Drafting The International Contract For Sale of Goods

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DraftingtheInternationalContractforSaleofGoods
BasicsofContracts
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SpecificContractProvisionsExplained
SpecificContractProvisionsExplained
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ContractDate
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ContractDate
Provision
ThisAgreementismadeon[date].
Comment:Thedatewhenthecontractissignedisusuallyalsothedatewhenitbecomes
effectiveunlessthecontractprovidesotherwise.Thisdateisparticularlyimportantifpayment
ordeliverytimeswillbefixedinreferencetoit.Forexample,acontractmayprovidefor
"shipmentwithin30daysafterthecontractdate."
Whendealinginternationally,youshouldrememberthattheconventionalformatfordates
differsfromcountrytocountry.Insome,thedayisstatedbeforethemonthinothers,the
monthisgivenbeforetheday.Toavoidconfusion,itishighlyrecommendedthatyouspellout
themonthwhendatingyourcontract.
IdentificationofParties
Provision
ThisAgreementismadebetween[fullnameofpartyA]of[addressofpartyA],a/an
[descriptionandnationalityofpartyA]("Seller"),and[fullnameofpartyB]of[addressof
partyB],a/an[descriptionandnationalityofpartyB]("Buyer").
Comment:Theagreementisbindingonthepartieswhosignit,andthesepartiesshouldbe
identifiedinthisclause.Toensurethatthereisnomisunderstanding,thefullnameofeachparty
tothecontractshouldbegiven.Ifapartyisanentity,thetypeofentity(partnership,
corporation,limitedliabilitycompany,nonprofitcorporation,andsoforth)shouldbedisclosed
here.Anyquestionastowhethertheentityorthepersonrepresentingtheentityhasauthorityto
makethecontractshouldberesolvedbeforethecontractisexecuted.
Thecommonpracticeistoincludetheaddressofeachpartyinthisprovision,although
sometimestheaddressesareincludedattheendoftheagreementwiththesignaturesofthe
parties.Theaddressgivenshouldbethebusinessaddressfortheparty.Ifapartyhasmorethan
onebusinessaddress,theaddressgivenshouldbefortheregisteredofficeortheprincipleplace
ofbusiness.Unlessotherwisespecifiedinthecontract,thisaddressiswherethepartywill
receivethegoods,thepaymentforthegoods,andanynoticesrelatedtothetransaction.
Ininternationalcontracts,thedescriptionofeachpartyincludestheparty'snationality.
Examplesofdescriptions:"aSocitAnonymeorganizedandexistingunderthelawsof
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France"or"apartnershiporganizedandexistingunderthelawsoftheStateofCaliforniainthe
UnitedStatesofAmerica"or"anindividualwhoisacitizenofSingapore."
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GoodsDescription,Quantity,andPrice
Provision
SaleandPurchaseofGoods.TheSelleragreestoselltotheBuyer,andtheBuyeragreesto
purchasefromtheSeller,goods(the"Goods")thatare[specifyeitherasdescribedinthe
attachedExhibitA,whichisincorporatedintothisAgreementorofthefollowingtypeforthe
priceandquantitystated:
ModelNumber:
Description:
Quantity:
Price:
Item:
TotalPrice:
Comment:Theprovisionforgoodscontainstwotermsthatareessentialtoallcontracts,
whetherinternationalordomestic:adescriptionofthegoodsandtheprice.Forthecontractto
beenforceable,thepartiesmustusuallyagreetobothoftheseterms.Althoughafew
jurisdictionswillallowthesetermstobeimpliedincommercialtransactions,thegeneralruleis
thatthesetermscannotbeimplied.
Ifadescriptionofthegoodsismissingorisnotspecific,enforcementofthecontractmaybe
impossiblebecausethegoodscannotbeidentified.Aclauseisconsideredsufficientlyspecificif
itissoclearthatbothpartiesfullyunderstandthespecificationsandhavenodiscretionin
interpretingthem.Thegoodsmaybedescribedbymodelnumbers,showninplansordrawings,
ordefinedbyotherspecifications.Formultiplegoods,youshouldprovideadetailedlist
attachedasanexhibittotheagreement.
Ifthepartiesfailtoagreetoapriceortoameansfordeterminingtheprice,thecourtsare
unlikelytoenforcethecontract.Youmayindicateatotalpriceforallgoodsorapriceperunit
orothermeasure,suchasperpoundorton,andtheextendedprice.Evenifthequantityofthe
goodsisnotfixedatthetimethecontractismade,ameansofdeterminingthepricemust
neverthelessbestated(refertoChapter8:DraftingPreciseContractProvisions).Inan
internationalcontract,itiswisetostatethepriceusinganabbreviationofthecurrencyinwhich
paymentistobemade,suchasHK$(HongKongdollars)orUS$(UnitedStatesdollars),to
avoidanymisunderstandings.
Thequantityofgoodsisimportant.Ifthecontractcoversgoodsofmorethanonetype,the
quantityofeachtypeshouldbegiven.Youmayspecifyanumberofunitsoranyothermeasure
ofquantity.Ifthegoodsaremeasuredbyweight,becertaintospecifynetweight,dryweight,or
drainedweight.
