International Sales

Mike King
March 20, 2012 — 1,454 views  
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Well thought-out and executed contracts are key to your company’s international business.  Don’t assume that your policies, procedures, and rules for domestic business will be sufficient for international business.  Start with the basics! 

So how do we know if our borrower has even formed a contract? 

Knowing whether you are a party to a binding contract is especially crucial in foreign dealings!  The United Nations Convention for the International Sale of Goods says that a “proposal” addressed to specific persons is “an offer if it is sufficiently definite and indicates the intention of the offer or to be bound in case of acceptance.”  A proposal not addressed to specific persons is generally considered just an invitation to make offers, rather than a binding offer which can be accepted and then become a contract.  Article 23 of the Convention says:

A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.

Making sure you have a binding contract, and knowing what you have agreed to is important! 

If a deal goes awry, who is responsible to preserve the goods that were shipped? 

You don’t want your products stranded somewhere with no one caring for them!  So, the U.N. Convention gives us some rules.  If the buyer breaches the contract, and the seller still controls the goods, “the seller must take such steps as are reasonable in the circumstances to preserve them.”  The seller can keep the goods until it has been reimbursed its expenses by the buyer. 

If the buyer already received the goods and wants to reject them as not being suitable, the buyer “must take such steps to preserve them as are reasonable in the circumstances.”  Moreover, if the buyer receives the goods and rejects them as being not in compliance with the contract, the buyer must take possession of the goods on behalf of the seller if the buyer can do so without having to pay for the goods and without unreasonable inconvenience or expense. 

Either the buyer or the seller can put the goods into a warehouse of a third party at the expense of the other party if the storage expense is reasonable.

If a party is required to preserve the goods for the benefit of the other party, then the goods may be sold by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods.  Of course, you need to give notice to the other party, whether it be the buyer or the seller.

If the goods are subject to rapid deterioration (think produce) then a party required to preserve the goods must take reasonable measures to sell those goods.  “To the extent possible he must give notice to the other party of his intention to sell.”

Ok, while it is comforting to know that there is a law that applies to our sales of goods to customers in foreign countries, how do we really protect ourselves? 

The United Nations Convention on Contracts for the International Sale of Goods provides a number of useful provisions to protect your company when selling goods in foreign countries.  Nevertheless, many other things must be considered to protect your company in international transactions.

Irrevocable letters of credit are wonderful things for making sure you get paid on international transactions!  Make sure you have an irrevocable letter of credit.  Make sure you have a corresponding bank relationship.  Make sure you can meet all of the conditions of presentation of the letter of credit for payment. (We will dust off and update the “How To Use Letters of Credit” newsletter in the near future.)

What if a dispute arises?

You need to think about where and how any disputes will be resolved.  Some countries honor international arbitration treaties and others do not.  You need to determine whether your buyer’s country will honor arbitration provisions or not.  Knowing whether you can force arbitration or litigation at a neutral or favorable site is important!

Choice of law provisions are very important.  For example, you may wish to opt out of the United Nations Convention on Contracts for the International Sale of Goods.  If you simply provide a provision electing that all disputes will be resolved by the laws of your state, you will not have successfully opted out of the U.N. Convention, however.  The U.N. Convention is a United States treaty and, therefore, the law of your state.  Choosing the uniform commercial code as adopted in your state as the governing law for your transaction, is trickier than simply saying that the law of your state will apply.

Think about where you wish to resolve the dispute, and whether by arbitration or litigation.  Not only are choice of law provisions important, but election of jurisdiction and election of venue provisions are also vital.

Global business is an opportunity.  Make the most of it!

So many issues arise in international business.  Resources such as the Export-Import Bank and government agencies may help.  Fundamentally, you need to make sure your legal position is sound.  Let me know if you need help or advice on your foreign deals.

Mike King

Gammage & Burnham PLC

Michael R. King is a founding partner of Gammage & Burnham, P.L.C., a Phoenix law firm with diverse areas of emphasis. His practice primarily centers around bankruptcy and creditors' rights, commercial litigation, including uniform commercial code cases, and real estate and business law. Mr. King is a former of the Creditor/Debtor Rights Committee and is a current member of the Bankruptcy, Real Estate and Construction Law Sections of the State Bar of Arizona. He is the past chair of the Board of Trustees of the Maricopa County Bar Foundation. Mr. King is an active alumnus of The University of Arizona, where he received his B.A. and J.D. degrees, with distinction and high distinction.