INTERNATIONAL BUSINESS TRANSACTIONS
FINAL EXAMINATION
PROFESSOR HELEN E. HARTNELL
FALL 2002
DECEMBER 18, 2002

INSTRUCTIONS

1. This is an open-book examination. You are permitted to refer to the casebook, treaties, class handouts, class notes, and an outline prepared by you or your study group. Use of any other materials during the exam is prohibited.

2. You have three (3) hours to complete this examination.

3. This exam consists of two (2) questions. Question I has four (4) parts. Please be sure to answer all questions. The suggested times correspond to the importance (and point value) of each question. Thus, a question for which I suggest 60 minutes is twice as important as one where I suggest 30 minutes.

4. Your answers should be written in INK in a blue book, or typed. DO NOT USE PENCIL. In a blue book, please write on one side of the page only and do NOT skip lines.

S. The fact patterns are fictional. My apologies to animal lovers.

6. Please focus on answering the particular questions asked!

7. Write your exam number on your exam envelope, all used blue books, and at the top of this exam questions packet. Do not use your name, student ID number, or Social Security Number on any exam materials.

8. At the conclusion of the exam, return all test materials, including blue books, scratch paper and this exam packet to the envelope and submit it to the proctor.


QUESTION I

Recommended Time: 120 Minutes (to write) + 15 Minutes (to read)

Fredo Frogmani deals in aquaria (glass fish tanks) and tropical fish. Fredo is a citizen of Venezuela and owns a company (Pescadex SA) that is incorporated in Mexico. Fredo lives in San Francisco for three months each year. He imports tropical fish through the port of Oakland into the United States, and resells them to pet stores and zoos throughout the United States. Most of the fish he imports come from Australia, Singapore and Thailand.

Florian Fischer is a Swiss national who lives and works in Thailand. Florian and Fredo recently met and decided to do business together. In January 2002 they concluded an oral two-year "requirements contract" for the sale of tropical fish. Under the requirements contract, Fredo promised to purchase from Florian all the tropical fish he needs to supply the U.S. market during the term of the agreement, and Florian promised to use his best efforts to supply Fredo with all the fish Fredo might order during the term of the agreement. They also agreed that the price to be paid for each shipment would be determined by reference to the prices listed on the TropicalFish.net web site on the date of Fredo's order for a particular delivery of fish. They also agreed that all deliveries would be on C.I.F. terms, and that payment for each shipment would be by confirmed irrevocable letter of credit, drawn in U.S. funds on Bangkok Bank (BB) in Thailand.

Fredo opened an appropriate letter of credit (LC) through WaMu Bank (WaMu) in San Francisco. BB added its confirmation and advised Florian that the LC had been opened in his favor. The LC, which incorporates "UCP 1993" by reference, is for the full two-year period of the contract, and obliges BB and WaMu to pay upon presentation by the beneficiary (Florian) of a "sight draft covering proper shipment of freshwater or salt-water tropical fish, accompanied by one copy of the invoice/clean on-board bill of lading" for that particular shipment. (The requirements contract anticipates that Fredo will place numerous orders, and thus that Florian will make numerous draws under the LC, during the two-year period.) The LC also states that presentation must be made "promptly" after each shipment.

Neither Fredo nor Florian mentioned anything about applicable law or the method for resolving any dispute that might arise between them. They did, however, have the good sense to incorporate the standard force majeure clause used by the Tropical Fish Dealer's Association (TFDA) into their contract. The TFDA clause provides as follows: "Any circumstances beyond the control of the parties intervening after the formation of the contract and impeding its reasonable performance shall be considered as cases of relief. The following shall be considered as cases of relief: fire, embargo, war, currency restrictions, strike, or governmental restriction of trade in tropical fish."

On September 15, Fredo FAXed a large order to Florian. Fredo requested immediate delivery of 50,000 fish, consisting of: 20,000 Kissing Gourami; 10,000 Neon Tetras; 10,0000 Killifish; 5,000 Kuhli Loaches; and 5,000 Tinfoil Barbs. (Do not try to look these names up in the dictionary! They are just types of fish.) Florian replied by FAX that he would ship the fish as soon as he could obtain the quantities and types of fish Fredo had ordered. Florian succeeded in obtaining from his various sources the fish he needed to fill Fredo's order by September 22.

