International Business Transactions

Text: International Business Transactions, 6th Ed., Folsom,

Gordon, Spanogle

1) Transfer of technology v. Foreign direct investment
a) Transfer of technology- you find someone in Tropica
who will make the stuff and you license them the
technology.
b) Foreign direct investmentyou go there and start a
plant yourself and keep the technology secret.
c) Problem: Some countries are known for using or
confiscating technology without paying for it: does the
country have copyright laws?
d) With foreign direct investment, you dont have to
worry about protecting it.
2) Non-tariff barriers
3) State trading organizationcommunist countries. Some
of these dont let you take profits out of the country. you
would want to invest in such a country because
of Investment marketingsomeday it will pay off, change.
4) World alliancesGATT, IMF, WTO,
a) developed v. undeveloped nations
b) Countries cultures are important.
5) Chapter 2: The Actors
a) Roles to nations play in international trade: as
producers or purchasers; if so you want to ask whether
they can claim sovereign immunity.
b) Multinational corporation:
i) does business with several foreign countries, or
ii) has shareholders in different countries, or
iii) where it is incorporated.
c) Labor issues: can you get workers, visas, whose labor
laws, what laws apply to the foreign nationals, how to
fire them.
d) Creeping expropriation: begins by a country
imposing regulations on a corporation, it slowly you
need more and more permits.
6) Foreign law vs. international laws.
a) International economic institutions.
i) UN, has different economic commissions.
ii) UN commission on international trade law
(1) These write model laws, like the CISG, p. 19
7) Bretonwoods Conference after WWII created the
World Bank, GATT, WTO etc., to promote trade to
countries would be less likely to go to war again.

8) Documentary sales transaction, p. 48
a) International transaction different from a domestic one?
i) Number of parties.
ii) Risks.
(1) Different currencies.
(a) Devaluation. You may not want the
currency of country X, and it may devalue by
the time it gets to you,
(b) Removal from the country. Can you can
take dollars out of the country.
iii) Different Legal systems, lawscommon v. civil
law; export laws. Does the particular buyer live in a
country that has a boycott.
iv) Intl law treaties. Are there treaties that will
establish different legal.
v) Will the seller get paid?
vi) Will the buyer getting the quality and quantity of
goods he ordered.
b) Intl Laws:
i) licensing requirements,
ii) in US, instead of article 7 UCC
iii) Federal rules applies
(1) Pomerene Act (Federal Act on Bill of Lading).
(2) carrier of goods--COGSA, Carriage of Goods
by Sea Act.
iv) CISG, an intl treaty. If I do a transaction with a
country that has signed onto the CISG, then
the CI SG applies, not the UCC. But we
might want the UCC to apply, and we can do that by
putting it into the contract that the CISG doesnt
apply.
c) Responses to the risks Chop the risks into smaller
risks, to those who are in the best position to evaluate
the risks.
d)
i) Special terms governed by INCOTERMS.
(a) F.A.S,
(b) C.I.F.,
(c) F.O.B.,
(d) non-negoiable Bill of Lading,
(e) negotiable draft (or bill of exchange),
(f) confirmed and irrevocable letter of credit.

9) Problem 4.0 The basic documentary sale
transaction Toys to Greece, p. 75
a) facts
i) Santa Claus company of Aurora, NY will sell toys
to Alpha Company of Athens, Greece.
b) Contracts: independent but interrelated.
i) sale contract
(1) between buyer and seller
ii) letter of credit contract
(1) between Buyers bank issuer and Seller
(beneficiary)
(a) buyer is applicant
(b) Sellers Bank is confirming or advising
bank;
iii) Bill of Lading contract:
(1) Between Seller (shipper) and carrier
c) Sales Contract
d) How established:
(1) request for an offer: Buyer sends a request for
offer, and letter from Alpha.
(2) Offer made. Then Santa Claus sends the offer
itself with the proforma invoice.
(3) Acceptance. the purchase order is an acceptance
(but this would be a rejection and counter offer, if
they had changed the terms. There is a new term
here delivery required prior to July 1, 2000,
and a request for a response.)
ii) Terms of the offer: Form 2, proforma invoice.
(1) Payment terms: Confirmed irrevocable letter
of credit confirmed by US bank and called
for payment against documents in NY City in US
funds.
(2) F.O.B. East Aurora, NY (buyer has risk)
(3) F.A.S. NY City (seller has risk) (Ill ship the
stuff so its free alongside the ship)
(4) C&F (cost and freight) (once on the
ship, buyer has the risk; on the dock side, seller
has risk)
(5) C.I.F. (Cost, insurance, and freight)its
payment against documents.
(6) Payment against documentshe gets paid
when he presents the documents, the documents
are listened in the payment of credit.
e) Letter of Credit Contract, FORM 4, p. 55
i) Places the risk of default on the hands of the
participant who can best evaluate the risk (Buyers
Bank, because they can get a credit report, or have
done business with Alpha in the past.)
(1) Buyer is concerned about getting the right
quantity and quality. How to deal with
this? Inspection Certificate.
ii) How established: Buyer goes to his bank and asks
them to issue a letter of credit to Santa Claus. This
is a contract between the Buyers bank and
the Seller.
(1) Bank promises to pay the seller if he produces
certain documents.
(2) The Sellers bank confirms the letter of credit
with the seller.
iii) Form 4: p. 59: Confirmed and irrevocable. The
seller wont be paid unless the seller produces these
five documents:
(1) negotiable Bill of Lading,
(2) Insurance policy,
(3) Packing list,
(4) Commercial invoice,
(5) Export Declaration.
iv) Governed by the UCPUniform Customs and
Practices. If this hadnt been there, the UCC
probably would control.

f) Bill of lading, (agreement between the shipper and
the carrier).
i) Deliver the goods to the individual or entity bearing
it (Deliver to the order of . . . . This makes it
a negotiableinstrument.
ii) This is between the buyers bank and sellers
bank. The Buyers Bank is promising that if you
handover the bill of lading, we will pay you. It
wants to see the Bill of Lading made out To the
Order of Greek bank. But we put our own name on
it, because the Bill of Lading Controls the goods. I
want to maintain control so Ill get paid. The letter
of credit was confirmed, so the Seller just brings it to
his own bank in NY. The sellers bank will pay for it
because the Sellers Bank has a contract this
Seller. My bank will buy the documents from me
and they want the seller to signed the documents
over to the NY Bank. Marine Midland Bank will
then signed the documents over to Athens, in
exchange for the funds. Then Athens bank is the
only one who can control them. The Athens bank
then sells them to Alpha, who then is the only one
who can go to the dock and pick up the toys.

g) Form 2, p. 53 Proforma, FORM 5.
h) FORM 9. Dock Receipt--clean on board = no
damage to the goods.
i) COGSAinsures for up to $500 per package.

1) PROBLEM 4.1, p. 75
a) FACTS: Universal Pipe Inc., in Kansas sells insulation
to Euro, Ltd. Offer and acceptance have different terms.
(1) goods sold as is with all faults (see UCC 2-
316).
(2) Contract governed by the laws of Kansas.
ii) Euro incurs $1m loss when insulation corrodes
refinery pipes.
b) Analyze breach of contract
i) First: Conflict of laws
(1) whose law governs interpretation of the contract?
ii) Second: Contract formation/Battle of the forms
(1) Substantive law question: How will contract be
interpreted? will the law chosen govern it?
c) Conflict of Laws Whose law governs?
i) US law on conflicts (Kansas or Federal)
(1) UCC 1-105, p. 993:
(a) Parties chose --- reasonable relation.
(i) TEST: the law chosen must be that of a jx
where a significant enough portion of the
making or performance of the contract is to
occur or occurs. Seeman v. Philadelphia.
(b) Parties dont chose --- appropriate relation..
(2) Restatement of Conflict of law. 188 p. 78-9
use the law of the state that has the
most significant relation to the transaction.
(3) Problem: difficult to figure out.
ii) German Law on Conflicts. p. 77-78.
(1) E.E.C. Convention of the Law Applicable to
Contractual Obligations.
(a) freedom of choice. Art. 3
(i) Mandatory lawscant escape. art. 3(3)
if we make a contract and the contract has
everything to do with Germany, but we
choose English law, we cant use Germany
law to escape mandatory German law.
(b) Default. Art 4(1): if no choice is made, apply
the law of the country with which the contract
is most closely connected. p. 1057,
supplement.
(i) TEST: characteristic
performance. 4(2) presumption of closely
related to the country conducting the
characteristic performance: The act
required of the contract(here, the
shipping).
d) Substantive Potential Jx--contract interpretation
i) US
(a) UCC 2-207, p. 81-84
ii) German Substantive Law, p. 85-87
(a) Ruster Article, p. 85-87
iii) Treaty
(1) CISG p. 91

iv) United States
(1) UCC 2-207--Between merchants, additional
terms become part of the contract unless . . . they
materially alter it.
(a) Are these additional or different terms? If
there is no choice of law designation, the
CISG applies.
(i) p. 29: CISG Art. 1 this law applies, unless
under Art. 6 the parties opt out of it.
(b) Different terms:
(i) Choice of law: The statement that Kansas
law applies.
1. law of Kansas as to the contract is
substantive law and it has to be
material.
(ii) disclaimer. comment 4: a disclaimer of
warranty is a material altering.
(iii) Arbitration.
v) 2-207 is very confusing, even White and Summers
disagree, p. 81
(1) gap-fillers , such as 2-314 (Implied Warranty
of Merchantability). If they are different terms,
they get knocked out. and you have to figure out
which law will provide the gap fillers.
(2) White says they both get knocked-out, even
when there is a contract. p. 82
(3) What if we make the decision that both of these
terms are part of the contract? Then Kansas law
applies, which is UCC and CISG, federal law will
trump state law.
(4) How would you argue to include UCC: if I
hadnt said anything the CISG, and I said Kansas
law, and because you cited the UCC. In real life
you need to specifically opt out of the CISG
under article 6.
2) B. German Substantive Law.
a) Mirror image. If the acceptance isnt exactly the same
as the offer, then its a counter offer.
i) EX: A client calls and the goods are on the ship, and
the German buyer wants to renege, why do you want
the contract to be governed by the UCC? Because
the German law is a mirror image rule. If German
law applies, theres no contract, unless the
buyer performs, but as long as they are still in transit,
buyer hasnt performed and he can renege.
b) No Acceptance by silence. General rule is no. p.
86. Silence is generally not recognized as acceptance.
i) Exception
(1) prior business relationship. However, if youre
dealing with someone with whom you have a
prior business relationship, you are obligated to
answer immediately, and silence will be deemed
acceptance of the offer.
(2) Good faith; Acceptance of the new offer by
silence is assumed where food faith standards
would have require explicit rejection. p. 85
3) CISG (Treaty law default law, art. 1)
a) Material changecounter offer. Article 19, p. 32;
i) No contract. if terms materially change the
contract, then its a counter offer, and there is no
contract. If no materially change, then acceptance.
(UCC would just knock out the different terms, but
there would still be a contract)
ii) Material: paragraph 3: terms relating to the price,
payment, quality and quantity of the good, place and
time of delivery, extent of one partys liability to the
other, or the settlement of disputes are considered to
alter the terms of the offer materially.
iii) But a german court held that such a modification
was nonmaterial, and there was therefore still a
contract. p. 92. So we dont know how the CISG
will be interpreted. A German court may interpret it
narrowly (more like the UCC), while a French court
may interpret it broadly.

b) Defaultabsent choice of law. Filanto, p. 94
i) Citing art 1(a) of the CISG, the court state that
absent a choice of law provision, the CISG
governs all contracts between parties with places
of business in different nations, so long as both
nations are signatories to the CISG.
c) Parties may opt out under Article 6.
i) USA has made a reservation under art. 95, with
respect to art. 1(b). We want to apply the UCC.
ii) Germany: as to any country that has reserved
rights under art. 95, we reserve the right to treat them
reciprocally. Apply 1(b) with reciprocity.
d) When would 1(b) apply? CISG will apply between
contracting parties. But when theres a Contracting
party (USA) and a non-Contracting party (Thailand),
and they have a choice of forum clause which places
them in a German court.
e) The contract says apply Kansas law. You want CISG
to apply. How could it come in under 1(b)?-- CISG
law is Kansas law because of the preemption law. So
the German court should apply CISG, but theyre not
going to because Germany has made a reservation
which says that were not going to apply 1(b) to those
who have made a reservation regarding 1(1)(b).
f) p. 91: Germany holds the view that Parties to the
Convention that have made a declaration under art. 95
of the Convention are not considered Contracting
States within the meaning of subparagraph (1)(b) of
art. 1 of the Convention. Accordingly, there is no
obligation to apply [...] this provision when the rule of a
private intl law leads to the application of the law of a
party that had made a declaration to the effect that will
not be bound by sub 1(1)(b) art. 1 of the Convention.

4) UNIDROITa Restatement of International trade
custom. use to supplement your contract terms. Why
would you want to
a) UNIDROIT Principles: If the parties have difficulty
agreeing ... p. 97
b) Battle of forms, p. 97
i) custom made acceptance (including
handwritten)-same as art 1 of the CISG.
ii) Use of Pre-printed standard form (boiler plate)
form of acceptance of either parties form forms
agree or else they knockout.
iii) Written confirmations: If a written confirmation
of a contract previously made is sent by one party to
the other, and additional or different term becomes
part of the contract unless it materially alters the
contract or the recipient of the confirmation objects
to the term.
c) Arbitrators often use UNIDROIT.
d) Problem: theres no database to find all the
UNIDROIT decisions.

5) Filanto v. Chilewich
a) Chilewich is buying shoes....contract with Russia
includes an arbitration clause. Chilewich contracts with
an Italian company, and says that all disputes have to be
resolved in Russia. The first communication says
arbitration, the second says no arbitration. There was no
response from Filanto and Chilewich opened a letter of
credit, which sounds like reliance. Then Filanto sends a
letter excluding the Russian arbitration clause. Filanto
sues in US District Court. Chilewich says you cant sue
us in a US district Court.
i) p. 95
ii) R: What law applies?- CISG.
iii) Silence as acceptance under CISG. Court focuses
on 18(1) A statement made by or other conduct of
the offeree indicating assent to an offer is
acceptance. Filanto says that because it was silent
there was no acceptance. The court says you knew
that Chilewich had opened a letter of credit in
Filantos name.

b) Moral: if your client needs a particular term, make sure
that its in the contract before hand, because if you have
to go into a foreign court. If the other party wont allow
that term, tell your client to charge more.

6) Problem 4.2 Commercial Terms, Bills of lading and
insuranceBooks to Bath, p. 105
a) Facts; Sam (Your client) is a book writer. Bill Bones
(publisher in England) wants two dozen
gross. Howard Hunt Terms: contract with Bones;
FOB Savanna; contract governed by ICC INCOTERMS
(1990). Contract with Hunt: CIF, Bath, United
Kingdom; terms governed by ICC INCOTERMS
(2000). CN: no letter of credit in this case, these are
small sells, and people with whom Sam has dealt with
before.
b) difference between
i) mandatory laws. (state laws binding on the parties
, may not be set aside),
(1) COGSA
(2) Pomerene Act.
ii) optional laws, eg.,
(1) UCC
(2) trade customs-INCOTERMS
c) Trade terms
i) FOB
(1) English meaning of fob = the American fob
vessel.
(2) supply transactionseller needs to obtain export
license.
(3) Export transaction buyer needs to obtain
export license.

ii) C&F/CIF
(1) Must have a negotiable Bill of Lading, p. 109
(2) basically FOB plus obligation for seller to
arrange for carriage and carriage and insurance,
respectively.
(3) Two critical points
(a) passing of the risk, like FOB - at port
of shipment.(ships rail)
(b) costs of carriage and insurance, occurs
at port of destination.

iii) CIF-Sale of documents, p. 110
1) Shipping documents : The seller has the obligation of
tendering:
i) bill of lading
ii) insurance policy
iii) invoice
(1) shows the price, and a deduction of
the freight which the buyer pays before delivery
at the port of discharge.
2) CIF is a contract for the sale of goods to be performed
by the delivery of documents, at which time the
a) buyer is bound to pay for the goods, even if
i) goods have already been lost. p. 111, C. Groom
v. Barber
ii) Name not controlling. if a contract does not
possess this sale of documents character, it will not
be a CIF, even though the parties call it that. The
Julian, p. 111.

