Final Examination - VSM€¦ · Web viewAlso called case law because the rules of law were announced by judges in their decisions. The rules were originally not written down. Once

Course ReviewInternationales Wirtschaftsrecht

Fachhochschule für Technologie und WirtschaftSommer Semester, 2009

© 2009 James S. Caldwell, J.D.Instructor: James S. Caldwell, J.D.

Textbook: Schaffer, Earle, Agusti, 6th ed. (© 2005)/4th ed. (©1999)Version: 24 March 2009

Advertising ... #136Barriers to trade ... #19Country specific items ... #31, #32, #158Cross-border transfer of I/P ... #166, #168Regulation of FDI ... #182Regulation of relations between foreign company and local sales rep. ... #128

Bill of lading ... p. 152 (6th ed.), p. 187 (4th ed.)Common discrepancies found in documentation for L/Cs ... p. 229 (6th ed.)Dependent versus independent agent test ... 506 (6th ed.)/ p. 530 (4th ed.)Documentary sale ... p. 151 (6th ed.), p. 186 (4th ed.)Documentary sale with L/C ... p. 219 (6th ed.), p. 254 (4th ed.)Force majeure clause, example of ... p. 123 (6th ed.), p. 154 (4th ed.)Incoterms ... pp. 170 – 171 (6th ed.), pp. 208 – 209 (4th ed.)International air waybill ... p. 163 (6th ed.), Letter of credit ... p. 226 (6th ed.), p. 261 (4th ed.)Pro forma invoice ... p. 122 (6th ed.), p. 152 (4th ed.)

1. What are the three basic forms of international business? Trade (export/import) of both goods as well as of services, licensing of intellectual property, and foreign direct investment (FDI). See p. 6.

2. As a general principle of international law, do private parties have the absolute right to conduct international business? No. In order to legally conduct an international transaction, the laws of both countries involved must permit the transaction in question. Sovereign states have the right to close their borders if they wish. They may impose any restrictions on such transactions as they wish. They can require a license in advance for a certain transaction, for example, or restrict the amount a foreigner can invest or how much can be imported. States can voluntarily waive or limit this original right by international agreements, such as treaties and conventions.

3. T/F? Trade consists of the import & export of goods or services. TRUE

4. T/F? Exporting is the shipment of goods or rendering of services to a foreign buyer, located in a foreign country. FALSE The foreign buyer does not have to be in a foreign country. It is an export even when he is physically in our country.

© 2009 James S. Caldwell, J.D. 1 24 March 2009

5. Identify the three sources of international law. 1) Customary international law (inherited rules), 2) international agreements and 3) general principles common to major legal systems. See p. 47/48.

6. What are the three limitations on the power of the World Court? 1) Only states may appear before ct (although a state may bring an action alleging that some infringement of a private party’s rights is also an infringement of the state’s rights), 2) no state can be forced to appear against its will and 3) the ct cannot enforce its decision. See p. 53.

7. Under international law, must all countries of the world always honor a validly issued passport of another country? No. If not, why not? What is the rule? A person’s „real and effective“ nationality is based on factual ties between the person and a state. If there are not enough factual ties between a passport-issuing state and the passport holder, other states may dishonor the passport as a „passport of convenience“, which they are not bound to honor. See Liechtenstein v. Guatemala (the Nottebohm Case), 1955 I.C.J. REP. 4 (International Court of Jusice, 1955) on p. 53.

Facts of Nottebohm case: 1905 – N. (age 24) moves to GT for business reasons. 1905 – 1943 (38 yrs) lived in GT. During this time, bus trips and visits his brother in LI. 1939 – obtained LI citizenship, started paying LI inc tax. 1943 – arrested, at age 62, after 38 years of residence in the country. 1946 – released. Wants his property back.

8. Is citizenship governed by international law or by each state’s own national law? The relationship between a passport-issuing state and a holder of its passport is governed by that state’s own national law. The question whether other states must recognize that passport is governed by international law.

9. Is it possible for a human being to not have a citizenship? Yes. International law recognizes that a person can give up his citizenship of a state, and if he has no other citizenship, than he becomes „stateless“.

10. Identify the world’s four great legal systems as generally accepted by legal scholars. 1) The civil law (where applicable, also known as the Roman law). Also called code law. Most countries of the world have this kind of system. Legal system based on a written code. Legislatures create the code. If a remedy doesn’t exist in the code, then it is not available. It’s possible to have an unenforceable right (e.g., ban on smoking but no punishment for breach). 2) the common law (essentially Anglo-Saxon tribal law plus modifications acceptable to the French Norman lords). Also called case law because the rules of law were announced by judges in their decisions. The rules were originally not written down. Once a judge has announced the rule of law as applied to a particular factual sitation, then he establishes a „precedent“, and all subsequent cases with the same set of


facts and issues are to be decided the same way. Judges are more powerful in this system than in a civil law system. A judge may create a remedy to right a wrong, even if it doesn’t exist in a code. Note: These countries now have written codes. If there is a conflict between the written code and the rules of the common law, then the code prevails. However, if the code is silent, then the court reverts back to the common law rules. 3) Islamic law (sharia) and 4) socialist law. See pp. 57 – 59/ 59 – 63.

11. In one type of legal system, the civil law, all rules of the law are contained in a written code. In another, the common law system, not all of the rules are contained in a written code. They are found elsewhere. Where are these rules found when they are not in the written code? They are found in earlier decisions of an authoritative court which establishes a „precedent“, meaning that all subsequent cases based on the same facts and law should be decided the same way.

12. Contrast a trial in the civil and in the common law traditions. Who is responsible for developing the evidence? Civil law: judges ask most of the questions. Common law: Each party’s attorney is responsible for presenting the evidence favorable to his client. Adversarial process. Judge is not supposed to help, is supposed to be only an impartial „traffic cop“, enforcing procedure, whose turn it is to speak. Who is the trier of fact (who decides liability or guilt)? Civil law: judge or panel of judges. Common law: Jury of citizens. Who determines amount of award in case of liability? Civil law: judge or panel of judges, sometimes set by code. Common law: Jury.

13. What is the most important legacy of socialist law in ex-socialist states today?

Laws providing protection or benefits to the workers, e.g., law requires employer to provide lunch to workers on work days, any right to free public education or free public medicine, any law which guarantees housing for tenants, etc.

14. What concept is problematic for businesspeople under the sharia (Islamic law)?

The concept of „interest“ is problematic. In some countries, it is altogether prohibited. In others, certain forms are permitted what looks like interest can be paid but it has to be called something else. This varies country by country.

15. Identify and describe three features of a country’s legal system of great interest to business people.

a) Contract law: Does the country have a well developed and transparent body of contract law? Does the law enforce contracts effectively? (What good is a contract if you cannot enforce it in court?)

b) Property rights: Does the legal system adequately protect private property rights (including I/P)?


c) Product safety and product liability issues: How strict are the laws? How severe are the penalties for breach?

16. What features of the American legal system cause great concern to international business people?

a) Plenty of lawyers (312 lawyers per 100,000 residents, only Pakistan and Singapore have a higher proportion)

b) Practice of contingency feesc) Each party pays his own legal fees (some countries make plaintiff pay

defendant’s fees if defendant wins)d) Generous compensation for pain & suffering, determined by the jury (BG:

zhuri ot sa’debni zasedateli, CZ: velkorysé kompenzace za bolest a utrpění, DE: das Schmerzensgeld). For example, in 1994, a New Mexico jury awarded a woman $2.86 m in damages for suffering third degree burns caused by hot coffee which spilled on her inner thighs. The judge reduced it to $640,000. Liebeck v. McDonald’s Restaurants (1994).

e) Strict product liability standardsf) Availability of punitive damages if product personally injures consumerg) Opportunity to file class action lawsuits

17. In general, what are the three ways we manage risk? We can 1) avoid it, 2) mitigate it or 3) transfer the risk to a third party, e.g., to an insurance co. via an insurance policy. See p. 31/31.

18. Identify the eight specific risks of international business. 1) time/distance barriers (e.g., middle-of-the-night phone call from the Japanese customer) 2) language/cultural barriers 3) foreign currency exchange rate („forex“) risk 4) currency control risk 5) buyer’s delivery risk/seller’s payment (or credit) risk in sales of goods transactions 6) risk of loss of/damage to the goods in sales of goods (DE: die Verlustgefahr, SK: nebezpečenstvo škody na tovare) 7) political risk 8) risk of foreign laws/courts. See pp. 32 – 40/ 31 - 40.

19. Show all the barriers govts can impose on international trade.

A. Tariffs (import, export or transit tariffs)i. Ad valorem tariffs, i.e., percentage of valueii. Specific or flat tariffs, i.e., fixed tax per physical unit (by weight or

volume)iii. Tariff-rate quotas, i.e., when tariff rises after a certain volume of

imports, may have multiple stepsB. Nontariff barriers to trade (NTBs)

i. Direct NTBsa. Embargoes

i. Ban on all trade with certain countries (US v. Cuba, Iran, North Korea, etc.)


ii. Ban on transfer of certain products (e.g., ivory, historical artifacts or antiques)

iii. Ban on transfer of certain technology (e.g., nuclear)b. Quotas

ii. Indirect NTBsa. Laws

i. Monetary and exchange controls (e.g., moratorium on cross-border transfer of hard currency, mandatory govt-decreed exchange rate)

ii. Import or export licensingiii. Govt procurement „buy domestic“ lawiv. Regulation of large (often foreign-owned) retailers to

protect small domestic retailers (e.g., JP’s Large-Scale Retail Stores Law)

v. Subsidies to domestic producersb. Administrative regulations

i. Technical barriersa. Performance standards for productsb. Product specifications (e.g., mandatory wiring plan)c. Product safety or environmental engineering standards

(e.g., auto emission standards, ban on growth hormoes in food, JP ban on food preservatives)

ii. Product packaging requirements (e.g., local language requirements)

iii. Customs procedures and delays (ex.: 1982 France required all video recorders to enter FR through one small, remote customs office)

iv. Lack of transparency of regulationsc. Industrial or commercial practices

i. Restrictive distribution systems (e.g., JP)ii. Dumping of goods in foreign markets

d. Social and cultural forces (e.g., population prefers to „buy local“)

20. Which kind of trade barriers are generally greater barriers to trade, tariff barriers or nontariff barriers? Because they tend to be insidious, nontariff barriers are generally a greater barrier to trade than are tariff barriers.

21. What issues arise because of the time & distance barriers to international business? Where is the travel budget? See #22 below. Who will take the phone call from the client in the middle of the night?

22. Why is face-to-face contact essential for successful business deals in so many countries? In most countries of the world, the businessmen do not consider their legal system as useful and they try to avoid using it. The first line of defense is simply to not do business with people unless we feel personally comfortable with them. There


has to be the right „chemistry“. Very often the two parties just getting to know each other will socialize with each other, after work. Dinner, drinks. In vino veritas.

23. How do businesses handle the language & cultural barriers to international barriers? Hire well educated locals. Well educated here means persons knowledgeable about modern business theory and practice and fluent enough in English to handle business communication. We hire a well educated local person to sell to locals. We hire well educated locals to manage other locals.

24. What four implications for business people does Samuel Huntington’s „civilizational“ theory pose? („The Clash of Civilizations“ article in Foreign Affairs journal in 1993, book published in 1996). 1) Selection of our international representatives. The business has to carefully select a person with the right character and temperament who is very flexible, adaptable and non-judgmental. 2) The business must spend extra time and money training its intl reps in cross-cultural situations. 3) The negotiations may take significantly longer than would the same transaction at home. 4) Knowing that certain civilizations seem to be naturally antagonistic with each other, then that factor will affect certain business decisions, such as where to open a representative office, or where to open an active FDI.

