Western wear is the fashion trend in Paris. Everything from designer western jeans, cowboy boots and hats are a hugely popular. Cavenders, a Tyler, Texas based family company offers the highest quality denim jeans, hats and boots and has recognized the huge potential for sales to France. Travail and Co., a new clothing retailer in Paris, has experienced rapid growth and has opened 50 new retail stores in the past 12 months. They have contacted Cavenders and expressed interest in purchasing $5 million dollars in products. Cavenders is interested in finalizing a written sales contract and letter of credit.
What Laws Govern the Sale of Goods?
There could be as many as three sets of laws concerning the sale of good to Travail and Co. The bodies of law include Texas law, French law and international treaty law. Since each body of law is different, is necessary to define upfront which body of law will be will be followed. Since the contract will be for the sale of clothing and apparel, the local law is the Texas Uniform Commercial Code (UCC). Because U.S. business lawyers are knowledgeable about the UCC, they will want it to govern the contract. On the other hand, French lawyers will prefer that the contract be government by French law. As negotiations progress, both parties may decide to compromise and use the UN Convention on Contracts for the International Sale of Goods (CISG).
The CISG automatically applies to any contract for the sale of goods between two parties from different countries that follow the CISG. Both France and the United States have signed and follow the CISG. Therefore, unless the parties to the contract decide to follow another set of laws, the CISG will be the official law of the contract.
Choice of Forum
As mentioned in a previous blog entry, the two parties to the sales contract must also specify where legal disputes will be heard. Here again, American lawyers will want any disputes heard in an American court, while French lawyers will want disputes hear in a French court.
Language and Currency
Because legal translation can be difficult and legal terms rarely translate literally, the language of the contract is an important decision. Currency is also an important consideration due to changing exchange rates. Both Cavenders and Travail and Co. accepted that the contract currency would be specified in U.S. dollars and because Travail and Co.’s attorneys are unfamiliar with the Texas UCC, they will only accept the contract if it is governed by French law or the UN Convention on Contracts for the International Sale of Goods. Cavenders’s lawyers suggest accepting the contract as long as the language of the contract is English. Cavender’s attorney’s write the contract and Travail and Co.’s attorneys will provide an English to French translation. Both sides finally reach an agreement.
Securing International Payment
Travail and Co. has only been in business for 1 year. In that time, they have expanded to 50 retail locations throughout France. Due to the company’s rapid growth and debt from expansion, there is some risk that the retailer will not be able to fulfill its financial obligations. Consequently, the lawyers for Cavenders strongly recommend that the payment be made by letter of credit.
To initiate a payment by confirmed irrevocable letter of credit, Travail and Co. instructs it bank to issue a letter of credit to Cavenders. The bank will assess Travail and Co.’s credit worthiness and may require Travail and Co. to place a mortgage on one of their locations or that Travail and Co. deposit the entire sum of the contract in a bank account. Once the letter of credit is established, Cavenders will insist on a confirmed letter of credit that is send from the French bank to Cavenders’s bankers. With little risk, Cavenders ships the products to Travail and Co.