Chapter 2 and 3 contracts and incoterms

INCOTERMS
&
CONTRACTS FOR THE INTERNATIONAL
SALE OF GOODS
Lecturer: Dinh Khuong Duy
Faculty of Economics and International Business
khuongduy@ftu.edu.vn
September 29, 2014 Dinh Khuong Duy 1

CHAPTER 2 MATERIALS
 Textbook (Vietnamese and English);
 Incoterms 2010 (ICC);
 UN Convention on Contracts for the
International Sale of Goods;
 UNIDROIT Principles of International
Commercial Contracts;
 Civil Code (2005);
 Commercial Law (2005);
 Sample Contracts;

OVERVIEW ON CONTRACTS FOR
THE INTERNATIONAL SALE OF GOODS
1. Concept
1.1. Contracts for purchase and sale of goods
1.1.1. Contracts for purchase and sale of property
Civil Code 2005, Article 428:
A contract for purchase and sale of property is an
agreement between the parties whereby the seller
has the obligation to hand over the property to the
purchaser and receive payment, while the
purchaser has the obligation to accept the property
and make payment to the seller.

1.1.2. Contracts for purchase and sale of goods
Commercial Law 2005, Article 3:
Purchase and sale of goods mean commercial activities
whereby the seller is obliged to deliver goods, transfer
ownership of goods to the purchaser and receive
payment; the purchaser is obliged to pay the seller,
receive the goods and the ownership thereof as agreed.
Þ Goods include:
 All types of movables, including those to be formed in
the future;
 Things attached to land.

Þ Contracts for purchase and sale of goods:
Contracts for purchase and sale of goods is an
agreement between the parties, according to which the
seller has the obligation to deliver goods, transfer the
ownership of the goods to the buyer and receive
payment, the buyer has the obligation to arrange
payment, receive the goods and the ownership thereof.
Note:
Commercial Law 2005 does not provide any concept
for contracts for either domestic or international
purchase and sale of goods.

1.2. Contracts for the international sale of goods
Contracts for the international sale of goods = Contracts
for purchase & sale of goods + international elements.
1.2.1. International Law
1.2.1.1. Convention relating to a Uniform Law on the
International Sale of Goods (Hague Convention 1964)
Article 1, Chapter I, Annex (Uniform Law on the
International Sale of Goods):
The present Law shall apply to contracts of sale of
goods entered into by parties whose places of business
are in the territories of different States, in each of the
following cases:

(a) where the contract involves the sale of goods which are
at the time of the conclusion of the contract in the course
of carriage or will be carried from the territory of one
State to the territory of another;
(b) where the acts constituting the offer and the acceptance
have been effected in the territories of different States;
(c) where delivery of the goods is to be made in the territory
of a State other than that within whose territory the acts
constituting the offer and the acceptance are effected.
Þ The application of the present Law shall not depend on
the nationality of the parties.

1.2.1.2. United Nation Convention on Contracts for the
International Sales of Goods (CISG 1980)
CISG, Article 1, Chapter I, Part I :
This Convention applies to contracts of sale of goods
between parties whose places of business are in
different States;
Neither the nationality of the parties nor the civil or
commercial character of the parties or of the contract is
to be taken into consideration in determining the
application of this Convention.
Þ CISG does not define exactly the concept of contracts
for the international sale of goods.

1.2.2. Vietnam Law
1.2.2.1. Temporary Regulation on concluding foreign
trade contracts (Regulation 4794/TN-XNK, issued
by the Ministry of Trade on 31/7/1991)
- Foreign trade contracts are those with international
elements;
- International elements: Traders are of different
nationalities; Goods are transported across
borders; Payment currency is foreign to at least
one party.
Þ Nationality is one of the most important elements.

1.2.2.2. Commercial Law 1997
Contracts for purchase and sale of goods with
foreign traders are contracts entered into between
a Vietnamese trader and a foreign trader
Þ What is the crucial element?
Þ A contract entered into between a Chinese trader
and a Vietnamese one, both based in Vietnam?
Þ A contract entered between two Vietnamese
traders based in different countries?

1.2.2.3. Commercial Law 2005
Chapter II, Article 27.1.:
International purchase and sale of goods shall be
conducted in form of export, import, temporary
import for re-export, temporary export for re-import
and transfer through border-gates.
Þ Legal definitions of forms of international sale of
goods: Article 28-30, Commercial Law 2005;
Þ Commercial Law 2005 and nationality?

- The movement of goods across national and/or
customs borders.
- Contracts without the movement of goods across
national and/or customs borders will not be considered
“contracts for the international sale of goods”;
- Commercial Law 2005 may not govern all cases.
Traders may refer to Civil Code 2005 (civil relations
involving foreign elements) or other Laws;
Þ Real estate sold to foreigners?
Þ What is on-spot import/export?
Þ Your opinion on the listing of forms of international
purchase and sale of goods?

Contracts for the international sale of goods
is the agreement between parties whose
places of business are in different countries
or separate customs areas, according to
which the Seller (the Exporter) is obliged to
deliver goods, and transfer the ownership
thereof to the Buyer (the Importer); the Buyer
is obliged to receive of the goods and the
ownership thereof, and arrange payment.

2. Formation of the contract
2.1. Offer
2.1.1. Concept
Art. 14, CISG:
(1) A proposal for concluding a contract addressed to one or more
specific persons constitutes an offer if it is sufficiently definite
and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the
goods and expressly or implicitly fixes or makes provision for
determining the quantity and the price.
(2) A proposal other than one addressed to one or more specific
persons is to be considered merely as an invitation to make
offers, unless the contrary is clearly indicated by the person
making the proposal.

2.1.1. Concept
Note:
- Vietnam’s Law: No concept of “offer”
Art. 390, Civil Code 2005: A proposal for concluding a
contract itself is binding the offeror
- Order?
- Free offer vs. firm offer:
+ Not legal terms either in CISG or Vietnam Civil Code
+ Offer in CISG: similar to “firm offer”
+ Invitation to make offer in CISG: similar to “free offer”
=> Example of “invitation to make offer”/“free offer”?