25. Identify four ways to manage the foreign currency exchange rate risk (the „forex“ risk). 1) avoid the risk by pricing the contract in your home currency. 2) negotiate a price adjustment clause into the contract whereby the contract price shall be adjusted in case of any significant fluctuations in the exchange rate between your currency and the contract currency. 3) purchase a forward contract from a commercial bank, also called „hedging“, whereby you lock in the exchange rate for an exchange that you will perform at some date in the future. Better still: First get the current forward rate from a bank, and then base your quoted price on it. 4) purchase forex risk insurance (ExIm banks often offer this).

26. How can we structure a sales transaction with a potential third world customer who has no hard currency with which to pay us? As long as the customer has something of value which he can sell on the world market for hard currency, we can find a third-party buyer who will pay us the hard currency in return for our customer delivering the commodity to him. If we don’t know who buys our customer’s commodity, or we want a guaranteed sale of the commodity, then call up one of the sogo sosha, the Japanese international trading corporations. They do know who buys what.

27. Identify four ways to manage currency control risk. 1) seller can ask buyer to obtain a bank guarantee (if buyer fails to pay, then seller can collect from the bank). 2) seller can insist on payment by an irrevocable letter of credit issued by a bank acceptable to seller. That means a creditworthy bank which is located in an economically developed country that is highly unlikely to impose currency control. 3) include a „barter“ clause in the contract whereby the buyer agrees to sell a commodity on the world market in order to enable the seller to get paid in hard


currency. Sellers should try to get the buyer to agree to pay any middleman’s fee if there are any. 4) purchase currency control risk insurance (ExIm banks often offer this).

28. What is a freight forwarder? A travel agent for cargo. He can make the transport arrangements and fill out all required customs paperwork to get the goods out of the country. He can represent the exporter before the exporter’s country’s customs service. See p. 44/43.

29.What does a customs broker do? He represents the importer. He knows how to get the goods into the country, through customs. He knows all the required paperwork and he knows the import tariff schedule better than the customs people do, so the importer pays the least possible tax. See p. 44/43.

30. All of the world’s great legal systems recognize contract law as a basic part of law. What five basic issues does contract law address? Formation of contracts (BG: sklyuchvane na dogovori, CZ: tvorba smluv, DE: der Vertragsabschluss), validity of contracts (CZ: platnost smluv), interpretation of contracts (CZ: výklad smluv, DE: die Ausdeutung?), remedies in case of breach of contract (BG: pravni sredstva za narushenie na dogovor, CZ: náhrady pro případ porušení smlouvy, DE: der Rechtsbehelf or das Rechtsmittel für den Vertragsbruch), and any excuses for non-performance (DE: die Entschuldigung or die Ausrede).

31. Assume two Czech companies conclude a contract for the commercial sale of goods. The contract provides for payment in CZK and the delivery terms are DDU Vienna, Austria (DDU means „Delivery Duty Unpaid“, seller must arrange and pay for delivery of the goods to the named destination). The contract is silent on which country’s law governs the contract. How can a Czech court determine that Czech law does NOT govern the contract? See p. 110/143.

32. Has the Czech Republic and all of its neighbors ratified the CISG? Yes. See p. 110.

Has the Slovak Republic and all of its neighbors ratified the CISG? See p. 110/143. Yes, SK and all the neighbors have ratified the CISG (CZ, PL, UA, HU, AT).

Has the Republic of Bulgaria and all of its neighboring countries ratified the CISG? See p. 110/143. BG, RO, RS, MK, GR: Yes. TR: No.

(CISG = United Nations Convention on the International Sale of Goods, DE: Das Űbereinkommen der Vereinten Nationen über Verträge über den internationalen Warenverkauf [das UN-Kaufrecht], CZ: Úmluva pro smlouvy o mezinárodním prodeji zboží, BG: Konventsija za dogovori za mezhdunarodna pokupko-prodazhba na stoki).

Countries that have ratified or acceded to the CISG: DE and all of its neighbors: DK, PL, CZ, AT, CH, FR, LU, BE, NL. See „CISG: Table of Contracting States“ at


www.cisg.law.pace.edu, accessed on 13 March 2008. As of 2 December 2006, the UN reports that 70 states have adopted the CISG.

11 out of the top 12 German export markets have adopted the CISG (as of 2005 data):

1. FR 2. US 3. GB: NO! 4. IT 5. NL 6. BE 7. AT 8. ES 9. CH 10. CN 11.PL 12. CZ

12 out of the top 14 countries from where Germany imports have adopted the CISG (as of 2005 data):

1. FR 2. NL 3. US 4. CN 5. GB: NO! 6. IT 7. BE 8. AT 9. ES, 10. CH 11. JP: NO! 12. CZ 13. RU 14. PL

Source: Workman, Daniel. (14 December 2006). Germany’s Trade Buddies: Top 15 German Export & Import Partners. International trade.Suite 101. Retrieved 13 March 2008 from http://internationaltrade.suite101.com/article.cfm/germany_s_trade_buddies

Largest economies which have not signed the CISG: IN, JP, GB, BR, ID, TW, TR.

33. In order for the CISG to apply to a contract, what conditions must be met? See p. 110/ . CISG Art. 1 (1) (a).

a) The contract is for the commercial sale of goods (the term „goods“ is not defined in the CISG).

b) It is between parties whose places of business are in different countries (nationality or citizenship of individuals is not a determining factor).

c) The places of business are located in countries that have ratified the convention.

34. Here is a Web site that includes the case law of German-speaking countries, with a searchable case list, members, links, and contacts:

www.cisg-online.ch

34. Is the CISG a complete set of rules of contract law? No. It does not include rules regarding validity of contracts, or the effect of fraud or misrepresentation on the transaction. Practice suggestion: If the parties want the CISG to govern their contract, then they should also specify that in the event the CISG is silent on an issue, then what law will govern that issue because the authorities are divided on whether a court should, on its own, „fill in“ the gaps in CISG coverage with some other law. See p. 113/146.

35. Do contracts have to be in writing to be enforceable? CISG Article 11: No. But be warned certain states, like Russia, Ukraine and Belarus, have rejected this provision from their acceptance of the CISG. P. 115/147-148, also FGS p. 36.


http://www.cisg-online.ch/

http://www.cisg.law.pace.edu/

PECL Article 2.101 (2): Same as CISG. PECL is the Principles of European Contract Law. See p. 107/140. Quote from textbook: „In response to the expanding volume of laws regulating specific types of contracts in the European Union a body of lawyers drawn from all of Europe have prepared a code of contract law. The lawyers who prepared the Principles are known as the Commission on European Contract Law. The Principles are intended to be applied as general rules of contract law in the European Union. The Principles apply when contracting parties have agreed to incorporate them into their contracts or have specified that their contract is to be governed by them.

The official publication of the text was published at the end of 1997. It contains nine chapters dealing with topics ranging from the Scope of the Principles (Chapter 1 includes sections on the freedom of contract, usages and practices, and the good faith obligation) to the Formation of Contracts (Chapter 2) and Remedies for Non-performance (Chapters 8 and 9).

The provisions of The Principles of European Contract Law may be viewed by visiting the Web site at: http://www.jus.uio.no/lm/eu.contract.principles.1998/index.html or by conducting a search of the topic on almost any international law Web site.“ Schaffer, R., Earle, B., Agusti, F. (2005).

UCC § 2-201: Contracts for the sale of goods for the price of $500 or more must be in writing. This is called the „statute of frauds“ provision. UCC is the Uniform Commercial Code (the main body of commercial law for domestic transactions in the U.S., first proposed in 1951). See p. 104/136.

Czech and Slovak Commercial Codes: In general, contracts do not have to be in writing in order to be enforceable. See §272(1). Contract must be in written form only when the law specifically requires it or when at least one contractual party wants the contract in written form.

Bulgarian Commercial Code: Art. 293 Form. Art. 293 (1) To be valid a commercial transaction shall require a written or other form only in the cases provided for by law.

WARNING: In all written contracts, have a clause that controls how the contract may be amended, specifically, require that any amendments to the contract must be in writing signed by both parties or else they are ineffective. Otherwise, one party could claim that the two parties made an amendment orally and get 9 of his friends to testify that they were witnesses to the conversation (that never occurred!), in which the parties supposedly agreed on the amendment to the contract. It is very dangerous to leave this clause out of the contract. Remember the story about the landlady in Sofia with her snake tenant.


http://www.jus.uio.no/lm/eu.contract.principles.1998/index.html

36. Are electronic or digital signatures on a contract legally valid? As of the year 2000, the U.S., the E.U., Japan and China had enacted laws recognizing the validity of electronic or digital signatures. See p. 115/NA. EU Directive 1999/93/EC, Directive on Electronic Signatures, effective 13 Dec 1999. In U.S.: E-Sign Act of 2000 at federal level, 46 states plus DC have enacted the Uniform Electronic Transactions Act (UETA).

37. What is the formula in most legal systems for forming a contract? Offer + Acceptance = Contract (O + A = K) See p. 116/150. (DE: das Angebot + die Abnahme/Akzeptanz/Annahme/Aufnahme ? = der Vertrag).

38. At what moment is a contract formed? When the acceptance is effective. See pp. 116/151, 118 – 119/151. CISG Article 18, PECL Article 2.205, CN, civil law: Acceptance is effective when it reaches the offeror (or appears on his fax machine or in his e-mail inbox). Common law: Acceptance is effective upon dispatch by the offeree. See p. 119/151.

39. Under the CISG, when is a communication a legally binding offer? See p. 116/149.

CISG Article 14‘s three-prong test: 1) Is it a proposal for concluding a contract? 2) Is it sufficiently definite? 3) Does it indicate the offeror‘s intention to be bound?

PECL 2.201’s two-prong test: 1) Does the proposal intend to result in a contract if the other party accepts it? 2) Does the proposal contain sufficiently definite terms?

PECL Article 2.102: „The intention of a party to be legally bound by contract is to be determined from the party’s statements or conduct as they were reasonably understood by the other party.“

Author’s note: I see no practical difference between the CISG and the PECL on this point.

40. Under the CISG, when is an offer considered to be sufficiently definite? CISG Article 14 provides a three-prong test: 1) does it indicate or describe the goods? 2) does it expressly or impliedly fix or make a provision for determining the quantity of the goods? and 3) ...the price of the goods? See p. 116/149.

PECL: Silent on definition of what is „sufficiently definite“.

41. Under the CISG, can advertisements to the general public ever be legally binding offers to sell?

Yes, they can, if the ad is clearly intended to be an offer, although the presumption is that ads are not offers „unless the contrary is clearly indicated by the person making the proposal.“ CISG Article 14. See p. 117/150.


PECL 2.201: Ads may be offers if they meet the two-prong test.

DE national law: ads to the general public can never be considered legally binding offers.

Bulgarian Commercial Code: Same as German provision. See Art. 290.

Slovak Commercial Code: In general, same as German provision. See § 276.

US, CN national law: ads can be legally binding offers if description of goods, quantity and price of goods is clear.

Practice suggestion: Include language in your ad. „This advertisement is not intended as an offer. Please contact our sales representative for an offer.“

Practice suggeston: State what limits there are to your offer. „Limit: one per customer (RO: „In limita unui produs per client“, or „in limita unui produs pentru fiecare client“). Offer valid only while supplies last (CZ: nabídka platí pouze do vyčerpání zásob, SK: platí do vyčerpania zásob, RO: ofertă valabilă in limita stocului disponibil, BG: ofertata e validna do izcherpvane na nalichnite kolichestva).“ The latter condition is presumed automatically under PECL 2.201 to protect professional suppliers.