3) No right to inspection. youre buying documents in
lieu of the goods, you cannot refuse to buy the
documents just because you have not had the
opportunity to inspect the goods.

4) Loading of goods. If the goods are not being loaded in the
tradition way that is, using a crane to take the goods over
the ships rail, then you dont want to use either CIF or
FOB.


5) INCOTERMS (2000 ed.), p. 113 : separate from
substantive law, but rules which the parties may choose.
a) Free on Board means

b) Questions on 105:--FOB
i) No, Sam has no duty to do this, INCOTERMS, p.
113, A3 (sellers has no obligation to contract
carriage or insurance), the buyer is supposed to
arrange for the transportation of the goods for an
FOB.

ii) If Sam arranges transportation, and wants to be sure
that Bill pays--Make the Bill of Lading
a negotiable bill, (its starting to look like a CIF)

iii) No, seller has not responsibility to obtain insurance,
only in a CIF.

iv) In an FOB, seller doesnt need to buy any
insurance. But you should go ahead and buy
insurance. But COGSA already provides
insurance. But there are lots of limitations on the
insurance that COGSA provides. So you probably
want to buy additional insurance. But if youre
going to pay for carriage and insurance its
essentially a CIF.

v) Can he put them all in one container and ship them
separately? No, they are separate contracts and
require separate documents.

vi) Buyers have no right to inspect.
vii) What kinds of FOB contracts require
a negotiable bill of lading--all? UCC 2-319, p.
1006. Only one person will be able to pick up that
one package.

viii) must relate only to the goods which the buyer
has agreed to buy p. 111: Where the bill of lading
is tendered to the buyer, it must relate only to the
goods which the buyer has agreed to buy; if it covers
other goods as well, the buyer may refuse the
tender.
(1) To enable the buyer to deal with the goods
while they are afloat the bill of lading must be
one that covers only the quantity of goods called
for by the contract. The buyer is not required to
accept his part of the goods without a bill of
lading because the latter covers a larger quantity ,
not is he required to accept a bill of lading for the
whole quantity under a stipulation to hold the
excess for the owner.1008, UCC, 2-320, comnt
4:

c) Right to inspect.
i) YesFOB plant.
ii) No
(1) C.I.F. p. 1008: comnt 1, the buyer has no right
to inspection prior to payment or acceptance of
documents.
(2) FOB vessel, FAS--If its payment against
documents, whether fob or otherwise. see UCC
2-319(4).
(3) The leading case concerning buyers (lack of a)
right of inspection under CIF contract (or any
other contract which requires payment against
documents) is Biddell Bros. v. Clemens
Horst. See, p. 112;
iii) Not directly covered under INCOTERMS, but.
negotiable bill of lading CIFto the order of
negotiable bill of lading,
not necessary
FOBto the bearer of
(1) A10FOB vessel--the seller must render the
buyer every assistance.
iv) Since both buyers have declared INCOTERMS,
buyer would have the right to inspect.
v) If they specified the UCC, then buyer wouldnt have
the right to inspect.

d) CIF is negotiable, made to the order of
i) The Carrier stamps it On Board Sams Load,
Weight & Count and Contents Unknown Its not
a clean bill of lading. Sam is worried that its a foul
or unclean bill of lading. But does this stamp make
it an a foul Bill of lading? no.
(1) p. 126, note 10: The following clauses do not
convert a clean into an unclean bill of lading:

e) Mandatory laws. Can the shipper disclaim
responsibility for shipping the wrong goods? Look to
the mandatory laws? COGSA. Or in international law:
the Hague Convention (1924), which were an attempt to
codify an uniform international aw of carriers and
shippers. This was amended in the Hague/Visby
(1968), now the Hamburg convention.

i) Carriers liability. It is now less advantageous to
the carrier: Now they say that they cannot have
exclusion law, but liability is limited to $500 per
package.

ii) Declaring a higher valueobvious
opportunity. What if Im the shipper and I want
more than $500 of coverage? You declare a higher
value on the Bill of Lading. (p. 64). The carrier must
give the shipper an obvious opportunity to declare a
higher value. But then the carrier can charge the
shipper a little more.

iii) Paramount clause p. 127. You cant contract
out of the Hague Rules. Both the Hague and
Hague/Visby Rules contain paramount clauses.

iv) COGSA is the American version of the Hague
Rules.
(1) applies to both import and export. p. 128

f) Three Roles of the Bill of Lading, p. 129,
i) contract for carriage
ii) receipt of goods
iii) document of title

g) p. 121: Hypo: if you send your agent to the dock to
deliver the goods and he returns with a
i) seaway bill--not a title to the goods).
ii) Multi-modal transport bill of lading-- not a
negotiable, (banks dont want to make these
negotiable because theres so many different carriers
involved).
iii) Electronic bills of ladingnon-negotiable: You
give the goods to the carrier and he will create an
electronic PIN. Then whoever shows up at the port
with the PIN. A new Pin would have to be issued for
each party. This method has not been all very
successful.
h) The Transnational law of intl commercial transaction,
p. 130
i) The various systems of national law essentially
consist of two types of the legal rules. Some of them
are mandatory in character, others are optional. The
mandatory rules have to be accepted by the persons
affected by them, whether they like them or not. The
optional rules may be accepted by the parties or not,
or they may be modified for their convenience.

i) Carriers duty to inspect. Berisford, p. 131
i) Facts; The carrier locked the containers in Brazil,
and when they arrived in the USA, some of them
were empty.
j) COGSA requires the carriers to conduct a
reasonable inspection.
k) p. 133, role of the Bill of lading: It is sole integral to
international business transactions, that errors are not
excused.
i) acknowledgement by the carrier of receipt of the
goods
ii) a contract for carriage
iii) a document of title it controls the possession of the
goods themselves.
l) Where does the carrier provide a description of the
goods for which they are responsible.? On the Bill of
lading.
m) What if the shipper says its books, but sends garbage.
Is the carrier responsible for a mis-description? The
carrier is responsible to provide a reasonable
inspection of the goods. Carriers are allowed to stamp
this on the bill of lading: Desire Under the Thornbush,
shippers count, weight and.
n) It was unreasonable for them to say that they loaded an
hundred ingots when they only shipped 30 and, and the
containers weigh 78k lbs less than it was supposed to.
o) Ct: yes, Carrier is contractually limited to $500 per
container if you perform the contract, but if you
breach the contract, then COGSA doesnt apply. So did
it breach the contract, and is there a liability for mis-
description?
i) Even if opening of the containers posed
difficulties, at the very least the carrier owed a duty
to verify the weight of the containers at shipside
before they were placed aboard its ship and before it
stated that they contained 100 bundles of tin ingots
weighing the equivalent of 111,656 lbs., which
would have been 80k lbs. in excess of the weight the
containers actually loaded.
p) Generally, the carrier will be relieved of liability if he
stamps on it Shippers Load, Weight and Count. unless
a reasonable inspection . . . if it is obviously not what it
says to be, then it wont be a reasonable inspection.

q) Tetley, p. 129 the carrier must inspect the goods
upon receiving them. The inspection is nevertheless
only a reasonable inspection.
i) This is important so he can give a clean bill of
lading. If it weighs 78k lbs less then when you
received it, it is probably not reaonsable.
r) POLICY REASON: to protect the integrity of the bill
of lading.

s) Julia case, p. 111
i) CN: even if the good have been destroyed, I can
turn the documents over to you have, and you have
to pay. The parties called it a c.i.f. contract but it
wasnt, it was just a contract to purchase. Rye was
sent to Belgium, the ship gets captured by the Nazis
and goods dont get delivered. Argentina found that
it wasnt a c.i.f. Ex ship does not require payment
against documents.


Intl state to state Within State
COGSA-
federal
Harter Act UCC

1) The problem with FOB is knowing whether it should be
defined by UCC, INCOTERMS, or English law.

a) Under UCC
i) Does FOB provide for a negotiable Bill of lading?
yes, unless FOB vessel. Does it require an inspection
of goods? If theres a negotiable Bill of Lading..
b) INCOTERMS
(1) Does FOB provide for a negotiable bill of
lading? no.
(2) Buyer pays cost of Inspection? yes.

c) Payment against documents precludes inspection.

1) PROBLEM 4.3 Wars and other Frustrations: Oil
from Araby, p. 136
a) Section 1: the Setting
i) Gulf Refinery (Araby) ---- Jean Val Jean-----
Javert (France)
1) Contract w/ Gulf Refinary
i) FOB Refinery in Araby
ii) Force majeure
2) Contract with Constant Carrier:
i) Liberties clause: in event of great risk, Carrier may
require shipper to take the goods at the port of
shipment, or he make unload the cargo
somewhere. He neednt give notice of this, and such
discharge will constitute complete delivery and
performance of the goods.
3) Contract with Javert.
i) c.i.f. Marseilles, France
ii) escalator clause
iii) Excuse clause
4) Events:
i) Fire in Araby refinery causing delays
ii) War between Iran-Iraq

b) CN: Either the law of US or Araby? Are they both
members of the CISG. On an exam you want to say,
you didnt tell me if they are members of the CISG, but
if they are then CISG applies, if they are not then apply
the UCC. Do a choice of law for each contract.
c) Whose law applies in the contract between Jean and
Araby?

i) Issue: is there an excuse to get us out of the
contract?
ii) France: Use Contractual obligations (EEC): if
the contract is entered into in the course of the
partys trade or profession ... [then apply the law of]
where the performance is to be effected. p. 1057,
art. (4)(2) (absent a choice of law, the law of the
country which is most closely connect, which, when
the contract is entered into in the course of that
partys profession, where performance is to be
effected.) and the performance would be effected in
France, so French law applies. [even though neither
party is French??]

iii) Also, the contracts themselves should apply, thus
the force majeure, thus excuse. If the force majeure
clauses dont apply then . . .
iv) What could have been done better for our client
regarding the force majeure clauses. Provide some
kind of remedy?

v) it looks like Araby is excused, if it was beyond their
control. But what if there were no force majeure
clause? Can we make Araby pay damages?
vi) What substantive law applies? Araby is not a
party to the CISG, so you cant use that. Look at all
the possible laws, which one is best for your
client? You want something that says that Araby
cant get out unless its absolutely
impossible. Which is the harshest law? -- French.
vii) The French law.
(1) p. 161, it has to be absolutely impossible.
(2) According to the doctrine of force
majeure, prerequisites for discharge are:
(a) unforeseeability of a fortuitous event,
(b) absolute impossibility of performance and not
mere onerousness, and
(c) no fault on the obligors part.
viii) Which conflicts of law will we apply?: Araby may
be a former French colony, so they may follow
French law. Where suing? England, Araby?
d) All of the laws require unforeseeability.
i) The following general characteristics can be traced
in all national jx:
(1) (a) occurrence of an event after the making of
contract;
(2) (b) unforeseeable of the event;
(3) (c) alteration of the contract in an intolerable
degree, and
(4) (d) no fault on the obligors part. p. 163:
(i) CN: even if its completely impossible to
perform, they may not be excused because
it may be their own fault.
ii) Was it Araby Oil refinerys fault? Did they have
fire trucks handy? was someone smoking?
iii) Is it unforeseeable?
(1) The more sophisticated and widespread
international commerce becomes, the more
difficult it is to say that a party could not
reasonably have been expected to take an
impediment into account. This is reflected in the
paucity of successful cases under 2-615 of the
UCC (Impracticality . .. a contingency the
nonoccurrence of was a basic assumption ). p.
153
(2) As commerce grows more sophisticated and
multinational it becomes more vulnerable to
disruption from embargoes, wars, revolutions,
and terrorism in countries producing natural
resources. p. 156

e) Force Majeure clauses are options. We can select the
CISG. But force majeure clause could amend the force
majeure clause and the same things with the UCC.

f) Substantive law:
g) English: Radical difference
(1) The Eugenia, p. 141
(a) The ship was stuck in the canal. Once they
got out the original contract called for them to
travel through the Suez, but it was blocked so
they had to go around Africa. The owners say
they had to pay more money. But the
charterers say that it should be excused.
(2) TEST: a situation must arise which renders
performance of the contract a thing radically
different from that which was undertaken by the
contract.
(3) R: The fact that it has become more
onerous or more expensive for one party than he
though is not sufficient to bring about a
frustration.
(4) By the time you have to look at is the entire trip,
and theres not that much of a difference.

h) There are things which distinguish this case and make it
radically different?
i) p. 156:
j) p. 145: If the goods were subject to spoilage (here is
was iron ore).

5) Which Contract would the CISG (Treaty) apply to?
a) With Javert-France is a party to the CISG.
i) EXCUSE: article 79: impediment beyond his
control. The CISG applies to any party in any
situation. Whereas the
b) Elastic words, p. 151 (Nicolas)The court decides if
theres an impediment. But the problem with elastic
words, It allows for nonconformity in the interpretation
of law, between the civil and common law system.
Courts in these different systems will start interpreting
the terms in this convention and in doing so they will
rely on their own precedent. The Germans will look at
how German courts will interpret it: broadly, whereas
france will interpret it narrowly. This defeats the
purpose of having an international convention.

c) First, look to the definitions of the contract. Does the
CISG allow you to change the definition under article 6?
d) If you dont use your own law, you look to other
courts. If there a prevailing pattern which is
e) article 7(1)in the interpretation of the convention,
regard is to be made to its international character and in
need to preserve uniformity.
6) Apply:
a) Is Jean excused in the Javert contract under the
CISG? Maybe, under 79(2). This force majeure clause
is a form force majeure clause, its too generic. One
of the things Jean could have done was to define what
any circumstance is. Jean could have say Im going
to deliver this unless anything intervenes, like my
supplier breaks down.
b) But 79(2) would only work if Araby would be excused
c) But this force majeure clause is so vague that it could
be interpreted that he still has to deliver oil and he can
still get oil form other source such as the Holland on the
spot market, though at a high expense. He should have
put it into the contract oil from Araby.
d) What obstacles will jean run into if he starts including
all these provisions? it suggests that the oil shortage was
within his reasonable contemplation.
e) Perhaps a generic force majeure is better because it
show he didnt contemplate this fire ....but this couldnt
help because the seller is responsible
f) p. 155 To assist...
i) Cn: just because we dont address it in the contract,
there are contingencies which ...the seller will be
held liable notwithstanding the occurance.
g) CISG covers both the buyer and the seller.
i) Rise in market price is not excuse to seller.
(1) Exception. Astronomical increase in
price. Lord Reid, Tsakiroglou. note 4, p. 148.
He hints that an astronomical increase in price
might be a factor. neither is a rise in the market,
because ... but a severe shortage due to a
contingency such as war...but it must be
unforeseen. there is very little today which is
unforeseen, and court often will not use this to let
you out of the contract.
h) UCC provisions rarely lead a court to permit excuse
for performance....The court should seek to determine
whether the risk was consciously undertaken or not. If
so, it should follow the parties expectations based on
(a) type of business each merchant engaged in
(b) how a reasonable person would allocate risk
(c) the historical background of such risks
(d) how that would affect foreseeability.
(e) Note 8, p. 167 (Like Summers article):
ii) Youre not expected for foresee every contingency,
but you are supposed to foresee the things that have
happened in the past: the Suez closes, the mid-east is
constantly at war, oil refineries catch fire.
i) The Sellers answer is to charge more.
i) LAW:
(1) CISG--
(2) UCC--impracticality
(3) English lawradical difference test
ii) Civil law -- provides for reformation, because
contracts are for the social good.
iii) Common lawstrictly upheld. felt this was a
contract between two individuals and we will uphold
it. But it is starting to become more forgiving.
(1) France exception, which is very
strict. Rapsomaticous.
iv) UNIDROITfor majeure and hardship. p. 157
(1) Force majeure comes under the nonperformance.
(2) Hardshipnothing short of total
impossibility will excuse nonperformance.

