International Business Transactions Outline Part I

Intl Business Transactions-Outline I. International Sales of Goods UN Convention on Contracts for the Intl Sale of Goods (CISG) o Governs transactions between US and 62 intl parties unless expressly opt out o US Reservation limits application of CISG when 2 K states are part of CISG-if other K party in non-CISG state then UCC governs o It is self-executing treaty. o Purpose-reduce legal obstacles to intl trade, and promote orderly development o Acts much like Article 2 of UCC of US law—differences marked at UCC portion of supplement. o Remember don’t use term “as is” in contract if CISG applies. Sphere of Application of CISG o Main purpose to avoid conflicts of law problems o Sphere of application defined in first 6 Articles  Article 1-requires “sale of goods” K to be both intl and bear stated relation to K states No definition of “contract,” “sale,” or “goods” Intl-between parties whose places of business are in different states; location of goods or negotiation is not dispositive Place of Business- Article 10A-permanent establishment required, neither warehouse nor office of seller’s agent qualifies; “that which has the closest relationship to K and its performance.” Limited to those circumstances known to parties before K formed o Permits parties to state in K which office is pertains AND either both states are K states, or only 1 state is and private intl law choiceof-law rules lead to application of law of K state o US reservation strikes the latter, instead US law for domestic sales transactions would govern, typically UCC  Article 6-Opt out capacity is always available to parties to K Choice of Law Clauses o Article 6-parties may expressly determine not to be governed by CISG (opt out)  Must be done unambiguously-CISG does not apply; X law does apply  If contract doesn’t have choice of law clause, then cts will look for place of contract formation and choice of law principles of the forum—important for K’s between US and a non-CISG party. if under ECC Conv Art 4.2-looks at habitual residence of the corp forming the K; however, Art 4.5 looks at the circumstances in total Other Scope Issues o Article 3-expressly includes K for the sale of goods not yet produced, unless buyer undertakes to supply “substantial part” of the necessary materials  Includes sales involving combo of goods and services, unless “preponderant part” of seller’s obligation concerns labor or other services o Article 2-expressly excludes K for sale of commercial paper, investment securities, ships, aircraft, hovercraft, and electricity  Perhaps similar to other “intangibles” or “immovables” but ambiguous  Software-important ambiguity; discs are goods, but K to develop is not o Article 2-expressly excludes intl sales of goods to consumers as to not conflict with consumer protection laws which are often “mandatory law”  Also execution sales and auctions are excluded o Article 5-CISG doesn’t govern causes of action against seller “for death or personal injury” even if arising out of sales transaction; conflicts mandatory law o Article 4-CISG governs only the formation of K and the rights and obligations of parties to the K  Held to pre-empt state law on promissory estoppel, but not tort law  Doesn’t govern validity of K, effect on title, or rights of 3rd parties o Contract of sale not definition-problems with consignments (buyer may return goods which cannot be sold), countertrade (goods are exchanged for other goods and not for money), and conditional sales (seller retains title to secured pmt) General Provisions of CISG o Article 7-assists in interpreting the convention itself  Art 7(1)-Intended to stop local cts from applying local law to intl disputes  Art 7(1)-only refers to good faith in interpretation of CISG, not K, by cts this is different from UCC §1-203 where there is good faith on each of the parties to a sale  Art 7(2)-gap fillers-since intl law may not have relevant answer, ct may default to their own applicable law or choice-of-law provision in US this could mean UCC o Article 8-est rules for interpreting the K itself and its terms with 3 tier hierarchy  Where parties have common understanding or intent-should be used  Art 8(1)-If diverge, if one knew the other sides intent, that intent prevails  Art 8(2)-Unaware of divergence-stmts and conduct subject to “reasonable person” standard under  Art 8(3)-requires that ct give consideration to all relevant circumstances- clear direction to consider parol evidence even when there is subsequent written agreement Ct can look to negotiating history of K and actual administration of term of K by parties o Art 9(1)-allows parties to include “any usage” to which they have agreed  Art 9(2)-allows for incorporation of usages by implication but only if “parties knew or ought to have known” of it, must be a usage in intl trade, must be widely known and must be “regularly observed” o Art 11-K for intl sale of goods is enforceable even if not written and can be proven by any means  No equivalent to statute of frauds o Art 12 and 96-allow contracting state to declare reservation that its local law shall govern the form requirements if the party has place of business in that state  If Art 96 reservation declared, parties may not circumvent under Art 10 o Art 13-how to satisfy writing requirement; includes telex or telegram Contract Formation (Part II of CISG) o Art 92-allows state to declare it will not be bound by section II of CISG o No consideration and no formality requirements o Offer (Art 14-17)  Art 14-definition offer with 3 reqs Must be proposal for concluding