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PaymentTerms
Provision
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TermsofPayment.TheBuyerwillpaythepurchaseprice[specifye.g.,onorbefore(date)or
notlaterthan(number)daysbeforetheDeliveryDate].Thepaymentmustberemittedtothe
Sellerat[theaddressstatedaboveorspecifyotheraddress].Thepaymentmustbemadein
[currency]bymeansof[instrumentoftransfer].
Comment:Inaonetimetransaction,thesellerwilltypicallyseekthemostsecureformof
paymentbeforecommittingtoshipment,whileabuyerwillwantthegoodsclearedthrough
customsanddeliveredinsatisfactoryconditionbeforeremittingpayment.Thepartieswillneed
tonegotiateacompromisebetweenthesetwopositions,andeachshouldinsistoncertain
protectiveclausestoalleviatesomeoftherisk(refertoChapter8:DraftingPreciseContract
Provisions).
Ininternationalcontracts,youshouldalwaysspecifytheacceptablecurrencyandtheinstrument
ofpayment.Thecurrencyselectedshouldbestrongandstabletoallowsomeprotectionagainst
fluctuatingexchangerates,andthemeansofpaymentshouldbesecure.Forexample,the
paymentmaybemadebydeliveryofadocumentaryletterofcreditordocumentsagainst
payment,byadvancepaymentincashorwiretransfer,orbyalineofcreditforaspecified
numberofdays.
CostsandCharges
Provision
CostsandCharges.Thebuyerisresponsibleforthefollowingcostsandchargesincurredin
thesaleandtransportofthegoods:[list].Thesellerisresponsibleforthefollowingcostsand
chargesincurredinthesaleandtransportofthegoods:[list].
Comment:Youshouldspecifywhichpartyistopayanyadditionalcostsandchargesrelatedto
thesale.Evenifyouuseatradeterminyourcontracttoindicateoneparty'sresponsibilityfor
thepaymentofcostsandcharges,youshouldelaborateontheobligationsofbothparties.The
itemstobeconsideredincludeimport,export,andothercustomsandshippingfees,advalorem
andothertaxes,andexpensesforobtainingrequisitelicenses.
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PackagingandArrangements
Provision
PackagingArrangements.TheSellerhasdiscretioninpackagingthegoods,providedthatthe
packagingmustwithstandtransportation,preventdamagetothegoodsduringtransport,and
complywiththefollowingrequirements:[specify,e.g.,productwarningandoriginmarking
lawsoftheBuyer'scountry,assetforthinExhibitAannexedtothisAgreement].TheSeller
willendeavortocompleteallpackagingwithintimefortheDeliveryDate.Ifthereisanydelay,
theSellerwillimmediatelynotifytheBuyerofthedelay,theexpectedtimeforcompletion,and
thereasonforthedelay.TheBuyerwillthenhavetheoptiontorenegotiatewiththeSellerfora
newDeliveryDate,whichthepartieswillconfirminwritingasamodificationtothis
Agreement,ortonotifytheSellerthattheAgreementisterminated.
Comment:Ataminimum,thisprovisionshouldrequirethesellertopackagethegoodsinsuch
awayastowithstandtransportation.Ifspecialpackagingrequirementsarenecessary,you
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shouldspecifythemalso.Specialpackagingmayberequiredtomeetbothlegalrequirements
andmarketexpectationsinthebuyer'scountry.Thus,productsmaybesubjecttoimportation,
transportation,health,agricultural,environmental,navigation,construction,andconsumerlaws
andregulations.Compliancemayinvolvegettingalicenseorpermit,arrangingforinspections,
usingproperpackagingandlabeling,providingproofofinsurance,andpresentingproperentry
documentsforcustomsclearance.
Thepartiesmaydecidethatthebuyerwillberesponsibleforconformingthepackagingforsale
inthebuyer'scountry.Inthiscase,thesellershouldinsistonprotectiveprovisionsfor
intellectualpropertyandthirdpartyliability(refertoChapter8:DraftingPreciseContract
Provisions).
TransportationandDeliveryofGoods
Provision
DeliveryandTransportofGoods.TheGoodswillbedelivered[tradeterm,e.g.,F.O.B.]
[place]onorbefore[date]("DeliveryDate").TheSellerwilldelivertheGoodsinasingle
shipment.ThemodeoftransporttothepointofdeliveryisattheSeller'sdiscretion.TheSeller
willmakeeveryefforttocommencetransportoftheGoodssothattheywillarrivebythe
DeliveryDate.Ifthereisanydelay,theSellerwillimmediatelynotifytheBuyerofthedelay,
theexpectedtimefordelivery,andthereasonforthedelay.TheBuyerwillthenhavetheoption
torenegotiatewiththeSellerforanewDeliveryDate,whichthepartieswillconfirminwriting
asamodificationtothisAgreement,ortonotifytheSellerthattheAgreementisterminated.
Comment:Contractsforthesaleofgoodsmostcommonlyuseinternationaltradetermsusually
IncotermsasdefinedbytheInternationalChamberofCommerceinParistoassign
responsibilityfortherisksandcostsoftransport.Althoughinternationaltradetermshavebeen
standardized,inpracticetheirmeaningscanvary.Precisedefinitionsofthesetermsare
importanttoyourcontractbecausethesetermscandeterminesuchitemsaswhichpartyis
responsibleforinsuringthegoodsatanyonetime,thetimeatwhichtitletothegoodswill
transferfromsellertobuyer,andthepartyresponsibleforpayingcertaintransportationcosts.
