International Commercial Law:
LECTURE 1
Lecturer:
Liang Chen
Reference Book

International Business Law （2nd eddition）
姜作利
法律出版社
International Business Law (3rd eddition)
Ray August
高等教育出版社
International Business Law (4th edition)
Richard Schaffer
人民邮电出版社
Target：
Knowledge of international commercial
law
 Legal method
 Practical Skills

Why study law?

—The benefits from mastering the
knowledge and skills of law.
1. To avoid the legal risks of international
business transactions
To avoid the legal risk of
international business transactions
A said to B: I will buy your residential
house for 1 million． B said: deal.
 A and B signed a contract for selling the
residential house. But before B transfer
the possession, the house was burnt down.
And in the contract, it was stated that if B
failed to transfer the possession, B has to
pay 20,000 to A.

To avoid the legal risk of
international business transactions


When making long- or short-term strategy, the
legal environment of business must be
considered.
【 Case1 】Microsoft Corporation, a fabulously
successful company in many ways, paid little
attention to the antitrust laws in its early years.
Because of that, it suffered several adverse
judgments and spent tens of millions of dollars
defending lawsuits. Yet IBM earns $1.5 billion per
year in licensing revenue from its patents, trade
secrets, and other forms of intellectual property.
2. Legal thinking
- For students to get any real beneft from a
course in law, you must at the very least
learn to recognize precise legal issues,
understand the reasoning of the courts as
set forth in their decisions, and subject this
reasoning into critical analysis.

A and B signed a contract for selling squid.
A provide some samples to B , and B was
quite satisfied with the samples,
specifically with the size of the squid.
Because as B has told A, the squid are
used for bait.
So in the column of the quality of the goods,
they put it: “as per sample”.
But when B received the delivery, they
found that most squid were under size. So
B brought a law suit against A for breach
of contract.
3. Students should have the opportunity to
consider the law as a societal institutionto see how it has affected conduct and
thought and how how it has been
influenced by them in return.
International Commercial Law

International commercial law refers to the
body of rules and norms that regulates the
international commercial activities.
“International”
•
•
•
Public International Law
Private International Law
International Commercial Law
International
-- 跨越国境

A Chinese enter in to a sale contract with an
American company.

A company (registered in China) signed a
contract with B Company (registered in China)
in Japan.

A company (registered in America) sold cars to
another American company. The cars were
produced and stocked in Japan.
International
A commercial activities is international if:
 the parties have their places of business or
nationalities in different countries
 the commercial activities are performed in a
State or District outside the Country or Countries
of one or more parties
 the object of the commercial relationship is
located in a State or District outside the Country
or Countries of one or more parties
“Commercial”
According to UNCITRAL Model Law on
International Commercial Arbitration:
 the term commercial should be given a
wide interpretation so as to cover matters
arising from all relationships of a
commercial nature, whether contractual or
not.

Commercial












any trade transaction for the supply or exchange of goods or
services
distribution agreement
commercial representation or agency
leasing
construction of works
consulting
licensing
investment
financing
insurance
exploitation agreement
carriage of goods or passengers by air,sea, tail or road
“Commercial”
1.
2.
3.
4.
Direct transactions between the producer
and the consumer
Carriage of goods, storage, agency,
Financial activates
Services
Parties of international commercial
activities
General Parties: Natural Person, Artificial
Person, Partnership
 Special Parties:
Country
International organization.

International Commercial Activities

1.
2.
3.
4.
-
International trade:
Lack of resources
Absolute advantage -绝对优势说
Comparative advantage – 比较利益说
Factor proportions Theory – 生产要素比例说
Contract Law, International law on sale of
goods, product liability law
Governmental Controls over
trade




Tariff
Nontariff Barriers to Trade
Quota
Embargo
Direct Investment
To avoid the trade restrictions
 To avoid the currency influence

-
Law of corporation
Law of partnership
Law of foreign investment enterprises of
China
International licensing agreement
-国际许可证协议
A licensor may grant a license under
intellectual property laws to authorize a
use (such as copying software or using a
(patented) invention) to a licensee, sparing
the licensee from a claim of infringement
brought by the licensor.
 Law of Intellectual Property Rights

Structure



International Contract Law
Law of International Sale of Goods
Product Liability Law

Law of corporation
Law of partnership
Law of foreign investment enterprises of China
Law of agency

Law of Intellectual Property Rights

International Commercial Arbitration



Sources of International Trade
& Business Law

International treaties or conventions

Customs and usage

National Business Law
International treaties or conventions
Treaty: legally binding agreements
between two or more states.

Convention: legally binding agreements
between states sponsored by an
international organization.
- Legally Binding by the Parties

International treaties and
conventions
Treaties in international business law:




The United Nations Convention on Contracts of
International Sales of Goods in 1980, CISG
The UNIDROIT Convention on Agency in the
International Sales of Goods in 1983
The International Convention for the Unification of
Certain Rules of Law Relating to Bills of Lading in
1924, the Hague Rules
The Convention on the Recognition and
Enforcement of Foreign Arbitral Awards in 1985,
the New York Convention
International Trade Customs

Custom is a long-established tradition or usage that
becomes customary law if it is (a) consistently and
regularly observed and (b) recognized by those
states observing it as a practice that they must
obligatorily follow.

Incoterms 2004
UCP600

- Legally binding when adopted by domestic law or the
partis of a contract
International Commercial
Contract Law

why do we need a contract?
--- pursuing for legal enforcement of the
contract
Definition of Contract
A promise or a set of promises for the breach of
which the law gives a remedy, or the performance of
which the law in some way recognizes as a duty
- the Restatement (Second) of Contracts
 Civil Law – mutual consent
 A contract is an agreement between natural persons,
legal persons or other organizations with equal
standing, for the purpose of establishing, altering, or
discharging a relationship of civil rights and
obligations.
– China Contract Law

Types of Contract


Unilateral Contract
Bilateral contract
you clean my house ,I gave you $20
Bilateral contract
 if you clean my house, I will give you $20
Unilateral Contract

Types of Contract
Written contract
 Oral contract

Valid contract
 Void contract
 Voidable contract
 Unenforceable contract

Contract Law
Civil Law system - Civil Codes
 Common Law system – Precedence
 China - Contract Law 1999
 International - CISG, PICC, Custom

Application
of
PICC
1) They shall be applied when the parties have agreed
that their contract be governedby them
2) They may be applied when the parties have agreed
that their contract be governed by general principles
of law, the lex mercatoria or the like.
3）They may be used to interpret or supplement
international uniform law instruments.
4）They may be used to interpret or supplement
domestic law.
5）They may serve as a model for national and
international legislators.
Requirements for a valid
contract
Contractual Capacity
 Agreement
 Consideration
 Legality.
 Formality
 Intention to be bound

Contractual Capacity
-- Contractual capacity is both natural and
artificial persons’ ability to understand that
a contract is being made and to be able to
be bound by it.
The prarties in international commercial law:
 Natural person
 Artificial person
Natural person’s contractual
capacity

1)
2)
3)
China:
Full capacity – a) an adult over18 without any
mental incompetence b) A citizen who has
reached the age of 16 but not the age 18 and
whose main source of income is his own labor
shall be regarded as a person with full capacity
for civil conduct.
Limited capacity - A minor aged 10 or over
No capacity - A minor under the age of 10 or a
person with mental incompetence
Contractual
capacity
1) Contract signed by “No Capacity”
- void
- shall be represented in civil activities by his agent ad litem
2) Contract Signed by “Limited Capacity”
- voidable contract
a) US. UK. FRANCE - The contract could be avoid by the person
with limited capacity or his agent ad litem
b) Germany, China 
The contract is only valid when the agent ad litem admit the
contract.

The other party (should be bona fide person) could avoid the
contract before the admission by agent ad litem

The other party (should be bona fide person) could send a
notice to the agent ad litem. The agent ad litem should admit the
contract within 1 month after they have received the notice.
Otherwise, the contract is void.
Exceptions to the contract signed by
minors
the contract benefit the minors only , ie: the gift contract

the contract for buying necessaries.
-- valid and biding
Necessaries?
Nash v Inman[1908]2KB1.
A minor student purchased 11 silk waistcoats from a tailor
for 122 pounds. The tailor failed to recover the payment.
1.
A minor pay reasonable goods for the necessary goods
2.
A minor needs the necessary when the contract is
signed
3.
There is no other alternative to fulfill such needs.

Contractual Capacity

1)
2)
Standard:
Age
Mental status
Age standard:
1) According to the law in the country of
nationality
2) According to the law in the country of
signing the contract
Intoxicated and other mentally
impaired persons:
The validity of the contract depends on:
1. the intoxicated status
2. the ability to understand the contract
3. Whether there is any unfair clause
involved
- Unwillingness to avoid a contract signed by
intoxicated person
Artificial person’s contractual capacity

The extent of an artificial person’s capacity
depends on its scope of operation.

contract beyond the scope of operation ≠void
the second requirement agreement
Offer
 Acceptance

Offer

An offer is a proposal by some person to
another indicating an intention to enter
into a contract under specified terms.

REQUIRMENTS:
Intention to be bound
Definiteness
Communication of offer to offeree



Invitation to treat

Invitation to offer - an expression of
willingness to enter into negotiations
an advertisement on TV or newspaper
 displaying of goods in shops
 auction sales

Carlill v Carbolic Smoke Ball Co
We will offer 100
pounds to any
person who caught
influenza after
having used one of
our smoke balls in
the specified
I caught
influenza
after using
the smoke
ball in the
specified
manner !!!
Termination of offer




Revocation,
Counteroffer
Rejection
Lapse of time – a period fixed in the offer or
reasonable time.
Revocation of offer by offeror
Before the offer takes effect
- the offer can be revoked at any time

After the offer takes effect

before the acceptance is made
--- the offer can be revoked

after the acceptance is made
-- the offer can not be revoked


(1)
(2)
An offer can not be revoked:
the offeror indicated a fixed time for
acceptance or otherwise explicitly states
that the offer is irrevocable;
the offeree has reasons to rely on the
offer as being irrevocable and has made
preparation for performing the contract.
(1)
the offeror indicated a fixed time for acceptance or
otherwise explicitly states that the offer is
irrevocable;
When does the time ontract start to count?
 Article 20 - CISG
(1) A period of time for acceptance fixed by the offeror
in a telegram or a letter begins to run from the
moment the telegram is handed in for dispatch or
from the date shown on the letter or, if no such date
is shown, from the date shown on the envelope. A
period of time for acceptance fixed by the offeror by
telephone, telex or other means of instantaneous
communication, begins to run from the moment that
the offer reaches the offeree.
Termination of an offer
(2) Counteroffer by offeree
(3) Rejection of offer by offeree
(4) Lapse of time
UCC- an offer by a merchant to buy or sell goods
made in an authenticated record that by its terms
gives assurance that the offer will be held open is
not revocable for lack of consideration during the
time states. If a time is not stated, the offer is
irrevocable for a reasonable time not exceeding 90
days.
Acceptance

An acceptance is the offeree’s manifestation of
intention to enter into a binding agreement on the
terms stated in the offer.
requirements of acceptance

an acceptance must be made by the offeree

an acceptance must be communicated to the offeror

An acceptance must be made by the specific
method prescribed in the offer.