K Must indicate intention to be bound in case of acceptance o Art 14(2)-proposals to general public not offers Must be sufficiently definite re 3 terms: description, quantity, price o Price can be flexible if sufficiently defined like index o More restrictive than UCC §2-305  Art 55-offeror may implicitly agree to pay current price-price K is concluded becomes fixed price o Quantity-can be left open for requirement, output, exclusive dealings-if provision for determining o Assortment-CISG doesn’t require that the offer specify goods, so presumably authorized if assortment left open so long as parties take care in describing the type of good from which assortment will be selected  Art 16-revocability-offer revocable unless indicates it is not Can indicate by stating fixed time for acceptance o Acceptance (Art 18-22)  Art 18(1)-definition acceptances as either stmt or other conduct by offeree indicating assent to an offer Silence may be sufficient if followed by affirmative conduct  Art 18(2)-determines when indication of acceptance is effective for concluding K Not effective till it reaches the offeror; risk of loss on offeree With Art 16(1)-offeror power to revoke terminated upon dispatch of acceptance, however offeree’s power to withdraw acceptance terminates only when acceptance reaches offeror (analog to mailbox rule)  Art 18(3)-acceptance by conduct without notice is possible only when allowed by offer, usage, or prior course of performance  Art 19-battle of forms-if different then offer, rejection, counter-offer (original offer terminated under Art 17); no K and parties not bound  Last shot rule-implied from Art 17, 18(3), and 19 compared to UCC in supp o Art 23-K concluded (binding) when acceptance of offer becomes effective Seller’s Obligations o Art 30-seller is obligated to deliver goods and any related docs and to transfer the property in the goods to the buyer; goods must conform to K as to qty, qlty, title  Domestic law determines whether property passes from seller to buyer at the conclusion of K, delivery, or other time, whether certificate of title is reqd; whether seller may retain title as security for purchase or debts o Delivery-transfer of possession or control of the goods  Art 31-4 types of delivery terms Delivery K in which seller must deliver to place specified in K o Goods must be conforming when delivered, not shipped, unless excused by force majeure under Art 79 and 69 Shipment K-involves carriage of goods but not required delivery o Seller no obligation to deliver goods to particular location, but independent 3rd party carrier is involved (FOB or CIF) o Art 31(a)-seller must hand over goods o Art 31(b-c)-sellers obligation is to put goods at buyers disposal at the appropriate place o Art 32(1)-if goods not clearly id to K by shipping docs or markings, seller must notify buyer of consignment o Art 32(2)-K may req seller to arrange transport of goods, in which case seller must K for appropriate carriage o Art 32(3)-seller must either effect insurance or at buyers request, give info so buyer can get insurance Sales of goods at a known location which not expected transported Sales of goods unknown location and not expected transported  Art 33-time requirements-goods or docs must be delivered on or before a stated or determinable date set in K or within reasonable time (precludes immediate delivery though is not defined)  Art 34-requires that seller conform to terms of K; seller who delivers defective docs early may cure the defects until the date due under K and buyer must accept even if caused damage to buyer  Art 35-obligates seller to deliver goods of the qty, qlty, description, and packaging reqd by K; results similar to warranty structure of UCC (UCC §2-314) Art 35(2a)&(d)-goods must be fit for ordinary use and proper pack Art 35(2b)-must be fit for any particular use made known to seller (UCC §2-315) Art 35 (2c)-must conform to any models held out No conditions on the imposition on seller of the obligation of fitness for ordinary use Seller is relieved of any obligation under Art 35(2) against defects in quality whenever buyer is aware or could not have been unaware of a defect at time K is concluded o generally seller not obligated to supply goods that conform to the public laws and regulations of the buyer’s state with 3 exceptions listed below. o Medical Marketing Intl v Internazionale Medico Scientifica-seller not obligated to supply goods that conform to public laws and regulations in buyers state unless:  If laws are identical to ones of sellers state  Buyer informs seller of laws  Buyer knew or should have known of laws in buyers state o Art 36(1)-obligations begin at time when risk of loss passes to buyer-any nonconformity which exists at time of risk of loss passes is actionable, even if discovered later; buyer must prove defect present at delivery o Art 40-obligation to notify buyer of any nonconformity known to seller or of which he could not have been unaware o Art 41-title-obligation to deliver title free of encumbrances or claims of 3rd party  Must also be free from patent, trademark and copyright claims o Seller can exclude any of these obligations by K (Art 6) Remedies for Seller’s Breach o Seller may be in a significantly better position under CISG than under UCC b/c seller has right to cure any defects without the UCC time limits or expectation requirements. o Basic types of remedy  Specific performance Art 46-gives buyer who has not received delivery right to specific performance with 2 qualifications (not required, can seek damages) o Buyer must not have resorted to inconsistent