§ 5-108 (letters correspond)

1. 
   Exception – can bring up fraud or forgery at any time
   

1. 
   Performance or non-performance of underlying obligation.
   
2. 
   Other’s acts or omissions.
   
3. 
   Observance of standards of other than (e)
   

1. 
   Has right to immediate payment.
   
2. 
   Takes documents free of claim of beneficiary or presenter.
   
3. 
   Generally barred from seeking damages for apparent defects.
   
4. 
   Has their performance discharged.
   

1. 
   § 5-109(a)(1) requires payment in broad circumstances
   
   1. 
      Banks are not liable for paying if documents appear to comply
      
   2. 
      However, bank may dishonor in good faith to avoid material fraud by beneficiary
      
2. 
   § 5-109(a)(2) allows for nonpayment in others
   
3. 
   generally requires “material fraud”
   
   1. 
      systemic misrepresentation of fact, scheme of deceptive action
      
4. 
   Contrast with UN Convention On Independent Guarantees
   
   1. 
      Allows for non-payment if underlying obligations not honored
      

1. 
   Relevant provisions substantially similar to normal LoC transactions
   
   1. 
      Fraud exception, obligation of bank, ect.
      
2. 
   Agreements may incorporate UCP to override UCC, unless UCC provision “non-variable”
   

1. 
   May Bank dishonor? § 5-109(a)
   
   1. 
      Bank my refuse to honor in good faith if
      
      1. 
         Presentation appears to strictly comply, AND
         
      2. 
         Required document is forged or materially fraudulent, OR honor would facilitate material fraud by the beneficiary on the issuer or applicant.
         
   2. 
      BUT, bank must pay if honor demanded by
      
      1. 
         Nominated person, giving value in good faith.
         
      2. 
         Confirmer
         
      3. 
         Holder of draft drawn under LOC.
         
   3. 
      In practice, most banks pay to minimize litigation
      
2. 
   Buyer may enjoin bank from payment of LoC IF
   
   1. 
      Fraud is material AND
      
   2. 
      Fraud is intentional AND
      
   3. 
      All other procedural requirements are met
      
3. 
   UCC § 5-103(c) says you can contract out of § 5-109(a)
   

1. 
   Not binding law unless referenced by agreement and accepted by the court
   
   1. 
      However, considered customary in some jurisdictions
      
2. 
   Letters of Credit
   
   1. 
      Standard of Examination
      
      1. 
         Banks must examine docs with “reasonable care” to determine their compliance with stated terms and conditions.
         
         1. 
            Determination of compliance made “by international standard banking practice” as defined by UCP
            
      2. 
         For Commercial Invoice
         
         1. 
            Article 18(c) description in the commercial invoice must correspond with that appearing in the credit
            
      3. 
         For all other documents
         
         1. 
            Article 14(e) for documents other than the commercial invoice, the description of the goods/services/performance may be in general terms not conflicting with their description in the credit
            
   2. 
      Procedures for issuer, parties
      
      1. 
         Issuing, Confirming or Nominated Bank (acting on their behalf) has “reasonable time,” but no more than 7 days to determine facial compliance
         