An acceptance must be made within the period of
validity

An acceptance should match the terms of the offer
exactly and unequivocally
Battle of the form

The mirror image rule

Under the UCC 2-207(1) – a definite expression of acceptance or a
written confirmation of an informal agreement may constitute a valid
acceptance even if it states terms additional to or different from the offer
or informal agreement. The additional or different terms are treated as
proposals for addition into the contract
Under UCC 2-207(2), such as between merchants, such terms become
part of the contract unless: (a) the offer expressly limits acceptance to
the terms of the offer, (b) material alteration of the contract results. (c)
Notification of objection to the additional/different terms are given in a
reasonable time after notice of them is received.


A change in the subject matter, quantity, quality, price or remuneration,
time ,place and mehod of performance, liabilities for breach of contract
or method of dispute resolution is a materieal change to the terms of
the offer.
Effective of acceptance
Common law - mail-box rules
Exceptions:
Billy offered to sell his golf clubs to
Jimmy. Jimmy immediately replied by
letter accepting Billy’s offer but, the
acceptance never reached Billy.




Was there a contract existed between Billy
and Jimmy under Postal rule?
What if Billy wrongly addressed the letter
due to his carelessness? Would your
answer to a) be different?
Exceptions to mail-box rules
1. If the offeree knows or has reason to
know that the letter of acceptance never
reached the offeror.
 2. The offeror failed to receive the
acceptance because of the negligence of
offeree
 3. The rule does not apply to instaneous
forms of communications.

- Civil Law – receipt rule
 China Contract Law - a notice of
acceptance becomes effective once it
reaches the offeror.
 Article 28,29
Charlie enters a music store in a shopping centre. Brian, who
owns and operates the store, has placed the following sign in
the store window:
Special Offer
The Beatles – Abby Road
Only $10 each
Charlie, who operates a competing music store in another
shopping centre, realises that he easily can sell this great CD
for $20 in his store. Charlie collects all the copies of the
relevant CD and brings them to the cash register. Brian
knows that Charlie is a competitor and refuses to sell the
CDs to Charlie. However, having been told by Charlie that
there is a binding contract since he has accepted Brian’s
offer, Brian gives up and sells the CDs to Charlie.
Two hours later Mick enters the shop saying that he accepts
the offer and that he wants a CD. When Brian explains that
he has no more copies of the CD, Mick argues there is
already a binding contract, since he has accepted Brian’s
offer.
(a)
(b)
(c)
(d)
In your opinion, was Charlie correct in claiming
a right to buy the CDs?
Does Mick now have a right to sue Brian for
breach of contract?
Do you think it would make any difference, in
relation to Charlie’s situation, if there was no
sign at all, but the CDs’ price tag stated the
price of $10?
Do you think it would make any difference if
the sign outside the shop said:
Special Offer
The Beatles – Abby Road
$10 each, 100 CDs in stock
Until stock is cleared
Case 2

A invites B to submit a written offer of the terms
on which B is prepared to construct a building.
On 15 August, B presents a detailed offer
containing the statement “Price and other
conditions are not good after 1 September”.
Later on 16 August, B sends a notice to A saying
that: “We hereby revoke the offer sent
yesterday.” Is the revocation effective?
Case 3

A, an antique dealer, asks B to restore ten
paintings on condition that the work is
completed within three months and that the
price does not exceed a specific amount. B
informs A that, so as to know whether or not to
accept the offer, B finds it necessary to begin
work on one painting and will then give a definite
answer within five days. A agrees, and B, relying
on A’s offer, begins work immediately. Later on
the third day, A revokes the offer. Is the
revocation effective?
Late Acceptance
A indicates 31 March as the deadline for acceptance of its
offer. B’s acceptance reaches A on 3 April.
1) Is this acceptance effective?
2) A, who is still interested in the contract, intends to “accept”
B’s late acceptance, and immediately informs B of its
intention. Is the acceptance effective?
3) If B knowing that the normal time for transmission of letters
by mail to A is three days,B sends its letter of acceptance
on 25 March. Owing to a strike of the postal service in A’s
country the letter, which shows the date of its mailing on the
envelope, only arrives on 3 April. Is B’s acceptance
effective? What if A objects without undue delay?
Late Acceptance


(1) A late acceptance is nevertheless effective as
an acceptance if without undue delay the offeror so
informs the offeree or gives notice to that effect.
(2) If a communication containing a late
acceptance shows that it has been sent in such
circumstances that if its transmission had been
normal it would have reached the offeror in due
time, the late acceptance is effective as an
acceptance unless, without undue delay, the
offeror informs the offeree that it considers the offer
as having lapsed.
Consideration and cause
– something in value
1.
Consideration must be given for
pursuing the enforceability of a promise
2. Consideration must be referable to the
promise
3. Consideration must be sufficient, but
need not be adequate
4.
Consideration could be a promise or an
activity.


William E. Story and his nephew, William E.
Story II, agreed that the uncle would pay his
nephew $5000 if the nephew would refrain from
drinking, using tobacco, swearing, and playing
cards and billiards for money until he turned 21.
The nephew accepted it and did so until his 21
years old. When the nephew turned 21, his
uncle sent him a letter indicated that the nephew
had earned the $5000. The uncle died later
without having transferred the funds to his
nephew. The nephew brought suit against the
executor of the uncle’s estate, Franklin Sidway.
Question: Is there a sufficient consideration to
create a valid and enforceable contract in this
case?
Nature of consideration
 Does something (an act) or promise to
do something he or she is not legally
bound to do.
 Refrains (from an act) or promises to
refrain from doing something she or he
has a legal right to do.
Requirements of consideration
1.
2.
3.
Consideration must be present or future
and cannot be past
Performance of an existing contractual
duty to the promisor is not consideration
Performance of a public law duty is not
good consideration
Exception to Consideration



Promissory estoppel:
Central London Property Trust Ltd v High Trees House
Ltd[1947]KB130.
原告于1937年将伦敦的一套公寓楼出租给被告租期为99年从
1937年9月起算租金为每年2500镑。由于第一次世界大战爆发很
多人离开伦敦因此租住公寓的人很少被告无力支付房租所以双方
于1940年11月协商同意将租金减半征收但当时没有说明期限。
到1945战争结束时公寓又重新客满于是原告写信给被告要求被告
支付全额租金。被告主张1940年的协议应该持续到整个租赁协议
期满;换句话说由于原告没有在1945年9月前要求支付超出的
1250镑这就表明他放弃了要求支付超出金额的权利。
【判词】原告胜诉但在答应减租的那段期间这一协议是由约束力
的尽管它没有对价的支持。Ｌｏｒｄ ｄｅｎｎｉｎｇ－ 债权
人曾表示接受部分债务的履行以清偿全部债务，债务人已如约履
行， 在这种情况下， 应禁止债权人违反其诺言。
Promissory Estoppel requires:
1.
2.
3.
4.
a promise or a representation as to future
conduct which is intended to affect the legal
relations between the parties and which
indicates that the promisor will not insist on his
strict legal rights against the promisee.
A clear and unequivocal promise by words or
conduct.
Evidence that there is a change in position of the
promise as a result of the promise (reliance but
not necessarily to their detriment)
Inequity if the promisor were to go back on the
promise.
France - Cause
 China, German, PICC- Nether
consideration not cause required

Legality
violate compulsory law
 contravene to the public interest
 contravene to the public policy

- Void contract
Validity of Contract

-
-
-
Genuine contractual intention
at the time of entering into a contract
How to determine whether people has a
genuine intention when entering into a
contract?
words or actions of the parties
Misrepresentation
 Fraud
 Mistake
 Duress
 Undue influence
 Unconscionability

Misrepresentation


a)
b)
c)
d)
a false statement of fact made by one party to
another which induces another party to
contract.
Four elements:
It must be a statement of existing or past fact
there is a mistaken impression about an material
fact or facts concerning the subject of the
contract
the victimized party was reasonably relied on this
fact
the victimized party entered into a contract based
on this misrepresentation
Fraud


1.
2.
3.
a false representation of a past or existing
fact – whether by words or by conduct, or by
concealment of what should have been
disclosed
Fraud vs. Misrepresentation
Fraud includes fraudulent misrepresentation
Fraud can be a statement and conduct, ie: forge
a document or certificate
Fraud may constitute a criminal offence
Five elements
a)
b)
c)
d)
e)
A false statement or act should be material fact
The defendant must know that the fact is
untrue.
Intent on the part of the defendant to deceive
the alleged victim.
The victim’s reliance on the false statement
must be reasonable.
The false statement cause the victim entering
into a contract

Whether mere silence could constitute
fraud?
 Depends
on whether the defendant has the
duty to disclose certain fact.
Mistake
- a misunderstanding about a material fact by
the parties
a) Common mistake
Party A thinks that X is Y, Party B thinks that X is Y,
and they entered into a contract based on the fact
that X is Y. But actually X is Z.
only if the mistake of the subject-matter was
sufficiently fundamental to render its identity
different from what was contracted, making the
performance of the contract impossible. (Bell v
Lever Brothers Ltd)
b) Mutual mistake
A think X is Y, but B think X is Z, A and B
enter into a contract for selling X without
knowing each other’s misunderstanding
Raffles (P) contracted to sell 125 bales of Surat cotton to
Wichelhaus (D). The goods were to be shipped from
Bombay to Liverpool, England on the ship “Peerless”.
Neither party was aware that there were two ships names
“Peerless” carrying cotton from Bombay to Liverpool, one
arriving in October and the other in December.
Wichelhaus thought he had purchased the cotton arriving on
the October ship, but Raffles sent his cotton on December
ship. Wichelhaus refused to accept delivery of the cotton
arriving on the December ship and Raffles brought this
lawsuit for breach of contract.
Issues
 If a latent ambiguity arises that shows that there had been
no meeting of the minds, have the parties given mutual
assent to contract?
c) Unilateral mistake
Part A think X is Y, Party B think X is Z, the fact
is X is Z not Y, This contract is entered into
based on Party A’s unilateral mistake.
Generally, unilateral mistake can not be a
ground to rescind a contract, unless


it is unconscionable to enforce the contract
the mistake is leaded by the fault or carelessness of
another party