remedy o Buyer should not bring action in common law ct If non-conforming goods delivered, buyer may require specific performance of conforming substitute goods only if nonconformity amounts to fundamental breach Art 25-Fundamental Breach-breach whose result substantially deprives aggrieved party of what he is entitled to expect in K  Avoidance of K Only permitted if there has been a fundamental breach by seller regardless of when breach occurs CISG doesn’t adopt the distinctions between “Acceptance of goods” rejection and “revocation of acceptance” contained in UCC. Incorrect analysis of what constitutes fundamental breach could put buyer in position of fundamental breach through response Art 47 and 49(1b)-offer buyer method of formulating strict standard o Art 47-addtl period to perform must be of reasonable length Art 48-Seller has right to cure any defect; survives buyers declaration of avoidance as can’t prove breach with offer to cure o Can also be cured through late performance w/o delay Art 38-for buyer to have any remedy for nonconforming goods, must be inspected in as short a time as is practicable Art 39 &49-buyer must notify seller of nonconformity w/in reasonable time Must also prove Art 25 (see above) Art 81-Buyer gets restitution if already paid, but must return goods Art 82-must be returned in substantially the same condition as recovery  Action for damages Art 74-78-action for damages, can be available when K has been avoided and when seller has successfully cured defects in performance o No requirement to prove fault, only defect Both direct and consequential damages (lost profit) are recoverable unless were neither actually foreseen nor should have been Expectancy, reliance, and restitutionary interests are protected Damages measured by either 1) difference between price of cover actually incurred in market and K price or 2) difference btw market price and K at the time of avoidance Art 77-aggreived buyer must take reasonable measures to mitigate Art 78-incidental damages relating to interest Seller may be in significantly better position under CISG then UCC if buyer claims a relatively minor fault in goods o Rejection b/c goods are not perfect is not allowed  Self help Art 50-buyer may reduce the price if goods are nonconforming o No requirement of prior notice to seller but must allow seller to attempt to cure if requested Buyer’s Obligations o Art 53-Buyer must pay the price of the K and must take delivery of goods o K is for cash sale unless expressly stated that it is under credit and pmt and delivery are concurrent conditions o Art 54-obligation to cooperate to enable pmt to be made; failure = breach o Art 57-buyer pay against handing over of docs or good, then place of handing is place of pmt; otherwise place of seller’s business; unless in K differently  Must export funds to seller; important if soft currency or restrictions o Art 58(1)-pmt due when seller places goods or title at buyers disposal  Art 58(2)-If K includes carriage-seller may ship under negotiable docs of title and demand pmt against docs; Buyer right of inspection before pmt  Art 58(3)-if expressly agreed to pay against docs (CFR or CIF) must pay regardless of whether arrived and without inspection o Art 60-duty to make expected preparation to permit seller to make delivery Risk of Loss o Art 67-buyer bears risk of loss to goods during transportation by carrier, unless K provides otherwise  Can be superceded by K terms of FOB or CIF  Risk in shipment K passes to buyer when goods are handed over by seller to 1st independent carrier-any receipt will do, need not be on the transport o Examples-Seller in US and Buyer in China  Shipment K (FCA US)-risk would pass to buyer delivered to first carrier  Destination K (DES China)-seller risk during transit; passes to buyer when delivered in China  Transshipment K (FAS US-port)- seller bears risk from origin to US port alongside ship in harbor, buyer then assumes risk o Art 68-if goods in transit when sold, risk passes when K concluded o Art 69-if goods are to be picked up by buyer then risk passes to buyer when he picks up or if he is late (causing breach), once goods are at his disposal o Title (and time of change of title) will not impact risk allocation o Breach will not impact risk allocation  If seller in breach (even if fundamental under Art 25) upon shipment, risks are not reallocated to him Remedies for Buyer’s Breach o Preferred remedy for aggrieved seller is cause of action for price, which is equivalent for specific performance; may also try to reclaim goods o Art 62-gives seller unqualified right to require buyer to pay price but no cause o Implicit conditions Art 30-seller has performed as required by terms of K  Art 58-pmt of price is due  Art 28-action for specific performance Also have to meet reqs of UCC 2-709 and CISG Art 28, 62  If not specific performance then Art 28 inapplicable o Art 64-gives seller right to claim K avoided; doesn’t distinguish between pre and post delivery so may allow for reclamation of goods o Art 81-requires restitution of whatever first party has supplied after avoidance  But only available if 3rd parties (creditors) are not involved o Damages  Art 74-78-provide unpaid seller (and aggrieved buyer) with action for damages and general principles are same as buyer’s remedies  Usually 1) difference between K price and resale price if goods resold  Or 2) difference between K price and market price at time of avoidance  Art 74-includes recovery of lost profits and should allow ct to grant full protection to lost volume seller o Art 85-buyer who rejects goods after