INTERNATIONAL BUSINESS TRANSACTIONS
Problem 4.1 pg 75 formation of an international transaction: insulation to Germany
Universal Kansas seller x Euro builders buyer
The concern is the contract claim – contractual obligation is what it matters because for the tort claim the seller has insurance coverage.
Is there a contract? What are the terms of the contract?
What law is going to govern this contract, in the absence of agreement? It’s called the “battle of the forms”.- it’s when the buyer and the seller exchange print forms and do not agree or do not know which is going to prevail in an occasional dispute.
Maybe the foreign law provides a better answer, so you’d better know the foreign law.
For the seller the best law to apply is the German law, cuz the warranties excluded by the seller wouldn’t apply cuz it alters the contract substantially, so the German law para. 360 pg 87 says that if the merchandise receivable is described only by class then merchandise of average description and quality shall be delivered.
· General source for contract formation in the U.S. – state common law, UCC which is a statute that it needs to be ratified by each state in order to be enforced by that state and federally the CISG which is a self-executing treaty. The only state nation not a member of this treaty is the UK cuz Japan is signing on. The UNIDROIT is like and int’l restatement, which is persuasive, giving general principals to harmonize int’l trade and other matters.
Next class’ assignment: what does the CISG say about the conflict of laws, what’s the substantive law as well. Also finish reading this problem and also read the 4.2 for next Tuesday which is until pg 136.
The buyer faxes a purchase order and the seller faxes him back a purchase order form with some additions to the purchase order, they are: “goods sold ‘as is’ and ‘with all faults’. This contract is governed by the laws of Kansas.”(these were the additional info to the purchase order)
Was the insulation defective or just unsuitable?
Part A: which national law governs the interpretation of the contract?
Part B: there is the CISG and the UCC for the U.S., which to apply?
Part C: how can you prevent this problem at the contract formation?
P.S.: there is the E.E.C (European economic committee) which has 9 state members, all of them and other nation states ratified the Convention on the Law applicable to Contractual Obligations, so this is the uniform law of the E.E.C and of any Member State on choice of law in contract. Germany is a member of it. So for German it’s domestic law.
The Convention contains three basic rules for determining the applicable law.
* the first is that parties are free to choose the law applicable for their contract;
* the second is that, in the absence of choice, the contract is to be governed by the law of the country with which it is most closely connected;
* the third, a contract is to be formally valid if it satisfies the formal requirements either of the law applicable under the appropriate one of the two previous propositions or of the country where it was concluded.
P.S.: In sale of goods there will be a presumption under article 4(2) in all contracts other than those relating to immovable or carriage of goods ( because contracts in which the main purpose is the carriage of goods are presumed to be most closely connected with a country which is both that of the principal place of business of the carrier and also either the place of loading, or of discharge or the principal place of business of the consignor-seller), there is a rebuttable presumption that the contract is most closely connected with the country where the party who is to effect the “characteristic performance” of the contract has his habitual residence or, in the case of a body corporate or incorporate, has its central administration.
If, however, the contract is entered into in the course of the trade or profession of the party who is to effect the characteristic performance, then the applicable law is presumed to be that of the country of that party’s principal place of business or of the place of business through which, under the terms of the contract, performance is to be effected. Because the sellers are the very parties best able to evaluate the risk of doing business internationally and to hedge against it by means of choice-of-law and forum-selection or arbitration clauses.
“characteristic performance” is the provision of goods or services, transport, banking operations but NOT payment.
So the Convention on the law applicable to contractual obligations says what it was stated above, now let’s see what the UCC, the common law and the German law have to say, regarding applying it in to this contract: problem raised here, if the forms of the parties diverge, is there a contract? If so, what are its terms?
Part A: which national law governs the interpretation of the contract?
As the parties’ terms diverged, buyer’s arbitration resolution and seller’s disclaimer to that, the UCC says that a contract was established cuz their conduct (shipment and performance) recognizes the existence of a contract (this is sufficient) and the terms are the ones on which the parties agree on, which in this case does NOT include the different terms presented by the offeree (seller) in his acceptance.
As for the Common Law, case Roto-Lith, the seller’s doc containing the disclaimer was “expressly conditional” and therefore not an acceptance but a count
y, bill of lading and commercial invoice)
* delivery term (at shipment)
“F.O.B. place of shipment”, as a term of a contract is a:
* price term
* delivery term (at shipment) —P.S.: the only doc here that the seller must provide is the commercial invoice.
On this contract the seller must at the shipment place ship the goods and bear the expense and risk of putting them into the possession of the carrier. However, more modern interpretations shift risks to the buyer under an F.O.B. place of shipment contract after the goods are delivered to the first carrier, regardless of whether they are then placed on a ship or not.
F.O.B. place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them. (UCC 2-319)
F.O.B vessel, the seller must in addition at his own expense and risk load the goods on board. (UCC 2-319)
****There are 3 types of F.O.B contract
a. Strict or classic f.o.b. contract:
Buyer has to nominate a suitable ship
Seller is responsible to place the goods on board
Seller makes the carriage contract with the carrier for the buyer’s account.
b. F.o.b. contract with additional services:
Seller makes shipping and insurance arrangements for the buyer’s account
Buyer is not under an obligation to nominate a suitable ship
Seller does the nomination of the ship.
c. F.o.b. contract (buyer contracting with carrier).
Buyer himself enters into a contract of carriage by sea directly or thru an agent(forwarder)
Buyer has to nominate the ship
Seller puts the goods on board
Bill of lading goes directly to the buyer and does not pass thru the seller’s hands.
P.S.: some U.S. case laws prescribed a method for the sellers of parrying (evitar) the effect of inspection certificates – by specifying in the sales contract that the representations in any certificate shall be final and binding on the buyer. Thus, where a contract specifies that a certificate of quality is final, and a seller then ships wheat which does not conform to the contract, but the certificate describes the wheat as conforming, the buyer is bound by the description in the certificate; and any later inspection is irrelevant.