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International Business Transactions
Wayne State University Law School
Qin, Julia Ya

INTERNATIONAL BUSINESS TRANSACTIONS REFINED OUTLINE
The Basics of International Business Transactions
Determining Applicable Law
US Law Hierarchy
·         Highest power Constitution, Statutes and Treaties are co-equal (supremacy clause), then state law [federal law trumps state law] §         Art 6 of the constitution says this constitution, laws, and treaties shall be the supreme law of the land
§         What if there is a conflict b/t the Statute and Treaty: Whichever is enacted later prevails
2 types of treaties
Self executing
Automatically applicable and enforceable in the US, no congressional action required
Non-self executing
Must be enacted by congress to be enforceable
“Transformation” required to be effective – congress must incorporate the document as a statute
i.e. WTO treaties, etc are usually paraphrased and summed up together and implemented in statutes
How can you tell the difference bt a SE and NSE Treaty?
Not easy to tell, but if cannot be determined, then the judiciary may decide
Executive Agreement
Not a status of a treaty bc it does not have approval by congress (like an administrative regulation domestically)
The president may sign an agreement without obtaining treaty status
This is below Treaties but above state law in the hierarchy
International Law
·         What is the US obligations under Treaties [SE or NSE] or an executive agreement?
§         Difference from US – the obligation for the US is the same whether or not the agreement is a treaty or an executive agreement
§         US still has an obligation as far as the foreign governments are concerned even if unconstitutional in US. One exception would be if the agreement is against international law – i.e. agree to commit genocide.
Summary: there may be a treaty unenforceable in the US but may still be enforceable internationally, whether by sanction or other result
Part II. International Sales
Applicable Law: Formation of Contract [75] ·         CISG (self-executing) governs sales of goods between contracting parties unless they explicitly opt out under Art 6
o        The US took a reservation in art 95 to limit the CISG applicability to bt only contracting parties
o        Purpose: to avoid conflict of law issues
o        Requirements for CISG to apply
§         International
·         Art 1: b/t parties whose places of business are in different states
o        Place of business is that which has the closest relationship to the K and its performance
§         Sale of goods
§         With a substantial relationship to one or more contracting states
·         Both states are contracting states OR
·         Only one state is a contracting state and private international law leads to applying the contacting state’s law (US opted out of this provision so UCC would apply in this situation)
Problem 4.1
o        Facts: Acknowledgement contained a choice of law provision and ‘as-is’ provision. Buyer wants a refund bc defect but seller points to As Is Clause
o        How do you determine if the additional terms are valid?
§         First look at applicable law in this situation (Ct Decides), whether applicable law says additional term will be part of the K
§         Additional terms cannot be presupposed before applicable law is determined
Choice of Law Basics for Sale of Goods
The parties to the K must determine the applicable law
Domestic Sale of Goods: UCC governs
International Sale of Goods: CISG governs unless the parties “opt out”
CISG does not define everything so the parties should also refer to ICC or Incoterms
Two things that are the same bt conflict of laws (domestic) and private international law (international)
Freedom of the parties to choose applicable law except where the government says no
RULE: When parties do not exercise the freedom to choose, the cts will look at the most connected, most significantly related place to the contract (most closely related place typically will be the law)
How do we get certainty as to choice of law?
Procedural rules:
Parties should expressly state choice of law, otherwise…
International: EEC (European Economic Committee) Convention [77]] If the place of negotiation coincides with the place of performance, the law of that jurisdiction should usually apply (most closely connected)
US: Restatement Conflicts of Law [80] Useful tool that tells how the US law applies in the situation, not for the states to adopt
Substantive rules:
International: CISG (Convention on Contracts for International Sales of Goods) Treaty drafted by the united nations accepted by major trading powers (including the US, except the UK)
US has ratified CISG, and it is a Self executing treaty so the cts apply the treaty directly [supp 28] CISG is superior to UCC bc CISG is equal to a federal statute and UCC Is state statute
§         Adding a material term to the K turns the acceptance into a counter offer and therefore no K (different from the UCC – term just does not become part of the K)
US: UCC 2-207
B/t merchants, absent a contrary course of dealing or usage of trade, a disclaimer that materially alters the contract would not become part of the contract. 2-207(1)
If one must have a term, that party should bargain for it and not use the lawyer’s sleight of hand
Sphere/Scope of application of CISG (contracts for sale of international goods) [Supp 29] o        Art I: This convention applies to sales of goods bt parties whose places of business are in different contracting States [Countries] §         CISG applies to non-contracting states when the rules of private international law lead to the application of the law of a Contracting state Art 1(1)(b)
·         Exception: US is not bound by this provision under the Art 95 reservation (CISG only applies bt US and another contracting state when US is a party)
o        Art II: CISG does not apply to sales of goods for personal use, only applies to commercial transactions
§         Other exclusions: electricity, aircraft, stocks, etc.
o        Art III: Labor/Service not included
o        Art IV: Convention governs only the formation of contracts for sales.