receipt must reasonably preserve  Art 87-including storage at seller’s expense UNIDROIT Principles of Intl Commercial Contracts-Intl Institute for the Unification of Private Law in Rome (like a restatement of law) o Cts will usually apply CISG to any transaction where they apply, but if silent or ambiguous, cts are instructed by Art 7(2) to consult general principles of intl commercial law including the UNIDROIT  May also be used in non-sale of goods K, in arbitrations, or selected in K  Do not necessarily represent the national rule of a majority of states o Battle of the forms  Art 2.22-eschews mirror-image and last-shot rules. Mirror-image-instead K concluded where parties reach agreement on all terms of K, except those incorporated in standard terms including “my way or the highway” clauses which are ineffective o Where parties agree on terms which they are willing to raise individually and negotiate, they should be bound to Last Shot-instead use the “knock-out” rule so that K terms include: o Non-standard terms which have been expressly agreed on o Standard terms which are common in substance unless objected o Default rules of the principles o Unilateral us of standard form K  Art 2.20-standard term is not effective if the other party could not reasonably have expected it Standard term-if prepared in advance for general and repeated use o Relate terms to expectations of non-drafting party though is bound to terms that are standard in the industry  Surprises-choice of forum clause outside jurisdiction of immediate parties to K o Surprising either because of content or presentation o Excuse of performance by changed circumstances  Force Majeure Art 7.1.7-similar CISG Art 79-non-performance must be due to impediment which non-performing party could not control and could not reasonably by expected to have taken into account o Impossibility is required and impracticability ≠ sufficient o compels renegotiation of the contract o Non-performing party must give notice of impediment and is liable for failure to notify  Hardship Art 6.2-hardship occurs when events fundamentally alter cost or value of a promised performance (similar to price unconscionability) Art 6.2.3-hardship does not by itself excuse performance, effect of hardship is to compel renegotiation of K if requested o If not renegotiated, can go to ct who can reestablish equilibrium or terminate K if hardship is found Remember that CISG Art 79(1) doesn’t allow economic hardship Commercial Terms-delivery obligations o Incoterms (Intl Commercial Terms)-dominant source of definition for commercial delivery published by Intl Chamber of Commerce (ICC)-provides rules for determining obligations of both seller and buyer when different terms are used  ICC non-governmental body so not governing law of any K-but instead is a written form of custom and usage in trade which is often expressly incorporated by parties to an intl K for sale of goods Can also be implicit term of K as part of intl custom CISG Art 9(2)-qualifies as a usage which in intl trade is widely known to, and regularly observed by parties to intl sales K o Express reference to Incoterms will supercede UCC provisions in US cts  But even if UCC applies, can still be used as example of usage of trade under UCC 1205(2)-as a practice having such regularity of observance as to justify an expectation that it will be observed with respect to the transaction in question o 13 different commercial terms to describe delivery obligations (see p. 78 of nutshell)  E term-goods made available to buyer, but use of carrier not expressly required  Shipment K-seller puts goods in hands of carrier and arranges for transport, but it is at buyer’s risk and expense UCC 2-504  F terms-require seller only to assume risks and costs to deliver goods to a carrier nominated by buyer F.A.S.____: free along side ship + location C & F: cost & freight C.I.F._____: cost, insurance, & freight + port of destination F.O.B.____: Free on board + location of plant/goods Typically don’t do a documentary sale with a F.O.B. contract, mostly a C.I.F. None of the terms really don’t have any monetary advantage (more profitable) over the other because liability issues are covered by insurance. The key thing is the people in the transaction, especially the seller, needs to know upon the agreed upon terms. If there is confusion about what term is being used then the price might reflect an incorrect assumption and get underpaid. FCA (Free Carrier)-any transport including multi-modal o Most comparable to UCC FOB place of shipment 2-319(1)(a) whose norm is for seller to arrange transport and insurance FAS (Free Alongside Ship)-water borne transport o Under UCC 2-319 FAS Vessel requires buyer to pay against tender of docs such as negotiable bill of lading before goods arrive and before inspection; otherwise similar FOB (Free on Board)- water borne transport o Seller obligated to deliver goods on board a ship arranged for by buyer at named port; seller must bear costs and risks of inland transport to named port and also of loading on ship (until they have passed ship’s rail); no obligation to arrange transport or insurance but does have to notify buyer of delivery on board; must provide commercial invoice, export license, and transport docs allowing buyer to take delivery; No provision on payment (not required to pay against documents) or inspection term o This is a price term, delivery term, but NOT a payment term o More likely that under INCOTERMS negotiable BOL aren’t to be used unless parties specify. o Risk of loss transfers to buyer at time goods have passed ships rail