The offer is subject to certain terms and conditions. (RO: Oferta supusă unor termene şi condiţii.) The offer has limited validity (i.e., can expire). (RO: Oferta cu valabilitate limitată.) The offer is valid for the period of 26 July – 5 September 2009. (RO: Oferta este valabilă în perioada 26 iulie – 5 septembrie 2009).

42. Can a contract be legally valid under the CISG if it does not contain a price term?

Yes (SURPRISE for civil law countries!). Contracts can be legally valid even without a price term. CISG Article 55 says where a price is not fixed, the price will be that charged „for such goods under comparable circumstances in the trade concerned“. See p. 117/150.

PECL Article 6.104: If the contract is silent on price or on a way to determine it, then the parties are held to have „agreed on a reasonable price.“

Most civil law countries: there must be a sufficiently definite price term

UCC: If K is silent on price, then a „reasonable price“ is presumed.

Czech Commercial Code: 409(2) and 448(2). Purchase price must be agreed or it must be agreed how to determine the purchase price. If eitehr of these terms is


missing, then the price shall be the same as in a similar contract for similar goods at the current time.

Bulgarian Commercial Code: Art. 326. „Determination of price. (1) The price shall be determined by the parties upon conclusion of the contract. (2) Where the price has not been determined and there is no agreement as to how to determine it, it shall be considered that the parties have agreed to the price usually paid upon conclusion of sale of the same type of goods under similar circumstances.“

Slovak Commercial Code: See § 448.

43. „Firm offers“ are offers which are irrevocable for a certain period of time.

Under the CISG, does a firm offer have to be in writing? No.

What does the UCC require? As between merchants, an offer may not be revoked if it is made in a signed writing that gives assurance that it will remain open for a stated period of time, not to exceed three months. See p. 117/150.

Civil law countries: Offeror may not revoke offer during the period of time normally needed for the offeree’s acceptance to arrive. See p. 118/150.

44. How do civil law countries limit the offeror’s right to revoke an offer? See immediately above. See p. 118/150.

45. Under the CISG, can the offeree accept an offer solely by his conduct?

CISG Article 18: Yes, acceptance can be by conduct indicating an assent to an offer. See p. 118/151.

PECL Article 2.204: „Any ...conduct by the offeree is an acceptance if it indicates assent to the offer.“

UCC 2-206: Acceptance can be by „any manner...reasonable in the circumstances.“

46. As a general rule in most countries, can the offeree’s silence be interpreted as an acceptance?

No, the offeree’s silence should not be interpreted as an acceptance, unless the circumstances clearly indicate otherwise, e.g., if the offeree said „if you don’t hear from me by 17:00 today, then ship the goods“, or if the parties‘ previous dealings have established a practice between the parties that silence is an acceptance. See p. 118/151.

Czech Civil Code: 44(1). Silence does not equal acceptance.


Bulgarian Commercial Code: Art. 292. „Silence equal to acceptance. (1) An offer to a merchant with whom the offeror has lasting commercial relations shall be considered accepted if not immediately rejected.“

47. Can an offeror revoke his offer after the offeree dispatches his acceptance?

CISG Art. 16, CN national law, civil law: Offeree’s dispatch of his acceptance cuts off the offeror’s right to revoke his offer.

Common law: No. Offeree’s acceptance is effective to form a contract upon its dispatch. See p. 119/151.

48. The „battle of the forms“: An acceptance contains new terms not contained in the offer. Is the acceptance valid? Do the new terms become part of the contract? Decide this issue under the civil law, the common law, the CISG, German law, and the UCC. Pp. 124 – 125/153 -158.

Civil and common law share the same rule: the „mirror image“ rule (most countries of the world follow this rule in their domestic contract law). No K is formed. The offeree’s response was a counteroffer. If the offeror performs, he accepts the offeree’s counteroffer.

CISG Article 19: Issue is do the additional or different terms in offeree’s „acceptance“ materially alter the terms of the offer? If yes, then purported acceptance is in fact a counteroffer and a rejection of the offer. No contract arises unless the offeror accepts all of the terms of the counteroffer. If offeror performs, he accepts the offeree’s counteroffer.

If the add. or diff. terms do NOT materially alter the terms of the offer, then the acceptance is effective to form a contract and the add. or diff. terms become a part of the contract unless the offeror promptly objects to the change.

Unlike the PECL and the UCC, the CISG states those key elements of a contract, among others, that will materially alter an offer: price, payment, quality and quantity of goods, place and time of delivery, extent of one party’s liability to another, and settlement of disputes.

PECL 2.208: Same treatment as CISG re add. or diff. terms in purported acceptance.

DE national law: Buyers beware! Seller’s sales confirmations (Auftragsbestätigung) are given special treatment. Any add. or diff. terms in the A. will prevail unless buyer specifically rejects them in a prompt and timely fashion.


UCC 2-207: Offerees beware! Issue is same as in CISG/PECL: Do add. or diff. terms materially alter the terms of the offer? If yes, a contract is formed but without the terms which materially alter the offer.

Practice suggestion: If the UCC governs the contract, seller should get buyer to accept seller‘s sales confirmation terms by signing the confirmation.

If new terms do NOT materially alter the offer, they become part of the contract unless offeror objects to them.

In general, include the following language in your offers: „Acceptance of this offer is expressly limited to the terms and conditions contained in this offer. Any additional or different terms contained in offeree’s reply shall not become a part of the contract without the individually negotiated express consent of the offeror.“

49. Can a party enforce a contract which violates the laws of a state in the court system of that state? No. This is a generally recognized principle of contract law in all legal systems. See p. 113/146.

50. Answer #6 on pg. 45 in the textbook. The „chicken“ case: broilers vs. fowl? Unless the K defines the word „chicken“ otherwise, the court will apply the plain meaning of the word „chicken“. In this case, CISG Article 8 holds that seller’s use of the word „chicken“ shall be interpreted according to the understanding that a reasonable person of the same kind as the buyer would have had in the same circumstances.

PECL 5.101 has the same provisions. PECL 6.108 goes on to provide that a party must tender performance of at least average quality if the contract does not specify the quality.

Common law: See USAA v. Riley (Md. 2006).

This problem was caused by inaccurate translation. Proper selection of a translator is important. Don’t just hire a language major. Ideally, the translator should have experience in your industry and therefore have the relevant technical knowledge.

(DE: broiler = das Masthähnchen)

51. Can a court consider any circumstances either before or after the conclusion of a contract in order to determine the intent of the parties to the contract?

CISG Article 8 (3): A court may determine the parties‘ intent by considering „all relevant circumstances of the case, including the negotiations, any practices which the parties have established between themselves, usages, and any subsequent conduct of the parties.“ Courts apparently have wide leeway in


using parol evidence (contemporaneous oral agreement) under the CISG. See p. 116/148.

PECL Article 2.105 (3): „The parties‘ prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause.“

PECL Article 5.102: This article also gives wide leeway to the courts, allowing them to consider the following items when interpreting a contract: preliminary negotiations, practices and interpretation of terms established between the parties, usages, conduct of the parties, including subsequent to the conclusion of the contract, the nature and purpose of the contract, and the principles of good faith and fair dealing. The CISG has no duty of good faith or of fair dealing, so the PECL seem to go even farther than the CISG in allowing a court to go beyond the „four corners“ of the contract to interpret it or to find a party’s intent under the contract.

Common law: See USAA v. Riley (Md. 2006).

52. Does the CISG allow a court to use trade usages to interpret or fill in the gaps of a contract? Yes, Article 9 says that in three instances: when the parties agree to be so bound, or when such an agreement can be inferred from their past dealings, or when the usages are those known to the parties or they ought to have known them and they are regularly observed in industry or trade involved. See p. 116/149.

PECL 1.105: First two instances same as in CISG. The language for the third is a little different and includes language to prevent the trade usage from having unreasonable effect: „The parties are bound by a usage which would be considered generally applicable by persons in the same situation as the parties, except where the application of such usage would be unreasonable.“

UCC, common law: Yes, trade usages can be used by the court to interpret the K or fill in gaps in the K.

UCC §1-205(3): „A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.“

Czech, Slovak Commercial Code: Courts may consider trade usages to interpret a contract, as long they do not contradict the terms of the contract or of the law. See § 264.

53. What are the four warranties which arise automatically under the CISG, enforceable against the seller? See p. 128/159.


CISG Article 35: Seller must deliver goods which conform to the contract and which:

1. Are fit for ordinary use2. Are fit for any particular purpose which was expressly or impliedly

made known to seller at time contract was concluded3. Conform to any sample or model which seller held out to buyer4. Are contained or packaged in the usual manner for such goods. If no

such manner, then packaged as to preserve and protect the goods

54. Under the CISG, can the seller easily disclaim any of these four implied warranties? See p. 129/161.

Disclaimers: easy under CISG. Any form of disclaimer will work. Disclaimer clause = (RO) clauză de limitare a răspunderii.

UCC: Tougher. Disclaimer language must be conspicuous and specific. The phrase “as is” suffices.

55. Does the CISG require the buyer to give notice to the seller if the seller breaches the contract?

Yes. Failure to give notice will deprive buyer of his right to assert breach against seller. The notice of nonconformity should specifically, and in necessary detail, state how the goods are non-conforming. See p. 130/161.

56. What are the six remedies for breach of contract available under the CISG?

See p. 131/163. Remedy = der Rechtsbehelf/ das Rechtsmittel (DE), cale de atac (RO). Breach of contract = narushenie na dogovor (BG), porušení smlouvy (CZ), der Vertragsbruch (DE), porušenie zmluvy (SK).

A. Right to avoid (cancel) contract: UCC gives buyer greater rights to reject non-conforming goods than does CISG! UCC has “perfect tender” rule. Buyer may reject a delivery for even minor non-conformities. Once accepted, buyer may revoke acceptance only for substantial non-conformities.

CISG allows avoidance only for fundamental (serious) breach. Seller may avoid a K for fundamental breach, e.g., buyer refuses delivery or fails to pay. Effect of avoidance is that seller is released from the contract, need not deliver goods still in his possession, he may claim the return of any delivered goods, and may seek damages


p. 131/163: Buyer has right to avoid K for fundamental breach. „He is not obligated to take delivery of the goods nor to pay for them, nor find a buyer to take them. A buyer may simply cancel the K by notifying seller of avoidance of the K, taking care that the goods are temporarily protected and preserved, and returning them for a full refund of monies already paid. When the goods can rapidly deteriorate or decay, such as with certain foods, the buyer may notify seller and then take steps to sell them. A buyer who avoids a K may still sue seller for damages resulting from seller’s breach.“

B. Seller’s limited right to cure a non-conforming delivery: he cannot cause unreasonable inconvenience or expense to buyer.

Slovak Commercial Code §426. Same as long as it does not cause difficulties or undue costs to the buyer.

C. Seller’s limited right to extra time to perform: CISG and civil law countries allow this, UCC does not. In French, mise en demeur, in German, Nachfrist, meaning “the period after”. Seller can request extra time to perform. If buyer does not respond, seller gets the extra time and buyer may not avoid K during this time. This right is available only if it does not cause buyer unreasonable delay or unreasonable inconvenience.

D. Buyer’s right to price reduction

See Slovak Commercial Code §436. If seller delivers defective goods, buyer may demand an adequate discount from the purchase price.

E. Money damages. Amount equal to the loss. Make injured party whole. Includes lost profits and other reasonably foreseeable consequential damages (e.g., extra transport or storage charges, etc.). Damages = RO: 1) Compensaţie sau despăgubire bănească care poate fi recuperată în instanţă de orice persoană care a suferit prejudicii aduse propriei persoane sau proprietăţilor sau drepturilor sale prin acţiunea ilegală, omisiunea sau neglijenţa altei persoane. 2) Suma de bani acordată unei persoane prejudiciată de fapta unei alte persoane. 3) Despăgubirea bănească cerută sau acordată drept remediu pentru încăalcarea unui contract sau pentru fapte care au produs daune.