      2. 
         If Bank fears documents not in compliance
         
         1. 
            Banks may refuse to take up documents in non-compliance
            
            1. 
               has reasonable time up to 7 days to notify
               
            2. 
               Notice must include specific discrepancies and whether it is returning or holding documents
               
         2. 
            OR issuer may approach applicant for waiver (almost always granted)
            
            1. 
               NOTE: confirming bank does NOT have this option
               
      3. 
         If dishonoring bank fails to comply with procedure, can’t claim non-conformity later
         
3. 
   Standby Letters of Credit
   
   1. 
      Provisions substantially similar to those for normal LoC’s
      
   2. 
      No anti-fraud provision
      
      1. 
         However, courts may use UCC or UN Convention as gap-filler
         
   3. 
      Parties rarely choose UCP for SLoC
      
4. 
   Fraud in general
   
   1. 
      No explicit fraud provisions
      
   2. 
      Most courts say doesn’t preempt local fraud law, can apply UCC standard here
      

1. 
   May be incorporated into agreements, not yet deemed customary
   
2. 
   Only applies to SLoC?
   
3. 
   Compliance:
   
   1. 
      Strict, but clear typos don’t justify dishonor
      
   2. 
      Level of conformity required in docs is only to extent provided in standby
      
4. 
   Fraud
   
   1. 
      If bank pays wrong beneficiary, must pay right one, applicant reimburses bank
      
   2. 
      Fraud no cause for dishonor
      
      1. 
         However, supplemented by local fraud rules
         

1. 
   Only four nations (including US) have signed
   
2. 
   Applicable when:
   
   1. 
      Issuer/guarantor is in Contracting State, OR
      
   2. 
      Ag. Incorporates law of Contracting State, OR
      
   3. 
      Document expressly incorporate.
      
3. 
   Standard of examination
   
   1. 
      “good faith and reasonable care”, cannot be disclaimed
      
   2. 
      “due regard for generally accepted standards”
      
   3. 
      reasonable time, no more than seven days
      
4. 
   fraud:
   
   1. 
      non-satisfaction of underlying obligation justifies non-payment
      
      1. 
         direct contrast with UCC
         
   2. 
      standard is when demand “has no conceivable basis.” Art. 19
      
      1. 
         Contingency or risk has undoubtedly not materialized
         
      2. 
         Ct. or arbitral tribunal invalidated underlying debt or obligation.
         
      3. 
         Underlying obligation to beneficiary has been fulfilled.
         
      4. 
         Fulfillment has been willfully prevented by beneficiary’s willful misconduct.
         

1. 
   Applicable laws:
   
   1. 
      UCC – apply same principles as with normal LoC (fraud exemption exists but very hard to prove)
      
      1. 
         To enjoin payment of SLoC requires showing of (Bell Atlantic):
         
         1. 
            Irreparable harm AND
            
         2. 
            Probable success on the merits OR sufficiently serious questions going to the merits to make them a fair ground for litigation AND a balance of hardships tipping decidedly toward the party requesting the preliminary relief
            
      2. 
         Underlying claim requires “material misrepresentation” on the documents
         
         1. 
            IE can only point to underlying contract to extent it is represented in documents
            
         2. 
            There are rare exceptions to this rule (Midland Tire)
            
   2. 
      Civil Law – generally “guaranty payment upon first demand”
      
      1. 
         Bank shouldn’t investigate anything, just pay
         
      2. 
         However, German courts decide fraud exception should be available here
         
   3. 
      UCP – does not mention fraud, relies on UCC or UN Convention
      
   4. 
      ICC/ISP – generally leaves fraud up to each jurisdiction
      
   5. 
      URDG – created by ICC, sets up a basic standard:
      
      1. 
         demand must state that seller is in breach and the respect to which he/she is in breach
         
      2. 
         protection from fraud because requires statement of verifiable facts
         
2. 
   Procedures:
   
   1. 
      Buyer demands it, seller gets if from seller’s bank
      
      1. 
         Seller’s bank usually requires seller to put up assets to cover it
         
         1. 
            This is why bank so willing to let the money go on a simple demand
            
   2. 
      Particularly susceptible to fraud because there are no (or very low) costs attached to calling on it
      

PracApp:

• 
  In reality, courts are still very attached to mirror image rule in document compliance
  
• 
  Banks in foreign countries have different standards
  
  • 
    Creates a race to the courts so that interpretation will be by the standards of your local banks
    
• 
  Around 70% of documents are rejected in the real world
  
  • 
    There is reform to try and change this, new version of UCP is a bit liberalized
    
  • 
    Professor believes that strict compliance regime will nevertheless be the basic standard for the foreseeable future
    
• 
  Strict compliance is a means to protect the buyer
  
  • 
    With order BoL he is paying for only paper, so he demands that the paper is exactly what is needed to acquire title to the goods
    
• 
  In reality, banks usually pay
  
  • 
    However, (a)(2) in UCC is very significant
    
• 
  Buyer generally less protected. How does he protect himself?
  
