International Commercial Law:

LECTURE 1LECTURE 1

Lecturer:Lecturer: Liang Chen Liang Chen

Reference Book

International Business Law International Business Law （（ 22ndnd eddition eddition ）） 姜作利姜作利 法律出版社法律出版社 International Business Law (3International Business Law (3rdrd eddition) eddition)Ray August Ray August 高等教育出版社高等教育出版社

International Business Law (4International Business Law (4thth edition) edition)Richard SchafferRichard Schaffer人民邮电出版社人民邮电出版社

Target ： Knowledge of international commercial Knowledge of international commercial

lawlaw Legal method Legal method Practical SkillsPractical 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 institution-to 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 LawPublic International Law• Private International LawPrivate International Law• International Commercial LawInternational 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. Direct transactions between the producer and the consumer

2. Carriage of goods, storage, agency,

3. Financial activates

4. Services

Parties of international commercial activities General Parties: Natural Person, Artificial

Person, Partnership Special Parties:

Country

International organization.

International Commercial Activities

International trade:1. Lack of resources2. Absolute advantage - 绝对优势说3. Comparative advantage – 比较利益说4. 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 conventionsInternational treaties or conventions

Customs and usageCustoms and usage

National Business LawNational Business Law

International treaties or conventionsInternational 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 PICC1) 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 China: 1) 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.

2) Limited capacity - A minor aged 10 or over 3) No capacity - A minor under the age of 10 or a

person with mental incompetence

Contractual capacity1) 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 litemb) 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 goods2. A minor needs the necessary when the contract is

signed3. There is no other alternative to fulfill such needs.

Contractual Capacity Standard:

1) Age

2) 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 newspaperdisplaying 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 manner.

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

An offer can not be revoked:

(1) the offeror indicated a fixed time for acceptance or otherwise explicitly states that the offer is irrevocable;

(2) 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) In your opinion, was Charlie correct in claiming a right to buy the CDs?

(b) Does Mick now have a right to sue Brian for breach of contract?

(c) 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?

(d) 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 value1. Consideration must be given for

pursuing the enforceability of a promise 2. Consideration must be referable to the

promise3. Consideration must be sufficient, but

need not be adequate4. 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. Consideration must be present or future and cannot be past

2. Performance of an existing contractual duty to the promisor is not consideration

3. 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. 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.

2. A clear and unequivocal promise by words or conduct.

3. Evidence that there is a change in position of the promise as a result of the promise (reliance but not necessarily to their detriment)

4. 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 false statement of fact made by one party to another which induces another party to contract.

Four elements:a) It must be a statement of existing or past factb) there is a mistaken impression about an material

fact or facts concerning the subject of the contract

c) the victimized party was reasonably relied on this fact

d) the victimized party entered into a contract based on this misrepresentation

Fraud

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

1. Fraud includes fraudulent misrepresentation

2. Fraud can be a statement and conduct, ie: forge a document or certificate

3. Fraud may constitute a criminal offence

Five elements

a) A false statement or act should be material fact

b) The defendant must know that the fact is untrue.

c) Intent on the part of the defendant to deceive the alleged victim.

d) The victim’s reliance on the false statement must be reasonable.

e) 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 victim4. 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. TO ENTER INTO A VALID CONTRACT, WHAT ARE THE ISSUES YOU NEED TO CONSIDER?

2. 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

PICCARTICLE 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:1) Who is responsible for obtaining export licenses and import

licenses? 进出口清关2) Who is responsible for arranging transport? 安排运输3) Who is responsible for obtaining insurance? 安排投保4) The place after the terms 后跟地名5) When is the risk transferred to buyer? 风险转移6) The applicable method of transportation 适用运输方式

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-DThe obligation of seller increaseThe 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

1. 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

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. InsuranceCIF, CIP ： Seller 5. Place after the termsE,F ： place of shipment or place of

loading C,D ： destination port or place

6. Transportation methodFAS, FOB, CFR, CIF, DES, DEQ ：

shipment only

The history of CISGEarly Attempt at Uniform CISG Law1. 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:1. General provisions

2. Formation of the contract

3. Obligations of the seller and buyer

4. Remedies for breach

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. Contract for sale?2. 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/sale_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 non-contracting state)

The buyer has a place of business in state B (a non-contracting 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 OUTEXPRESS 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 any legal obligation.

Obligation of the seller 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

1. deliver the goods

2. goods must conform to the contractual description

3. hand over documents relating to the goods

4. transfer the property in 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) The first carrier – WHEN INVOLVE CARRIAGE

b) 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.33The 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 non-conformityArticle 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 time-limit 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 $1000 for the litigation.

Claims of rights in intellectual propertyArticle 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

2. Take delivery

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:

1. Avoidance of the contract

2. Specific performance

3. Compensation

Avoidance of the contractArticle 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 contractFundamental 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.

Fundamental Breach(1) 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 party3) – 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 contractsArticle 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 contractArticle 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 to1. 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

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.

1. On 2, Feb - the buyer could avoid the contract and claim compensation for breach

2. 30 Feb 2010 – the buyer lose the right to claim compensation for breach

Specific Performance & Damages

In common law countriesFirstly: compensation are preferred (common

law)Then: specific performance (equity law)

In civil law countriesFirstly: specific performanceThen: compensation

Specific Performance & Damages

CISGArticle 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

ChinaFirstly: specific performanceThen: 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

Art. 74:1) Actual loss2) 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 mitigationIe: 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 non-

conforming 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

Compensatory

for the purpose to compensate the innocent party when breach happens

LiquidatedDamages

Punitive

designed to punish the wrongdoer. (penal, penalty clause)

Common law countriesCompensatory: enforceablePunitive: unenforceable

Civil law countriesBoth are enforceable

International ruleBoth are enforceable

ChinaBoth are enforceable

Legal effect of liquidated damages

Other remedies:Early delivery and excess quantitiesArticle 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 purposeKrell 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. The price paid before the event should be returned

2. The price which should have be paid before the event should be paid after the event

3. 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

CISGArticle 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 RISKArticle 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. The risk passes to the buyer when he takes over the goods

2. 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

3. 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 DefectCHINA

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 manufacturingcauses 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 designDifferent from other identical productsOnly 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 Wright1842

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 defect by reasonable inspection.

