Outline of International trading of goods agreements

I. Factors to Consider-how are international commercial transactions different from domestic ones?
a. Transportation, Legal System, currency.
b. Primary risk
i. Seller: Possibility of not being paid after shipping.
ii. Buyer: Will not want to pay unless assured that the goods have arrived, or been shipped.
iii. Responses:
1. Assignment of foreseeable risks of the transaction in the contracts involved.
a. F.A.S: “Free Alongside Ship,” refers to the point of embarkation from which the vessel or plane selected by the buyer will transport the goods. The seller is obligated to pay all the costs and assume all the risks for transporting the goods from his place of business to the FAS point.

b. C.I.F: “Costs, Insurance, and Freight,” used when the selling price includes all costs, insurance, and freight for the goods sold “charge in full” , meaning that the seller arranges and pays for all relevant expenses involved in shipping goods from their point of exportation to a given point of importation.

i. Requires buyer to pay when presented with documents-such as bill of lading-before the goods arrive.
ii. C & F: no insurance. Seller pays for freight and other costs.

c. F.O.B: “Free On Board,” used when imports are valued at a designated point, as agreed between buyer and seller. In these contracts, the seller is obligated to have the goods packaged and ready for shipment from the agreed point, and the buyer normally assumes the burden of all inland transportation costs and risks in the exporting country , as well as all subsequent transportation costs, including the costs of loading the merchandise on the vessel.

i. FOB Vessel: the seller bears all transportation costs to the vessel named by the buyer, as well as the costs for loading the goods on to that vessel.

2. Avoid large and uncertain risks by creating devices which break them down into small measurable risks. (documentary transaction)
a. Sale contract, letter of credit, bill of lading.
II. The Sales Contract
a. Request of Proforma Invoice
i. Sent by buyer to seller.
b. Proforma Invoice sent
i. States the cost of each component (quote).
1. Recites FOB, FAS, CIF, or C&F price terms.
c. Purchase Order
i. Sent by the buyer
ii. Duplicates the pricing from the Proforma Invoice.
III. Letter of Credit
a. A form of contract; a promise by Buyer’s Bank which runs directly to Seller that Buyer’s bank will pay the sales contract amount to seller.
b. May be revocable or irrevocable(generally used for documentary transactions)
c. Issued upon buyer’s request after presentation of PO and PI.
i. Buyer’s Bank (issuing) then telexes its correspondent (confirming) bank in the seller’s country , informing them that a LOC has been opened and terms of the contract.
ii. Correspondent bank contacts seller and sends them a confirmed LOC.

IV. Seller Ships the Goods
a. Freight Forwarder: handles the actual details of arranging the shipment.
i. Letter of Instructions
ii. Commercial Invoice
iii. Packing List & Shipper’s Export Declaration
iv. Certificate of Origin*

b. Carrier’s Clerk
i. Dock Receipt
1. Covers the goods until the named vessel arrives.

ii. Bill of Lading
1. Issued by the carrier to forwarder which then gives to seller.
2. Serves as a contract between the Seller and Carrier.
a. Carrier will take goods to named destination, Seller will pay the Carrier.
3. Forwarder fills out the form stating the description of the goods and the description, markings, and weight of the crates or containers as directed by the Letters of Instructions.
4. May either be stamped “Clean on Board” or “Received for Shipment”
a. The LOC will detail which the seller prefers.
c. Payment of Seller
i. The text of the LOC will recite that the Seller can draw drafts from the buyer’s or seller’s bank.
1. Draft: Similar to a check, allows the Seller to draw on Buyers bank, ordering the Buyer’s Bank to pay Seller itself.
a. Negotiable in most cases.
b. May be payable either immediately (“On Demand” or “At Sight” ) or it can be payable at a time subsequent to the “presentment” of the draft (“30 fays after sight), depending on the LOC terms.
i. With time draft, an acceptance is given to the seller, which is a negotiable instrument.

ii. Most LOC list a draft as one of the documents the Seller is required to submit in order to be paid, together with the invoice, BOL, etc.

d. Presentment of Payment
i. Sellers Bank sends endorsed Draft and BOL to buyer’s Bank
ii. Buyer’s Bank informs buyer of document’s arrival.
1. Buyer’s Bank transfer’s BOL to Buyer.
2. Until the Buyer’s Bank n satisfied that it will be paid by the Buyer, it can control the goods by controlling the BOL.