•
•
•
•
•
China contract law – ARTICLE 54 – a party may petition the
People’s Court or an arbitration institution for amendment or
cancellation of a contract if the contract was concluded as a
result of serious misunderstanding.
According to interpretations by the Supreme Court of the
People’s Republic of China, serious misunderstanding
refers to
misunderstanding to the nature of contract
misunderstanding to the other party
misunderstanding to the quality of the contracted object
misunderstanding to the assortment of the contracted object
misunderstanding to the price and expense.
PICC- ARTICLE 3.5
(Relevant mistake)
(1) A party may only avoid the contract for mistake if, when the contract was
concluded, the mistake was of such importance that a reasonable person in
the same situation as the party in error would only have concluded the
contract on materially different terms or would not have concluded it at all if
the true state of affairs had been known, and
(a) the other party made the same mistake, or caused the mistake, or knew or
ought to have known of the mistake and it was contraryto reasonable
commercial standards of fair dealing to leave the mistaken party in error; or
(b) the other party had not at the time of avoidance reasonably acted in reliance
on the contract.
(2) However, a party may not avoid the contract if
(a) it was grossly negligent in committing the mistake; or
(b) the mistake relates to a matter in regard to which the risk of mistake was
assumed or, having regard to the circumstances, should be borne by the
mistaken party.
PICC - ARTICLE 3.6
 (Error in expression or transmission)
 An error occurring in the expression or
transmission of a declaration is considered
to be a mistake of the person from whom
the declaration emanated.
Duress

a threat of harm made to compel a person to do
something against his or her will or judgment
1. There must be a threat.
a) physical duress b) economic duress
2. The threat should be impropriate
3. The threat should be enough to deprive the party’s will
– objective test – depends on the situation of the victim
4. The victimized party enter into a contract under such threat
Undue Influence
a person uses a position of influence to
persuade someone to enter a contract that
provides the stronger person with a direct or
indirect benefit.
1. Presumed undue influence
1) parent and children 2) trustee and beneficiary
3)doctor and patient 4)solicitor and client 5)
guardian and ward 6) religious adviser and devotee
2. Actual undue influence

Unconscionability

Procedural unconscionability
- unconsicionability in negotiation
- overwhelming bargaining position due to their
knowledge, experience, status, information,
financial situation

Substantial unconscionability
- unfaire contract terms in the contract
Formality of the contract







Verbal contract
Written contract
Notarial contract
Real contract - valid when the object is transferred
PICC – no requirement to the formality of the
contract
CISG – no requirement to the formality of the
contract
China - The international sale of goods contract
must be put in writing
1.
2.
TO ENTER INTO A VALID CONTRACT,
WHAT ARE THE ISSUES YOU NEED
TO CONSIDER?
WHAT ARE THE ISSUES THAT YOU
NEED TO CONSIDER WHEN
PREPARING AN ONLINE CONTRACT?
TO ENTER INTO A VALID CONTRACT,
WHAT ARE THE ISSUES YOU NEED TO
CONSIDER?
--If you are the offeror:
 draft the initial offer precise, clear and definite.
- look at a sample of a similar contract




fix a time in the offer
Late acceptance
- Send the response immediately.
When receive the acceptance, check whether there is material change carefully.
- If are the offeree

Accept the offer within the time, by a reasonable method, and do not make the
material alteration

Bear in mind that the time of effective is different in different legal system. In
common law system, it is better to contact the offeror and confirm the acceptance
has been received.
When singing the contract, the parties
must be of sound mind.
 If you are entitled to avoid the contract,
exercise the right as soon as possible.
 A written agreement is recommended
because it becomes your proof of what
was agreed upon, prevents ambiguity or
misunderstanding, and prevents either
party forgetting or changing the terms later.
 Consult a lawyer to find whether the
contract is contravene to any public law ,
public policy and public interest

WHAT ARE THE ISSUES THAT YOU NEED
TO CONSIDER WHEN PREPARING AN
ONLINE CONTRACT?





Sell goods on line - offer – make sure you describe
the goods and terms precise and definite.
The purchaser click the accept or purchase button
to make the acceptance
It is important that an automatic confirmations be
sent so there is no misunderstanding.
Before the purchaser click the accept button, make
sure the purchaser had read the agreement.
The best types of online contracts are those where
the customer pays in advance (eg by credit card) or
where you know your customer.
Material matters
· The price (including GST);
 · The description of the goods or services;
 · When the goods will arrive;
 · Delivery method details and charges;
 · Terms of payment;
 · Any special conditions;
 · The customers name and contact details;
 · The seller’s name and contact details.


The defendant offered in writing to let a pub
to the plaintiff at $ 63 per month . After a
conversation with the defendant's clerk, the
plaintiff accepted by letter, believing that the
$ 63 rental was the only payment under the
written contract. In fact, the defendant had
intended that a premium would also be
payable and he believed that his clerk had
explained this to the plaintiff. Should the
plaintiff pay the premium?
Parol Evidence Rule
The parol evidence rule is
a substantive common law rule
in contract cases that prevents a party to a
written contract from presenting extrinsic
evidence that contradicts or adds to the written
terms of the contract that appears to be whole.
There is a valid complete written contract
 Prior contradicted evidence are excluded
(both written and oral )

Bob, who was living in Boston, bought real
estate by mail through Tom, a real estate
agent in New York. Tom sent Bob several
pictures of the house and a general
description of the house and its
neighborhood. Included in the description
was the statement that the house was
“within easy walking distance of school,
churches, and shopping centers.” after
moving in, Bob discovers that the closest
school is four miles away.
 Issue: Is this misrepresentation sufficiently
material to justify rescission?

Interpretation of the contract

“The sale of the property includes the sale
of the furnitures inside the property.”
- The rules of interpretation
PICC
ARTICLE 4.1
- Intention of the parties
 (1) A contract shall be interpreted according
to the common intention of the parties.
 (2) If such an intention cannot be
established, the contract shall be
interpreted according to the meaning that
reasonable persons of the same kind as
the parties would give to it in the same
circumstances.
How to determine the intention of
the parties?
ARTICLE 4.3
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between
themselves;
(c) the conduct of the parties subsequent to the
conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and
expressions in the trade concerned;
(f) usages.

1. A contract for the writing of a book between A and
B, a publisher, indicates that the book should consist
of “about 300 pages”. During their negotiations B had
assured A that an approximate indication of the
number of pages was necessary for administrative
reasons and that A was not bound to stick precisely to
that number of pages, but could exceed it,
substantially if need be. A submits a manuscript of
500 pages. Has A breached the contract?

2. A, a Canadian manufacturer, and B, a United
States retailer, conclude a number of contracts for the
delivery of optical lenses in which the price is always
expressed in Canadian dollars. A makes B a new
offer indicating the price in “dollars” without further
specification, but intending to refer again to Canadian
dollars. But B claiming it should be referred to US.
dollar. Whose intention should prevail?
ARTICLE 4.4
(Reference to contract or statement as a
whole)
Terms and expressions shall be interpreted
in the light of the whole contract or
statement in which they appear.
ARTICLE 4.5
(All terms to be given effect)
Contract terms shall be interpreted so as to
give effect to all the terms rather than to
deprive some of them of effect.
ARTICLE 4.6
If contract terms supplied by one party
are unclear, an interpretation against
that party is preferred.
Exception: The parties have discussed
the contract
ARTICLE 4.7
 (Linguistic discrepancies)
 Where a contract is drawn up in two or
more language versions which are equally
authoritative there is, in case of
discrepancy between the versions, a
preference for the interpretation according
to a version in which the contract was
originally drawn up.

Privity of the contract

The essence of privity is that only the
parties to the contract can enjoy the
benefits of that contract or be held liable
for liabilities in that contract.
 the
contract benefits the third party
 the contract incurs damage to the third party
 the breach of the contract attributed to the
third party
Tweddle v Atkinson
 The father of the groom and the father
of the bride entered and agreement in
celebration of the marriage that they
would each give a sum of money to the
groom, William. All seemed fine but the
bride’s father died without making his
payment so William tried to enforce the
agreement against the executors of the
will.

INTERNATIONAL RULES FOR THE
INTERPRETATION OF TRADE TERMS
(Incoterms)
Two important parts of International Sales Law:
CISG & Incoterms


The application of CISG and Incoterms:
CISG - This Convention applies to contracts of sale of goods between
parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of
the law of a Contracting State.
Incoterms – Incoterms apply to a contract of international sale of goods
only if the parties have incorporated them into their contract.
Incoterms

International trade custom

Incoterms define 6 problems:
Who is responsible for obtaining export licenses and import
licenses? 进出口清关
Who is responsible for arranging transport?安排运输
Who is responsible for obtaining insurance?安排投保
The place after the terms 后跟地名
When is the risk transferred to buyer? 风险转移
The applicable method of transportation 适用运输方式
1)
2)
3)
4)
5)
6)
E组 – 启运地交货
EXW EX Works工厂交货（指定地点卖方工厂交货）
F组 – 主运费未付，装运地交货，
FCA Free Carrier货交承运人 （指定地点）
FAS Free Alongside Ship 船边交货 （指定装运港）
FOB Free on board 船上交货（指定装运港）
C组 – 主运费已付，装运地交货
CFR Cost and Freight 成本加运费 （指定目的港）
CIF Cost Insurance and Fright 成本，保险费加运费 （指定目的港）
CPT Carriage Paid to 运费付至 （指定目的地）
CIP Carriage and Insurance Paid to运费，保险费付至（指定目的地）
D组 到达地交货
DAF Delivered at Frontier 边境交货（指定地点）
DES Delivered EX Ship 目的港船上交货 （指定目的港）
DEQ Delivered EX Quay 目的港码头交货（指定目的港）
DDU Delivered Duty Unpaid 未完税交货（指定目的地）
DDP Delivered Duty Paid 完税后交货（指定目的地）
FROM E –F-C-D
The obligation of seller increase
The obligation of buyer decrease


Abbreviation for the obligation of the seller

E – take delivery at the seller’s factory
F – take delivery at the place of shipment or place
of loading; freight unpaid
C - take delivery at the place of shipment or place of
loading; freight paid
D – take delivery at destination



Export and import licenses
卖出买进除首尾
卖出买进- 都是卖方办出口手续，买方办进口
例外：EXW:均由买方 DDP：均由卖方
1.
2， Place of transferring risk

The place of take delivery:
EXW – seller’s factory
F,C – place of shipment or loading
D - destination

When the goods pass the ship’s rail:
FOB CFR CIF
3. Arrangement of transportation
E, F ： Buyer
C，D： Seller
4. Insurance
CIF, CIP：Seller
5. Place after the terms
E,F： place of shipment or place of
loading
C,D：destination port or place
6. Transportation method
FAS, FOB, CFR, CIF, DES, DEQ：shipment
only
The history of CISG
Early Attempt at Uniform CISG Law
1. The Convention Relating to a Uniform Law on the
International Sale of Goods (ULIS)

Drafted by UNIDROIT
 Work interrupted by WWII
 1964 – adopted by 28 Nations (19 from Western Europe)
2. The Convention Relating to a uniform Law on the
Formation of Contracts for the International sale of
Goods (ULF)
- The previous 2 conventions failed to receive wide
acceptance:

United Nations (UNCITRAL) decided to draft a new text
What is the purpose of the CISG?

-
Uniform the law governing international
sales contracts
It establishes a set of rules governing
certain aspects of the making and
performance of international sales
contracts.
Why do need a unified international sales
law?
CISG

CISG

United Nations Convention on Contracts
for the International Sale of Goods

a binding agreement or contract between
nations.