IfyoudonotuseanIncoterm,thedeliveryandtransportprovisionmaysimplystatethenameof
thecarrierwhowillhandlethefreightshipment,designatethepointatwhichandthedateon
whichthegoodswillbedeliveredtothebuyer,andidentifythepartywhowillpayfor
transportationfrompointAtopointB.Ifmorethantwoorthreecarriersareinvolvedoryour
goodsrequirespecialtreatment,youwillhavetoaddextradetailstothisprovision.
Itisoftenwisetonameapreferredcarrierfortransportingthegoods.Youshoulddesignatea
particularcarrierif,forexample,acarrieroffersyouspecialpricingorisbetterablethanothers
totransporttheproduct.Ifthecarrierisdesignated,however,youmaybelockedintousingthat
carrierunderunfavorableterms.Therefore,thechoiceofcarriershouldremainflexible,evenif
apreferenceisstated.Anotheralternativeistodescribeatypeofcarrier,particularlyifspecial
handlingofthegoodsisrequired.Thetransportclauseshouldalsospecifyanyparticular
requirementsforstorageofthegoodsbeforeorduringshipment,suchassecurityarrangements,
specialclimatedemands,andweatherprotectionneeds.
Thepartiesmayincludenoticeprovisions,particularlyifgoodsarenotreadyforimmediate
transfer.Thus,asellermayberequiredtonotifythebuyerwhenthegoodswillbereadyfor
deliveryorpickup,particularlyifthegoodsareperishableorfluctuateinvalue.Ifyour
transactionistimesensitive,youcouldevenprovideforseveralnotices,whichwillallowyouto
trackthegoodsandtotakestepstominimizecostsanddamagesifdeliveryisdelayed.
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Insurance
Provision
Insurance.The[Buyer/Seller]willobtainandpay,onitsownaccount,forallinsuranceonthe
Goodswhileintransit,providedthattheinsuranceobtainedwillincludefortheprotectionof
the[Seller/Buyer]coverageforthefollowing:[specify].Evidenceofthisinsurance,intheform
ofacopyofthepolicyorotherstatementprovidedbytheinsurer,willbeprovidedtothe
[Seller/Buyer]beforetheGoodsareshipped.Eachpartyisresponsibleforobtainingonitsown
accountanyotherinsurancecoveragefortheGoodsthathe/shemaydesire.
Comment:Youshouldspecifytheinsurancerequired,thebeneficiaryofthepolicy,theparty
whowillobtaintheinsuranceandwhowillpayforit,andthedatebywhichitmustbe
obtained.Youshouldalsoagreeonwhichdocumentswillbeconsideredsatisfactoryevidence
ofinsurance.
TitletoGoods
Provision
TitletoGoods.TitletotheGoodswillpasstotheBuyeratthetimetheGoodsaredeliveredto
[place],providedtheBuyerhastransmittedpaymenttotheSellerbythattime.
Comment:Thisisacriticalprovisionbecause,ifthegoodsarelostduringtransit,theparty
withtitlegenerallybearstherisk.Thegeneralruleisthattitletransfersatthepointwhenthe
sellerdeliversthegoodstothebuyer.Thus,ifthebuyerpicksupthegoodsattheseller'splace
ofbusinessandcarriesthemoff,titlehastransferredandthebuyerbearstheriskoflossor
damageduringtransport.Ifthesellershipsthegoods,titlemaytransferatanypointduringthe
transit,evenrightuptothebuyer'sdoor,dependingontheagreementoftheparties.Eachparty
shouldbecertaintoinsurethegoodsfortheentiretimethatthepartyholdstitletothegoodsor
bewillingtotaketheriskoflossordamage.
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Import/ExportDocumentation
Provision
Import/ExportDocumentation.TheSellerwillberesponsibleforobtaining,completing,and
presentingto[country]customsallexportdocumentationandfeesrequiredforclearance,
includingthefollowing:[list].TheBuyerwillberesponsibleforobtaining,completing,and
presentingto[country]customsallimportdocumentationandfeesrequiredforclearance,
includingthefollowing:[list].TheBuyermustnotifytheSellerthatallimportrequirements
havebeenmet.TheSellerisnotrequiredtoshiptheGoodsuntiltheBuyerfurnishestheSeller
withproofthattheimportrequirementsandfeeshavebeenorwillbetimelymet.Ifshipmentis
delayedbecausetheBuyerfailstofurnishsuchprooftimely,theSellerwillnotbedeemedto
havebreachedthecontract.
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Comment:Shipmentofthegoods,andeventhecontractitself,maybemadecontingentona
party'shavingobtainedorarrangedinadvancetheproperlicenses,inspectioncertificates,and
otherauthorizations.Alwaysmakecompleteimportandexportdocumentationthatis,
documentationthatissatisfactoryforcustomsclearanceandentryarequirementofyour
contractforthepurchaseofproductsorcommodities.