Formation Of An Int’l Transaction

I. Contract Conflicts
a. The E.E.C. Convention forms the legal basis of all international contracts, not only within the E.E.C., but involving laws of any Member State.

b. The Convention contains three basic rules for determining the applicable law.
i. Parties are free to choose the law applicable to their contract.

ii. In the absence of choice, the contract is to be governed by the law of the country with which it is most closely connected.

iii. A contract is to be formally valid if it satisfies the formal requirements either of;
1. the law applicable under the appropriate one of the two previous propositions; or,
2. of the country it was concluded.

c. Applicable Law in the Absence of Choice
i. Under Article 4(4) of the E.E.C. the applicable law in the absence of choice is that of the country with which the contract is most closely connected.

1. Principle place of business of the carrier and also either the place of loading or discharge, or principal place of business of the consignor

2. Under Article 4(2) there is a rebuttable presumption that the contract is most closely connected with the country where the party who is to effect the “characteristic performance” of the contract has his habitual residence or, in the case of a body corporate or incorporate, has its central administration.”

ii. Restatements Second § 188
1. Governing law in the absence of choice by parties is determined by local law of the state which has the most significant relationship to the transaction.

II. (CISG) Contracts for the International Sale of Goods
a. The CISG is federal law governing all contracts, unless the parties have chosen otherwise under CISG Article 10.
i. The US has made a declaration as permitted by the CISG, Article 95 that it will not be bound by subparagraph (1)(b) of Article 1.

b. Article 19 of the CISG resolves the battle of the forms dilemma differently than section UCC 2-207.

Ex. Seller responds to an offer with a confirming invoice. The invoice however, involves an additional term that limits the ability of the buyer to notify the seller of product defects: What is the legal effect of the additional term.

i. The terms legal effect will turn on whether such a modification of the CISG notice provision would materially alter the contract.
1. Non-Material Modification: both the UCC and CISG would find that the contract incorporated the offeree’s modification.

2. Material Modification:
a. CISG would not recognize a contract because the modification turned the would-be acceptance into a counter offer.
b. The UCC would have found a contract under the material terms under the original offer. The modification of the notice provision would be stricken.

ii. CISG and materiality
1. Quantity, place and time of delivery, party liability, and Settlement of Disputes are considered material terms under the CISG.

Nakata, Filanto, S.P.A. v. Chilewich Intl’l Corp. (1994)
First Case to Interpret the CISG

Facts: Filanto, an Italian shoe manufacturer, brought suit for breach of contract against Chilewich, a NY trading firm. D sent contract (Russian Contract) to P outlining that disputes will be settled by arbitration. P sent a letter back stating that it will only accept some of the terms of the “Russian Contract.” D then sent a merchant memo, stipulated my both parties to be an offer, and which recited the arbitration clause. After two months P still had not replied and D opened a LOC in favor of P anyway. Ultimately D bought and paid for 60k pairs of boots and did not order and pay for the remaining 90k called for by Ds original order. P brings suit for Ds failure to buy the 90k pairs.

Issue: Whether an agreement to arbitrate existed between the parties.

Arguments:
I. Plaintiff Argues
a. CISG is applicable because it is a dispute between two international parties.
b. Article 19(1) of the CISG deems Ps letter to Chilewich rejecting the arbitration clause, a counteroffer.

II. Defendant Argues
a. Ps silence after D opened the LOC was an acceptance of the offer.
b. Ps rejection of the arbitration clause was a modification proposal which D rejected.

III. Court notes
a. The question of whether parties agreed to arbitrate was governed by federal law.
b. General principles of contract law such as the UCC did not apply, but rather the fed. law of contracts found in the CISG.
c. Parties agreed to arbitrate in Russia.
d. Arbitration would be ordered in the interests of justice.

Rule: An offeree who knowing that the offeror has commenced performance and fails to notify the offeror of its objection will be deemed to have assented to such terms of the offeror.

III. UNIDROIT Principles
a. Principles are modeled after the CISG but depart in three significant ways.
i. Broader in scope. CISG is limited to sale of goods.
ii. Extent to which it covers the same ground. Principles deals with battle of the forms more innovative.
iii. Principles not intended as an adoption as a treaty or as a uniform law, rather, it is in the nature of a restatement of the commercial contract law of the world.
b. Functions:
i. Helps to avoid deadlock when parties cannot agree to a choice of law clause.
ii. Supplement for decisions under international agreements such as the CISG.

Author: admin

Author: admin

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Settlement of Disputes, country.