without any requirement on the part of the Seller to submit a request or fulfillment of certain formalities.

This provision would apply as a principle or rule of thumb, so that the determination of the additional requirements that must be met by the Seller to obtain payment can be arranged and agreed upon by the parties in different ways.

b. Buyers Obligations In Receiving Goods Delivery

Part II of Chapter III deals with the obligation of the Buyer to accept delivery (taking delivery) for goods carried by the Seller.

Article 60 of the CISG governs the buyer's obligation to accept delivery of the goods, which include:

a. Perform any act, which may facilitate the delivery of the goods by the seller

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b. Taking over the goods

c. Legal Efforts Against Default Purchaser

Article 61 paragraph (1) of the CISG basically assigns Seller's rights to take legal action in accordance with the general provisions set out in other parts of the CISG. Subsection (1) states that: "If the buyer fails to perform its obligations under the contract or under the Convention (CISG), then the seller may:

(A) Exercise their rights according to those mentioned in Articles 62 up to and including 65.

(B) Demanding compensation in accordance with the terms of Article 74 up to and including 77.

Article 61 paragraph (2) of the CISG further stipulates that:

"The seller does not lose or will not lose its rights to claim damages, if he is carrying out his rights through the efforts of other laws”.

So for example, because the buyer is too late to implement a payment and therefore harms the Sellers, then if the seller decides to reject the further implementation of the contract in accordance with Article 64 paragraph (1), then the Seller's decision does not lose his right to demand compensation to the Buyer for any loss which may have been suffered due to the delay in payment.

If the seller in fact carries out legal action on the basis of the Buyer's default, the court or arbitral tribunal cannot give extra time to the Purchaser to perform its obligations (Article 61 paragraph (3)).

Article 62 CISG establishes the types of claims that may be filed by the seller to the buyer, which is to pay the price of the goods, accept delivery of goods by the seller or carry out other obligations, unless the seller has taken legal actions deemed inconsistent with those claims.

Article 63 paragraph (1) of the CISG authorizes the Seller to assign reasonable additional time for the buyer to perform its obligations. Unless the seller has received notice from the buyer that the buyer will not exercise any obligations in the extra period, then during the additional period the Seller is not allowed to use any legal efforts on the basis of default. However, the seller does not lose the rights that may be held to claim damages due to the tardiness of the implementation of obligation by the buyer (Article 63 paragraph (2)).

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d. Sellers rights to refuse execution of the contract (contract avoidance)

Article 64 paragraph (1) of the CISG specifies that: The seller may declare that the contract or a certain part of the contract or contracts will not be implemented / considered void (avoided) if (a) the failure of the Purchaser in carrying out its obligations under the contract or this Convention may be regarded as a fundamental breach of contract, or (b) in the case of the Buyer, within the additional time limit given by the Seller in accordance with Article 63 paragraph (1) of the CISG, does not carry out its obligation to pay the price of the goods, accept delivery of the goods, or if the Buyer states that he will not perform its obligations within the specified grace period. However, in Article 64 paragraph (2) of the CISG it is also specified that in the event the buyer has paid the price of the goods, the seller will lose his right to declare that the contract null and void, unless the act:

(A) Is in connection with the late execution by the buyer, before the seller knows that the execution had been carried out

(B) In connection with the breach of contract in addition to the late implementation by the purchaser within a reasonable period of time

Article 65 paragraph (1) of the CISG provides authority to the Seller to set its own specifications regarding the shape, size or other characteristics of the goods, if the contract specifies that the buyer must establish such specifications but buyer failed to set them on the agreed date or within a reasonable period after receiving a request the Seller to the Buyer to set the specifications. The implementation of this right does not cause the loss of the other rights of the seller.

Article 65 paragraph (2) of the CISG further provides that, in the case of the seller that sets the specifications of the goods themselves, the Seller is obliged to inform the Buyer about the details of the specification of goods and set a reasonable period for the Buyer to assign different specifications. If, after such notice, the purchaser fails to assign the different specifications in the period provided, then the specification of the goods, which is made by the Seller, shall be considered binding.

e. Risk Transition From Seller To Buyer

In the execution of the contract of sale, at a certain point there has to be a shift of ownership of the goods from the Seller to the Buyer. Along with it, it is also generally understood that the risks that may occur over the goods, at a certain point, should also transfer from the Seller to the Buyer. CISG regulates the transition of these risks in the Article 66 up to and including Article 70.

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Article 66 CISG prefaces the arrangements of the transference of risk by setting the general principle that13:

"The loss of or damage to the goods after the risk has transferred to the buyer does not relieve it of its obligation to pay the price of the goods, unless the loss and or

damage was caused by the act or violation of law by the Seller”.

In contracts involving carriage of goods by the Seller not having any obligation to deliver at a particular place, the risk passes to the Buyer when the goods arrive at the first carrier.

If the seller has an obligation to deliver goods to the carrier at a particular place, the risk is not transferred to the buyer until the time when the goods arrive at the carrier.

Article 67 paragraph (1) and (2) CISG then sets the time of the transition of risk, as follows:

• If the contract of sale involves carriage of goods and the seller is not obliged to hand over the goods at a particular place, the risk of transfers to the buyer when the goods are delivered to the first carrier to be transported to the Purchaser according to the terms in the contract of sale. If the seller is obliged to deliver the goods to the carrier at a particular place, the risk has not been passed to the buyer until the goods are delivered to the carrier at the designated place. The fact that the Seller is authorized to withhold documents that were made to establish the ownership or possession of the goods does not affect the transfer of risk from the seller to the buyer.

