Facts: These facts are core facts common to all questions to the extent the questions involve Xantera, Mary, MMM, Carlos and Carlosta.
Mary, President of Mary’s Miracle Mart (“MMM”), a corporation incorporated in the State of New York, is a manufacturer and seller of a patented medication used to alleviate symptoms of asthma and bronchitis. The medication is sold under the trademark Mary’s Miracle Mart (“MMM”). Mary is interested in doing business in Xantera, a developingcountry in South America. It is also known that Xantera faces hard currency shortage and it is foreseeable that the government will impose hard currency restrictions on hardcurrency outflow. Although Xantera is politically stable, surrounding countries have had to deal with internal uprisings and other acts of violence that have created instability in the region. Many Xanteran companies have been buying MMM drugs from MMM because Xantera’s pollution is high and its citizens suffer from respiratory problems. MMM drugs are one of the most popular import items in Xantera.
Question 1.
Mary wants to sell 100 crates of her medication to a buyer, Carlos, in Xantera. Carlos is the President of Carlosta, a corporation incorporated in Xantera. Carlos hopes to be able to strike a good deal so he can take advantage of the existing demand for MMM medication.
Mary is starting negotiations with Carlos. She knows that shipping from New York to Xantera will take 21 days. Carlos has a liquidity problem (not a lot of cash on hand) but is certain that he will be able to get the hard currency in time to pay for the drugs. The contract specifies that Carlos must make payment in US dollars.
Carlos and Mary are discussing the following options for the sales contract. You represent Mary. Mary does not trust Carlos (only because she has never done business with him before) and is concerned about being paid. But she also wants to have the transaction go through because she hopes there will be repeat transactions with Carlos and perhaps other transactions in other South American countries.
For the purpose of Question 1 (all parts), assume that Xantera has not ratified any treaty or convention discussed in the course.
Note that under each part described below, you will be offered several options to analyze and evaluate. In addition to analyzing and evaluating the issues raised, (including defining any relevant terms in the clauses), you must apply the issues to the facts raised in the description above (Question 1 facts, which apply to all the parts below). I am interested not just in your knowledge but in your critical reasoning skills. I can only assess your reasoning skills when you apply the legal issues to the facts presented.
Part A. Sales contract terms
Option 1. Sales contract, CIF Buyer’s warehouse at port of Xantera. Time draft 30 daysafter sight.
Option 2. Sales contract, CIF Buyer’s warehouse at port of Xantera, sight draft.
Option 3. Sales contract, CIF Buyer’s warehouse at port of Xantera, Time draft 30 days after sight, with letter of credit. Issuing Bank in Carlosta and confirming bank in New York.
Option 4. FOB port of New York City.
Please go through each option, explain what each involves, apply each option to the fact pattern described above, and tell Mary what the advantages and disadvantages for her are for each option. Do not simply describe what each option means. It is important that you analyze the options AS THEY APPLY TO MARY’S CONCERNS. In addition, include your recommendation as to which option she should choose. The instructions contained here are applicable to every question raised in all the parts below.
Also, tell Mary whether Option 1 and Option 4 are essentially the same in terms of results for Mary – although one is FOB and the other is CIF. How are they the same and how are they different?
Part B. Sales contract choice of law:
The parties are discussing a choice of law clause. Mary is worried about warranties that she might be subject to and is trying to find a way to be free of warranties.
Option 1. All disputes arising out of the sales contract between the parties will be governed by the laws of the state of New York. The New York UCC shall be the applicable law.
Option 2. All disputes arising out of the sales contract between the parties will be governed by the laws of Xantera.
Option 3. All disputes arising out of the sales contract between the parties will be governed by the Convention on the International Sale of Goods.
For this option 3 (only), assume the contract also has a choice of forum which states that the courts of the state of New York will hear disputes arising out of the contract. What would a court of NY do with this choice of law?
Again, give your advice to Mary regarding each option. Point out any issues that you think she needs to consider. Include in your answer your recommendation as to which choice of law is most advantageous for your client. See instructions in Part A above, which, as stated, apply to all answers on this exam.
Part C. Sales Contract, Force Majeure
Assume for the purpose of Part C ONLY that the parties have chosen New York UCC as the applicable law. Assume also for PART C only that the sales contract is CIF port of Xantera.
In case of fire, flood, earthquakes, hurricanes and any other acts of nature, or in case of labor strikes, government shutdown, government acts or controls or any other acts outside the control of the buyer, the buyer shall be excused from performance of his duties.
Carlos states that this is the only force majeure clause he will agree to. The other option is to not have any force majeure clause.
