The Negotiation and Drafting of International Contracts Course of Mr. Robert Simpson

1. Standard International Contract

2. Case Study (International Acquisition Agreement)

3. Letter of Intent (for Acquisition of Shares)

4. Due Diligence Questionnaire (for Acquisition of Shares)

A. General Introduction to American Law

1. 
   Sources of American law
   

1. 
   English common law (historical development of    common law and equity in England) and American    common law.¹
   

b. Statutory law (federal and state).

3. 
   Restatements of the law.
   

3. 
   UCC.
   

2. 
   Common law based on case law, uncertainty of solutions, contradictory opinions, detailed rules, practical character, fragmentation (50 states), volume and complexity, stare decisis, distinguishing of decisions, some codification (UCC, Restatement).
   

3. 
   How to brief a case².
   

3. 
   Importance of precedent (stare decisis), obiter dicta and the distinguishing of cases.
   

2. Elements of American society

Economy based on free enterprise system (profit motive and competition as chief regulators), right of private property, freedom and sanctity of contract, government of laws, not of men, protection of the individual (Bill of Rights), separation of powers, doctrine of judicial review and judicial supremacy (Marbury v. Madison, United States Supreme Court, 5 U.S. 137 (1803)),

religiosity and moral standards.
° Brown v. Board of Education, United States Supreme Court, 347 U.S. 483 (1954) (50^th anniversary in 2004)

3. Comments on the Legal environment in the United States

a. Litigious (Sue the bastards).

B. Introduction to American Contract Law

1. Definition of contract

Blackstone: “An agreement, upon sufficient consideration, to do or not to do a particular thing.”

“A contract is 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 a duty” (Restatement Second, §1). This definition emphasizes the for the necessity of a remedy (“Remedies precede rights.”) and the role played by law rather than to the intent to contract, although the latter is necessary. The civil codes emphasize more the subjective element of the intent of the real and common parties rather than the objective element manifested by the existence of remedies.

A contract is an agreement enforceable through legal proceedings. Six elements of a contract: manifestation of mutual assent (offer and acceptance); compliance with evidentiary requirements (statute of frauds); reality of consent; consideration - a benefit or a detriment which a party receives and fairly induces it to make the promise/contract); capacity of contracting parties; legality of means and object.

° Dickenson v. Dodds, In the Court of Appeal, Chancery Div. (1876) 2 Ch. Div. 463

a. Offer

1. 
   An offer must be: made with the intention to contract; definite, reasonably certain and complete; more than preliminary negotiations; and communicated by the offeror to the offeree. Objective theory of contracts: In determining if an offer has been made, a court will look at the offeror’s external manifestation of intent, rather than his subjective, hidden intent. (Lucy v. Zehmer). What, under the circumstances, was the reasonable impression created in the mind of the offeree? The mental assent of the parties is not requisite for the formation of a contract if there is an outward expression of intention.
   

2. 
   Family and social agreements are normally not contracts.
   

3. 
   Gentleman’s agreement = an expression of intent not amounting to a contract.
   

4. 
   Letter of intent – agreements to agree: if a material element is left for future negotiations, there is no contract; pre-contractual liability (usually in tort); UCC 2-305: if no price, price is reasonable price at time of delivery.
   

5. 
   Offer to undetermined persons. In French law, there is an offer. In American and UK law, this is an offer to receive offers.
   

6. 
   Advertisements. Generally construed as offers to accept offers. However, if an advertisement is sufficiently explicit and definite and leaves nothing open to negotiate, it may be construed as an offer (Lefkowitz v. Great Minneapolis Surplus Store: if an advertisement is directed to a limited number of persons, i.e., "a fur coat for $5 to first person in store," there is an offer).
   

7. 
   Auction. Offering an article for sale is a request for bids. Contract formed when the hammer falls.
   

8. 
   Reward. Normally an offeree must know of the reward (however, some courts take the position that the offerer has received what he requested and therefore he should be required to pay); exception in case of published government rewards.
   

9. 
   Mistake can vitiate contract. If either party knows that the other does not intend what his words or other acts express, this knowledge prevents such words or other acts from being generative as an offer or acceptance (Restatement 71). For an offerer not to be bound by an offer containing a mistake, the fact concerning which the mistake was made must be material to the transaction and affect its substance, and the mistake must not result from want of the care and diligence exercised by persons of reasonable prudence under the same circumstances.
   

10. 
    Communication of offer. Offer effective only when received by offeree.
    

11. 
    Termination of offer. Revocation is effective only upon receipt by offeree. However, held that knowledge by offeree that land offered to him had been sold to another prevented him from effectively accepting offer (Dickenson v. Dodds). If option, offer irrevocable during option period. Termination by lapse of time stated in offer or a reasonable time if none is stated. Death or insanity of offeror.
    