7) Problem 4.4 Electronic Commerce: Professor Pedro
Buys A book, p. 169
a) CN: contract made over the internet; not in writing,
non-human. Is there a contract?--Pedro orders some
books over the internet which he pays for with his
brothers credit card. The books are automatically
packed and sent by rhein.com and new books ordered
from rhein.com from East.
b) CN: E-commerce is a huge industry. But different
countries are passing different laws, which leads to a
non-uniformity. What did companies do to get around
these laws? Trading partner agreements where two
entities agree to conduct business electronically, and
promise not to sue each other under UCC 2-201--
statute of frauds, which requires a signature and a
writing. They establish the procedure by which an offer
and acceptance are to take place.
c) Pedro, rhein.com and East all want to know if they have
enforceable contracts.

i) Rhein.com is a German company owned by an
American company, rivers.com. River.com
prepares lists of customers preferences, and wants
to know if it can continue this practice
d) in light of the new EU Privacy Directive.
i) Law: all of these pretty much say that an electronic
contract will be binding despite that the writing is in
an electronic form. A writing can be reflected in an
electronic media, but there is the question of
authentication.
8) Federal
a) Electronic Signatures in Global and National
Commerce Act (E-SIGN Act), Suppl. p. 980: contract
cannot be denied legal effect because they are based on
an electronic signature.
i) 102-exemption to preemptionif the state
adopts the Uniform Electronix Transactions Act
ii) 106-definitions
9) State
a) Uniform Electronic Transactions Act (UETA)( same
guys as wrote UCC)(preempts federal), 2, 4,7, Suppl.
p. 1037.
i) Parties must agree to electronic media. applies
only when the parties have each agreed to the use of
electronic media. 5(b).
ii) Must in fact be persons act. 9(a)an electronic
record or signature is attributable to a person only if
it is in fact produced by an act of that person.
iii) No Presumptions.
b) Authentication--Digital Signature Statutes, (see
Hornung: p. 172). How to get around the Statute of
frauds when there is no signature? The UCC requires a
writing for every sale valued at $500 or more.
i) PKI(public key encryption infrastructure). The
problem with this is that it creates a bureaucracy,
because you need a third party who verifies the
signature. Problems: there could still be fraud but
theres probably only fraud if you gave it to an
agent; also, it doesnt provide for a natural evolution
and PKI may limit the methods of authentication.
(1) Germany use
(2) Utah use
ii) Biometricsretina scans, fingerprints
iii) Digital signatures rarely used. no one is really
using these digital signatures. People are using the
existing infrastructure such as credit card numbers,
billing address. Antifraud software that companies
have recorded your spending history. Companies are
assuming the risks theyve always assumed. Winn,
p. 180
iv) digital certificates,
v) PinOp
10) International
a) UNCITRAL Model Law on Electronic Commerce,
see Reed, 7, 11, Suppl. p. 65: (written by the CISG
writers, purpose: harmonize trade law) party
autonomy. Does not specify what method of signing a
message might be appropriate under particular
circumstances. Even an X at the end of an e-mail would
make it legally binding.
b) GUIDECavoids mandatory systems based on a
specific technology. p. 182.
i) signature
(1) any symbol executed or adopted by a party with
present
(2) intention to authenticatea writing. Because an
ensured message (digital signature) is difficult to
forge, its use binds the signatory, precluding a
later repudiation of the message and form the
basis for forming legally binding contracts ...
since the ensured message can provide
electronically the same forensic effect a signed
paper message provides.
(a) Ensured message means:
(i) 1) ensurer had contact with the message
and
(ii) 2) message has been preserved
intact since it was ensured.
(b) Agency: a principal will be bound if the
agent had sufficient authority to ensure the
message.
11) Foreign
a) Digital Signature Statutes
i) EU Directive on Electronic Signatures, see
Barofsky:
ii) Germany: one of the most restrictive legal regimes
in cyberspace in terms of signatures. PKI only, no
legal effect to electronic signature or email
exchanges. If you dont meet the technical standard
established by the German government for the
proper PKI, you achieve no legal recognition.
12) Computer initiated transactions, p. 184
a) Can a computer bind a contract? Only persons legally
capable of contracting may enter into a binding contract,
only natural persons or those who have legal capacity.
You had to have intent, and ability to negotiate.
i) Agency law: consent by both parties is required.
The computer is an extension of the human
being. We can attribute human action to the
computer so the computer contracts on behalf of the
individual. What if there is a malfunction? The
principal has to take responsibility.
b) UNCITRAL, article 2: the originator of a data
message includes both a person by whom or on whose
behalf a message is purported, which includes
computers. Article 13(2)(b)attributes the operations
of electronic devised to the person who originate the
data message if it was sent by an information system
programmed by, or on behalf of, the originator to
operate automatically.
c) UETA 2(6) expressly recognizes that an electronic
agent a can operate without review or action by an
individual and the definition of electronic agent seems
wide enough to encompass both electronic agents that
act automatically and those that act autonomously
(intelligent agents).

13) (b) Privacy
i) EU Privacy Directive on Data Protection. p. 190.
Suppl. p. 1079--EU passed this omnibus privacy law
because the various countries were each developing
their own.
ii) General Rule: Article 25 prohibits Member states
from sending personal data to any nation outside the
EU
(1) unless that nations privacy protections are
(a) similar and provide similar regulatory
structure, including enforcement actions.
25(3) if you decide it doesnt have adequate
protection, inform the other Members. 25(4)
the commission may have already decided
that the third country does not provide
adequate protection. circumstances to look
to: the nature of the data, the purpose and
nature of the proposed processing, the country
of origin, the country of final destination, the
rules of law in the third country and the
professional rules and security measure in the
third country.

iii) Exceptions:
(1) 25(2) adequate protections.
(2) 26(1) consent.
(3) 26(2) where the controller of the data determines
that adequate safeguard of individuals privacy
rights exist. p. 193:
(4) Article 25 does not explain what constitutes an
adequate level of protection. p. 195. How to
show adequate protection: 193: circumstances
b) The US has no similar privacy protection regulation.
U.S. has patchwork of privacy laws. Fair Credit
Reporting Act, 1970; Privacy Act, 1974; Computer
Matching and Privacy Protection Act, 1988. This is
because of the First Amdt. Also, noninterference by the
govt.
14) Application: rhein.com will violate article 25 by sending
the information to its parent company, unless it
gets permission from Pedro, or unless the US has adequate
protection. But the US doesnt have adequate protection.
a) p. 196: Although Member state should not white list
the entire private sector, particular areas of the private
sector do ensure adequate protection. EX: credit
reporting industry, part of the telecommunications
sector.
b) Member states should not white list many areas of
US private sector. Ex: data protection in health care,
direct marketing.
15) In general will river.com have adequate protection?
no. But does it fall under any of the exceptions under
26(1)? Was there consent? no. Is there any thing in 26(2)?
Does the control adduce adequate safeguards with respect
to the protection of the privacy?

a) What is consent? If I enter all my information and an
offer to read the privacy policy pops up and you say
no, is that consent? Does it have to say do you give
us your permission? and they have to click yes.?

b) Does Pedro have a private right of action against an
EU company? 198
c) All the substantive law still applies. There may be a
battle of the forms, but you have to figure out whose
law applies. The CISG doesnt require a writing. The
only new thing added here is the electronic part.

16) Problem 4.5 The Bill of Lading: Computers to
Caracas, p. 200
a) Seller: S&A
b) Buyer: Campeador
(1) Contract: 100 El Cid computers, 10k each,
C.I.F. (payment against
documents). Inspection Certificate by ms.
Jimena.
c) Carrier: Saragossa Sea Shipping Lines.
d) Facts: Three things that go wrong.
(i) S&A send both conforming and non
conforming goods; forged the Certificate
of Inspection; Saragossa loaded the goods
but stamped it Shippers Load, Weight,
and Count. The bill of lading for the 10
computers is lost and found by Garcia
Ordonez.

(ii) 20 cartons of cheap computers. SA stolen
blank bills of lading.

(iii) 70 cartons of cheap computers, forged the
blank bills of lading.

e) Part A. Forged Endorsements and mis-delivery, p.
202
f) CN: this section will deal with the problem 1, the ten
computers.

g) English law : Schmitt, , p. 203
i) Intl rules relating to Bills of Lading,
ii) The Bill of lading is a contract between the shipper
and the carrier, but the shipper has little discretion in
the negotiation of the terms. However, the shipper is
protected against abuse by legislation.
(1) By making the bill of lading negotiable, the
cargo is made negotiable. The holder of a bill of
lading cannot acquire a better title than his
predecessor possessed, which means that where a
negotiable bill of lading is obtained by fraud
and indorsed to a bona fide indorsee for
value, the latter does not acquire a title to the
goods represented by the bill, while if the same
happened in case of a bill of exchange which is
regular or its face, and nor overdue or
dishonored, the indorsee is entitled to all rights
arising under the bill of exchange.
h) Carrier: p. 204 The carrier is not responsible for
wrongful delivery of the goods against the bill unless
he knows of the defect in the title of the holder. If the
carrier delivers the goods to a person who is not the
older of the bill of lading, he does so as his peril. The
carrier who delivers to someone who is not the true
owner is liable to the true owner for conversion of the
goods.
i) Sze Hai Tong Bank v. Rambler Cycle, p. 204
j) A ship-owner who delivers without production of
the bill of lading does so at his peril. The contract is
to deliver, on production of the bill of lading, to the
person entitled under the bill of lading. If he delivers
the goods without the production of the bill of
lading, carrier is liable in conversion.
k) But even a true owner who cannot produce the bill
of lading cannot claim the goods.
l) They delivered the goods to someone other than the
individual identified on the bill of lading, and the
indemnity couldnt protect them because they
breached their contractual obligation.

m) Some foreign countries, such as Venezuala and
other South American countries, a consignee may
obtain delivery of the cargo without actual tender of
the bill of lading.

n) Applicable law, p. 205
o) Normally, in an action against a carrier, you apply the
law of the jx in which the bill was issued.
p) But shipments to or from the US is governed by
COGSA which requires litigation to be determined
by the US COGSA.
q) The Pomerene Act applies to ocean bills issued in
the US for shipment to a foreign country but not to
bills issued abroad for shipment to the US, and it
does contain provisions on rights acquired by
negotiation.

r) Adel Precision, p. 206
i) The carrier is the RR which released good to an
entity that produced a forged bill of lading, and the
RR is trying to get out of it. The Pomerene act
places the burden on the carrier.
s) There was no proper endorsement on the order bill
of lading, accordingly .
t) The new version of the Pomeren Act does not
contain the properly endorsed but courts have
construed it to contain this requirement.

u) Application:
v) Who is liable for the 10 computers? The carrier is
responsible to the owner, who is probably the Bank
of Valencia. Why is the carrier responsible? Under
Pomerene Act, the carrier cannot deliver to someone
who is not the bill of lading. The Carrier must
deliver the goods to someone who holds the bill of
lading which has been properly endorsed.

w) Part B. Misdescription and disclaimers of
Description.
x) Law governing the B of Lading contract with regard
to negligent stowage or care of goods during transit.
(a) COGSA (based on the Hague rules).
(b) Harterfederal state to federal state, or
within the U.S.

ii) Law governing the transfer or transferability of the
bill of lading.
(1) Pomerene act: applies only to Bills of lading
created in the US.
iii) If the bill of lading was written in a foreign country
for shipment to the US, which law applies? If
written in Australia, then Australian law.
iv) Summary: factsseller bought 20 cartons of
computers and the carrier signed off on the bill of
lading but didnt inspect, and they get delivered but
theyre not the right computers. So whos
responsible.
v) Law: carrier has a duty to do
a reasonable inspection. And because they did not
stamp it Shippers, load, weight and count, there
was no disclaimer so the carrier is responsible for
misdelivery and misdescription.
y) Both COGSA and Pomerene Act.
z) MitsuiCogsa and harter both allow disclaimers, but
they dont have any legal effect. But Pomerene
modifies the legal effect that the bills of lading would
otherwise have under the Harter Act and COGSA.
aa) TO have a valid exculpatory clause, they must have a
valid disclaimer. Shippers load weight and count.
Then the shipper has to load them.
bb) ftnt, p. 215.
cc) Questions, p. 219:
dd) 3.
(1) not responsible because not responsible for how
many and how much they weigh.
(2) 20 cartons of El Cid. Same.
(3) 15 cartons delivered. All are operational. But
the Bill of lading says 20 cartons. they will be
liable because theres no disclaimer.
(4) same as c, but ... it would depend on who loaded
it. If the shipper loaded it then they are protected
by an exculpatory clause
(5) i
(6) Sancho and Alfonso delivers 20 cartons.....The
question is if it would be reasonable for them to
inspect. In this case its so obvious.
(7) probably even more liable because they had an
opportunity to see what was going on.

ee) Part C: Forged Bills of Lading, p. 220
ff) Three functions of the bill of lading:
i) receipt for the goods,
ii) document of title to the goods and
iii) evidence of contract of carriage.
gg) Facts: S & A stole blank bill of ladings, and took
the forged bill of lading to the bank. The Campeador
pays for them. Whos responsible now for the loss?

hh) Bank of Valencia will look it over to make sure all
the documents are in order, then take it to
campeador. Campeador will pay Valencia, and
Valencia will pay the US bank, which will pay
Sancho and Alfonso.

ii) Law: Pomerene act because it deals with
transferability.
jj) Campeador will be responsible because no one had
endorsed it along the way. Only Campeador
endorsed it. Had it been a letter of credit transaction,
then each would have endorsed it along the way and
the buyer would not be liable.


kk) Fort Worth Elevator, p. 222
i) F: Tankersley had forged a bill of landing saying he
shipped a truckload of wheat to Texas. Here a draft
written off on Fort Worth bank account, pay me for
it. Then Fort Worth finds that nothing was ever
shipped.
ii) held, the bank is responsible for the loss because
Pomerene had been passed by then. they accepted
the obligation to accept it as a genuine bill.
iii) How can I get out of any liability for warrantees
under the Pomerene: Document a contrary
intention.
iv) p. 224Unless a contrary intention appears

17) Problem 4.6 Selling through distributorships/Agents
and the use of countertrade: p. 228
a) Facts: Client Sells Sollate, patented in the United
States, Mexico and most European nations. He
wants to expand into Mexcan market and Russian
market. Set up either an indepndent agent or
independent distributor.

b) Independent agenttitle remains with seller,
based on commission, risk on seller.
i) Independent distributortitle passes to the
distributor.

c) Part A. Sales Agent and distributorship
Agreements.
d) Folsom, p. 230
i) Independent foreign agent: a foreign person who
does not take title to the goods, is paid on
commission; does not bear risk that the buyer might
not pay. Uncertain whether he has power to bind US
supplier unless expressly given. he neednt provide
storage. Usually more legal problems than an
independent foreign distributor. Agency law differs
in different countries, some of which cannot be
contracted away and is mandatory.

