Course Review
Internationales Wirtschaftsrecht
Fachhochschule für Technologie und Wirtschaft
Sommer 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 ... #136
Barriers to trade ... #19
Country specific items ... #31, #32, #158
Cross-border transfer of I/P ... #166, #168
Regulation of FDI ... #182
Regulation 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.
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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
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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)?
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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 fees
c) 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 standards
f) Availability of punitive damages if product personally injures consumer
g) 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 value
ii. 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 steps
B. Nontariff barriers to trade (NTBs)
i. Direct NTBs
a. Embargoes
i.
Ban on all trade with certain countries (US v. Cuba, Iran,
North Korea, etc.)
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ii.
Ban on transfer of certain products (e.g., ivory, historical
artifacts or antiques)
Ban on transfer of certain technology (e.g., nuclear)
iii.
b. Quotas
ii. Indirect NTBs
a. Laws
i.
Monetary and exchange controls (e.g., moratorium on
cross-border transfer of hard currency, mandatory govtdecreed exchange rate)
ii.
Import or export licensing
iii.
Govt procurement „buy domestic“ law
iv.
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 producers
b. Administrative regulations
i.
Technical barriers
a. Performance standards for products
b. 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 regulations
c. 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
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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
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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 nonperformance (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
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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CISG Article 35: Seller must deliver goods which conform to the contract and
which:
1. Are fit for ordinary use
2. Are fit for any particular purpose which was expressly or impliedly
made known to seller at time contract was concluded
3. Conform to any sample or model which seller held out to buyer
4. 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
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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.
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57. How does the CISG restrict the buyer’s right to avoid a contract for a nonconforming 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.
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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.
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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 nonperformance.
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.
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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.
69. Answer question #3 on pg. 146/181 in the textbook.
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.
70. Answer question #4 on pg. 146/181 in the textbook.
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
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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.
71. Answer question #5 on pg. 146/181 in the textbook.
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
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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
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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.
72. Answer question #6 on pg. 146/181 in the textbook.
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.
73. Answer question #7 on pg. 146/181 in the textbook.
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.
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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).
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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
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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.
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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.
95. Answer question #2 on pg. 176/213 in the textbook.
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.
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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?
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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.)
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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.
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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
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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.
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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.
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(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.
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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
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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.
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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
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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
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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
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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 whollyowned 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-ofthe-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
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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 dayto-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.
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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 issues
1. Nationalization, expropriation, confiscation
2. Constraints on foreign ownership
a. Prohibition against any foreign ownership
i.
In any industry
ii.
In certain strategic industries
b. Limitation on amount of foreign ownership (legal requirements
for „local participation“)
i.
In any industry
ii.
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 development
ii.
Number of workers to be employed
iii.
Effect on domestic businesses
iv.
Effect on balance of payments i.e., extent of exports
v.
Use of domestic materials and parts (above two can
be summarized as „source/buy locally, sell
globally“)
vi.
Financing obtained from abroad
vii.
Contributions of advanced technology
viii. Location of plant in designated development zones
ix.
Establishment of R&D facilities in host country
e. Prior registration requirement for FDI
f. Prohibitions against exanding into new lines of products or
opening new locations without „domesticising“ the pre-existing
FDI
B. Constraints on foreign management control
1. Limitations on amount of foreigners on the board
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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 foreigncontrolled entities
C. Political risk
1. Possibility of war, insurection, civil disorder
2. Instability or arbitrary change in laws & policies, „grandfathering
in“ existing investments
D. Limitations on repatriating profits or royalties
1. Artificial govt-imposed exchange rate
2. „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 allowed
4. Local limit on amount of royalties
E. I/P issues
F. Excessive „red tape“ & delays
G. Overregulation
1. Price controls
2. Excessively inflexible labor market
a. Too hard to lay off workers
b. Nationwide wage bargaining
c. Restrictions on part-time and temporary labor
3. Restrictions on transferability of govt-issued
licenses
G. Excessively high taxes
H. Excessively high interest rates
I. 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.
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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.
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