  • 
    Demand fee to cover potential cost of getting screwed
    
  • 
    Government certificate inspection system – if government approves, guarantees certain amount of assets
    
  • 
    Use a standby LoC to get paid if he doesn’t get what he wants
    
• 
  How can seller make SLoC less suicidal?
  
  • 
    While requirement to state basis of claim for calling on a SLoC seems like a good idea, the Prof thinks this is a slippery slope
    
  • 
    Can ask a third (neutral) party to validate a LoC
    

1. 
   International Law
   
   1. 
      CISG
      
      1. 
         Applies to sale of goods, generally applicable to software on a disk
         
      2. 
         Not totally clear if applicable to electronically transmitted software
         
   2. 
      UNCITRAL Model Law on Electronic Commerce
      
      1. 
         Lays down general principles for e-commerce, states that information does not lose effect or validity in electronic/data form
         
   3. 
      UNIDROIT Principles
      
      1. 
         Complete set of e-contract rules laid down by world legal systems
         
      2. 
         Applicable by reference in agreement, perhaps under “general principles of law”
         
2. 
   National laws
   
   1. 
      United States
      
      1. 
         U.C.C. – very flexible, key is intent to contract
         
         1. 
            Typically not a barrier to E-commerce
            
      2. 
         E-SIGN Act (pg 297)
         
         1. 
            Applicable only to extent transaction is not covered by UCC
            
         2. 
            Applies only to records and signatures relating to a transaction
            
         3. 
            E-Signature cannot be denied effect soley b/c in electronic form. § 101.
            
         4. 
            Electronic signature valid is an “electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” § 106(5).
            
            1. 
               Burden of Proof upon person seeking enforcement.
               
         5. 
            States can go farther if they want to.
            
         6. 
            Agents. Cannot be denied effect so long as action is “legally attributable to the person to be bound.”
            
         7. 
            Electronic records satisfy Statutes of Frauds if they can be retained and reproduced as they existed at the time of forming the K.
            
      3. 
         UETA (Uniform Electronic Transaction Act)
         
         1. 
            Model law, applicable only in states which adopt it
            
         2. 
            Applies only to records and signatures relating to a transaction (like E-SIGN)
            
         3. 
            “a record or signature may not be denied legal effect or enforceability solely because it is in electronic form”
            
      4. 
         UCITA
         
         1. 
            Another model law, only works if states adopt it
            
         2. 
            Legal framework for computer information transactions
            
         3. 
            Limited to computer information transactions (license to purchase software, ect.)
            
         4. 
            Applies only if parties have not agreed otherwise
            
      5. 
         Conflict of Laws
         
         1. 
            Agreement normally controls
            
         2. 
            Internet transaction for electronic transfer of info governed by law where licensor is located (UCITA)
            
            1. 
               However, if licensor is foreign, foreign law governs only if protection of rights to parties outside that jurisdiction is “substantially similar” to UCITA protections
               
            2. 
               Otherwise law of state with most significant relationship to transaction governs
               
         3. 
            In all other cases, law of deciding forum applies if transaction “bears an appropriate relation to this state.” (UCC § 1-105(1))
            
            1. 
               However, second restatement on CoL says “rights and duties… determined by the local law of the stat which… has the most significant relationship to the transaction and parties”
               
               1. 
                  This is UCITA approach
                  
      6. 
         Rules:
         
         1. 
            A contract may be formed in any manner sufficient to show agreement (UCC, UCITA)
            
         2. 
            Contract formed when electronic acceptance is received (UCITA § 203(4))
            
            1. 
               Seasonable and definite acceptance is acceptance provided differing terms do not materially alter contract (UCITA) (rejects mirror image rule)
               
