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Business Advice Q&A


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 and can be found here.  The next five terms were published on March 13th and can be found here.

Here are the next five terms.  In each successive article, I will provide five more terms with commentary.

  1. Export License; Fees; Import Duties: These items often exist and are frequently forgotten. How a good is classified will determine the type of license to export that is required. Classification will also determine its dutiable status as an import in a given country. The seller should not presume the buyer knows how the good will be classified. Once, both parties ignored this issue and the duty imposed was 100% of the value of the goods. It would have been possible to have had the good classified differently at 17% duty had the parties researched the issue in advance. As a result, a $50,000 product cost the buyer $100,000; the buyer blamed the seller and never bought from it again.
  1. Title: When title passes is generally not important in the US under the UCC but can be important in other countries and under the UNCISG. Thus, the seller should always inquire whether and this should be specified in the contract. If the contract is silent title passes per operation of law depending on the trade term used.
  1. Warranties: Express warranties can be a strong selling tool. From the 1970s to late 1980s warranties have been limited in the United States in an attempt to deter certain kinds of litigation. This policy was shortsighted and not altogether successful. Today, many US companies are again strongly warranting the specifications and performance of products as a way to boost foreign sales.
  1. Product Liability; Indemnity: Overseas parties are scared of US product liability law. When I represent a US importer, I subject the exporter to these laws. When the importer objects, my reply is that it is standard. The importer is subject to them by operation of law anyhow. When I represent the US exporter, I do not include anything in the contract about product liability. Again the US exporter is subject to these laws but there is no obligation to call attention to it. This term is often used to coordinate defense against and indemnity for third party product claims, specifying cooperation of the buyer and seller in defense of these claims.
  1. Performance Criteria; Conditions: This is a catch-all provision that the parties can use to tailor their agreement to specific circumstances, changed circumstances, etc. Performance criteria beyond the basic terms above are rarely needed in straightforward contracts for the sale of goods but in a hybrid contract with both goods and services involved, a section laying out how the parties will work together can be valuable. I frequently use a provision like this one to set up my client’s right to recover consequential contract damages, as a way of hiding the remedy in plain view and obtaining agreement to it without negotiating it.

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.

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