Aswritten,thisprovisionisintendedtosplittheresponsibilityforcustomsclearancebetween
thepartiesinaccordancewiththerequirementsmostfamiliartoeachthesellerfortheexporting
country,thebuyerfortheimportingcountry.Theclausemaybeamendedtoprovidethatone
partywillmakeallarrangementsforcustomsclearance.
Invoices
Provision
Invoices.TheSellerwillissueprovisionalinvoicesandfinalinvoicesfortheshipmentofthe
Goods.TheinvoicesmustspecificallydescribetheGoods,thequantityoftheGoods,andthe
priceoftheGoods.
Comment:Ininternationaltransactions,invoicesservetoconfirmtheshipment,notifythe
buyerofshipment,andfurnishdocumentaryevidenceforcustomsclearance.Thecontract
shouldalsorequirethattheinvoicebeincompliancewithanyspecificrequirementsimposedby
thelawsorregulationsofthebuyer'sorseller'scountry,anditiswisetoappendthose
requirementstothecontracttofacilitatecompliance.
ReExportationProhibition
Provision
ReExportation.TheBuyercovenantsthattheGoodswillbeshippedtoanddeliveredin
[country]andthattheBuyerwillnotshipordelivertheGoodstoanyothercountry,norwillthe
BuyerreexporttheGoodsafterdeliveryin[country].
Comment:Thisclauseisespeciallyimportantifthegoodsmightbesubjecttoimportorexport
restrictions,includingtradeembargoes,inanyparticularcountry.Underthelawsofsome
countries,suchastheUnitedStates,asaletoabuyerwhointurnshipsthegoodstoanother
countrywhereasalefromthefirstexportingcountrywouldotherwisehavebeenprohibited
maysubjectthefirstsellertocriminalpenaltiesinthatseller'sowncountry.Penaltiesmaybe
imposedifthesellerkneworshouldhavereasonablyknownofthesubsequentexportandsale.
Thus,ifthesellerhasanysuspicionthatthebuyermaybedeliveringorreexportingthegoods
toaprohibitedcountry,thesellershouldavoidthetransactionentirely.Thisclausemaybe
amendedtoallowreexporttooneormoredesignatedcountriestowhichreexportsare
permissible.
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InspectionRights
Provision
Inspections.TheBuyerisentitledtoinspect,ortohaveitsagentinspect,theGoodsatthe
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[Seller'splaceofbusinessorpointofshipping].TheSellerwillpayreturnfreightchargesand
willreplaceGoodsthattheBuyeroritsagentrejectswithGoodsthatmeetthedescriptionand
specificationssetforthinthisAgreement.Oncompletionoftheinspectionandacceptanceof
theGoods,theBuyeroritsagentwillexecuteacertificateofinspectionandacceptance.The
inspectionandexecutionofthecertificatewillbeattheBuyer'scost.TheBuyer'sfailureto
inspecttheGoodswillconstituteawaiveroftherightofinspection,andtheBuyerwillbe
deemedtohaveacceptedtheGoodsasdelivered.
Comment:Thebuyershouldinsistonarightofinspectionofthegoodsbeforetakingdelivery
todeterminewhetherthegoodsmeetthecontractspecifications.Thisclauseshouldspecifywho
willdotheinspectionthebuyer,anagent,aneutralthirdparty,oralicensedinspectorwhere
theinspectionwilloccur(forexample,attheseller'splant,thebuyer'swarehouse,orareceiving
dock)andwhentheinspectionwilloccur.
Warranties
Provision
ExpressandImpliedWarranties.TheSellerexpresslywarrantsthattheGoodsarefreefrom
alldefectsofmaterial,workmanship,orinstallation.Within[number]daysafterdelivery,the
Sellerwillreplacefreeofallcharges,includingthecostoftransportation,anypartoftheGoods
founddefective.EXCEPTASEXPRESSLYSTATEDINTHISAGREEMENT,THESELLER
DOESNOTWARRANTTHEGOODSINANYMANNERATALL.IMPLIED
WARRANTIESOFFITNESSFORAPARTICULARPURPOSEOROF
MERCHANTABILITYAREDISCLAIMED.THEGOODSARESOLD"ASIS"ANDTHE
BUYERUNDERSTANDSANDAGREESTHATNORELIANCEHASBEENPLACEDON
THESELLER'SSKILLANDJUDGMENTTOSELECTORFURNISHGOODSFORANY
PARTICULARPURPOSE.
Comment:Thesellermayagreetoofferextendedorlimitedwarranties,ornowarrantiesatall,
astofitnessorqualityofthegoods.Theexacttermsofthewarrantiesshouldbegiveninthe
contract.Insomecountries,thelawwillimplywarrantiesunlessthesellerexpresslydisclaims
them.ImpliedwarrantiesalsoariseundertheUNConventiononInternationalSaleofGoods.
Becauseofenforcementdifficulties,itmaybewisetohavebothpartiesinitialthewarranties
paragraph.