F. Right to specific performance. Aggrieved party asks court to enjoin (order) breaching party to perform his side of the contract.


57. How does the CISG restrict the buyer’s right to avoid a contract for a non-conforming delivery? See p.131/163. A buyer can avoid a contract only in the case of a fundamental breach by the seller. Fundamental means serious versus a minor breach. Examples would be 1) seller fails to ship at all, 2) seller refuses to ship at all, 3) seller ships seriously defective goods that cannot be repaired, 4) seller ships goods that have no value to the buyer under the contract, 5) a partial shipment may amount to a fundamental breach if it causes a serious problem for the buyer AND it cannot quickly be remedied.

58. Under the CISG, does the buyer have to notify the seller if he wants to avoid (cancel) the contract? See p. 131/163. Yes, the buyer’s avoidance rights are not effective until he gives notice of avoidance to the seller. And the notice cannot be general. Article 39 requires the notice to state the specific nature of the lack of conformity. Buyer must act fast: there is a time limit on his right to avoid the contract. He must notify seller within a reasonable time after he learns or should have learned of the goods‘ nonconformance, or that seller’s delivery would be late so that the goods no longer have value to the buyer under the contract. So the notice must be both 1) specific, and 2) within a reasonable time.

59. Under the CISG, when is the contractual delivery date if the parties do not otherwise specify? See p. 133/164. When seller hands over the goods at the contractual place of delivery. If seller is supposed to ship the goods, then that date is when seller hands the goods over to the first carrier.

WARNING: Buyers who require the goods to be in their hands by a certain date had better clearly specify an arrival date as well as a shipment date in the contract. Also has serious risk of loss implications for buyer.

60. Does the seller have the right to cure a non-conforming delivery on or before the delivery date? See p. 133/164. Yes, there is a limited right. Article 37 provides this right to the seller but „only if it does not cause unreasonable inconvenience or expense to the buyer.“

61. Does the seller have the right to cure a non-conforming delivery after the delivery date? See p. 133/164. Yes, Article 48 provides a limited right to the seller to fix his nonconforming delivery even after the period for performance has expired, unless this would cause unreasonable delay or unreasonable inconvenience to the buyer. Buyer still has his right to claim damages in the case of reasonable delay or reasonable inconvenience. In addition, seller can ask buyer for more time. If buyer fails to reply, then seller may remedy his nonconforming delivery with the time and buyer cannot avoid the contract during that period. Buyer still retains his right to damages.

UCC: No.


62. Can an injured party include lost profits and other consequential damages as part of his claim for damages under the CISG? See p. 134/165. Yes, as long as these damages are reasonably foreseeable at the time of conclusion of the contract. See Article 74.

63. How does the CISG limit the aggrieved party’s right to claim consequential damages? See p. 134/165. Same as above. These kind of damages, including lost profits, must have been reasonably foreseeable at the time of conclusion of the contract.

PRACTICE SUGGESTION: You may want to advise, in writing, the other party during negotiations that lost profits as well as incidental damages may result from his breach of the contract. This is done to weaken the breaching party’s possible argument that the lost profits and incidental damages were not reasonably foresseable at the time the contract was concluded. We can say to him: „How can you say the L/P and the I/D were not reasonably foreseeable? We already warned you about them in writing before we concluded the contract.“

64. Under the CISG, if an embargo in the seller’s country makes it legally impossible to ship the contracted goods, may the buyer avoid the contract? See p. 138/171. Yes. Avoidance is available to either side if the breaching party will never be able to perform.

65. Does the CISG offer any possibility to excuse a breaching party’s failure to perform a contract? See p. 141/175. CISG Article 79: Non-performance is excused if 1) impediment (i.e., the intervening force) is beyond breaching party’s control, 2) impediment is not reasonably foreseeable at the time the contract was concluded, 3) the impediment is unavoidable and could not be overcome, and 4) notice is given to the other party of the impediment and of its effect on the contract.

66. Why is it so critical for a seller to always include a „force majeure“ clause in his contracts? See p. 141/175. Courts in many common law jurisdictions have the tendency to rule that almost any intervening force is „reasonably foreseeable“, therefore CISG Article 79 by itself may not be adequate protection for sellers. Even in civil law countries, sellers may be well advised to have the buyer agree on what specifically identified intervening forces will forgive seller’s failure to perform, thereby removing the issue of „reasonably forseeable“ from the court.

Force majeure clause, example of ... p. 154 (4th ed.)

67. Answer question #1, (a) through (d), on pg. 145/180 in the textbook.

Facts: Bende has contract to sell boots to govt of Ghana. He signs a contract to buy them from Kiffe, who will make them in Korea. 2nd contract had no force majeure clause. The train derailed, destroying the boots. Bende sues Kiffe for breach of contract.


Note: notice Bende’s use of objective vs. subjective delivery terms depending on whether he is buying or selling!

a. CISG governs the contract, seller’s place of performance is in Ghana, buyer’s place of performance is U.S., both countries are CISG signatories (as are AT, CH, DE, PL, CZ, SK, HU, RO and BG). CISG Art. 79 codifies the doctrine of commercial impracticability and requires that the intervening event (the „impediment“) be reasonably unforeseeable. Train wrecks, in general, are foreseeable, therefore the court will probably not forgive Kiffe’s non-performance.

Reasonably unforeseeable = vernünftigerweise nicht voraussehrbar (?) (DE).

b. Kiffe should have negotiated a force majeure clause into the sales contract with Bende (see example on p. 123/154).

c. Measure of damages would be lost profits of $63,500 plus incidental damages of $18,815 (the additional freight charges and miscellaneous costs had the breach not occurred), for a total claim for damages of $82,315. Bende is entitled to lost profits per CISG Article 74 on p. 135/166. Bende has to show in court that both the lost profits and the incidental damages were reasonably foreseeable at the time the contract was concluded. Notice the case problem gave us the fact that Kiffe knew Bende was going to resell the boots. Notice my practice suggestion under question #59 above.

d.If the contract provides when the risk of loss passes from the seller to the buyer, then the contractual provision controls this issue. If, however, the contract is silent on the issue when the risk of loss passes from the seller to the buyer, then the CISG provides the default rules. If the seller is expected to ship the goods but is not bound to hand the goods over to a carrier at a particular place, then the risk of loss passes to the buyer (Bende) when the goods are handed over to the first carrier for shipment to the buyer. See CISG Article 67 on p. 165/753. So, Bende would bear the risk of loss from the boot factory’s shipping dock in Korea.

If Kiffe agreed that he would bear the risk of loss during transit, then he bears it until delivery of the goods to their final destination. (Note: I hope he included the cost of the insurance in his price!).

68. Answer question #2 on pg. 145/181 in the textbook.


Distributor of imported sewing machines sues importer for breach of contract. Importer raised his price under an „open price“ term allowing him to pass cost increases in the machines to his customer, the distributor. Exchange rate turned sour, so importer raised his prices to compensate. Distributor disagreed that this was permitted under the O/P clause. Judgment for importer. The cost increase is included but his argument re commercial impracticability is wrong. C/I requires that the intervening event be unforeseeable. A currency exchange rate fluctuation is reasonably foreseeable. It is an ordinary risk of intl business.


CISG is an incomplete body of contract law. How would a court handle issues like consideration or validity of the contract? It is unclear at this point. The authorities are divided on whether a court should “fill in” the gaps in CISG coverage with some other law. There is no safe way to predict how a court will rule on this issue. If a court decides to “fill in” the gaps in CISG with another body of law, then A) in a common law country, the court would first look to its commercial or civil code, and if the code is silent on the issue, the court would then look to the common law to resolve the issue; B) in civil law countries, such most European countries and Japan, the courts would look to the civil or commercial code. If the code is silent, then there is no legal remedy available.

PRACTICE SUGGESTION: If the parties choose CISG to govern their transaction, then write the “choice of law” clause to authorize the court to apply the laws of a particular jurisdiction in case CISG offers no coverage of an issue.


Seller of computer housings advises his customer he will not perform a contract because of cost increases. Buyer does nothing. Then he covers for a significantly higher price and sues for damages. Question was is buyer under any duty to mitigate his damages? Mexicana can claim a reduction in the damages b/c of buyer’s failure to mitigate his damages in case of anticipatory breach as required under CISG Article 77. How much would the reduction be? Assuming as stated that AES could have covered as late as Sep for the 1 Dec delivery, at $55K, the loss could have been reduced to $5K. That would reduce the $16K in additional costs plus $2K in lost profits. In short, reasonable and timely action by AES could have limited damages to $5K rather than $16K. Seller can argue for reduction of $16K damages by $11K. See Fundamental Breach on p. 131/163


and Anticipatory Breach on p. 138/171, as well as non-breaching party’s duty to mitigate damages in case of breach under Article 77 on. P. 678/755.

PRACTICE SUGGESTION: As soon as you are aware that the other party is going to breach, e.g., if they inform you as Mexicana did here, then you should declare the contract avoided. That puts the prospective breaching party on notice that they must provide “adequate assurance of performance”. If they tell you they refuse to perform the contract, then 1) immediately send notice of avoidance of contract, and 2) immediately begin to mitigate your damages under Article 77.


The „Fun „N Games“ imported train set case. Discrepancy between seller’s price quotation offering 30 pieces of track per set versus buyer’s purchase order for 40 pieces per set. The price quotation from the seller was probably an offer. See intention to be bound on pp. 116 – 117/149-150. Buyer’s purchase order contains terms which materially alter the terms of the seller’s offer, so the P.O. is not an acceptance but is a counteroffer instead. If the seller ships against buyer’s P.O. with no further communication, a contract does exist but on buyer’s terms. Seller’s shipment of the goods is the conduct indicating his acceptance of buyer’s offer (thereby creating the contract) and at the same time breaches the contract with the non-conforming shipment. See entering the agreement: the acceptance on p. 118/150, specifically acceptance by conduct, and battle of the forms under the CISG on pp. 125 – 126/156 - 158, specifically regarding the effect on terms in the purported „acceptance“ which materially alter the terms of the offer.

Under the common and the civil law: Buyer’s P.O. was not an acceptance because it was not the mirror image of the seller’s offer. It was instead a counteroffer. Shipper accepts buyer’s counteroffer by conduct (shipping against buyer’s counteroffer). Shipment both formed and breached the K. Same result as under the CISG.

Under the UCC: Buyer’s P.O. formed a contract but on offeror’s terms, without offeree’s materially-altering terms. There is a contract, but only for 30 pieces of track (seller’s offer).

Under CISG: See p. 126/156. Unlike the UCC, CISG specifically identifies what terms are materially altering, e.g., the quantity of the goods term. CISG Article 19: Issue is do the additional or different terms in offeree’s acceptance materially alter the terms of the offer? If yes, then purported acceptance is in fact a


counteroffer and a rejection of the offer. No contract arises unless the offeror accepts all of the terms of the counteroffer. If Seller ships, he is accepting the terms of Buyer’s counteroffer. His shipment of 30 pieces both forms and breaches the contract.