• However, the risk does not transfer to the buyer before the goods are clearly defined / identified to the contract, either through the labeling (markings) that exist on the goods, by shipping documents, by notice to the Purchaser, or in other ways.

Article 68 CISG governs the transition of risk to contracts of sale that were established/made when the goods are in transit. In such situations, the risk for the goods sold at the time of transit pass to the buyer since the time of closing the contract. However, the same article also stipulates, when circumstances indicate this, risk transitions to the Buyer when the goods are handed over to the carrier that is issues the transport document. In spite of that, if at the time of closing the contract of sale, the seller has known or should have known that the goods had been lost or damaged and the Seller did not explain this to the Buyer, the risk of loss or damage to goods is borne by the Seller.

13 Article 66: Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.

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For situations other than what is mentioned in Articles 67 and 68, according to Article 69 paragraph (1) of the CISG, risk transfers to the buyer when he takes over the goods or, if he does not take over the item within the time specified, risk transfers from the time the goods were supplied to him, but the Buyer has been in default for failing to accept delivery14.

However, Article 69 paragraph (2) of the CISG also provides that, if the buyer is obliged to take over the goods at a place other than the place of business of the Seller, then risk transitions upon delivery and the buyer has realized that in fact the goods were placed for him in the location.

Article 69 paragraph (3) of the CISG governs more about "the placement of goods" for contracts involving the sale of goods undetermined (not then identified). In such situations, the goods cannot be considered "issued to the Buyer" until these items are identified based on the contract.

Article 70 CISG provisions on closing the Purchaser Obligations by specifying that "in the event that the Seller has conducted a fundamental breach of contract, then the articles 67, 68, and 69 do not affect or reduce the remedies available to Purchaser in connection with the default by the Seller. "15.

4. The principles contained in the CISG Convention 1980

Preamble

In the preamble of the 1980 Convention it is mentioned that "bearing in mind the objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of the New International Economic Order"16.

14 Article 69 (1) In cases not within Articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. (2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. (3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract. 15 Article 70 If the seller has committed a fundamental breach of contract, Articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach. 16 Resolution of the UN General Assembly Special Session, May 1, 1974 (3201, S-‐VI), in the "Essay on the Convention on Legal Affairs Contract International Sale of Goods is associated with the National Law, National Law Development Agency, the Department of Justice of 1999 / 2000, p 34.

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This suggests that the CISG pays attention to the resolution of the UN General Assembly towards the formation of New Economic Order (New International Economic Order-‐NIEO).

There are ten (10) NIEO principles, namely:

1) The duty of all states to cooperate for the global prosperity and welfare

2) The duty of developed states to assist the developing states in their development effort both in terms of real net transfer of financial resources; both in terms of the transfer of the net estate and financial resources for the transfer of scientific knowledge and technology.

3) The right of all states to economic self-‐determination.

4) The right of all states to permanent sovereignty over their natural wealth and resources (and all economic activities) including the right to nationalize such wealth and resources (and all economic activities).

5) The granting of preferential treatment by developed countries to developing countries in all fields of international economic cooperation.

6) The right of developing countries to full and effective participation in the international economic decision making process.

7) The right of all states, as well as territories and peoples under foreign domination or apartheid to restitution and compensation for external exploitation.

8) The effort conducted to strengthen economic and technical cooperation among the developing countries’ interests.

9) The identification of the mineral resources of the seabed land ocean floor, beyond the limits of national jurisdiction, as the common heritage of mankind.

10) The responsibility of all states to promote sustainable development, i.e. environmentally sound economic development.

In the preamble of the CISG it is mentioned that the development of international trade is based on justice and the principle of mutual benefit. Issues of justice and the principle of mutual benefit is an important element in promoting relations between countries.

5. Respect the principles contained in the CISG Convention 1980 with the National Law

Convention of 1980 on the International Sale and Purchase contract contains basic principles known in the contract in general:

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11) The principle of freedom of contract

The principle of freedom of contract is where agreeing or disagreeing means that all involved parties are able to determine what is desirable or undesirable to later be put into an agreement or a contract.

Article 1338 paragraph (1) specifies that all agreements conducted legitimately will be considered as law between the parties involved.

The principle of freedom of contract can be seen in Article 6 of the CISG. Article 6 CISG provides the parties may waive the CISG and can change the effects of these provisions. Thus it is the will of the parties that determines the contract of sale. In the case where the CISG is set aside, it is often the result of the parties choosing to use the national law of the countries participating in the Convention or the laws of the state system of non-‐participants17. CISG is used as a model contract; the parties can use it and also are able to set it aside18.

12) Consensus Principle

That is to give birth to the agreement when reaching an agreement. According to Subekti, this principle can be summarized from article 1320 of the Civil Code on the terms of validity of a treaty. In the Anglo-‐Saxon system this principle is similar to the principle of "offer and acceptance19”

The consensus principle is the principle that there is buying and selling and is adhered to in Article 1458 of the Civil Code.

Buying and selling is considered to have occurred between the two sides immediately after they reached agreement on the goods and the price, even though the goods have not been delivered and the price has not been paid.

According to the CISG, the validity of a sales contract is based on offer and acceptance. Article 14 CISG governs what is meant by offer, while Article 15 of the CISG specifies when the offer becomes effective.

CISG Article 18 (1) CISG governs what is meant by the offer and acceptance. According to Article 23 CISG contract occurs at the time of acceptance and offer are effective.