2.1.2. Effect of an offer
Art. 15, CISG:
(1) An offer becomes effective when it reaches the
offeree.
(2) An offer, even if it is irrevocable, may be withdrawn if
the withdrawal reaches the offeree before or at the
same time as the offer.
E.g.:
An offer sent from VN on Jan 1st and reached Japan
on Jan 2nd; the offeree dispatched a rejection letter on
Jan 5th and it reached Vietnam on Jan 6th.

2.1.3. Withdraw and revoke an offer
CISG, Article 15.2:
An offer, even if it is irrevocable, may be withdrawn if
the withdrawal reaches the offeree before or at the
same time as the offer.
CISG, Article 16.1:
Until a contract is concluded an offer may be revoked
if the revocation reaches the offeree before he has
dispatched an acceptance
Þ All offers can be withdrawn but they can only be
revoked under certain conditions.

CISG, Article 16.2:
However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for
acceptance or otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the
offer as being irrevocable and the offeree has acted
in reliance on the offer.
2.1.4. Termination of an offer
Art. 17, CISG:
An offer, even if it is irrevocable, is terminated when
a rejection reaches the offeror.

2.2. Acceptance
Acceptance is a statement indicating the offeree’s
agreement to the content of the offer and his
intention to conclude a contract;
Vietnam Civil Code, Article 396:
The acceptance of an offer to enter into a contract is
the offeree’s reply to the offeror on the acceptance of
the whole content of the offer.
CISG, Article 18.1:
A statement made by or other conduct of the offeree
indicating assent to an offer is an acceptance.

2.2.1. Forms of acceptance
- Acceptance can be made in writing, orally or by
specific acts;
- Silence and inactivity does not in itself amount to
acceptance (CISG, Article 18.1);
2.2.2. Types of acceptance
- Unconditional acceptance;
- Acceptance with reservation;
Þ Vietnam’s law: full (unconditional) acceptance

+ Reservation of material terms of the offer will
constitute a counter-offer;
+ Reservation of non-material terms of the offer will
constitute an acceptance unless without delay the
offeror rejects such discrepancies.
CISG, Article 19.3:
Additional or different terms relating, among other
things, to the price, payment, quality and quantity of
the goods, place and time of delivery, extent of one
party’s liability to the other or the settlement of
disputes are considered to alter the terms of the offer
materially.

Note:
Counter-offer is the bargaining transaction terms and
conditions. Counter-offer terminates the original offer
and constitutes a new one;
Vietnam Civil Code, Article 395:
When the offeree accepts to enter into a contract but
states the conditions therefor or modifies the offer,
he/she/it shall be considered to make a new offer.
Þ The offeree made a counter-offer and then changed
his mind, accepted the offer?
Þ Vietnam Civil Code and CISG?

2.2.3. Effect of an acceptance
CISG, Article 18.2:
- An acceptance of an offer becomes effective at the
moment the indication of assent reaches the offeror
[…]within the time he has fixed or, if no time is fixed,
within a reasonable time, due account being taken of
the circumstances of the transaction, including the
rapidity of the means of communication employed by
the offeror.
- An oral offer must be accepted immediately unless
the circumstances indicate otherwise.

- If the offeree indicate assent by performing an act,
such as one relating to the dispatch of the goods or
payment of the price, without notice to the offeror, the
acceptance is effective at the moment the act is
performed, provided that the act is performed within
the period of time laid down in the preceding
paragraph;
- A late acceptance is nevertheless effective if the
offeror without delay orally informs the offeree or
dispatches a notice to that effect. (CISG, Art. 21)
- A contract is concluded when an acceptance of an
offer becomes effective. (CISG, Art. 23)

2.2.4. Withdraw an acceptance
CISG, Article 23:
An acceptance may be withdrawn if the withdrawal
reaches the offeror before or at the same time as the
acceptance would have become effective.
Note:
Any indication of intention “reaches” the addressee
when it is made orally to him or delivered by any
other means to him personally, to his place of
business or mailing address or, if he does not have a
place of business or mailing address, to his habitual
residence.

2.3. Confirmation
- After negotiating transaction terms and conditions,
the seller/buyer should write down a confirmation
note and send to each other;
Þ Sale confirmation/Purchase confirmation.
- Two ways of making confirmation:
+ Confirmation is made into 2 copies; one party
signs, keeps one and sends to the other;
+ Confirmation is made into 1 copy with 2 signatures;
Þ Without a confirmation, is there a contract?

3. Features of contracts for the international
sale of goods
3.1. General features:
- Principles: freedom and voluntariness (Art. 389 Civil
Code 2005);
- Subjects: traders;
- Content: rights and obligations;
- Bilateral, consensual contracts, with consideration.
3.2. Particular features:

- Subjects: places of business in territories of
different States/separate customs areas;
- Objectives: move across State/customs border;
- Payment: foreign currency to at least 1 Party;
- Various sources of governing law:
+ National law
+ International will
+ Commercial practice
+ Legal precedent

4. Legal validity of contracts for the international
sale of goods
- Subjects: legal;
- Objects: legal;
- Form: legal
+ CISG: no need to be in writing (Art. 11, Art. 12);
+ Vietnam Law: in writing or equal forms;
- Content: Legal (includes legally compulsory articles):
Dependent on sources of law:

+ Vietnamese Law:
• Commercial Law 1997: 6 compulsory articles;
• Civil Code 2005: 8 commonly used articles;
• Commercial Law 2005: no requirement;
+ International Law:
• CISG, Article 14: 3 articles;
• CISG, Article 19: 6 articles;
• English Law: commodity, quality, price;
• French Law: commodity, price.

5. Content of Contracts for the international
sale of goods:
5.1. Preamble:
- Contract date and number;
- Date and place of signing contract;
- Parties’ information;
- Legal basis of the contract (if necessary);
- Definition of terms (if necessary).

4.2. Terms and conditions
4.2.1. Core terms and conditions:
- Object-related terms;
- Finance-related terms;
- Transport-related terms;
- Legal-related terms;
4.2.2. Additional terms and conditions:
- Confidential information; maintenance; warranty…
- Validity of contract; number of copies; languages…

6. Notes on drafting contracts
- Content: detailed, consistent;
- Word choice: clear, precise;
- Language: official, popular
Þ Seller and buyer are free to choose language;
Þ VN customs regulations: Vietnamese or English;
or certified translation from other languages;
Þ Copies of different languages?

