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International Business Transactions
University of North Carolina School of Law
Coyle, John F.

IBT – Coyle – Spring 2012

The International Sale

Figure 2-1 (VERY IMPORTANT)

· What you need:

o Letter of Credit

o Sales Contract

o Bill of Lading

§ There are risks in a long distance transaction: Payment risk to the seller, quality of goods to the buyer, delivery to both (risk of ship capsizing, getting lost, stolen, etc), arrival risk to buyer etc

§ These risks are magnified over international type distances

· You also have currency, quality standard, and language issues

o We fix some of these with these three documents

§ The sales Contract is a K between the buyer and the seller for the exchange of goods and payment

§ The Bill of Lading is between the shipper/seller and a carrier/transport company

· This is a contract for transportation, and also a title to the goods that are being shipped

§ The letter of credit is a contract between the bank and the buyer

· Sales Contract

o Terms to know

§ F.O.B- freight on board- seller pays for and insures to delivery to the dock

§ C and F- delivery to final destination, no insurance

§ CIF- delivery to final and insurance as well

· This lexicon of terms describe duties and obligations of the sale

o Most sales contracts are initiated by the buyer, who will send a letter of inquiry (about cost, etc) then the seller will send back a pro forma invoice. The buyer will then send a purchase order, which usually must be acknowledged by the seller

· Commercial Terms

o ICC incoterms

§ Ways to allocate the delivery risk

§ INCO terms are published by the ICC, you can adopt into a contract for delivery of tangible goods

· NOT in the bill of lading

§ The risk of loss traditionally passes to the buyer when goods cross the rail of the ship, you can adjust this with different incoterms

· Various tables of terms on page 70

o E terms- when buyer is responsible for risk after picking the goods up at the shop

o F terms- risk passes when it passes rail

o C terms- risk passes at rail but seller pays for carriage

o D terms- seller bears all risk and delivers direct to the buyer

o Biddell Brothers v E. Clemens Horst Company

§ CIF contract btw San Fran company and UK company to buy hops

· SF company wants to use a certificate of quality and payment against the document

o Buyer wants payment against delivery of goods

o House of lords says payment on documents

· The Bill of Lading and COGSA

o Charter Parties and Common Carriers

§ CP’s are private carriers- you hire your own boat to take JUST your stuff (like a private jet)

§ At common law- distinguish between CP’s and common carriers (CP’s had less obligations, CC’s insured the goods)

o Two kinds of CC’s: Non-Vessel Operating Common Carrier and Vessel Operating Common Carriers

§ NVOCC- like a broker- fill the ships space better, this is cheaper (because they contract with boats to fill the whole space, get discounts), but doesn’t own the boat

§ VOCC- more traditional, rent space on their boats (more expensive and less efficient)

· Both are regulated by the US federal maritime commission

o Both issue a bill of lading (so you can have lots of BoL’s for the same goods). NVOCC will issue one to you, and the VOCC will issue one to the NVOCC when they put the goods on the ship

§ Liability-lots at common law due t

well

· Both have himalaya clauses

o Then Hamburg hires Norfolk southern for the land leg, to go from savannah to Huntsville. Train derails, does 1.5mil in damages

o Can Norfolk claim protection under the damages limit from the FIRST BoL (the one issued from ICC to Kirby)

o You have a subcontractor of a subcontractor here

§ Limited agency JUST for liability limitations purposes, the sub subcontractor gets the limited liability that the carrier didn’t negotiate for (ICC did)

· Fruit of the Loom v Arawak

o Example of a BoL and Himalaya (and Clause Paramount) in action

· Steel Coils v M/V Lake Marion page 113 (lists things to show for various prima facie cases)

o Highlights the burden shifting framework for proving damages

§ Plaintiff must show prima facie that cargo was loaded in an undamaged condition and discharged in a damaged condition

· Then burden shifts to defendant to show that they exercised due diligence to prevent the damage (you cannot contract around this) or that the damage falls within an exception. If they show this, the burden returns to the shipper to establish that the defendants negligence contributed to the damage. Then finally if this is established, the burden switches back to the defendants to segregate the portion of the damage due to the excepted cause from the portion resulting from the carriers own negligence