            2. 
               Acceptance includes conduct/operations indicating acceptance (including by electronic agents) (UCITA)
               
         3. 
            Contracts may be formed by electronic agents (UCITA)
            
            1. 
               However, UCC § 2-204(1) leaves uncertainty
               
         4. 
            Requirement for “writing” may be interpreted as electronic “record” (UETA, UCITA, E-SIGN)
            
            1. 
               Never invalid due to electronic form
               
            2. 
               Not clear how long record needs to be retained
               
         5. 
            Electronic process or symbol are equivalent to written signatures (UCITA § 107(a))
            
         6. 
            Not necessary that both parties expressly agreed to use electronic methods (UCITA, UCC)
            
            1. 
               Willingness can be inferred from circumstances (UCITA)
               
            2. 
               However, UETA requires this, inapplicable otherwise
               
   2. 
      European Union
      
      1. 
         Electronic Commerce Directive – member states remove legal obstacles to use of electronic contracts
         
      2. 
         Electronic Signature Directive – legal framework for electronic signatures and certification
         
      3. 
         Rules:
         
         1. 
            E-commerce favored and valid, generally
            
         2. 
            Acceptance covered by national laws
            
            1. 
               Generally same as UCC – anything sufficient to show agreement
               
         3. 
            Requirements that cannot be met electronically forbidden (ECD Art 9(1))
            
            1. 
               Not necessary that parties agreed to use electronics
               
         4. 
            Signatures not denied validity because they are electronic
            

PracApp:

• 
  What should seller put on their website?
  
  • 
    Article 14 of CISG requires a price
    
  • 
    Put maximum/minimum per order to define what you’re willing to do
    
  • 
    Disclaim orders from Iran, DPRK, ect?
    
• 
  What covers purely digital material like digital cookbook?
  
  • 
    UCC – preponderance is that goods must be tangible
    
  • 
    CISG – prof thinks same applies here
    
  • 
    UCITA – stronger case because passed to deal with technology issues, but still unclear as to what constitutes “software”, ect
    
• 
  Can you incorporate UCITA?
  
  • 
    Probably can’t have it be basis for entire contract, as in choice of law
    
  • 
    However, can incorporate it if chosen law allows this
    
• 
  Can you return e-commerce?
  
  • 
    Often depends on if you are merchant (chef, in case of cookbook)
    

1. 
   Intellectual Property
   
   1. 
      Patents
      
      1. 
         1883 Paris Convention (100 signatories)
         
         1. 
            date of protection in foreign countries retroactive to date filed in home country
            
         2. 
            12 months to register patents in other countries
            
         3. 
            May backfire: After 12 months, right is lost, countries may reject as already patented elsewhere.
            
      2. 
         Patent Cooperation Treaty (50 countries)
         
         1. 
            Holders may register with International Searching Authorities (ISAs) who issue advisory opinion regarding patentability.
            
         2. 
            These opinions carry great weight with many countries and facilitates registration
            
      3. 
         European Patent Convention
         
         1. 
            Single patent authority for EU
            
   2. 
      Trademarks
      
      1. 
         1957 Paris Convention.
         
         1. 
            6 months to register trademark in other Signatory states.
            
         2. 
            If patent is sufficiently well-known, it may still be registered after 6 months if someone else hasn’t registered first.
            
      2. 
         The Vienna Trademark Convention (not ratified) creates centralized registration authority.
         
      3. 
         