Once a country becomes a party of the
CISG, they should be bound by the
Convention, unless they make any
declarations or reservations.
Development
of
CISG
 Drafted by UNCITRAL –联合国国际贸易法委
员会

Came into force generally on 1 January 1988

Sets out a set of legal rules on certain
matters:
General provisions
2. Formation of the contract
3. Obligations of the seller and buyer
1.
When does the CISG come into
play?
1. The contract is one for the sale of goods;
2. The parties have their place of business in
different States:
1)The States are Contracting Parties to the
CISG Convention (1980) ,or
2) the rules of private international law lead
to the application of the law of a Contracting
State;
3. The application of CISG should not be
excluded by the party autonomy
The contract is one for the sale of
goods
1.
2.
-
Contract for sale?
Goods?
No definition in the convention
Contract for sale
- can be derived from Article 30 and 53.
A contract pursuant to which one party is bound to deliver the goods
and transfer the property in the goods sold and the other party is
obliged to pay the price and accept the goods.
Goods
– Should be understood as widely as possible so as to cover all objects
which form the subject matter of commercial sales contracts
The contract for sale of goods
 The
contract for providing legal services
 The contract for transferring intellectual
property rights
 The contract for selling real estate
 Barter agreement
- Excludes the sales of rights and services
Article 2：
This Convention does not apply to sales:
(a) of goods bought for personal, family or
household use, unless the seller, at any time
before or at the conclusion of the contract,
neither knew nor ought to have known that
the goods were bought for any such use;
(b) by auction;
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities,
negotiable instruments or money;
(e) of ships, vessels, hovercraft or aircraft;
(f) of electricity.


Application of CISG
The seller sells goods made of materials
supplied by the buyer.
The seller sells a machine to the buyer for the
price of $50,000. According to the contract,
the seller is responsible for installing the
machine and training the workers of the buyer
to use the machine. The seller should bear
the total cost of $30,000 for the installing and
training.
1. “Contracts for the supply of goods to be manufactured or
produced”
– A contract for the supply of goods to be manufactured or
produced is basically treated as a contract of sale.
- It is otherwise only if the party ordering the goods has to
supply “a substantial part” of the necessary raw materials
or semi-finished goods .
Substantial - value and necessity
•2. “Contracts for supply and installation”
– “A contract for supply and installation” is not treated as a
contract of sale.
- In most cases it will be necessary for the share of services
to be clearly in excess of 50 % in order to constitute the
predominant part.
Sales involving a combination of
goods and services
Article 3
(1) Contracts for the supply of goods to be manufactured
or produced are to be considered sales unless the
party who orders the goods undertakes to supply a
substantial part of the materials necessary for such
manufacture or production.
(2) This Convention does not apply to contracts in which
the preponderant part of the obligations of the
party who furnishes the goods consists in the supply
of labour or other services.

-
2. The parties have their place of
business in different Contracting
States
Place of business – “the place from which a business activity is defacto
carried out [...];
this requires certain duration and stability as well as a certain amount of
autonomy”
Company A and Company B entered into a contract for selling apples,
whether the contract should be governed by CISG?
1) Company A & Company B - registered in US
A’s place of business - US
B’s place of business - Canada
2) Company A - registered in US - places of business are in US
Company B - registered in Canada - places of business are in US

Nationality is not a criteria
2. The parties have their place of
business in Contracting States
When there is multiple places of busines:
-
the place of business is that which has the
closest relationship to the contract and its
performance, having regard to the circumstances
known to or contemplated by the parties at any
time before or at the conclusion of the contract;
The States are contracting Parties
to the CISG Convention
Which countries are "Contracting States?" How do
we find out who they are?
 http://www.uncitral.org/uncitral/en/uncitral_texts/sal
e_goods/1980CISG_status.html
Chart

China is one of the original countries signed the
convention
- 78 States had ratified the CISG Convention


The United Kingdom has so far not ratified the CISG
Convention

For an explanation as to why this is so, see:

www.cisg.law.pace.edu/cisg/biblio/moss.html
3. The rules of private international law lead to the
application of the law of a Contracting State





The seller has a place of business in state A (a noncontracting state)
The buyer has a place of business in state B (a noncontracting state)
They entered into a sales contract. The contract is signed
and performed in country C. (a contracting country)
The Buyer brings an action in state B. According to the
private international law, the contract should be governed
by the law of state C.
Whether CISG should be applied?
What if country C is China?
- China makes reservation to this clause.(also America)
CISG does not concern:
Article 4 – validity of the contract
ownership of the goods
Article 5 – personal injury
CISG - governs the formation of the sales
contract.
CISG is not concerned with:
(a) the validity of the contract or of any of its
provisions or of any usage;
(b) the effect which the contract may have on
the property in the goods sold.
Article 5
This Convention does not apply to the
liability of the seller for death or personal
injury caused by the goods to any person.
The chemicals delivered by the seller to the
buyer were defective.
The chemicals spontaneously burst into
flames. The buyer’s warehouse was burned
down and several workers were injured.
OPTING OUT
EXPRESS EXCLUSION
Ie:
1.
“The rights and obligations of the parties under
this agreement shall not be governed by the CISG,
rather, these rights and obligations shall be
governed by the contract law of China. “
2.
“The rights and obligations of the parties under
this agreement shall not be governed by the CISG”

IMPLICIT EXCLUSION
By adopting the law in a non-contracting country
-
OPTING IN

The parties agree to adopt CISG.
- principle of autonomy of will
Formation of the contract

Art. 14 – 29

P80-88
Obligations of the seller and the
buyer
PART III
1. Whether a party has performed the
contract
- Whether the party has performed the legal
obligations.
-
2. Whether a party has breached the
contract
- Whether the party has failed to perform
Obligation of the seller
1.
2.
3.
In general, the seller must deliver the
goods that conform to the contractual
description, hand over documents
relating to the goods and transfer the
property in the goods. – Art 30
deliver the goods
goods must conform to the contractual
description
hand over documents relating to the
goods
OBLIGATION 1
- Delivery of goods

Actual delivery - transfer of possession
from one person to another

Constructive delivery – the goods
themselves are not delivered, but the
means of obtaining possession of the
goods is delivered.
Place of Delivery
– specified in the contract
Express term
 Incoterm
 Implied term: The seller should be
responsible for delivering and installing the
machine for free.

- Art 31
Place of Delivery – not specified in the
contract
a)
b)
The first carrier – WHEN INVOLVE
CARRIAGE
The place where the parties knew the goods were
located or were to be manufactured or produced
- in placing the goods at the buyer's disposal at that
place;
c)
In all other cases, at the buyer’s disposal at the
place where the seller has his place of business at
the time the contract was made.
When deliver the goods to the carrier:
The seller must, either:

identify to the carrier both the goods and
the buyer “by marking on the goods, by
shipping documents or otherwise” or

give the buyer notice of the
consignment of the specifying goods
Time for Delivery: Art.33
The seller must deliver the goods:
(a)
if a date is fixed by or determinable from the contract, on
that date;
(b) if a period of time is fixed by or determinable from the
contract, at any time within that period unless
circumstances indicate that the buyer is to choose a date;
or
(c) in any other case, within a reasonable time after the
conclusion of the contract.
OBLIGATION 2
– the duty to hand over documents
-Art 34

If the seller is bound to hand over documents
relating to the goods, he must hand them over
at the time and place and in the form required
by the contract.
documents relating to the goods: bills of
lading, dock receipts, warehouse receipts,
insurance policies, commercial invoices,
certificates of origin,etc
OBLIGATION 3 Conformity of the goods

Arts.35-44
Article 35
(1) The seller must deliver goods which are of the
quantity, quality and description required by the
contract and which are contained or packaged in
the manner required by the contract.
.
The seller’s assurance of the quality of
goods
(2) Except where the parties have agreed otherwise, the goods
do not conform with the contract unless they:
(a) are fit for the purposes for which goods of the same
description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly
made known to the seller at the time of the conclusion of the
contract, except where the circumstances show that the
buyer did not rely, or that it was unreasonable for him to rely,
on the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out
to the buyer as a sample or model;
(d) are contained or packaged in the manner usual for such
goods or, where there is no such manner, in a manner
adequate to preserve and protect the goods.
WAIVER

if at the time of the conclusion of the
contract the buyer knew or could not have
been unaware of such lack of conformity
Seller’s right to remedy
Article 37
- before the date for delivery
The seller has the right to:
 deliver any missing part or make up any deficiency in the
quantity of the goods delivered
 deliver goods in replacement of any non-conforming
goods delivered
 remedy any lack of conformity in the goods delivered

- Should not cause the buyer unreasonable inconvenience
or unreasonable expense.
Buyer’s obligation of
examination
The buyer must examine the goods, or cause them to be
examined, within as short a period as is practicable in
the circumstances.
If the contract involves carriage of the goods, examination
may be deferred until after the goods have arrived at their
destination.
-
-
If the goods are redirected in transit or redispatched
by the buyer without a reasonable opportunity for
examination by him and at the time of the conclusion of
the contract the seller knew or ought to have known of
the possibility of such redirection or redispatch,
examination may be deferred until after the goods have
arrived at the new destination.

Method of examination?
-
COMPREHENSIVE
RANDOM
-
Buyer’s obligation of notifying the nonconformity
Article 39
- The buyer loses the right to rely on a lack of
conformity of the goods if he does not give notice to
the seller specifying the nature of the lack of
conformity within a reasonable time after he has
discovered it or ought to have discovered it.
-
In any event, the buyer loses the right to rely on a
lack of conformity of the goods if he does not give the
seller notice thereof at the latest within a period of
two years from the date on which the goods were
actually handed over to the buyer, unless this timelimit is inconsistent with a contractual period of
guarantee.
Obligation 4 – Assurance of
“clean” goods

Article 41 – The goods should not subject
to third-party claims of ownership

Article 42 – The goods should not subject
to third-party claims of rights in intellectual
property
Article 38 – obligation of examination
 Article 39 - send notice to the seller

Exception: The seller knew or could not
have been unaware and which he did
not disclose to the buyer.
Assurance of the ownership
The third party brought an action against
the buyer asserting he was the owner of
the goods.
 The buyer notifies the seller, and the seller
replied that the third party’s assertion were
false.
 The buyer successfully defended the
action.
 The buyer suffered loss of $50000
because the litigation prevented him from
using the goods and the buyer had to pay

Claims of rights in intellectual
property
Article
42
(1)
(a) under the law of the State where the goods will be resold
or otherwise used (the parties knew when the contract
was concluded
(b) in any other case, under the law of the State where the
buyer has his place of business.
(2) The obligation of the seller under the preceding paragraph
does not extend to cases where:
(a) at the time of the conclusion of the contract the buyer
knew or could not have been unaware of the right or claim;
or
(b) the right or claim results from the seller's compliance with
technical drawings, designs, formulae or other such
specifications furnished by the buyer.
OBLIGATIONS OF THE BUYER

Article 53
1.
Pay the price
Take delivery
2.