INTERNATIONAL COMMERCIAL TERMS
1. Overview on International Commercial Terms
1.1. Concept
Incoterms are rules for interpretation of trade
terms which clarify the distribution of functions,
costs and risks relating to the transfer of goods
from the seller to the buyer.
1.2. Evolution of Incoterms rules
1936, 1953, 1967, 1976, 1980, 1990, 2000, 2010
Þ To reflect trade practice more precisely

1.3. Content of Incoterms rules
Seller’s obligations Buyer’s obligations
A1: General obligations B1: General obligations
B2: Formalities B2: Formalities
A3: Carriage & insurance B3: Carriage & insurance
A4: Delivery B4: Taking delivery
…………………………… ……………………………
A10: Assistance B10: Assistance

1.4. Notes on using Incoterms
- Applied in purchase and sale of tangible goods;
- Non-compulsory trade practice;
- Need to be referred to in sale contracts;
- Revision (year of publication) must be stated;
- Selection of appropriate terms dependent upon
certain circumstances;
- Modification of terms is not encouraged;

- Incoterms rules do not deal with:
+ Transfer of property rights in the goods;
+ Relief from obligations and exemption from
liability in case of unexpected events;
+ Consequences if various breaches of
contracts;
- Transport terms (FI, FO, FIO, FIOST,…)
should not be incorporated;
Þ Incoterms rules only interpret of terms of
delivery, not other terms of the sales contract.

2. Incoterms 2000 and Incoterms 2010
2.1. Incoterms 2000
- Number of terms: 13
- Classification based on first letters of terms:
+ Group E: 1 + Group F: 3
+ Group C: 4 + Group D: 5
- Classification based on modes of transport:
+ Maritime transport: FAS, FOB, CFR, CIF, DES, DEQ;
+ Any mode or modes of transport: EXW, FCA, CPT,
CIP, DAF, DDU, DDP.

GROUP TERM COMPLETE NAME
GROUP E EXW Ex Works
DEPARTURE
GROUP F FCA Free Carrier
MAIN CARRIAGE FAS Free Alongside Ship
UNPAID FOB Free on Board
GROUP C CFR Cost and Freight
MAIN CARRIAGE CIF Cost, Insurance and Freight
PAID CPT Carriage paid to…
CIP Carriage and Insurance paid to…
GROUP D DAF Delivered at frontier
ARRIVAL DES Delivered ex ship
DEQ Delivered ex Quay
DDU Delivered Duty unpaid
DDP Delivered Duty paid

INCREASED OBLIGATIONS OF THE SELLER
E F C D
DECREASED OBLIGATIONS OF THE BUYER

2.2. Incoterms ® 2010
- Entered into force since Jan 1st, 2011
- Number of rules: 11
- Classification based on modes of transport
+ Any mode or modes of transport: EXW, FCA,
CPT, CIP, DAT, DAP, DDP;
+ Maritime transport: FAS, FOB, CFR, CIF.
Þ Rules for maritime transport are placed behind?

 Changes in Incoterms ® 2010:
- Rules for domestic and international trade terms;
- “Ship’s rail” replaced by “on board”;
- Number of rules, new rules and classification;
- Security-related obligations;
- String sales
- Contract of carriage in FOB, FAS
- Transport documents in CIP, CPT
- EDI

3. Incoterms ® 2010 rules
3.1. EXW – Ex Works
EXW + “named place of delivery” + Incoterms 2010
E.g.: EXW 10, Downing Street, London, United
Kingdom, Incoterms 2010
- The seller fulfils his obligation by placing the
goods unloaded at the disposal of the buyer at the
seller’s premises or another named place.
- Seller’s minimum obligations.

 Seller’s obligations:
- Provide goods and commercial invoice in conformity
with the contract of sale;
- Free from loading, carriage and insurance, customs
formalities;
 Buyer’s obligations:
- Take delivery since the goods are placed at his
disposal at the seller’s premises;
- Carry out necessary import & export formalities
(where applicable).

 Note:
- Applied for all modes of transport;
- Appropriate for domestic transactions;
- Buyer should use EXW rule if:
+ He is able to perform export customs formalities;
+ He has representatives in the seller’s country;
- The seller is often not considered exporter;
- Premature transfer of risk;
- Seller and buyer are free from carriage obligation.

3.2. FCA – Free Carrier
FCA + “named place of delivery” + Incoterms 2010
E.g.: FCA Noibai Airport, Vietnam, Incoterms 2010
- The seller fulfils his obligations by delivering the
goods to the carrier or another person nominated by
the buyer at the seller promises or another named
place;
- Who is the carrier? What if the seller nominates more
than one carrier?
- When delivery is considered to be completed?

- Clear the goods for export (where applicable) and
assumes any risk or expense involved;
- Deliver the goods to the carrier/another person
nominated by the buyer;
- Provides the buyer with usual proof of delivery;
- No obligation to the buyer to make a contract of
carriage/insurance;
- Contract for carriage at buyer’s risk and expense?

- Clear the goods for import (where applicable);
- Contract at his own expense for the carriage of goods
from the named place of delivery;
- Notify the seller of the carrier/selected time/mode of
transport/point of taking delivery;
- Bear all risks of loss of or damage to the goods from
the time of delivery;
Þ The buyer fail to perform his obligations in B7?

 Note:
- Used irrespective of mode of transport;
- Especially suitable for container transport;
- FCA should be used instead of FAS or FOB
if the seller does not intend to deliver the
goods alongside the ship or on board;
- Usual proof of delivery;
- Deliver to the first carrier;

3.3. FAS – Free Alongside Ship
FAS + “named port of delivery” + Incoterms 2010
E.g.: FAS Haiphong Port, Vietnam, Incoterms 2010
- The seller fulfils his obligations by placing the
goods alongside the ship nominated by the buyer
at the named port of shipment or by procuring
the goods so delivered.
- Who has to contract for carriage?
- How to place the goods alongside ship?