Another battle of the forms scenario:

a) Buyer sends P.O. (offer). P.O. contains no “limitation of liability” clause.b) Seller responds with a purported acceptance in the form of a seller’s sales

confirmation which contains a “limitation of liability” clause (counteroffer).c) Buyer says nothing.d) Seller ships the goods.e) Buyer refuses the goods. Decide under the civil law, the common law, CISG,

PECL, DE national law, UCC:f) Civil and common law share the same rule: the “mirror image” rule (most

countries of the world follow this rule): No K was formed. Seller’s response was a counteroffer. Seller ships without benefit of a contract. If seller ships and buyer accepts the goods, buyer’s conduct of accepting the goods was an acceptance of seller’s counteroffer.

g) CISG Article 19: Issue is do the additional or different terms in offeree’s acceptance materially alter the terms of the offer? If yes, then purported acceptance is in fact a counteroffer and a rejection of the offer. No contract arises unless the offeror accepts all of the terms of the counteroffer. Seller ships without benefit of a contract. If buyer accepts the goods, that conduct operates as an acceptance of the seller’s terms.

If add. or diff. terms do NOT materially alter the terms of the offer, then the acceptance is effective and the additional or different terms become a part of the contract unless the offeror promptly objects to the change.

Unlike the PECL and the UCC, the CISG states those key elements of a contract, among others, that will materially alter a contract: price, payment, quality and quantity of goods, place and time of delivery, extent of one party’s liability to another, and settlement of disputes.

h) PECL 2.208: Same treatment as CISG re add. or diff. terms in purported acceptance.

i) DE national law: Buyers beware! Seller’s sales confirmations (Auftragsbestätigung) are given special treatment. Any add. or diff. terms in A. will prevail unless buyer specifically rejects them in a prompt and timely


fashion. In above factual situation, a contract was formed, on the seller’s terms. See p. 125/156.

UCC 2-207: Sellers beware! Issue is same as in CISG/PECL: do add. or diff. terms materially alter the terms of the offer? If yes, a contract is formed but without the terms which materially alter the offer. So in the above case, a contract was formed on buyer’s terms. Sellers: Under UCC, get the buyer to show his acceptance of your terms by signing the confirmation. If new terms in the seller’s acceptance do NOT materially alter the terms of the offer, they become part of the contract unless the buyer objects to the new terms.


The „attempted revocation of an offer“ case. Under the common law: Yes, a valid contract arose. Offer valid upon receipt (June 2). Acceptance valid upon dispatch (June 12). Contract is formed when offeree dispatches acceptance (June 12). After the contract is formed, neither side may withdraw from the deal without the consent of the other party. See p. 119/151.

Under the CISG: Offer valid upon receipt (June 2). Acceptance valid upon receipt (June 17). Offeree’s dispatch of acceptance (on June 12) cuts off offeror’s right to revoke his offer. Contract was formed upon validity of acceptance (June 17). See p. 119/151.

Under either the common law or CISG, a revocation must reach the offeree before the offeree dispatches his acceptance in order to be valid.


Acme selling widgets to a Czech buyer. 250% increase in material costs plus a 60 day strike by the stevedores on the contractual date of shipment. Either an excuse for seller’s non-performance? Probably not.

Any common law theory to excuse seller’s non-performance? There is the doctrine of „commercial impracticability“. See p. 140/173. But look how court handled a 400% increase in oil price due to war and subsequent oil embargo. Eastern Airlines v. Gulf Oil Corp. (1975), p. 141/173. Court did not excuse seller’s non-peformance. The events were reasonably foreseeable, so was the resulting price increase. Also, see the 14% increase in shipping costs caused when war broke out in 1956 and closed the Suez canal. Transatlantic case, p. NA/174. War in Middle East is foreseeable.

CISG: Article 79 says impediment must not be reasonably forseeable. See p. 141/175.


Bulgarian Commercial Code: Art. 306 (2) „A force majeure shall be an unforeseen or unavoidable event of an extraordinary nature which has occurred after the conclusion of the contract.“

Slovak Commercial Code: § 374 substantially the same as CISG.

PRACTICE SUGGESTION: Sellers, you need to use a force majeure clause. See example on p. 123/154.

74. Answer question #8 on pg. 146/181 in the textbook.75. Answer question #9 on pg. 147/182 in the textbook.76. Answer question #10 on pg. 147/182 in the textbook.

77. What are documents of title? See p. 150/185. „Documents of title are legal instruments that evidence the ownership of goods. Common documents of title include dock receipts, warehouse receipts, and bills of lading. They are issued by a party (known as the bailee) in receipt for goods taken into its possession from a bailor. Documents of title may be either negotiable or nonnegotiable. A negotiable document is one that can legally be transferred from one party to another in return for value or payment. Negotiable documents of title are used to transfer ownership of goods from one party to another without the necessity of transferring physical possession of the goods themselves. The property can stay in the possession of the bailee, while the owner can safely trade, barter, pledge, or deal with it in the commercial world.“ Schaffer, R., Earle, B., Agusti, F. (2005).

Documentary sale on p. 151 (6th ed.), p. 186 (4th ed.). Bill of lading on p. 152 (6th ed.), p. 187 (4th ed.).

Document of title to goods = das Traditionspapier (DE).Documentary sale = der Dokumentenverkauf (DE).

78. What are the three functions of a negotiable ocean bill of lading? See p. 150/185.A) Carrier’s receipt for the goods, B) transport K between the carrier and the

shipper (exporter), and C) if negotiable, then B/L is also the document of title to the goods described therein.

Bill of lading = konosament, tovaritelnitsa (BG); nákladní list (CZ); der Frachtbrief, der Schiffsfrachtbrief, der Seefrachtbrief, das Konnossement, das Seekonnossement; náložný list (SK) Carrier = der Frachtführer (DE); dopravca (SK)Contract of carriage = der Beförderungsvertrag (DE); zmluva o preprave vecí (SK)

79. What phrase makes a bill of lading negotiable? See p. 150 – 151/185. The phrase „To the order of“ an identified party in the „Consignee“ field of the B/L. Usually that would be the shipper (the exporter).


80. An ocean carrier is allowed to surrender shipped goods only to which party? See p. 151/186. Only to the party holding the B/L.

81. What is misdelivery? See p. 151/186. When a carrier surrenders the goods to a party who does not have the right to receive the goods. The carrier is liable to the party who is entitled to receive the goods for the damages caused by its misdelivery.

Misdelivery = die Falschlieferung (DE)

82. What is the great commercial advantage of the negotiability of the bill of lading? See p. 153/186 – 189. „As the vessel bearing the goods proceeds out of the harbor and onto the open ocean, the seller safely retains title to the merchandise, literally held in hand. The seller can then sell the goods as planned by sending the B/L ahead to the buyer, divert the shipment to another buyer around the globe, pledge it for a loan, or bring it back home.“

Additionally, it can massively speed up the seller’s cash flow. Instead of waiting 3 – 6 weeks for the goods to get delivered to the buyer before payment, we can sell the buyer the B/L very quickly through the international banking collection system.

83. Describe how a typical documentary collection works. See p. 153/189.

84. How does a documentary sale benefit the cash flow of the seller (and also of the buyer if the buyer is a re-seller)? B/c the B/L can be delivered to any airport in the world w/i 24 hrs. If we had to wait for delivery by sea, it could take up to 6 weeks!

85. How does the documentary sale protect both the seller and the buyer in an international sale of goods? D/S protects Buyer b/c Seller cannot get paid until Seller first ships the goods. D/S protects Seller b/c Buyer cannot get the goods until Buyer first pays the money.

86. What is the seller’s greatest fear in a sales transaction? That buyer will obtain the goods before buyer has surrendered his money.

87. What is the buyer’s greatest fear in a sales transaction? That seller will obtain the money before seller has surrendered (shipped) the goods.

88. What happens if the carrier is not paid for the freight charges, or for storage charges, or other fees? What right does the carrier have? See p. 157/193. A carrier can eventually seize the goods in his possession and sell them to satisfy any unpaid liabilities. Each legal system has its own rule on how long this period is.

89. What is a clean bill of lading? See p. 160/197. A foul (dirty) B/L indicates on its face apparent damage to either the container or the goods described therein. A clean


B/L has no such language. It does not have to say that it is „clean“. See sample bill of lading on pg. 152 (6th ed.), or on p. 187 (4th ed.).

90. What is an onboard bill of lading? See p. 160/198. Versus a „received for shipment“ B/L. Onboard B/L: the goods have already been loaded on board a ship. They are beyond the control of the seller. He cannot change his mind and get them back. Received for shipment B/L: Carrier admits they have received the goods for shipment but the goods have not yet been loaded on board a ship. Not good enough for buyer, b/c seller can change his mind and not ship goods or divert them to some other buyer.

91. You are shipping goods to a customer by air freight. According to your deal, you have to ship first before you can get paid. How do you arrange this to prevent the buyer from getting the goods before paying you? See p. 162/199. Seller should nominate his collection agent in the buyer’s country as the „consignee“ on the air waybill, either his subsidiary there, or a bank there, or the airline who can offer COD services. Do not nominate buyer as consignee on the air waybill or else he has the right to receive the goods from the airline even without paying seller. See sample air waybill on p. 163 (6th ed.).

Air waybill = der Luftfrachtbrief (DE)

92. The contract is silent on the issue of passage of risk of loss. Risk of loss = BG: risk na zaguba; CZ: riziko ztráty; DE: die Verlustgefahr. When does the CISG provide for passage of the risk in that case? See p. 165/203. „Article 67 applies to sales in which the goods will be transportedby carrier. If the contract calls for the goods to be handed over to a carrier at a particular place, then the risk of loss passes to the buyer at that place. However, if the seller is simply expected to ship, but not bound to hand over the goods at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for shipment to the buyer.“

Slovak Commercial Code: Same provision, see § 457.

93. If you want to use one of the Incoterms in your contract, why must you specify in the contract that you are using the International Chamber of Commerce’s Incoterms? What can happen if you forget to include this statement? See p. 167/205.

Incoterms, pp. 170 – 171 (6th ed.), pp. 208 – 209 (4th ed.)Pro forma invoice, p. 122 (6th ed.), p. 152 (4th ed.)

Experience in cigarette/cigar production machinery sales: The big MNCs tend to prefer DDU and the smaller companies tend to prefer CIF/CIP. Source: personal communication from Mr. Georgi Zissov in Plovdiv (BG), on 28 January 2009.


94. Why are parties advised to not add additional language or explanatory language to any of the Incoterms? How can an unscrupulous buyer cheat an inexperienced seller by doing this (especially in CIF contracts)? See p. 174/211.


This is an action of buyer in Bombay against seller (Colorado Fuel) for damages caused by a late shipment of caustic soda under a CIF contract. The shipment was delyaed by a stevedores‘ strike.

„This focuses on the responsibilities of buyer and seller under a CIF sales contract. The court held that Colorado’s responsibility was to properly ship, not necessarily to deliver, and, therefore, that the risks of the voyage rest with the buyer in India. The court also addressed the responsibility of a seller who might have known that a strike was imminent. It noted that, although there was indication prior to shipment that labor negotiations were in jeopardy of breaking down, the seller could not have known whether a strike would actually occur or what its full impact or duration would be. In holding that the shipper was correct in shipping, the court notes that „To say otherwise would mean that shippers when aware that there might be a strike would have to forego all business until the situation became crystal clear. . . . We do not mean to hold, nor do we, that if, in the face of an impending labor disturbance affecting a shipment under contract, a seller ships having good reason to know that the shipment will not meet the dates contracted for he would be absolved of liability for damages. . . . (T)here has been no proof of fraud at all in this case. . . .Colorado . . . acted in good faith and under the circumstances exercised reasonable business prudence. . . .For us to require sellers to know with foresight how long a strike will last and to stop their commercial operations until the shipping picture is completely clear is just too much tightrope walking to require of anyone.“

96. Answer question #3 on pg. 176/213 in the textbook.97. Answer question #5 on pg. 176/214 in the textbook.

98. You are importing goods by sea. It’s a CIF contract, and you have the insurance certificate protecting your interest in the goods. The goods arrive fine with no problems. Is it OK to throw away your ins certificate?