12. 
    “Mailbox” rules. Offer is good upon receipt. Acceptance is good when dispatched. Revocation is good on receipt. Hypo: Dec. 1: offeror sends offer; Dec 2: offeror sends revocation of offer; Dec 3: offer is received by offeree; Dec 3: offeree sends acceptance to offeror; Dec 4: Revocation of offer is received by offeree; Dec 5: acceptance is received by offeror. Valid acceptance? Yes.
    

13. 
    Destruction of subject matter. Supervening impossibility or illegality. Rejection or counter offer by offeree.
    

b. Acceptance

1. 
   Restatement 52: Acceptance of an offer is “an expression of assent to the terms thereof made by the offeree in a manner requested by the offeror.”
   

2. 
   An acceptance must be unequivocal and unconditional, made with the intent to accept the offer and communicated to the offeree. The acceptance should match the terms of the offer. Otherwise it is a counter-offer. This is known as the “mirror image rule”. However, American courts now tolerate minor differences between the offer and the acceptance as long as they do not materially alter the offer. In addition, UCC 2-207, acceptance is effective even though it may state different or additional terms. The latter are to be construed as proposals for    addition to the contract and become part of the contract unless: the offer expressly limits acceptance to stated  terms; they materially alter the contract; or the offeror objects within a reasonable time.
   

3. 
   Effect of part performance. (flag pole cases) Normally, in a unilateral contract which invites performance, performance must be completed for acceptance to take place. However, some courts have held that once performance begins by the offeree, the offeror loses the right to revoke. Restatement 45: When offeror invites acceptance by performance, option contract is created and offer is irrevocable once offeree has begun performance.
   

4. 
   Silence on part of offeree. Generally not acceptance unless previous dealings establish pattern of conduct (e.g., book clubs). It has been held by a court that a failure of an insurance company to reject a life insurance policy application with reasonable promptness constituted acceptance of the application. The silent acceptance of personal services may result in a contractual liability to pay the reasonable value of such services unless the relationship of the parties or other circumstances rule out any contractual intent.
   

5. 
   Problems of communication. Majority rule: Offeror’s power of revocation terminates when acceptance is dispatched. (case: offer; acceptance posted; revocation; acceptance received = revocation not valid. What if offeree sends both acceptance and rejection. Majority rule: first to be received is valid.
   

2. 
   Implied in law or quasi contracts (quantum meruit). (case: A found B’s boat and repaired and maintained it. B seeks boat. A asks for expenses of repair and maintenance. Example of quasi contract. Notion of unjust enrichment. Chase v. Corcoran, 106 Mass. 286 (1817). Should a court order compensation for the services of a doctor in an emergency?
   

2. 
   Standard form contracts (exculpatory clauses).
   

"A Statute for the Prevention of Frauds and Perjuries", usually referred to today by its short title. Statute of Frauds. Most of the sections of this statute which relate to the necessity of a signed writing for certain classes of contracts have been adopted, with local variations, in each state.

1. 
   Parole evidence rule. When a contract is clear on its face, normally it cannot be contradicted by parole evidence. If a written contract is incomplete, ambiguous, there is fraud, duress, mistake or misrepresentation, then oral evidence may be introduced in legal proceeding. UCC 2-202 applies the parole evidence rule, but with the following exception: written agreement may be explained or supplemented by (a) course of dealing or trade usage (b) evidence of consistent additional terms unless court finds writing intended to be complete and exclusive.
   

2. 
   Construe all provisions together.
   

3. 
   Ordinary words to be construed in accordance with common and ordinary meaning unless circumstances show otherwise. Same re technical words.
   

4. 
   Contra proferentum rule. Ambiguity in contract construed against drafting party.
   

5. 
   Typed provisions prevails over printed provisions and handwritten over typed, specific over general, words over figures.
   

1. 
   Conditions precedent (conditions suspensives). A condition precedent provides for the occurrence of some event or the existence of some fact before there is a right to performance of some obligation created by the contract. For example, a contract for the sale of real estate may provide that the contract is contingent upon the buyer being able to obtain financing according to certain specified terms, thus creating an express condition precedent.
   

2. 
   Conditions subsequent (conditions résolutoires). A condition subsequent in a contract extinguishes a party's duty of performance on the happening of some event or the coming into existence of some fact. A casualty insurance policy which provides that the insured shall give notice of a loss within a stated period or the company is discharged from liability for such loss illustrates a typical condition subsequent.
   

9 Exch. 341 (1854)

Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.

1. 
   Definition of a Contract
   

2. 
   Definition of an International Contract
   

First of all, why is it of any interest whether a contract is international?

