CONTRACT CHECKLIST FOR INTERNATIONAL SALE OF GOODS WITH COMMENTARY – Part One

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 purpose of a checklist is to make sure that the negotiator or drafter of an agreement considers the terms for use in the final agreement.

Not all terms will be found in every good sales contract, sometimes other terms are needed, and most of them are not legally required. There is no legal requirement that the terms are separate and there is no required form for the contract. Terms are often combined together.

It is good practice to be more thorough rather than less thorough in international contracts to avoid disputes, misunderstandings, and ambiguities. On the other hand, it is also important to keep the contract as simple as possible. The skilled drafter knows that this means careful drafting of all useful terms rather than omission of terms for the sake of brevity or simplicity.

Remember, that the commentary is merely providing an overview of each term. You may need far more for your contract or may not need a given term at all. If the subject matter of the contract is important to you, you should always consult with your lawyer. If your lawyer does not have experience in international business contracts, you should seek counsel from a lawyer who does.

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

1. Parties: Describe the parties to the contract with particularity, including full name, address, telephone, facsimile, email, and type of business entity. Thus, there is minimal chance of mistaken identity. In some countries, the government may own corporations wholly or partially. Care should be taken to determine whether the entity is, in fact, an arm of the government in which case sovereign immunity must be addressed.

2. Description of Goods: The subject matter of the contract must be described completely and accurately. If a product line or different products are part of the same contract, the goods are often described in detail in an exhibit that gets attached to the main body of the contract. However, a general description of the goods in the main body of the contract is good practice and should still be sufficiently detailed so that a substituted description of goods in the exhibit can be readily detected. In other words, the parties should not simply describe the goods by referring to an exhibit.

3. Quantity: The number of units of goods sold is the only term in contracts for the sale of goods that is always essential. All other terms may be implied and the contract can be enforced, although this is not good practice. In this paragraph, the drafter will often state that seller is selling to buyer and buyer is buying from seller the quantity of goods described. If the contract is for different goods, it is essential that the quantity of each good be separately stated, unless the sale is an assortment or lot (like assorted flavors of jelly beans).

4. Price: Except for CIF and C&F contracts, the unit price for each good sold should be stated along with the total contract price. The unit price is the price for the good itself, excluding transportation costs, insurance or any other additional charge. The price should also refer to and agree with the trade term for the contract or the price may be ambiguous. The total contract price may include any other charges such transportation, insurance, duties, exit documents, etc. Thus, the contract price often will not simply be product of the unit price times the quantity. In many, if not most cases, the total contract price will not state precisely the actual total amount the buyer will pay, since the costs of transportation, insurance, and other add-ons are determined later (the buyer simply agrees in the contract to pay them). Since these charges can be estimated in advance and the seller has a legal obligation to make reasonable arrangements, or the buyer can elect to make its own arrangements, there should not be any unpleasant surprises for the buyer.

5. Payment Terms: In international contracts, payment terms are often sufficiently detailed to require separate explanation in the contract. For example, it is not sufficient to state that payment shall be by letter of credit. The requirements for the letter of credit should be stated with particularity and detail, including the size and quality of a bank acceptable to the parties to issue the letter of credit for the benefit of the seller.

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.