13) Principle of Good Faith

The principle of good faith under Article 7, paragraph (1) of the CISG that says "In the interpretation of this Convention, regard is to be had to its international 17 Bayu Seto, 1980 Vienna Convention on Contracts for the International Sale (New Challenges for International Trade Law Indonesia, New Letter, 11 / Year III / December 1992, Page 3. 18 Mariam Darus Badrulzaman, the United Nations Convention on Contracts for the international Sale, Business Law, Volume 2, 1997, p. 17. 19 Erman Rajagukguk, The Role of International Contract Law in a Free Trade, paper presented at the International Seminar on Contract Law in an Era of Free Trade, National Law Development Agency, Department of Justice, Jakarta, March 6, 1997.

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character and to the need to promote uniformity in its application and the observance of good faith in international trade.

While in the Civil Code the principle of good faith stipulated in Article 1338 (3), which determines that an agreement should be implemented in good faith.

14) The principle purpose of the parties be the basis of an agreement

This principle provided for in Article 1350 of the Civil Code. While in the CISG this principle is found in Article 8 of the CISG. Article 8 CISG determines what constitutes the parties' subjective intent when a statement is made and also the attitude of a party if the other party knew or did not realize what it meant.

The provisions of Article 8 paragraph (3) governs the consideration to be taken into account in connection with the negotiation, practices that can be done between the parties and customs. It is more extensive than what is specified in Section 1350 Civil Code.

15) The principle of habit (Usage)

In the Civil Code, the principle of habits set in Article 1339 of the Civil Code, which reads:

"Agreements not only bind things expressly stated in it, but also for everything that is according to the nature of the consent required by propriety custom or law"

The things that, according to custom, forever contracted are considered secretly intended in the agreement, although not explicitly stated. Similar provisions are contained in Article 9 of the CISG which determines that the parties are bound by custom, which the parties have agreed or if the practice is not something they agree or if the parties have tacitly assumed, applicable to their contract based on the custom known by the parties or should have been known.

16) Civil Code adopts only that the purchase agreements are only obligatory meaning that new sales contracts contain reciprocal rights and obligations between the buyer and the seller thereby putting the obligation on the seller to hand over ownership rights over the goods sold and at the same time gives him the right to demand payment of the price approved. On the other hand this creates an obligation for the buyer to pay the price of the goods in exchange for the right to demand delivery of goods bought.

17) Purchase agreements according to the Civil Code do not transfer property rights yet20. Property rights transfer after delivery (levering).

20 Subekti, Assorted Testament, London, Aditya image Bakti, 1992, p 11.

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According to Article 1459 of the Civil Code, property rights over the goods sold to the buyer do not transfer as long as delivery has not been carried out in accordance to the pertaining provisions.

Meanwhile, according to the Civil Code submission adopts the causal principle in which the delivery is valid if two conditions are met:

a) Validity of the title that became the basis for the submission;

b) Submission made by a person who is entitled to act independently of the goods to be delivered.

Article 30 CISG determines the seller's obligation to deliver the goods and property handed over the goods as stated at in the agreement.

Article 53 CISG determines that the buyer has the obligation to submit the prices of goods and accept delivery as required in the contract or in the convention.

Article 1476 of the Civil Code states that delivery costs are borne by the seller, while the costs for taking the delivery are borne by the buyer, if not been agreed otherwise.

Article 1482 of the Civil Code specifies that the obligation to submit an item includes all into its equipment and its usage, along with the letters when there is evidence of property rights.

18) The principle place of contract

According to the provisions of Article 1514 of the Civil Code states that if at the time of making the agreement does not set a time and place of payment, the buyer has to pay on the spot and at the time the sale is done.

The Seller’s obligation is to sell goods where they are to be sold at the time of sale, if no other requirements regarding such obligations were made in a separate agreement (Article 1477 Civil Code).

Article 10 CISG determines that when one party has more than two places of business, then the business with a close relationship to the contract itself and its implementation shall be the place of business in use in regards to the contract. It should be known and calculated before or at the time of making the contract.

If there is a party that has no place of business then the residence takes its place.

Article 31 CISG determines the seller's obligation to declare, if the seller is not bound to a particular place, the obligation to deliver the goods consists of:

a) If the purchase contract also involves transport, the seller handed over to the first carriage;

b) Goods are delivered to the place designated by the buyer;

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c) In other cases in places designated by the buyer is the place where the seller has a place of business at the time the contract was made.

The buyer's obligation to pay the price of goods purchased on the spot (Article 57)

a) Where sellers do business;

b) If payment must be made at the time of delivery of the goods and documents, at the place where delivery of goods is done;

c) If the seller has to pay the additional costs incurred because of the cost of doing business where the seller conducts business at the time the contract was made.

19) Default or not meet its obligations

Article 1266 of the Civil Code determines that conditions for failure are assumed to be included in agreements, which is reciprocal, if one party does not fulfill its obligations.

In the event that such approval is not null and void, but the cancellation must be requested to the Judge.

This request must also be done, though the terms null and non-‐fulfillment of the obligations stated in the agreement.

If the requirement is not stated in the agreement, the Judge is free to state, according to the request of the defendant; provide a period of time to still meet its obligations but the time period which may not exceed one month.

Thus according to the provisions of Article 1267 of the Civil Code cancellation of the agreement does not occur automatically but must be requested to judge when one party does not perform its obligations.

Meanwhile, according to the provisions of Article 1517 of the Civil Code specifies that if the buyer does not pay the purchase price, the seller may demand cancellation of the purchase according to the provisions of Articles 1266 and 1267.

The provisions of article 45 of the CISG state if the seller does not fulfill obligations specified in the contract, then the buyer is entitled to request compensation and he can determine a reasonable time so that the seller can fulfill its obligations.