1.
2.
3.
Remedies for breach of
contract
Art 45-52 --- remedies for the buyer
Art 61-65 --- remedies for the seller
General remedies for both seller and buyer:
Avoidance of the contract
Specific performance
Compensation
Avoidance
of the contract
Article
49
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his
obligations under the contract or this Convention
amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver
the goods within the additional period of time fixed
by the buyer in accordance with paragraph (1) of
article 47 or declares that he will not deliver within
the period so fixed.
Article 64
(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his
obligations under the contract or this
Convention amounts to a fundamental breach
of contract; or
(b) if the buyer does not, within the additional
period of time fixed by the seller in accordance
with paragraph (1) of article 63, perform his
obligation to pay the price or take delivery of
the goods, or if he declares that he will not do
so within the period so fixed.
Avoidance of the contract
Fundamental Breach
Breach of the contract
- the non-performance of a duty under a
contract
Fundamental Breach
 Non- fundamental breach

Article 25 – Fundamental
breach
A breach of contract committed by one of
the parties is fundamental if it results in
such detriment to the other party as
substantially to deprive him of what he is
entitled to expect under the contract, unless
the party in breach did not foresee and a
reasonable person of the same kind in the
same circumstances would not have
foreseen such a result.
Breach
(1)Fundamental
A breach of contract
results in detriment
(2) The detriment must substantially deprives
him of what he is entitled to expect under
the contract
(3) The violating party must have foreseen the
result of breach.
BURDEN OF PROOF
1),2) – the aggrieved party
3) – the violating party






Seller – Australia
Buyer – U.S.
Goods – Turkey (for resell during Charismas)
Deliver the goods to Boston between 15 Dec – 19 Dec
2010
Actual deliver - 29 Dec 2010
The buyer hardly resell the turkey
Seller – Australia
 Buyer – U.S.
 Goods – chicken (for resell)
 Deliver the goods to Boston between 15 Dec – 19 Dec
2010
 Actual deliver - 29 Dec 2010
 The market price of chicken did not fluctuate in Dec,2010

Avoidance of the contract
-
Non-performance within the additional time
-
The party gives the violating party the
Nachfrist notice, the violating party rejects it
or does not perform within the period it
specifies.
Avoidance of the contract

The contract was avoided when the notice
reached the other party – Article 26

Avoidance of the contract releases both
parties from their obligations under it –
Article 81
Avoidance of installment contracts
Article 73
1) Fundamental breach with respect to a particular
installment – the other party may declare the contract
avoided with respect to that installment.
2) The breach of one installment gives the other party
good grounds to believe that a fundamental breach of
future installment will occur, he may declare the contract
avoided for the particular installment and the future
installment.
3) If the installments are interdependent, a fundamental
breach of one installment will allow a party to avoid the
entire contract. (past and future installments included)
Anticipatory breach – suspension of
performance
Prior to the date of performance:
It becomes apparent that the other party will not perform a
substantial part of his obligations as a result of:
(a) a serious deficiency in his ability to perform or in his
creditworthiness; or
(b) his conduct in preparing to perform or in performing the
contract.
- Suspension of performance
 must immediately give notice of the suspension to the
other party
 must continue with performance if the other party
provides adequate assurance of his performance.
Anticipatory breach – Avoidance of the
contract
Article 72 － If prior to the date for performance of
the contract it is clear that one of the parties will
commit a fundamental breach of contract, the other
party may declare the contract avoided.
The innocent party may choose to
1. Declare the contract avoided and claim
compensation before the date of performance, or
2. Affirm the contract and demand performance. Then
claim compensation after the date of performance




1.
2.
Anticipatory breach – Avoidance of the
contract
Date of performance – 1 March 2010
1 Feb 2010, the Seller notified the Buyer they would not
perform the contract.
2 Feb. 2010, the Buyer replied and insisted the seller to
deliver the goods
5 Feb 2010, the goods were destroyed during the storm.
On 2, Feb - the buyer could avoid the contract and
claim compensation for breach
30 Feb 2010 – the buyer lose the right to claim
compensation for breach
Specific Performance
& Damages

In common law countries
 Firstly:
compensation are preferred
(common law)
 Then: specific performance (equity law)

In civil law countries
 Firstly:
specific performance
 Then: compensation
Specific Performance
& Damages

CISG
 Article
28: if, in accordance with the
provisions of this convention, one party is
entitled to require performance of any
obligation by the other party, a court is not
bound to enter a judgement for specific
performance

China
 Firstly:
specific performance
 Then: compensation
Specific performance
Article 46
 Article 62

- unless the buyer or the seller has resorted to
a remedy which is inconsistent with this
requirement.
- The buyer may require delivery of substitute
goods if the lack of conformity constitutes a
fundamental breach of contract.
Claim compensation

1)
2)
Art. 74:
Actual loss
Loss of profit
The principle of foreseability
- Such damages may not exceed the loss
which the party in breach foresaw or
ought to have foreseen at the time of the
conclusion of the contract,
DISPUTED COMPENSATIONS
Compensation for loss of reputation
 Compensation for loss of commercial
opportunity


The detriment should be certain and
definite
Obligation of mitigation

Article 77

A party who relies on a breach of contract must take such
measures as are reasonable in the circumstances to mitigate
the loss, including loss of profit, resulting from the breach.

If he fails to take such measures, the party in breach may
claim a reduction in the damages in the amount by which the
loss should have been mitigated.
Obligation of mitigation
Ie:

Call off the performance immediately when the
contract is avoided

Resell the goods or buy the substitute goods to
mitigate the loss of profit

Take reasonable measures to protect the
nonconforming goods delivered by the buyer

Give notice when necessary
Seller – price reduction
- When the buyer delivered the nonconforming goods, the buyer may accept the
goods and ask for price reduction.

The contract price has to be reduced in
proportion of the value of the delivered
goods to the value of conforming goods
would have on the date of delivery.
Compensation after the contract
avoided
Article 75
 in a reasonable manner
 within a reasonable time after avoidance,
 the buyer has bought goods in replacement or
the seller has resold the goods,
 the party claiming damages may recover the
difference between the contract price and
the price in the substitute transaction as
well as any further damages recoverable under
article 74.
Compensation after the contract
avoided
Article 76
 If the contract is avoided and there is a
current price for the goods, the party claiming
damages may, if he has not made a purchase
or resale under article 75, recover the
difference between the price fixed by the
contract and the current price at the time of
avoidance as well as any further damages
recoverable under article 74.
Liquidated Damages

Liquidated damages are the amount
agreed by the parties during the formation
of a contract, which is for the injured party
to collect as compensation upon a specific
breach

Part of the contract
Liquidated Damages
Liquidated
Damages
Compens
atory
for the purpose
to compensate
the innocent
party when
breach happens
Punitive
designed to
punish the
wrongdoer.
(penal, penalty
clause)
Legal effect of liquidated damages

Common law countries
 Compensatory:
enforceable
 Punitive: unenforceable

Civil law countries
 Both

International rule
 Both

are enforceable
are enforceable
China
 Both
are enforceable
Other remedies:
Early delivery and excess
quantities
Article 52
(1) If the seller delivers the goods before the date
fixed, the buyer may take delivery or refuse to
take delivery.
(2) If the seller delivers a quantity of goods greater
than that provided for in the contract, the buyer
may take delivery or refuse to take delivery of
the excess quantity. If the buyer takes delivery of
all or part of the excess quantity, he must pay for
it at the contract rate.
The buyer failed to specify the
form
Article 65
(1) If under the contract the buyer is to specify the form, measurement or
other features of the goods and he fails to make such specification
either on the date agreed upon or within a reasonable time after
receipt of a request from the seller, the seller may, without
prejudice to any other rights he may have, make the
specification himself in accordance with the requirements of the
buyer that may be known to him.
(2) If the seller makes the specification himself, he must inform the buyer
of the details thereof and must fix a reasonable time within which the
buyer may make a different specification. If, after receipt of such a
communication, the buyer fails to do so within the time so fixed, the
specification made by the seller is binding.
Remedies for the buyer
to compel specific performance
 to compel deliver substitute goods
 to require the seller repair the goods
 to avoid the contract for fundamental
breach or non-delivery.
 to reduce the price
 to refuse early delivery and excess
quantities
 to claim money compensation

Remedies for the seller
to compel specific performance
 to avoid the contract for fundamental
breach or non-delivery.
 to fix the description of the goods
 to claim money compensation

Exemptions

Article 79

Relief from liability for damages
Frustration of contract
1. Impossibility of performance
1)The death or injury of one party
Robinson v Davision
2)The destruction of the specific subject
matter of the contract.
Taylor v Caldwell
2. Frustration of purpose
Krell v Henry
3. supervening illegality
4. commercial impracticability
- The nonbreaching party will be excused only
if performance would result in extreme
hardship, difficulty, or unreasonable
expense as a result of an unforeseen event.
Limitation of frustration

The event should not be foreseeable

The event is caused by the fault of one
party

The contract could be partially perfomed.
The effect of frustration
1.
2.
3.
The price paid before the event should be
returned
The price which should have be paid
before the event should be paid after the
event
The cost benefited the other party shall
be compensated after the event
Civil law system

Force Majeour

Hardship/changed circumstances
The effect of force majeour

Avoidance of contract

Delayed performance
Force Majeure
Unforeseeable
objective test + subjective test


The impediment can not be overcome by
the party

The impediment is not induced by one of
the parties
Hardship/Changed
circumstances

Commercial impracticability
Effect:
1. Alteration of the contract
2. Avoidance of the contract

CISG
Article 79
(1) A party is not liable for a failure to perform any of his
obligations if he proves that the failure was due to an
impediment beyond his control and that he could not
reasonably be expected to have taken the impediment into
account at the time of the conclusion of the contract or to
have avoided or overcome it or its consequences.
(2) If the party's failure is due to the failure by a third person
whom he has engaged to perform the whole or a part of
the contract, that party is exempt from liability only if:
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so
exempt if the provisions of that paragraph were applied to
him.
(3) The exemption provided by this article has
effect for the period during which the
impediment exists.
(4) The party who fails to perform must give
notice to the other party of the impediment
and its effect on his ability to perform. If the
notice is not received by the other party
within a reasonable time after the party who
fails to perform knew or ought to have known
of the impediment, he is liable for damages
resulting from such non-receipt.
(5) Nothing in this article prevents either party
from exercising any right other than to claim
damages under this Convention.
PASSING OF RISK
Article 66
Loss of or damage to the goods after the risk has passed to
the buyer does not discharge him from his obligation to pay the
price, unless the loss or damage is due to an act or omission of
the seller.
Risk - incidents, which are not caused by one of the parties to the
contract or by persons for whom they are responsible, but
incidents which are caused by independent third parties or
incidents which are not caused by human persons. It must be
casual loss or damage.
PASSING OF RISK

If involves carriage of the goods and the seller is not
bound to hand them over at a particular place,
-
the risk passes to the buyer when the goods are
handed over to the first carrier for transmission
If the seller is bound to hand the goods over to a
carrier at a particular place
- the risk does not pass to the buyer until the goods
are handed over to the carrier at that place. risk.








中国－ 甲公司 － 卖方
美国 － 乙公司 － 买方
合同约定：甲公司出售一批衣料给乙公司
履行方式为：甲公司于7月份将该批衣料自重庆交铁路发运至大连，后由大连船
运至美国纽约，乙公司支付相应对价。
7月份，甲公司没有履行。
8月3日，乙公司通知甲公司，该批衣料至迟应在8月20日之前发运。8月10日，甲
公司依约将该批衣料交铁路运至大连。
但该批衣料在自大连至纽约的运输途中因海难损失80%。由于双方对货物灭失的
风险约定不明遂发生争执。
乙公司认为，甲公司未于7月份履行合同违约在先，应承担损害赔偿责任。合同
因甲公司未按时履行义务已终止，故货物损失的风险理应由甲公司承担。 乙公
司拒绝支付价款。
1. 乙公司认为本案合同因甲公司违约已经终止的观点是否正确，为什么？
2. 如果衣料在8月25日才发运，此时乙公司可否主张合同已经终止？
3. 本案中，货物损失的风险应由谁承担，为什么？
4．乙公司是否有权拒绝支付价款，要求甲公司承担损害赔偿责任，为什么？
PASSING OF RISK
EXCEPTION
 the risk does not pass to the buyer until
the goods are clearly identified to the
contract, whether by markings on the
goods, by shipping documents, by notice
given to the buyer or otherwise.