 Seller’s obligations:
- Carry out all customs formalities necessary for the export
of the goods (where applicable);
- Deliver the goods by:
+ Placing them alongside the named vessel in the port of
shipment either on the quay or in lighters;
+ Procuring them delivered alongside ship by the 1st seller;
- Provides the buyer with usual proof of delivery;
- Carriage and insurance: no obligation;
- Contract for carriage at the buyer’s risk and expense?

- Contract for carriage of the goods from the named
port of shipment at his own expense;
- Take delivery and bear all risks from the time of
delivery;
- Give the seller sufficient notice of vessel name,
loading point and delivery time (if necessary);
- Carry out import formalities (where applicable);
Þ If the buyer fails to fulfill his obligations in B7?

 Note:
- Sea and inland waterway transport;
- FAS seller may charter a vessel;
- Three important shipment notices;
- Distribution of lighterage cost;
- Not suitable for containerized goods (should use
FCA instead of FAS);
- Usual proof of delivery;

3.4. FOB – Free On Board
FOB + “named port of delivery” + Incoterms 2010
E.g.: FOB Haiphong Port, Vietnam, Incoterms 2010
- The seller delivers the goods by placing the goods
on board the vessel nominated by the buyer at the
named port of shipment or procured the goods
already so delivered;
- Obligations of the seller and the buyer are similar
to those in FAS;
- FOB Incoterms 2000 vs. Incoterms 2010?

 Difference between FOB and FAS:
- Delivery point;
- Allocation of cost and risks related to delivery:
+ Risks of loading: Seller;
+ Costs of loading: liner charter/voyage charter;
custom of the loading port;
- Proof of delivery: received for shipment/on board;
- Popularity of FOB.

 “Ship’s rail” is removed from FOB, Incoterms 2010:
- For centuries considered as an imaginary border
between the seller and the buyer ;
- Impracticable division of parties’ functions, costs and
risks while the goods are swinging across ship’s rail;
- Development of transport infrastructure;
- Compatibility with proof of delivery;
- Requirements of a more clearly defined FOB price.
Þ Replaced by “on board” to reflect trade practice.

 Note:
- Diversity of FOB terms;
- Three important times of delivery notice;
- Usage of transport terms: FI, FO, FIO…;
- Parties’ extension of liabilities by adding “FOB
stowed”, “FOB trimmed”…;
- Custom of loading port;
- Proof of delivery;
- Not suitable for containerized goods (FOB => FCA);
- Premature transfer of risks.

 FOB 2000 vs. FOB 2010:
- Ship’s rail is replaced by “on board”
- Charter a vessel at the buyer’s risk and expense;
 FCA should be used instead of FAS and FOB
when goods are not carried by sea:
- FCA is designed for all modes of transport;
- Seller delivers the goods earlier, at lower risks &
costs;
- Seller may receive payment earlier;
- Avoid bank’s rejection of delivery documents.

3.5. CPT (Carriage paid to…)
- CPT + “named place of destination” + ICT 2010;
E.g.: CPT Noibai Airport, Vietnam, Incoterms 2010;
goods to the carrier or another person nominated
by the seller at a place agreed between the parties;
- Noibai Airport is the point of delivery?
- Who is responsible for carriage of goods?
- Two critical points?

- Clear the goods for export;
- Contract for carriage of the goods from the
agreed point of delivery;
- Pay the freight and unloading charges at the
place of destination for the seller’ account under
the carriage contract;
- Provide the buyer with usual transport
documents;
- Deliver the goods the carrier nominated by the
seller and notice the buyer of such delivery.

- Take delivery, bear all risks of loss of or damage to
the goods from the time they have been delivered;
- Notice the seller of time of dispatching/place of
destination and bear all arising costs and risks if
fail to perform B7;
- Pay all additional charges relating to the goods in
transit or unloading costs, unless such costs are
for the seller’s account under contract of carriage;
- Clear the goods for import;

 Note:
- All modes of transport;
- Single delivery notice;
- Costs arising before and after point of delivery;
- If the two parties do not intend to deliver the goods
on board, CPT should be used instead of CFR;
- The buyer should contract for insurance;
- Contract for carriage and transport documents;
- Premature transfer of risks.

3.6. CIP (Carriage and Insurance paid to…)
- CIP + “named place of destination” + ICT 2010;
E.g.: CIP Chua Ve CFS, Haiphong port, Vietnam,
Incoterms 2010;
insured goods to the carrier or another person
nominated by the seller at a place agreed
between the parties;
- Parties’ obligations are similar to those in CPT;
- Contract for insurance vs. bear risks?

3.7. CFR (Cost and Freight)
- CFR + “named port of destination” + ICT 2010;
E.g.: CFR Danang Port, Vietnam, Incoterms 2010;
- The seller fulfils his obligations by placing the goods
on board the vessel nominated by the seller at the
agreed port of loading or by procuring the goods
already so delivered;
- Parties’ main obligations are similar to CPT;
- CFR and CPT;
- CFR Incoterms 2000 and CFR Incoterms 2010;

 Note:
- Unloading port custom;
- Single delivery notice;
- Cost arising before and after delivery;
- CPT used instead of CFR;
- The buyer should contract for insurance;
- CNF, C&F, C + F: not recommended;
- Premature transfer of risks;
- Ocean Bill of lading.

3.8. CIF (Cost, Insurance and Freight)
- CIF + “named port of destination” + ICT 2010;
E.g.: CIF Haiphong port, Vietnam, Incoterms 2010;
insured goods on board the vessel nominated by the
seller at the agreed port of loading or by procuring
the goods already so delivered;
- Parties’ main obligations are similar to those in CIP;
- CIF vs. CFR; CIF vs. CIP;
- CIF Incoterms 2000 vs. CIF Incoterms 2010;
- Contract for insurance vs. bear risks?

 Contract for carriage:
- Made on usual terms;
- Usual route;
- Customary manner;
- Vessel of type normally used for the transport of the
type of goods sold.
 Transport documents:
- Dated within the period agreed for shipment;
- Enable the to claim the goods from the carrier;
- Enable the buyer to sell the goods in transit.

