The Legal Concerns of International Contracts

On Jul 11, 2024

American companies looking to export need to recognize the importance of the contracts they use. With some exception, one nation’s law does not have extraterritorial effect, or if it does, may have further limitations as to whom it applies. Consequently, the assumptions of American contract law – and particularly the Uniform Commercial Code dealing with sale of goods – do not automatically or necessarily apply in other jurisdictions. Every sale of goods is a contract or made pursuant to a contract, and the law that covers those contracts may often be result-determinative. The US is generally a common law system, where we rely on judge-made law and precedent, whereas most other countries are civil law jurisdictions, where they rely less on precedent and more on the literal language of codes. Many countries (including the US) are signatories to the United Nations Convention on Contracts for the International Sale of Goods (CISG), which functions as an international equivalent of the sales provisions of the Uniform Commercial Code. There are some significant differences, so it is important to understand what law will be applying to your transaction.

The American exporter should recognize the need for a clearly designated applicable law and a written agreement that encompasses key points relevant to the transaction. Cutting and pasting from agreements found online is dangerous. In some cases, there may be aspects of state law that differ. Companies are better served by spending the time up front and getting their contract right than spending hundreds of thousands of dollars in litigation or arbitration down the road.

While the business aspects of a contract are important – the cost, time of delivery, quantity, quality standards, and so forth – the “legal stuff” is equally important and should be thoroughly understood by the businessperson. Legal aspects like warranties, Incoterms, default conditions, and long-term agreement considerations should be meticulously understood and addressed. Contracts should anticipate possible scenarios, serving as a clear roadmap for consistent action.

This is the briefest of overviews, but meant to raise a critical point: there can be expensive consequences if you enter into a contract that does not properly address your concerns and you want to make sure, to the greatest extent possible, you reduced your transaction to writing, with an eye towards its enforcement where you need it to be enforced.

By Steven M. Richman, member of Clark Hill PLC | [email protected] 

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