While the obligations of the buyer are to pay the price for of the goods and taking action and fulfilling the formalities as specified in the contract or regulation that allows payments (Article 54 CISG). Article 61 CISG determines if the buyer can not meet its obligations the seller can demand the buyer pay the price agreed upon (Article 62 CISG) the seller can specify a certain time to the purchaser to fulfill its

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obligations (Article 63 CISG) the seller can demand the cancellation of the contract (Article 64 CISG).

20) Risk

According to Subekti 21risk is the obligation to bear the losses caused by an event in the fault of either party.

The emergence of risk is based on the occurrence of an event beyond the fault of either party, or what is called the state of force majeure. This provision is set in 1460, 1461, and 1462 of the Civil Code. But according to Circular Letter No. 3 of 1963 stating that several clauses in the BW does not apply, among others, Article 1460 of the Civil Code.

If we adhere to the notion that the seller is still the owner of the goods sold until such time as the goods are legally given, the risk remains with the seller.

Article 66 CISG determines loss or damage to the goods after the risk is transferred to the buyer, does not relieve the buyer from its obligation to pay the price of the goods unless it is proved that the damage or loss is caused by damage to the seller.

If the sale involves carriage of goods and the seller is not obliged to deliver to a particular place, the risk transfers to the buyer (Article 67 CISG). While items that need to be identified in advance, the new item is the responsibility of the buyer when the identification process has been completed (Article 69 CISG).

II. Empirical Practice

Based on research conducted by Afifah Kusumadara in 2006 against companies that do the majority of export and import activities (67%) of Indonesian companies that are active in the international purchase are not too concerned with the state law that will be used to set up an international sales contract they make with foreign trade partner. They do not care if their international sales contract will be subject to foreign law (the law of their trading partners) as the governing law of their contract. Some respondents revealed that the legal issues governing their contract (governing law) does not really matter because they base their business relationships with foreign partners on the basis of trust, especially if their foreign partner is the parent company of the Indonesian company.

The results of the study also showed that all sales contract concluded by the Indonesian company with trading partners from the European Union always use the law of the European Union countries.

21 Subekti ibid page 26

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Afifah Kusumadara also conducted research on law firms. From the results of his research showed that almost all (99%) law firms always include a governing law clause for international sales contracts they arrange. The majority of the international sales contract they draft are for Indonesian companies conducting business with partners from the European Union (21%), followed by those from the USA / Canada (17%), then from Singapore (14%), then from Japan and from ASEAN member countries (each 13%), and from the UK (11%), Australia (8.5%) and the last of China (2%). In other words, the majority of foreign trade partners of Indonesian companies that become clients of the law firm are from countries that have ratified the CISG, namely from the European Union, United States / Canada, Singapore, Australia and China.

The results showed that purchase contracts drawn up by law firms for Indonesian companies that make business with the largest foreign trading partners (of the European Union, United States, and Singapore) more often refer to the laws of the states to regulate the international sale contract. In addition, only 8% of law firms that become respondents found Engagement Book III of the Civil Code is still adequate to use to regulate international sales contracts.

The results of the study found that the majority of respondents (75%) conduct international trading activities with foreign trading partners coming from countries that have ratified the CISG, such as Singapore, European Union, United States, Canada, Australia and Korea.

III. Study the implications of the ratification of the UN Convention on International Against Sale of Good Aspects of Community Life And Financial Aspects of State

The implications of the ratification of the UN Convention on the International Sale of Good can be seen from the conditions expected with the ratification of the convention. The Ratification of the United Nations Convention on Contracts for the International Sale of Goods will have a wide impact for the community. Because the consequences of the ratification of the CISG requires the formation of a new law which is a law governing the international sale contracts or there will be changes to the provisions of the Civil Code Book III. Because during the Civil Code does not regulate the sale and purchase contract goods internationally.

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CHAPTER III

IMPORTANCE OF RATIFICATION OF CISG FOR INDONESIA

Southeast Asia in general and Indonesia in particular, will face the free trade. Differences in legal systems between regions is often a factor that inhibits the rapid growth of free trade in the region and globally.

In addition, with the merger of the countries in the world in the World Trade Organization (WTO) and the emergence of free trade zones (Free Trade Area) raises the chance of the traders around the world to conduct international trade. Not to mention, the industrial development of e-‐commerce is very rapid, in which industry and commerce often involving parties of different countries.

The phenomenon of international trade is growing the need for rules that are universal and uniform that regulates rights and obligations of the merchants in the conduction of international trade transactions. The content of national legislation that varies from country to country has resulted in legal uncertainty and difficulty among the merchants in international trade contracting (Ana Mercedes, 2002: 47).22

To overcome the obstacles that may arise from the diversity of the legal system, the international trade community made an international convention to regulate the contract of sale of goods internationally in 1964 under the name of The Uniform Law on the International Sale of Goods 1964 and the Uniform Law on the Formation of Contracts for the International Sale of Goods 1964. In 1980 the two conventions have been revised by UNCITRAL and then integrated into the United Nations Convention on Contracts for the International Sale Goods (CISG).

Afifah Kusumadara in a paper entitled The Importance of Ratification of the UN Convention on Contracts for the International Sale of Goods (CISG) by the Government of Indonesia stated that the majority (67%) of Indonesian companies that are active in the international purchase is not too concerned with the state law which will be used to set up an international purchasing contracts with their foreign trading partners. When the laws of the trading partner legal system based on common law, the postscript is different from the legal system of civil law adopted by Indonesia, was selected as the governing law (the law governing the contract), then the trader from Indonesia are exposed to high legal risks because they should not understand the legal system of common law.