NO!!! You never know what could have happened during the voyage. Maybe there was a fire on board and they had to pump sea water in to put out the fire. As a result, certain cargo got destroyed by sea water. As the owner of cargo that was saved by the pumping, you are liable under maritime law to pay your fair share of the „general average“ loss. General average claims are typically covered by marine insurance. Don’t throw your certificate away for the entire length of your jurisdiction’s „statute of limitations“ provision. You will need the certificate to document your right to coverage by the insurer. See p. 202/236. Statute of limitations = premlčanie (SK). See SK Commercial Code §§ 387 – 408.


99. Answer question #2 on pg. 209/#1 on p. 245 in the textbook.100. Answer question #3 on pg. 209/ #2 on p. 245 in the textbook.101. Answer question #4 on pg. 209/ #3 on p. 245 in the textbook.

The Sony „package“ case: Shipper v. carrier for damage to goods. Shipper won. B/L defines quantity of packages that were shipped. B/L is issued by carrier and can and will be used against him.

Does COGSA apply here? COGSA is applicable to every B/L for the carriage of goods by sea, to or from ports of the U.S. in foreign trade. Virtually all B/Ls issued in the U.S. provide that they are controlled by COGSA. See p. 187/221.

Why would the carrier want that? Because it limits the ocean carrier’s liability. There is near universal acceptance of a 1924 international convention on B/Ls known as the Hague Rules. The Hague Rules define and limit the liability of ocean carriers for damage or loss to goods on the seas. The Hague Rules were codified in the U.S. in 1936 in the Carriage of Goods by Sea Act or COGSA. See p.187/220 – 221.

The court looked to the B/L as the transport contract between the shipper and the carrier, and the B/L said „1,320 cartons“, not 52 pallets. $500 x 1,320 cartons = $660,000 vs. $500 x 52 pallets = $26,000

Hint to export sales managers: Make sure your B/L accurately lists the quantity down to the package level you want. Maximize the number of packages.

102. Answer question #6 on pg. 209/ #5 on p. 245 in the textbook.

103. The rules governing most L/C used in international trade are found where?

L/C = letter of credit, akreditiv (BG); akreditiv (CZ); das Akkreditiv (DE); akreditív (SK)

In a document issued by the International Chamber of Commerce called the „Uniform Customs and Practice for Documentary Credits“, the UCP, ICC Document No. 500. See p. 220/255. A new revision, Document No. 600, shall govern L/Cs issued on or after 1 July 2007. The new revision introduces certain liberalizations to make it a little more friendly to non-bankers. Reynolds, F. (2007, March 19).

L/C, p. 226 (6th ed.), p. 261 (4th ed.)Doc sale w/ L/C, p. 219 (6th ed.), p. 254 (4th ed.)

104. What is the principle of independence contained in the UCP?


Under the principle of independence, the letter of credit is separate from the underlying sales contract between buyer and seller on which the L/C is based. The issuing bank’s obligation to pay is governed solely by the terms and conditions of the L/C. Beneficiary’s performance in fact of the sales K counts for nothing. It does NOT entitle him to payment under the L/C. Banks deal in documents only, not in goods. See p. 220/255.

Slovak Commercial Code: Same provision. See § 685.

105. What is the „four corners“ rule under the UCP?

Banks are not allowed to look beyond the „four corners“ of the documents presented to them for payment on a L/C. The documents presented must comply with the Ts & Cs of the L/C on their face. UCP Article 14, see p. 227/262.

Under UCP Document No. 600, which goes into effect on 1 July 2007, slightly more liberal rules will go into effect. Banks will only pay attention to the consignee and notify party fields of a transport document. The addresses, phone number(s) and fax number(s) of parties in other fields will be disregarded by the banks. Reynolds, F. (2007, March 19).

106. Why is the „four corners“ rule of the UCP so dangerous for the average businessman?

The average businessman is usually familiar with the ability of a court to go beyond the „four corners“ of a contract in order to ascertain the intent of the parties or to interpret a K. But the rule is the exact opposite for issuing banks – they are NOT allowed to go beyond the four corners of the documents in order to determine compliance with the L/C. This can catch untrained businessmen by surprise, a nasty surprise! They rely on a completely erroneous assumption. In fact, the rule is 100% opposite of what the untrained businessman probably thinks.

107. What is the rule of strict compliance?

The prevailing rule established by the courts for examining documents is the strict compliance rule. According to this view, the terms of the documents presented to the issuing bank must strictly conform to the requirements of the L/C. Even a small discrepancy can cause the bank to reject the documents. Remember, the buyer may have changed his mind and now wants out of the deal. He can instruct the issuing bank to find a discrepancy and then reject the documents. The buyer is within his rights to do so and not only is the bank entitled to reject discrepant documents, they must do so, otherwise they are liable to their customer, the account party (buyer). See p. 228/263.

Common discrepancies fopund in documentation for L/Cs on p. 229 (6th ed.)


108. What is the required time period within which shipper must present his shipping documents to a negotiating bank under the UCP? See p. 227/262.

„The beneficiary must present the documents within a specified number of days after shipment, or prior to the expiration of the L/C (known as the expiry date), whichever is earlier. If no time period is specified, the UCP requires submission of shipping documents to banks within twenty-one days of shipment.“ See p. 227/262.

109. If the issuing or confirming bank decides to refuse the documents because of a discrepancy, the bank must do so within how many days after receipt of the documents?

„The bank must give notice of its refusal to the presenting bank or beneficiary by telecommunication, no later than the close of the seventh banking day following receipt of the documents. See p. 232/NA.

NOTICE: Doc. 600 changed this to the fifth banking day. Doc. 600 went into effect on 1 July 2007.

The notice must 1) describe the discrepancies specifically, 2) contain an unambiguous refusal or dishonor, and 3) must inform the presenter whether the documents are being held pending further instructions or are being returned.“ See p. 232/266.

Confirming bank = die bestätigende Bank (DE)Issuing bank = die Emissionsbank (DE)

110. Your company is importing certain goods. The contract has already been signed by both parties and provides that payment shall be by letter of credit. The president of your company has changed his mind and asks you to“get us out of this contract“. What do you do? What instructions do you give and to whom?

In the physical presence of your company’s president, you immediately call up your contact at the issuing bank and notify him/her that your firm has changed its mind re the deal, you no longer wish to purchase the goods, that your firm will not waive any discrepancies in the documents the seller submits for payment under the L/C, and you instruct the bank to look for discrepancies to justify rejection of payment. Follow this up with a visual memorandum (e-mail, fax, letter).

111. Assume your company is the exporter and payment is by letter of credit. You are the export sales manager. You need to pay special attention to the language in your commercial invoice. Why? What can go wrong? See UCP Article 37c, see pg. 228/265.


UCP Article 37c requires that the description of goods in the commercial invoice correspond with the description in the L/C. In all other documents, the goods may be dsecribed in general terms not inconsistent with the description of goods in the L/C.

We can summarize this rule with this equation: D/G in C/I = D/G in L/C

112. Answer question #2 on pg. 241/ NA in the textbook. Mohammed Sofan vs. Mohammed Soran.

113. Answer question #4 on pg. 241/ # 2 on p. 280 in the textbook. Hambro Bank.114. Answer queston #6 on pg. 242/ #5 on p. 280 in the textbook. Lotsa Music.115. Answer question #7 on pg. 242/ #6 on p. 280 in the textbook. Deutsche Bank v. Barclays Bank.

116. Identify seven ways to manage the exporter’s payment risk. 1) Payment in advance. The ideal payment term for sellers. 2) Partial payment in advance, the balance to be paid in accordance with a payment schedule, either with agreed dates or agreed upon completed events called „milestones“. Example: 50% down, 50% upon delivery. Another example: Payment plan for apartment in resort in BG: 35% deposit, 65% due on completion. Payment plan for house in same resort: 20% within one month of reserving the property, 15% due on foundation, 30% due on rough construction, 35% due on completion. Sellers: try to cover any expenses for supplies, parts or materials with your customer’s money. 3) Bank guarantee (SK: banková záruka): Sellers: Get buyer to provide a bank guarantee for the contract price. If buyer fails to pay, then seller can collect from the bank. 4) Documentary sale: Buyer agrees to pay upon the presentation of certain documents (in a sale of goods transaction, usually the negotiable bill of lading or other document of title to the goods and certain other documents). This event usually occurs before receipt and inspection of the goods. 5) Documentary sale with an irrevocable letter of credit issued by a bank acceptable to seller, which means a creditworthy bank located in an economically developed country highly unlikely to impose currency control. Issue: who pays bank’s fee? 6) Documentary sale with an irrevocable letter of credit confirmed by a bank in seller’s jurisdiction. 7) Buy credit insurance (delinquent account insurance): coverage for delinquent customers‘ failure to pay. Exim banks usually can provide this coverage.

117. Identify three ways to manage the importer’s delivery risk. 1) Open account payment terms, i.e., buyer pays after first receiving, inspecting and accepting the goods. Ideal payment term for buyer. 2) Documentary sale. Buyers: in a contract for the sale of goods, you want a properly endorsed, clean, on-board bill of lading which is marked „freight prepaid“ if seller is supposed to pay the freight.

3) Documentary sale with pre-shipment inspection. This right is not automatic. The buyer must negotiate it into the contract. Sellers: You may want to place certain conditions on this inspection: a) all of inspector’s fees and expenses are payable solely by the buyer, b) the inspection must occur during normal working hours, and c) the inspector must be accompanied at all times by an employee of the


seller and the inspector can only go where the seller allows him on seller’s premises.

118. Identify three features of the typical insurance policy to which we should pay special attention (as discussed in class). 1) know your policy’s coverage, exclusions to coverage (is it like Emmentaler (Swiss) cheese?), and limitations on coverage. Example: For damages from zero to $250, this is called the „deductible“ for which there is no coverage. Coverage is offered between $250 up to $500,000. This is the limitation of coverage. Above the limitation, there is no more coverage. Liability reverts back to the insured. Can you buy extra coverage over and above the standard coverage („riders“)? 2) Can you negotiate a policy better suited to your individual circumstances? E.g., you agree to a higher deductible in return for lower premiums. 3) Know and conform to your policy’s notification period! Otherwise, insurer is entitled to reject your claim.

119. What five features should a customer request if he is to grant an exclusive supply contract to a supplier? 1) Low prices – very little profit, supplier to make his profit on volume, not unit price. 2) Liberal payment terms – credit, as long as buyer can negotiate, e.g., 30 days, 45 days, 60 days, 90 days credit. 3) Minimum quality standards, e.g., a 0.1 % defect rate. 4) Guaranteed reliable, timely delivery: „most favored customer“ status if there are shortages (customer to receive his goods before any other customer). 5) Points 3 and 4 to be enforced with penalties for breach: e.g., x% discount off price, or extra free units.

120. What three features should a seller request if he is to grant an exclusive distribution contract? 1) collect at least a one-time advance payment for exclusivity privilege, if not an annual fee 2) guaranteed minimum periodic purchase (put sales & marketing risk on buyer) 3) good price for seller (don’t sell low to buyer and let him take most of the profit when he charges his customers a high monopolistic price)

Exclusive distribution contract = der Vertrag für den ausschließlichen Vertrieb (DE)

121. How can we manage the risk of foreign laws and courts in international transactions? Most courts around the world will recognize the parties‘ choice of governing law and choice of forum, as long as there is a reasonable connection between their choice and the chosen country. If the contract is silent, then the courts must determine these issues. See p. 106/137.

Choice of law = BG: klauza za izbor na zakona; CZ: výběr rozhodného práva; DE: die Klausel über die Rechtswahl.