§         Concerns only formation of the K and not the validity of the contract
o        Art V: Does not apply to liability for personal injuries caused by sales of goods
o        Art VI – very important
§         The parties may exclude or vary the effect of the provisions contained in the CISG
§         Parties may modify or not use CISG if they decide not to
§         Default position is CISG applies if the contract does not say otherwise
What difference bt CISG and UCC substantively
Treatment of Oral Contracts
Art 11 of CISG: acceptance of sale need not be concluded in and is not subject to any requirements as to form – Oral contracts are valid
UCC: Oral contracts for greater than $500 are not valid
Danger: if CISG applies, then proven oral agreements would also be applicable to the client
US did not make a reservation under Art 11 (although it was allowed) therefore oral contracts are ok if CISG applies
Difference in approach b/t UCC and CISG (how the scenario will work out differently)
UCC
·         Practical approach under UCC 2-207 [1009] 1.       If there are non-material additional terms, the acceptance is valid unless expressly rejected (automatic inclusion unless rejected)
2.       If the additional term materially altered the offer, the other party must expressly agree
What constitutes materially altering: clauses negating standard warranties, changing power of seller to cancel upon failure of buyer to pay comment 5
3.       When you have a contract, then the terms will be what was expressly agreed to plus substantive provision of UCC used to gap fill on any disagreements
When goods are shipped, accepted and paid for there is a contract even if no writing exists comment 7
The governing terms will be determined by conduct of both parties and gap filled by the appropriate UCC sections
CISG
This instead goes through offer and acceptance to see which is offer and acceptance
Offer: sufficiently definite and indicates the offeror’s intent to be bound
Acceptance: A reply to an offer that has additions, limitations, or modifications is a rejection of t

r and the Shipper for the shipper to send the goods
2.       Receipt to seller to show who has the physical goods
3.       Whoever physically possesses the BOL has control of the goods and title to the goods
b.       Any other documents listed
c.        Other major document: a Draft [68]                                              i.            Defined: Seller (Drawer) to Issuing Bank (Drawee) to advise the Issuing Bank to pay the Seller
·         Timing
o        Seller Ships goods
o        BOL, Draft, and other documents sent to Advising Bank and will pay seller for the documents honoring their LOC K with the seller
o        Confirming Bank sends documents to Issuing Bank who will pay
o        Issuing Bank will advise the Buyer to pay in order to receive documents
o        Carrier will demand the BOL before delivering the goods bc BOL controls title to the goods
Commercial Terms [105] ·         A K for sale of good should refer to a way to define the terms of the delivery obligations by an international standard (Incoterms or UCC)
·         Typically used to define delivery of goods, including place, method, risk, insurance.
Incoterms – International Commerce Terms
What is the advantage: everyone understands what it means and is not necessary to put in the contract
The parties can use the terms but also can modify the terms
Payment for the goods
Pay when the contract says OR
K only says FOB, then payment is due after inspection of the goods
CIF: Payment here is at the time the documents are submitted, buyer does not get to inspect before paying [this is implied bc of the documentary sale] 4 Subgroups
E, F, C, and D increasing responsibilities on the seller with most under D
E Term (least obligation on the seller) Seller responsibility stops at the factory
F Term – Carriage Unpaid
FCA ______ (Place) – Free Carrier, Seller responsible until Carrier picks up [i.e. could be airport or other transportation] FAS – Free Along Ship: Seller responsible until at port/dock
§         FOB – the buyer must arrange for the carrier bt himself and delivery to Carrier
·         Seller must provide the buyer with proof of delivery
·         No requirement for a documentary sale
·         Non negotiable BOL is incoterms default but either is ok if agreed
Type of F.O.B. contracts:
Strict of Classic: Buyer nominates a suitable ship, seller puts goods on ship. S is in contractual r-ship w/ the sea carrier
Contract w/ additional services: Shipping and insurance arrangements are made by the seller for the account of the buyer. Seller obligated to nominate suitable ship. S is in contractual r-ship w/ the sea carrier
Buyer contracting w/ carrier: B enters into contract of carriage by sea directly or through an agent (S not a party to it). B nominates ships
Two critical points in the passing of risk:
FOB occurs at the port of shipment
·         Cost of carriage and insurance occurs at the port of destination
A5 Seller have risks until goods pass ships rail (same risk as CIF bc the seller could sell to another buyer after the goods are on bd, even though the seller is paying carriage and insurance)C Terms – Seller responsibility covers the shipping time – Carriage Paid
CFR – port of destination cost/freight
§         CIF – seller’s obligation to get the carrier