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Indemnity
Provision
IndemnificationofBuyer.ProvidedtheBuyerhasnotalteredtheGoodsorthepackagingof
theGoodsinanymannerbeforesale,theSellerwilldefendanysuitfordamagesbrought
againsttheBuyerbasedonadefectinthematerials,design,ormanufacturingoftheGoodsor
onpatentortrademarkinfringementinconnectionwiththesaleoruseoftheGoods.Ifanaction
isbroughtagainsttheBuyer,itwillpromptlynotifytheSeller.TheSellerwillindemnifythe
Buyeragainstanyliability,damage,orexpensesincurredinconnectionwithanysuchsuitand
willpayanyjudgmententeredagainsttheBuyerinsuchsuit.
Comment:Anindemnificationclauseisoptional.Ininternationalcontracts,thesellerwill
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sometimesagreetoholdthebuyerharmlessfromdamagesthatarisefromspecificcauses,such
asadesignflawormanufacturingdefect,inordertoencouragethebuyertodebuttheseller's
productsinanewmarket.Ifanindemnityisgiven,thesellershouldalwaysinsistthatthereis
nochangeinthegoods,packaging,labeling,ormarkingsbeforethesaleanyalterationbythe
buyershouldcanceltheindemnity,unlessthealterationwasapprovedbytheseller.
IntellectualandIndustrialPropertyRights
Provision
IntellectualPropertyProtection.TheBuyerunderstandsthattheSellerownstheexclusive
rightsinthedesigns,patents,trademarks,tradenames,andcompanynames(the"Intellectual
Property")usedinconnectionwiththeSeller'sGoods.TheBuyerisgivennorightsinanyof
theSeller'sIntellectualProperty.TheBuyerwillnotusetheSeller'sIntellectualPropertyasifit
weretheBuyer'sownproperty,norwilltheBuyerregistertheSeller'sIntellectualPropertyin
anycountryasifitweretheBuyer'sown.TheBuyeracknowledgesthatitsunauthorizeduseor
registrationoftheSeller'sIntellectualProperty,orofanyintellectualpropertythatis
confusinglyordeceptivelysimilartotheSeller'sIntellectualProperty,willbedeemedan
infringementoftheSeller'sexclusiverights.
Comment:Theinfringementofrightsinintellectualproperty,trademarks,servicemarks,trade
names,patents,designs,andsimilarrights,shouldbepreventedifatallpossiblefromtheoutset
oftherelationshipbetweentheparties.Alltoooften,acompanywillmakeasmallsaletoa
foreignbuyer,whoneverplacesanotherorder.Then,fiveortenyearslater,thecompany
decidestoexpandintothatsameforeignmarketonlytofindthatitcannotregisterits
intellectualpropertytherebecausetheforeignbuyerhasacquiredregistrationofthesameor
nearlyidenticaltrademarks,tradenames,orpatents.Ifthecompanytriestosellinthatcountry,
itwillbechargedwithinfringement.Itsonlyremedyistobuyouttheinfringerorexpend
substantialtimeandcostsinfightingtheinfringementthroughthecourts.Thevalueof
intellectualpropertyrightsshouldnotbeunderestimatedevenforaonetimesaleandthey
shouldbeprotected.Thelegalremediesavailableagainstinfringersareofteninadequaterelative
totheharmcaused,andthereforealiquidateddamagesclauseisrecommended.
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TimelyPerformance
Provision
Time.Thepartiesagreethat[specify,e.g.,timeisoftheessenceortimelyperformanceofthis
Agreementisimportant,providedthatifapartyfailstoperformontime,thepartieswillstrive
torenegotiatetheterms].
Comment:IntheUnitedStates,thepartiestoacontractoftenstipulatethattimelyperformance
isessential.Theinclusionofthisclauseallowsapartytoclaimbreachsimplybecausetheother
partyfailstoperformwithinthetimeprescribedinthecontract.Inothercountries,aclauseof
thistypeisconsideredlessimportantbecausecontractingpartiesoftenwaiveorrenegotiate
terms,ratherthansuefordamagesonbreachofthecontract.Anoptionalprovisionisincluded
hereincaseyouprefertoamendthisclausetomorecloselyreflecttheinternationalpractice.
ConditionsPrecedent
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Provision
ConditionsPrecident.ThisAgreementissubjectto[specify,e.g.,theissuanceofanimport
licensetotheBuyerbytheappropriateagencyof(country)governmentandtheissuanceofan
exportlicensetotheSellerbytheappropriateagencyof(country)government].
Comment:Youshouldspecifyanyeventsthatmustoccurbeforeapartyisobligatedto
performthecontract.Forexample,youmayagreethatthesellerhasnodutytoshipgoodsuntil
thebuyerforwardsdocumentsthatsecurethepaymentforthegoods.Anothercondition
precedentmightbereceiptofadvancepayment.Ifthecontractiscontingentontheoccurrence
ofcertainconditions,itisbesttorepeatallofthecontingenciesforterminationtoensurethat
yourintentisclear.Ingeneral,conditionsthatcouldresultinterminationarenotconsidered
desirableandthereforearestrictlyconstruedbythecourtsinmostjurisdictions.