Florian arranged to have the fish transported in large, sealed tanks filled with water. Florian put the Kissing Gourami and the Tinfoil Barbs together in one tank, and put the Neon Tetras, Kuhli Loaches and Killifish together in the second tank. Florian delivered the tanks to the carrier--the Ahoy Matey -- on September 24 for shipment to Oakland, and received a bill of lading in return. The bill of lading contained the following notation: "2 closed fish-tanks, said to contain 50,000 live tropical fish." Florian obtained marine insurance for the shipment, as required under the C.I.F. contract. The insurance policy contains a clause that excludes liability for any damage to the goods that "results from labor disputes."

The ship sailed on September 27 for Oakland, and reached California on October 3. Unfortunately, the Pacific Maritime Association (PMA), which operates many West Coast ports, got involved in a labor dispute with its employees, the "longshoremen" who load and unload cargo. As a result of this dispute, the PMA locked 10,500 of its employees out of work on September 29. The port of Oakland was among the West Coast ports affected by the lock-out. Thus, after passing under the Golden Gate Bridge, the Ahoy Matey dropped anchor in the San Francisco Bay, and waited until such time as it could unload its cargo. A federal court ordered the ports to reopen on October 8, but by that time there was a large backlog of ships waiting to load or unload cargo. The Ahoy Matey had to wait until November 29 to unload its cargo.

By that date, only 5,000 of the fish in the first tank remained alive, since the Tinfoil Barbs had eaten all 20,000 of the Kissing Gourmani. (The TropicalFish.net web site reports that Tinfoil Barbs are aggressive.) In the second tank, 10% of the fish had died because there was insufficient food to keep them alive during the unexpectedly long waiting period until the ship was allowed to unload its cargo at the port of Oakland. The remaining 90% tragically died during the new inspection procedures implemented by the Department of Homeland Security (DHS), which has just absorbed the former U.S. Customs Service. In order to prevent terrorism, the DHS has begun to use a special, new type of x-ray machine to inspect cargo entering the U.S. This machine created an electrical current in the water-filled fish tanks. The well-fed Tinfoil Barbs in the first tank were not harmed by this shock, but the weakened fish in the second tank could not withstand the shock, and died.

Meanwhile, owing to increasingly poor economic conditions in the U.S., Fredo became worried that he might not be able to resell all the tropical fish that he had ordered from Florian on September 15. Because of the delay, some of Fredo's customers cancelled their orders in mid-October.

Assume for the purpose of the following questions (I.A., I.B., I.C., & I.D.) that you are Fredo's attorney.

A. Assume for purposes of this question (I.A.) that Fredo came to visit you in your office in mid-October for legal advice. He explained that he was thinking about getting out of the business of importing tropical fish, and wondered if he was legally bound under the requirements contract. Give your opinion whether the January 2002 oral agreement between Fredo and Florian is valid and enforceable. Explain your reasoning as completely as possible. If you need more information to give a complete answer, say what it is that you need to know and why you need to know it. You may assume that "requirements contracts" satisfy all the necessary requirements under Article 14 of the CISG. (30 minutes)

B. Assume for purposes of this question (I.B.) that on October 14, Florian presented to Bangkok Bank (BB) - the confirming bank - a sight draft in the amount of $75,000, which was the C.I.F. purchase price of the 50,000 fish he delivered pursuant to Fredo's September 15 order. The draft was accompanied by (i) a bill of lading showing that the goods were "received for shipment" on September 24, and (ii) a commercial invoice showing shipment of the correct quantities and types of tropical fish ordered by Fredo. BB honored the presentation, credited Florian's account with $75,000, then forwarded the draft and documents to WaMu Bank in San Francisco. The issuing bank (WaMu) received the draft and documents from the confirming bank (BB) on Friday, October 18. One week later, on Friday, October 25, WaMu FAXed the following message to BB: "The documents contain numerous discrepancies: [assume they are listed in the FAX]. We will contact Fredo about acceptance." Later that Friday, WaMu sent Fredo a FAX asking if he would be willing to waive the listed discrepancies. Fredo was traveling that weekend.

