Quiz 2

Question 1

What is CISG

Answer 1

United Nations Convention on Contracts for the International Sale of Goods

Question 2

Place of business requirement…

Answer 2

CISG only applies when parties have their places of business in different countries

Question 3

Sales excluded from CISG

Answer 3

Goods bought for personal, family, or household use, auctions, sales of stocks, shares, investment securities, or negotiable instruments

Question 4

Formation of contract under CISG: communication

Answer 4

A communication, such as an offer or acceptance, becomes effective when it reaches the other party, regardless of whether it is received or read.

Question 5

Formation of contract under CISG: in writing?

Answer 5

The CISG allows contracts to be formed through various means, including oral communication, conduct, or any other form of communication, without the need for a written agreement.

Question 6

Formation of contract under CISG: Offers

Answer 6

1. Must be sufficiently definite and indicate intent to be bound
2. Revocation of the offers: offer can be revoked by the offering party at any time before it reaches the other party
3. Counteroffers: If offeree makes changes to the terms of the offer, it become a counteroffer, which terminates the original offer and presents a new proposal
4. Acceptance: Statement or conduct indicating intern to be bound. Performance can be acceptance if the offer allows for such acceptance or the parties have a custom of allowing acceptance by performance.

Question 7

Sellers duties under CISG

Answer 7

Deliver conforming goods: The seller has a duty to deliver goods that conform to the terms of the contract, including quality, quantity, and any specifications or requirements specified in the agreement.

Question 8

Buyers duties under CISG

Answer 8

1. Pay for and accept goods: The buyer is obligated to pay the agreed price for the goods and accept them in accordance with the terms of the contract.
2. Inspect goods and notify the seller of any nonconformities as soon as possible: The buyer has a duty to inspect the goods upon receipt and promptly notify the seller of any nonconformities or defects discovered during the inspection.

Question 9

Excused performance under CISG

Answer 9

1. Impediment occurred beyond the party’s control
2. Impediment was not reasonably foreseeable when the contract was made
3. Impediment was unavoidable and could not be overcome

Question 10

Force Majeure Clause Definition:

Answer 10

Force majeure refers to an unforeseen and uncontrollable event or circumstance that prevents or delays the performance of contractual obligations. It is often described as an “act of God” or an event beyond the reasonable control of the parties.

Question 11

Covered events under Force Majeure Clause

Answer 11

These may include natural disasters (such as earthquakes, floods, hurricanes), war, acts of terrorism, strikes, government actions (such as embargoes or regulations), epidemics or pandemics, and other similar occurrences.

Question 12

Notice requirements: Force Majeure Clause

Answer 12

Force majeure clauses often require the affected party to provide written notice to the other party within a specified timeframe after the occurrence of a force majeure event. The notice should typically include details about the event, its impact on performance, and any steps taken to mitigate the effects

Question 13

Suspension or termination of obligations

Answer 13

Force majeure clauses may specify the consequences of a force majeure event. This can include the temporary suspension of obligations until the event is resolved, or the right to terminate the contract if the force majeure event continues for an extended period.

Question 14

Responsibilities of the party enacting Force Majeure Clause

Answer 14

1. Burden of proof: The party invoking force majeure is usually required to demonstrate that the event meets the criteria outlined in the force majeure clause. This may involve providing evidence of the event, its impact on performance, and the efforts made to mitigate the effects.
2. Force majeure clauses may outline the remedies available to the parties in case of a force majeure event. These can include the right to extend deadlines, adjust pricing, seek compensation for additional costs incurred, or terminate the contract without liability.

Question 15

Two types of transaction risks in international trade

Answer 15

Delivery risks and Payment/Credit risks

Question 16

Delivery risks definition

Answer 16

Delivery risks refer to risks associated with the physical delivery of goods, such as loss, damage, or delay during transportation.

Question 17

Payment/Credit risks

Answer 17

Payment/credit risks, on the other hand, pertain to the risks of non-payment or delayed payment by the buyer.

Question 18

Shipment contract VS Destination contract

Answer 18

• Shipment Contract: In a shipment contract, the seller’s primary obligation is to deliver the goods to the carrier or another party designated by the buyer at the named place of shipment. The risk of loss or damage to the goods typically transfers from the seller to the buyer at that point.
  
  • Destination Contract: In a destination contract, the seller is responsible for delivering the goods to a specific destination agreed upon with the buyer. The risk of loss or damage remains with the seller until the goods reach the agreed destination.