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Cancellation
Provision
RighttoCancel.TheBuyerhasarighttocancelthisAgreementiftheSellerfails[specify,e.g.,
toshipalloranyoftheGoodsontime].TheSellerhasarighttocancelthisAgreementifthe
Buyerfails[specify,e.g.,tomakeanypaymentrequiredbythisAgreementwithin(number)
daysofitsduedate].Ifeitherpartynotifiestheotherpartythatitwillnot,orisunableto,
performthisAgreement,thepartyreceivingnoticeisentitledtocanceltheAgreement.Tomake
thecancellationeffective,thepartyseekingtocancelmustgivenoticetotheotherpartythatthe
Agreementisdeemedcanceled.Thedateofthecancellationwillbethedateonwhichtheparty
receivesthenoticeofnonperformance.
Comment:Ifeitherpartyhasarighttocancelthecontract,thegroundsforexercisingthatright
shouldbespecified,andthereshouldbearequirementfornoticeofcancellation.Theprovision
ofarighttocancelfurnishesapartywitharemedythatcanbeutilizedwithouthavingtoseek
satisfactionthroughlegalproceedings.
ForceMajeure
Provision
ForceMajeure.ThisAgreementwillbedeemedcanceled,andneitherpartywillhaveany
liabilitytotheotherforlossesresultingfromnonperformance,ifdeliveryispreventedbycauses
beyondthecontroloftheSeller.Suchcausesinclude,butarenotlimitedto,actsofnature,labor
disputes,failureofessentialmeansoftransportation,orchangesinpolicywithrespectto
exportsorimportsbythe[country]governmentorthe[country]government.
Comment:Acommonclauseinallcontracts,theforcemajeureclausemerelyexpresseswhatis
nodoubttheintentoftheparties:ifperformanceispreventedbyanaturaldisasterorother
catastrophiceventbeyondthecontroloftheparties,theagreementiscanceled.
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LiquidatedDamages
Provision
LiquidatedDamages.EachpartyunderstandsthatabreachofthisAgreementwillcausethe
nonbreachingpartydamagesthatwillbedifficulttocalculateintermsofsales,markets,and
goodwilllost.Itisagreedthatthepartieshaveconsideredwhatwouldbeareasonableestimate
ofthedamageseachwouldsufferiftheotherweretobreachthisAgreement.IftheSeller
cannotdelivertheGoodsforanyreasonotherthanbyfaultoftheBuyer,theSellerwillpayto
theBuyerasliquidateddamagesthesumof[currencyandamount].IftheBuyerfailstofurnish
shippinginstructions,wrongfullyrefusestoaccepttheGoods,orfailstopaytheamountdueon
time,theBuyerwillpaytotheSellerasliquidateddamagesthesumof[currencyandamount].
IftheBuyerinfringestheSeller'sIntellectualProperty,theBuyerwillpaytotheSelleras
liquidateddamagesthesumof[currencyandamount]foreachdayofcontinueduse.Payment
ofliquidateddamageswillnot,inanyway,affecttheSeller'srightstoenjointheBuyer's
continueduseoftheSeller'sIntellectualProperty.
Comment:Thepartiesmayprovideforaspecificamountofdamagespayableonbreachofthe
agreement,andthatprovisionwillusuallybeenforceableaslongasitisareasonableestimate
ofthedamages.Theestimatemustbereasonableinrelationtotheanticipatedoractualharm
causedbythebreach.Ingeneral,proofofdamagesmustalsobedifficultorimpracticable,or
damagesmustbeaninadequateremedybecausetheharmwillcontinuetooccurunlessitis
enjoined.
Arbitration
Provision
Arbitration.Exceptwhenliquidateddamagesapply,ifadisputearisesbetweenthepartiesto
thisAgreementwithregardtoanyoftheprovisionsortheperformanceofanytermsand
conditionsofthisAgreement,thedisputewillbesettledby[binding/nonbinding]arbitrationto
beconductedinaccordancewiththe[nameofarbitrationrules]in[location].
Comment:Youmightprovideforarbitrationasanalternativetolitigationforresolving
contractdisputes.Arbitrationislessformalprocedurallythanacourttrialbutstillallowsthe
partiestopresenttheirclaimsbeforeaneutralpersonorpanelforanobjectivedecision.This
remedyisincreasinginpopularityincommercialdisputes,largelybecauseitislessadversarial,
lesscostly,andfasterthanlitigation.However,becertainthatyouseriouslyintendtosettle
disputesinthisway.Ifyouagreetoarbitratebutlaterfilesuit,thecourtislikelytoupholdthe
arbitrationclauseandforceyoutosettleyourdisputeasyouagreedunderthecontract.
Anarbitrationclauseshouldspecifywhetherarbitrationisbindingornonbindingontheparties
thecountrywherearbitrationwillbeconductedtheprocedureforenforcementofanawardthe
rulesgoverningthearbitration,suchastheU.N.CommissiononInternationalTradeLawModel
Rulestheinstitutethatwilladministerthearbitration,suchastheInternationalChamberof
Commerce(Paris)thelawthatwillgovernproceduralissuesorthemeritsofthedisputeany
limitationsontheselectionofarbitrators(forexample,anationalofadisputingpartymaybe
excludedfrombeinganarbitrator)thequalificationsorexpertiseofthearbitratorsthe
languageinwhichthearbitrationwillbeconductedandtheavailabilityoftranslationsand
translatorsifneeded.