22 "The Importance of Ratification of the UN Convention on Contracts for the International Sale of Goods (CISG) by the Government of Indonesia ", Afifah Kusumadara, Published in the Journal of the Forum Research No. 2, December 2006, p. 1-‐2.

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Article 1 paragraph (1) of the CISG states that:

This Convention Applies contracts of sale of goods between parties whose places of business are in different States:

(A) When the States are Contracting States; or

(B) When the rules of private international law lead to the application of the law of a Contracting State.

Thus, the international sales contract made by the Indonesian company with foreign trade partners are automatically subject to / governed by the CISG if the law they appoint to manage their contract is the law of a foreign country that has ratified the CISG.

If the trader from Indonesia with their foreign trading partners do not explicitly designate a specific State laws to regulate their sale and purchase contract, then based on the principles of private international law, their purchase contract can be subjected to the CISG if the contract has many links to the law of a foreign country which has ratified the CISG. With the ratification of the CISG to the Indonesian law, of course, will make it easier for businesses to understand their rights and their obligations when conducting trade transactions with foreign parties because of the uniformity of the arrangement that comes from CISG

In the context of the agreement electronically with digital signature (which is not goods for personal, family or household use), of course, there are also several constraints. The domicile of the merchant is listed on the legal status of their digital certificates, while the seat of the buyer may be different from the position of the merchant. Ratification of the CISG will certainly help the legal certainty of this transaction because of the uniformity of regulation. In addition, the CISG accepts trade customs and practices between the parties as a basis for interpretation of the provisions of the contract. Just as in the Indonesian contract law, good faith is used as a core principle in the main interpretation and implementation of the provisions of the contract.

Associated with the timing of the deal, especially if this deal happens without the presence of the participants / parties, CISG provides certainty in the world of international trade on when a contract through the settings on Part II -‐ Formation of Contract. Thus, the formation of a contract between the Indonesian authorities with trading partners who have a domicile in the country that adheres to the common law is no longer a debate if the CISG applies. It appears from these arguments that the CISG needs to be ratified by the Indonesian government, especially in the era of globalization, e-‐commerce (buying and selling goods that the object is not for personal, family or household use), and free trade. However, the government also needs to anticipate when the trade is being done by those who have not ratified the CISG or

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reserved the Article 1 (1) (b) of the CISG. If Indonesia's trading partners are the ones that have chosen not to apply Article 1 (1) (b), the ratification of the CISG will not have any impact because the CISG may not apply in the transaction.

Another thing that should be anticipated is on when the transfer of property rights occurs. As mentioned earlier in Chapter II that the Indonesian civil law see the purchase agreement as an obligatory agreement, which put a reciprocal obligation on the parties -‐ the seller is obliged to deliver the goods to the buyer, and the buyer is obliged to pay the purchase price to the seller. However, the new property will move at the time of submission. CISG through Article 30 determines that the seller is obligated to deliver the goods and property handed over the goods to the buyer. While the passing of Article 53 CISG buyer is required to pay the purchase price to the seller and receives delivery of the goods. However, provisions in the CISG does not expressly state when the property is changed. In international trade where goods delivery usually takes time, transfer ownership becomes an important issue given the responsibility for the goods and responsibility for the risk of damage or loss of goods is a major component of much debate by the parties.

However, considering that many countries have used the CISG, the ratification of the CISG can certainly be a good consideration that is expected to help promote Indonesia's trade.

In summary the advantages and disadvantages of the ratification of the CISG is partially follows:

Advantages

1. Many CISG norms and standards have not been integrated into the Indonesian law, when the CISG is de facto already becomes "the law of international trade". Indonesia does not have a national law on international commercial contracts; laws of sale contained in the Civil Code is not ready to face the problems related to international trade being so complex.

2. Judging from the breadth and depth of a controlled substance in the CISG regarding the contract of international sale of goods, the Indonesian ratification or accession to the CISG can have a positive impact, particularly as a source of legal principles of contract of sale of goods internationally.

3. CISG has been prepared based on the best practices in international trade transactions, so that the Indonesian accession to the CISG would be very useful as a step modernization of Indonesian contract law;

4. CISG can be regarded as the result of a compromise 'grand' from principles known in the legal traditions of the world, such as the Anglo-‐American legal tradition (common law), Continental Europe tradition (Civil Law), Law of the

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State of the Socialist tradition, of its versatility and open also for the development and adjustment of the Islamic legal tradition.

5. Indonesian accession to the CISG is also expected to have a positive impact for the harmonization of the legal contract of sale in the ASEAN region. Until the time of this writing, only Singapore has ratified the CISG; inclusion of Indonesia, which has the largest market share in the region, is expected to encourage ASEAN member countries to join for the sake of harmonization of law in the region.

6. The main trading partners of ASEAN (China, Japan, Australia, Korea and the United States) is a party to the CISG states, in addition to general member countries of the European Community, so that uniformity in the principles of the law of international contracts of sale can be pursued as optimally as possible in cooperation in the field of civil law with business people from these countries.