- Chatillon: Le contrat est international quand il met en jeu plusieurs droits nationaux, ou quand il entre dans le champs d’une convention internationale, ou quand il met en cause des intérêts du commerce international, ou quand il implique le franchissement d’une frontière. 

1. 
   A contract can become international if it falls within international treaties. Treaties apply objective tests as to whether they are applicable. (CISG deals with parties whose place of business is in different states; 1968 Brussels Convention deals with jurisdiction of courts if parties have domicile in different countries; 1980 Rome Convention on law applicable to contractual obligations applies to contractual obligations in situations involving a conflict of laws.¹²
   

2. 
   A contract can become international if it involves international commerce. This is an economic rather than objective criterion. For example, for an international arbitration to exist under Articles 1492-1497 of the New Code of Civil Procedure, the contract «met en cause les intérêts du commerce international».
   

The Court of Cassation has judged to be international (for the purpose of determining whether an arbitration is national or international) «le contrat qui met en cause les intérêts du commerce international». (for example a contract between two French companies, signed and carried out in France but with respect to merchandise from abroad (Civ., 19 février 1930, Mardelé c/ Muller et Cie; Civ., 21 janvier 1931, Dambrincourt c/ Brossard & autres). French courts will consider commerce to be international if there is a “double mouvement de flux et du reflux” from one country to another or “si le contrat dépasse le cadre de l’économie interne.” See CA Lyon, 4 juillet 1991, JDI 1991, p. 1000, note Ph Kahn.

3. 
   A contract can become international if it involves crossing a national frontier.
   

4. 
   Employment contracts present a special situation. For example, an employment contract for a French resident working in France for an American company is governed by French law. However, a contract between a French employee and a French company to work in New York is an international contract and can be governed by the law chosen by the parties.
   

5. 
   Unidroit definition:
   

The comments to the UNIDROIT Principles of Commercial Contracts contain the following discussion with respect to international contracts:

3. 
   Principle Sources of International Contract law (Transnational Private Contract Law or Lex Mercatoria)
   

Various international institutions have been involved in the modeling of a new transnational legal infrastructure. They have prepared treaties, conventions, model laws, rules, principals, standard contracts, standard terms, etc. Such institutions include:

• 
  the United Nations Commission on International Trade Law (UNCITRAL)(la Commission pour le droit commercial international, la CNUDI)
  

• 
  the World Intellectual Property Organization (WIPO) (Organisation Mondiale de la Propriété Intellectuelle, la OMPI)
  

• 
  the World Trade Organization (WTO) (l’Organisation mondiale du commerce, OMC) created by the Marrakech Agreement of April 15, 1994 which replaced the GATT created in 1947)
  

• 
  the International Institute for the Unification of Private Law (UNIDROIT)
  

• 
  the International Chamber of Commerce (ICC) (Chambre Internationale de Commerce, la CCI)
  

• 
  the Hague Conference on Private International Law
  

1. 
   From these and other international institutions have produced “state contracted international law” and “institutionally offered lex”.
   

2. 
   State contracted international law (CISG¹³, other international treaties, bilateral treaties, European Union law. In France and in US, these treaties have the force of law superior to national law. In UK, a treaty must be incorporated in an act of the parliament.¹⁴
   

3. 
   Institutionally offered lex. Examples: Unidroit¹⁵ principles of international commercial contracts (apply only to commercial contracts), the Lando Commission’s Principles of European Contract Law¹⁶ (apply to commercial and consumer contracts) and the ICC’s Incoterms.
   

4. 
   Lex mercatoria.
   

Transnational law or lex mercatoria is made possible by: (a) States’ acceptance of freedom of contract (public policy excepted); (b) the general acceptance of the principle of sanctity of contract (pacta sunt servanda); (c) the contractual selection of dispute resolution by international commercial arbitration (ad hoc or institutional) and (d) the enforcement of arbitral awards pursuant to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. International commercial arbitration is the essential foundation for the development of transnational private contract law. (See Prof. Robert Amissah, “Revisiting the Autonomous Contract” www.Lexmercatoria.org).

1. 
   Application of mandatory rules:
   

The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called “mandatory rules”. (Article 3.3)

• 
  if in that country the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising, and he had taken in that country all the steps necessary on his part for the conclusion of the contract, or
  

• 
  if the other party or his agent received the consumer’s order in that country, or
  

• 
  if the contract is for the sale of goods and the consumer raveled from that country to another country and there gave his order, provided that the consumer’s journey was arranged by the seller for the purpose of inducing the consumer to buy. (Article 5.2)
  

c. With respect to employment contracts:

1. 
   Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of law which would be applicable under paragraph 2 in the absence of choice.
   

2. Not withstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed:

1. 
   by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country, or
   

2. 
   if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated;
   

unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country. (Article 6)

The situation may be different if the parties agree to submit disputes arising from their contract to arbitration.