International Contracts Part One

Contracts can be complicated

Discrepancies
Uniform Commercial Code (UCC) of the United State

United Nations Convention on Contracts for the International Sale of Goods (CISG)

Concepts to know
Businesses in international trade are involved in contracts. Contracts in a country are governed by the laws of that country. But how do companies in different countries make a contract?

International Contracts
Lex Mercatoria International Sales Contracts and the CISG Agency versus Distributorship Legal Issues Elements of an Agency or Distributor Contract Termination

What is Lex Mercatoria?

Arbitration and Mediation

Wasnt he an enemy of Batman?

Lex Mercatoria
Definition
Refers to all international trade laws and conventions Is made up of a multitude of international agreements and international trade customs Complements domestic laws Is used when the contract is between two parties in different countries

International Contracts
Lex Mercatoria International Sales Contracts and the CISG

Agency versus Distributorship Legal Issues

Elements of an Agency or Distributor Contract Termination Arbitration and Mediation

How do we define an international contract? Two basic requirements:

Economic: Goods go from one country to another and money is sent back from one country to another. The transaction or sale is linked to the laws of different countries.

Uniform Commercial Code of the United States

Uniform Commercial Code of the United States

Uniform Commercial Code of the United States Several organizations wrote a code of laws for dealing with personal property. They were not law in any state until the state adopted them. All fifty states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands have adopted them. They provide a uniform legal system for doing business in the United States.

Convention for the International Sale of Goods CISG

Created in 1980 Has become the Law of International Contracts Adopted by most countries as part of their Commercial Law The United States has not adopted all of the CISG.

Discrepancies
Uniform Commercial Code (UCC) of the United State

United Nations Convention on Contracts for the International Sale of Goods (CISG)

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
You cannot withdraw your offer before the expiration date

You can withdraw your offer at any time before the expiration date

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)

$195,000 I offer $200,000 Seller pays freight Five Six day day delivery delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)

I offer $195,000 Seller pays freight Six day delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

I offer $195,000 Seller pays freight Six day delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)

$195,000 I offer $200,000 Seller pays freight Five Six day day delivery delivery

an offer

Modification of original offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Six day delivery

$195,000 I offer $200,000 Seller pays freight Five Six day day delivery delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Six day delivery

$195,000 I offer $200,000 Seller pays freight Five Six day day delivery delivery

an offer

Rejection of original offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Six day delivery

$195,000 I offer $200,000 Seller pays freight Five Six day day delivery delivery

an offer

Changes are a counteroffer

International Sales Contracts

Differences Between CISG and UCC
Making an offer Acceptance
The second step in the formation of a contract Under the CISG, the second party must completely agree with all the terms presented in the offer; otherwise, it is a rejection of the offer.

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

an offer

International Sales Contracts

Differences Between CISG and UCC
Making an offer Acceptance
The second step in the formation of a contract Under the CISG, the second party must completely agree with all the terms presented in the offer; otherwise, it is a rejection of the offer. Under the UCC, the second party is considered to have accepted the offer if it generally agrees with its terms, even if it wants amendments to the quantity of the goods purchased, the delivery dates, and other details.

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Seller pays freight Five day delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer Seller pays freight Five Six day day delivery delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer Seller pays freight Five Six day day delivery delivery

an offer

International Sales Contracts

Differences Between CISG and UCC
Written Agreements The CISG does not dictate that contracts of sale have to be written. The UCC dictates that contracts have to be in writing (for transactions above $ 500).

International Sales Contracts

Differences Between CISG and UCC
Breach of Contract

In the event that one of the parties to a contract does not meet its obligation, that party can be found in breach of the contract.

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Making Goods (CISG)
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer Seller pays freight Five Six day day delivery delivery

an offer

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Breach of Goods (CISG) contract
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer pays freight Six day delivery

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Breach of Goods (CISG) contract
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer pays freight Six day delivery

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Breach of Goods (CISG) contract
I offer $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer pays freight Six day delivery

Actually takes fifteen days

Discrepancies
Uniform Commercial Code (UCC) of the United State United Nations Convention on = Contracts for the International Sale of Breach of Goods (CISG) contract
Seller $187,000 I offer pays $200,000 Seller pays freight Five day delivery

I offer $200,000 Buyer pays freight Six day delivery

Actually takes fifteen days

End of Part One.