Question 19

What are incoterms?

Answer 19

Incoterms (International Commercial Terms) are internationally recognized standard trade terms that define the rights and obligations of buyers and sellers in international contracts for the sale of goods

Question 20

E terms - Incoterms

Answer 20

Buyer has most risk: Incoterms such as EXW (Ex Works) place the most risk on the buyer, as the seller’s responsibility ends once the goods are made available at the seller’s premises, and the buyer is responsible for arranging transportation, export clearance, and assuming the risk of loss or damage during transit.

Question 21

D terms - Incoterms

Answer 21

Seller has most risk: Incoterms such as DDP (Delivered Duty Paid) place the most risk on the seller, as they are responsible for delivering the goods to the buyer at the named place of destination, including all costs and risks associated with transportation, customs clearance, and import duties.

Question 22

Methods of payment in international trade

Answer 22

• Open Account: In an open account arrangement, the buyer pays the seller after receiving the goods, typically within a specified credit period. This method poses higher risks for the seller, as they rely on the buyer’s creditworthiness and trust for payment.
  
  • Advance Payment: In an advance payment arrangement, the buyer pays the seller in full before the goods are shipped. This method provides more security for the seller, but it may be less favorable for the buyer as they assume the risk of non-delivery or non-conforming goods.
  • Documentary Sale and Collection: In a documentary sale and collection, the seller retains control over the goods until the buyer pays or accepts a draft (bill of exchange) for payment. The seller presents documents to the buyer’s bank, which will release the documents to the buyer upon payment or acceptance of the draft.
  • Documentary Sale and Letter of Credit: In a documentary sale and letter of credit arrangement, the buyer opens a letter of credit (LC) through their bank, which guarantees payment to the seller upon presentation of compliant documents. This method provides assurance to both parties, as the seller is guaranteed payment, and the buyer ensures that the documents meet the specified requirements before releasing payment.

Question 23

Bill of Lading (3 types)

Answer 23

1. Straight Bill of Lading: A straight bill of lading is a non-negotiable document that identifies the consignee (the party to whom the goods are consigned) and does not allow for transfer or assignment of the goods to another party.
2. Negotiable Bill of Lading: A negotiable bill of lading is a document that can be transferred or assigned to another party through endorsement, entitling the holder of the bill to take possession of the goods. It functions as a title document and can serve as collateral or be used for financing purposes.
3. Clean Bill of Lading: A clean bill of lading indicates that the goods have been received by the carrier in apparent good order and condition, without any notations of damage or discrepancies.

Question 24

Documents buyer may request before payment (documentary sale and terms of trade)

Answer 24

1. Insurance Policy: The buyer may request an insurance policy to ensure that the goods are covered against loss, damage, or theft during transit.
2. Certificate of Origin: A certificate of origin is a document issued by the exporting country’s customs authorities that certifies the country of origin of the goods. It may be required for customs clearance and to comply with import regulations or preferential trade agreements.
3. Invoice: An invoice is a document that provides details of the goods sold, including the quantity, price, and terms of payment. It serves as a record of the transaction and is used for accounting and customs purposes.
4. Documentary Draft for payment: A documentary draft, also known as a bill of exchange, is a written order from the seller to the buyer, requesting payment at a specified future date or upon presentation. It functions as a negotiable instrument and can be used to secure payment or financing.
5. Certificate of Inspection: A certificate of inspection is a document issued by an independent inspection agency that verifies the quality, quantity, or conformity of the goods to specified standards or requirements. It provides assurance to the buyer regarding the condition of the goods.

Question 25

Define Cargo, its types, and legal considerations

Answer 25

Definition: Cargo refers to goods or merchandise transported by various modes of transportation, such as air, sea, or land.

Types: Different categories of goods, such as raw materials, finished products, perishable items, hazardous materials, etc.

Legal considerations:
1. Contractual obligations: Understanding the terms and conditions of the contract of carriage, including responsibilities of the shipper, carrier, and consignee.
2. Packaging and labeling requirements: Complying with regulations regarding proper packaging, marking, and labeling of cargo for safe transportation.
3. Documentation: Ensuring accurate and complete documentation, such as invoices, packing lists, and customs forms, to facilitate the smooth movement of cargo.
4. Liability and risk allocation: Understanding the allocation of liability and risk between parties involved in the transportation of cargo, including insurance coverage and limitation of liability clauses.