 Contract for insurance:
- Minimum cover as provided by the Institute Cargo
Clauses (Clause C);
- Insurance company of good repute;
- Insurance value: 110% CIP or CIF;
- Insurance cover the goods from the point of delivery
to at least the named place/port of destination;
- Provide the buyer with negotiable insurance policy
or other evidence;
- Additional insurance at buyer’s request, risk, and
expense.

3.9. DAT (Delivered At Terminal)
- DAT + “named terminal at port/place of destination”
+ Incoterms 2010;
E.g.: DAT Chua Ve CFS, Haiphong Port, Vietnam,
Incoterms 2010;
- The seller fulfils his obligations by placing the goods
unloaded from the arriving means of transport at the
disposal of the buyer at a named terminal at the
named port/place of destination;
- What is a “terminal”?

- Clear the goods for export;
- Contract for the carriage of goods to the named
terminal at place/port of destination;
- Unload the goods from arriving means of transport;
- Notice the buyer to enable the buyer to take
necessary measures to take delivery of goods;
- Provide the buyer with documents enabling the
buyer to take delivery of goods.
Þ Contract for insurance?

- Clear the goods for import. What if the buyer fails
to perform customs clearance?
- Take delivery, bear all risks of loss of or damage to
the goods from the point of delivery. What if the
goods continue to be transported after the point of
delivery?
- Notice of time/place of delivery (if entitled). What if
the buyer fail to perform his obligations in B7?

3.10. DAP (Delivered At Place)
- DAP + “named place of destination” + Incoterms 2010;
E.g.: DAP 91 Chua Lang Street, Hanoi, Vietnam,
Incoterms 2010;
- The seller fulfils his obligations by placing the goods on
the arriving means of transport ready for unloading at
the disposal of the buyer at the named place of
destination;
- Parties’ main obligations are similar to DAT;
- Place vs. terminal.

 DAT vs. DAP:
- Place of delivery;
- Unloading obligation;
- DAP suitable for on-carriage of goods after a
named place of delivery;
- DAP suitable for a delivery within the import
country’s territory;
- DAP: DES, DAF, DDU (Incoterms 2010);
- DAT: DEQ (Incoterms 2010);
Þ CIP price vs. DAP/DAT price?

3.11. DDP (Delivered Duty Paid)
- DDP + “named place of destination” + ICT 2010;
E.g.: DDP 91 Chua Lang street, Hanoi, Vietnam,
Incoterms 2010;
goods cleared for import on the arriving means of
transport ready for unloading at the buyer’s
disposal at the named place of destination.
- Parties’ main obligations are similar to DAP;
- Unloading costs and risks?

 Note:
- Buyer’s minimum obligations;
- DDP not recommended if the seller cannot obtain
import clearance ;
- Buyer’s responsible for unloading (different from
EXW – seller not responsible for loading);
- Seller has to pay VAT or other import taxes unless
expressly agreed otherwise in the sales contract;
- Seller pay the costs of PSI mandated by the
authority of the country export/import.
- Customs valuation for goods sold under DDP price.

 Select the appropriate Incoterms rules:
- Mode of transport;
- Place of delivery;
- Allocation of costs and risks;
- Competition rate;
- Ability to contract for carriage and insurance and
perform customs clearance;
- Political and social situation;
- Import/export country’s regulations.

DRAFTING CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS
1. Name of goods
- One of the most important terms in a contract
- Clearly define the goods to be exchanged
- Also known as: Commodity / Object of Contract
- Methods to draft:
a. Name of goods + trade name / scientific name
E.g.:
. Arabica/Robusta coffee
. Pitaya (Hylocereus undatus): red dragon fruit
. Pitaya (Hylocereus megalanthus): yellow dragon fruit

b. Name of goods + place of origin
c. Name of goods + manufacture’s name
d. Name of goods + brand name
e. Name of goods + major specifications
E.g.: 14-inch TV; 29-seat bus
f. Name of goods + main use
E.g.: Cotton for medical use
g. Name of goods + HS code
E.g: Automobile air conditioner 8415.20
Þ To specify the goods, a-g are often combined.

2. Quality
- One of the most important terms;
- Clearly define main characteristics of the goods;
- Require wide knowledge on machandizing
2.1. Methods to denote quality:
a. As per sample
b. As it is (tale quale)
c. As inspected and approved
d. As per standard or category

e. As per technical documents
f. As per specifications of goods
g. As per volumetric weight of goods
h. As per general customary criteria
E.g.: FAQ, GAQ, GMQ
i. As per content of essential components
j. As per ratio of products form
k. As per brand of goods
l. As per description of goods

2.2. Content of a quality article
- Define quality of goods (use one of / a combination
of the above methods)
- Inspection of quality
+ Place of inspection: place of manufacture; place of
delivery; place of destination; place of use
+ Inspector: Manufacturer; representatives of parties;
intermediary organization
+ Inspection cost
+ Certificate of quality: preliminary/final

E.g.: Quality of Vietnam export rice
- Broken: 35% max;
- Moisture: 14,5% max;
- Foreign matter: 0,4% max;
- Crop: Summer Autumn crop 2011
- Quality of goods is to be determined at the loading port
by Vinacontrol Haiphong. Inspection charges shall be
borne by the Seller.
- C/Q issued by Vinacontrol shall be final and binding
both parties.

3. Quantity/Volume
3.1. Measurement Unit
- Countable:
+ Single: 100 bales; 200 parcels; 1000 barrels
+ Collective: 5 dozens of eggs; 7 tens of oranges
- Uncountable:
+ Metric system: mm, cm, dm, m, g, kg, MT
+ English system: inch, foot, yard, mile, pound, LT, SL
Note: 1MT = 1000 kg; 1 LT = 2240 pounds (1016 kg);
1 ST = 2000 pounds (907 kg).

3.2. Methods to denote quantity
- Precise stipulation
- Flexible stipulation
E.g.: Fridges: 1000 pieces
Rice:1000 MT +/- 5%
Þ Tolerance: about ...; approximately…; +/-…%; more or
less…%; from…to…MT.
+ Range of tolerance
+ Tolerance at seller’s/ buyer’s/ vessel charterer’s option
+ Tolerance’s price
- Exemption rate (franchise): With/without deduction

3.3. Methods to determine quantity
3.3.1. Gross weight
Gross weight = net weight + tare
3.3.2. Net weight
- Net net weight: without any package;
- Semi net weight: with direct package;
- Gross weight for net: negligible package cost;
- Legal net weight: Gross weight – tare determined
by Customs officers.

