LEGAL ASPECTS, ETHICS

AND CONTRACTS
CHAPTER 1

GENERAL PRINCIPLES OF A CONTRACT

Purchasing and the law are closely interwoven. Every purchase is a contract in contemplation of
law, and numerous legal incidents are involved in each transaction. The legal knowledge needed by the
professional buyer may be compared to the knowledge the motorist needs to keep his automobile in good
working order. The wise motorist practices preventive maintenance in keeping the tires properly inflated,
replacing oil filters, lubricating bearing, etc. This does not mean that he must be a mechanic to drive a
car. Basically, the purchasing agent is well advised to limit his application to legal principles to preventive
law and recognition of problems and situations that should be referred to professional counsel.

STATUS OF AN AGENT
Agent – is a person who, by express or implied agreement, is authorized to act for someone else in
business dealings with a third party.

Purchasing Agent – is not a legal party to his business transactions, but rather serves as an
intermediary.
 The law requires him to be loyal to his employer and to perform his duties with diligence to the best of
his ability.
 It is incumbent upon the purchasing agent to know as precisely as possible the types of transactions
in which he can and cannot legally represent a firm.

Sales Personnel – similarly hold the status of selling agents in the firms. In most cases, however, a
salesman or a saleswoman does not have the authority to bind a company to a sales contract or a
warranty. Have authority only to solicit others.
 To ensure that a satisfactory contract does in fact exist.
 A buyer should insists upon acceptance of an order by an authorized company official or by the
vendor’s sales office.
 The sales manager customarily serves as his company agent’s for this purpose.

DEFINITION OF A CONTRACT
  A promise or a set of promise for the breach of which the law gives a remedy, or the performance of
which the law in some way recognizes a duty’
 It is an agreement, upon sufficient consideration, to do or not to do a particular thing.
 Simply put, a contract is a promise enforceable by law
 It is a written agreement that allocates the risk and reward of a transaction between the parties
involved.

ELEMENTS OF A CONTRACT
Although a legalistic approach to purchasing is in most cases unnecessary, every purchasing
professional must nevertheless protect his company against potential legal. His major responsibility is to
ensure that each purchase contract is satisfactorily drawn and that it is legally binding on the supplier.

To be valid and enforceable, a contract must contain the four (4) BASIC ELEMENTS:
1. Offer, Acceptance and Genuine Assent (Meeting of the minds)
2. Consideration or obligation
3. Legality of the subject matter or purpose
4. Competent parties or capacity of the parties to transact legally

TYPES OF CONTRACT
 Express vs. Implied
Express – spoken or written terms – where the agreement is made manifest either of the audible or
visible means expression.

Implied
 In Fact – where the terms are evidenced by conduct or gestures; but with no written or spoken word,
e.g. enter a convenience store where the customer has establish credit ; pick up item and show it to
cashier/clerk on out of store. Clerks nods head in acquiescence and duly records price of item on
customer/purchaser’s account. This is an implied sales contract.
 In Law – often called quasi-contract. A legal fiction developed by the courts to avoid unjust
enrichment; e.g. X purchaser a watch for Y. However, by mistake the watch is delivered to Z. Z has
obligation to return the watch to X. X’s recovery is said to be quasi-contractual in nature. Obviously,
there is no agreement between X and Z.

 Executed vs. Executory

Executed – Finished or completed on both sides. Where all parties have fully performed there respected
duties and obligations. This can be viewed as a completed or finished contract.

Executory – Something remains to be done on one or both sides, ( e.g. in the purchase of furniture, the
buyer makes a down payment and takes delivery of the furniture). This is a partially fulfilled contract.

 Formal vs. Informal

Formal – One required by law to adhere to certain specifications as to form or types of expression. (i.e
a negotiable instrument such as a promissory note or deed of sale).
Informal – Any contract not required by law to follow a prescribe form. Most contracts fall within this
category.

 Void vs. Voidable

Void - Sometimes called a nudum pactum; of no legal effect whatsoever (i.g. an agreement entered into
by an individual who had – prior to contracting – been adjudged insane.

Voidable Contracts
If the volition of one of the contracting parties, or his motivation, is dictated by fear, importunity,
or deceit, the agreement is voidable at his option. Cases were contracts are voidable:
1. Fraud – Misrepresentation of facts and knowledge of the falsity and intent to deceive.
2. Undue Influence – if the weaker party contracts with the stronger one, resulting in a
disadvantageous bargain, undue influence is presumed.
3. Duress – Threats to the person or property and if the agreement is motivated by fear.
4. Mistake – Generally, the courts will only grants relief in cases of mutual mistake as to the nature
or existence of the subject matter. However, if unilateral mistake is palpable, or such that shocks
the conscience of the court, relief may be granted.