o UCC FOB doesn’t require water borne so more like FCA- but UCC FOB vessel is similar-requires buyer to pay against tender of docs, such as negotiable bill of lading before goods arrive w/o inspection; incoterm not intended to require pmt against docs or to restrict inspection nor bills of lading  C terms-require seller to assume risks and costs to deliver goods to carrier, arrange and pay for transport (sometimes insurance) but without assuming additional risks due to post-shipment events; seller bears risk until delivery to carrier, but pays costs to destination CIF (Cost, Insurance and Freight)- water borne transport o Not used in multi-modal transactions o Seller is obligated to arrange for both transport and insurance to named destination port and deliver good on board ship arranged for by seller; must pay freight costs to destination port but has completed its delivery obligations when goods have passed ships rail at port of shipment; Seller must pay for insurance during transport to port of destination, but the risk of loss transfers to buyer when goods pass ships rail at port of shipment o Seller must notify buyer that goods have been delivered on board; must provide commercial invoice, export license and transport doc o Requirement that transport docs must enable buyer to sell goods in transit by transfer of docs to subsequent buyer-usually through negotiable bills of lading from carrier that are used in banks for pmt and buyer obtains possession (and control) of the goods that he can transfer to others o UCC CIF 2-320(4) requires buyer to make pmt against tender of required docs; otherwise similar requiring seller to deliver to carrier at port of shipment and bear risk of loss only to that port but to pay costs and insurance to port of destination o UCC requires war insurance, INCOTERMS makes it optional CFR (Cost and Freight)- water borne transport o Both UCC and incoterms require pmt against docs while goods at sea thus restricting inspection before pmt CIP (Carriage & Insurance Paid to)- any transport including multi-modal CPT (Carriage Paid To)- any transport including multi-modal o Similar except that seller has no duty to arrange or pay for insurance coverage of goods during transport  Destination (or arrival) K-seller responsible to put goods in hand of carrier, arrange transport, and bear cost and risk of transportation  D terms-require seller to deliver goods to a carrier, arrange for transport and assume risks and costs until arrival of goods  All-seller required to arrange transport, pay freight costs and bear risk of loss to named destination point; seller bears risk of loss during transportation, seller must either arrange and pay for insurance or act as a self-insuror during transport; no provisions on pmt or inspection, but no requirement for use of BOL and delivery occurs only after arrival of goods; parties free to agree expressly on both term and pmt against docs International E-Commerce o Little consistency in the rules applicable to E-Commerce transactions across borders o No notification to the parties that they are dealing with international transaction o K problems with E-Commerce transactions  Agreements in writing and signatures  Authentication  Attribution without personal contact  Security and integrity of electronic messages  Express and implied terms and conditions or both commercial and consumer K o Jurisdiction, choice of law and presence issues for civil actions and state regulation o UNCITRAL Model Law on E-Commerce passed in 1996; enacted by 20 nations and IL  Equality of treatment for paper docs and electronic msgs Electronic msgs have legal effect and may satisfy writing requirement so long as it is accessible for subsequent reference Signature requirements can be met by data msg if there is a method which is reasonable for the circumstances to identify both the ID and approval of sender Can satisfy evidentiary requirements for original doc if info integrity can be assured and whose info can be displayed Record retention requirements can be met with appropriate electronic retention  Contract formation and Attribution of msgs Msg deemed to be sent by designated originator if sent either by authorized person or machine programmed by originator Addressee of msg is authorized to rely if either agreed-upon security procedure has been used or originator enabled actual sender to gain access to ID method Acknowledgement of msgs is important and may be required o Agreed upon method or if none selected, any communication or conduct o Originator may unilaterally require by making conditional on acknowledge; deemed never sent until acknowledgement recvd  K for carriage of goods and transportation docs Permit electronic msgs to replace BOL and way-bills, even if stats req paper o Uniform Electronic Transactions Act (UETA)-US proposal for uniform state laws  Similar in scope to UNCITRAL Model law and applies to all types electronic msgs and K  Fed ESIGN refers to EUTA o Uniform Computer Info Transactions Act (UCITA)-US  Applies primarily only to software licensing transactions, and incorporates very detailed provisions concerning every aspect of the transaction  Similar in format to UCC Art 2 on sales of goods but rejected from UCC  Rejects many concepts in UNCITRAL and UETA; so not helping in uniformity! “Payment Against Documents” Transaction o Seller will insist that buyer pay against docs rather than after delivery and inspection o Seller packs goods and will prepare commercial invoice o If required, seller will procure insurance certificate covering goods in transit o Seller delivers goods to carrier