122. Identify the four ways to resolve commercial disputes. 1) Settlement: parties agree to somehow settle a potential contractual dispute, 2) litigation: one party sues the other in public court, 3) arbitration: private and binding resolution by a private 3rd party, and 4) mediation: a 3rd party renders a non-binding recommendation on the dispute.


123. What are two advantages of arbitration or mediation over litigation? See p. 76/125. Arb. or med. can be private, thereby saving your reputation from embarassment. The parties can select their arbitrators or mediators, unlike in court. They can appoint as arbitrators technically knowledgeable persons with a reputation for intelligence and fairness. Arb or med can be faster than litigation and thereby also cheaper. Arbitration decisions are more easily enforceable than court judgements.

124. What are two disadvantages of arbitration compared to litigation? See p. 76/129.Lack of „discovery“ phase of litigation, when both parties must disclose all factual information in their possession to each other and the court. This generally avoids unpleasant Hollywood style surprises in litigation but they can occur in arb or med. In general, arb decisions are unappealable, therefore make sure the facts are on your side. If you can easily outspend the other side on lawyer’s fees, why not go to litigation, which might take longer and therefore cost more? Insurance policy may not cover arbitration awards.

125. What is the danger posed by arbitration in some countries, for example, Germany, to a defendant found liable with respect to insurance coverage? In Germany, it was common for insurance policies to exclude coverage for arbitration awards. Before agreeing to arbitration, check your insurance policy to see whether it will cover you for any arbitration awards against you.

126. Which is easier to enforce generally, a court judgment or a final decision by an arbitration panel? An arbitration decision.

127. A commercial dispute arises under a contract. The contract provides for litigation. Before the trial begins, the two parties agree to take the dispute to arbitration. May they do this and why?

128. How can govts regulate the relationship between a foreign company and its local sales representative? Local law can supersede certain provisions of the private K between the parties. Examples: minimum commission, termination rights, principal’s duty to notify agent if sales volume is expected to be significantly lower than normal, agent „owns“ the customer, gets commission on any subsequent sale to that customer even if another agent brought the deal, rep gets commission override on his territory, legal distinctions between dependent and independent agent under the local agency, labor and income tax laws. See pp. 502 – 506/526 – 530.

Bulgarian Commercial Code (Ta’rgovski zakon): Art. 36, Right to Commission. (2) „Where a sales representative is entrusted with a specified territory or circle of clients, it shall also be entitled to a commission for all transactions concluded without its assistance, but with persons from the same territory or with the same clientele.“

Article 40. Compensation upon Termination or Avoidance.Article 41. Restrictions following Termination of Contract.


(1) „Any restrictions on the activities of a sales representative subsequent to the termination of the agreement shall be agreed upon in writing.

(2) Restrictions must encompass the same territory and type of goods or services as the agency agreement. They may not be for more than two (2) years following the termination of a contract. The merchant shall owe a respective compensation for the period of restriction.“

129. Answer question #1 on pg. 521/544 in the textbook. Roger Sobodka. Apply test in chart on p. 506/530.

130. Answer question #2 on pg. 521/544 in the textbook. Penton Intergalactic. Apply test in chart on p. 506/530.

131. Answer question #3 on pg. 521/544 in the textbook. Jordan Motors. No, Giebbels cannot enforce Jordan’s offer. Why not? See „Public Offers“ on p. 117/150. Can Hartman sue to have Jordan’s advertising campaign enjoined? Probably yes. Germany has one of the strictest „Truth in Advertising“ laws in the world. See p. 506 – 508/530 - 531.

132. Answer question #4 on pg. 521/545 in the textbook. Borges Meat Marketing. Do some basic marketing research to see whether product is appropriate and what the local demand might be. Hire local advertising agency for advice. Avoid offending local market. See p. 511/535.

133. Answer question #5 on pg. 521/545 in the textbook. Joseph Supersonic Company and Srta. Casañas y Diaz. Fees must not be disproportionate to her work done. See p. 520/544.

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions:

Germany, Federal Republic of. Implementing legislation adopted on 10 September 1998.

Slovak Republic ratified Convention on 24 September 1999. Implementing legislation: Act No. 129/1998 Coll. Which introduced article 161b of the Criminal Code penalizing bribery of a foreign public official in international business transactions. Publication in official journal: Collection of Laws, No. 318/99. Date of entry into force: 11 February 1999.

134. Answer question #6 on pg. 521/545 in the textbook. Same subject as Q #129. US business must be more careful because now he is on notice that there is a „special“ relationship with foreign procurement official.


135. Answer question #7 on pg. 521/545 in the textbook. Same subject as Q #129. To be safe, yes. Why? Because to not do so is a potential violation of the FCPA’s accounting and recordkeeping requirements. See p. 515/539.

136. What 5 considerations do we have to consider with respect to advertising in another country?

1) Can ads to the general public ever be considered legally binding offers?2) Any content control regulations (e.g., ban tobacco advertising)?3) Any „Truth in Advertising“ laws? How strict are they? How severe are the

penalties for violation?4) Marketing concern: Don’t offend local audience.5) Marketing concern: Don’t look foolish before local audience.

137. What are the three forms of property recognized in the world’s great legal systems? Personal property (moveable property), e.g., cars, furniture, jewelry, shares of a stock in a firm, cash money; real property (unmoveable property), e.g., land, buildings, any improvements to land such as a road or a well. Intellectual property, e.g., patents, copyright, trademarks, and trade secrets.

Personal (moveable) property = BG: dvizhimo imushtestvo; CZ: movitý majetek; DE: die bewegliche Habe

Real (unmoveable) property = BG: nedvizhimo imushtestvo, nedvizhimi imoti; CZ: nemovitý majetek; DE: unbewegliches Vermögen

Intellectual property = BG: intelektualna sobstvenost; CZ: právo duševního vlastnictví; DE: geistiges Eigentum

Patent = DE: das Patent Copyright = BG: avtorsko pravo; CZ: autorské právo; DE: das Copyright, das Verlagsrecht

Trademark = BG: ta’rgovska marka; CZ: obchodní známka; DE: das Warenzeichen

Trade secret = BG: ta’rgovska tayna; CZ: obchodní tajemství; DE: das Geschäftsgeheimnis; SK: obchodné tajomstvo

138. What is a patent? A legal monopoly granted to investors by a national government over the production or sale of a certain product or the provision or sale of a certain process.

139. What is the oldest intellectual property treaty? The International Convention for the Protection of Industrial Property , dating from 1883, and better known as the Paris


Convention. 171 contracting states: Czechoslovakia: 5 Oct 1919, CZ, SK: 1 Jan 1993, AT: 1 Jan 1909, DE: 1 May 1903, PL: 10 Nov 1919, HU: 1 Jan 1909, RO: 6 Oct 1920, BG: 13 Jun 1921, US: 30 May 1887.

140. How long does a patent last? This is determined by national law, however all members of the World Trade Organization have agreed to a minimum of twenty years. They agreed to this in the GATT Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which became effective as to most nations on 1 January 2000. Original members of WTO, as of 1 Jan 1995: SK, AT, CZ, DE, PL, HU, RO, US. BG: 1 Dec 1996.

141. What is a copyright? A legal monopoly created by national law and granted to the author of a creative work, providing him with certain exclusive rights to use the copyrighted work, including the right to make, distribute or sell copies of the work, and to perform public performances of the work, as well the right to claim authorship of the work (the „right of paternity“) and to prevent any modification, distortion, or mutilation of the work which would be prejudicial to his honor or reputation (called the „right of integrity“). Creative works can include books, computer software, films, music, and even layout designs of a computer chip.

142. What factor determines which country’s copyright law governs an alleged infringement? In whichever country the work is „used“, that country’s national copyright law governs the matter.

143. In general, can a copyright owner sell his copyright? Yes, copyright is a form of intellectual property and therefore, in most countries, it can be bought and sold just like any other property right.

144. What is the oldest international copyright convention? The Berne Convention for the Protection of Literary and Artistic Works (better known as the „Berne Convention“), dating from 1886. 163 contracting states: Czechoslovakia: 22 Feb 1921, CZ, SK: 1 Jan 1993, AT: 1 Oct 1920, DE: 5 Dec 1887, PL: 28 Jan 1920, HU: 14 Feb 1922, RO: 1 Jan 1927, BG: 5 Dec 1921, US: 1 Mar 1989.

145. Is there a single document or article of legislation which constitutes international copyright law? No, the situation is more complicated than that. International copyright law consists of a combination of domestic legal systems, and bilateral, regional and international agreements.

146. What do member countries of the Berne Convention agree to do regarding copyright protection? They agree to provide a certain minimum standard of copyright protection in their national copyright law.

147. Is the Berne Convention copyright protection automatic in all member states? Yes, if you are protected by copyright in a member country, then you are automatically protected in the other member countries.


148. Does the Berne Convention copyright protection arise automatically? Yes, it arises automatically at the moment of creation and of fixing the expression of an idea into a medium.

149. Can only corporations or businesses be owners of copyright? Does it require an attorney to claim copyright? No, copyright arises automatically upon the creation of an expression of an idea and its fixing in a medium.

150. Can a member state of Berne insist on registration of a copyright in their national copyright Office? No. This contrasts with patent and trademark protection. States may and in general do require registration of patents and trademarks.

151. Can a member state of Berne insist on the use of a copyright symbol? No.

152. What is the formula for claiming copyright under the Berne Convention? Use of the international copyright symbol ( © ), called the „circle C“, the year of publication, and the author’s name. Before 1989, the phrase „all rights reserved“ had to be added in order to secure a copyright in the U.S. This is no longer true.

DE: Alle Rechte vorbehalten. CZ: Všechna práva vyhrazena. RO: Toate drepturile sunt rezervate. SK: Všetky práva vyhradené. BG: Vsichki prava zapazeni.

153. How long does the Berne Convention copyright protection last? The minimum protection is 50 years after the death of the author. „Life-plus-50“.

154. How long does copyright protection last under the laws of the United States and of the EU? Under those of Canada? Both the U.S. and the E.U. have extended the protection to „life-plus-70“. Canada has the same as the Berne minimum: life-plus-50.

155. Does the Berne Convention allow for some exceptions to its copyright protection? Yes, its copyright protection is not absolute, and the member states are allowed to interpret this differently.

156. In the U.S., may a teacher make multiple copies of a copyrighted work for classroom use without permission of the author? What about in the E.U.? What about in Canada? In the U.S., in general, yes. This is called the „fair use“ exception to the copyright protection. The E.U., on the other hand, is very protective of authors and provides almost no free uses of copyrighted works. Canada takes a middle position but generally does not permit multiple copying.

157. Does E.U. copyright protection include the right to claim authorship in a work, even if the author sells it? Yes, even after he sells it. The original author can force a subsequent buyer of the copyright to credit him with the authorship. Does this right last forever? Yes, this right lasts forever Can the author waive this right? No, the E.U. law


really goes far in protecting authors. They cannot waive this right. Even if an author „sells“ this right (to claim authorship), this provision in the contract is not valid in the E.U. It is unenforceable. The buyer has purchased an unenforceable „right“. In the U.S., on the other hand, an author may agree to not exercise this right, or to waive it, but such an agreement must be in writing.

158. Factual situation: I upload a document in the U.S., and you download it in the Czech Republic. In which country is the document being „used“ (for purposes of determining which country’s copyright law governs)? The answer is not clear. This issue will have to be decided on a case-by-case basis under each country’s national laws.

159. What is a trademark? The legal monopoly on using a certain name or symbol (called a „logo“) to identify the supplier of a certain product or the provider of a certain service.

