Law of Contract• If there is a proposal from one side and if there is unconditional

acceptance from another side that is called a contract/agreement • Essential elements of a valid contract

1. Valid Offer & unconditional Acceptance2. Consideration – quid pro quo3. Capacity to contract4. Should not be mentally challenged5. Consensus ‘AD-IDEM’6. Should not be any mismatch of understanding7. Legality of object8. Capable of Performance & Intention to create legal relationship9. Age above 18

CONTRACTUAL OBLIGATIONS

• Seller1. Deliver goods as per contract,

in time & inform buyer

2. Bear all costs, taxes, till ‘delivered’

3. Provide packaging

4. Arrange Inspection, if required

5. Provide Document of title & other documents

• Buyer1. Take delivery of goods

2. Arrange payment

3. If required, arrange freight, insurance

CONTRACT

• The Contracts for the International Sale of Goods (CISG) will apply in any sales contract for goods between entities in countries that have signed this United Nations-sponsored treaty, unless the buyer or seller takes specific steps to exclude it. CISG was developed by United Nations Convention on International Trade Law (UNCITRAL).

• www.cisg.law.pace.edu

INCOTERMS

Define obligations/responsibility of Seller and

Buyer in respect of• Carriage of Goods• Risks• Costs

• INCOTERMS quantify the costs borne by Seller and Buyer

INCOTERM - 1

• When Buyer arranges to pick up the cargo from Ranipet, they will pay the cost of goods to Barakat Leather Co and bear all other costs.

Here, the terms of sale are Ex Works Ranipet or EXW.

Barakat Leather Co, Ranipet

Free Carrier (FCA) Chennai

Barakat Leather Co delivers the cargo, custom cleared at Chennai airport, for airfreight. Thereafter Buyer will arrange to load the cargo and pay cost of airfreight and insurance.

FAS – Free Alongside Ship (Chennai)

FOB – Free on Board (Chennai)

Wharf or Quay

FAS & FOB ….

• FAS (Chennai): Barakat Leather Co will pay all costs till the goods are custom cleared and brought inside Chennai port for loading. Thereafter, Buyer will bear all costs of loading, ocean freight, insurance etc.

• FOB (Chennai): Barakat Leather Co arranges loading the cargo into the ship but the freight and insurance charges are paid by Buyer.

Destination

CFR – Cost and Freight (Named Port of Destination)

CIF – Cost Insurance and Freight (Named Port of Destination)

CFR Marseille: Barakat Leather Co also pay the

Ocean freight cost from Chennai to Marseille over

the FOB costs, but their risk is only upto Chennai.

CIF: Barakat Leather Co pay the ocean freight cost

and insurance premium but their risk is only

upto Chennai.

By land, Place of Destination

• CPT – carriage paid to (named place of destination)

• CIP – carriage and insurance paid to (Named place of destination)• Example: From Marseille to CPT or CIP Hamburg

D Terms

• DAF – Delivered at Frontier (named place)• DES – Delivered ex Ship (named port of

destination)• DEQ – Delivered ex quay (named port of

destination)• DDU – Delivered Duty Unpaid (named place)• DDP – Delivered Duty Paid ( named place)• Costs and risk upto named port/place

to Barakat Leather Co’s account

INCOTERMS

• 1 exclusively territorial Incoterm (DAF)

• 6 exclusively maritime Incoterms • (FAS, FOB, CFR, CIF, DES, DEQ)

• 6 Incoterms valid for any means of transport

• (EXW, FCA, CPT, CIP, DDU, DDP)

INCOTERMS – Cost Implication• EXW Gurgaon cost of Maruti Swift: Rs 200,000

– Cost of transport to CFS Delhi, export documentation, and customs clearance 500

• FCA N.Delhi 200,500– THC, Stuffing, transportation to Nhava Sheva & port charges 1,000

• FAS Nhava Sheva port 201,500– Loading (stevedoring) charges 500

• FOB Nhava Sheva 202,000– Ocean freight to Hamburg 2,000

• CFR Hamburg 204,000– Marine Insurance 500

• CIF Hamburg 204,500 = $ 4, 650

– Shipping Agency charges at Hamburg 20

INCOTERMS - Example

DES Hamburg 4,670 Unloading costs 20

DEQ Hamburg 4,690 Local transport charges to customer 40

DDU Customer’s warehouse 4,730 Clearing charges and customs duty 100

DDP Customer’s warehouse 4,830

Incoterms Export customs

Local tpt

Loading chgs

freight insurance

Unloading chgs

tpt Import customs

EXW

FCA

FAS

FOB

CFR

CIF

CPT

CIP

DES

DEQ

DDU

DDP

DAF

Making a contract• Buyer and Seller• Product: description, specifications• Quantity• Packing, Marking• Price, Value• Terms of Delivery• Loadport, Discharge port/destination• Shipment schedule Insurance• Payment Documents• Inspection• Arbitration Force Majeure