who issues negotiable BOL as receipt and K  BOL commonly requires carrier to deliver to seller or order (i.e. person designated by proper endorsement) o BOL K-in return for pmt of freight, carrier promises to deliver goods to either  Named consignee in straight or non-negotiable BOL  OR person in possession (holder) of properly indorsed order, negotiable BOL Negotiable BOL (order) should be used in pmt against docs sale so buyer able to obtain delivery of goods only if buyer has physical possession of proper BOL o Controls access to and delivery of goods-document of title Assures buyer and seller o Goods have been delivered to carrier o Destined to buyer o Collecting banks can control carriers delivery of goods by withholding o To obtain pmt seller attaches draft to the negotiable BOL from carrier, with invoice and any other required docs  Draft-bill of exchange- will usually be a sight draft which is payable on demand when presented to buyer and is payable to seller’s order  Seller endorses both draft and negotiable BOL to seller’s bank and transfers other docs If no letter of credit, bank will usually take docs only for collection though sometimes bank may discount (or buy) the docs outright and become owner o Seller’s bank required to send for presentment to buyer; usually done through customary banking  If for collection, usually no provisional credit in seller’s acct until buyer pays draft o Draft with attached docs will pass to buyers bank (presenting bank) which will notify buyer o Buyers bank will demand that buyer honor the draft and pay the amt on draft or to accept a time draft and promise to pay later  Buyer may require bank to exhibit docs to ensure they conform  Buyer has 3 banking days after notice to decide whether to honor But if docs are exhibited directly to buyer then must decide by COB same day o Once buyer has paid or arranged to pay buyers bank, it will obtain BOL and be entitled to recv o Sellers risks:  Seller has to ship goods to foreign buyer without pmt and no guarantee-buyer may refuse Gives seller cause of action but often usable only in buyers jurisdiction  Retains control of goods with returned BOL-foreign location no agent or resale prospect To have goods returned must pay 2nd transport charge May be forced to distress sale in buyers nation o Buyer’s risks:  Good lost or stolen Solution: insurance  Carrier negligence damages goods in transit Solution: insurance  Non-conforming goods Solution: inspection certificate  BOL and draft stolen and presented with forged endorsements  Goods don’t conform to BOL and are different than expected Solution: inspection certificate  BOL could be forged and no goods are shipped Bills of Lading o UCC Art 7 only applies to intrastate transactions and is preempted by federal law o Federal Bill of Lading Act-49 USCA §80101-80116-governs transfer and transferability of all bills of lading generated to cover both international and interstate shipments  Governs all interstate and international shipments which use a BOL by common carrier  Statute applies if goods shipped from US to another country  Carrier not defined, may include freight forwarder  BOL not defined, may include air waybills or inland waterway docs Straight-non negotiable BOL (white) Order-negotiable BOL (yellow) o Harter Act-46 USCA §190-6-governs the form and content of BOL o COGSA-46 USCA App §1300-15-governs form and content of BOL  Cts reluctant to use the $500 package limitation o Misdelivery: rules in Fed. BOL  Straight non-negotiable BOL issued to named person (consignee) who the carrier is obligated to deliver to at destination place §80110 Possession of actual BOL does not confer rights over good or against carrier to someone who is not the consignee; endorsements are irrelevant Carrier is liable to consignee for mis-delivery if delivered to anyone else Should not be used for pmt against docs transaction  Order or negotiable BOL issued to named person or order and allows named person to endorse to order delivery of goods to others §80110 If endorsed and given to 3rd party then 3rd party becomes a holder of BOL Carrier obligates itself to deliver goods to holder of BOL at destination, thus possession of BOL is critical and must physically be presented to carrier BOL properly endorsed confers rights over goods and against carrier to holder Original consignee may indorse negotiable BOL either in blank by bare signature or by special endorsement which specifies name of intended holder §80104 o Under blank-any person in possession becomes a holder entitled to deliver o Special-only endorsee is holder and can demand delivery or endorse again  Carrier liable to holder for mis-delivery to anyone but holder making “document of title” Possession controls title to document, goods, and direct obligation of carrier Exceptions: if shipper never had proper title of goods, it cant be conferred; or if defrauded out of title with bad pmt  Federal Bill of Lading Act-any forgery of necessary endorsement is not effective to create or transfer rights, even if perfect Any unauthorized signature by an agent is treated as forgery Collecting bank or other party who takes docs under special endorsement protected from loss of theft of paper, forgery, and unauthorized transfer by agent o Carrier liable for misdelivery to forger (as is forger if found) §80111 Each person who takes BOL should “know your endorser” and accepts liability o Collecting banks subject to liability-they can disclaim when endorsing or can claim that bank only holding docs as security for debt but difficult since they are not creditors; transfer the liability to the transferor o Misdescription  Lack of liability of the banks for misdescription in the BOL is well settled.  