OBLIGATIONS OF A BUYER AND A SELLER IN A CONTRACT

Obligations of BUYERS
The primary “obligation of a buyer under the contract of sale is to pay the price for the goods
delivered. Buyer is under the obligation to pay the purchase price at the
dseadline agreed and to take delivery of the goods. In lack of a contrary provision in the contract, place
of performance shall be the seller’s place of business.

 Payment and Take Delivery

Which can be defined as a contract by which the seller agrees to deliver the goods and transfer
the property in the goods to the buyer, which for its part agrees “to pay the price for the goods and take
delivery of them". This approach is consistent with the understanding that the seller and the buyer have
reciprocal obligations toward concluding sales contracts . Proof of delivery is established by means of
seller testimony, or invoices as copies of an export bill of lading, as well as communications and/or
agreement between the parties. Courts have concluded that this evidence in the field of commerce and
general life experiences confirms that it is very likely that the buyer received exactly the goods that were
ordered and for which the invoice was sent.

 Taking Delivery
This obligation consists in carrying out all the acts that could reasonably be expected of a buyer
in order to enable the seller to make delivery and in taking over the goods. Further, preparatory measures
‘such as the provisions of plans or data, are also part of the cooperation required of the buyer since
ultimately they serve to enable the seller to make delivery.

 Buyer’s Obligation upon Delivery

Buyer must examine or have goods examined within a period as short as practical under the
circumstances and if defects are found it must notify the seller about them within a reasonable period of
time

Obligation of the SELLER

 Seller's Obligations
Generally, the seller's primary obligations are to transfer ownership of the goods and deliver the
goods. A seller may agree with the buyer to perform other obligations. For instance, a
seller may agree to package or label the goods in a certain way or service the goods for a specific period
of time.
A seller should convey the title to the goods free from any security interest or other lien or claim,
unless the buyer was aware at the time of the sale that other persons had a claim to the goods. If the
sales contract does not specify a time of delivery, the seller should deliver the goods within a reasonable
time after the contract is made. Delivery should occur in one shipment unless the parties agree otherwise.
If the sales agreement does not indicate where the goods are to be turned over, the delivery of the goods
should occur at the seller's place of business. The tender of the goods should be at a reasonable hour of
the day, and the buyer should have the ability to take the goods away.
If the goods are in the possession of a third party, or bailee, at the time of the sale, the seller must
arrange matters with the bailee so that the buyer may take possession. If the goods are to be transported,
there are two ways to handle delivery. The buyer and seller may agree to a shipment contract, in which
case the seller must arrange for the transportation. In a shipment contract, the seller's duties for delivery
are complete as soon as the goods are delivered to the carrier. With a destination contract, the seller's
obligation to deliver does not end until the goods are delivered to the buyer or at a selected location.

WARRANTIES
In the context of the sale of goods, a Warranty is concerned with identifying the kind and quality
of the goods that are tendered by the seller. The two basic types of warranties are express warranties
and implied warranties.
 Express Warranties
An express warranty is any representation or affirmation about the goods made by the seller's
words or conduct.

 Implied Warranties
Implied warranties are warranties that are imposed on sellers by law. A warranty of merchantability
is implied in every sales contract.
 CHAPTER 2

BREACH OF CONTRACT
- Breach of contract is a legal cause of action and a type of civil wrong, in which a binding
agreement or bargained-for exchange is not honored by one or more of the parties to the contract by
non-performance or interference with the other party's performance.

4 TYPES OF CONTRACT BREACHES

1. Minor breach- (a partial breach or immaterial breach or where there has been substantial
performance), it is a breach of contract that is less severe than a material breach and it gives the harmed
party the right to sue for damages but does not usually excuse him from further performance. A minor
breach also gives rise to an immediate cause of action. However, it does not excuse the innocent party’s
duty to perform. Therefore, the innocent party can sue for whatever damage it sustains from the minor
breach but it must nevertheless live up to its side of the contract.

For example:
 Paul and Bill, two business partners, hire SevenSeas, Inc. to build them a boat. The contract says
that SevenSeas will build the boat according to Paul and Bill’s specifications and that Paul and Bill
will pay SevenSeas $2 million. One of the specifications that Paul and Bill lay out is that the boat
must contain bullet-proof windows. SevenSeas builds the boat exactly according to specifications
except for the windows, for which SevenSeas accidentally uses ordinary glass. Using the guidelines
laid out above, the court would most likely rule that SevenSeas’ breach was minor: SevenSeas has
basically finished performance, the breach was accidental, Bill and Paul have basically received the
benefits they contracted for, they can be compensated for the imperfect performance and it would
probably be very hard on SevenSeas if the court ruled that the breach is material so that Bill and
Paul do not have to pay the contract price.

