International Business Law

Framework and Agreements in Contracts

There is a framework agreement that covers the general agreement between the parties and than there are other agreements such as a license agreement for the intellectual property, a technical transfer or technology transfer related to some technical aspect etc. Contracts are not one single text, they can be structured as one framework and many single agreements.

Joint-venture agreement is one of the most complicated contracts, it is a cooperation agreement between companies, in some cases it is a company that is a framework within which many contracts can be included.

Art.1322cc the parties can freely determine the contents of a contract within the limits imposed by the law. It sets the principle of contractual autonomy.

Art.1323cc states that all contracts even though they are not of the types that are particularly regulated are subject to the general rules contained in this title.

In practice, major business contracts are quite often a mix of different contractual types [example: sale +]

1. Contract for work + license of know how = manufacturing and supply agreement
2. Unnamed contracts (contratti innominati) do not have a tag (etichetta) must in any case follow the rules.
3. Contract can be categorized according to:
   • Contract formation: contract can be formed immediately or after a process of progressive negotiation
     • Immediately: the formation and the conclusion are contemporary, made at the same time, there is no preliminary stage, the contract is immediately legally binding.
     • Progressively: it requires various stage of negotiation and the drafting of pre-contractual documents. [Sale contracts usually do not require long negotiation]
   • Contract Conclusion (in Common Law conclusion has no meaning): when you conclude a contract you give legal force to the agreement reached and give the right to both parties to protect its position against the non-performers of the obligation, the parties have the right to go to the judge and ask for the protection of their rights.
4. Oral or written agreement:

the large majority of contract is expressed, in practice it is always written down and signed. A contract can also be concluded with no form at all but as a result of specific conduct/behavior -> Implied contract (contratto implicito o contratto per fatto concludente), we have no expressed agreement and no written document but a behavior that gives the evidence that there is an agreement. [comportamento che determina un'obligazione contrattuale anche se non è stato in alcun modo formalizzato] not employed in international contracts, international contracts are mostly written, oral contracts create problems in terms of proving the content of the obligation and evidence. While in general terms contracts can be valid orally and with no form at all, some contracts (sale of immovable goods) usually require a written form and even the notarization of the contract. - Time required for their performance: simultaneous or long-term, in the case of sale the performance is immediate but in acooperation to set up a company (joint venture). The obligations will last for years. Contract formation: The conclusion of a contract is the result of different phases: - Negotiation (pre-contractual phase, the contract does not exist yet and there are no obligations): People who first get involved are managers or entrepreneurs who meet and get in touch with potential business partners. They start discussing, and the parties try to obtain the most possible advantages. Gradually, the content of the agreement becomes clear. - Drafting: Formalize the content discussed during the negotiation. The agreement is formalized in a written and formal way. The matter passes from business people to legal people, internal officers of the company (legal office) or external lawyers. They draft the document according to the instructions received from their client. - Execution: The moment when the contract becomes valid or can be later. The entry into force (entrata in vigore) can happen months after the signature of a

contract- Performance- Enforcement

Negotiation are more complicate for international negotiations because of language issues and intercultural and communication. The formation of an agreement may be immediate (not in international transactions) or progressive. Major business transactions are characterized by long and complex negotiations preceding the contract conclusion. In negotiations, the bargain power is the most important aspect. It allows the parties to reach the balancing point of respective interests, one party can be stronger than the other and therefore his bargaining power is stronger. [Coca Cola and local producer]

The negotiation phase does not provide obligations upon the parties, the parties are free to conclude or not the contract, the conclusion is still just a possibility but this does not mean that the parties does not have obligations at all. Negotiation shall be done at good faith (bona fides, it is a Roman principle, it has been adopted by Common Law systems). Italian Civil

Code requires each party to conduct itself in accordance with the principle of good faith and prescribes specific duties of disclosure, clarity, and confidentiality. The parties are free to do what they want within the border of good faith. [one of my suppliers is discussing a contract with one of my worst competitors, I get in touch with this company to negotiate a contract that I'm not really interested in but I want to negotiate just to avoid the parallel negotiation of a similar contract with my competitor, this behavior if it is proved can lead to a request of damages] [concealing information that would have led the other party to behave in a different way, the border is blurred because in business a certain level of unfairness is accepted]