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. 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.

2. 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

2) The claimant relied on the warranty

3) The defendant breached the warranty

4) The breach cause the detriment to the claimant

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 test2. 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;

2. Damages for property damage

- the direct loss of the damaged property

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.

6. Inherent product danger

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

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”

① The product has not been put in circulation② The defect causing the damage did not exist

at the time when the product was put in circulation

③ 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; or2. 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

3. that the defect is due to compliance of the product with mandatory regulations issued by the public authorities or

4. 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.

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.

JurisdictionUS- Long-arm statute - 长臂管辖权

The court has the jurisdiction over the product liability case when the defendant:

a) run business in the stateb) sign the contract and provide goods in the statec) commit any act or omission in the state which

cause detrimentd) 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 US2. has property to be executed in another country which

recognized decision by American court3. 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 agent.

第三人

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. Express authority – 明示授权的代理2. Implied authority 当事人行为产生的代理3. Agency by ratification – 追认代理4. 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 authority1. 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

1. Words or conducts

2. Custom and usage

3. Certain Relationship :

Ie: husband and wide, partners in the partnership.

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 AuthorityElements:

1. A nonagent acts as agent for another.

2. The third party reasonably believes the nonagent has the authority from the principal

3. 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 principalFiduciary duty of LoyaltyDuty of obedienceDuty of careDuty of accountingDuty of communication

Duties of Principal to AgentDuty to pay commissionDuty to reimburse and indemnifyDuty to keep accounts

1. Fiduciary duty of Loyalty

The agent owes a fiduciary duty of good faith( 诚信 ) and utmost loyalty( 忠实 ) to the principal.

1. Conflicts of interest

2. Self-dealing prohibition

3. Confidentiality

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 In the event of a sudden emergency

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 business.

Duty of the Principal1. Duty to Pay Commission

- the amount and time to pay is decided by:a) Agreementb) 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 agreementa) Agent’s contribution: paidb) No agent’s contribution: not paid

Exception: sole agent for an area: paid

Duty to pay commission

For the subsequent contracts?1. Within the duration of agency: yes

2. 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. 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

2. If expenses or losses are caused by the agent fault

- The principal will not be required to reimburse or indemnify

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 business1. Purpose and the scale of the business

2. Cost and the legal requirements for establishment

3. Taxation

4. The function of the management of the business organization

5. Distribution of profit

6. Distribution of liability

7. 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 and debts.

Individual proprietorship

Registration Certain Place of Business Business name

Advantages of a Sole proprietorship

1. Keeping all the profits;

2. Ownership and control of the business

3. Lack of formalities and cheap to form;

4. Maintenance of secrecy

5. Tax Advantages

Disadvantages of a Sole proprietorship

1. Unlimited liability2. Because the business and the sole trader are

synonymous, the death of the owner will often mean the end of the business;

3. Degree of personal element can make the business difficult to sell;

4. Lack of management skills or expertise; and5. 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.

FormationCommon 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:- Partnership Contract is needed

Types of partnership

1. General partnership

2. Limited liability partnership

3. Limited partnership

4. Limited liability limited partnership

General Partnership Registration of the partnership

1. Compulsory Registration

2. Voluntary Registration

- U.S.

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. The partners bear joint unlimited liability to the debt of the partnership

2. The actions taken by each partner when participating in the partnership affairs will bind the partnership and other partners.

3. The right limit to certain partner cannot resist the third party.

4. The tortuous act one partner performs when participating in the management, to which the liability will be undertaken by the partnership.

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 the partner’s departure

Distribution of surplusT 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 - China

Partnership - Advantages

1. Informality and inexpensiveness in setting up2. Flexibility, the nature of the business can

easily altered by agreement3. Tax4. Maintenance of secrecy; and5. Potential for partners to pool capital and

experience.

The disadvantages of a partnership

1. Liability. Each partner will face an unlimited liability for the debts and obligation of the firm.

2. Transfer of interest is not as easy as the transfer of share in the company.

3. 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.

4. Partners should be chosen carefully. 5. Limited scale6. Unstable maintenance

Limited Liability Partnership (L.L.P.)

U.S.:- In an LLP, one partner should not be unlimite

dly 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) Registration2) Specify LLP in the name3) 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 condition.

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 or members, as well as those who control its operation;

2. Limited liability for the investors

3. Perpetual succession;

4. The company can sue and be sued;

5. Transferability of shares;

6. A company can now be created with one or more members.

Disadvantages of a Company include:

1. Cost of establishment and ongoing fees;

2. Onerous reporting and administrative requirements required by law;

3. Limited management role for shareholders;

4. Possible loss of control of the company to shareholders;

5. 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 China1. The Law of the People’s Republic of

China on Chinese Foreign Equity Joint Venture Law

2. The Law of the People’s Republic of China on Chinese Foreign Contractual Joint Venture

3. 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. Artificial person

2. The parties share the profits, risks and losses in proportion to their contributions to the registered capital.

3. The parties shall not assign their its registered its capital without the consent of the other party

Registered capital1. 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.

2. 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.

3. 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 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.

a. Created by the foreign investors

b. Created in accordance with the China Laws

c. A separate legal entity.

Business form and registered capital Under the relevant law, China Foreign

Capital Enterprise shall be a limited liability company.