Which avenue would you recommend Mary choose? Have a force majeure clause as stated above? Comment on the proposed force majeure clause. Should you have no force majeure clause or use that proposed clause? Why or why not?
Part D. Bill of Lading Contract, Choice of Forum, Choice of Law:
Assume for Part D that the bill of lading contract is between MMM and X carrier. X is incorporated in Xantera.
Option 1. All disputes arising between the parties shall be governed by the laws of Xantera. The courts of Xantera shall have exclusive jurisdiction over these disputes.
Option 2. All disputes arising between the parties shall be governed by the laws of Xantera. Disputes shall be submitted to arbitration in Xantera.
Option 3. All disputes arising between the parties shall be governed by the laws of New York. The courts of New York shall have exclusive jurisdiction over these disputes.
Analyze and evaluate options 1, 2, and 3. Which option do you recommend for Mary? Give reasons why. Read these options carefully. What related issues will need to be considered and addressed in each option?
In addition, Mary asks you the following: If options 1 and 2 are chosen, can Mary choose to ignore the chosen forum and institute suit in a court in the US? What would a US court do?
Part E. Letter of Credit and sales contract
Assume the parties agreed to have an issuing bank in Xantera issue a letter of credit with MMM as the beneficiary. Assume also that a confirming bank in NY has agreed to confirm the letter of credit for the amount specified in the sales contract, payable in US dollars.
MMM shipped the goods and presented the necessary documents, including a sight draft, to the confirming bank. Before the confirming bank paid, it was notified by the issuing bank that the issuing bank will not be able to honor the letter credit. The issuing bank gives the following reasons: 1) it was told by the carrier that the seller (MMM) had shipped counterfeit medication; 2) it has been ordered not to pay on the letter of credit because the government has imposed hard currency restrictions.
Advise Mary of all issues relevant to and arising out of the facts as described in Part E. What options are available to her?
Question 2.
Part A:
Because the medication bearing the trademark MMM is so successful in Xantera, Mary decides to find a licensee in Xantera. Advise Mary on the following clauses.
Option 1. Licensor grants to the licensee an exclusive license to use the trademark MMM on products made pursuant to the license. Such products can only be sold in the licensed territory (defined as Xantera).
Please comment on this clause. First analyze the clause under the assumption that the laws of Xantera are similar to US laws governing such license. Second analyze the clause under the assumption that the laws of Xantera are similar to laws of the EU governing such license.
Option 2. Licensee must purchase from the Licensor patented medical equipment necessary to ensure the effective manufacturing of the products bearing the trademark MMM.
Assume Xantera law governing this issue is similar to US law.
Option 3. Assume that the government in a neighboring country Yanto also wishes to have MMM drugs for its citizens but there is no Yanto company that can pay the licensing fee at market rate. One company decides to use MMM’s patent without authorization and manufactures the MMM drugs in Yanto. If Yanto is a member of the World Trade Organization, what are MMM’s options? If Yanto is NOT a member of the World Trade Organization, what are MMM’s options?
Part B:
Assume that Mary discovers that medication made under license between MMM and a Xantera licensee in Xantera is being imported into the United States. Discuss one cause of action that is available to Mary to prevent such importation into the United States. Pick one that will be fastest to institute and that will have the broadest scope in terms of remedy.
Question 3:
Assume Mary now wishes to establish a foreign direct investment in Xantera. The government’s foreign investment laws have a mandatory joint venture provision. It also requires that the foreign investor have at a maximum 49% of the equity in the joint venture. Mary would like MMM to be granted an exemption from this requirement.
What would be the one best argument based on the facts you have been given about the parties that would most strongly support this claim and why?
Assume the following clauses have been offered by Carlosta, the local party from Xantera who will be the joint venture partner for MMM. How would you change the clause, if at all? State reasons why each clause should be changed or modified. If you keep it, explain why as well. For Question 3, assume Xantera has become a member of the WTO.
Clause 1.
MMM shall contribute 49% of the equity of the joint venture. Accordingly, 49% of the board of directors of the company shall be nominated by MMM.
Clause 2.
Each party must get the other party’s consent before transferring its interests to a third party. However, this clause is not applicable in case Carlosta transfers its interests to OPIC.
Clause 3.
MMM shall not repatriate hard currency profits from Xantera unless it gets approval from the authorities in accordance with the published foreign investment laws of Xantera. Hard currency repatriation can only be allowed if the joint venture shows a positive hard currency balance.
Clause 4.
The joint venture must purchase supplies from local Xantera companies. Such purchases will be paid in hard currency.