Carrier has no privity with K between buyer and seller and no obligation to deliver conforming goods to the sales K But does have obligation to deliver goods that which conform to description BOL Federal Bills of Lading Act-carrier liable for any failure to deliver goods which correspond to description in BOL either as to quantity or quality §80113 o Owed to owner of goods in straight bill and holder of negotiable bill  Carrier usually doesn’t know what it is carrying; will not, and is not expected to open containers to inspect or count shipment; not expected to warrant description and capability of packaged goods …can disclaim obligation.  Under Federal Bills of Lading Act carriers allowed to disclaim obligations to deliver goods which conform to description with appropriate disclaimer language; but not effective if carrier knows goods do not conform; effective only if seller loads goods Contents or conditions of contents of packages unknown Said to contain Shippers weight, load, and count  If carrier loads goods, he is expected to count and note condition  For bulk freight-carrier must determine kind and quantity (can weigh containers); disclaimers not effective if containers weighed and counted  Carrier is then responsible for checking some quantity terms and weight of shipment but not required to check any quality terms Berisford Metals Corp v. Salvado-said to contain 2000 ingots weighing 35 tons and BOL only has one container and weighs less than 1 ton-disclaimer fails o Forged Bill of Lading  If carrier issues BOL if no goods, carrier likely to be liable to holder  But if there is a forged or unauthorized BOL that doesn’t come from carrier then no liability for misdelivery or misdescription absent actionable negligence  Collecting banks subject to warranty liability with 3 potential escapes Disclaimer of warranty through making contrary intention clear Claim bank is holding the document only as security for debt Limitation in the ICC Collection Rules that banks need only examine docs Electronic Bills of Lading o Federal Bills of Lading Act-no definition of BOL and doesn’t require written paper or signature so electronic seems possible but most rules written with paper bill in mind  More easily use only as receipts for goods generated by carrier  More utility where straight BOL not needed to be presented to carrier for possession o FBLA-requires carrier to deliver goods only to person who has possession of bill and makes carrier liable or damages if it doesn’t take and cancel bill when delivering goods  Often ignored by carriers in practice and parties exchange printed forms, but statute inhibits use of electronic forms o Interstate Commerce Commission now authorizes us of uniform electronic BOL for motor and rail carrier use; descriptive only; no definition of right of parties and don’t allow or further sale o Chase Manhattan-SEADOCS-intended to create negotiable BOL for oil shipments-acted as custodian for actual paper and maintained registry of transfers from original to holder  Authenticated by test keys or id numbers, then as agent would endorse paper BOL and give to last endorsee to enable it to obtain goods; commercially failed II. Financing the International Sale of Goods International Documentary Sale and Documentary Letter of Credit o Each party takes on several risks that are mitigated with help of third parties who have special knowledge, can properly evaluate each risk assumed, and can reduce the transaction risks The Documentary Sale Transaction o Third party intermediaries include  Buyer’s Bank  Seller’s Bank  At least one carrier o Parties are related by series of Ks-but not each is a party to all Ks  Sale of goods K between buyer and seller Seller is responsible to deliver K quantity and quality of goods Buyer is responsible for taking goods and paying stated price  BOL, receipt and K issued by carrier Goods must be moved using international carrier for transport through K K terms-in return for pmt of freight charges, carrier promises to deliver goods to either 1) named consignee in straight BOL or 2) holder of an order BOL Order BOL should be used in this transaction for document of title purposes When negotiable BOL is delivered to seller’s bank it assures the bank that: the goods have been delivered to carrier, they are destined for buyer and not some 3rd party, bank can control carrier’s delivery.  LOC, promise by buyer’s bank (and if confirmed, also by seller’s bank) to pay seller under certain conditions concerning proof that seller has shipped the goods Seller wants a promise from a bank know to it that pmt will be forthcoming Seller wants confirmed irrevocable letter of credit-promise by a bank that it will pay to seller the amount of the K price conditioned on seller’s presenting evidence that goods have been shipped via carrier to arrive at buyers port (BOL) Negotiable BOL delivered by seller to sellers bank will assure bank that 1) goods delivered to carrier 2) destined for buyer 3) bank can control carrier’s delivery BOL acts as document of title so banks can ensure payment from buyer for goods o Transaction Process  Sales K with price and pmt (confirmed irrevocable letter of credit-max protection) terms Must be bargained for, not implied, as buyer is giving up delivery and inspection Needed docs: o Negotiable BOL o Commercial invoice-purchase terms such as grade, quantity, price, etc. o Policy of marine insurance o Certificate of inspection-commercial inspecting firm o Export