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International Business Transactions
University of Toledo School of Law
Barrett, John Q.

International Business Transactions
 
Private International Transactions – entities in a private transaction
            Commercial transactions involving various nations
            Default rules
International Trade Law – Governments or institutions creating or enforcing regulations or rights
            Laws to govern trade between nations (tariffs, antitrust , etc.)
            Mandatory laws
 
All laws are default to some extent
            Can choose another forum under some other law
            Can structure your transaction in another country to avoid that law
 
International Transactions
 
3 main contracts
            Underlying contract – usually for the sale of goods p. 64
Problem 1-7 p. 41
Standard form contract (usually better to know the other law to avoid malpractice or to limit contracting costs)
                        Problem 1-8 p. 42
CISG is part of Illinois law (is it just UCC/domestic law or is it all Illinois law?) Clear Statement Rule – state specifically that CISG does not apply
           
            Carrier Contract – for any tangible good p. 71
                        Bill of lading
                                    Evidence of receipt and condition of goods
                                    Contract of carriage or evidence contract of carriage
                                    Negotiable – not consigned to a specific person (symbolizes the goods)
                                    Nonnegotiable (straight) – to a specific individual
                                    Clean on Board – loaded on board and not defective or damaged
                                    String sales – multiple sales while the goods are in transit
 
            Letter of Credit Contract – usually from a bank p. 69
                        From Bank that they will pay if the documents required are produced
                                    Confirmed Letter of Credit – sellers bank also agrees to pay
                       
 
Documentary Credit
            Simultaneous – goods tendered for payment (no risk of nonperformance)
                        Not always possible or practical
                                    Geographic distance (litigation costs, enforcing the judgment, etc.)
Comparative ignorance about contracting party (hard to get info, low reputation costs)
Discrete transactions (one time so low extralegal costs)
High value transactions (incentive to breach)
                        IBT – high transaction costs, high incentives to breach, little protection
 
            Sequential – Tender of one occurs before the other (risk of no goods or no payment)
                        Cash prepayment and open account payment options leave the other party at risk
                                    Performance risk
                                    Credit risk
                        Documentary sale – sell title to goods (still have risk of litigation)
                        Documentary Credit – secured by letter of credit (no litigation risk)
 
Delivery Terms p. 78
            Contract allocates risk of loss, loading and delivery, and freight
            INCOTERMS – cost saving abbreviations by the International Chamber of Commerce
                        E terms – minimal seller obligation
                                    EXW – deliver at seller’s place of business
                        F terms – no obligation to pay freight
FOB – seller loads and that is the end of obligation (title passes over ship’s rail)
                        C terms – Seller arranges freight
CIF – seller pays for insurance and freight (110% of invoice price minimum)
                        D terms – Maximum seller obligation
                                    DES – seller bears risk until delivered for offloading
            Problem 2-1 p. 78
                        FOB only applies to ocean loading
                        FCA – free carrier (applies to multimodal transportation)
Risk passes when it passes ships rail – exception is if ship is delayed (buyer pays for warehouse)
            Key is optimal allocation – who can bear risk at the lowest cost?
 
Payment
            Usually it is concurrent – goods for money
            Can opt out of this in international transactions (payment first and then performance)
 
            Problem 2-3 p. 86
                        Most people want to be able to transfer title while in transit
                        Buyer is entitled to inspect goods unless the contract says otherwise
 
Biddell Brothers p. 87
Seller wants payment against the docs (CIF contract)
Buyer is indifferent because it is insured
CIF must be negotiable unless agreed otherwise
Inspection rights under CIF – have to pay against bill of lading
            Can’t hold out until you can inspect or the goods are delivered
 
The Julia p. 93
K allows for pa

    Shipper must establish prima facie case
a.       Carrier received the goods in good condition
b.      Carrier discharged the goods in bad condition
Bill of lading is prima facie evidence (inspection certificates also count)
2.      Burden shifts to carrier to exonerate itself (show that it falls under an exception)
3.      Burden shifts back to shipper to show that it was caused by contributory negligence
4.      Burden shifts back to carrier to show how damage should be apportioned
 
Steel Coils v. M/V Lake Marion p. 115
Steel coils are damaged and must be repaired
Duty to inspect cannot be delegated (broken hatches on the ship let in sea water)
Bad weather is not a peril of the sea (must be some physical damage – something more then what happens all the time)
 
 
Marine Insurance
Probability of loss x relative impact of loss
3 alternatives
            1. Self-insurance – just grin and bear it
            2. Reduce probability or impact by taking precautions
            3. Shift risk to another party through insurance
Demand for insurance
            Parties are risk averse for catastrophic losses
            Regulatory required to have it
            Prospect of legal liability
            Rather pay premium than face uncertain prospects
Supply for insurance
            Pooling or risks makes the probability of loss predictable
            True underlying predictability can be ascertained
 
Marine Insurance
            Most cargo insurance is warehouse to warehouse
            Named insured can be the title holder (can transfer insurance while on route)
            Standardized language (Institute of London Underwriters)
            All Risk – covers inherent vices, strikes, riots, war, loss of market
            CIF requires only minimum insurance
 
Mirasco p. 123
Insurance for rejection of Cargo (except if embargo, loss of market, or mislabeling)
Beef livers are shipped with embargo on IBP livers