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Officially, this book has been in the making during the 15 years or so that I have taught a course on comparative commercial law at the James E. Rogers College of Law, University of Arizona. My teaching of this course was encouraged by my colleagues David A. Gantz and former Associate Dean Kay Kavanagh; unofficially this book has been in the making during much of my lifetime.
As a young law student in Cuba during the Batista dictatorship, I kept asking myself if all the rule of law could do was to passively watch how bloody and costly violence—albeit periodically clothed in revolutionary garb—was destroying whatever was left of democracy and economic development in my country of birth.
Subsequently, during my LLB studies at the University of Miami and as an LL.M. and S.J.D. student at the University of Michigan, my search for the role of law, and especially commercial law, acquired a direction. It became apparent to me that the U.S.’s legal system was better at resolving pressing socio-economic problems than the one I had left behind. And unlike Cuba, my adopted country did not regard violent revolution as the solution to its injustices and shortcomings, economic and other: elections, statutes, court decisions, law schools, law reviews, law practice, etc. were all legal institutions involved in bringing about non-violent, needed changes.
I remember discussing the topic for my S.J.D. thesis with my University of Michigan mentor Professor Hessel E. Yntema. I told him of my search for a version of the rule of law that could accommodate non-violent, but much needed social change. In response, he asked me about my favorite courses at the University of Miami and I told him about a contracts’ course taught by Professor Richard Hausler and a suretyship course taught by Professor Wesley Sturges, a former Dean of the Yale University Law School. He asked why I liked those courses and I told him that they vividly highlighted the judges’, law professors’ and students’ struggle with formulating their versions of commercial justice. Granted, those issues were not as monumental as those of racial integration or curbing abuses of power by the executive branch. Yet they illustrated how judges, lawyers, law professors and students contributed to such a formulation. I also told him how deeply I had been impressed with a Justice Cardozo dissenting opinion in a letter of credit decision in which the paying bank raised the widely accepted principle that when examining letter of credit documents, bankers deal only in documents and not in goods. Thus bankers were not supposed to concern themselves with an alleged fraudulent tender of documents which indicated the shipment of newsprint of a certain tensile strength when in fact it could not be used to print newspapers. While accepting the soundness of the invoked principle, Cardozo explored transactional questions such as: Who was the plaintiff and who was the defendant, and what did they know about the fundamental defects of the goods probably fraudulently described in the tendered documents? Did a confirming bank which had paid the beneficiary of the letter of credit without knowledge of the latter’s s fraud have a better right to be paid by the issuing bank than the seller who was a party to the fraudulent presentation? And then he asked the crucial question: Is a fraudulent or forged document a document, let alone a complying document in letter of credit law? I told xProfessor Yntema that reading this decision was my first encounter with a jurist who truly knew how to resolve an everyday practical problem of commercial justice.
Yntema must have liked what he heard because he told me that while he could not be my advisor for a thesis that explored the global meaning of the rule of law and its contribution to economic development, he would be glad to be my advisor in my use of the comparative method to help resolve practical problems of justice similar to those tackled by Justice Cardozo. (A month later, while translating one of Professor Yntema’s writings into Spanish, I discovered that he had expressed the view that a principal mission of comparative law was precisely to help resolve every day practical problems of justice).
The doctoral work he supervised eventually resulted in a book (Commercial Letters of Credit in the Americas) which together with my subsequent writings on commercial and standby letters of credit enabled my contributions to the resolution of the practical problems of letter of credit justice first as a scholar and commentator and eventually as part of a group of drafters of customary, statutory and treaty letter of credit law. I owe the publication of that book to John (Jack) W. Riehm, who after being my very supportive dean at Southern Methodist University (where I started my teaching career) became the president of the Matthew Bender & Co. His widow Doris remains part of our family and continues to be one of the most faithful supporters of the work of the National Law Center for Inter-American Free Trade (NLCIFT), about which more shortly.
