2.

2 Assessment of Terms and Condition of the Contract

2.2.1.Name, quality and quantity of the goods

It is essential to state the name, the quality and the quantity of delivered goods
as accurately as possible. It’s important not only for the buyer, but for the customs, the
carrier and other parties concerned (banks or insurance companies). Furthermore, the
unambiguous description of the commodities may help when solving disputes at the
arbitral court.

❖ Name of the goods:

There are several ways how to express the goods for delivery in the sales
contract:

● Using the generally accepted trade name (for example, "Brent crude oil")
● Using the commercial name (for example, "Durum wheat")
● Describing the physical characteristics of the goods (for example, "Hot-rolled
steel sheet, 2 mm thick")
● Referring to specifications, standards or other technical documents (for
example, "Aluminum ingots conforming to LME standard")
● Combining several methods (for example, "COMEX Grade A copper cathode
plates")

References to commodity classification systems, such as the Harmonized

Commodity Description and Coding System (HS Code) or other international
standards, are also commonly used.

❖ Quality of the goods

Both sellers and buyers want their goods to be of decent quality. Under
international sales contracts, it is essential to state the quality of the goods beforehand.
 There are several ways to do that:

● Referring to established quality standards or grades:

- "Grade A sugar", "LME Standard aluminium"
● Specifying physical and chemical characteristics:
- "Wheat with maximum 12% moisture content and 0.5% impurities"
- "Crude oil with maximum 0.5% sulfur content"
● Describing the production or manufacturing process:
- "Refined, food-grade palm oil"
- "Dynamically vulcanized thermoplastic elastomer"
● Using brand names or trademarks:
- "Branded, first-quality cotton fabric"
- "Genuine Pilsner beer"
● Referencing the supplier's own quality specifications:
- "Seller's standard quality coffee beans"
- "Refined white sugar to Seller's standard"
● Providing sample or reference to prior shipments:
- "Quality to be same as sample provided"
- "Quality to match previous shipment No. 1234"

❖ Quantity of the goods

Numbers are important not only in the student’s record-book, but in the sales
contract as well. Specified amount of goods is important to avoid disputes during
delivery and payment.

There are often used ways to express the volume of goods in the sales contract:

● Specify the net weight or volume:

- "10,000 metric tons of wheat"
- "5,000 barrels of crude oil"
- "100,000 liters of vegetable oil"
 ● Refer to standard packaging or units:
- "1,000 bags of 50 kg each of sugar"
- "500 standard steel coils of 20 metric tons each"
- "2,000 cartons of 12 bottles (0.75 liters) each of wine"
● Use commercial or industrial measurements:
- "5,000 troy ounces of gold"
- "10,000 bushels of corn"
- "1,000 long tons of iron ore"
● Specify the quantity as a range or approximation:
- "Approximately 1,000 MT (+/- 5%) of copper cathode"
- "Between 2,000-2,500 MT of soybean meal"
● Reference the loading or carrying capacity:
- "Full cargo load of 30,000 MT on MV XYZ"
- "One 20-foot container"
● Combine multiple units of measure:
- "5,000 MT (+/- 5%) in bulk and 1,000 MT in 25 kg bags"

Analysis

When we analyze the contract, we may see that the seller, International
livestock export PTY LTD, clearly stated all the points we mentioned above:

Name: In Annex 2 we may see, that the seller gave a full description of the
goods (C/M Breeder Heifers) and in the Certificate of Origin he even provided HS
Codes for each weight group, mentioned, that all cows had ear tags, and provided a
full list of tags.

Quality: As for the quality we may use the Certificate of Health, provided by
the seller. And we may find all necessary information in the sales contract (breed,
color, weight ranges, etc.)
 Quantity: The seller decided to use two ways to express the quantity of the
cows he was selling (the number of heads and range of kgs.)

Description of Quantity Weight Avg Total Unit price Total Value

goods

Total numbers (Heads) Weight Weight Weight ($USD) ($USD)

+/- 5% Range (kg) (kg)
+/- 5% +/- 5%

C/M BREEDER 300 280-300 290 87,000kg 945.00/head 283,500.00

HEIFERS

C/M BREEDER 930 301-360 325 302,250kg 1,080.00/head 1,004,400.00

HEIFERS

C/M BREEDER 370 361-440 395 146,150kg 1,275.00/head 471,750.00

HEIFERS

TOTAL 1600 334.63 535,400kg 1,759,650.00

Comment

We believe that the seller did a great job in making himself very clear. He
provided all the necessary information about the commodities he was to export; he
even included the possibility of changes in weight, which may occur when we talk
about «living» goods. That mitigates the possibility of legal disputes. And he secured
himself by setting up prices not per kg but per head.

Transporting/Delivery Terms

The choice of delivery terms is one of the most crucial choices parties can
make during negotiations. We are talking not only about considering the means of
transport, but also about involving third parties, such as logistics and insurance
companies. If the choice was made poorly without taking in consideration lots of
factors and without thinking about insurance, the buyer and the seller risk losing
commodities halfway to the former party. So, in order not to allow this to happen,
most (if not all) export-import operations are done according to INCOTERMS, rules
created by the International Chamber of Commerce, which clearly state rights and
obligations of parties.