e) Independent foreign distributor (agent): buys the
companys products and resells them through the
foreign distributors network. Takes title, assumes the
risk of not being able to resell goods. Must find
storage. No power to bind the supplier, because he buys
the goods himself.
agent distributorMexico doesnt
have this
title remains with seller title passes to distributor
risk of no sale remains with seller risk passes to distributor
more control (price, distribution) less control (price, distribution)
seller responsible for storage distributor responsible for storage
can Bind the principal, possibly cannot bind the principal
f) ISSUES: host government laws: antitrust law, labor
laws, termination rights and obligations, import (in
retaliation, or isolationism) /export (repatriation of
profits) restriction.

g) Siqueiros, Legal framework for the sale of goods to
Mexico, p. 235
h) Antitrust in Mexico. A seller residing abroad will not
encounter problems with antitrust when selling goods to
Mexico, even when exclusive agents or distributors are
appointed for certain areas of the country.
i) But the seller is subject to the antitrust laws if it enters
into agreements with other suppliers of goods, within or
outside of Mexico, to restrict the access of products or
to gain any other unfair advantage to the detriment of
the Mexican consumer.

j) What kind of contract do you write if you want to
create an independent distributor?
k) Contracto innominado.
i) One commercial code;
ii) Civil code one for every state, plus the federal code.
l) Contrato Mediacionhe goes from farm to farm and
asks the people if they need a tractor, hands them a
catalogue and tells them that if they want anything, they
should contact the seller.
i) Payment method: finders fee.
m) Contrato commissioncloser to an agency
relationship. closer to a employee/er relationship. If
you call it a commission it will probably be called
a contrato de commission. This does give the person
power of attorney so he can bind the principal. You can
add terms, But by adding terms you might turn it into a
different kind of contract, because the Mexican courts
dont look at the title of the contract.

n) Labor law issues: who can we hire?We probably
wont be able to hire foreign nationals to work in
Mexico. An independent distributor may be an entity
and Mexico may say that a certain percentage has to be
Mexican owned.
o) Termination:
p) At will v. causegovt may control this, and
what cause is.
q) Severancepenalties, inventory, breach
penalty, good will.
r) Noticemay be established by the govt or the
parties.
s) p. 241: List of possible bases of just cause:

t) Waver of termination rightsusually the govt
will not allow a waiver of these rights.

u) Part B. Countertrade, p. 243
v) Why would I prefer good instead of money? Russia
has soft currency, or it lacks hard currency, or the govt
wont let it out of the country.
i) What goods are you getting?
ii) How do you value the goods?
w) What is the quality?
x) Is there a market for this stuff?
y) Danger of dumpingsell product for below the
market cost in the home country, antitrust laws
prevent you from. so can you sell it for the price you
want to sell it for.
z) Exchange rate? once you figure out the value, is it
in the official rate or the market rate?

aa) McVey, p. 246
i) Types of Countertrade:
ii) Counterpurchase. A private firm agrees to sell
products to a sovereign nation and to purchase
from the nation goods which are unrelated to the
items which it is selling.
(1) Then he has a certain period of time, 3 to 5
years. Three contracts: one to sell the jets,
one for the goods in return, one for the
protocol
iii) Compensation (buyback)a private firm will
sell equipment, technology, or even an entire
plant to a sovereign nation and agree to purchase
a portion of the output product from the use of
the equipment.
(1) Period of time is much longer than in
counterpurchase.
iv) Switch tradingwhen you get a third party to take
over your obligation. EX: Romania agrees to buy
100k, Brazil agrees to buy 100k, but Brazil only
buys 70k worth, and Romania has no more goods it
wants. So they finds a switch trader who finds
Guatemala who wants Romanian goods. So Brazil
will sell it to Guatemala at a 30% discount.

18) Chapter 5: Financing the Intl sale of Goods, p. 255

19) Problem 5.1 Letter of Credit and Electronic
communication: Gold Watch pens for France.
(1) Shady (beneficiary)
(2) UCC, p. 1024, 5-107, definitions, 5-102;
Adviser, confirmer, nominated person, issuer.
(3) The letter is sent from BNP (issuer) to Metro
(adviser, confirmer) bank. This is the letter of
credit contract.
(4) Ship LCD lighters and watches.
(5) fixed letter of credit: certain amount of time
after presentation. It can become exhausted,
either from the time passing or the amount being
paid. 256:
(6) sight letter of credit: must pay on sight.
(7) General letter of credit: allows
(8) Special instructions:
(9) 258: Please add your
b) mistake in the description: ICD. Now BNP is
refusing to pay because the documents are not
conforming. If they dont conform and BNP pays then
BNP is responsible.
c) Autonomous principle: The documents are
autonomous, and banks may refuse to look at anything
else, if the documents dont conform, then they will
refuse to pay.
d) ON September 25, BNP received a telex from Metro
that the credit had been used. Did they use is in
time? yes. But had it been the 26, then it would not
have been valid.
e) Which date should control? When the
beneficiary presents to the confirming bank? UCC 5-
108the issuers rights and obligations. Comment 1. p.
1027.
i) Beneficiarys presentation of documents. The
key date is when the beneficiary presents the
documents.
(1) Notice requirementreasonable time, not
more than 7 business days. How much time
does the issuer or confirmer have to notice:
maximum of 7 business/banking days, but
sometimes shorter than 7 days. 7 days is not a
safe harbor. UCC 5-108(b),
(a) reasonable time no greater than 7
days. an issuer has a reasonable timeafter
presentation but not beyond the 7th business
day to honor or reject. Comment 2, p. 1028,
What is a reasonable time is not extended
to accommodate an issuers procuring a
waiver from the applicant. See also UCP
14(c)(the issuing bank may in its sole
judgment appeach the Applicant for a waiver
of the discrepancy).
(b) But under the UCP. 13 UCP, p. 268 .. but this
is not a safe harbor either, but 14(e) says that
if the bank fails to act in accordance with this
shall waive their right to object. P. 265 The
preclusion applies if the bank fails to give the
prompt notice or fails to give notice for more
than seven days after the beneficiary presents
his documents. The bank that delays
examining the documents for more than a
reasonable time will escape the preclusion as
long as it notifies the beneficiary promptly
after it finally decides not to accept the
documents and does so within the 7 days.
(2) Requirement that all discrepancies be
presented at the same time. You have present
all the discrepancies at one time. UCP
14(d)(2).p. 269 Such notice must state all
discrepancies of which the bank refuses the
documents and must also state whether it is
holding the documents at the disposal of, or is
retuning to them, to the presenter.
ii) Why do you only get one bite at the apple?
iii) The UCC does not require you to do it all at
once. But case law might require it. p. 266. By
formally placing its refusal to pay on one ground, the
defendant must be hel to have waived all
others. Bank of Taiwan.
iv) So BNP will be precluded from the objections
raised on October 6th.

20) Whos at risk here? Does Metro need to go to Galleries
and tell them of the discrepancy? no. Because they look
only to the documents.
a) If they honored the LC and pay Shady, can they force
Shady to take the goods back.
b) Metro is claiming that it was conforming, because their
letter of Credit said ICD.
c) But: p. 270: art. 16 UCPbanks assume no
responsibility in the transit of the message or other
errors arising from any transmission.
d) If they are both banks and theyre both not responsible
then whos responsible?
i) Confirming letter. Schmitthoff, p. 280: Telex
instructions: Probably BNP is in trouble for not
sending a confirming letter of credit like they should
have under Article 12 of the UCP. Art. 12 provides
that the issuing bank should make it clear in the telex
that it considers the confirming letter as operative. If
this is the intention, then works such as full details
to follow or words of similar effect should be
inserted into the telex or , better still, the telexk
should state the the mail confirmation will he the
operative credit instrument or operative
amendment.
21) But Galleries (applicant) might be responsible, under art
18, 16.
22) Conformity:
23) Slavish conformity not required. The UCC 5-108,
comment 1. Substantial performance is not enough. Strict
compliance does not mean slavish conformity to the terms
of the letter of credit.
i) Strict compliance is measure by standard
practice. Id.
ii) Standard Banking Practices. UCP Article 13, p.
283: Compliance shall be determined by
international standard banking practices.
b) Under the autonomy principle, the Bank should look
only to the documents and not at the underlying
transaction.
24) Some spelling errors are ok, p. 1027, of the UCC 5-108
Comment 1 3d para; and Hanil Case, p. 277 When its
a clear typographical error.
a) Hanil Case, p. 274: the
(1) Letter of Credit Sun Jin;
(2) Actual beneficiary Sun Jun.
b) Policy: It is too cumbersome.

c) Can we look to the UCC? Yes, because the UCP is not
a law.


25) Application: LCD and ICD might be an obvious
typographical error.
a) But banks dont have to have special knowledge.
b) Rayner, p. 262:
(1) Letter of Credit: Coromandel ground nuts.
(2) Bill of Lading : CRS.
(a) (universally understood in the nut business to
mean coromandel.)
c) It is quite impossible to suggest that a banker is to be
affected with knowledge of the customs and customary
terms of every one of the thousand of trades for whose
dealing he may issue letters of credit.

d) But its the bank who decides whether its an error or
not. Bankers dont have the time to review all the
underlying details.
26) This is a fixed credit -- it will expire. The buyer is
concerned with the expiration. Shady has a certain amount
of time to comply. If Metro say theres a problem with
this, shady will be able to reform it. But the time is running
out.

27) Terms: p. 256:
a) Standby letter of Credit: its a guarantee of
performance. If I am doing construction. This is a
mirror image of the letter of credit in the documentary
sale transaction, Because now the applicant is the seller,
not the buyer.
b) Im selling my services to Guatemala. If I, the
construction company, breach my duty to build the
plant, Guatemala can go to the bank and collect. In the
normal documentary sales transaction .... what must you
present to collect? You wnt them to present come
document that is certified....but many standby letter of
credits dont require much documentation, also a
suicide letter of credit.
c) Revolving letter of credit. Progress payments. I get
the first stage of the project done.

28) Problem 5.2 Enjoining Payment of Letters of Credit
for Fraud, p. 292
a) Exception to the autonomy principle. Originated in
the Cardozo dissent: I dissent from the view that if the
issuing bank chooses to investigate and discovers
thereby that the merchandise tendered is not in truth the
merchandise which the documents describe, it may be
forced by the delinquent seller to make payment of the
price irrespective of its knowledge. But theres a
difference between fraud and breach of warranty.

b) Policy:
i) good: it prevents someone from perpetuating a
fraud.
ii) Bad: it allows the buyers to get out of their
contract, it would slow down the international
business process every time a buyer raises, but the
letter of credit places the risk of fraud on the
applicant/buyer, so why should we let him get out of
the contract?
29) Our client has just learned that the seller is sending him
junk and wants to stop the bank from honoring the letter of
credit.
a) First: has it happened before or after the LoC has been
negotiated. If it has already been negotiated with a
holder in due course, youre out of luck. UCC 5-109:

30) You can call the bank and ask them not to honor it. But
the bank may not listen to you because theyve already
made a contract with the seller in Seoul. It will probably
depend on how much money and business you do with
them.

31) Mid-Americas case, p. 293
32) I: Issue even if a letter of credit contract requires the UCP,
apply UCC in cases of fraud because the UCC is the gap
filler, art. 5.
a) Measure of Fraudmaterial fraud: 5-109only
material fraud by the beneficiary will justify an
injunction against honor. Material fraud means fraud
that so vitiated the entire transaction that the legitimate
purposes of the independence of the issuers of the
issuers obligation can no longer be served. Courts
must look to the underlying contract.

33) In the Little John hypo, the bank will probably not stop
payment on its own initiative.
34) Dolan, p. 304: The LC should be rapid and inexpensive,
and if this exception is allowed it sort of defeats that
purpose.
35) Fraud by the beneficiary (seller). Smith, p. 307,-
American Accord. Where does the fraud lie and who has to
commit the fraud for the buyer to invoke the
exception. The American Accord [English case] says it has
to be the beneficiarys/sellers fraud. Could this fraud
exception to the established principles of documentary
credits law be expanded to encompass the fraudulent acts
of third parties as well as those of the seller? No.
a) USA: UCC 5-109even if there is a third party forgery
or fraud.
i) Fraud in the transaction, only the beneficiarys
fraud will invoke the exception.
ii) Fraud in the documents, then anyone can enjoin.
(1) When bank must honor, despite fraud, UCC 5-
109a1
(a) holders in due course, banks have to pay,
because theyre innocent. But if hes not a
holder in due course, go to para 2.
(2) paragraph 2 the bank may honor or dishonor.
b) Dangers in honoring or dishonoring?: p. 308 If a
bank refuses to pay against documents which are in fact
genuine, although the bank honestly believed them
forged, it has no defense to the sellers action for
wrongful repudiation.
i) good faith means honesty in fact. This is a
subjective test.
c) So the bank may tell the applicant to go to the court and
get an injunction and make me stop payment, because it
doesnt want to be liable.
36) UCC 5-109(b)the court can only enjoin if the court
finds the following:
i) the relief is not prohibited under the law
ii) a beneficiary, issuer, or nominated person who may
be adversely affected is adequately protected [i.e.,
requiring the asking party to put up a bond]
against that it may suffer because the relief is
granted.
iii) on the basis of the information submitted to the
court, the applicant is more likely than not to
succeed under its claim of forgery or fraud.

b) Clean credit (a suicide credit)this is very hard to
prove fraud because theres no documents. See
comment 3. p. 1032.

c) While the risk is on the applicant, he can protect
himself by having an independent inspection
certificate. But the banks are not in the business of
adjudicating fraud, all they should have to look at is in
the documents.

37) Banco Santander p. 310: when you assign your rights, the
person you assign them to has all the rights and
obligations. When you start drifting from the outline on p.
70, youre going to be in danger. What did they fail to do
here? require a negotiable draft. [see, p. 68 Negotiable
draft]. This was fatal because had the bank paid for a
negotiable instrument, then Santander would not in paying
that negotiable instrument be subject to the obligations of
the person they bought it from. But they did pay the
beneficiaries but not with a negotiable instrument. They
paid the beneficiary at a discount in exchange for the
assignment, the took subject to the fraud.
a) Korean Law: p. 316: if there is any indication of fraud
the bank has the duty to investigate.

38) 5.3 Standby letters of credit: Electronics to Israel, p.
319
a) FACTS: Israel is the beneficiary, and it can collect if
there is a breach. Not an absolutely clean letter of
credit, but almost because all they have to do is present
a sight draft. Unlike a normal letter of credit, which
requires all kinds of documents, with a standby letter of
credit, you only need one piece of paper.
b) Standby letter of credit: issued by the seller (of
services), guaranteeing performance.

c) URDG: Art. 20, p. 327: contains a very distinctive
rule requiring the beneficiary (buyer) to present with his
demand a statement that the principal is in breach, and
the respect in which he is in breach.

d) Defense: Can SpaceCom (seller) stop the bank from
paying this? p. 324: An injunction will be issued only if
there is manifest abuse, and irrefutable proof of
it. Courts will be very reluctant to enjoin this behavior.
e) What should it do in the future?: get an independent
third party to certify the breach. (See last article, p. 349-
50); put more stuff in it. The problem is that you might
not be able get the other side to go along with all this.