One of my most important intellectual experiences at SMU was the start of my lifelong friendship with Australia’s Professor Julius Stone. Julius’ wisdom, his vision of the role of law in society and his recognition of the central role of ethical principles have remained a source of inspiration, especially when writing this book. After reading my article, Fairness in Anglo and Latin American Commercial Adjudication, he told me how much he enjoyed it and expressed the hope to be around when that article became part of a larger book on what he termed the anatomy and physiology of commercial law making. From the close spiritual distance that always unites us, I toast my mentor and friend Julius Stone and I am glad to report to him that the book he anticipated is here.
My first exposure to commercial law as a tool for economic development took place in Costa Rica where from 1967 to 1969 I directed the United States Agency for International Development (USAID) Law Reform Project. I was lucky to be surrounded by a highly talented and motivated group of law graduates of some of the finest law schools in the United States. Among them were Blake T. Franklin, David A. Gantz and Lorin (Laddy) S. Weisenfeld, who subsequently became highly respected lawyers and life-long friends. Blake is the Vice Chairman of the Board of Directors of the National Law Center and David is one of the nation’s top international trade scholars and teachers. He is also the director of a highly successful LL.M. program on international trade and business law at the James E. Rogers College of Law, University of Arizona since its foundation approximately 22 years ago. Laddy has had a brilliant career as a legal advisor to the Overseas Private Investment Corporation (O.P.I.C). and the World Bank.
On the Costa Rican side, we enjoyed the unconditional support of the late and lamented Dean Carlos Jose Gutierrez and Professor Octavio Torrealba, Costa Rica’s xiablest commercial law scholar and practitioner and my co-author of a commercial law textbook still in use in Costa Rican law schools. The Costa Rican research team consisted of some of that country’s most talented young commercial lawyers, including Lic. Rodrigo Oreamuno, who later became Costa Rica’s Vice President and Interim President.
Together, Costa Rican and United States lawyers explored the effect of commercial legal institutions upon Costa Rica’s economic development. Among these was the failure of the law of business associations to encourage corporate capital formation. In that research project, we learned the importance of familism as a cultural trait. One of our questionnaires, directed to potential middle class investors, inquired why they preferred to invest in second mortgages that yielded an interest rate far inferior to that yielded by the annual dividends of a well-established stock company. The almost unanimous response revealed the distrusting effects of familism: “Why would such a company offer such a good deal to investors who are strangers to them, neither their family nor their friends?” In other words, good deals should only be expected from family and friends and not from contractual strangers.
Mutatis mutandis, the study on access to affordable commercial and consumer credit supported by the law of credit transactions (secured and unsecured) taught us that the predictability of collections could not be based upon penalties even if they were as severe as the imprisonment of defaulting debtors. As stated by a judicial official to our John Finch (one of our insightful researchers and subsequently also a successful lawyer), if he were to enforce such a law, it is likely that a good number of our government officials and judges would have had to spend a considerable time in jail themselves.
Finally, we learned that the mission of commercial law in economic development was to instill trust in its institutions, and that such a trust was not instilled by the severest of the sovereign’s commands, but by the fairness of legal institutions that benefitted both regular market participants and third parties. We also learned that commercial fairness was not a utopian or capriciously subjective notion. It was as real as the reasonable expectations of the regular participants and third parties in the Costa Rican marketplace.
Following my return to the United States at the conclusion of my duties at the Law Reform Project, I continued to teach commercial law and jurisprudence at the James E. Rogers College of Law and occasionally as a visiting professor at other United States, European and Latin American law schools. I also represented the United States at UNCITRAL and the United States Council on International Banking (USCIB) at the International Chamber of Commerce. This work was made possible in good measure by my good friend and colleague Professor James E. Byrne of George Mason University School of Law. His first periodical entitled Letter of Credit Update rescued my letter of credit writings from near anonymity. His enthusiastic support of my work continued during his chairmanship of an American Bar Association Task Force for the Revision of Article 5 of the U.C.C. Byrne introduced me to Dan Taylor, the able president of the USCIB, and Dan appointed me the United States Representative to the International Chamber of Commerce for the revision of UCP 400.
