Commercial Codes

Question 1

What is a choice of law clause?

Answer 1

clause in a contract that states under which law any conflicts that arise under the contract will be used to resolve the conflict.
• Generally in either the Seller’s or Buyer’s respective state. Can also select another forum.
• If no choice of law clause, will be in the prevailing jurisdiction.

Question 2

What is Conflicts of Law (Private International Law)?

Answer 2

occurs when more than one set of laws is potentially applicable to an international commercial transaction.
Court will use its own conflicts of law rules to determine which law is applicable (Japanese court will use its own rules on conflicts of law)

Question 3

What treaty acts as an international commercial code?

Answer 3

Convention for International Sale of Goods (CISG)

• Designed as a commercial code that the signatories agree takes precedence over their own respective state laws under transactions that fall under this treaty.
• Speaks directly to private-sector parties and constitutes binding law.

Question 4

In contracts between countries where both states are parties to the CISG, how can the parties opt out of the CISG?

Answer 4

Must state that CISG does not apply, and specify which law applies (e.g., the UCC as adopted in the state of Hawaii applies).

Question 5

What does the CISG apply (Article 1)?

Answer 5

Article 1 - CISG applies to contracts of sales 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.
○ If only one party is a Contracting state, and that party’s law applies to the contract, then that party will still use the CISG.
○ U.S. has a reservation to Article 1(1)(b), that if private international law applies, and the choice of law is the U.S., then the CISG will not apply. The UCC (as adapted by the individual state) will apply.

Question 6

What types of goods do not fall under CISG Article 1?

Answer 6

a) goods bought for personal, family, or household use;
b) By auction;
c) On execution or otherwise by authority of law;
d) Stocks, shares, etc;
e) Ships, vessels, hovercraft, or aircraft;
f) Of electricity.

Question 7

What part of an international transaction does the CISG apply to?

Answer 7

Governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract. Does not generally apply to:

a) The validity of the contract or any of its provisions or of any usage; 
b) The effect which the contract may have on the property in the goods sold.

Question 8

Where is a party’s place of business under the CISG?

Answer 8

If a party has more than one place of business, the Place of business is that which has the closest relationship to the contract and performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract.

Question 9

What are the four parts of the CISG?

Answer 9

1. Sphere of Application and general provisions
2. Formations
3. Sale of goods
4. Final provisions.

Question 10

What are Incoterms?

Answer 10

A set of standard commercial terms (or trade terms) that allocate costs, risks, and functions between a buyer and seller across borders.
• Used for shipping items across borders.

Designed to harmonize terms because the same term can mean many different things in different areas.
First developed by the International Chamber of Commerce (ICC) in 1919.

Question 11

What are the six main issues that incoterms deal with?

Answer 11

• Transfer of risk that the goods will be lost or damaged during transport;
• Arrangements for carriage of the goods and insurance of them during transport;
• Responsibilities for obtaining export and import licenses and payign of duties;
• Details regarding the packing and marking of the goods;
• The nature and type of documents to be generated and used in the transaction;
• Responsibility for checking operations and certifying the quality of the goods; and
• Requirements regarding notification that various arrangements have been made

Question 12

Which two Incoterms are the most “extreme?

Answer 12

EXW (EX Works) - Most beneficial for Seller. Buyer responsible for picking up the goods from the Seller’s factory and takes all responsibility and risk for shipping to Buyer’s location.

DDP (Delivered Duty Paid) - Most beneficial for Buyer. Seller responsible for bringing the goods to the Buyer’s location, including all shipping costs/risks and import duties.

Question 13

What are the four Incoterms that apply only to sea and inland waterway transport?

Answer 13

FAS (Free Alongside Ship)

FOB (Free On Board)

CFR (Cost and Freight)

CIF (Cost, Insurance, and Freight)

Question 14

What are the 7 Incoterms that apply to any mode of transport?

Answer 14

EXW (EX Works)

FCA (Free Carrier)

CPT (Carriage Paid to)

CIP (Carriage and Insurance Paid to)

DAP (Delivered At Place)

DAT (Delivered at Terminal)

DDP (Delivered Duty Paid)

Question 15

Describe FOB (Incoterm 2010)

Answer 15

(Free On Board) - Seller delivers to the shipment point and loads the goods onto the vessel. Risk and duties pass to Buyer once loaded.
• Risk could pass to the Buyer if the ship (selected by the Buyer) fails to arrive on time, or cannot take the goods.
• Neither side obligated to buy insurance.

Question 16

Describe CIF.

Answer 16

(Cost, Insurance, and Freight) - Seller responsible for shipment to a named destination port, and provides insurance to cover the Buyer’s risk of loss in transit.

Question 17

Describe CIP

Answer 17

(Carriage and Insurance Paid to) - counterpart to CIF for any mode of transport.

Question 18

Describe FCA.

Answer 18

(Free Carrier) - Seller hands over goods, cleared for export, to the Buyer’s carrier at the name location. Counterpart to FOB for any transport mode.