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Arbitrationisnotusedinallcountries.Forexample,disputesinMexicoarerarelysettledby
arbitration,andthroughoutAsia,arbitrationisfrownedonnearlyasmuchaslitigationincourt.
Moreover,somecountriesdonotrecognizearbitrationawardsfromotherjurisdictions.You
shouldconsultanattorneyfamiliarwiththelawofthecountryofyoursupplierbeforeassuming
thatyouwillbeabletoarbitratepotentialcontractdisputes.
returntotop
GoverningLawandChoiceofForum
Provision
ForumandGoverningLaw.Thepartiesunderstandandagreethatthelawsof[location]will
beappliedtointerpretthisAgreement.ThisAgreement[is/isnot]tobeinterpretedby
applicationoftheUnitedNationsConventiononInternationalSaleofGoods.Anyactionfiled
toresolveadisputebetweenthepartiesmustbebroughtin[location].
Comment:Choosethelawofaspecificjurisdictiontocontrolanyinterpretationofthecontract
terms.Thelawthatyouchoosewillusuallyaffectwhereyoucansueorenforceajudgmentand
whatlaws,rules,andprocedureswillbeapplied.Ifyoufilesuitinyourowncountry,where
domesticcounselandcommerciallawsarefamiliartoyou,yourexperiencewillbedifferent
thanifyoulitigateinaforeigncountry,whereyouwillbesubjecttounfamiliarlaws,rules,and
proceduresandwillhavetorelyonforeigncounsel.Youshouldalsoidentifytheplacewherea
disputemaybesettledforexample,thecountryoforiginofthegoods,thecountryof
destination,orathirdcountrythatisconvenienttobothparties.
AmendmentstoContract
Provision
ModificationsandWaivers.AllmodificationsofthisAgreementmustbeinwritingand
signedbythepartiesortheirauthorizedagents.Ifapartywaivesanyofitsrightsunderthis
Agreementtomakeaclaimforbreach,thatwaiverwillhavenoeffectwithregardtotheparty's
righttoenforcetheAgreementastoanysubsequentbreach.
Comment:Requirethepartiestomakeallchangestothecontractinadvanceandinasigned
writtenmodification.Thisprovisioniscommontoallcontracts.Itisawiseprotectionagainst
oralalterationsand,ifthereisanoralorwrittenwaiverofaright,againsttheexpectationthat
otherrightsarealsowaived.Youshouldinsistonthisclauseincontractswithforeigntradersto
avoidmisunderstandingsthatcanarisefromoralmodificationswhenit'syourwordagainstthat
oftheothertrader.
returntotop
InurementandAssignment
Provision
InurementandAssignment.ThisAgreementbinds,andinurestothebenefitof,theparties,
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theirsuccessors,andassignees,subjecttothelimitationsofanyassignment.Neitherpartymay
assigntherightsordelegatetheperformanceofitsdutiesunderthisAgreementwithoutthe
priorwrittenconsentoftheotherparty.
Comment:Inaonetimesale,itisunlikelythatapartywillhavetimetoassignthecontractto
anotherperson.Nevertheless,thepotentialexists,andwhendealingoverseasinacountrywhere
theeconomyorthegovernmentisunstable,anassignmentclausecanbecomesignificant.
Severability
Provision
SeverabilityandProvisions.IfanyprovisionofthisAgreementisheldinvalidor
unenforceableforanyreason,thatprovisionisfullyseparable,andwillbedeemedseparated
from,therestofthisAgreement.Theremainingprovisionswillbevalidandenforceableasif
theinvalidorunenforceableprovisionwerenotpartofthisAgreement.
Comment:Youshouldincludethisstandardprovisionthatindividualclausescanberemoved
fromthecontractwithoutaffectingthevalidityofthecontractasawhole.Thisclauseis
importantbecauseitprovidesthat,ifoneclauseisdeclaredinvalidandunenforceableforany
reason,therestofthecontractremainsinforce.
returntotop
Integration
Provision
EntireAgreement.ThisAgreementistheentireunderstandingbetweentheparties.TheSeller
isnotboundbyanystatements,representations,promises,orinducements,regardlessof
whethermadebytheSeller,anagent,oremployee,unlessitissetforthinthisAgreement.The
Buyerspecificallyagreesthatnoreliancehasbeenplacedonanyrepresentationsotherthanthe
provisionscontainedinthisAgreement.
Comment:Contractnegotiationsmaylastforsometimeandthroughseveralmeetings.In
overseascontracts,tradersoftenmeetinvarioussettingsfrombusinesstosocialtofermenttheir
relationshipbeforecementingit.Thisclausethenbecomesparticularlysignificantin
emphasizingtothepartiesthatthewrittenwordsconstitutetheirentirefinalagreement,
regardlessofwhatrepresentationsweremadeduringthenegotiations.
Notices
Provision
Notices.TogivenoticepursuanttothisAgreement,apartymustsendwrittennoticetotheother
partyattheaddressstatedinthisAgreement.Noticeisdeemedtobegivenatthetimeitis
received.Apartymustnotifytheotherpartyinwritingofanychangeinaddresswithin
[number]daysoftheeffectivedateofthechange.