The passing for risk with goods in transit.
Article 68
The risk in respect of goods sold in transit passes to the buyer
from the time of the conclusion of the contract. However, if the
circumstances so indicate, the risk is assumed by the buyer from
the time the goods were handed over to the carrier who issued
the documents embodying the contract of carriage.
Nevertheless, if at the time of the conclusion of the contract of
sale the seller knew or ought to have known that the goods had
been lost or damaged and did not disclose this to the buyer, the
loss or damage is at the risk of the seller.
Article 69
Other situations:
1.
2.
3.
The risk passes to the buyer when he takes
over the goods
The risk passes to the buyer from the time
when the goods are placed at his disposal but
his commits a breach of contract by failing to
take delivery
The risk passes to the buyer when delivery is
due and the buyer is aware of the fact that the
goods are placed at his disposal at that place.
Article 70
 If the seller has committed a fundamental
breach of contract, articles 67, 68 and 69
do not impair the remedies available to the
buyer on account of the breach.

Law of Product Liability

Product liability

Product liability refers to a
manufacturer’s or seller’s tort liability for
damages or injuries suffered by a buyer,
user, or bystander as a result of a
defective product.
Law of Product Liability vs. Law
of Sales contract
The seller’s obligation to warrant the
quality of the goods
Differences:
1. Requirement of the quality warranty
2. Conditions of incurring the liability
3. The liability incurred
4. Person to bear the liability
5. Product liability law - compulsory law
Contractual liability vs. Product Liability
A bought a bottle of beer from the
Manufacturer, C, , B is A’s friends. The
bottle of the beer exploded and hurt both A
and B. It turns out the bottle was defective.
1) if the party brought Product Liability claim,
who would be the parties?
2) if the party brought Contractual Liability
claim, who would be the parties?
3) Can A sue for both contractual liability and
product liability?
Product liability law
China
 The Product Quality Law of the People’s Republic of China
 Tort Liability Law of the People's Republic of China
America
 Case Law
 UCC – the doctrine of warranty
 Model Uniform Product Liability Act (MUPLA)
 Restatement (Second) of Torts
 Restatement (Third) of Torts, Product Liability
EU
 Council Directive on the approximation of the laws, regulations and
administrative provisions of the Member States concerning liability
for defective products

《关于在有缺陷的产品责任方面使成员国的立法、条例和行政规章接
近的指令》
Product
America
The Third Restatement gives a definition on product, “For
purposes of this Restatement:
(i) A product is tangible personal property distributed
commercially for use or consumption.
(ii) Services, even when provided commercially, are not
products.
(iii) Human blood and human tissue, even when provided
commercially, are not subject to the rules of this
Restatement. ”
The categories of products in product liability law also
include, besides the tangible personal property:
 natural products, such as primary agricultural products
and animals
 intangible personal property, such as electricity
(transmission of electricity) and information in media
(aircraft navigation chart and map)
 real property
Product
Eu –
all movables even if incorporated into another movable
or into an immovable. 'Product' includes electricity."
China

《产品质量法》第2条规定: 产品是指以销售为目
的，通过工业加工、手工制作等生产方式获得的
具体特定实用性能的物品，但未加工天然形成的
产品，如原矿、原煤、石油、天然气等，以及初
级农产品，如农、林、渔等产品，不包括在产品
质量法的范围之内。

另外还规定建筑物、工程等不动产也不包括在内。
Definition of Defect

CHINA

According to article 46, defect means the
unreasonable danger existing in product which
endangers the safety of human life or another
person property, where there are national or trade
standards safeguarding the health or safety of
human life and property, defect means
inconformity to such standards.
What is unreasonable danger?
USA
 The definition of defect in the section 402
A of the Second Restatement is popular in
America, which uses “unreasonable
danger” to define the defect.

Test for defining defect:
 consumer expectation test
 risk-utility (cost-benefit) test ★
Design defect

Design defect: mistake or oversight in the
design of a product.
 Happens
before manufacturing
 causes all the products of the same type are
defective
 the foreseeable risks of harm posed by the
product could have been reduced or avoided
by the adoption of a reasonable alternative
design by the seller or other distributor, or a
predecessor in the commercial chain of
distribution
Manufacturing defect

Manufacturing defect: the manufacture of
the product was different from the usual
manufacturing process for that product.
 Different
from design
 Different from other identical products
 Only a few out of many products of the same
type are defective
Warning defect

Warning defect: the product didn’t have a
proper or adequate warning.

When the foreseeable risks of harm posed
by the product could have been reduced or
avoided by the provision of reasonable
instructions or warnings by the seller or
other distributor, or a predecessor in the
commercial chain of distribution, and the
omission of the instructions or warnings
renders the product not reasonably
EU
 Directive 1985 use the consumer’s expectation to
test the defect of the product. Directive 1985 use
the consumer’s expectation to test the defect of
the product.
 To decide whether the product is defective,
Directive 1985 says that the following
circumstances should be taken into consideration;
(i) the presentation on the product;
(ii) the use to which it could reasonably be
expected that the product would be put
(iii) the time when the product put into market


The product shall not be considered defective for
the sole reason that a better product is
subsequently put into circulation.
Person liable
China – Manufacturer and seller
USA - A product seller, who designs, produces, makes, fabricates,
constructs, or remanufactures the product and any person who
engaged in the business of selling products
EU - (1) the manufacturer of a finished product.
(2) the producer of any raw material or the manufacturer of a component
part.
(3) any person who puts his name, trade mark or other distinguishing
feature on the product presents himself as its producer.
(4)any person who imports into the Community a product for sale, hire,
leasing or any form of distribution in the course of his business.
(5)the supplier of the product who cannot informs the injured person,
within a reasonable time, of the identity of the producer or of the
person who supplied him with the product.
Theories of product liability
Theory of Negligence
 Breach of warranty
 Strict liability

Privity of contract doctrine –
Traditional
Privity doctrine dominated 19th century law
- Injured person can sue the person only if
she was a party to the transaction with the
injured person.


No contract, no liability
Winterbottom v.s Wright
Case: Winterbottom v.s Wright
1842

Facts: Winterbottom was employed by a stationmaster to
drive carriage. Winterbottom was injured in driving the
defective carriage. The defective carriage was bought
from Wright by the station. He sued Wright for damages.

Issue: Whether Wright should be liable for the injury
suffered by Winterbottom?

Decision: no. According to privity doctrine, Wright had no
contract with Winterbottom, so he had no liability for the
injury.
Theory of Negligence
Macpherson v. Buick Motor Co.
 The Plaintiff bought a car from the car
dealer manufactured by the defendant.
 The dealer in turn sold it to the plaintiff.
 Due to defective spokes in one of the
wheels, the car collapse and injured the
plaintiff.
 Although Buick had purchased the wheel
from someone else, there was evidence
that Buick could have discovered the
Doctrine of Negligence in UK

Donoghue v Stevenson

On the evening of Sunday 26 August 1928 May， Donoghue and a
friend took their seats in a Café.
The owner of the cafe brought the order and poured part of an
opaque bottle of ginger beer into a tumbler containing ice cream.
Donoghue drank some of the contents and her friend lifted the bottle
to pour the remainder of the ginger beer into the tumbler.
It was claimed that the remains of a snail in a state of decomposition
dropped out of the bottle into the tumbler.
Donoghue later complained of stomach pain and her doctor
diagnosed her as having gastroenteritis and being in a state of
severe shock.
On 9 April 1929, Donoghue brought an action against David
Stevenson, in which she claimed £500 as damages for injuries
sustained by her through drinking ginger beer which had been
manufactured by him.





Theory of Negligence
Burden of proof:
1. The defendant owes the claimant duty of
care
2. The defendant negligently breached such
duty
3. The claimant suffered detriment
4. The detriment is caused by the breach of
duty of care
Doctrine of Warranty

Doctrine of warranty means that the
manufacturer or seller shall be liable for
his breach of warranty of products.
Doctrine of warranty arose from the
contract law.
(i) Express warranty
(ii) Implied warranty.

Ryan Johnson & Sons v. C.A. Swan

The plaintiff bought a can of chicken from the
defendant’s company.

On the label of the can, the goods were described
as “deboning chicken”.

And the defendant’s company also advertised on
L.A. Newspaper for the goods. On the advertisement,
the goods were described as “fresh chicken, no bones,
no waste”. The Plaintiff read the advertisement and
bought the goods.

When the Plaintiff had the chicken in the can, a
chicken bone lodged in his throat. The Plaintiff sued
the Defendant for the liability of breaching expressed
warranty.
Express warranty
1.
2.
Any description of the goods which is made
part of the basis of the bargain creates an
express warranty that the goods shall conform
to the description.
Any affirmation of fact or promise made by the
seller to the buyer which relates to the goods
and becomes part of the basis of the bargain
creates an express warranty that the goods
shall conform to the affirmation or promise.
Hennisingsen v. Bloomfield Motors Inc
 On May 7, 1955, Claus H. Henningsen purchased a
automobile, manufactured by Bloomfield Motors, Inc.
 The automobile was intended as a Mother's Day gift
to his wife, Helen, and the purchase was executed
solely by Mr. Henningsen.
 The contract for sale was a one page form,
contained paragraphs in various type sizes on the
front and back of the form.
 Mr. Henningsen testified he did not read all
paragraphs of the contract. The back of the contract
contained the following clause in a very small size:
The manufacturer does not warrants the defects
of any component.

Legal issues:
1)
Whether the disclaimer clause is valid?
1)
Whether the defendant shall be liable?
breach of warranty

Burden of proof:
1)
The defendant made the warranty
The claimant relied on the warranty
The defendant breached the warranty
The breach cause the detriment to the
claimant
2)
3)
4)
Theory of strict liability

The producer is liable for the injury caused
by defective product

even if he has exercised all reasonable care.
 even if the user or consumer has no contractual relation with
producer

Strict liability
changes the principle of liability
from fault-based liability to defect-based
liability

rather than focus on the behavior of producer, it focus on the
product itself
 The thing speaks for itself
Doctrine of strict liability
Burden of proof:



The product is defective
The defect existed when the product was
put into the market
The defective product caused the
detriment to the claimant
China – Tort Law:
Article 41 Where a defective product causes
any harm to another person, the manufacturer
shall assume the tort liability.
Article 42 Where a product with any defect
caused by the fault of the seller causes any
harm to another person, the seller shall assume
the tort liability.
Where a seller can neither specify the
manufacturer of a defective product nor specify
the supplier of the defective product, the seller
shall assume the tort liability.
Article 43 Where any harm is caused by a defective
product, the victim may require compensation to be
made by the manufacturer of the product or the
seller of the product.
If the defect of the product is caused by the
manufacturer and the seller has made the
compensation for the defect, the seller shall be
entitled to be reimbursed by the manufacturer.
If the defect of the product is caused by the fault of
the seller and the manufacturer has made the
compensation for the defect, the manufacturer shall
be entitled to be reimbursed by the seller.