Question 26

Define freight, and factors influencing freight charges

Answer 26

Definitions: Freight refers to the cost or charge associated with the transportation of goods from one location to another.

Factors influencing charges:
1. Distance: The longer the distance, the higher the freight charges due to fuel consumption, transportation time, and infrastructure costs.
2. Weight and volume: The weight and volume of the cargo affect the space it occupies in the transportation vehicle and the resources required for handling and transport.
3. Mode of transport: Different modes of transport (e.g., air, sea, road, rail) have varying cost structures, which impact the calculation of freight charges.
4. Calculation and negotiation of freight rates: Understanding how freight rates are calculated and the factors considered in negotiating rates with carriers or freight forwarders.
5. Incoterms and freight: Recognizing the role of Incoterms (International Commercial Terms) in determining the point at which the responsibility for freight costs transfers from the seller to the buyer.

Question 27

Define Air Waybill, its importance and content, and Air Waybill as a transport document

Answer 27

Definition: An air waybill is a document used in air transportation that serves as a contract of carriage between the shipper and the carrier. It contains details about the goods being transported, the parties involved, and the terms and conditions of the transportation.

Importance and content:
○ Identification of the shipper, consignee, and carrier.
○ Description of the goods, including quantity, weight, dimensions, and special handling instructions.
○ Terms of carriage, liability limitations, and applicable regulations.
○ Airline responsibilities and obligations regarding the transportation of goods.
○ Proof of receipt, shipment, and delivery of the goods.

As a transport document:
1. Legal significance: Recognizing the air waybill as evidence of the contract of carriage and ownership of the goods.
2. Negotiability and transferability: Understanding whether the air waybill is negotiable or non-negotiable and the implications for transferring rights and responsibilities.

Question 28

The Montreal Convention: what is it

Answer 28

The Montreal Convention is an international treaty that governs and limits the liability of airlines in cases involving international carriage by aircraft.

Question 29

Scope and applicability of The Montreal Convention

Answer 29

○ Countries: The Convention applies to countries that have ratified or acceded to it.
○ Departure and destination: The Convention applies to flights between countries that have ratified the Convention as the places of departure and destination.

Question 30

Liability limits under the Montreal Convention

Answer 30

• Death or bodily injury to passengers:
  ○ Accidents covered: Liability arises in cases of accidents on board the aircraft or during embarking/disembarking, excluding subjective reactions to normal flight operations.
  ○ Limitation of damages: Liability may be limited if the passenger’s own negligence contributed to the injuries.
  
  • Emotional damages: Recoverable only if caused by bodily injury.
  • Delays: The Convention sets limits on liability for flight delays.
  • Baggage losses and damage: The Convention governs liability for loss or damage to passengers’ baggage.
    
    • Cargo losses and damage: The Convention establishes liability limits for loss or damage to cargo during international air transportation.

Question 31

Letters of Credit - what are they

Answer 31

A letter of credit (L/C) is a contractual agreement between the buyer (bank customer) and the issuing bank.

The bank issues an irrevocable promise to pay a specified amount to the beneficiary (seller) upon the occurrence of certain events or conditions.
* Payment assurance: The L/C assures the seller that they will receive payment as long as they fulfill the terms and conditions outlined in the L/C.
* Irrevocability: Once the L/C is issued, it cannot be unilaterally revoked or modified without the consent of all parties involved.

Question 32

Letter of Credit apart of underlying contract?

Answer 32

The L/C is a separate contract between the buyer and the bank, independent of the contract between the buyer and the seller.

Question 33

Role of the bank in a Letter of Credit

Answer 33

The bank acts as a neutral intermediary, providing payment assurance to the seller (beneficiary) upon fulfillment of specified conditions.

Question 34

Presentment (Letters of Credit)

Answer 34

Definition: Presentment refers to the act of submitting required documents to the bank for review and payment.
* Rule of Strict Compliance: The bank examines the presented documents and verifies their compliance with the descriptions and requirements stated in the L/C.
* Focus on document conformity: The bank’s main concern is the conformity of the presented documents, rather than the actual goods being shipped.
* Discrepancies and waivers: If the presented documents do not strictly comply with the L/C requirements, the bank may request the buyer’s (applicant’s) waiver to accept the documents with discrepancies.
* Bank’s liability for non-compliant documents: If the bank honors the L/C despite non-compliant documents, it becomes liable for any issues or discrepancies regarding the goods.