Comment:Althoughnotanessentialterm,thenoticeprovisionisimportanttoclarifythe
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acceptableprocedure.Thistermrequireswrittennotice,andthusanoralnoticemustbe
confirmedinwritingbeforethenoticebecomeseffective.
returntotop
AuthoritytoBindPartytoContract
Provision
BindingAuthority.Thepartieswarranttoeachotherthateachhaslegalcapacitytoenterinto
andbeboundbythetermsofthisAgreement.
Comment:Thisclauseshouldbeaddedregardlessofwhetherapartyisanindividualoran
entitybecauseitgivessomeassurancetoeachpartythatthepersonsigningthecontracthas
authoritytodoso.Ifasignerhadnoauthority,acontractmaysubsequentlybevoidable.Ifthe
partyisanindividual,heorshemustbelegallycapableofmakingthecontract(i.e.,ofadultage
andmentallyfit).Ifthepartyisanentity,thesignermustbeanauthorizedrepresentative.
Ifperformanceoftheagreementextendsbeyondasingletransaction,theperson'sauthorityto
actfortheforeigncompanyshouldbeestablishedadditionallybyacopyofastatementof
capacitycertifiedbyagovernmentofficialinthatcountry.Iftheforeigncompanyisa
corporationorsimilarentity,authoritytoactshouldalsobeestablishedbyacorporate
resolutionofthecompany'sgoverningbody,suchasitsboardofdirectors.Theforeign
companymayrequiresimilarcertifiedproofofauthorityfromyou.Yourcontractshould
describedocumentsthatwillbeconsideredsatisfactoryevidenceofauthority.
IndependentCounsel
Provision
IndependentLegalAdvice.Eachpartyacknowledgesthatithasbeenadvisedandhasbeen
giventheopportunitytoobtainindependentadviceregardingthelegal,tax,andaccounting
issuesandconsequencesofthisAgreement.Thepartiesfurtheracknowledgethattheyhave
beengiventheopportunitytomaketheirownseparatejudgments,andeachisrelyingsolelyon
itsownreviewandthatofitsownadvisorsregardingtherights,obligations,liabilities,and
consequencesofthisagreement.
Comment:Internationalagreementsaremadebetweenpartieswhoaresubjecttodifferentlaws,
andonepartyisoftenmoresophisticatedinbusinessthantheotherparty.Forpurposesof
enforcingthisAgreement,itiswisetoincludethisprovisiontoshowthatthepartiesareacting
withdueregardtotheirrighttoreceiveseparatelegaladviceabouttheirrightsandobligations
undertheagreement.
returntotop
LegalCostsandFees
Provision
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CostsandAttorneys'Fees.Costsandattorneys'feesmaybesoughtbytheprevailingpartyina
legalactionif(1)eitherpartytothisAgreementisrequiredtoemploylegalcounsel,toincur
otherexpensestoenforceanyobligationoftheotherparty,ortodefendagainstanyclaim,
demand,action,orproceedingbecausetheotherpartyfailstoperformanyobligationimposed
bythisAgreement(2)alegalactionisfiledbyoragainstapartytothisAgreementand(3)the
actionoritssettlementestablishesthedefaultoftheotherparty.Insuchevent,theprevailing
partyisentitledtorecoverfromtheotherpartytheamountofallreasonableattorneys'feesand
allotherexpensesincurredintheenforcementordefense.Thesefeesandexpensesare
recoverableregardlessofwhethertheywereincurredpriorto,inpreparationfor,in
contemplationof,during,orafterthefilingoftheaction.
Comment:Thelawontherecoverabilityoflegalcostsandattorneys'feesvariesfromcountry
tocountry.Insomecountries,theprevailingpartyisentitledtorecoverfromtheotherpartyin
mostactions.Inothercountries,recoveryisavailableonlyincertaintypesofactions,suchas
suitsbasedonnegligent,wrongful,orfraudulentconduct.Thecourtswillusuallyenforcean
expressagreementfortherecoveryoflegalcostsandfees,evenintheabsenceofalawthat
impliesthisright.
AcceptanceandExecution
Provision
Acceptance.Toacceptthisoffer,theBuyermustsignandreturnitwithoutanymodifications
totheSeller,whomustreceiveitnolaterthan[date].TheSellerisentitledtorevokethisoffer
atanytimebeforereceiptofacceptance.
Signedthis[date]
By:[signatureofofficeroragent]
Seller/[titleofseller'srepresentative]forSeller
Acceptedon[date]
By:[signatureofofficeroragent]
Buyer/[titleofbuyer'srepresentative]forBuyer
Comment:Ifthetermsofanofferspecifythemeansforacceptance,theacceptancemustbein
complianceornocontractwillarise.Thisprovisionrequiresacceptancewithoutmodification,
whichmeansthatanymodificationbythe"accepting"partywillinfactresultinacounteroffer.
Thefullnameofeachpersonwhoissigningthecontractshouldbetypedbelowhisorher
signaturetoavoidanyquestionastowhorepresentedeachpartytothetransaction.Forany
partywhoisnotanindividual,therelationshipofthepartyandthesignershouldbestated.
returntotop
Copyright2000WorldTradePress.AllRightsReserved.
NosampleorinformationthereinmaybeusedwithouttheexpresswrittenpermissionofWorldTrade
Press.
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