It is considered by many sources of international business law, for example, principles of international contracts, standards prepared by international associations or by the ICC. It is also part of the Lex Mercatoria, not only of legislation.

countries. For example UNIDROIT gives a definition of “good faith”-> art.17: each party must act in accordance with good faith and fair dealing in international trade, the parties may not exclude or limit this duty. A party is free to negotiate and it is not liable for failure to reach an agreement. However, a party who negotiates or breaks negotiations in bad faith is liable for the losses caused to the other party. [It is considered bad faith entering in negotiation when you don’t intend to reach an agreement with the other party]

During negotiations, the parties can write pre-contractual documents on the points reached during the negotiation phase -> letter of intent, memorandum of understanding, or terms of agreement.

Letter of intent*: letter sent to the other party for acceptance where you summarize the points reached during the negotiation. It is signed by the parties usually stating the progress of negotiation and listing the main points of agreement already reached.

generally non bing exceptfor those parts regulating negotiation itself.In other case the letter is written as a memorandum, it is like a very simple contract. The partiesdeclare the intention of negotiating in good faith an agreement the content of which shall bedecided. The content of this document is not about the details of the contract, the only obligationis to negotiate in good faith. The parties are free to conclude or not conclude a contract (thecontent of the contract can be different from the letter fo intent).The letter of intent is a basis for discussion, it is not legally binding, it a strong moral value for theparties, the parties are free to negotiate, the only obligation is to negotiate in good faith, if theletter is written in a way close to a contract maybe a judge will decide that it is a contract.Nomen Iuris (name of the law): the name that you give to a certain documentThere can be a conflict between the nomen iuris and the content of the document (the contentdoes

not reflect the nomen iuris), in general the content prevail on the name.

Pre-contractual documents are not binding contracts as far as the content of the future contract is concerned, the parties are free to negotiate even if they are morally and professionally bound to the word given. The only obligation is to negotiate in good faith. It is not true for some parts of the document for example confidentiality of information that are actually binding. It a matter of how the letter of intent is drafted, if they are written in such a way that is close to a final biding contract maybe a judge will decide that that document is a contract and therefore binding.

Art.2932cc Preliminary contracts are different, they are contracts binding upon the parties and the main obligation is to conclude a contract. Preliminary contracts are common in international practice, they are binding contracts, the main obligation is not to negotiate but to conclude a contract. They are common in M&A (merger and acquisition) transactions.

1. Acquisition transactions, typical in foreign direct investments, if you buy a company the process is called acquisition, first phase is called signing it is a preliminary contract, there are a lot of things to be done before the conclusion of the transaction (buying shares, check the financial situation).
2. Letter of intent*: letter or drafted as a contract (p.22)
   • Nomen Juris
   • Heading: parties identify and describe themselves
   • Purpose of the present negotiation: supply
   • Provision that binds the parties to the duty to negotiate in good faith: only obligation
   • Description of the product: quantity + quality
   • Price and Incoterms: terms given by the ICC, FOB (buyer -> cost) and CIF (buyer -> cost + transportation + insurance)
   • Indicative deadline for completing the future agreement (+sanction): time of supply and of negotiation
   • Agreement to discuss the possible development of their contractual relationship
   • Exclusivity clause (stand still): legally binding contractual obligation

give the exclusivity of negotiation for a limited period of time to a certain subject

- Confidentiality clause -> legally binding contractual obligation

- Signatures of the legal representatives of the parties (individual person who has the legal representation for the legal person/company)

There are no clauses on dispute resolution and applicable law

International contracts are explicit and written, they are set up in a formal framework which is quite uniform at international level, there is a kind of stylistic standard widespread.

Drafting

When parties write down their obligation they act as legislators of themselves.

In the 19th century contracts were called “the law of the parties”. What is written in the contract is law, compulsory and must be fully observed, any violation is sanctioned by some law.

The contractual text should reflect the will of the parties, it is a kind of guideline of their business behavior, it gives continuous instructions on how to behave, this is

particularly true for long term contractual relations. Contr