3.3.3. Theoretical weight
M (mass) = D (density) x V (volume)
3.3.4. Commercial weight
100 + W0
G0 = G1 x
100 + W1
- Goods whose mass is sensitive to moisture change.
- G0 : Commercial weight W0: Standard moisture
- G1 : Actual weight W1: Actual moisture

3.4. Content of a quantity article:
- Specify content: precise/flexible (if it is flexible
weight, there must be stipulation on tolerance).
- Select the method to determine quantity (gross/net/
theoretical/commercial weight)
- Inspection of goods:
+ Place of inspection: shipped weight/landed weight;
+ Inspector: Parties’ representatives or intermediary;
+ Inspection cost distribution
+ Certificate of quantity: preliminary or final

E.g.: Quantity of Vietnam export coffee:
- 5000 MT +/- 5% at the seller option;
- Tolerance’s price is determined at time of delivery;
- The mentioned above quantity is understood as
gross weight for net;
- Quantity is to be determined at the unloading port
by Continent Inspection Service Co.; Ltd.
- Inspection cost shall be at Buyer’s account.
- C/Q issued at the unloading port shall be final and
binding both parties.

4. Tare (Packaging)
4.1. Basis for term of tare
- Type of goods;
- Means of transport;
- Route of transport;
- Legal regulations.
4.2. Provision of tare
- Tare provided by the seller without return
- Tare provided by the seller with return
- Tare provided by the buyer

4.3. Methods to determine tare’s weight
- Actual tare
- Average tare
- Customary tare
- Estimated tare
- Invoiced tare
4.4. Methods to determine tare’s charge
- Packing charge included
- Separate packing charge to be paid by the buyer
- Gross weight for net

4.5. Methods to denote tare quality
- Unspecific stipulation: Packaging must be suitable for
a certain means of transport;
+ By sea: Durable, endure pressure;
+ By railway: Durable, suitable size;
+ By air: Light, fireproof, suitable size.
- Specific stipulation:
+ Material: Polyethylene, cardboard, fiber;
+ Type: Case, Bale, Drum, Roll, Gunny bag;
+ Size: 50-kg gunny bag; 50 x 50 x 50 cm drum;
+ Number of layers…

E.g.: Term of tare for export corn:
Þ The Seller is obliged to packing corns in 50-kg bags
suitable for sea transport with transshipment.
Þ Corn to be packed in single jute new bags of 50 kg
net each, about 50.3 kg gross each, sewn at mouth
with jute twine thread suitable for rough handling and
sea transportation.
The Seller shall supply 0.2% of new jute bags free of
charge out of quantity of bags shipped.
Þ In which article of an international sales contract shall
packaging charge be often stipulated?

5. Delivery
5.1. Time of delivery
- Specific time of delivery:
+ On a specific date: On May 5th, 2012.
+ No later than/Before a specific date: Before May 5th;
+ In a specific period of time: Within 2 months since the
contract date/ From 1st to 20th of August;
- Unspecific time of delivery:
+ Prompt delivery: Immediate delivery;
+ Conditional delivery: Subject to the opening of L/C.

5.2. Place of delivery
- Basis to determine place of delivery:
+ International commercial terms
+ Means of transport;
+ Intentions of parties in the contract
- Content of place of delivery
+ Place/port of loading
+ Place/port of discharge
- Methods to denote:
+ Single port/Multiple ports
+ Specified port(s)/Optional port(s).

5.3. Notice of delivery
- Number, time and content of notice;
- Parties’ liability subject to failure of notice;
- Customary: single notice (C, D); triple notices (F);
5.4. Shipment advice
- Transshipment (not) allowed;
- Partial shipment (not) allowed;
- Stale B/L (not) accepted;
- Loading/Unloading advice (if necessary).

E.g.: Delivery as per FOB, Incoterms 2010
- Time of delivery: No later than June 30th 2012;
- Port of delivery: Haiphong, Vietnam
- Port of discharge: Main ports in Europe
- Seller should without delay inform Buyer by fax when
the goods are ready for delivery. Within 48 hours prior
to vessel’s arrival, Buyer should inform Seller of details
of ship number, ETA and loading conditions. Within 24
hours after the loading of goods on board, Seller should
inform Buyer of B/L date and number.
- Partial shipment and stale B/L are not accepted.

6. Price
6.1. Price currency
- Parties’ agreement: Export/Import countries’ currency
or a third country’s currency;
- Customary:
E.g.: USD (Crude oil ); GBP (Metals)
- Often determined by the stronger party;
- Often of stable value;
- May differ from payment currency.

6.2. Methods to define price
- Fixed price: Price shall not be reconsidered despite
unexpected fluctuation;
- Future price: The contract does not indicate a
certain price but mentions time, method to define it
in the future.
E.g.: Price shall be determined at the time of delivery
by mutual agreement between both parties.
- Flexible price: Basic price + method to review basic
price in case of unexpected rise/fall.

E.g.: The basic price of this Contract is set at USD
5000 per item. However, by the time of delivery, if
there is a downward or upward change of more than
10% the above price shall be mutually redefined. If
the fluctuation is of less than 10%, the basic price
shall still be taken as final.
- Sliding price:
+ Often applied in sales of factories, ships, and other
technical products with long manufacture duration;
+ The formula must be quoted in the sales contract if
sliding price method is adopted.

P1 = P0 (f + m x M1/M0 + w x W1/W0)
P0, P1 : Basic and reviewed total price
M0, M1 : Basic and reviewed material cost
W0, W1 : Basic and reviewed labor cost
f, m, w : Proportion of fixed cost, material, and wage
E.g.: Basic price: USD 70000, f = 50%, m = 35%. At
the time of reviewing, M and W increase by 10%?

6.3. Content of a fixed price article
- Price currency
- Unit price: Include the Incoterms rule applied and
charges (not) included;
- Total price: in number and in words;
- Discount (if any)
6.4. Discount
- Trade discount: consumer/retailer/wholesaler;
- Cash discount: early payment;
- Quantity discount: (Accumulating) value of contract.

