Contracts
US Contract Law
Doing business in the United States often requires drafting and negotiating contracts under US law. Even if you are familiar with English, the legal and technical nuances can quickly become challenging. At that point, the question arises: do you need legal guidance – and how do you choose the right advisor? Galaniuk Law answers these questions and highlights key legal aspects that matter when entering into contracts in the US.
Expert Legal Support for US Contracts
Which skills are really decisive when choosing a consultant? Contracts with US partners or a matter relating to the USA usually have the following characteristics in common. The contracts are drafted, negotiated and concluded in English and in accordance with the Anglo-American style. These facts logically lead to one result. Legal advice on the conclusion of US contracts can only be provided optimally and efficiently by a lawyer who speaks English as a native language, grew up in the USA and has completed the legal education in the USA as his or her first legal training.
If bilingualism, dual legal qualifications and a keen understanding of business contexts are also present, as is the case with Galaniuk Law, for example, then all of these characteristics make up an ideal consultant profile.
Case Law and Its Impact on US Contract Law
The significant difference between US contract law and German contract law described below further demonstrates why the aforementioned lawyer profile is indeed decisive. The determination of law in the USA follows different technical rules than in Germany. In the USA, primarily in civil law, case law or judge-made law prevails. Of course, the UCC (Uniform Commercial Code) is a legal standard in the USA. But not to the extent that the focus on individual cases is superseded. Compared to normativism, casuistry in the USA can lead to confusion and an impairment of legal certainty.
For this reason in particular, precision and mastery of all nuances are important when drafting US contracts. By regulating the legal relationship between the parties privately and autonomously, an attempt is made to avoid the uncertainties of contract law casuistry in the USA. With regard to US and Anglo-Saxon oriented contracts, the lawyer who has been fundamentally influenced by English as a native language is preferable.
Managing Damage Risks in US Contracts
The rules in the USA regarding compensation for damages are comparable to those in Germany with a few exceptions. The legal principles in the USA provide for compensation for consequential damages and lost profits similar to those in Germany (see § 252 BGB). Contract negotiations, especially as a supplier, are no different in the USA. The exemption from liability for consequential damages, including lost profits, should be expressly included in the contract. Above all, IT or technical service providers should attach great importance to this indemnification.
The differences between US law and German law on damages should also be included in the liability waiver if possible. This concerns the so-called punitive damages or treble damages. In most cases, this concerns particularly serious cases with a tort law background. It should be noted that under US contract law there is no review of the content of general terms and conditions, which can, for example, declare a typical and balanced indemnification clause invalid even in B2B business.
Retention of Title and Security Interests in the US
Especially as a supplier to the USA, advance payment cannot always be agreed. Terms of payment with payment terms of up to 30/60/90 days are common in the USA. Unfortunately, a retention of title clause, as is customary under German law (see § 449 BGB), does not help in the USA, as such clauses are not effective. Instead, the purpose of the clause is reinterpreted and a so-called “security interest” is fictitious (see §2-401(1) UCC, §1-201 (35) UCC).
But this security interest can come to nothing if senior creditors have properly filed security interests with the secured transactions registry (through a UCC-1 filing statement). Research, planning and preventive structuring can avoid some nasty surprises.
Inspection Duties and Notice of Defects under US Law
Security and trust in legal transactions are guiding principles that strongly characterize national contract and sales law. Both German and US sales law follow this guiding principle. The obligation to inspect and give notice of defects and the possible fiction of approval as a legal consequence pursuant to §377 HGB standardizes this guiding principle in Germany and §2-606, §2-607 UCC standardizes it in the USA. In particular, suppliers who are obliged to make partial deliveries or deliveries on a long-term basis should remain vigilant when formulating the legal consequences of material defects in the US contract.
This is because the dispositive legal situation can lead to the buyer withholding payments as compensation for damages, but the supplier is still obliged to deliver. This result is particularly painful if the parties disagree as to whether there is a material defect at all. Precisely formulated contract terms, taking into account the dispositive US sales law, can avoid some of the pitfalls.
The Role of Fault in US Contract Law
Unlike German sales law, which requires fault before claims for damages can be asserted, fault is not a requirement under US sales law. Manufacturers will not experience any legal difference here, as they will normally be responsible for defects in the goods they produce and sell. However, the situation is quite different for intermediaries, who are frequently involved in international business.
Since there is no assumption of responsibility under US law, the intermediary in the USA is also liable for damages. An intermediary who enters into a US transaction may therefore secure a better legal position by using a sales contract under German law.
Who Pays Legal Fees in a US Contract Dispute?
Unfortunately, the socio-political and legal policy objective that opposing parties should be guided by the prospects of success when making decisions is not really present in the USA due to the lack of cost regulation. In the USA, each party bears its own legal costs in the event of a legal dispute.
When concluding a contract, it is therefore possible and not uncommon in the USA to include a provision according to which the loser of a lawsuit must pay the legal fees of the superior party. This creates a legal situation similar to that in Germany (see §§91 ZPO).
Contractual Penalties and Liquidated Damages in the US
A contractual penalty known from German law (cf. §339 et seq. BGB) is ineffective in the USA. Contractual penalties can serve as a means of pressure for the fulfillment of the contract and the fulfillment of the contract is normally not available as a legal remedy in the USA for legal policy reasons.
In contrast, liquidated damages are permissible. The wording of the contractual provision is important to ensure that it is not subsumed as an invalid contractual penalty.
Your Advantages with Galaniuk Law in US Contract Matters
The German SME sector is a successful global player. A prerequisite for success is the creation of reliable structures for foreign commitments. This requires a lawyer who is a native English speaker and is familiar with both German and Anglo-American law. Most international contracts are drafted in English on the basis of Anglo-American legal practice.
You do not have to compromise when choosing a lawyer: Attorney Galaniuk, with his unique selling points focused on US business, specializes in US commercial and US contract law in connection with German-American business. German-American business transactions.
