Foundations of Business Law

• Check buyer’s standing

• Selling on cash terms

• Request secured forms of payment

• Use credit insurance

• Retain a collection agency

Prepaid / cash in advance: Shipment of the goods after payment > best arrangement for the seller/exporter

Open account: Payment after delivery of the goods > best arrangement for the buyer/importer

Payment upon delivery: best arrangement for both parties

Documentary payments: Issued by the carrier of the goods

• Acknowledgement of receipt of the goods

• Title to the goods/surrogate for the goods; transfer of ownership

• Carrier to deliver the goods to the owner of the Bill of Lading

• Goods can be sold or traded during transport

Written promise of advising bank to pay the seller the amount specified in the Letter of Credit.

• Issuing bank acts as intermediary (Vermittler) to collect the payment from the buyer in exchange for the transfer of documents as surrogate for the goods sold

• Seller: is sure that he will be paid

> Seller is paid before advising bank gets payment from buyer through issuing bank (credit funtion)

• Buyer: is sure that goods will be delivered

1. Irrevocable:

• Cannot be cancelled without the consent of the seller.
• Guarantee for the seller to get the payment under the condition that he provides all the documents

2. Confirmed irrevocable:

• Advising bank guarantees that the seller will be paid under the condition that he provides all the documents

3. Transferable:

• Beneficiary (= seller) may transfer the right to a third party
• Credit function

similar cycle: but no credit function, no surety of payment for the selle, no risk for the bank, cheaper than letter of credit

1. Goods from Seller to Buyer

2. Buyer received all Dokuments incl. Bill of Lading form Seller via Collecting Bank and via. Remitting Bank

3. Seller receives payment from buyer via Remitting Bank and via Collecting Bank

- Real Securities (Mortage, Pledge, Lien)

- Personal Securities (Guarantee, Surety, Standby letter of Credit)

- Quasi Securities (Titel Retention Agreements, Factoring, Leasing, Letter of Comfort)

• Debtor keeps ownership of assets.

• Creditor retains possession of assets.

• Transfer of surrogates of the assets (keys, bill of lading).

• Only tangible property. Letter of Pledge

• No formalities to be observed (apart from the transfer of possession).

• Usually Letter of Pledge. Rights of the creditor in case of non-payment Special debt enforcement procedure (Switzerland)

• Goods in possession of contractor

• Possession based on a contract/business relationship (Ex. Contractor (craftsmen) lien)

• “Self-help” remedy Types

• Consensual/non-consensual

• General lien/special lien (Civil law) Rights of the creditor in case of non-payment

• No right to sell the goods in possession

• Special debt enforcement procedure (Switzerland)

• Debtor retains possession of asset.

• Civil law countries: limited real property right instead of transfer of ownership.

• Common law countries: Transfer of ownership of asset under condition that ownership is transferred back upon payment of the loan.

• Usually to be registered; protection of third parties

• Right of foreclosure: leading to the sale of the real estate.

• Proceeds of the sale cover costs of sale and secured credit.

• Power of sale: to recoup credit.

• Rank in priority of the mortgage.

• Right to apply to court for order of sale or appointment of receiver (depending on jurisdiction)

Object of the guarantee:

• Payment
• Perfomance in general

Claims:

• Claim for payment
• Often presentation of the documents defined in the bank guarantee (e.g. Bill of Lading)

Types:

• Direct and indirect
• Performance and payment guarantee
• Bank guarantee

• Transfer of property

• Seller remains in possession of item sold

• Registration

• Compliance with formalities

- Contract between guarantor and obligee (= obligor of the principal obligation)

- Guarantor undertakes to answer for the obligation of the obligor

Accessory:

• Surety is in relation to the underlying transaction/contract accessory.
• Guarantor may make objections deriving from underlying transaction/contract (nullity of contract, non-performance etc.)

Claim:

• Obligee first to claim for the fulfillment of the obligation by the obligor
• Complicated prerequisites: formal requirements (may even include an enforceable judgment against the obligor) > only used in domestic transactions

General:

• Secures monetary or non-monetary obligations -> may be used to secure the performance of the seller or of the buyer
• Payment by the issuer if principal does not fulfill his obligation
• Parties to provide for the necessary terms (ex.: terms of ICC) unless statutory provision (U.C.C. for domestic transactions/no terms in CO)

Object:

• Monetary
• Non-monetary obligations

Similarities with guarantee:

• Independent from underlying transaction
• Payment upon presentation of the documents stipulated in the contract to evidence the non-performance of the principal (invoices, Bill of Lading etc.)