         
   3. 
      Copyright
      
      1. 
         Most countries afford such protection by default, so long as appropriately marked
         
      2. 
         Universal Copyright Convention. “©” mark demonstrates copyright.
         
         1. 
            excuses foreigners from registration requirements provided notice of a claim of copyright is adequately given
            
      3. 
         Berne Convention (1989) suspends registration requirements in countries other than originating countries.
         
         1. 
            Minimum copyright term is 50 years, though countries can give more.
            
         2. 
            Doesn’t require notice to foreign countries to gain protection (unlike UCC)
            
   4. 
      Know-how – Very difficult to protect legally. Economic Espionage Act prohibits stealing know how for foreign govs
      
2. 
   Type of franchising
   
   1. 
      Wholly owned
      
   2. 
      Direct franchising – someone wants to use your brand
      
   3. 
      Master license
      
   4. 
      Area development
      
   5. 
      General provisions
      
      1. 
         Usually about 10-20 years
         
      2. 
         Using other people’s money, just selling your mark
         
      3. 
         All you need to do is
         
         1. 
            Give them training, minimal support
            
      4. 
         You get
         
         1. 
            Royalties
            
         2. 
            Expertise for the area
            
      5. 
         Downside
         
         1. 
            Harmful to reputation
            
      6. 
         What to do:
         
         1. 
            Have a business plan
            
         2. 
            Examine the benefits of the country carefully
            

1. 
   Regulatory considerations
   
   1. 
      Franchise Laws
      
      1. 
         Disclosure is main provision
         
         1. 
            Objective is to give franchisee info a good investor would want to know
            
         2. 
            Problem: will government require you to disclose business secrets?
            
            1. 
               Secret chicken recipe, algorithm for placing restaurants
               
      2. 
         Alternative is government “evaluations” model to see if business will succeed
         
         1. 
            Prof doesn’t like this, not objective, would rather look at actual restaurants
            
   2. 
      Anti-trust considerations
      
      1. 
         Tying concerns
         
         1. 
            Limits to how much you can “tie” the purchase of a trademark to other goods and services
            
         2. 
            2 types of products
            
            1. 
               “unique” products can be tied to the trademark
               
               1. 
                  chicken/coke recipes
                  
               2. 
                  products central to your business (Baskin Robbins ice cream)
                  
            2. 
               “interchangeable” products cannot be tied to trademark
               
               1. 
                  napkins, silverware
                  
      2. 
         Pricing
         
         1. 
            Particularly suspect in US and Europe
            
      3. 
         Territorial division
         
         1. 
            Generally allowed in US?
            
         2. 
            Sensitive in Europe because they don’t want markets divided up along national lines
            
            1. 
               You cannot restrict franchises from transferring goods to other territories (Pronuptia)
               
            2. 
               Franchises can apply for block or individualized exemptions
               

PracApp:

• 
  To make sure you are constantly protected, update all IP and regularly file for protection
  
  • 
    Even if you aren’t protected first time, will be protected later
    
  • 
    You don’t risk protections running out
    
• 
  Copyrights are generally better protected than trademarks
  
  • 
    If you have a choice, go for copyright protections
    
  • 
    However, requires regular policing to enforce
    
• 
  When drafting a franchise agreement:
  
  • 
    Who controls the draft controls the world
    
    • 
      Make sure your clients’ priorities are in there
      
    • 
      Can give way on other stuff to preserve business relationship
      
  • 
    Can often be far more important what is NOT in the contract
    
• 
  Key concerns when drafting franchise contract:
  
  • 
    Where does the training take place? Home country?
    
  • 
    Who gets to inspect the franchisee to make sure the place is up to code, cooking done right?
    
  • 
    To whom are royalties paid? How are they spent?
    
• 
  Concerns for franchisee:
  
  • 
    How good is the training?
    
  • 
    Can I guarantee advertising in my market?
    
  • 
    What is relationship between franchisor and current franchisees?
    
    • 
      Sued often?
      
• 
  Before franchising in a new marker, consider starting store(s) that are wholly owned
  
  • 
    See if the market will support your model
    
  • 
    Proof to franchise owners it works
    
• 
  When dealing with foreign governments, treat regulation as a cooperative process
  
  • 
    Communicate with the government, other insiders, early and often
    
  • 
    Get inside help whenever possible from all sectors (labor, business, suppliers)
    

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