EU - Doctrine of strict liability - Directive
1985
Causation

Causation is the "causal relationship
between conduct and result.
1. Cause
in fact - But for test
2. Proximate cause – Forseeability test
Intervening Cause
Compensation of damage
1.
Compensatory damages
- Damages for personal injury and
property damage
2.
Damages for psychiatric injury
2.
Punitive damages
Compensatory damages
1. Damages for personal injury ,including:
(I) Medical costs;
(ii) loss of earnings;
(iii) Other costs;
Damages for property damage
- the direct loss of the damaged property
2.
Damages for psychiatric injury


1. Who is eligible to claim Damages for psychiatric injury?
2. How to calculate the amount?
1. Who is eligible to claim Damages for psychiatric injury?
 - person who suffered psychiatric injury caused by the
recognized psychiatric injury
Kroger Co. v. Beck
The Plaintiff bought a packed steak from the defendant.
When she had the steak with her family for dinner, she felt
great pain of her throat. She went to the bathroom and threw
up. She found a needlepoint from the steak she threw up.
She was shocked and threw away all the steak left. From
then on, she never eat meat again, although the meat was
always served as main dish in her family.
Defenses

US- defenses when applying different doctrine of
liability
1.
Doctrine of negligence –
Defense – the defendant has fully performed the
duty of care.
2.
Doctrine of warranty
Defense – the limitation or exclusion of the warranty
3 Doctrine of strict liability
Defense - Assumption of the risk

The plaintiff knew the defect of the product

The plaintiff voluntarily took the risk

The plaintiff suffered detriment
4. State of Art
the defect of product could not be
discovered according to the state of
scientific and technical knowledge at the
time when it was put into circulation
5. Product misuse and Alternation
- the manufacturers have the duty to take
measures to avoid the risk in reasonably
foreseeable misuse and alternation.
-
Comparative
negligence
a partial legal defense that reduces the amount of damages
that a plaintiff can recover in a negligence-based claim
based upon the degree to which the plaintiff's own
negligence contributed to cause the injury.
"Pure" comparative negligence
- Looks to the degree of fault of each party in determining
what amount the award will be.
“Modified" comparative negligence.
- Looks to the degree of fault of each party in determining
whether an award is justified and what amount the award
will be.
- allows plaintiffs to recover only if the plaintiff's negligence is
"not greater than" the defendant's
China – Product Liability Law
①
②
③
According to the Article 41 of the Product
Quality Law, the producer could exempt
himself from liability if he can prove the
existence of any of the following
circumstances”
The product has not been put in circulation
The defect causing the damage did not exist
at the time when the product was put in
circulation
The science and technology at the time the
product was put in circulation was at a level
incapable of defecting the defect
Limitation period

The limitation period fro bring an action of product
liability is two years, counting from the day when
plaintiff knew or should have known the infringement
of his rights and interests.

The right to claim for damages arising from defective
products shall be forfeited upon completion of ten
years from the day when the defective product
causing the damage is delivered to the first user or
consumer, except that the clearly stated safe-use
period has not expires.
EU – Directive 1985
1.
threat he did not put the product into circulation; or
2.
that, having regard to the circumstances, it is
probable that the defect which caused the damage
did not exist at the time when the product was put
into circulation by him or that this defect came into
being afterwards; or
that the defect is due to compliance of the product
with mandatory regulations issued by the public
authorities or
that the state the state of scientific and technical
knowledge at the time when he put the defect is
attributable to the design of the product in which
the component has been fitted or to the
instructions given by the manufacturer of the
product.
3.
4.
Limitation period

In Directive 1985, a limitation period of three
years shall apply to proceedings for the
recovery of damage. the limitation period shall
begin to run from the day on which the plaintiff
became aware, or should reasonably have
become aware ,of the damage,

The injured person shall be extinguished upon
the expiry of a period of 10 years from the date
on which the producer put into circulation
the actual product which caused the damage,
unless the injured person has in the meantime
instituted proceedings against the producer.
Jurisdiction
US
- Long-arm statute - 长臂管辖权
a)
b)
c)
d)
The court has the jurisdiction over the product
liability case when the defendant:
run business in the state
sign the contract and provide goods in the state
commit any act or omission in the state which
cause detriment
engage commercial activity or gain profit
within the state
When an American consumer sue
Chinese producer for product liability
Whether the American court has the jurisdiction.
- Long-arm statute


Whether the property of the Chinese producer or
seller could be executed by an American court.
When the Chinese producer or seller:
1. has property to be executed in US
2. has property to be executed in another country which
recognized decision by American court
3. has property in China only
China - Jurisdiction
The court of the Residency of the
defendant
 The court of the place where the tort
action takes place

what is agency

Agency is a fiduciary relationship created
by express or implied contract or by law, in
which one party (the agent) may act on
behalf of another party (the principal) and
bind that other party by words or actions.
Parties in agency
Agent: person authorized by another to act
for or in place of him or her.
代理人
 Principal: person who, by agreement or
otherwise, authorizes an agent to act on his
or her behalf in such a way that the acts of
the agent become binding on the principle.
本人
 Third party: any person doing business with

Law of agency
Internal relationship
- relationship between the agent and the
principal

External relationship
- relationship between the agent, principal
and the third party

Creation of agency
1.
2.
3.
4.
Express authority – 明示授权的代理
Implied authority 当事人行为产生的代理
Agency by ratification – 追认代理
Agency of necessity - 客观必需的代理
Express authority
Created by the express authorization of
principal
 Most commonly used
 Writing/oral

Implied authority
1.
A asked B to order from C on the first day of every month
and pays the price to C every time. After round one year,
on 1 March, B ordered from C, but A refused to pay by
saying that he didn’t authorize B to order this time.
2.
After having lunch in the restaurant, A paid the bill to the
waiter. The restaurant asked A to pay again by saying that
waiters in the restaurant are not allowed to take the
money from the customers directly.
3.
A buys meat and other food items at the local store. One
time A forgot to pay and the store owner asked A’s
husband B to pay the money. But B refused by saying that
it was A’s obligation to pay.
Implied authority
Words or conducts
2. Custom and usage
3. Certain Relationship :
Ie: husband and wide, partners in the
partnership.
1.

Agency by ratification
Unauthorized act:
 An
agent exceeds the limited authority granted
 A nonagent acts as agent for another.




Ratification is the principal’s adoption of the
agent’s previously unauthorized act
Legal effect of ratification
Not binding for principal without ratification
If the principal accepts the results of the
agent’s act, then the principal is bound, just
as if he or she had authorized the individual to
act as agency.
Agency by ratification



An unauthorized person ordered five doors
from Parker, a carpenter, to be delivered
together with the invoices to Zakin.
The doors, though not ordered by him, were
accepted and used by Zakin.
Parker demanded payment and was told that
the price was too high. Parker sued for the
payment of full price according to his invoice.
Agency by ratification

Unauthorized act:



An agent exceeds the limited authority granted
A nonagent acts as agent for another.
Ratification is the principal’s adoption of the agent’s previously
unauthorized act
Legal effect of ratification
 Not binding for principal without ratification
 If the principal accepts the results of the agent’s act, then the
principal is bound, just as if he or she had authorized the
individual to act as agency.
effect of ratification
An unauthorized agent signed a
contract on July 1 and the principal
ratified the contract on July 15.
When was this contract regarded to be
signed?
- July 1.
Apparent Authority
Definition: Although the agent is not authorized, the principal
causes the third parties to reasonably believe the agent has
authority.








China: 表见代理
US: Agency by estoppel
A clothes factory decided to promote its fashion clothes.
Marry was one of the worker in the factory.
She had a friend, Peter, working in a department store, so she
asked Peter to order clothes.
Peter was not authorized to purchase by manager.
But he had sealed blank contract.
He ordered clothes of ¥10,000 with Marry.
When the clothes factory delivered goods to the department store
and asked payment.
The store refused by saying Peter was not authorized to purchase.
Apparent Authority
Elements:
1.
2.
3.
A nonagent acts as agent for another.
The third party reasonably believes the nonagent has
the authority from the principal
The principal negligently causes third party to
reasonably believe the nonagent has the authority
Legal effects of apparent authority


Principal to third party: Principal is liable. (same as
authorized agency)
Principal has right to sue the unauthorized agent for
compensation
Nondelegable duties
1.
The act required by law to be performed
personally by the principal cannot be
delegated to an agent.
2.
The act required of the principal is personal in
nature, he can not delegate to an agent.
Internal Relationships

Duties of agent to principal
 Fiduciary
duty of Loyalty
 Duty of obedience
 Duty of care
 Duty of accounting
 Duty of communication

Duties of Principal to Agent
 Duty
to pay commission
 Duty to reimburse and indemnify
1. Fiduciary duty of Loyalty
The agent owes a fiduciary duty of good
faith(诚信) and utmost loyalty(忠实) to the
principal.
Conflicts of interest
2. Self-dealing prohibition
3. Confidentiality
1.
Conflicts of interest

A retained B to act as a broker in the sale of his
house. Borden obtained a corporation to buy the
house. When A found that B was an officer of
that corporation, did he have the right to avoid
the contract of sale?

YES
- Persons cannot act as agents for parties with
adverse interests
Self-dealing prohibition
Company A authorized company B to
purchase a machine in 2000. Company
B ordered machine from itself and sold
to A.
- The agent’s own personal financial
interests cannot directly conflict with
the principal’s financial interest
Confidentiality

The agent should keep the information
provided by the principal confidential.
Such as:
•
•
•
•
•
•
•
trade secrets,
business plans,
financial plans,
customer lists,
sales tactics,
Manufacturing technologies,
New product information
2. Duty of obedience

Agents must generally obey any
reasonable directions the principal provides
that will impact the principal’s business,
and is liable for any loss if he deviates.

Exception?
 Instructions
are illegal, immoral or against
public policy
3. Duty of care

Agent must use reasonable skill and care
in conducting the principal’s business.
-
No requirement of success by law
The agent should fulfill the duty of care
even without payment
-
4. Duty of accounting
 All property and funds belonging to the
principal are required to be accounted for
adequately.
 The agent’s individual property must be kept
separate from the principal’s property.
5. Duty of communication
 Agents must communicate to the principal all
relevant information and notices they receive
in the course of performing the principal’s
Duty of the Principal
1. Duty to Pay Commission
-
the amount and time to pay is decided by:
a)
b)
Agreement
No agreement, custom
Contingent compensation (权变报酬)
The compensation is made contingently on results.