39) Which Law applies?, p. 323
a) UN Convention of Independent Guarantees and
Standby letters of credit: this applies whenever the
two parties are in the Contracting States.
i) parties can opt out of it, art. 1.1. p. 328.
(1) Limitationchoice of law provisions. But
even if you opt-out of the convention, you cant
opt out of the choice of law provisions, under
arts. 21 and 22. Art 21 says freedom of choice
(but neither Israel and US are parties to this)
b) Art. 1-105 UCC:
i) Its not clear whether the contract provides for a
choice of law. If they didnt than you apply UCC 1-
105, the reasonable relation.
ii) If it were done in Israel? it would probably be the
ECE characteristic performance. But it will
probably be in Israel.
iii) Apply UCC 5-109 (Fraud and Forgery): Is the
underlying transaction materially fraudulent? Has
Israel committed a material fraud? see end of
comment 1 which requires, nocolorableright, no
basis in fact, etc.
40) What does Israel have to do? Allege a clear and
substantial breach. This breach was clear, but was it
substantial? it was only four days.
a) Case lawIslamic Republic of Iran, p. 336: The govt
is overthrown, there is question whether the current
Iranian govt will honor the contract. Bell just stopped,
at which time Iran tried to collect. Held, the mere
repudiation of a contract is.
i) Caulfied test, p. 338, and HANDOUT. If you cant
show irreparable harm then you dont need
injunctive relief.
b) Caulfield Test. Showing of possible irreparable
injury and either
(1) (1) probable success on the merits or
(2) (2) sufficiently serious questions going to the
merits to make them a fair ground for litigation
and a balance of
hardships tipping decidedly toward the party
requesting the preliminary relief.
c) Because theres no relief at law, no money damages, to
SpaceCom (seller) has to show irreparable harm.
i) Application: their credit would be shot, it couldnt
meet its payroll.
ii) The risk of signing the suicide credit is that it will
be called justly, or because of fraud

iii) Mere loss of money means theres a remedy at
law. p. 348but if loss of money is the only risk,
then there is a remedy at law, unless theres a risk of
bankruptcy. But here there no danger of
insolvency right now, but there might be when the
15k is called.
(1) Danger of bankruptcy.
d) American Bellthis is just a breach of contract, no
irreparable harm. There is therefore an adequate
remedy at law.

e) Comment 3 &4 of 5-109: Comment 3: Courts should
be skeptical of the claims of fraud by one who has
signed a suicide, or clean credit and thus granted a
beneficiary the right to draw by mere presentation of a
draft. Comment 4: this standard is very high, and the
burden remains on the applicant to show, by evidence
and not mere allegation, that such relied if warranted.

f) Public interests, p. 346: risk of fraudulent demand. It
would go against public interest to allow the bank to not
honor these easily. Harris Corp.

g) Banks are worried about losing their reputation and
credibility, if they fail to honor the letter of credit.

h) Arms length negotiation. p. 341: Bell was a
sophisticated multinational enterprise well advised by
competent counsel, entered into these arrangements with
its corporate eyes wide open. American Bell.
i) This is was Comment 3 deals with, that court should
be skeptical of claim of fraud by one who has signed
a suicide letter of credit and thus granted the
beneficiary the right to pay by mere presentation of a
draft.
i) This was not a bad deal for

j) p. 338: Bell falls back on the contention that it is
without any effective remedy in Iran because of
xenophobia but they haven shown that they have no
remedy at law in the US. Even though a judgment in
the US would not be held up in Iran, if the Iranian
company has assets in Iran they could get those.

41) Harris Corporation,
a) Harris was supposed to deliver some radio transfers and
was short; because of the war they were unable to ship
the rest, and Iran makes a call on the letter of credit.
b) Is there irreparable injury? because they couldnt get
adequate remedy in an Iranian court. This argument
was rejected by the American Bell court. But what
makes this different? We negotiated for the release of
hostages, and set up an American Iranian claims
tribunal, which meant that any one having claims
against Iran must take that claim to the Iran US claims
tribunal. The US passes a law that prevents US citizen
against Iran in a US court. How does it have the right to
do this? Because of the sovereignty issue, you cant sue
a sovereign as an individual, so the US is actually
representing the person. Thats why they said that
they do meet the irreparable test because they dont
have remedy in the Iranian or US courts.

c) Harris tries to argue that because of the force
majeure clause, the contract went away as well as the
standby letter of credit contract. The court rejects this
because they are two separate contracts. The banks
were not parties to the underlying contract, only the
letter of credit contract.

d) Here, the bank was now an institution of the govt and
NIRT was an institution of the govt and there was
collusion.


42) 11.1 Resolution of International Disputes: Televisions
everywhere, p. 1151
43) PART A: What forum is available if the parties do not
choose one?
a) First: What statute grants jurisdiction to a particular
court?

b) CN: this chapter introduces us to whether a court has jx
over an individual over their courts. Does the US have
jx over foreign parties. Second issue is
forum nonconveniens. Even if a court has jx it may
dismiss the case.

44) Lancelot-US Corp. incorp Delaware
i) Place of incorporation. Barcelona Traction, 1180:
Is it a Canadian corp because incorporated in Canada
or Belguim because it was mostly owned by
Belgian. Belgium was claim that its nationals had
been harmed by the govt of Spain. Held, Canada is
the only nation that can raise a claim, thus the place
of incorporation.
ii) Where a significant portion of the stock is
owned. Restatement: p. 1181
iii) Main site of corporation. Courts in other nations
dont look where it is incorporated but where the
main site of the corporation.
45) Lancelot v. Banco Lago/Pellinore
a) Issue 1: Contract for sale of TV: Banco Lago is the
issuing bank and it refused to honor the draft, because
Pellinore asked them not to. (Lancelot will try to sue
Pellinore and Banco Lago and probably in the US
because its cheaper).
i) Jurisdiction over Pellinore. Can I get personal jx
over Pellinore? Look at the States Long arm statute,
use Wisconsins for Massachusetts. Pellinore has
virtually no contacts with the state, so we might have
to sue in Spain.
(1) Tag jxnot apply to corporations.when
theyre physically present in the state and you
serve them. If I just happen to be vacationing in
Massachusetts. But this doesnt apply to
corporations. p. 1162. If it did then it would
work if an officer went there. But theres no
other way to get jx over Pellinore.
ii) Jurisdiction over Banco Lago. p. 1173: Van
Schaack. If the bank induces conduct in this state ...
therefore we can get jx over them. So theres a
possibility . But Van Schaak was a real estate case
dealing with real estate in Colorado. this might give
you some leverage to bring Banco Lago to the table
iii) If there is jx, should the court take jx? Is there a
forum non conveniens. The Gilbert Test:
(1) Private interests: p. 1167
(i) the relative ease of access to sources of
proof
(ii) availability of a compulsory process for
securing the attendance of uncooperative
witnesses
(iii) costs of obtaining the attendance of
witnesses
(iv) possibility of viewing the relevant
premises
(v) other practical problems which will allow
the trial to be easy, expeditious,
(vi) enforceability of a judgment if obtained.
(2) Public interests:

b) Is there an adequate alternate forum. Initially in
determining whether to dismiss a case on the basis of
fnc, a district court must find that there exist
an adequatealternate forumfor the litigation.
i) cause of action recognized. What is adequate
alternative? Where the law is recognizes the cause
of action and the statute of limitations has not
run. But the Defendant must also be amenable to
process
ii) PiperScotland didnt recognize strict
liability. Held it doesnt have to be the same cause
of action, just an adequate cause of action. see p.
169. Negligence is

46) Arthurs Estate v. Lancelot
47) Issue 1: Did Arthur ever deal with Camelot? No, the only
way to get with Camelot you have to pierce the veil.
a) But the warranty came directly from Camelot, and they
contracted with Sony to do the repairs. Look at
i) Wisconsin statute, art 5(a). What facts might lead
us to do veil piercing? The only assets of Lancelot
are a leased one room office and some leased
furniture, and some leased space in a warehouse
where sometimes goods will be stored for two or
three days awaiting shipment. So there is some
contact but does it survive the constitutional test?
b) Intl Shoe does it offend traditional notions of fair
play and substantial justice? Is there purposeful
availment? There appears to be.
c) But is minimum contacts is not sufficient,
which Berger King established, bottom p. 1160, it is a
factor, the second part if whether it comports with fair
play and substantial justice. But the best argument
is Volkswagen, say Im selling in NY, I shouldnt have
to be responsible for the unilateral acts of the
plaintiff. But the warranty says in the United
States. The warranty is the strongest argument. If
Camelots subsidiary is suing in NY, how would you
show minimum contacts, and minimum contacts that
would also be fair and substantial justice?
d) Veil piercingneed fraud. So there has to be veil
piercing, but for this you should have fraud, and theres
no real evidence of fraud. If you dont have veil
piercing and you dont have minimum contacts, then
you have nothing. If Lancelot is a branch, then you
could they say they are conducting business in the US.
e) But if Arthur buys it in NY and then brings it to
Wisconsin, Volkwagaen will prevent Arthur from
hailing Camelot into court there.
f) But it still has to meet the fair play and substantial
justice part.
g) Forum nonconveniens. p. Wisconsin, p., 1155 Stay
of proceedings to permit trial in the foreign forum. If
Camelot moved for f.n.c., it has to first consent to jx in
another forum, you will subject yourself to the jx of the
alternate forum. Then its left up to the discretion of the
court. Gilbert test: 1) is there an adequate alternative
forum. 2) weigh the private interest and public interest
concerns.
h) Where is the manufacturer? In Canada.
i) Might the court demand that the US party submit to jx
in the foreign court if the suit is dismissed?
j) Do US citizens have an absolute right to sue in US
courts? Courts usually want US citizens to sue in a US
court. The Piper case is an example of this.
i) Despite the presumption in favor of a US citizens
choice of a US forum there are circumstances in
which courts have dismissed such cases on fnc.

ii) Parties who engage in international transactions
should know that when their foreign operations lead
to litigation they cannot expect always tot bring their
foreign opponent s into a US forum and every
reasonable consideration lead to the conclusion that
the site of the litigation should be elsewhere.
p.1169 Bay Chem. p. 1169

48) Fabrique Breton v. Lancelot,
a) After they made the contract, the French govt placed
high tariffs and decreed that all TVs go to one port.
b) Why do they want to sue in the US? Maybe because we
allow for more depositions, greater damages, class
action, jury trials.
c) Is there jx over Camelot.? The only way is veil
piercing. But if it does succeed in piercing the veil . ..
argue fnc, that most of the transactions occurred in
France. How many US citizens are involved in this
case? Camelot is Canadian, and Fabrique is French, so
argue that this case doesnt belong in a US court. But
do we want to argue Forum Nonconveniens? it can only
be granted if the moving party agrees to be subject to
the alternative jx. you dont want to follow french
law. So you probably want to be in Canada. But you
have to look at the law. So you may not want to move
for fnv, becaue then you have to agree to the alternative
forum. You might want to simply argue lack of jx.

d) Princethe most suitable forum approach is
disadvantageous to the plaintiff, as in Bhopal. We
should adopt Australian which means it had to be
oppressive, vexatious or harassing in the US. This
allows us to hold multination corporations from getting
away with stuff in other countries. They might be less
likely for the corporations to do this if they know they
will be subject to lawsuits in the US.

49) International Tribunals: p. 1177
a) Suing before the ICJ: only States can sue before the
ICJ. They could petition the federal govt to take the
case up for them, but this is extremely unlikely. They
have to feel it is important enough to get involved.