E.g.: Vietnam export rice price
- Price currency: USD
- Unit price: USD 410/MT as per FOB Haiphong Port,
SRV, Incoterms 2010, packing charges included.
- Loading, unloading costs and any other surcharges
arising from the contract, whether at the loading or
unloading charges shall be at Buyer’s account.
- Total price: Approximately USD 410,000.
(In words : About four hundred and ten thousand
United States Dollars only).

7. Payment
7.1. Payment currency
- Payment currency is price currency
- Payment currency is not price currency
7.2. Classification
- Payment before delivery/ at the same time as
delivery / after delivery (or combined);
- One-off payment / payment by installments;
- Payment made by Telegraphic transfer / Collection /
Letter of Credit… (or combined).

7.3. Methods of payment
7.3.1. Telegraphic transfer
PAYING BANK
REMITTING BANK
(2)
(3)
REMITTER
(5)
BENEFICIARY
(4)
(1)

7.3.2. Collection
- A payment method in which the exporter shall handle
documents to the buyer's bank and also gives the
banks necessary instructions indicating when and on
what conditions these documents can be released to
the importer.
- Classification:
+ Clean Collection
+ Documentary Collection: D/P; D/A; D/OT. (Collection
document often includes drafts and other commercial
documents).

CLEAN COLLECTION PROCEDURE
REMITTING
BANK
(6)
(2) (7) (4)
SELLER
COLLECTING
BANK
BUYER
(3)
(5)
(1)

(1): Seller delivers goods and documents to Buyer;
(2);(3): Seller authorizes banks to collect payment;
(4): Collecting bank presents B/E to claim payment
from Buyer;
(5): Buyer makes payment;
(6);(7): Payment transferred to the Seller.
Þ What is the similarity and difference between T/T and
clean collection?
Þ What is seller’s risk when payment is made under
clean collection?

DOCUMENTARY COLLECTION PROCEDURE
REMITTING
BANK
(6)
(2) (7) (5)
SELLER
COLLECTING
BANK
BUYER
(3)
(4)
(1)

(1): Seller delivers goods to Buyer;
(2);(3): Seller handles documents to authorize banks to
collect payment;
(4): Buyer makes payment/accepts to pay;
(5): Collecting banks releases documents to Buyer;
(6);(7): Payment transferred to the Seller.
Þ What is the difference between documentary & clean
collection?
Þ What is seller’s risk when payment is made under
documentary collection?

7.3.3. Letter of Credit
- This is a payment method in which, under Buyer’s
request, Banks shall agree to make payment to the
Seller or anyone nominated by the Seller against
Seller’s presentation of documents and completion
of requirements stipulated in the Letter of Credit.
- Classification:
+ Revocable/Irrevocable
+ At sight/Deferred payment
+ Other: Standby, Back to back, Transferable…

LETTER OF CREDIT PROCEDURE
(4)
ADVISING BANK ISSUING BANK
(5)
(6) (7)
BENEFICIARY
APPLICANT
(1)
(3)
(2)

(1): Buyer’s applies to open L/C;
(2): Sellers delivers goods to Buyer;
(4): Seller send documents to Issuing Bank through
Advising Bank;
(5): Issuing Bank makes payment (at sight or
deferred);
(6): Payment transferred to Seller;
(7): Issuing Bank releases documents to Buyer;
Þ Why is L/C a secure payment method to sellers?
Þ What is the risk that buyers take?

7.4. Content of a payment by L/C article
- Type of L/C
- Beneficiary / Applicant
- Payment currency and value of L/C
- Issuing bank / Advising bank
- Time of opening / Effective Period
- Honor by: sight payment, deferred payment,
acceptance or negotiation
- Set of documents
Note: L/C is based on sales Contract but independent of
Contract. Banks only deal with documents.

E.g.: L/C payment article
Payment shall be made in USD by irrevocable L/C
for 100% of Commercial Invoice value.
The L/C is to be issued by a reputable Korea bank,
advised by Vietcombank, indicating the Seller as the
beneficiary. The L/C must be opened no later than
20 days after the Contract date and shall not expire
until 30 days after the B/L date.
The Seller shall be fully paid at sight against the
presentation of the following documents:

• At sight draft drawn on the issuing bank
• Full set (3/3) of original, clean B/L, clearly m marked
“On Board”, issued to order of the issuing bank with the
Buyer as the Notify Party.
• 03 original, signed Commercial Invoices;
• 02 original Certificate of Quantity and Quality issued by
a reputable inspection company in Vietnam;
• 02 original C/O form AK issued by competent authority
of Vietnam;
• Negotiable insurance certificate for 110% Invoice Value,
blank endorsed.

8. Warranty
8.1. Concept
An assurance by the seller that attests quality or
durability of the product in certain period, which is
considered as the “warranty period”.
8.2. Area of warranty
- Stable performance;
- Technical criteria compliance;
- Requirements: product’ quality, fuel consumption…
Þ Dependent on characters of product.

8.3. Warranty period
- Dependent on character of product and parties’
relationship;
- Period may be defined:
+ As a duration of time: 6 months, 12 months
+ According to some operational criteria: 1000 km.
- Note:
Parties must clearly state the ideas on:
+ When the period starts?
+ If product needs repairing, is the period lengthened?

8.4. Parties’ rights and obligations
- Seller:
+ Repair the product if flaws are made by seller/manufacturer;
+ Replace the product or refund payment;
- Buyer:
+ Follow usage instructions;
+ Keep the product in primitive state;
+ Notify the seller timely;
- Exemption:
+ The buyer does not follow instructions;
+ Natural deterioration of certain parts.

9. Claim
Claim is a request in which one party asks the other
party to compensate for the damage caused by his
contract violation;
9.1. Objects to be claimed
- Seller is often claimed for late delivery, wrong
quality or quantity of good;
- Buyer is often claimed for late payment, failure to
charter ship;
- Other: insurer, carrier.

9.2. Claim period
- Character of goods;
- Type of claim
- Relationship between parties;
- Geographical distance;
- Law/custom;
9.3. Claim documents
- Letter of claim;
- Commercial documents;
- Inspection documents.