160. Does a trademark apply to all products or services? No, it is issued to apply to only certain specific products or services. For example, the McDonald’s trademark as applied to resturants does not necessarily stop me from opening the McDonald’s white board marker factory.

161. What is a trade secret? Information of commercial value, developed at private expense, in which the developer claims ownership rights and of which the owner takes active steps to safeguard against the wrongful disclosure or use.

Bulgarian Commercial Code: Article 52. Obligation to Protect Trade Secrets. In carrying on their activities a procurator, an agent, a shop assistant, a sales representative and a broker must protect the trade secrets of the persons which have commissioned them to perform certain acts, as well as their good name as merchants.

162. What is an international licensing agreement? It is a contract whereby the holder of intellectual property grants certain rights in that property to a foreign firm for a specified period of time (which could be eternal).

Licensing agreement = der Gestattungsvertrag, der Lizenzvertrag (DE); licenčná zmluva na predmety priemyselného vlastníctva (SK).

163. Why is it essential that there be a licensing agreement in place BEFORE the intellectual property is transferred? Otherwise he transferee could misappropriate or misuse the property and the owner might not have any legal recourse.

164. If an owner of intellectual property fails to include a prohibition against sublicensing in the licensing agreement with his licensee, what can the licensee do with the intellectual property? How would the licensor be hurt? The licensee could sublicense the property, negotiating a higher royalty from his sublicensee and therefore


divert a significant part of the potential royalty income to himself instead of the licensor (the owner).

165. What is the biggest fear an owner of intellectual property has? The fear of losing control over his property.

166. Many countries regulate the transfer of technology from foreign firms to firms based in their own country. What are two common systems for regulating this kind of transfer? Se p. 540 – 544/564 - 566. Prior-approval (licensing) schemes and notification-registration schemes.

Technology transfer = der Technologietransfer (DE)

167. How has Japan in the past protected its domestic industry from foreign competition by using technology transfer control? Japan has a reputation for delaying approval for technology transfers to wholly-owned subsidiaries of foreign firms in Japan in order to give Japanese firms more time to adjust to the foreign competitor’s new technology. Japan once made Texas Instruments wait more than four years for approval of a technology transfer to its wholly-owned Japanese subsidiary. See pg. 543/565.

168. How can govts regulate the cross-border transfer of intellectual property?

„Many countries seek to assist local licensees in their efforts to acquire advanced technology. Local legislation may supersede contractual provisions in order to permit host-country nationals to possess the intellectual property more rapidly. Lax enforcement of local legislation may provide a further source of mischief. Under some approval systems, nothing is likely to happen without cooperation of a local licensee“. See p. 548/573.

169. Answer question #1 on pg. 548/573 in the textbook. Hirt Systems Company.

Why would Hirt go to assemble in a Third World country? The appeal of substantially cheaper labor costs. See p. 523. What are the principal risks involved with the transfer of IP to a Third World location? The risk of losing control of the proprietary technology. See p. 524. Big issue: how to protect the IP. Patent v. trade secret protection? Patent is better for technology.

Does 3rd World country have effective patent protection (or trade secret protection, for that matter)? Are the big guys already there (IBM, McDonald’s)? That doesn’t necessarily mean we can afford the protection!

Has the 3rd World country, the host country, signed the Patent Cooperation Treaty (PCT)? The PCT gives a patent applicant in a signatory country a priority claim once it files an international application in the standard PCT format with the World Intellectual Property Organization (WIPO), headquartered in Geneva, Switzerland. After the filing, the applicant then has up to thirty months to begin


the administrative processing (prosecution) of the application in the countries in which it wishes to obtain protection. See p. 526. PCT-136 contracting states: AT (23 Apr 1979), DE (24 Jan 1978), PL (25 Dec 1990), CZ (1 Jan 1993), SK (1 Jan 1993), HU (27 Jun 1980), RO (23 Jul 1979), BG (21 May 1984).

Patent Cooperation Treaty = der Patentzusammenarbeitsvertrag (DE)

Re host country technology transfer controls: do their laws confiscate our technology after we have introduced it into their country? See warning re Brazil’s old policy on p. 537.

Is there a technology transfer control system? If yes, what kind is it? Is it a prior approval (licensing) system or a notification/registration system? See pp. 540 – 544. Even in notification/registration systems, many countries still require specific approval of technology transfer agreements foreign cos. and their wholly-owned subsidiaries. See p. 544.

Will the local legal system enforce all of the clauses in our licensing agreement? Are any unenforceable?

170. Answer question #2 on pg. 548/573 in the textbook. Hirt Systems, joint venture with a major foreign company.

Even worse situation regarding risk. Compare advantages and disadvantages. Advantages: 1. Expansion of capacity w/o necessarily expending capital. 2. Letting a technically stronger co. develop the next generation of the technology (but very risky!) 3. Potentially cheaper labor costs. 4. Avoid import barriers if purpose is to sell in host country. Disadvantages: 1. Sharing profit with another co. 2.Developing a potential competitor. 3. Losing control of our own technology

171. Answer question #3 on pg. 548/573 in the textbook. Scott Hill.

Probably the French. His technology is protected by patent (not trade secret) and he needs the marketing network more than a low cost. Since his shoe is state-of-the-art, it doesn’t have to be cheap in wealthy markets like western Europe. He’s using a differentiation strategy to sell his shoe, not a cost leadership strategy.

172. Answer question #4 on pg. 548/573 in the textbook. Scott Hill and the Japanese market.

Japan has a reputation for holding up approval for technology transfers from foreign cos. To their wholly-owned subsidiaries in JP (they do not for J/Vs). Probably want to seriously consider a J/V with a JP partner. How fast does Hill want to enter the Japanese market? If he is willing to share the profit with a Japanese partner, then he can enter relatively quickly. On the other hand, if he wants to keep all the profit to himself, then he will have to wait for entry. Texas


Instruments had to wait more than four years for approval in one case. See p. 543 (6th ed.).

173. Answer question #5 on. pg. 548/573 in the textbook. Scott Hill and a „prior approval“ country.

How long will prior approval take? What kind of guidelines are there for approval? Can prohibitions against sublicensing be enforced in the host country? Are minimum guaranteed royalties unenforceable there? Are prohibitions against exporting from the host country enforceable there? Are confidentiality provisions, including post-license, enforceable?

174. What is FDI? „Foreign direct investment“, meaning the ownership and active control of an ongoing business concern or an asset located outside of the owner’s home country.

Foreign direct investment = Direktinvestitionen im Ausland (DE)

175. What is a home country in the context of FDI? The country under whose laws the investing corporation was created or incorporated.

176. What is a host country in the context of FDI? The country where the owned business concern or asset is located.

177. Identify four ways a minority owner can control a joint venture. 1) J/V can award a management contract to the minority partner so that it actually controls all of the day-to-day operating decisions. 2) J/V can award an exclusive supply contract to the minority partner. 3) J/V can award an exclusive distribution contract to the minority partner. 4) The J/V agreement itself could provide the minority partner with a veto power over all or certain decisions made by the J/V.

Note: U.S. President’s salary: $400,000/yr, or $33,333/mo.

178. What is the difference between expropriation and nationalization? „The classic expropriation is the taking of an isolated item of property. The foreign investor is singled out as the target of governmental action in a fashon that might be viewed as discriminatory and not part of a national public plan. By contrast, the prototype of a nationalization is the taking of an entire industry or a natural resource as part of a plan to restructure the nation’s economic system. Both are examples of political risk. See p. 573/602.

179. What is a confiscation in the context of FDI? When a government seizes property and pays no compensation to the owner.

180. Identify three ways to manage political risk. 1) Buy political risk insurance policy to cover our FDI. 2) Establish FDI as a joint venture (J/V) with a local partner.


3) Establish FDI as a J/V with a politically influential local partner. Under #2 and #3, foreign investor will want the right to unilaterally buy out the local partner without his consent. The J/V agreement needs a clause providing this right and the agreed price or an objective formula for determining the price.

181. What six steps can we take if another country expropriates our FDI located there and arrests our people who are working there? 1) submit claim against our political risk insurance policy 2) get our people safely home ASAP (local atty to negotiate release, pay for release?, mercenaries? 3) advertise in WSJ, FT, Frankfurter Allgemeine, Nippon Shimbun: look what they did to us! 4) hire lobbyists to harm their interests before the World Bank and the IMF 5) ask our govt to take country to World Court for probable violation of Friendship, Commerce, & Navigation treaty 6) ask our govt to take country before UN Security Council

182. What are ways govts can regulate or restrict foreign direct investment (FDI)?

A. Ownership issues1. Nationalization, expropriation, confiscation2. Constraints on foreign ownership

a. Prohibition against any foreign ownershipi. In any industryii. In certain strategic industries

b. Limitation on amount of foreign ownership (legal requirements for „local participation“)

i. In any industryii. In certain strategic industries

c. Prohibition against foreign acquisition of existing domestic entity (only greenfield investments allowed)

d. Prior approval requirement for FDI, criteria:i. Assistance in generating economic developmentii. Number of workers to be employediii. Effect on domestic businessesiv. Effect on balance of payments i.e., extent of exportsv. Use of domestic materials and parts (above two can

be summarized as „source/buy locally, sell globally“)

vi. Financing obtained from abroadvii. Contributions of advanced technologyviii. Location of plant in designated development zonesix. Establishment of R&D facilities in host country

e. Prior registration requirement for FDIf. Prohibitions against exanding into new lines of products or

opening new locations without „domesticising“ the pre-existing FDI

B. Constraints on foreign management control1. Limitations on amount of foreigners on the board


2. Requirements for host govt or some host party to be represented on the board (e.g., the workers)

3. Prohibitions or restrictions on management contracts, exclusive supply or distribution contracts with foreign-controlled entities

C. Political risk1. Possibility of war, insurection, civil disorder2. Instability or arbitrary change in laws & policies, „grandfathering

in“ existing investmentsD. Limitations on repatriating profits or royalties

1. Artificial govt-imposed exchange rate2. „in-kind“ only repatriation (investor must take profit out in

the form of the FDI’s finished goods)3. Prohibition or limitation on amount of repatriation allowed4. Local limit on amount of royalties

E. I/P issuesF. Excessive „red tape“ & delaysG. Overregulation

1. Price controls2. Excessively inflexible labor market

a. Too hard to lay off workersb. Nationwide wage bargainingc. Restrictions on part-time and temporary labor

3. Restrictions on transferability of govt-issued licenses

B. Excessively high taxesC. Excessively high interest ratesD. Bribery & corruption

183. What four arguments can a manager of an FDI project make to justify spending on environmental protection measures even if the host country does not require such protection?

1) Many legal systems impose a legal obligation on management owed to the owner(s) of the business to exercise good business judgment in the execution of their duties. This is called „fiduciary duty“ and is a principle of agency law.

2) Part of GBJ is performing a solid cost-benefit-risk analysis of each alternative before making a decision, where the alternatives are compared and contrasted and quantified.

3) LDCs can make a company retroactively liable for damages caused by its environmental pollution.

4) Retrofitting a plant usually costs significantly more than designing in and installing the scrubbers and filters right from the start.


References

Folsom, Gordon & Spanogle (2004). International business transactions (7th ed.). Thomson West.

Reynolds, F. (2007, March 19). New rules for letters of credit. Shipping Digest, 5.

Schaffer, R., Earle B., & Agusti, F. (2005). International business law and its environment (6th ed.). Mason, Ohio: Thomson South-Western.

Schaffer, R., Earle B., & Agusti, F. (1999). International business law and its environment (4th ed.). Cincinnati, Ohio: West Educational Publishing.

Young, J. (2002). The Slovak Commercial Code: Slovenský Obchodný Zákonník. Bratislava, Slovak Republic: E-S Partners.