Professor Byrne also introduced me to Harold S. Burman, Esq., the Executive Director of the Secretary of State’s Advisory Committee on Private International Law. xiiBurman was responsible for NLCIFT’s and my participation in UNCITRAL as part of the team led by Byrne for the drafting of the International Convention on Independent Bank Guarantees and Standby Letters of Credit. My work as one of the drafters of UCP 500 and of the UNCITRAL Convention on Independent Bank Guarantees and Standby Letters of Credit led to my subsequent participation in the revision of Article 5 of the U.C.C., a task in which I worked with Byrne and our common friend James E. Barnes, Esq.
Byrne’s introduction to Burman was fateful because subsequently, the Legal Advisor’s Office of the United States Department of State appointed me as a United States Delegate to the Organization of American States during the enactment of the OAS Model Law on Secured Transactions. This law that has been adopted by several countries in Latin America and has also influenced the adoption of several other laws in Africa, especially with the world-class expertise of the NLCIFT’s Dr. Marek Dubovec.
I often refer to Harold Burman as a soul mate because we share intellectual heroes and one of them is Professor Karl Llewellyn, Harold’s teacher at the University of Chicago Law School. At NLCIFT, we owe him much of our success in getting significant commercial treaties, model laws and regulations adopted not only by the OAS, but also by its member countries; we are very happy that his successor, Michael Dennis, Esq., shares his dedication and ideals and is beginning to make his mark in very important UNCITRAL projects.
It was not until Professors Gantz and Kavanagh convinced me to teach a course on comparative commercial law that I was able to reflect pedagogically on the role of commercial law upon economic development. For a good number of years prior to that, I was the beneficiary of the anthropological teachings of E. Adamson Hoebel, the seminal figure of legal anthropology. During Hoebel’s visiting professorship at the James E. Rogers College of Law, I learned how useful cultural anthropological analysis was in identifying archetypal legal and commercial behavior. We remained close friends until the end of his life and this book reflects many of his lessons.
The creation of the NLCIFT and the LL.M. and subsequently of the Ph.D. in international trade and business law programs at the James E. Rogers College of Law contributed significantly to the breadth of the comparative commercial law course and of this Hornbook. The NLCIFT was founded in 1992 as a non-profit research institute affiliated with the University of Arizona. This arrangement was made possible by Joel E. Valdez, the then Vice President for Business Affairs of the university, a true community leader and of one of NLCIFT’s most loyal and noble supporters and the drafter of the University of Arizona and the NLCIFT Affiliation Agreement. This agreement was signed by former Dean Thomas Sullivan, renewed by former Dean Lawrence Ponoroff, and by his successor Marc Miller, both enthusiastic supporters of joint research and teaching projects with NLCIFT.
NLCIFT’s work consists largely in bringing about the uniformity or harmonization of commercial law in developing nations; it began with Latin America and subsequently it was taken to Africa and is now beginning to find its place in Asia. Its initial financial support came from United States congressional appropriations, made possible by the visionary leadership of former Congressman Jim Kolbe, one of the principal architects of the North American Free Trade Agreement (NAFTA) and of the xiiiCentral American Free Trade Agreement (CAFTA), some of whose negotiations took place at the NLCIFT headquarters. Following an initial period of federal and state appropriations, the federal congressional funding mandate was assumed by the United States Department of State. NLCIFT is also a contractor with the International Financial Corporation (IFC) of the World Bank, whose secured transactions’ program is superbly led by Dr. Alejandro Alvarez de la Campa with the assistance of Elsa Rodriguez Felipe and now of John M. Wilson Esq., a former student and subsequently a staff member and Project Coordinator at NLCIFT and thereafter, Legal Advisor at the Organization of American States.
NLCIFT has also been fortunate in being able to count upon the guidance and assistance of a highly professional, devoted and motivated board of directors presided since shortly after its foundation by Phillip A. Robbins Esq., one of Arizona’s most respected lawyers and president of the Arizona-Mexico bar. NLCIFT and I owe much gratitude to the late and lamented Judge John J. Molloy He was NLCIFT’s board secretary for more than a decade and in his spare time co-authored and edited with me the four volume NLCIFT treatise on United States Law of Trade and Investment, I am similarly indebted to my friend, former student and board member, Paul Karon and to his wife Patsy for their unfailing support of NLCIFT.