Disadvantages / Challenges

1. CISG regulates trade areas or sectors (only the international sale of goods) only, so that Indonesia's ratification of the Convention has not impacted the development of the Indonesian national law in other trade areas. CISG does not or can not necessarily be applied to other sub-‐areas in international trade, which is actually a part of the international trade transactions, such as a franchise, distributorship, commercial agency, countertrade;

2. Implementation of the CISG is closely related to the use of compilations principles / rules of international trade as other accepted international practice, such as INCOTERMS, UCPDC, etc. Therefore, the ratification of the CISG can be seen as one step only partial and not complete the development effort for the whole Indonesian national law;

3. CISG is a major work in international law, but at the same time relies heavily on freedom, not only for the participating countries, but also for the parties in the contract of sale, to the exclusion of the enactment of the principles in it. There are concerns that the transactions of buying and selling internationally involving Indonesian parties shall be subject to the CISG, but filled with exclusions (either in whole or in part) as required by the parties. Consequently, the question will be whether we still need the CISG to be absorbed into the national legal system in Indonesia.

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CHAPTER IV

REGULATORY ANALYSIS RELATED LEGISLATION

a. Alignment with constitution and related laws

Direction of the organization of the economy, including trade policy in Indonesia contained in Article 33 reads that, in principle, that the State protect the lives of many people, the wealth of the nation and the implementation of economic democracy for the sake of public interest, for the greatest interest of the people's welfare, equitable, sustainable and environmentally friendly, independence and balancing economic progress and national unity. This is in accordance with the objectives of the country listed in paragraph 4 of the 1945 Constitution which protect the whole Indonesian nation and the entire country of Indonesia, promote the general welfare, the intellectual life of the nation and participate in the establishment of a world order based on freedom, lasting peace, and social justice.

Furthermore, the mandate contained in Pancasila and the 1945 Constitution is the foundation for the life of the state for the entire field, be it economic, social, cultural, legal, and others. This directs any policy that does not come out of the basic values of Pancasila and the 1945 Constitution. In general the national economic system leads to economic development to achieve the welfare of society equally. In this context, the government policy should be directed to the making of appropriate regulation for achieving the vision and mission of the trusted Pancasila and the 1945 Constitution.

The national economic system used in Indonesia based on the value and substance refers to the 1945 Constitution because 1945 is a basic foundation in the state administration, including the organization of economic life. There are at least four important elements in the national economic system, namely (1) the objectives of the welfare of the community, (2) model of resource ownership, (3) economic activity organization mechanism, and (4) economic and regulatory actors. Welfare is an important component of the national economic system as a destination because its existence is absolute. Economic systems can differ from country to country, but all of the economic systems have the same goal, namely welfare.

With regards to foreign policy in establishing interactions with actors of international relations in relation to international agreements, foundation refers to Article 11 UUD 1945 are as follows:

i. The President with the approval of Parliament can declare war, make peace, and treaties with other countries

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ii. The President can make other international agreements consequences broad and fundamental to the lives of the people associated with the financial burden of the State

iii. Law regulates further provisions of the international covenant.

As part of the international community, Indonesia also conducts international relations and makes international agreements with other countries, international organizations, and other subjects of international law. Indonesia's participation in the various free trade agreements that lead to people exposed to free trade and is forced to compete with the economic players from abroad in the domestic market without any protection from the government. This would be very influential and have a very heavy impact for the community.

Efforts by the Indonesian government to ratify the CISG are the right step because in Indonesia there are no specific rules governing the sale and purchase of goods internationally. Purchase provisions in Article 1457-‐1540 Book III Chapter V of the Civil Code only focused on selling domestically. The ratification of the CISG will increase international trade, which will increase economic growth. Increasing economic growth will indirectly provide public welfare. This is in line with the country's goal to create people's welfare. In addition, the purpose of international trade is to create world peace; it is also in accordance with the objectives of Indonesia, which is listed on the 1945 Constitution Paragraph IV.

b. Relation to Book III, Chapter V of the Civil Code of the Sale and Purchase

1) The principles in the Sale and Purchase

The principles contained in the agreement are generally contained in the purchase agreement. In some there are some principles of contract law, but in contract law there are (5) important principles, namely:23

a. The principle of freedom of contract

This principle is contained in the provisions of Article 1338 paragraph (1) of the Civil Code, which reads "All agreements made are legally valid as a law for those who make it.

b. Consensus Principle

This principle can be summarized in Section 1320 subsection (1) of the Civil Code.

c. The principle of tying contracts (pacta sunt servanda)

23 Ahmad Miru, Contract Law and Contract Design, London: King Grafindo Persada, 2007, Page 3.

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This principle relates to the result of the agreement. This principle can be summed up in a paragraph of Article 1338 (1) Civil Code, which reads "The agreement made legally valid as a law."

d. Principle of Good Faith

Pursuant to Article 1338 paragraph (3) of the Civil Code that states that "The agreement must be executed in good faith". This principle is the principle by which the parties must implement the substance of the contract is based on trust or firm faith or good will of the parties.

e. Principle of Personality

This principle determines that a person who will do and or make a contract only for the benefit of any individual. This can be seen in Article 1315 of the Civil Code and Article 1340 of the Civil Code.

Thus if these principles are associated with buying and selling according to the Civil Code, the principles used in general can be seen from the provisions of Article 1320 of the Civil Code, namely the principle of good faith, whereby if the sale and purchase transactions in violation of the principle of good faith, the sale and purchase is considered void by law.

When viewed from the principle of freedom of contract, then the sale and purchase transactions occur with the agreement of the parties.

2) Setting Sale

Sale and purchase agreement in 1457 set up by Article 1540 of the Civil Code. What is meant by the purchase agreement is an agreement, by which the parties bound themselves to submit the material, and the other party to pay the agreed price. 24 Then the sale is deemed to have occurred between the two sides after the agreement was reached about the item along with the price, even though the goods have not been delivered and the price has not been paid25.

