IE Business Daily Business news for the Inland Empire.
By John Tulac
I’ve created a checklist of twenty-five terms commonly found in a detailed contract for the international sale of goods. The introduction and first five terms were published on January 23rd, 2014. https://iebusinessdaily.com/contract-checklist-international-sale-goods-commentary-part-one/
Here are the next five terms. In each successive article, I will provide five more terms with commentary.
6. Currency: Although it is implied that payment is to be made in the currency specified in the price term, it is better practice to state the currency required for payment. Merely specifying a currency does not address exchange-rate risk and is often unacceptable to one of the parties, particularly to the seller if the buyer’s currency is weak and vice versa. There are numerous ways to allocate exchange-rate risk, but it is advisable for a US company new to importing or exporting to stick with dollars even if this practice costs an occasional sale than to get involved in the complexities of exchange rates. The primary business of an importer or exporter involves the goods. Currency speculations, arbitrages, and other such strategies, while potentially lucrative, should be left to the experts. Obviously, a company with a huge annual turnover in international sales must be able to deal in multiple currencies and manage the associated risks (and opportunities!).
7. Order Process; Term (Time) of Contract: This paragraph is needed only if delivery of the goods will take place in lots over time, particularly if the buyer specifies the time for shipments or has a requirements contract. Companies new to international sales should start with single lot shipments of goods (with a renewal provision for subsequent orders) and as they become more experienced move into longer-term contracts. The term of a requirements or output contract must always be stated and should never be evergreen (automatic renewal or extension). Contracts that merely require delivery over time do not need a paragraph stating a specific term of the contract, but a delivery schedule should be established and stated in the contract.
8. Transportation and Trade Term: Arrangements for transportation should be stated with particularity, including the trade term governing the contract. Trade terms are necessarily precise in international contracts, and the choices are found either in Incoterms or the UCC. The UNCISG does NOT contain its own trade terms. The description of the transportation arrangements should not vary or modify the requirements of the chosen trade term.
9. Delivery Schedule: The time for delivery is often material. However, time is not of the essence unless the parties expressly agree. Thus, merely stating a delivery date is not sufficient if a deadline is truly material. The term “delivery” can also be misleading in that a common interpretation is that it refers to when goods are received. Since most contracts for goods are shipment contracts and delivery is complete at the shipment point, care should be taken in using the term “delivery” to conform to date of shipment. Finally, if the parties contemplate shipment in lots, a schedule is appropriate to include.
10. Packaging; Insurance: Standard packaging of goods may not be adequate for transoceanic transportation. When in doubt, specify the required packaging. Insurance of the goods should not be taken for granted. Although the seller generally has the obligation to arrange insurance for the benefit of the buyer, insurance may be weak or non-existent in certain countries, in which case the buyer should make its own arrangements.
John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law, and Lecturer Emeritus (retired) at Cal Poly Pomona. He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory. He can be reached at (909) 445-1100.