Unlike the traditional uniformity and harmonization work which relies on a transplantation of successful statutes and regulations from other legal systems and cultures, the NLCIFT takes into account those socio-economic and cultural factors that are likely to ensure the success of its joint work with the enacting governments. Thus NLCIFT contextual “roadmaps” on topics such as cross-border truck transportation, check clearing, bank regulations and secured transactions typically take into account variables such as: Archetypal private and public participants, the nations’ legal, business and political culture, and the legal institutions that could contribute to or detract from the success of the projected normative work.
This Hornbook incorporates much of the NLCIFT methodology and experience with contextual comparisons. Thus, it is intended for use not only in United States law schools, law offices and legal research and business libraries but also in their counterparts in civil law countries. For this reason, it had to be written in a manner sensitive to what each group of readers is likely to know about the legal institution in question. This explains its large number of footnotes and cross-references designed to provide the quickest possible access to the explanatory comparative data, as it also explains the length of its glossary and topical and conceptual index. The same is true with repeated short explanations of the same legal institution, if that institution is likely to be foreign to one segment of readers or to students who take only one part of the course.
My frequent use of first person style of writing is motivated by a desire to engage the reader in a continuing comparative law dialogue. I do not use cases for purely Socratic or dialectic purposes, as is often done by many case-books, because we have too many contextual gaps to fill. Thus, this book uses court decisions mostly to illustrate and confirm what has been stated in the black letter portion of the principal text.
To conclude, I wish to thank those who have motivated the writing of this book and who have aided and encouraged its completion ever since I became a comparative xivlawyer under Professors Yntema’s, Stone’s and Hoebel’s tutelage. I have been lucky to count on the support of a loving family starting with my wife Billie, who has doubled as a long time rigorously precise editor, and continuing with my children Abbie, Raphael, Diana, Shaun and David and my grandchildren Sigal, Liana, Alex, Ethan and Jacob, my sister, Marta, the two other Borises (Kozolchyk and Rosen), the extended Kozolchyk and Olchyk families, my lifelong friends Isaac and Sarita Kreps, Nardo Zaias, Jacques and Victoria Ciepielewski and Sam and Lolita Grabb they redefined a close friendship and into a close and caring family. I have also been lucky to enjoy the enduring comradeship of Professors David A. Gantz, James E. Byrne (David and Jim’s contributions were noted above) and Roy Spece. Roy has been kind enough to read all the chapters and his comments have always been insightful and helpful. I am similarly indebted to my close friend and colleague Professor Dale Furnish for having used an earlier and shorter version of this book in his teaching of a widely attended undergraduate course at Arizona State University and for his brotherly support since we both started teaching law in this state; Dale is also a devoted NLCIFT board member, researcher and co-author. I also wish to express my gratitude to my former student and present colleague Dr. Marek Dubovec., who has become one of the world’s true experts on the law of secured transactions and who was kind enough to comment on several chapters of this book.
I owe to my colleague and former Dean Lawrence Ponoroff the introduction to Louis Higgins of West Academic Press, who has been an understanding and cooperative publisher. Last, but certainly not least, I have been most fortunate in having the support of an extraordinarily capable and giving staff at NLCIFT. It is not an exaggeration to say that without the support and patience of Donna Vulpis, my assistant for many years, this book may not have been written. Keeping track of such a large manuscript and of its many additions and deletions for more than a decade of preparation has often been a super-human task; she discharged it with invariable generosity and good cheer. I am also very grateful to my former students who have doubled as editors and research assistants. The most recent among them is Brad Terry. He, Donna, Cristina Castaneda, Lauren Weiss, Elizabeth Pocock and Billie Kozolchyk comprise the fine team of editors this book has enjoyed during its fifteen year preparation.
As is customary, I assume responsibility for the errors and omissions of this book.