license/health inspection certificate-cleared for export o Certificate of origin-for customs to determine tariff assessment Buyer (customer) will K with buyer’s bank (issuer) to issue a LOC to seller (beneficiary) LOC is a direct promise by issuing bank that it will pay K price to seller if seller presents to it the docs specified in LOC  Seller may require that LOC be confirmed by seller’s bank Buyers bank will fwd LOC to seller through sellers bank Sellers bank makes a direct promise to seller that it will pay K price to seller if seller presents required docs; must indicate with “We confirm this credit” If not required, buyers bank can fwd LOC through notifying or advising bank o Not obligated to seller but will fwd docs to buyers bank for collection  Seller packs goods, prepares commercial invoice, and procures insurance certificate If inspection certificate required-goods made available to inspector and will issue Seller will also prepare docs for customs officials; export license and cert origin  Seller delivers to carrier and receives negotiable BOL or seller or order  Seller takes complete set of docs to seller’s bank for pmt as obligated Seller must attach draft (bill of exchange) payable on demand at sight in cash sale, or at later time in credit sale Seller’s bank inspects docs carefully to ensure comply with requirements of LOC Seller endorses draft and BOL to seller’s bank and surrender other docs  Seller’s Bank will then endorse to Buyer’s Bank which is obligated under LOC to honor and reimburse if docs are conforming  Buyer’s Bank then presents to Buyer for pmt against docs and receives BOL  Buyer is entitled to goods from carrier with BOL o Risks are limited to each party  S has independent promises of pmt from buyer and 2 banks Banks promises enforceable despite assertions of non-conformity of goods  SB entitled to reimbursement from BB and B; risk only if BB fails  BB at risk only if buyer fails or refuses to perform-evaluation of risk with higher interest  B recvs docs for pmt which entitle to delivery of goods, insurance, inspection The Governing Rules o US governing law is UCC Art 5, but not mandatory so defer to K terms of parties  Used primarily to resolve issues related to allegations of fraud o Intl Chamber of Commerce (ICC) developed Uniform Customs and Practices (UCP)-usually incorporated by reference in most intl LOC-restatement of customs for banks, not law  written by bankers and benefits banks.  More impact on analysis of non-fraud issues Bank categories o Issuing bank-promises to honor drafts if presented conforming docs o Advising bank-advises beneficiary of documentary credit, but no promise to pay against docs; obligated to take reasonable care to check authenticity of credit before advising, but not otherwise obligated o Confirming bank-receives credit from issuing bank and adds its own promise to honor drafts presented to it if accompanied by conforming docs o Nominating bank-in seller’s locality designated by issuing bank to pay or negotiate the draft; may or may not be confirming bank  UCP is silent on the rights of the applicant against an advising or confirming bank.  Basic Principles (same as UCC) o Art 3-Bank’s obligations under LOC are independent of B and S obligations under K for sale of goods  Art 3a-Not subject to claims that beneficiary has not performed o Art 4-Banks deal only with docs and not performance of underlying K  Banks require perfect tender of docs and use strict compliance Commercial invoice is primary description of goods and must be specific and correspond with description in credit JH Rayner v Hambro-ground nuts case-2 descriptions not the same even though understood to be same; bankers could not be expected to know it or find it out Discrepancies in transportation terms difficult to resolve Typographical errors-Hanil Bank v Pt. Bank Negara Indonesia-bank allowed to refuse pmt when LOC said Sung Jin while all other docs correctly state Sung Jun  Discrepancies occur daily; nearly half of all docs tendered rejected Strict compliance is a problem itself; 967 pg docs example  Parties may provide conditions upon credit, but compliance must be able to be satisfied with documentary evidence Art 5b-LOC must state precisely docs and terms needed Buyer and Issuing bank must ensure can show with docs Art 13c-Bank can ignore req if can’t be shown with docs  Art 23-ocean BOL must name port of loading, discharge, carrier, and specify parties which are acceptable signatories  Art 25b-relieves bank from duty to examine terms of charter party  Art 30-Multimodal transport-BOL issued by freight fwd, not carrier; may only be used if authorized by LOC; as agent of carrier  If originals lost or destroyed bank may take copies if signed Art 20b-allowable signature include writing, stamps, faxes o Art 13a-Banks must examine all docs with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance (which) shall be determined by international standard banking practice  Intl standard banking practice meant to give flexibility, but no guidelines so strict compliance likely to continue Duties of Bank o Examine docs tendered to bank to see if they conform  Banks given reasonable time not to exceed 7 banking days to determine whether to take up or refuse docs-may be shorter Banco Espanol de Credito v State Street-967 pgs examined twice in 2.5 days  If decides to accept docs must notify party from whom recvd o Act upon any discrepancies found  Bank may reject docs if any discrepancies found without consulting customer Buyer  Art 14c-Bank allowed but not required to consult applicant for waiver of discrepancy