Law of Contract

• If there is a proposal from one side and if there is unconditional

acceptance from another side that is called a contract/agreement
• Essential elements of a valid contract
1. Valid Offer & unconditional Acceptance
2. Consideration – quid pro quo
3. Capacity to contract
4. Should not be mentally challenged
5. Consensus ‘AD-IDEM’
6. Should not be any mismatch of understanding
7. Legality of object
8. Capable of Performance & Intention to create legal relationship
9. Age above 18
 CONTRACTUAL OBLIGATIONS

• Seller • Buyer
1. Deliver goods as per contract, 1. Take delivery of goods
in time & inform buyer 2. Arrange payment
2. Bear all costs, taxes, till 3. If required, arrange freight,
‘delivered’ insurance
3. Provide packaging
4. Arrange Inspection, if
required
5. Provide Document of title &
other documents
 CONTRACT
• The Contracts for the International Sale of
Goods (CISG) will apply in any sales contract
for goods between entities in countries that
have signed this United Nations-sponsored
treaty, unless the buyer or seller takes
specific steps to exclude it. CISG was
developed by United Nations Convention on
International Trade Law (UNCITRAL).
• www.cisg.law.pace.edu
 INCOTERMS

Define obligations/responsibility of Seller and

Buyer in respect of
• Carriage of Goods
• Risks
• Costs

• INCOTERMS quantify the costs borne by Seller

and Buyer
 INCOTERM - 1

Barakat Leather Co, Ranipet

• When Buyer arranges to pick up the cargo from

Ranipet, they will pay the cost of goods to Barakat
Leather Co and bear all other costs.

Here, the terms of sale are Ex Works Ranipet or

EXW.
 Free Carrier (FCA) Chennai

Barakat Leather Co delivers the cargo, custom cleared at Chennai

airport, for airfreight. Thereafter Buyer will arrange to load
the cargo and pay cost of airfreight and insurance.
FAS – Free Alongside Ship
(Chennai)
FOB – Free on Board
(Chennai)
Wharf or Quay
 FAS & FOB ….

• FAS (Chennai): Barakat Leather Co will pay all

costs till the goods are custom cleared and brought
inside Chennai port for loading. Thereafter, Buyer
will bear all costs of loading, ocean freight,
insurance etc.
• FOB (Chennai): Barakat Leather Co arranges
loading the cargo into the ship but the freight and
insurance charges are paid by Buyer.
Destination
 CFR – Cost and Freight
(Named Port of Destination)
CIF – Cost Insurance and Freight
(Named Port of Destination)
CFR Marseille: Barakat Leather Co also pay the
Ocean freight cost from Chennai to Marseille over
the FOB costs, but their risk is only upto Chennai.
CIF: Barakat Leather Co pay the ocean freight cost
and insurance premium but their risk is only
upto Chennai.
 By land, Place of Destination

• CPT – carriage paid to (named place of

destination)
• CIP – carriage and insurance paid to
(Named place of destination)
• Example: From Marseille to CPT or CIP Hamburg
 D Terms

• DAF – Delivered at Frontier (named place)

• DES – Delivered ex Ship (named port of
destination)
• DEQ – Delivered ex quay (named port of
destination)
• DDU – Delivered Duty Unpaid (named place)
• DDP – Delivered Duty Paid ( named place)
• Costs and risk upto named port/place to
Barakat Leather Co’s account
 INCOTERMS

• 1 exclusively territorial Incoterm (DAF)

• 6 exclusively maritime Incoterms
• (FAS, FOB, CFR, CIF, DES, DEQ)
• 6 Incoterms valid for any means of
transport
• (EXW, FCA, CPT, CIP, DDU, DDP)
 INCOTERMS – Cost Implication
• EXW Gurgaon cost of Maruti Swift: Rs 200,000
– Cost of transport to CFS Delhi, export documentation,
and customs clearance 500
• FCA N.Delhi 200,500
– THC, Stuffing, transportation
to Nhava Sheva & port charges 1,000
• FAS Nhava Sheva port 201,500
– Loading (stevedoring) charges 500
• FOB Nhava Sheva 202,000
– Ocean freight to Hamburg 2,000
• CFR Hamburg 204,000
– Marine Insurance 500
• CIF Hamburg 204,500
=$ 4, 650
– Shipping Agency charges at Hamburg 20
 INCOTERMS - Example

 DES Hamburg 4,670

 Unloading costs 20
 DEQ Hamburg 4,690
 Local transport charges to customer 40
 DDU Customer’s warehouse 4,730
 Clearing charges and customs duty 100
 DDP Customer’s warehouse 4,830
Incoterms Export Local Loading freight insur Unload tpt Import
customs tpt chgs ance ing chgs customs

EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DES
DEQ
DDU
DDP
DAF
 Making a contract
• Buyer and Seller
• Product: description, specifications
• Quantity
• Packing, Marking
• Price, Value
• Terms of Delivery
• Loadport, Discharge port/destination
• Shipment schedule Insurance
• Payment Documents
• Inspection
• Arbitration Force Majeure