Volume 4, Number 30, Page 2

Venezuela: The Legal Basics of Trading

by Jaime Martínez Estévez

The following summary of Venezuelan law applicable to international sales contracts describes some of the most significant legal issues for investors to bear in mind.

Governing Law

The parties to an international sales agreement may decide to subject it to a foreign law. Under the Inter-American Convention on the Law Applicable to International Contracts (the "Convention on Applicable Law"), signed in Mexico on March 18, 1994 and ratified by Venezuela, the choice of applicable law must be express or must evidently arise from their performance and the contractual conditions (Article 7). The submission to a jurisdiction does not necessarily imply the choice of that jurisdiction’s law.

Absent an express choice of the governing law, if the agreement is made in Venezuela, Venezuelan law will apply. The agreement will be deemed to have been made in Venezuela if the initial offer (or the modified acceptance, which is deemed a new offer) originated in Venezuela (Article 115 of the Venezuelan Commercial Code). Reference to the law of the place where the agreement is entered into is also made by Article 186 of the Convention on Private International Law, signed in La Havana on February 20, 1928 and known as the "Bustamante Code." Pursuant to the Convention on Applicable Law, absent a selection of the governing law, the agreement will be governed by the law of the jurisdiction with which it has more connections (Article 9).

Although Venezuela subscribed to the United Nations Convention on Contracts for the International Sale of Goods, signed in Vienna on September 30, 1981 (the "Vienna Convention"), the Venezuelan Congress has yet to approve it, and therefore it is not binding in Venezuela (Article 148 of the Constitution). If the Vienna Convention were ratified and became applicable to a particular contract, the Inter-American Convention on Applicable Law would be disregarded for international sales of goods contracts (Article 6 of the Inter-American Convention on Applicable Law).

Furthermore, agreements entered into abroad but performed in Venezuela will also be governed by Venezuelan law (Article 160 of the Venezuelan Commercial Code).

Uses of trade may be binding if generally accepted (Article 9 of the Commercial Code). This legal provision opens the possibility for international commercial practices and rules (lex mercatoria) to become binding absent special legislation and contractual agreements.

Competent Jurisdiction

The parties may submit to a foreign jurisdiction (Article 2 of the Civil Procedure Code). The parties may also agree to submit to arbitration, including international arbitration. Pursuant to Article 218 of the Bustamante Code, however, the parties should submit to the jurisdiction of the courts of a state of which they are nationals or in which they have their domicile, except for contrary local law (Article 318). The submission to a foreign jurisdiction does not by itself eliminate the jurisdiction of the Venezuelan courts. An express exclusion would need to be made (Articles 5 and 12 of the Civil Procedure Code). The Venezuelan courts will not be precluded from hearing a case because of a previous action still pending in a foreign jurisdiction (Art. 4 of the Civil Procedure Code).

The Venezuelan courts will have jurisdiction for cases brought against a foreign party not present in the Venezuelan territory if the legal action refers to assets located in Venezuela, or if it is related to a contract made or to be performed in Venezuela (Article 35 of the Civil Code), or if the parties submitted to the Venezuelan jurisdiction (Art. 53 of the Civil Procedure Code).

Venezuela ratified the International Convention on the Enforcement of Foreign Judgments and Arbitral Awards, signed in Montevideo on May 8, 1979, and recently the Convention on Acceptance and Execution of Foreign Arbitrals Awards signed in New York in 1958.

Term of Acceptance

The offer will expire if acceptance is not received within the term set forth thereunder or, if no term is established, within the term necessary for the response to the offer, based on the nature of the agreement and the uses of trade (Article 112 of the Venezuelan Commercial Code and Article 1.137 of the Civil Code).

The offeror may revoke the offer while it has not received the acceptance, and the acceptance may be revoked while it has not reached the offeror, provided that no term has been established (Article 1.137 of the Civil Code).

A late acceptance can be effective if the offeror gives immediate notice thereof. E10E6">

Transfer of Title

Transfer of title occurs by simple consent (Articles 1.161 and 1.549 of the Civil Code). However, while the goods are in the possession of the seller, the seller can withhold them until satisfaction of the purchase price (Article 1.148 of the Commercial Code).

Delivery

Absent an agreement regarding the delivery of the goods at a given location, the delivery must take place where the goods are located or at the warehouse of the seller (articles 1492 and 1295 of the Civil Code). Absent an agreement to the contrary, the cost of delivery is borne by the seller (Article 1491 of the Civil Code).

Payment

Unless agreed otherwise, payment of the contract price must be made at the time and place of delivery of the goods (articles 1168 and 1528 of the Civil Code).

Interest would accrue on the purchase price, from the maturity date at the market rates, up to 12%, absent a different agreement (Article 108 of the Commercial Code).

Under Venezuelan law, a foreign currency denominated obligation can be discharged by the tendering of the Bolivar (local currency) equivalent if the foreign currency has not been designated as the currency of account and payment (Article 94 of the Central Bank Law and Article 449 of the Commercial Code).

Inspection

The purchaser must make an inspection of the goods and notify the seller of any defect or non-conformity within 2 days following receipt, absent special circumstances or a different agreement; if the defects are hidden, the buyer should issue the complaining notice within two days of their discovery (Article 144 of the Commercial Code). The claim for non-conformity has a very short statute of limitations (Article 1525 of the Civil Code).

Remedies

If the contract is breached, the affected party may cover. The seller will have the right to sell the goods in the market, through a broker or a person designated by the commercial court, and will be entitled to any shortfall from the purchase price agreed to plus damages. The purchaser will be entitled to purchase similar goods, in the same fashion, and request from the seller the payment of any excess amount plus damages (Article 142 of the Commercial Code).

The parties may terminate the agreement and request payment for damages or require specific performance plus damages (Article 1167 of the Civil Code). Damages will be limited to direct and immediate damages and those that were foreseen or foreseeable (articles 1274 and 1275 of the Civil Code).

Jaime Martínez Estévez is with the law firm of Rodner, Martínez & Asociados in Caracas.