On the morning of Tuesday, October 29, Fredo informed WaMu that he refused to waive the discrepancies in the presented documents. That same afternoon, Fredo visited you in your office and asked if you could get an injunction to prevent WaMu from paying BB. How would you answer him? Be sure to explain your reasons. (30 minutes)

C. Meanwhile, also on the afternoon of Tuesday, October 29, WaMu sent the following message by FAX to BB: "We refuse to take up the documents for the reasons listed in our October 25 message and hold the documents at your disposal." On Thursday, October 31, BB replied by sending a FAX to WaMu, stating that BB properly honored because Florian's presentation was proper in all respects, and insisting that WaMu reimburse it in the amount of $75,000. Efforts to reach a negotiated settlement to this dispute failed, and BB (acting through its San Francisco branch) filed suit in San Francisco, alleging that WaMu had wrongfully dishonored the presentation.

Because of your expertise in international business transactions, Fredo has asked you to cooperate with WaMu Bank's in-house lawyer to formulate the issuer's defense to the suit brought by the confirming bank (BB). What procedural and substantive arguments should WaMu make in support of its position that WaMu (the issuer) is justified in refusing to honor BB's presentation? (30 minutes)

D. Assume for purposes of this question that, despite your best efforts, WaMu ultimately paid Bangkok Bank and debited the money from Fredo's account. (This was the arrangement Fredo made with WaMu when he asked it to open the letter of credit in Florian's favor.) It is now December and Fredo has learned the sad fate of his fish. All he has left are 5,000 large, healthy, and hungry Tinfoil Barbs, but no one who wants to buy them from him. He returns to your office once more and asks you to find a way for him to recover the money he has lost. He does not care who you go after - Florian, the carrier (Ahoy Matey), or the insurer - he just wants the money so that he can pay his bills (including your legal fees). What arguments would you make on your client's behalf? Fredo wants to hear any clever ideas you might have, but is particularly interested to know if you think he could be excused from accepting and paying for late delivery (on November 29) of the fish he ordered on September 15, or if he could recover any damages from Florian for breach of warranty. (30 minutes)

END OF QUESTION I

QUESTION II

Recommended Time: 30 Minutes (to write) + 15 Minutes (to read)

Rocky Skwerl is the inventor of the ZoomZoom (ZZTM) personal flying machine (the "GiZZmo"). The GiZZmo consists of a small backpack that contains a patented antigravity propulsion system. A person who wears the GiZZmo can fly at a height up to 20 feet above the ground and at a speed up to 20 miles per hour. Needless to say, there is a large demand for the GiZZmos. During the seven years since his patents issued, Rocky has become a billionaire. But he still wants more, so has decided to arrange for mass production of GiZZmos in Tundria, a WTO member that offers a highly-skilled but still low-wage workforce and a relatively cheap regulatory environment. Rocky has little interest in continuing to run the business he has founded. Since he has more money than he knows what to do with, he has decided to license world-wide production and distribution of the GiZZmo to one man, Mr. Bull "Moose" Winkle ("Moose"). Moose is a citizen of Tundria, but attended university in the U.S., where he met Rocky in the 1960s. Rocky's lawyer sent Moose a draft of a fifteen-year, exclusive Licensing and Distribution Agreement. Moose has provided you with a copy of that draft and asked for your opinion whether he should sign it or request specific changes. Please advise him in the form of a memorandum addressing the contractual provisions excerpted below.

Tundria has a Transfer of Technology law on the books that provides in pertinent part as follows: "Transfer of technology agreements shall be legally valid and enforceable in Tundria, provided that the licensor agrees to accept the responsibilities of an owner of the registered intellectual property rights and that the license agreement contains no abusive provisions."