International Commercial Transactions Fall 2010
A. Avoiding Conflicts: Choice of Law When the Transaction Goes Bad—Is There a Contract
· Root of things is usually trying to figure out if there is a contract—But again under whose law?
o For example if there are additional terms in a contract between German and US parties and the UCC applies then you’ve got the whole “materially alter” question.
§ If the US party decides not to perform under the assumption that they don’t have a contract and the Euro party decides to sue, they’re probably going to sue under German (or EU law).
o So without answering which law applies to the transaction (or even where a suit would be filed) there would have to be a determination of whether there is a contract.
§ Have to answer the “choice of law” threshold question; under whose law will be determine whether a contract exists?
· Restatement 2d, Conflicts of Law § 6 – Choice of Law Principles
(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law. (2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include:
(a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability and uniformity of result; and (g) ease in the determination and application of the law to be applied.
** But all those factors don’t help in putting things on the side of one law or another.**
· Restatement 2d § 188 – Law Governing In Absence of Effective Choice By the Parties
(1)The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6. (2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: (a) the place of contracting, [reference to forum’s contract law]; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. [These contacts are to be evaluated according to their relative importance with respect to the particular issue.] (3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.
**But all of these factors are usually not applicable: there is no one place of negotiation, place of performance, location of the subject of a contract. From a realist point of view the US judge is likely going to apply the familiar law (judge doesn’t want to have to deal with German law). Or conversely, the judge might want German law, knowing that it’ll be tossed by a motion to dismiss on a forum non-convenies motion. And what would a German court do anyway? Would have to know what German choice of law is, what German contract law says about forming a contract. And so on and so forth. So is there a way around all of this?
i. Harmonizing Treaties
· The UN Convention on the International Sale of Goods
o Applies in two ways: 1. When both States are Contraction parties (signed the CISG) or; 2. When the rules of private international law lead to the application of law of a Contracting State.
§ In the United States, the CISG is considered a self-executing treaty, so no domestic, federal legislation was enacted, or is necessary.
§ It thus has the effect of federal law, preempting all state uniform commercial codes unless the parties to the contract have agreed otherwise (i.e., parties “opted out”).
§ Parties need to specifically state that contract is not governed by the CISG but that it is governed by the UCC/State law.
o Article 1. This convention applies to contracts of sale of goods between parties whose places of business are in different states: (a) when the states are contract states; or (b) when the rules of private international law lead to the application of the law of a contracting state.
§ The United States declared a reservation under Article 95 and therefore is not bound by Article 1(1)(b) – i.e., if action is filed in US, and the choice of law points to the US, then the US law applies, not the CISG).
· US basically said that they would not be bound by CISG in the event one party is not part of the CISG (sort of forcing other countries to sign the CISG if they want CISG rules to apply in trade).
· But for example Germany doesn’t like that the US refuses to be bound by Art.1(1)(b) and therefore refuses to recognize the US as a CISG party. So therefore Germany may use German law.
o Article. 4: This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold.
o Article. 6: parties can exclude application by explicit statement.
o Article. 7 (2): Questions not settled by UNCISG are settled by the law applicable by virtue of rules of private international law
o Article. 14(1): Proposal is an offer if it indicates intent to be bound, indicates goods, and expressly or implicitly fixes or makes provision for determining quantity and price; (2) a proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
o Article. 18: acceptance effective when it reaches offeror
o Article. 19 (1): Reply that purports to be acceptance but contains additions, limitations or modifications is a counter-offer; (2) if different terms don’t materially alter terms of offer, then it’s an acceptance (3) material terms relate to price, payment, quality and quantity of goods, place and time of delivery, extent of other party’s liability to the other or settlement of dispute.
** So perhaps the solution is to not get into the above mess in the first place. **Spend a lot of time on the contracting process (drafting your forms, getting confirmation, making sure all parties together to negotiate and sign forms and everything else). Basically get really anal and make your terms mirror.**
B. The basics of an international transaction
· Buyer sends seller a letter asking for a price quote.
o Price of goods, as well as difference costs related to shipping (F.O.B; C.I.F.; F.A.S.
s, each weight araound 1,000 pounds, to an agent, who put the bundles into four 20-foot containers, locking and sealing them. The agent, acting on behalf of the Master of the S/S Salvador, later placed the containers on the S/S Salvador and issued a clean bill of lading. The ship arrived but the containers only contained 30 bundles. Berisford paid Paranapanema as required, and sued the S/S Salvador.
§ Issue Is the shipper’s liability under COGSA limited to only $500 per bundle—$35,000—because of a misstatement on the bill of lading because the shipper did not make the misstatement intentially or fraudulently?
§ Held No, the shipper is liable for the entire price of shipment. The lowered liability after only a rudimentary inspection is present to relieve the shipper of needing experts to verify the actual goods being shipped, and impose a higher liability only if the shipper knew or could readily see that the packages were not in good condition. But here it is the shipper’s own conduct that created the liability: shipper’s agent placed the items in the containers, didn’t verify. Cannot escape full liability through COGSA when misstating own conduct on a bill of lading.
ii. Frustration/Force Majeure
· Eugenia Case: Factsà(P) Ocean Tramp brought claim against (D) for failure to carry their freight from Genoa to India as contracted. Contract was time-hire. Most direct route through Suez Canal was believed to be closed b/c of war but parties failed to make contract provisions for this. Ship becomes trapped in Canal after D ordered ship to enter even though war had broken out. D claims contract is frustrated. P makes new charter to had goods travel via longer route. Treated D as repudiated.
o Issue: Is contract frustrated when a situation not provided for in contract renders performance substantially different from that agreed upon?
o Held: If a situation arises that parties did not take into account when contracting that renders performance substantially different then the contract is frustrated
§ Court says no frustration here because performance was the same (goods to India) and the time delay did not make things substantially different. Also since no provision dealing with frustration the court could not make a real determination as to what substantially different would mean in this case
o Ideas behind Impossibility: why hold someone to contract that physically cannot be performed?
o Frustration: think about foreseeability, would a result be unjust, who should bear the loss, who is bearing the risk…Court uses comparative test where they look at where the parties are in the “new situation” and see if it’d be unjust to hold them to contract in light of the change situation then its frustration.
o If it’s just more expensive or difficult, then no frustration.
**No bright line rule; case by case analysis.**