This course will emphasize the preventive practice of law. Also, be able to anticipate problems and create solutions for dealing with those problems. (Risk Management)
Three big categories this course will address:
1) Foreign trade (movement of goods across the border)
2) Foreign investment (movement of money)
3) Licensing (technology/intellectual property transfer)
Risks involved with foreign trade:
payment from buyer
quality and quantity of goods
currency
legal systems/treaties
rights?
political climate
loss of value of goods
These problems are in the political and business section of the newspaper.
The documentary sale – international letter of credit transaction – helps to manage the risks inherent in the transaction and government bodies of the world.
I. Foreign trading – Chapter 4.0 sale to Greece
Principle risk facing buyer in international sales transaction: are you going to get the goods bargained for?
Principle risk facing seller: are you going to get paid?
Documentary sale takes the simple sale of goods and it adds third parties and the remoteness of the parties.
Form 1: (pg. 52) Letter from Alpha to Santa Clause demonstrating an interest to buy toys.
Form 2: (pg. 53) Pro Forma invoice (terms under which party will deal). Contains both pricing and payment terms.
Either side could be considered to have made an offer, or no offer at all. It could just be a negotiation.
F.O.B., F.A.S., C&F, C.I.F., etc.
INCOTERMS (from international chamber of commerce) – help define terms used in international commerce.
Confirmed Irrevocable Letter of Credit – buyer is obligated upon getting the right paper, not the goods. F.O.B. is different, as you are not paying for documents as compared to C.I.F.
Form 3: (pg. 54) purchase order (at the very least, this is now an offer).
Additional term to insure at 110% of value (standard practice).
Form 4: (pg. 56) letter of credit
The letter of credit is another contractual arrangement. The contract price will be paid upon receipt of the documents showing that the seller has shipped the goods.
The confirmed letter of credit is issued by the seller’s bank. It requires the receipt of certain documents before release of payment. At this point, the seller has three different sources of payment for his security.
Banks cannot refuse to pay on an irrevocable letter of credit. The only question is whether the documents match. By specifying the documents, the buyer gets protection and confirmation that the goods were shipped.
Form 6: Seller generates commercial invoice
Form 7: Export Declaration
Form 8: Certificate of Origin
Form 9: Dock Receipt
Freight forwarder is the seller’s agent in this transaction.
Form 5: Shipping instructions
Seller is the shipper; it gave the forwarder the shipping instructions. The boat is the carrier.
Form 10: the carrier’s bill of lading.
The shipper, or the forwarding agent, fills in the blanks on the bill of lading. The bill of lading is the third major contract. The goods are delivered to whoever is designated on the form: (block 3) the consignee. By making it to the “Order of Shipper” the bill of lading becomes a negotiable instrument. This is an order bill. The carrier is obligated to deliver the goods to whoever holds that bill. The carrier is in the best position to make sure the goods are delivered to the correct party.
1) evidenced of contract of carriage
2) receipt for goods
3) document of items
See page 70 for flow chart of documentary transaction.
Add to the mix: Inspection. Buyer could have employed an inspector to assure quality and quantity of goods.
Classic Documentary Sale by remote parties (three contracts):
(1) sales contract
(2) financing transaction – letter of credit
(3) Bill of Lading
II. Classical Sales Contract- Problem 4.1
Problem: Insulation causes damage because German’s use different alloys in their piping.
Litigation is evil – therefore, we need to structure a deal to avoid the litigation problem.
(1) Euro Order form from Germany to US company (Universal) in Kansas.
(2) Universal replies with “Order Acknowledgment”
a. “as is”, “with all faults” (UCC §2-316)
b. UCC
c. Kansas law
(3) Insulation is shipped
(4) Euro accepts shipment and pays
(5) Problem occurs
The insulation is not a def
rchants, become part of the deal unless they were already objected to, materially alter it, or require express acceptance.
UCC gap fillers § 2-314 & 2-315 are added when the parties fail to do so. The “as is” term materially alters the agreement and would fall out under § 2-207.
German view: (pg. 85)
§ 362
The German acceptance by silence provision applies to brokers, not end users.
(Be careful as the translation of the law may be erroneous or inapplicable).
§ 360
Merchandise of average quality.
Were either the pipe or the insulation not of average quality? Average quality under what standards? It is not possible to disclaim this warranty under German law as is done under US law.
Who has the burden of proof in which forum? Who proves average quality?
International Law:
CISG and UNIDROIT
CISG is an international, substantive contract law that tries to avoid some of the problems we have. The CISG is prepared by UNCITRAL (UN Commission on International Trade Law). Neither the UK nor Japan are members of the CISG. Self-executing treaty that does not require Congressional enactment. CISG preempts other law as it is federal law.
As an example of the difference between the CISG and US law is that there is no SOF under the CISG.
TWO BIG ISSUES: (1) Substantive law (2) Choice of Law
International Law – CISG – by UNCITRAL
UNIDROIT – Principles of International Commercial Contracts (www.unidroit.org) è similar to the Restatements; not law but principles to help in the interpretation of law. The CISG is law and is somewhat similar to the UCC.
US law
German law
International law