50) 11.2 Choice of Law and choice of Forum
Clauses: Dolls to Europe, p. 1185
a) Governing law:
b) Choice of Law.
i) Convention on the Law Applicable to
contractual obligations(p. 1056 supp) :
(1) art. 3 (choice of law). Para 1. basically says that
there are no limitations on which laws can be
chosen. But para 3 places a limitation on
freedom of choice, such as mandatory rules, (i.e.
COGSA).
(2) EX: English buyer, American Seller, agree to
apply German law. But everything is related to
England. Even though the contract says apply
German law, since everything is related to
England, the mandatory rules of England will
apply.
(3) Art. 4. (absent a choice--most closely connected;
characteristic performance)
(4) Article 7. Mandatory Rules
(5) Art. 7(1)when applying under this convention
the law of a country (even a third country), effect
may be given to the mandatory rules of the law of
another country with which the situation has
a close connection, if and in so far as, under the
law of the latter country, those rules must be
applied whatever the law applicable.
(6) Art. 7(2)the law of the forum a may have the
mandatory rules which the court must
follow. So, and USA Court will apply COGSA
even if the contract calls for the Hague-Visby
rules.
ii) UCC 1-105: The limitation on choice of law is that
it has to have a reasonable or appropriate
relationship.
iii) Restatement (Substantial relation)
51) Choice of Forum.
a) Brussels convention (Convention on Jx and
Enforcement of Judgements in Civil and Commercial
Matters), art. 17 (p. 1064, supp).
i) Article 17. only one of the parties has to be a
resident of a contracting party. If none of that parties
are members of a contracting state then
b) Bremenforum selection clauses are prima facie valid,
absent compelling reasons not to give the clause full
effect, such as fraud, undue influence, or overweening
bargaining power, or a seriously inconvenient forum.
i) Carbon Blackagreements in advance of
controversy whose object is to oust the jx of the
courts are contrary to public policy.
ii) Bissoexculpatory clauses may violate public
policy, but the case dealt with entirely domestic
waters.
c) Carnival Cruisea reasonable forum selection clause
in a form contract could be upheld. Florida is not too
remote alien forum. But what then is a seriously
inconvenient forum. This was an adhesion
contract. What if the clause said litigate in Panama? It
probably would have had a different result. But if it
said Montreal, then it would be reasonable.
d) Caldaspermissive clauses. Corim buys Cloverdale
from Carr. Corim sells Cloverdale to Caldas threes days
before they owned it. Both Carr and Caldas sues
Corim. Corim says that there was a forum selection
clause saying that the
(1) Laws and courts of Zurich are applicable.
e) Corim says that Bremen says that a forum selection
clause is prima facie valid. There are exceptions, but
this isnt one of the exceptions. But there is a difference
between mandatory and permissible forum selection
clauses. Here it just says that the law and courts of
Zurich are applicable, but this didnt preclude any other
forum. They could have said must apply and no other
laws should apply.
f) COGSA, p. 1205does not directly address forum
selection clauses, but 3(8) provides that any clause ...
in a contract of carriage relieving the carrier or the ship
from liability for loss or damage or in connection ...or
lessening such liability otherwise than as provided in
this chapter, shall be null and void.
i) Vimar, p. 1208theres an arbitration clause, they
tried to bring it in federal court. They said that
theres no jx because it should go to arbitration. It
potentially limited the liability of the shipper because
it said to apply Japanese law. The forum selection
clause might lessen the liability also because the
foreign forum will also be more difficult, there are
practical difficulties of litigating abroad, and the
possibility that the foreign court would apply foreign
law and not COGSA. the third concern is that the
foreign court would not apply COGSA they way that
USA courts would. But this number three is the
weakest argument, because Piper said only that there
only had to be an adequate remedy. So just the
possibility that the Japanese court might not apply it
the ....
ii) Does the VIMAR serve as a precedent
from UNDUSSA. Vimar did try to overrule
Undussa, because Undussa was a forum selection
case, not a arbitration case.
g) Undussa, p. 1206, shipping from Belgium to San Fran,
with a forum selection clause in Norway, for an amount
of $2,600. But the Supreme Court is purporting to
overrule this.
h) Bonny, p. 1210: Arbitration forum selection
clause. This involved a mandatory USA rule, the
Securities Act, which says that you cannot waive this
law. We have serious concerns that Lloyds clauses
operate as a prospective waiver of statutory remedies for
securities violations. By including the anti-waiver
provisions in the securities laws, Congress made clear
that the public policy of these law should not be
thwarted. .... Piper says you dont need the exact
remedy. We are satisfied that several remedies in
England vindicate plaintiffs substantive rights while
not subverting the US policies. Plaintiffs can bring a
claim of fraud.
52) Arbitration choice of law: p. 1214
a) Choosing national law:
i) an arbitrator normally faces the following choices:
(1) the law of the seat of arbitration, the national law
of the arbitration,
(2) the national law of the parties,
(3) the law of the place where the contract was
concluded,
(4) the law of the place where the contract must be
performed,
(5) the proper law of the contract.
53) Facts: Three contracts
54) Transaction no. 1.
a) Buyer/seller. Theres a German party, so apply the
Brussels Convention. This contract will be governed
by the laws of Germany.
b) Carrier. Is it a Liberian, English, Monocan
citizen? Barcelona Traction says that its a citizen of
wherever it is incorporated, but another case says
whenever a significant amount of stock is
owned. Where may Talking Toys Sue Gluck?
Germany, but where else would a suit be sustained?
What if I want to sue in the USA? Will the choice of
law be respected by the USA Courts? Gluck could file a
motion for lack of jx because the contract says apply the
laws of jx. I may not want to file a motion for fnc
because then I have to submit to jx somewhere
else. How could you get this court not to recognize this
choice of law? Argue Bremen, 1192such clauses are
prima facie valid and should be enforced unless shown
by the resisting party to be unreasonable under the
circumstances. So I have to prove that the part of the
contract that says German law should apply is
unreasonable. Unreasonableness is set out on 1193:
fraud, undue influence, or overweening power.
i) Bremen. Zapata wanted to take the rig to Italy, so
they hired a towing company. Unterweser gets
caught in a storm and they tow it back to
Louisiana. Unterweser files a motion to dismiss for
lack of jx and fnc because the contract has a forum
selection clause saying any dispute should be
decided in England. The US Supreme Court says
that the court has to apply the clause and dismiss so
it can be tried in England. Ct reasons that the
contract was made with an arms length transaction.
(1) Exculpation clauses, p. 1193 are contrary to
public policy, under the Bisso case, because there
is a strong public policy in the forum to
discourage negligence. Supreme Court says that
the exculpatory clause should be enforced
because we dont know if it is reflected in the
price. So Bisso only applies to US waters and
this was an international business transaction.
c) Is there a permissive law or mandatory? Saying the
laws of the Republic Liberia shall
apply? See Caldas (laws of Zurich are applicable
not mandatory). You could argue either way.
d) Multimodal carrier: p. 122. not negotiable.
55) Choice of law Clauses
a) Which law will the German Court look to? The EE
Convention on the Law applicable to Contractual
obligations (art. 3freedom of choice)
b) USA court will look to the UCC 1-105, and the
Restatement.
56) Will Choice of Forum Clauses be Respected by
Courts?
a) Analysis of choice of forum clauses must begin by
noting that questions may arise in two entirely different
contexts. p. 1189.
i) Onethe chosen forum may raise an issue as to
whether that court will accept jx over the action.
(German court will have to ask whether it should
take jx,)
ii) Twoif it is not the chosen forum will a non-
chosen forum accept it.
b) US Approach?Bremen Forum selection clauses are
prima facie valid unless unreasonable.
c) German approach? Brussels Convention. art. 17. Is the
agreement in writing, is there a prior trade or custom.
d) If suit is filed in German court
e) If T&T tries to bring it in US Court? do we take it?
i) apply Bremen: Prima facie valid. is there some
countervailing reasons: fraud, freely negotiation,
undue influence, over-reaching bargaining power,
unjust, neutral forum with experience? But
reasonableness is limited by Carnival.
57) Transaction No. 2. T&T and Poupee
a) Choice of Forum analysis
b) Contract between parties from two nations, its
reasonable
c) Forum analysis.
d) If suit is filed in French court? Court will look at art. 17
of Brussels.
i) is at least one of the parties domiciled in a
contracting state?
e) Is the agreement in writing, prior course or custom?
f) Second contract: filed in German court which is not
the court that the contract said it will be filed. German
court will look at the Brussels, which says that France
has exclusive jx.
g) If filed in USA courts, would US find it reasonable to
apply French law?
i) Apply Bremen: in Bremen clause choosing London
upheld in contract between german and US
parties. There was no connection between the
parties and London, but international companies
should be able to choose English law, but its
reasonable even though there was no other
relation. As long as bargained for and
reasonable. These sophisticated parties have good
reasons for choosing the terms of their contract.
h) Exculpatory Clause? Will this be upheld? civil law
v. Common law. Civil law say we look at contracts as
social documents, so we want to be careful about
overreaching. see 163-4.
i) Invalid under COGSA carriers cant limit all
liability. p. 1205: Any provision that lessens the
liability under COGSA.
58) Transaction No. 3.: Vorm
a) FORUM. Where can we file this lawsuit? Liberia or
USA. There is an arbitration clause. Paris would be a
good place to arbitrate. If filed in US federal court, you
file a motion for lack of jx. Court will say that there is
no jx. But if you want it to take place in USA court,
you might argue that the foreign forum will not apply
COGSA. The USA court can stay the proceedings until
you go try it in Paris. Thus not relinquishing jx until
they try it in the foreign.
b) Law. customary international law is not a fixed
concept. They could have asked for CISG or
UNIDROIT. How would a judge file gap? Look at
national law. USA law because one of the parties is
from USA. Liberian law because one is
Liberia. French law because that s the law of the
arbitrator.

59) 11.3 Extraterritorial jurisdiction and
Discovery: Antitrust, Air travel and the North Atlantic, p.
1218
a) FACT: low cost carrier is opening up a route to
London. competitors, two British and two US conspire
against them. Skylow wants to bring action under the
Sherman Act. Can we obtain jx over the two British
corporations.
60) US law
a) Determination of jurisdictional reach of antitrust
laws:
b) Sherman Act, p. 1220. Sec. 7
i) Direct effect test. (This Act shall not apply to
conduct ot commerce with foreign nations unless (1)
such conduct has a direct effect[trade in the US].)
ii) Alcoaeffects test US has jx over wholly foreign
conduct, as well as other conduct, if that conduct has
an effect within the US that was intended. (no room
for comity)
iii) Union Carbideconspiracy to monopolize or
restrain the domestic or foreign commerce of the US
is not outside the reach of the Sherman act just
becase part of the conduct complained of occurs in
foreign countries.
iv) Timberlanejurisdictional rule of reason using
balancing factors (this includes considerations of
comity): Degree of conflict
v) Foreign Trade and Antitrust Improvements Act (
FTAIA). This amended the Sherman and FTC Acts
to provide that challenged conduct in export
commerce or wholly foreign conduct must have
direct, substantial, and reasonably foreseeable
effect on the US domestic commerce or on the trade
of a person engaged in export commerce.
vi) Hartford Firetrue conflict doctrinea true
conflict does not exist where a person subject to
regulation by two nations can comply with the laws
of both. So, if the London re-insurers are not
required under British law to act in a fashion
prohibited by US law, nor is compliance with the
laws of both countries impossible, then there is no
conflict. CN: If theres no true conflict then we
dont have to look at the comity issue. D says the
acts we did in England werent illegal there, so
comity... The fact that an action is not prohibited in
your own country, doesnt mean that its prohibition
in the US requires courts to allow it in the interests
of comity. If a Defendant can lawfully abide by the
laws of both countries, means that there is no true
conflict.
61) Blocking statute: prohibits extensive discovery in my
country. Civil law countries want to limit abusive forms of
discovery. It also protects civil law damages.
a) Discovery
i) Westinghouse Casesthis case raises the concern
of the vulnerability of foreign
countries. Westinghouse had a contract to provide
uranium and they failed to do so but they raise a
defense of impracticability, because of a uranium
cartel. They need evidence from foreign
corporations which are government owned. But the
government of Canada, England, etc., dont want to
reveal their uranium secrets.
ii) Foreign countries dont like the liberal discoveries
rules of the US;
iii) Foreign aversion to treble damages
(1) it could bankrupt them, and
(2) jointly and severally liable for a default
judgment of someone else. So countries come up
with blocking statutes.
b) British Protection of Trading Interests Act: The
secretary of state of the UK can require under penalty of
law that British citizens not comply with a discovery
request of a foreign court.
(1) Penalties, 3, fine, jail. Exceptions, if youre
present in the UK but a citizen of another
country, then youre not protected.
(2) Multiple Damages prohibited: 6 not required
to pay multiple damages.
(3) Claw Back provision: (2) D can recover the
amount of money which exceeds the part
attributable to compensation, ie, punitive or treble
damages. A British defendant subject to treble
damages in the US can get their 2million back, by
seizing the Plaintiffs (Skylows) assets in
England. 7 requires reciprocity.
c) Treaty Establishing the European Economic
Community p. 1242: Articles 85(1) and 81(1) and 82 of
the Treaty Establishing the European Economic
Community prohibit certain conduct that has an
anticompetitive effect. [no jx over foreiegn nations,
but]
i) Wood Pulp Cartel: (sounds like Hartford Fire): the
US based companies [Defs] claimed that the
European Court of Justice had not jx over them
because they were located outside the Common
Market. They argued that the ECs anti-competition
rules didnt apply to them as it would breach the
public international law duty of non-interference,
because their actions (being a pulp association)
reflected US Govts policy of promoting exports.
ii) Held, under the Community law, jx exists over the
firms outside the Community, if they implement a
price fixing agreement reached outside the
community by selling to purchasers within the
community. The decisive factor is where the
conduct was implemented, not where its effect was
felt. And here the pricing agreement had be
implemented within the EC.

d) Initiating discovery
i) Hague Convention on the Taking of Evidence
Abroad in Civil and Commercial Matters (Hague
Convention).
(1) Letters rogatory: you have to seek permission
from the partner nation if you want to take a
deposition from an English citizen. Even if the
witness is willing to come voluntarily, you should
still get permission because the country might
have laws against a corporation disclosing certain
information.
(2) Optoinal. Societe National Industrielle
AerospatialeThe Hague Convention is
optional, not mandatory and the Fed.R.Civ.P. can
be used.
ii) Fed. Rul. Civ. Pro, p. 1232, Rule 45 if the person
can be found within a judicial district of the US; you
can serve a subpoena upon a witness in a foreign
country if its a US citizen. Thus is a witness
subpoena may be properly issued to a foreign non-
resident corporation or individual only if the
corporation or individual can be served with process
in a judicial district of the US.
e) Requirement of good faith-excusing nonproduction.
p.1233-4. The general rule has developed that failure
to produce documents is excused where there has been
a good faith inability to comply with the discovery
order, as opposed to willfulness, bad faith or
fault. Where that inability is based on foreign law
prohibitions,
i) two conditions
(1) Party or witness must:
(a) not itself encourage or induce the foreign law
prohibition.
(b) make a good faith effort to have the foreign
authorities or waive the prohibitions.

f) Application: If Skylow wins a judgment against the
British corporation, it will have to take it to England to
have it enforced. Because it is for treble and punitive
damages, it will be denied, so they will have to seize
the assets of the British defendant in the US. The
British defendants will use the claw back provision.

62) 11.4 International Enforcement
a) FACTS: Pluto is Malaysian corporation with a contract
with Mickeys in NY. Hard times fall, and Mickeys is
required to violate some of the terms of the
contract. The arbitration clause requires arbitration in
Japan. The arbitral panel decides against Mickeys. So
Pluto needs to take it to US federal court. Mickeys
challenges using Art. 5 of the NY Convention.
i) Arbitration enforced in federal courts. Unlike
the enforcement of judgments of foreign courts
(which are enforced by state courts), the enforcement
of the award of foreign arbitral tribunals is
completely a matter of federal law.
ii) Is the arbitration Clause requiring Japan
valid? Think Bremen. Probably valid.
iii) Choice of law clause: Malaysia, probably valid.
63) Grounds for refusing enforcement:
a) NY Convention Article V: p. 1251, exceptions
b) Recognition of enforcement reward may be refused if:
(1) incapacity of a party to the arbitral agreement
(2) lack of fair opportunity to be heard
(3) the award deals with something not falling under
the terms of arbitration.
(4) the composition of the arbitral panel was not
proper
(5) the award has not yet become binding
c) V(2)(a) recognition and enforcement may also be
refused if
(1) the agreement providing for arbitration
is invalid under the law to which the partied have
subjected it[ie, because Malaysia has not antitrust
law, thus incapable of enforcement in Malaysia]
(2) the subject matter of the dispute cannot be
arbitrated under the law of the recognizing or
enforcing nation.
(3) award could be contrary to the public
policy of the recognizing or enforcing nation.
(a) Construe narrowly. This public policy
defense must be construed narrowly.
(b) Violation notions of morality and
justice. Thus, enforcement must violate the
forum states most basic notions of morality
and justice before the public policy defense
can succeed. Parsons, p. 1252
(c) Public policy not foreign policy. Libyan
Sun, p. 1269.
(4) Manifest disregard of law. p. 1257

ii) Application: it violates US laws to allow
exportation of goods to Cuba. Mickeys has a
dealership in Canada, which has no restriction on
trade with Cuba. Pluto is saying that we violated the
agreement. But this wont get them off the hook.

iii) Mickeys wants to argue that Antitrust law is
mandatory law and cannot be escaped by arbitrating
in a foreign court. But the choice of law clause says
only Malaysian law and no other law applies. But
this cannot be valid because mandatory laws cannot
be opted out of.

d) Preemptive avoidance. Mitsubishi, p. 1257case had
not yet gone to arbitration. Solar was trying to argue
that Japan may not apply antitrust law. Held, its
speculative (Vimarlanguage) whether they will apply
antitrust law. And the court can decide the public policy
issue later when they come back to the US to enforce it.
i) Stevens Dissent in Mitsubishi, p.
1263. Considering the public policy argument at the
enforcement stage is ineffective because Arbitration
awards are only reviewable for manifest
disregard of the law and the rudimentary procedures
which make arbitration so desirable in the context of
a private dispute often mean that the record is so
inadequate that thearbitrators decision is
virtually unreviewable.
ii) Cf. Manifest disregard of law is a judge created
defense, but this is most like the public policy
defense, but not the same. For even assuming that
the manifest disregard defense applies under the
Convention, we reject the contention that such
manifest disregard is in evidence here. Overseas in
effect asked this court to read this defense as
alicense to review the record of arbitral proceedings
for errors of fact or lawa role which we have
emphatically declined to assume in the past and
reject once again. Parson, 1257
iii) Here, the award has been given {unlike in
Mitsubishi} and the question is whether the
arbitration applied US antitrust law. But the
arbitrators dealt with the antitrust issue
in twosentences, so there is virtually no record to
review.]
iv) What if Mickey claims they applied anti trust
incorrectly? Will the federal court review that? The
whole point of having arbitration is to stay out of
court, having quick results. So the court will not
review decisions of an arbitral panel.

e) Mitsubishi, 1259: We conclude that concerns of
international comity, respect for the capacities of
foreign and transnational tribunals, and sensitivities to
the need of disputes require that we enforce the parties
agreement, even assuming that a contrary result
would be forthcoming in a domestic context.

f) Congress never said that antitrust had to be taken in
federal court. The only question is whether the
arbitrators took cognizance of the antitrust and did they
decide them. [There is only two sentences.]

g) 11.4 deals with arbitration choice of law, it is dealt with
federal law, New York Convention, youll enforce the
award unless it fits under one of the exceptions of article
5. Also look at the Bremen issues, to see if you can
argue it is unenforceable. Soler tried to argue that
antitrust should be adjudicated in Federal courts, and
Mitsubishi says, no, you have a right to turn over your
remedies to foreign courts.

h) All of the New York Conventions exceptions will be
construed narrowly. If two parties contracted to the
clauses, they shouldnt be able to get out easily. New
York Convention has a bias toward enforcement.

i) Laminoirs, p. 1272part of the judgment was held to
be against public policy. A French court imposed a
15% interest. The Georgia court held that this was
usury. The statutory rate in Georgia was 7%, sometime
9% but not 15%.

j) Application: Mickey argues that the enforcement of
the award would be contrary to US public
Policy. See Parson, Liminoirs, Due Process.
k) Second, M argues the award ought not be enforced
because the matter was not capable of settlement by
arbitration under the law of Malaysia because Malaysia
has no antitrust law.
i) Answer: one side must argue that they will apply
US anti trust law because its mandatory law. Other
side will argue that its Malaysia and we dont know
if theyll apply it. counter is that it is speculative to
say that they wont apply it (Vimar, Mitsuibishi), and
it can be remedied at the enforcement stage of the
process. If Malaysia has a history of not applying it,
then it wouldnt be speculative.

l) Finally, Mickey argues that the decision was so brief
and conclusionary and lacking in sufficient substance
and reasoning that Mickey was inadequately
prepared. See Stevens dissent in Mitsuibishi.