Thus buying and selling according to the Civil Code is considered to have occurred after there is an agreement between two parties.

3) Rights and Obligations of the Seller

As for the rights of the seller are:

1. Rights declared null and void, if the buyer does not pay the purchase price, then the seller can demand cancellation of the purchase of merchandise

24 Article 1457 of the Civil Code 25 Article 1458 of the Civil Code

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and home furnishing goods without giving prior warning to the buyer, after the lapse of the specified time to pick up the goods sold.26

2. Seller reserves the right to not deliver the goods it sells, if the buyer has not paid the price, while the seller does not have to allow postponement of payments to him. 27 This rebuttal called "non ademnpleti exeptio contractus" is a rebuttal stating that he (the debtor) does not properly implement the agreement simply because the lender itself does not implement the agreement as it should.28

3. Sellers are given the power to buy the goods that have been sold based on a promise, in which the seller is given the right to take back the goods it sells to restore the original purchase price, with simultaneous replacement 29according to the law all expenses incurred to organize the purchase and delivery, so necessary expenses required for rectification, and the cost of goods sold which led to price increases, this additional amount. 30

While the Seller Obligations as listed in Article 1474 of the Civil Code, namely:

1. Give up the right to the goods being sold

The obligation to submit property includes any act that is required by law to transfer title to the goods sold from the seller to the buyer.

In the delivery of goods provisions that must be considered by the seller, among other things:

a. Delivery of goods is done in the place where the goods are at the time the sale occurs, unless agreed otherwise (Article 1477 of the Civil Code).

b. Items submitted must be in one piece as stated in the agreement or at the time of sale (article 1481 and article 1843 of the Civil Code).

c. Sellers are required to give up everything that became fixtures to use the goods that have been sold (Article 1482 of the Civil Code)

d. Sellers are not required to submit the goods before the buyer pays the price (Article 1478 of the Civil Code)

e. Sellers are required to guarantee the buyer to be able to have the goods safely and securely and is responsible for hidden defects that can be used as a reason for cancellation of the purchase (Article 1491, 1504, 1506, 1508, 1509, 1510 of

26 Article 1518 Code of Civil Law 27 Article 1478 Code of Civil Law 28 Riduan Syahrina, Inside and Principles of Civil Law, (London: Alumni, 2006), p. 212. 29 Article 1519 Code of Civil Law 30 Article 1532 Code of Civil Law

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the Civil Code), but the seller is not required to bear the defects visible by the purchaser (see Article 1505 of the Civil Code).

f. Seller shall bear the losses suffered by the buyer if it is found that goods have been trafficked should be confiscated or to be collected from the buyer because of a dispute, without prior notice at the time the purchase agreement entered into (Article 1492, 1495, 1496, 1497, 1499 Civil Code).

g. Sellers are required to be responsible for everything that result directly from the manufacturer to the detriment of the buyer, although in the agreement specified that the seller does not bear any risk in the purchase (Article 1494 of the Civil Code).

h. Sellers are required to use the cost of delivery of the goods specified in the agreement meaning that if the supply is carried out in a warehouse belonging to the buyer, then the cost of transport from the seller to the buyer's warehouse are borne by the seller, while the cost of retrieval from a warehouse owned by the buyer to the buyer will be borne by the buyer (Article 1476 of the Civil Code).

i. The seller must refund the price of goods and the cost according to the legislation in force, the buyer has the right to cancel or nullify the purchase (Article 1488 of the Civil Code) on the condition that the suit must be commenced within one (1) year after delivery of the goods (Article 1489 of the Civil Code).

2. Enjoyment of the goods and bear against hidden defects

Obligation to bear the pleasure is the consequence of the assurances given by the seller to the buyer that the goods sold and submitted are truly free from his own party.31

That in the purchase agreement, the seller will not be required to bear any thing, but there are limitations, namely:

a. Although it has been agreed that the seller will not bear anything, but he remains responsible for what is a result of something done by him, all that is contrary to this agreement is void.

b. Sellers in the presence of the same promise, if there is a judgment (penalty) against the buyer to hand over the goods to others, are required to refund the purchase price, unless the buyer at the time of the purchase, knows about the judge's decision to hand over the goods to others, are required to restore purchase price, unless the buyer at the time the purchase is made, knows about

31 Subekti, Assorted Agreement, (London, 1985), p. 17

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the judge's decision to hand over the goods he bought or if he had (strongly) agreed/confirmed to bear his own loss and profit.

According to Article 1508 of the Civil Code if the seller is aware of any hidden defect, he or she must:

1) Refund the purchase price;

2) Returns the results, if he is required to submit the results to the true owner of the prosecution submission;

3) Replace all the losses and interest costs to the buyer.

4) Rights and Obligations of the Buyer

Buyers Rights

If no implementation of Article 1495 of the Civil Code, where such a thing was not agreed upon, the buyer is entitled to claim back from the seller:

1) Refund of the purchase price

2) Return the results, if he is required to submit the results to the true owner of the prosecution submission.

3) Costs incurred in connection with the lawsuit so the buyer to bear the costs incurred by the plaintiff origin.

4) Restitution along with court fees on the purchase and delivery than the purchaser had paid it.

5) Goods to be delivered to the buyer are intact as at the time of sale or when the agreement was held and since the delivery of the goods, all products from such goods become part of the buyer’s rights (Article 1481 and Article 1483 of the Civil Code)

6) Buyers are entitled to a guarantee to be able to obtain the goods with safety and security as well as a guarantee against hidden defects which can be used as a reason for cancellation of the purchase (Article 1491, 1504, 1506, 1509, 1510 Civil Code).