Sales agents: paid an agreed-on percentage of the value of
the sales they made
Lawyers (in tort actions): contingent fees, if they win the case
for the plaintiff, they got some share (often 1/3) of the
recovery; if they fail, no compensation.
Case: commission





Peter was a broker working in a real estate broke
corporation.
He produced a buyer who was “ready, willing
and able” to buy.
The buyer didn’t sign the contract because he
wanted to tell his wife before sign the contract.
The next day, Peter quit the corporation.
Two days later, the buyer come and signed the
contract with the principal.
Duty to pay commission
If the principal negotiates and
concludes the contract with the third
party directly, shall he pay
commission?
1. Agreement of agency
2.
No statement in agreement
a)
b)
Agent’s contribution: paid
No agent’s contribution: not paid
 Exception: sole agent for an area: paid
Duty to pay commission

For the subsequent contracts?
1.
2.
Within the duration of agency: yes
Agency contract expires: no
Exception:
- When an agent was the primary factor in a
purchase or sale, he may be entitled to
compensation regardless of who eventually
completes the sale.

2. Duty to Reimburse and
Indemnify
1.
-
2.
If the agent is acting within the scope of
authority
The principal has a duty to reimburse the
agent for expenses; to indemnify the
agent for losses
If expenses or losses are caused by the
agent fault
- The principal will not be required to reimburse
3.
Duty to keep accounts
The principal has a duty to keep records by
which the commission due the agent can
be determined.
Business Structure
Business Structure
--- also called business organization,
refers to the economic organization that
pursues profit with certain scale.
1) Sole proprietorship
2) Partnership
3) Corporations
4) Foreign investment enterprises of China
Choose the type of business
1.
2.
3.
4.
5.
6.
7.
Purpose and the scale of the business
Cost and the legal requirements for
establishment
Taxation
The function of the management of the
business organization
Distribution of profit
Distribution of liability
Whether the members’ interest should be
transferable.
Individual proprietorship
- 个人独资企业
- A sole proprietorship, also known
individual proprietorship, is a type of
business entity that is owned and run by
one individual .
- The owner receives all profits (subject
to taxation specific to the business) and
has unlimited responsibility for all losses
Individual proprietorship
Registration
 Certain Place of Business
 Business name

Advantages of a Sole
proprietorship
1.
2.
3.
4.
5.
Keeping all the profits;
Ownership and control of the business
Lack of formalities and cheap to form;
Maintenance of secrecy
Tax Advantages
Disadvantages of a Sole
proprietorship
1.
2.
3.
4.
5.
Unlimited liability
Because the business and the sole trader are
synonymous, the death of the owner will often
mean the end of the business;
Degree of personal element can make the
business difficult to sell;
Lack of management skills or expertise; and
Difficulty in raising large amounts of capital
Partnership
Partnership is the relation which subsists
between people carrying on a business in
common with a view of profit.
Requirements:
a) two or more persons
b) carrying out a business
c) as co-owners
d) for profit
Cox v. Coulson – the partners should share net
profit, not gross revenue.

Formation
Common Law System:
- no special formalities are required to enter into
a partnership.
 Just the fact is sufficient that two or more
persons are carrying out the business in
common.
Vohland v. Sweet

Any agreement, writing or oral, express or
implied, will do.
Civil Law System:
Types of partnership
1.
2.
3.
4.
General partnership
Limited liability partnership
Limited partnership
Limited liability limited partnership
General Partnership
Registration of the partnership
1. Compulsory Registration

2. Voluntary
- U.S.
Registration
Duties of a Partner
1) Fiduciary duty.
a) refraining from business in competition with
the partnership
b) engaging in self-dealing
c) holding the duties of loyalty and care.
2) Duty of partners to render information.
Liabilities of a Partner to the Third
Party
1.
2.
3.
4.
The partners bear joint unlimited liability
to the debt of the partnership
The actions taken by each partner when
participating in the partnership affairs will
bind the partnership and other partners.
The right limit to certain partner cannot
resist the third party.
The tortuous act one partner performs
when participating in the management, to
5. Liability of a new partner
The debts after a new partner being admitted
as the partner of the partnership, the new
partner thus will be liable for it.
-- The debts before the new partner is admitted
as the partner, there are 2 kinds of conditions:
a. the new partner will take joint liability with
other partners, such as in France , Japan and
China;
b. the new partner will not take any liability,
such as in England,U.S.
6.
To the partner that has left the
partnership, if the debt incurred before
the partner’s departure, then the left
partner should be liable for it.
the debt incurred before the partner’s
departure
– the cause of the debt occurred before
Distribution of surplus
T he surplus gained from the management of the
partnership belongs to all the partners.
Partners can distribute the surplus according to the
following rules:
1) If there are distribution provisions in the agreement
among the partners, they can distribute the surplus
under it.
2) If there isn’t distribution provision in the agreement,
the partners can distribute the surplus according to
the regulation of law:
a. Distribute equally – Common Law system
b. According to their financial contribution to the
Partnership - Advantages
1.
2.
3.
4.
5.
Informality and inexpensiveness in setting up
Flexibility, the nature of the business can
easily altered by agreement
Tax
Maintenance of secrecy; and
Potential for partners to pool capital and
experience.
The disadvantages of a
partnership
1.
2.
3.
4.
5.
6.
Liability. Each partner will face an unlimited
liability for the debts and obligation of the firm.
Transfer of interest is not as easy as the transfer of
share in the company.
Unanimous decisions. Unanimous decision will be
needed for a lot of matters under the partnership law.
Such as no person can become a member of a
partnership without the consent of all the partners.
Partners should be chosen carefully.
Limited scale
Unstable maintenance
Limited Liability Partnership
(L.L.P.)
U.S.:
-
-
In an LLP, one partner should not be
unlimitedly liable for another partner's
misconduct or negligence.
China – 特殊普通合伙
Limited Liability Partnership
(L.L.P.)
The partner should be unlimitedly liable for the debt
incurred by:
1) his or her own misconduct and negligence
2) the misconduct and negligence of another partner,
and the partner knew but failed to prevent.
3) the misconduct and negligence of an employee,
where the partner is the supervisor
4) Commercial risk
Limited Liability Partnership
(L.L.P.)
- Requirement:
1) Registration
2) Specify LLP in the name
3) Establish insurance funds
Limited Partnership (L.P.)
A
limited partnership is a form of
partnership similar to a general
partnership, except for- consists of general partner and limited
partner
Limited Partnership (L.P.)
(1) The number scope of a limited partnership is
from 2 to 50 partners, and there is at least one
general partner.
 (2) The general partners have management
control, representing the partnership and have
jointly unlimited liabilities for the debts of it.
While the limited partners cannot participate in the
management and control of the partnership’s
business, their liability for the debts of the
partnership is the capital contributions to the
partnership.

(3) A limited partner can contribute money,
material property, intellectual property
rights, land-use right, and so on to the
partnership, but he or she cannot
contribute labor to it.
(5) The death or bankruptcy of a limited
partner cannot certainly affect the
partnership’s existence.
(6) A limited partner and a general partner
can transfer to each other under certain
Limited Partnership (L.P.)
- A limited partnership may lose protection
against personal liability if she or he
participates in the management and control
of the partnership, contributes service to the
partnership, acts as general partner, or
knowingly allows her or his name to be used
in partnership business.
limited liability limited
partnership
Limited Partnership + Limited Liability
Partnership
The law of corporation
1. Creation
A corporation should be created according to the corporation
law.
2. Legal status
A corporation is a legal person and a legal entity independent
of its owners (shareholders) and its managers (officers and
the board of directors)..
3. Powers
A corporation may acquire, hold and convey property in its own
name, a corporation may sue and be sued in its own name.
4. Management

Shareholders elect a board of directors, which
manages the corporation. The board of directors may
delegate management duties to officers.
5. Owner’s liability

The shareholders have limited liability.
.
6. Transferability of owner’s interest

Generally, the ownership interest in a corporation is
freely transferrable.
7. Taxation
Advantages of a
Company
include:
1. A separate legal entity from the shareholders
2.
3.
4.
5.
6.
or members, as well as those who control its
operation;
Limited liability for the investors
Perpetual succession;
The company can sue and be sued;
Transferability of shares;
A company can now be created with one or
more members.
Disadvantages of a
Company include:
1.
2.
3.
4.
5.
Cost of establishment and ongoing fees;
Onerous reporting and administrative
requirements required by law;
Limited management role for shareholders;
Possible loss of control of the company to
shareholders;
Tax
Foreign investment enterprises in
China
“Three Capital Enterprises”:
1. Chinese Foreign Contractual Joint
Ventures
2. Chinese Foreign Equity Joint Ventures
3. Foreign Capital Enterprises
Sources of foreign
investment law of China
1.
2.
3.
The Law of the People’s Republic of
China on Chinese Foreign Equity Joint
Venture Law
The Law of the People’s Republic of
China on Chinese Foreign Contractual
Joint Venture
The Law of the People’s Republic of
China on Foreign Capital Enterprises
The Law of the People’s
Republic of China on Chinese
Foreign Equity Joint Venture
- adopted on July 1, 1979, and revised in
1990 and 2001
Chinese Foreign Equity
Joint Venture
Chinese Equity Joint venture shall adopt
the form of a limited liability company
 Art 4 of the The China Equity Joint
Venture Law states:”an equity joint venture
shall take the form of Limited Liability
Company.”

Chinese Equity Joint venture
1.
2.
3.
Artificial person
The parties share the profits, risks and
losses in proportion to their contributions
to the registered capital.
The parties shall not assign their its
registered its capital without the consent
of the other party
Registered capital
1.
2.
3.
The registered capital of a joint venture refers to
the total amount of investment registered at the
registration administration office for the
establishment of the joint venture.
The registered capital shall generally be
represented in RMB, or may be in a foreign
currency agreed upon by the parties to the joint
venture.
The proportion of the investment contributed by
the foreign joint venture shall generally not be
less than 25% of the registered capital of a joint
venture.
Transfer of the investment

If one party to the joint venture intends to
assign all or part of its investment
subscribed to a third party, consent shall be
obtained from the other party to the joint
venture, and approval from the examining
and approving authorities is requires.

When one party assigns all or part of its
investment to a third party, the other party
has preemptive right.
Administrative management
Board of directors
 The board of directors shall decide
all major issues concerning the joint
venture instead of shareholders’
meeting
Law of the People’s Republic of
China on Chinese Foreign
Contractual Joint Venture
- a joint venture between Chinese and foreign
ventures where the profits and losses are
distributed between the parties in accordance
with the specific provisions in the contract,
not necessary in proportion to their respective
equity interests in the Joint venture.
- Can be registered as an artificial person
Administrative Management
A contractual joint venture shall establish a board of
directors or a joint managerial institution which shall,
according to the contract or the articles of association for
the contractual joint venture, decide on the major issues
concerning the venture.
If a contractual joint venture, after its establishment,
chooses to entrust a third party with its operation and
management, it must obtain the unanimous consent of
the board of directors or the joint managerial institution,
report to the examination and approval authority for
approval, and register the change with the administrative
authorities for industry and commerce.
Law of the People’s Republic of
China on Foreign Capital
Enterprises

a.
b.
c.
According to art 2 :”enterprises with foreign
capital” refers to those enterprises established
in China by foreign investors, exclusively with
their own capital, in accordance with relevant
Chinese laws.
Created by the foreign investors
Created in accordance with the China Laws
A separate legal entity.
Business form and registered
capital

Under the relevant law, China Foreign
Capital Enterprise shall be a limited liability
company.