64) 11.5 Enforcement of Judgments, p. 1276
a) Facts: Vancouver is in Quebec which is a civil law
province of Canada. Civil law countries have stricter
requirements when enforcing a foreign judgment.
b) The Bank has a judgment in a BC court and is trying to
enforce it in California state court, because enforcement
is a state court deal.
c) You could argue that this wouldnt apply that French
law should apply because of conflict of laws, the
relation to French law is Quebec because its a
Quebeois bank.
d) As security he gives the Bank 700 in IBM stock. They
get a judgment for 3k plus interest, plus cost, plus
punitive damages.
e) Should it be enforced?
f)
g) Enforcement of judgments, unlike arbitral awards, is
governed by state law. Many states have adopted the
h) Hilton, p. 1278 Factors:
(a) full and fair trial abroad (due process);
(b) court of competent jx (personal, subject)
(c) regular proceedings
(d) due citation appearance
(e) impartial system of justice
(f) No prejudice or fraud.
(g) Reciprocity
(h) notice or voluntary proceedings;
(2) CN: But state courts are not required to
follow Hilton, it is only persuasive
law. Reciprocity is the weakest argument, most
states have thrown it out.
i) General Factors developed by other Cases, p. 1279:
(a) competent jx
(b) adequate notice no fraud in obtaining
judgment
(c) public policy of US not harmed
(d) Reciprocity MAY be raised
j) Uniform foreign Money-Judgment Recognition
Act (adopted by most states), p. 1045
i) 4. Grounds for refusing enforcement.
(1) A foreign judgment is not conclusive if
(a) due process
(b) personal jx
(c) subject jx
(2) A foreign judgment need not be recognized if
(a) notice
(b) fraud
(c) repugnant to public policy
(d) conflicts with another final and conclusive
judgment
(e) but reciprocity is not required.
k) Hunt (before Texas adopted the Uniform Foreign
Money and Recognition Act. They apply State law,
basically adopting the Hilton concept, but use the Bank
Minero.
i) Favored systems- rubber stamped, p. 1283: If its
a favored system, like England, then the US court
will pretty much just rubber stamp it, but if its a
technocratic system then they might review.
ii) Public policy
iii) The fact that English courts no longer accept
American judgments based upon American statutes,
does not render a judgment non-enforceable. Held,
reciprocity not required.

l) Requirement that the foreign tribunal have
personal jx. Kostersomeone has come to the US
District court and tries to enforce a judgment from the
Netherlands against an American citizen. Held, no
personal jurisdiction. Applying the US standard of
personal jx, ie., minimum contacts, etc., the Netherlands
did not have personal jx over D. The Netherlands had a
more lenient standard.

m) Bank of Nova Scotia, p. 1292
i) Bank of NS has a Canadian judgment against
Pacific Western in California, and tries to enforce it
in Washington. Court applies the Foreign Money-
Judgment Act. Look at the Act, p. 1045 Suppl.

n) Five Factors of Enforcement in France, p. 1301
i) Judgment must have been rendered by a court
having pertinent jx under French rules.
ii) the foreign judgment comply with the minimum
standards of procedural fairness prescribed by
ordre public.
iii) the foreign court must have applied the correct
law.
iv) even where French choice of law rules are satisfied,
a judgment that violates public policy will not be
given effect.
v) a foreign judgment need not be final, but the
judgment must be executoire, in other words it must
be capable of immediate enforcement in the place of
its origin.

o) Canada, p. 1300
i) Canadian courts basically apply Hilton. But the
understanding of jx used in the recognition of
foreign judgments is different from the standards
used by the Canadian courts to determine their own
jx. The courts will instead use an international
standard which limits recognized jx to five
bases. This is a higher standard. In the US, the
limits are our Due Process Clause. The International
standard limits it to five bases: 1) where D is a
subject of the country in which the judgment was
rendered, 2) where he was a residence
p) So you will have more difficulty enforcing in Canada,
because they apply this international standard of jx.....

q) p. 1302. Would Cough be less subject to enforcement
of the Canadian jx against him were he in France? yes,
because the recouture.

r) Part B. Rendering JudgmentsThe choice of
Currency.
i) Three dates for selecting the currency exchange
rate.
(1) Date of breach. Earliest
(2) Date of Judgment. (federal courts. The date the
foreign court gives the judgment. Its supposed to
avoid inconsistent results. But it also rewards a
dilatory defendant.
(3) Date of payment. (Restatement, use whatever
date which serves the ends of justice, Uniform
Foreign-Money Claims Act.)
s) If Im the pl and youre def, and I get a judgment
against you and youre going to payme in your
currency, pesos, which are devaluing with regard to my
dollar. You want the one that will give me the best
exchange, the earliest date.
t) 1307:

65) Chapter 10. Foreign Investment, p. 894
i) Risk involved in foreign investment.
ii) First, Who governs Foreign investment? Look at
each one.
(1) home nation
(2) host nation
b) Multi-national organization
(1) UN
(2) GATT/WTO
(3) NAFTA
ii) International Law
(1) Few international law norms which govern
multinational enterprises (customary international
law)
(2) norms often contested.
iii) Here, the home nation is US, so we need to know
about US laws; the host nation is wherever they
invest; then there might be a multinational
organization, like GATT and WTO which have
specific norms of how to transact business, this will
have rules that prohibit obstacles to trade
c) Regulation of US multinational abroad by US govt
d) Matter of US federal law
i) Laws enacted to deal with domestic issue without
concern for foreign host nation.
(1) federal securities and antitrust law.
(a) extraterritorial effect
ii) Laws addressing foreign policy issues
(a) intended to address largely political goals
(b) anti boycott laws and foreign Corrupt
Practices Act.
iii) Other laws
(a) Tax laws encouraging foreign investment in
friendly nations
(b) customs provisions providing for value added
duties only
(c) Generalized System of Preferences GSP
assist developing countries.
e) Host nations will likely restrict foreign investment,
because the home nation is not going to pass laws that
protect them.
f) Host Nation Laws
i) Host nations realize that home nations wont pass
laws protecting them.
ii) host nation must pass laws regulating multinational
activity in host nation
iii) During 70s most host nations passed very
restrictive foreign investment laws.
(1) Mandatory joint ventures
(2) local content requirements (using local labor,
local suppliers)
iv) Operational Code or unwritten law
(1) Allows foreign investors to avoid some of the
host countrys restrictive foreign investment
laws.
(2) How do you learn about this? through
connections, networking, and local attorneys who
will tell you what the exceptions are.
v) Nations relaxed their foreign investment laws
because they needed capital.
g) Restrictive Investment laws of the 70s and 80s
Dismantled in late 80s and early 90s.
i) financial crises debtof early 80s.
ii) Participation in...
h) Common restrictions of which Counsel must be
Aware
i) Equity joint ventures
(1) limits maximum equality allowed to foreign
ownership
(2) limits foreign mgmt or control to a minority
interest
i) Role of culture and protecting cultural industries.
j) Repatriating capital, profits or royalties (countries
which lack hard currency may do this, which would
require you to reinvest)
k) Access to hard currency for needed imports, plus they
may want you to finance the investment with capital
from abroad, you cant ask our investors to help build a
particular plant.
l) Performance requirements
i) local content
ii) local labor
iii) managed levels of technology
m) Restrictions on withdrawal of foreign investment (what
restriction do we have when we leave, for fire someone)

66) Problem 10.1- Risk Analysis
a) DGI has a goal to start manufacturing abroad within 5
years. My job is to identify the risks associated with
foreign investment.

b) p. 902: Theories of trade: the first step in intl trade is
to trade, this is the theory of comparative advantage,
and trade with the things that you have the lower
comparative advantage. But the theory is based on the
notion that Im immobile.
c) Next step is, theory of foreign investment, because you
can move; you can move abroad. Foreign trade or
foreign investment have different advantages.
d) Foreign investment is advantages if there is a lower
cost of goods and resources and labor, transportations,
tax a regulatory regimes, may make it cheaper, giving
you an advantage over your home competitors (location
advantage). But what gives you an advantage over the
competitors in the host nation is the ownership
advantage, better technology. internationalization
advantagescentralized marketing, you have
manufacturing, marketing, etc., all under the same
regime, which provides for economies of scale.
e) Brand recognition, is another advantage.
f) They were closer to the suppliers of fruit and closer to
the market.

g) Risks:
i) political/ideological hostility: is it a stable regime?
ii) Nationalistic concerns: we want our products for
our nationals. If youre clients are getting too close
to a particular govt might be a problem, because if
that govt were to fall then you might be seen as a bad
guy.
iii) Global changes in industry patters, such as the
oil crisis, when control of the .
iv) Onerous Contracts. The government may come in
an change the contract law if it contains punitive
damages. Settebello.
v) Prohibitions on certain sectors. p. 908. E.g.,
national security, petroleum, infrastructure,
communications, electricity.
(a) Equity percentage limitations. p. 909. But
there are unwritten exceptions:
(i) Technology
(ii) plant location, build away from
populations centers, but the problem here
is transportation.
(iii) education
(iv) education, training centers
(v) research and development
(vi) Balance imports with exports
(vii) sourcing capital from abroad.

h) Some developing countries insist on joint ventures:
i) Why do investors agree to limit participation to
minority interest?
(1) you might get a monopoly
(2) local partners can be an asset, may assist you
with distribution
(3) you may already be in a country and they start
regulating and then its cheaper to keep the
investment than withdraw.
(4) potential for market growth and legal
modification; you want a foothold
(5) investment incentives from host nation
(6) But generally if you stay in a country with a
minority interest, then you shouldnt expect those
investors to bring over their best technology.

i) If you want further assurances: p. 913
(1) distribution of ownership, all you need is a
majority of the votes
(2) Veto power: put it into the articles of
incorporation, or whatever it is under the
domestic law.
(3) Technical superiority. Youre going to have
your own people operating the plant, because
theyre the only ones with technological
expertise.
(4) Special Agreements, which provides for where
the management should reside, who will be in
charge of the day to day activities.
(5) Supermajority vote (3/4): certain decisions can
require a supermajority vote.
j) Degree of activity of partners
i) where technical expertise is vital, foreign partner
may stay out of decisions.
ii) Host govs push for education.
iii) domestic partners are just profit motivated and
dont care about control
iv) Management committee may handle day to day
activities, not on Board of Directors
k) Trade related investment measures. TRIMS. p.
915. These deal with certain barriers to trade which
protect local trade. TRIM says certain obstacles to trade
are illegal, for all countries which are members of
WTO.
i) Part of WTO that defines and prohibits certain trade
distorting practices.
ii) prohibits local content requirements
iii) prohibits import restrictions based on amount
exported.
iv) Prohibits access to foreign exchange based on
exports ... they may require that you import as much
as you export, (protect their hard currency).
v) Prohibits certain tariffs, quotas, and limitations on
foreign investment.
l) These TRIMS are harder on developing countries who
need restrictions to get their economies going.
m) EXCEPTIONS: when balance of payment difficulties
and during transition periods (2, 5, or 7 years for
developed, developing, and least developed nations.)
n) WTO provides a dispute resolution process when
violations occur.
o) Operation Code: a
i) A system of unwritten laws , which are vital if you
are helping with a foreign investment
ii) -nations must be careful not to create so many
regulations written and unwritten- that foreign
investment ceases.
iii) Edge of Discouragement. The laws become so
onerous that investors dont wan t to invest
p) Chart, p.924
q) Aspirational Declarations: Usually above the edge of
discouragement. Theyre written but theyre not laws
because the country would lose all its investors.
i) -The operational code can also be lower than
the Public Code for companies with a lot of
bargaining power, i.e., IBM.
r) Public Code, (written code). The public code had
abruptly shifts.
i) Drawer regulations: regulations which have been
issued by various ministries which, even though not
labeled secret, have not been publicly
disseminated. These are apply inconsistently.
ii) --p. 922: The definition of the operational Code
suggests that it is limited to unwritten regulations
and decisions, but it may also include formal written
regulations and decisions which either ....This also
allows the government to discriminate and allow
some companies, which they really need, and at the
same time allow some areas of investment that they
really need.
iii) --sometimes the operational code gives you a
forecast of the future Public Code, but the opposite
could happen too.
67) Problem 9.1:, p. 788:
a) Question 5: Contrast Zeidman and Pengilly. CN: US
attys view franchising as something that
were exporting, i.e., sending McDonalds to Honduras,
so we tend to look at this Chauvinistically, but this is
changing. Pengilly says US has something to learn
from foreigners. Colonel Chicken franchising in other
countries. But you may get client calling from Mexico
saying I want to franchise in the US.

b) Colonel Chicken has a formula for success, but it only
applies in the US. Exclusive use of the Western
building design which draws upon the Texas
heritage. this probably wouldnt work in Mexico.
c) Get Intellectual property protection, i.e., trademark
protection, patent protection.
d) Question 1: Intellectual property protection it based
on national laws. There are international conventions
so you dont have to file an application in hundreds of
countries. The Paris Convention applies to trademark
law.
e) Right of priority.for trade mark, you have 6
months; patents you get a year.
f) EX: in the US your client applies for a trademark on
1/1/2004. Then in Mexico, someone files for the same
Trademark on 2/1/2004. Then your client goes to
Mexico on 5.29.2004. Usually the first to file in the
given country has the right. But the right of priority,
means that in any of the Paris convention, if I file in
Mexico within the 6 month period then its back dated
to the original filing. This gives you a little time to get
your application in 100 countries.
g) Patents: p. 765: Why might Colonel Chicken prefer
a country by country trademark?
i) The Patent Cooperation Treaty (PCT)
consolidates the application process. If my country
is a member of the PCT I just have to file one
application with one of the ISAs, which are located
in the USA, Japan, Russia, Sweden, Hague,
Munich. This will save you lots of money, because
one application works for all 40 members
countries. the PCT doesnt require the country to
change its patent laws.
ii) You might prefer a country by country application
because you want to customize your application for
each country to make sure it gets passed.
h) Trademark, p. 769: Vienna Trademark Registration
Treaty.
i) 788: Question 2: What are the areas of law that you
have to think about and investigate?
i) labor laws (benefits, severance pay, ),
ii) hours of operation law,
iii) ownership requirements,
iv) agency law (will I be responsible for my
franchisee),
v) tax law (what will royalties based on, gross sales or
net sales), can we expatriate royalties, or regulate
the amount of royalties you are allowed to charge;
vi) antitrust laws. if your contract says exclusive sale
with 1 mile radius