9.4. Parties’ rights and obligations
- Claim party:
+ Preserve the primitive state of goods;
+ Notify the claimed party;
+ Collect and dispatch claim documents in due time;
+ Assist the claimed party in handling claim;
- Claimed party:
+ Review documents and give response in due time;
+ Assist the claim party in handling claim.

10. Exemption (Force Majeure)
- This clause essentially frees both parties from liability
when facing with an objective event or circumstance
beyond the control of the parties, preventing one or
both parties from fulfilling their obligations under the
sales contract;
10.1. Features of a force majeure situation
+ Unforeseeable;
+ Irresistible;
+ Relevant to contract.

10.2. Rights and obligations of parties under force
majeure situations
- Rights:
+ Delay the implementation of the contract;
+ Terminate the contract if the FM situation lasts too
long and/or takes too long to overcome
- Obligations:
+ Inform the other party in writing
+ Confirm the FM situation in due time with evidence
certified by local authorities.

10.3. Stipulation of an exemption clause
- Define and set criteria according to which a
situation is considered to be a FM one;
- List FM situations, parties’ rights and obligations,
and procedure to handle such FM situations;
- Refer to ICC Publication No. 421:
"The Force Majeure clause of the International
Chamber of Commerce (ICC Publication No. 421)
is hereby incorporated in this contract“
- Combined stipulation.

Sample 1:
Neither party shall be liable for any delay or failure to
perform its obligations under this Contract or for any
damage or loss due to any event or circumstance
beyond its reasonable control ("Force Majeure").
The affected party shall within 07 days give notice in
writing to the other party specifying the cause and
extent of its inability to perform its obligations and the
likely duration of such delay or non-performance and
shall take all reasonable steps and with due diligence
to remedy or abate the Force Majeure.

Sample 2:
Neither party shall be held liable for any delay or failure to
perform its obligations under this Agreement or for any
damage or loss due to any event or circumstance beyond
its reasonable control including, but without limitation to,
any delay, failure, damage or loss due to fire, flood, storm,
explosion, any act of God, industrial disturbance, failure of
electrical supply or telecommunication network, vandalism,
sabotage or civil disturbance.
The affected party shall within 05 working days give notice
in writing to the other party specifying the cause and extent
of its inability to perform its obligations and the estimated
duration of such delay or non-performance and shall take
all reasonable steps and with due diligence to remedy or
abate the Force Majeure.

11. Arbitration
- Arbitration is a legal technique for the resolution
of dispute outside the court, wherein the parties
to a dispute refer it to one or more persons (the
"arbitrators"), by whose decision (the “award")
they agree to be bound.
11.1. Classification of arbitration:
- Institutional arbitration;
- Ad-hoc arbitration.

11.2. Advantages of dispute settlement by arbitration
- With highly technical subject matter, experts can be
appointed as arbitrators;
- Arbitration is often faster than litigation in court;
- Arbitration more flexible;
- Arbitral proceedings and award are more confidential;
- Arbitration awards are easier to enforce in other
nations than court judgments (New York Convention);
- Arbitral awards are final.

- With highly technical subject matter, experts can be
appointed as arbitrators;
- Arbitration is often faster than litigation in court;
- Arbitration more flexible;
- Arbitral proceedings and award are more confidential;
- Arbitration awards are easier to enforce in other
nations than court judgments (New York Convention);
- Arbitral awards are final.

11.3. Arbitration procedure
- Self-conciliation;
- Arbitration agreement;
- Setting arbitration tribunal;
- Mediation;
- Selection of applicable law;
- Presentation of evidences;
- Judgment;
- Award implementation.

- VIAC: All disputes arising out of or in relating to this
contract shall be finally settled by the Vietnam
International Arbitration Centre at the Viet Nam
Chamber of Commerce and Industry in accordance
with its Arbitration Rules.
- UNCITRAL: All disputes controversy or claim arising
out of or relating to this contract, or the breach,
termination or invalidity thereof shall be settled by
arbitration in accordance with the UNCITRAL Rules
as at present in force.

 Any dispute, controversy or claim not amicably settled through
procedures set forth above shall be settled by SIAC according to
its arbitration rules, regulations and procedures. The arbitration
will be conducted in English.
 Only one arbitrator shall be appointed whose award is
considered to be final, binding upon both Parties.
 This Contract and the rights and obligations of the parties shall
remain in full force and effect pending passing of the award in
any arbitration proceeding entered into under this Article.
 Each party shall bear its own costs and expenses of the
arbitration. However, the prevailing party shall be entitled to
recover such cost and expenses, including reasonable legal fees
from the other party.
 Nothing in this Article will preclude a party’s recourse to a court
of competent jurisdiction to (a) enforce the terms of, or an
arbitration award under this Article, or (b) seek temporary
equitable relief necessary to protect its interests.

12. Governing law
- A governing law or choice of law clause specifies that the
laws of a mutually agreed upon jurisdiction will govern the
interpretation of the terms of the contract.
- Stipulation:
Narrow Clause:
This Agreement shall be governed by and construed in
accordance with the laws of [….], without regard to its
conflict of laws rules.
Broad Clause:
This Agreement shall be governed by, construed, and
enforced in accordance with the laws of [….], without
regard to its conflict of laws rules.

13. Penalty
- Penalty clause is a term of contract that seek to impose
upon a party to the contract the obligation to pay a sum
of money in the event that the contract is breached;
- Parties can agree in advance on the amount of damage
that must be paid if either breaches the contract. This
can avoid the need to go to court to work out the amount
due if a breach occurs.
- If the agreed amount represents a genuine estimate of
the likely loss, the courts will enforce the clause. The
agreed amount must be paid even if the real loss is
more or less than that.

14. Other terms and conditions
- Terms of transportation;
- Terms of insurance;
- Terms of validity and termination of contract;
- Terms of confidential information;
- Terms of copies and languages;
- Terms of checking and acceptance;
- Terms of maintenance…
Þ Number of terms and conditions depends on types of
goods and parties’ relationship.
Þ Why Commercial Law 2005 omit compulsory terms?

THE END
THANK YOU
&
GOOD LUCK!

Chapter 2 and 3 contracts and incoterms

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