Question 35

Incoterms: EXW (Ex Works)

Answer 35

The seller’s responsibility ends when the goods are made available at the seller’s premises. The buyer is responsible for all subsequent transportation, export clearance, and assumes the risk of loss or damage during transit.

Example: A seller in China prepares the goods for collection at their factory. The buyer arranges and pays for transportation, customs clearance, and assumes the risk from the point of collection

Question 36

FCA (Free Carrier)

Answer 36

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. The risk transfers to the buyer once the goods are handed over to the carrier.

Example: An exporter in Germany delivers the goods to the carrier at a specified location, such as a port or airport. The risk transfers to the buyer when the carrier takes possession of the goods.

Question 37

FAS (Free Alongside Ship)

Answer 37

The seller delivers the goods alongside the vessel nominated by the buyer at the named port of shipment. The risk transfers to the buyer when the goods are placed alongside the ship.

Example: A seller in the Netherlands delivers the goods to the dock at the port of shipment, and the buyer assumes the risk once the goods are placed alongside the ship.

Question 38

FOB (Free on Board)

Answer 38

The seller is responsible for delivering the goods, cleared for export, on board the vessel nominated by the buyer at the named port of shipment. The risk transfers to the buyer when the goods are on board the vessel.

Example: A seller in China arranges and pays for the transportation of the goods to the named port of shipment. The risk transfers to the buyer once the goods are loaded onto the vessel.

Question 39

CFR (Cost and Freight)

Answer 39

The seller is responsible for delivering the goods, arranging and paying for transportation to the named port of destination. The risk transfers to the buyer when the goods are on board the vessel. The seller also covers the cost of freight.

Example: A seller in Japan contracts and pays for the transportation of the goods to a port in the United States. The risk transfers to the buyer once the goods are loaded onto the vessel, and the seller covers the cost of freight.

Question 40

CIF (Cost, Insurance and Freight)

Answer 40

The seller is responsible for delivering the goods, arranging and paying for transportation to the named port of destination. The risk transfers to the buyer when the goods are on board the vessel. The seller also covers the cost of freight and obtains insurance against the buyer’s risk of loss or damage during transit.

Example: A seller in France contracts and pays for the transportation of the goods to a port in Canada. The risk transfers to the buyer once the goods are loaded onto the vessel, and the seller covers the cost of freight and obtains insurance coverage.

Question 41

CPT (Carriage Paid To)

Answer 41

The seller is responsible for delivering the goods to the carrier or another person nominated by the seller at the named place. The risk transfers to the buyer when the goods are delivered to the carrier. The seller also covers the cost of transportation to the named place.

Example: A seller in the United States arranges and pays for transportation to a specified location in Brazil. The risk transfers to the buyer upon delivery of the goods to the carrier, and the seller covers the cost of transportation.

Question 42

CIP (Carriage and Insurance Paid To)

Answer 42

The seller is responsible for delivering the goods to the carrier or another person nominated by the seller at the named place. The risk transfers to the buyer when the goods are delivered to the carrier. The seller also covers the cost of transportation to the named place and obtains insurance against the buyer’s risk of loss or damage during transit.

Example: A seller in Australia arranges and pays for transportation to a specified location in India. The risk transfers to the buyer upon delivery of the goods to the carrier, and the seller covers the cost of transportation and obtains insurance coverage.

Question 43

DPU (Delivered at Place Unloaded)

Answer 43

The seller is responsible for delivering the goods to the buyer at the named place of destination. The risk transfers to the buyer once the goods are unloaded from the arriving means of transport.

Example: A seller in Brazil arranges and pays for transportation to the buyer’s designated location in Germany. The risk transfers to the buyer upon unloading the goods from the means of transport

Question 44

DAP (Delivered at Place)

Answer 44

The seller is responsible for delivering the goods to the buyer at the named place of destination, cleared for import but not unloaded from the arriving means of transport.

Example: A seller in South Korea arranges and pays for transportation to the buyer’s designated location in Canada. The risk transfers to the buyer upon delivery of the goods at the agreed destination.

Question 45

DDP (Delivered Duty Paid)

Answer 45

The seller is responsible for delivering the goods to the buyer at the named place of destination, cleared for import and bearing all import duties and taxes.

Example: An exporter in the United States arranges and pays for transportation, handles customs clearance, and pays all import duties and taxes. The risk transfers to the buyer upon delivery of the goods at the agreed destination.