7) The buyer is entitled to demand cancellation of the purchase, if delivery of the goods cannot be implemented due to negligence of the seller (Article 1480 Civil Code).

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According to Article 1514 of the Civil Code which states that if it was not specified at the time the agreement was made, then the buyer must pay on the spot and at the time when delivery should be done.

Thus the rights of the buyer are:

a) To receive goods bought from the seller

b) To receive a guarantee from the seller about the pleasure and the absence of hidden damage.

Buyers Obligations

According to Article 1513 of the Civil Code it is the buyer's primary obligation to pay the purchase price at the time and place as determined by the agreement.

As for the obligations of the buyer32:

1) Paying the price of goods bought at the time and place according to the purchase agreement (Article 1513 Civil Code), which if it is not specified in the agreement, then according to Article 1514 of the Civil Code and the place of payment is made at the time of delivery.

2) Pay interest on the purchase price when goods are bought and delivered to him, but have not been paid by him, giving results or other income, although there is no provision for it in the purchase agreement (Article 1515 of the Civil Code).

3) Neither the seller nor the buyer is entitled to make the content of agreements expand or reduce the obligations specified in the Civil Code, even to relieve the seller of any burdens (Article 1493 of the Civil Code).

32 Subekti, Assorted Testament, op.cit. 21 things

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CHAPTER V

MATERIAL CONTENT

Some substances or legal norms that need to be considered in preparing the draft Law on Contracts for the International Sale of Goods or amendments to the Civil Code, especially Book III Chapter V of the Sales and Purchase.

1. General Provisions

2. Contract Formation that also includes the provision of an offer and acceptance. Provisions concerning the offer (offer) on terms include offers; recall of offers, and termination of offers. Provisions for the amendment or counter offer are also regulated. Acceptance (acceptance) of an offer is also arranged, including the length of time and ways of communicating acceptance, as well as the withdrawal of the offer. The contract is set when the acceptance of an offer becomes effective.

3. Sale of international goods, which consists of general provisions, the seller's obligations such as: delivery of goods and documents, related to the conformity of the goods and third party claims, efforts to restore on default of the seller. It also regulated the obligations of the buyer, including: payment of the agreed price, retrieval of goods, as well as recovery efforts in the case of default by the buyer. Other provisions regarding the transfer of risk; anticipatory breach and installment of contracts; loss; interest; exemption; effect of avoidance; maintenance of goods; and others.

4. Applicable law consisting of provisions on how the determination of the applicable law, the scope of the applicable law as well as the choice of law.

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CHAPTER VI

CONCLUSION

-‐ Ratification of the CISG can be the first step of the reformation efforts of Indonesian contract law; international sales contract in particular, and at the same time lead to the harmonization of laws in the field of trade, in particular the harmonization of the law of international sales contract.

-‐ But there are still is lot of 'homework' to be solved because ratification is not the end of a job but it is the beginning of one, for example, to make changes or revisions to several provisions in the Civil Code.

-‐ Indonesia needs to make a separate law governing the international sale of goods contract, while the purchase agreement of national (domestic) remains subject to the provisions of the Civil Code.

-‐ Regarding Article 10 of Law No. 24 of 2000 on International Treaties, ratification of the CISG can be done by using a law or decree (but under Law 12 of 2011, its legal form is a Presidential Decree). It should be considered whether the ratification of the CISG is better done with the law or simply through regulation.

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REFERENCES

1. Afifah Kusumadara, "The Importance of Ratification of the UN Convention on Contracts for the International Sale of Goods (CISG), a study published.”

2. Badrulzaman, Mariam Darus, Assorted Business Law, London, Publisher Alumni, 1994

3. Bayu Seto, Aspects of theoretical Sell-‐Buy International based CISG In Comparison With Legal Trade and Sell Indonesia "Paper freelance presented at the Workshop on the Future Prospect of Indonesian's Accession to the CICG, organized by the National Law Development Board, 8 July 2010

4. Gautama, Sudargo. International Trade Contracts. Bandung, Publisher Alumni 1976

5. _______________ Civil Law and International Trade, London, Publisher Alumni, 1980

6. _______________ Code of Civil Law. Jakarta. PT. Pradnya Paramita, 1994

7. Gunawan Wijadjaja and Ahmad Yani "International Business Transactions: (Export Import and Sale and Purchase), Jakarta PT King Grafindo Persada, 2000.

8. Gunawan Wijaya, Licence [Series Business Law, King Grafindo Persada Jakarta, 2001

9. Huala Adolf "Designing International Contracts", London: Publisher CV. Keni Media 2001

10. Mochtar Kusumaatmadja, "Introduction to International Law" General Section Book 2, Bandung, Binacipta, 1976

11. Prodjodikoro, Wirjono, Principles of the Law of Treaties, London, Publisher Wells, 1993

12. Rajagukguk, Erman "The Role of International Contract Law In Free Trade", Paper to Seminar on International Contract Law in the Era of Free Trade, BPHN, Department of Justice, Jakarta, March 6, 1997

13. Salim HS, Legal Contract Drafting Contract Theory and Techniques, New York: Graphic Rays 2003

14. Subekti "Principles of Civil Law", New York: Publisher Intermasa 2005

15. ___________. Various Agreements, London, Aditya image Bakti, 1992

16. Sri Setianingsih Suwardi "Writing Legal Affairs of the Convention on Contracts International Sale of Goods is associated with the National Law ', National Law Development Agency, the Department of Justice, Year 1999/2000

preface - BPHN

Documents

Transcript of preface - BPHN