68) PART B. Regulation of the intl Franchise Agreement,
p. 789
i) Albert Franchise Act: this is like many state
laws. Know this generally.
ii) Pronuptia: antitrust in Europe, p. 795
iii) Hefter Zeidman, p.794-5. be familiar with these
cases.
iv) Application:
(1) Where:
(a) Hypo: you have the option of setting up in
Russia, Mexico, Canada.
(b) Intellectual property:
(c) Patent law (special patented equipment):
(d) Secret
(2) Which country would have the best protection?
Probably Canada, its in English, common law,
and industrialized country, culturally more
similar. But NAFTA provides for intellectual
property protection. Probably weak IP protection
in Russia because they were communist and
didnt protect these rights. Also distance,
language, culture, currency, political instability,
etc.
v) But proximity might be an issue: If youre
headquartered in San Antonio, Mexico might be
easier.
b) What kind of Franchise. p. 776
(a) Direct Franchise agreement. usually only used
between countries with similar societies and legal
systems (US, Canada, Australia, New Zealand)
(b) Master or Area Franchise. A Master Franchise
allows you to go to a group of investors who can buy
the area franchise and they direct the operations and
they sub-franchise, so you loose some control. This
would be more appropriate when there are difference
cultures, large distances, or different language and
distribution system. But lack of control could allow
it to loose its reputation if specific standards are not
maintained.
ii) A Trademark can be abandoned, if your dont
maintain the quality. If you let the product degrade
in value, then youve abandoned it.
c) Tax consequences. would you be taxed in both
countries. As in California, which taxes on world wide
profits.
d) Choice of law: there will be a battle between the
franchisor and franchisee. Usually the franchisor wins
because he had greater bargaining power. But the
franchisee will win if you really want to get into his
govt and it had mandatory laws. How to discourage
litigations: the compromise, which says that if anyone
sues, then the other partys law applies.
e) Antitrust. Here, mandatory rules regarding buying
chicken.
f) Tying: a seller agrees to sell on product on condition
that the buyer also purchases a second product.
(1) Chicken delight, p. 795.
(2) Kentucky Fried Chicken, 795
ii) You could argue that we need to maintain our
quality, and maintain our trade mark.
iii) List of approved buyers. Kentucky Fried
Cchicken. If I can prove that I can get the same
quality chicken from somewhere else.
iv) Susser v. Carvelif you can provide specifications
then its ok.
v) Baskin & robinsheld, there wasnt two
products. The ice cream is the product.
vi) Here, the trademark itself is the tying product, and
to use it you have to use the special spices, chickens
etc.

g) Pronuptia, p. 796
h) Pronuptia makes wedding dresses. Mrs Shillgalis owes
them royalties. Shillgalis claims that they were in
violation of the EEC antitrust actions. Lower court
found that the contract was inenforceable as in violation.
i) Held,
j) p. 800.
k) The EU has concerns about cutting up Europe into
markets. This is not so much of a problem in the US,
because the US isnt as concerned with intr-brand
competition.
l) Application: local site selection process, the need to be
careful how they carve up that area. Pronuptia.
m) Their mandatory recipe, but in other countries they
might have performance, they have to use local
products, like oil, and it might be olive oil which
changes the taste. There might be tying requirements.
n) Cooperative advertising in Englishdoes it have to
be a Big Mac or can they call it something else?
o) Strongly recommended prices. Does this exceed the
recommendation requirements of Pronuptia.

69) PROBLEM 10.5 Project FinancingMogul Liquefies
Gas, p. 1039
a) Issue: What are the risks and how will the be allocated?
b) Projects running through foreign countries. Political
instability. You dont know the property laws, or how
to get to them.
c) Financing. How are you going to finance this project?
And fund it in such a way that they are not personally
liable to the lending institution? Project finance.
d) ftnt 1, p. 1042.:
e) Project financing defined, p. 1042: Non-recourse
financing based on the merits of the project instead of
the credit of the project sponsor (borrower). The credit
appraisal is based on the underlying cash flow from the
revenue producing contracts of the project independent
of the project sponsor. Because the debt is non
recourse, the project sponsor has no direct legal
obligation to repay the project debt or make interest
payments if the case flows prove inadequate to pay the
debt.
f) What are the advantages, p. 1043
i) Non recourse, no personal liability
ii) off-balance sheet debt treatment: debt is not
reported on the parent companys finance
statements. A subsidiary with less than 50% then the
debt of the subsidiary is not shown on the parent
companies financial statements.
iii) Highly leveraged debt. I can finance a higher
percentage of the project, so I dont have to
contribute as much. You can borrow a higher
percentage of the project in a non-recourse. You
provide 25% you can borrow 75%
iv) Avoidance of restrictive covenants in other
transactions. Mogul wants to avoid restrictive
covenants, such as existing agreements not to incur
more debt. p. 1052. Unsecured and secured
loans. Bank protect themselves by placing a
restriction on your ability to incur more debt. e.g.,
you cant go over a certain debt to equity
ratio. Mogul may have some restrictive covenants.
v) Unsecured loans. covenants. negative pledge; ratio
covenants; negative covenants;
g) Disadvantage, p.
i) Theyre complex transactions
ii) higher fees
iii) higher interest rates
iv) higher transaction costs
v) higher lender supervision.
vi) high cost on due diligence
h) Other sources of funding? p. 1049
i) Private sources of capital:
(1) sell debt or security, but you wouldnt want to do
this in the US, because there were be a high
degree of disclosure requirements. So dont rely
on private domestic offerings.
(2) Qualified institutional buyers. These are exempt
from these registration requirements.
ii) Multilateral sources
(1) IFC (INtl Finance Corporation).give loans
(2) MIGAto encourage foreign investment, by
providing insurance, up to 90% of the debt , up to
50 million.
i) Credit Enhancement
i) Sponsor
(1) a completion agreement
ii) Third party
(1) Standby letter of credit, by a bank
(2) cost overruns by the contractor
(3) ensuring that theres a Market; by having
contracts with the suppliers in Japan.
(4) Purchase agreements, p. 1069
(a) Hell-or-high-water contract: this is what the
bank wants to see.
(b) Take-or-pay Contract, you pay whether or not
to take the goods.
(c) Take-and-pay contract. Pay only if its
delivered.
(d) Through put agreement. You pay for a period
of time for using the pipeline.
(e) Cost of Service Contract.
(f) Tolling agreement. You pay for exact the
amount.
iii) EX: OPM is the lessor, it will purchase equipment
which it will then lease to the lessee (but OPM
doesnt have the money). Its client is the State of
West Virginia. The State agrees to pay LaSalle, the
assignee. LaSalle was the financier, because OPM
didnt have the money to buy. But OPM has a hell
or high water contract with the State of Virginia, so
LaSalle. OPM ends up not maintaining the
equipment as per their contract. So Virginia tries not
to pay. Held, it was a hell or high water contract and
was therefore absolutely unconditional. These types
of contract are essential to the equipment leasing
business. In Re OPM.
j) Defenses p. 1061
i) Force majeure: McLouth Steel. p. 1062. The
government forced them to close a plant. Held, not a
force majeure
(1) Compare: Intl Mineral: It must be absolutely
impossible or illegal to be enforced.
(2) NOTE: Rapsomanikous & Nicoulous..p. 152.
Certain countries are more likely to apply force
major more strictly, e.g., France. But France is
the exception for civil law countries. Germany is
less likely to apply such a strict standard because
they view contracts as a social instrument. But in
common law countries, we think that people
should have the freedom of contract. But
common law countries have become more
civilized. we now have, instead of
impossibility, impracticability.
ii) Impracticability, UCC 2-615: p. 1063
(1) Three prong test.
(a) unexpected contingency not contemplated by
the parties at the time the contract was entered
into
(b) the party claiming impracticability must not
have assumed the risk of the unexpected
contingency either by agreement or by
custom.
(c) performance of the contract must be rendered
commercially impracticable due to the
occurrence of the contingency.
(2) See International Minerals, ct rejects the force
majuere defense, but nevertheless voids the take-
or-pay contract because it was impractical under
2-615; when an environmental regulation was
promulgated and constituted an event beyond the
reasonable control of the buyer.
(3) and Eastern Airlines, where even though
McDonnell voluntarily complied the the US
govts to provide more planes for Vietnam,
government policy need not be mandatory to
cause impracticability.
iii) regulatory
k) How do we allocate risks. 1056
i) General Rule: A particular project risk is assigned
to the entity that is in the best position to control and
manage that risk and to prevent
ii) 1046: The allocation of risks is generally
determined on the basis of control over the risk
l) Typical Risks, p. 1054
i) unanticipated subsurface conditions
ii) force majuere delays
iii) design errors to the owner
iv) Material and labor shortages--
v) Price increases
vi) site security

70) Problem 10.4 Third World Debt: The IMF, Amabank
and World Debt, California Correspondent bank, p. 1005.
a) Facts: Asiana has been borrowing a lot of money and
just servicing its loans. Investors are starting to pull out,
and there is a fear that it will default and stop servicing
its debt. Amabank is a correspondent with
California. Its loans with Asiana has cross default
clauses: a default on Amabank is a default on
California.
b) Non performing loan. None of the loans are
performing loans. They are at least paying interest on
the loans. How? They have been consistently rolled
over. The reason is the Amabank to pay their debt. So
Amabank continues to invest.
c) Players:
i) IMF: bank of last resort. Gets its money from its
members. Special drawing rights is a kind of
currency with a particular value. The members pay
based on the size of their economy, which gives you
the right to borrow money. You can borrow up to
the SDR level for free. Less developed countries
pay less interest rates. The collapse of third world
economies caused a rush on the banks. The
economic crisis was caused because we had an oil
crisis, so US was paying a lot of money to OPEC
nations, so theres tons of money on the market. The
OPEC countries began to buy investment portfolios,
and the money ends up in US banks, and the US
banks have to lend it, flooding the market with cheap
money, driving the interest rate down. So all these
banks try to sell their dollars at a lower rate and to
sell it to third world countries. The banks stopped
making realistic debt analysis. But it turns out that
the third world countries cannot pay their debts
back. Then the nations start defaulting on their
loans.
d) Conditionality. Conditions the IMF places on lending
money: in order to borrow you have to be following
sound economic policies in your country.
i) This impacts on sovereignty. The developed
countries of the world are imposing their views on
the debtor nations.
ii) Not impose by private banks, though they would
like to. But they will look to what the countrys
economic policies are, before they make the loan.
(1) But they ask the nation to be in good
standing with the IMF. They say, we will loan
to you as long as youre in good standing with the
IMF.
e) AMABANK ; 16% of its international loans are in
Asiana and if it defaults then it will hurt their credit
rating. see p. 1014. Reserve for losses is like self
insurance, you want to keep this at about 1%. But if the
Asiana loans defaulted? And what happens when the
rating goes down?
f) Application: Asiana is unable to pay, what is
AMABANKs option. They can write it off or loan
them more money so they will continue to be a
performing loan. Performing loan. not more than
90 days overdue.
g) How to decide whether to foreclose, or whether to loan
more money. If you think that by loaning them more
money, then
h) Factor: one, will the countrys economic position
improve? look at political conditions, nationalism,
two, how much money do you have riding on this? If
the majority of youre portfolio is in Asiana, then you
want to keep loaning them more money. ==
i) Mutual hostage---AMABANK cant pull out
because he has too much invested, ASIANA is
hostage because it has more debt than
payback. ASIana doesnt want to just say, we wont
pay, because then no one would ever want to loan
them money again. If there is a small portfolio
investment in Asian, then you want to cut your
losses. But the correspondent California bank
doesnt want this to happen, because a foreclosure by
AMABANK will be a foreclosure on the California
bank. Cross default clause. So, the California
bank will buy the debt.
i) Gold, 1015: US response to banks making bad lending
decisions. Creating the categories, which determine how
much the banks have to set aside in reserves.
j) Baker plan, p. 1023but economic reform doesnt
work. Were just pile loan upon loan.
k) Brady Plandebt reduction.
(1) Discounted buyback. Sell it to a secondary
market. e.g., sell a loan with a 30%
discount. The bank would sell it to
WORLDDEBT. But they could also sell it back
to ASIANA.
(2) loan swapping. Diversifying loan
portfolio. AMABANK can swap its loan with
ASIANA
(3) Debt-equity swap. EX: AMABANK sells to
IBM at a discount, IBM sells to ASIANA in
ASIANA currency, and its willing to take the
ASIANA currency, because they want to use it to
pay to build new facilities or pay it
employees. But ASIANA may want a
reduction. We know that IBM bought the debt
for $500K, well buy the debt from them for
$400k.
(a) Downsideinflationary impact. When
ASIANA pays IBM, their pumping all this
ASIANA currency into its own market, it
causes inflation to rise. So countries limit the
amount of this debt-equity swap.
(b) Privatization. ASIANA will sell their govt
owned companies to private investors, even
foreign investors. EX: Im the American
investor, I go to AMABANK and say sell me
100k in debt at a discounted rate. I take the
note and take it to ASIANA, and say that
instead of paying this off, give me your power
plant.
(4) Par Bonds. p. 1024. Changing loans at a floating
interest rate, and exchange it for a bond with a
below market interest rate.
(5) Discount bond. Exchange loans for a reduced
face value, but continues to have a floating
interest rate.
ii) Secondary market. As a result of converting loans
into bonds created a secondary market for these
loans, because these loans have been. These junk
bond investors are represented by WORLD-DEBT.
As these individual investors buy more and more of
this debt, it will have an impact on the future
restructuring in ASIANAs debt. How? Lawsuits.
Why are these lawsuits a concern. The investors are
buying nonperforming securities, and suing for
default.
iii) Pravin bought for 27c on the dollar. The securities
were already in default and they sue to accelerate
payment. This is a change in what had happened
before there was a secondary market. Why werent
there lawsuits before the emergence of the secondary
markets? Before the secondary markets, the
banks could have foreclosed. There was this idea of
mutual hostage. US banks had no incentive to
foreclose because if their portfolio ...if one
foreclosed then all the other banks would foreclose,
so the banks had a common interest not to foreclose
on ASIANA.
(1) p. 1030. In 1984, the US identified ....
(2) some rogue banks were suing for default, but
there wasnt much litigation before. Now we
dont have the same common restraint we had
before. Now we have these individual investors
suing the states.
iv) CIBC v. Banco do Brasil, p. 1029
v) Brasil and its creditors entered into a multi year
deposit agreement. But even after this restructuring,
it needs to restructure again. They offer the creditors
a menu to choose from:par bonds; collateralized and
uncollateralized bond; and discount bonds. But the
Darts didnt want to convert into discounted bonds,
(it holds $1.4 billion), because it would make more
money, almost a hundred million more dollars. The
Darts were hoping that the majority of the creditors
would convert to Brady bonds. Then the Darts
would control the MYDFA debt. And if they
controlled it, they would accelerate the debt. To
defend, Brasil orders the brasilian bank to buy
enough of the MYDFA debt, so that they have
control of it. Darts sue the brazilian govt, claiming
bad faith and breach of contract. The US submits
its statement of interest, saying dont allow the Darts
to do this. The problem was theAllied decision, in
which the creditor was allowed to sue the
sovereign. But that was ten years ago, when all the
banks were allied. If in Allied, the court had not
allowed the banks to sue, then the foreign govts
would have the banks over a barrel. Held, Darts
lose, they dont get to accelerate, because thats not
what the contract says, the court refuses to amend
the contract.
a) Pravin, p. 1032
b) Pravin buys Peruvian debt. Peru uses the US statement
of interest, saying that this is a different situation then
10 years ago. Court decides for Pravin, and allows
Pravin to accelerate. The Darts wanted to amend the
contract, but the Pravins