International Contracts Part Two

Agency vs. Distributorship Legal Issues

Whats the difference between an agency and a distributor?

Agency

http://www.worldofmaps.net/europe/maps_europe.htm

Agency

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Agency

http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif

Agency

http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif

Distributor

http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif

Agency vs. Distributorship Legal Issues

There is no international agreement regarding relationships between exporters and their agents or distributors. Applicable law generally is that of the country where the agent or distributorship is located. Basically, agreements between an exporter and an agent/distributor are called distribution contracts.

Distributor

Agent

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Agency vs. Distributorship Legal Issues Home Government Restrictions

Home governments sometimes regulate agents/distributors to protect them from more powerful exporters. Home governments also may want to regulate the activities of agents and distributors within their borders. They may have to register with the government. They may have to be nationals of the country. Government may inspect contracts. Commissions may be regulated. Agents/distributors may be limited to geographic area.

Important Elements of Agency or Distributor Contracts

Language in which contract is written. One language is considered primary contract language. Other languages are considered translations. Good faith participants agree to act in good faith, not attempting to take advantage of one another. Force majeure (overwhelming power) contract not binding in event of catastrophe (ship sinking, hurricane, strike).

Agency or Distributor Contracts

Scope of appointment
Is contract with an agent or distributor? What products are involved? What is the territory involved?
Is the agent/distributor an exclusive representative?

What is the status of corporate accounts?

Agency or Distributor Contracts

Term of appointment:
Must always be a definite time period. Termination of contract is usually a bad solution.
May be problem to find a new representative. Fired representative may cause problems. Customers may think exporter is not committed to market.

Better to not renew contract, but identify terms that were not met.
Failure to say this may mean a court may consider the contract an evergreen, meaning it is of unlimited duration and nonperformance cannot be used to terminate it.

Agency or Distributor Contracts

Term of appointment:
Must always be a definite time period. Termination of contract is usually a bad solution.
May be problem to find a new representative. Fired representative may cause problems. Customers may think exporter is not committed to market.

Better to not renew contract, but identify terms that were not met.
Failure to say this may mean a court may consider the contract an evergreen, meaning it is of unlimited duration and nonperformance cannot be used to terminate it.

Agency or Distributor Contracts

Choice of legal jurisdiction:
International contracts always say which countrys laws will govern disputes over the contract.
Exporter usually makes this choice.

International Chamber of Commerce (ICC) Model Contracts for Agency and for Distributorship provide two choices:
Traditional choice of specific countrys laws. Generally recognized international trade laws.

Agency or Distributor Contracts

Choice of forum and arbitration
Both parties agree on court to rule and laws to apply in dispute. Increasing number of contracts call for an arbitration panel to settle disputes.

Profitability or commission
Determines price/margin of products distributor sells. Determines commission of agents.

Agency or Distributor Contracts

Miscellaneous clauses Facilities and activities: size of retail site and inventory, extent of employee training, complaint handling. Advertising responsibilities of both parties. Competing lines agent/distributor can carry, if any. Use of trademarks, patents, and copyrights. Confidentiality of trade secrets, strategic information. Ownership of customers list.

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More on Termination
Just cause termination.
Exporter not fulfilling contract (rare). Agent/distributor not fulfilling contract. Even if there is failure to perform, the guilty party may be legally entitled to a minimum notice and compensation even though it is not so stated in the contract.

Convenience termination.
Exporter may think agent/distributor is earning too much. Exporter may be changing strategy. Best to include lengthy notice period and generous goodwill compensation package.
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Arbitration
Increasingly preferred way of resolving disputes between international partners instead of going to court. Venues for arbitration:
International Chamber of Commerce Rules of Conciliation and Arbitration. United Nations Conference on International Trade Law Rules of Conciliation and Arbitration. London Court of International Arbitration. Stockholm Chamber of Commerce. World Intellectual Property Organization. American Arbitration Association. Individual law firms (many in Switzerland).
End of program.

End of Program