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Transacting business across national borders can be a daunting and frustrating task for businessmen and attorneys who do not understand the laws of a foreign locale. In legal terms, contracts between parties from different nations may be thought of as “international” in name alone; commonly, the party with greater bargaining power would impose its standard terms and its national law upon its opposite number, not exactly a recipe for global economic harmony. Especially when the contracting parties originate from dissimilar legal cultures — for example, from civil law in Germany and from common law in the United States — comprehending and bargaining even basic terms can prove to be exceedingly difficult. UNIFORM PRINCIPLES In response to the need for a unifying set of legal principles under which private companies may conduct business with confidence, the member countries of UNIDROIT currently offer a set of uniform principles that may govern private commercial transactions. Founded in 1940, The International Institute for the Unification of Private Law (UNIDROIT) operates as an independent intergovernmental organization whose purpose is to modernize, balance and coordinate international commercial law among the member nations, which include the United States and Germany. At its annual session (April 19-21, 2004) UNIDROIT’s Governing Council unanimously adopted the 2004 edition of the UNIDROIT Principles of International Commercial Contracts (the principles). Compared to the 1994 edition, the principles addressed the most recent innovations in international businesses law such as the validity of electronic contracting. Other additions included chapters devoted to Authority of Agents; Third Party Rights; Set-off; Assignment of Rights, Transfer of Obligations and Assignment of Contracts; Limitation Periods) as well as updated sections on Inconsistent Behavior and Release by Agreement. On the whole, the UNIDROIT drafters placed less emphasis on the strict rules of contract construction and choice of law, and more on the spirit and the supporting purposes that determine the outcomes of commercial disputes. The drafters understood that private industry would employ the principles only if businesses had confidence that they could be used to resolve real world business quarrels and could function as an accurate predictor of the outcomes of commercial conflicts. Such a comfort level would enable businesses to apportion the risks and rewards of a particular international transaction. Using these assumptions, the UNIDROIT members drafted the principles with a focus on the potential outcomes of real life commercial disputes rather than staid legal theory. BASIC CONTRACT FORMATION Employing the principles, the following rules apply to basic contract formation. These requirements mirror the common-law fundamentals: (1) communicated offer and acceptance, (2) consideration, (3) capacity, and (4) legality. Signatures on a contract are preferred but not required. Without entering into an excess of detail regarding contract formation, note that once an offer to contract has been extended, acceptance of such offer must be adequate. Under the principles, the conveyance of adequate acceptance must comply with the following guidelines: acceptance can only be made (a) as a verbal or written communication, (b) with serious intent, (c) with effective communication to the offering party, (d) not under duress, and (e) not as a result of undue influence. Acceptance of an offer may be rescinded by both parties as a result of a mutual mistake, but once made, acceptance cannot be rescinded unilaterally unless the other party knew, or should have known, of the accepting party’s mistaken understanding of the terms. When drafting an international contract. an attorney should include the following terms, in accordance with the principles and for practical considerations, to reduce possible ambiguity between the contracting parties: 1. Clearly state the time of performance of the obligation; the manner in which the performance is to be conducted; the amount and currency of payment and the place where performance and payment will occur; 2. Specify the party bearing the transportation costs; 3. Identify the party bearing the risk of loss and hardship conditions that may excuse performance; 4. Draft limitation of liability clauses that allocate shipment and currency rate fluctuation risk. Also, be sure to incorporate a detailed but open ended force majeure clause to cover unanticipated risks; 5. Add a price escalation clause if the contract takes place over a number of years; 6. Include a governmental approval clause, if appropriate; 7. Insert mediation or arbitration clauses, if appropriate; 8. Declare a specific choice of law (or the principles) and forum; 9. Designate the language that will control interpretation of the contract; and 10. Indicate the basis upon which an analysis of a contract may be made (e.g., a merger clause declaring that the agreement stands alone regardless of all prior representations and agreements). Before accepting the principles as the governing law of an international contract, it is recommended that a business analyze the guidelines by which the principles direct a court of competent jurisdiction to interpret the terms of the contract. ORDER OF INTERPRETATION The principles set forth a specific order of interpretation that governs such analysis. First, the court must consider the contract’s common or plain meaning. Initially, external factors will not be considered in determining the outcome of a dispute. Second, if the common or plain meaning is not self evident, the court must consider the entirety of the circumstances that led to the creation of the contract, such as the relationship between the parties and the actions of the parties after execution of the contract. If such circumstances are not determinative, the court must take a third step and delve deeper into the parties’ relationship by considering prior contracts and dealings. Finally, after exhausting the prior three steps, the court must focus on trade usage and custom to determine the validity and the terms of the disputed contract. Note that this hierarchy of contract interpretation differs greatly from United States (U.S.) laws and customs. In the U.S., the courts promote validation of the agreement by immediately and exhaustively searching for the true intent of the parties, rather than using a step by step process that affords equal weight to a possible dissolution of the contract. Should the contract be validated by the court, the principles set forth a general course of action for the application of remedies involving breach of contract. However, rather than focusing on awarding an aggrieved party with damages as do U.S. courts, the principles utilize performance devices such as cooperation, cure and assurances, which are designed to promote performance of the contract rather than its failure. Conversely, in the U.S., specific performance is viewed by the courts as an extraordinary remedy, only to be used in cases where damages would prove inadequate. By employing a preference for specific performance, the principles appear to provide the disappointed party with precisely what was promised but not performed. However, it has been noted that the practical effect of such specific performance mimics the outcomes of disputes governed by damage clauses, and the principles offer many exceptions to such orders to perform. In fact, the principles support the enforcement of damage clauses when such cure is: (1) impossible in law or in fact, (2) unreasonably burdensome or costly, (3) of a uniquely personal character, or (4) available through contracting with a third party. Upon the occurrence of an impediment to performance, the principles initially favor a temporary suspension of contractual obligations rather than a blanket termination of the agreement. In these occurrences, enforcement would serve to either enforce the legitimate purpose of the contract or to avoid a situation in which one of the parties would be unjustly enriched by such failure to perform. The principles place such burden to communicate its inability to perform squarely on the shoulders of the party that is unable to comply with the contract’s terms, and such party will be held responsible for a failure to communicate in a timely manner with the aggrieved party. On the other hand, after the aggrieved party has learned of the breach, the principles shift the onus to the aggrieved party to seek a remedy promptly, by bringing the matter before a court and by making some effort to mitigate the damages. CONCLUSION In conclusion, the member nations of UNIDROIT have crafted a set of rules and guidelines that are neither entirely familiar nor totally foreign to private business interests. Because they do not exist as a strict set of international laws, the principles possess a unique ability to adapt to the changing trade winds of the global economy. For this reason, if for no other, businesses should give strong consideration to drafting an international agreement with an eye towards employment of the UNIDROIT principles. Laurence B. Beckler is a solo practitioner.

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