Differences with letter of credit:

• Standby LC is used to secure the obligation of the principal; only used in case of non-performance of the principal
• Often used for payments on open account terms

1. Standby LC between principal (e.g. Buyer) and principle's bank

2. Advising of Standby LC between principle's bank and advising bank

3. Advising of Standby LC between advising bank and beneficiary (e.g. Seller)

4. Non- Performance between principle and beneficiary (Buyer and Seller) > conflict

5. Documents go from beneficiary to principal via advising bank and via principle's bank

6. Principle bank makes payment to advising bank

7. Buyer makes payment to principles bank at the same time as advising bank pays beneficiary

- It's the reservation/retention of a title from the seller until payment effected by the buyer

- Sales agreement with payment by installments; formal requirements to be observed

> only in allowed in certain jurisdictions, not allowed in Swiss Finance Leasing, allowed for goods purchased by leasing company or goods used by lessee/purchser

Factoring is when company sells receivables to another company

three parties: seller, buyer, factor

1. Factor purchases accounts receivable ( claims for payment of price)

2. Factor assumes credit risk and additional services (invoicing, bookkeeping etc.)

3.  Products get dilivered form seller to buyer, factor gets payment from buyer

Purchase agreement:

• Lessee responsible for maintenance/assumes risks/insurance;

• Lessee entitled to buy the leased product at the end of the Leasing Agreement for residual value (usually low)

Rental agreement:

• Ownership of the Leasing Company;

• payments in installments

- Installments

• Capital payment
• Interest based on duration of agreement
• Installments may be paid from income derived from use of leased assets

- Based on the assets leased

• Consumer goods leasing
• Capital goods leasing
• Real estate leasing

- Based on lessor/leasing company

• Direct leasing: lessor is supplier or manufacturer
• Indirect leasing: Transaction involves three parties: leasing company, lessee and supplier

1. Purchase negotiations between lessee and seller/supllier

2. Leasing agreement between lessee and leasing company

3. Purchase contract between leasing company and Seller

4. Delivery of products from seller to lessee > then certificate of acceptance from lessee to leasing company

5. payment by leasing company to seller, payment by lessee to leasing company

• A series of pre-defined commercial terms pusblished by the international Chamber of Commerce (ICC) that are widely used in international commercial transactions
• 11 different Incoterms such as “EXW”
• Trade terms (not legal rules)
• Are not the only terms to be agreed between the parties in sales contract

• Responsibility of loss or damage of goods during transportation
• who pays which costs (transport, insurance, customs)
• Who prepares Documents

Group E: Buyer responsible for shipment (FOB Shippong point)

Group F: Buyer responsible for additional shipment from a given facility to his place

Group C: Seller responsible for shipment

Group D: Seller responsible for shipment to buyer's facilities

EXW= Ex Works (factory Seller)

FCA= Free Carrier (factory Seller)

CIP= Carriage and Insurance Paid to (factory buyer)

DDP= Delivery Duty Paid (factory buyer)

FOB=Free on board (named port of shipment)

CPT=Carriage Paid to (named place of destination)

• Customer directly
• Distributors Resellers
• Agents / Brokers
• Subsidiary companies / Branch office
• Joint Venture
• Franchising
• Licensing

- Sales Agreement between Seller and Buyer (Consumer)

- Sales Agreement between Seller and Buyer/Importer and Sales Agreement between Buyer/Importer and Buyer (Consumer)

- Intermediary: brings seller and buyer together

- Counseling: Broker has no authority to make any commitments on behalf of buyer/seller >mutual trust

1. Agreement between Broker and Seller/Exporter

2. Sales Agreement betweem Buyer/Importer

3. Sales Agreement between Buyer/Importer and Buyer (Consumer)

• Finds customers for the principal/seller (advertisement, customer call etc.)

• Negotiation of contracts

• Conclusion of contract on behalf of the principal/seller

• Fulfillment of the contract (may be entitled to receive the purchase price) > trust very important

- Agent is selfemployed, he might be a company

1. Agency agreement between Seller/Exporter and Agent > payment commission from Seller to Agent

2. Agent exchanges offer/acceptance with Buyer/Importer

3. Effect: Sales agreement with ref. to Agent between Seller/Exporter and Buyer/Importer

4. Sales Agreement from Buyer/Importer to Consumer (Buyer)

1. Distribution Agreement + Framework between Seller/Exporter and Buyer/Importer/Distributor

2. Seller/Exporter grants sole trading right to Distributor/Buyer an delivers Purchase order

3. Distributor deliveres Products to Shops (Sales Agreement)

4. Shops conclude Sales agreement with Consumer

• Subsidiary is incorporated under the local law
• Independent and separate legal entity
• Controlled by the parent company

• Relationship is and agency or distribution agreement

• establishment (own shares)
• acquirement (buy existing company)

• Subdivision of the parent company
• Not independent and no separate legal entity

• no contract required > after establishment the parent company is directly liable

• Two or more companies
• Joint organization
• Executing joint business undertaking

• Contractual joint venture: joint liability
• Equity venture: company