These terms need to be stated clearly in the sales contract:

1) Delivery point

Each INCOTERMS rule sets a specific point, where responsibility for the
commodities of one side of the deal ends and transfers to the other. For example,
according to DAT 2010, the responsibility for the goods ends when it reaches the
Terminal (port of discharge). He doesn’t have to unload the cargo from the vessel.
According to DPU 2020, it ends when the goods are handed to the consignee or his
representative. That means unloading the cargo at the terminal and even organizing
delivery to the buyer’s premises.

2) Delivery time

It’s crucial to set a specific time of delivery or at least a reasonable time period.
Certain goods have a short shelf life and their quality may quickly deteriorate without
proper conditions. Furthermore, for some payment methods ( L/C at sight) it is
essential for the buyer to confirm the receipt of the commodities and pay for the L\C,
otherwise he will have problems with the seller’s bank.

3) Means of transport

Some of the INCOTERMS terms aren’t suitable for certain means of transport.
For example, FOB is inadequate for air transport. Hence, choosing and considering the
carrier and his fleet of transport is also important, when it comes to the delivery terms.

Analysis

Let’s check whether our parties have checked all the boxes.
 ● The Australian company and the Vietnamese company decided to operate on
CIF - Incoterms 2010 and stated that clearly in the sales contract.
● Port of loading*: Fremantle port, Australia
● Port of unloading: Quy Nhon Port, Vietnam
● Time of delivery: appr. 26 January 2024.

*This port was not set in the sales contract. It was determined further in other
documents, such as Tax Invoice, Packing list, Export Permit.

Comment

According to CIF 2010 terms, all costs related to the delivery of goods to the
port of loading, insurance and freight are covered by the seller. The responsibility for
the goods ends, when they are loaded on the board of the vessel. Same goes for the
risks.

Then the buyer at his expense will unload the cargo and deliver it to his
premises, when it reaches his port (port of unloading)

The insurance is the seller’s liability. He has to insure the cargo according to the
following formula (sufficient minimum, Institute Cargo Clauses C):

110% * total value of the contract

In the contract we also may find out that commodities can be located in the port
of discharge no longer than 36 hours. That is a good term, which will make the buyer
collect the cows faster, otherwise he will have to pay the seller 1000$/excessive hour.

Furthermore, we may find an important term, mentioned in the sales contract.

Delivery notification is important for both parties, so that they could know that the
other party is fulfilling their end of the deal. The Australian company mentioned
several info documents in the sales contract:
 1. Shipping advice (to be sent 5 days prior the loading) so that the Vietnamese
company would know the name of vessel, expected time of loading/unloading
and expected quantity
2. Notification e-mail with related documents (to be sent 6 hours prior to the
discharge at the port of Vietnam) to inform the Vietnamese party about
upcoming shipment and provide with copies of important documents (Health
Certificate, B/L, Invoice, etc.)

We think the Australian company fulfilled their end of the deal with utmost
accuracy and showed remarkable forethought towards their partners.

Price and payment method

Depending on your relationship with the partner, you may set your contract
price in any currencies you desire. But the common practice shows, that strong and
stable currency is more preferable than local currencies, which is likely to fluctuate
any time in the FOREX market due to many factors. Currencies, which are included in
the SDR basket (Dollar USA, Euro, Renminbi, Yen and Pound Sterling), are the most
commonly used in the international sales contracts. However, in recent years the new
tendency has emerged and countries now try to “dedollarize” their economies, hence
all international activity. More and more international sales are now being made in
local currencies. In this paper, we will not discuss this matter, we will focus on our
matter.

Having considered the currency, parties should also think about payment
methods. Usually payment methods have a direct relation to the relationships between
the buyer and seller.

Thus parties, who have just engaged in trade relationships with each other, will
try to secure themselves as much as possible. That’s why their main choices will be
those, which involve third parties (banks, for example). Letters of Credit
(Back-to-back, green clause), Bank’s payment obligation, Bills of exchange ­– one of
the most secure ways to pay for your contract among those mentioned above.

If the relationship between buyer and seller is deep and they both trust each
other, they will tend to focus on more cost-effective methods of payment. Open-end
credits, payments for collection, paying with cheques, advances, direct bank
transactions – those are widely used among trusted partners.

Analysis

In this contract the price is set in Dollar USA and is different for each cow in a
different weight category. As we mentioned before, the total price is fixed per head,
not per kilo, so that it would be easier to calculate and less possibilities for legal
disputes.

The transaction was made with an irrevocable Letter of Credit at sight. That is a
means to secure both the buyer and the seller, because banks (of seller and buyer) are
involved in this transaction and have direct interest in this deal.

Comment

Although we find it wise to invite third parties to the deal, we can not help
noticing that this payment method is rather costly for the buyer. However, we can not
tell for sure what relationship there is between the Australian and Vietnamese
companies, so if this is their first interaction with each other – L/C is a good way to
pay for the contract.

Involvement of third parties will keep the parties in line and not allow them to
neglect their sales contract’s duties. And choosing “L/C at sight” also seems wise to
us, because that means that the buyer will not receive the necessary documents, until
all his obligations to the bank are fulfilled.