However, even where a breach might ordinarily be considered minor, if the particular element of the
contract that was breached had a bargained for importance, the ordinarily minor breach might be
considered to be material.
 For example:
 Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. to be delivered to him on
April 1st. Textiles, Inc. delivers the cloth on April 2nd. This will most likely be considered a minor
breach. Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. telling them that the
cloth must be delivered to him on April 1st because he has a fashion show on April 4th and his
seamstresses need three full days to turn the cloth into the clothes that will be features at the show.
Textiles, Inc. delivers the cloth on April 2nd. In this case, the delay will be considered a material
breach because the time of delivery was bargained for importance.

Essentially, a material breach does two things. First, it gives rise to an immediate cause of action
against the breaching party and, second, it excuses the innocent party from performing.

For example:
 Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. telling them that the cloth
must be delivered to him on April 1st because he has a fashion show on April 4th and his
seamstresses need three full days to turn the cloth into the clothes that will be featured at the show.
Textiles, Inc. delivers the cloth on April 2nd. In this case, Textile’s material breach means that, first,
Ralph Loren can sue them for the breach and, second, Ralph Loren does not have to accept or pay
for the cloth.

A minor breach also gives rise to an immediate cause of action. However, it does not excuse the
innocent party’s duty to perform. Therefore, the innocent party can sue for whatever damage it sustains
from the minor breach but it must nevertheless live up to its side of the contract.
For example:
 Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. to be delivered to him on
April 1st. Textiles, Inc. delivers the cloth on April 2nd. This will most likely be considered a minor
breach. In this case, Ralph Loren can still sue Textiles for the breach but he will have to accept and
pay for the cloth when it arrives.

If two parties have an ongoing contract (like an installment contract) and one party breaches, the
innocent party’s options as to how to react will be determined by what kind of breach was committed.

If the breach was material, the innocent party can either sue for damages caused by the breach and
let the contract continue, or he can terminate the contract entirely and sue for the whole contract.
For example:
 Sunshine and Squeeze Me enter into a contract under which Sunshine agrees to ship one thousand
bushels of oranges per month to Squeeze Me for a year and Squeeze Me agrees to accept the
oranges and pay $5 per bushel. At the beginning of the third month, Sunshine decides not to send
that month’s shipment of oranges to Squeeze Me. If this is a material breach, Squeeze Me can either
sue for whatever damages the breach caused but continue to accept and pay for future shipments
of oranges, or they can terminate the contract and sue Sunshine for the whole contract.
 However, if the breach is only minor, the innocent party can sue for damages resulting from the
breach but they cannot terminate the contract.
For example:
 Sunshine and Squeeze Me enter into a contract under which Sunshine agrees to ship one thousand
bushels of oranges per month to Squeeze Me for a year and Squeeze Me agrees to accept the
oranges and pay $5 per bushel. At the beginning of the third month, Sunshine decides not to send
that month’s shipment of oranges to Squeeze Me. If this is only a minor breach, Squeeze Me will be
able to sue Sunshine for whatever damages arise from this breach but they cannot refuse future
shipments of oranges.

2. Material breach- A substantial breach of contract usually excusing the harmed party from further
performance and giving him the right to sue for damages.

What Is an Example of a Material Breach?

An example of a material breach might be in an electrical contract, where an owner of the home
has contracted to pay an electrician to install high-grade wires for safety purposes. Instead, the electrician
installs low-quality wires which do not work as well and cause damage to the walls. This would be
considered a material breach since the intent of the contract (safety) has been disregarded.

3. Fundamental breach- A fundamental breach (or repudiatory breach) is a breach so fundamental that
it permits the aggrieved party to terminate performance of the contract. In addition that party is entitled to
sue for damages.

4. Anticipatory breach- A breach by anticipatory repudiation (or simply anticipatory breach) is an

unequivocal indication that the party will not perform when performance is due, or a situation in which
future non-performance is inevitable.

An anticipatory breach occurs when a party demonstrates its intention to break a contract.
However, vocal or written confirmation is not required, and failure to perform an obligation in a timely
matter can result in a breach. By declaring an anticipatory breach, the counterparty may begin legal
action immediately rather than waiting until a contract's terms are actually broken.

For example, if Company A refuses to pay substantial interim payments to Company B, Company
B can begin legal action due to anticipatory breach. Company B could also stop performing its contractual
obligation, potentially saving time and or money.

5 WAYS TO AVOID BREACH OF CONTRACT LAWSUITS AT YOUR COMPANY

Respecting and honoring any contract you sign is a fundamental part of being in business with another
person or organization. But what can you do when another party doesn’t live up to their end? Or what if
you’re being accused of failing to honor a contract? Here are five ways to avoid dreaded breach of
contract lawsuits:

1. Contract Clarity. Ensuring that your contract is clear and uses precise language is a great way to
avoid breach of contract lawsuits before they start. Expectations should be spelled out in explicit and
uncomplicated language. If you’re not sure your contract meets all of your needs, consult an attorney
who is experienced in contract law.

2. Follow the Contract. Obviously, once the contract is in place you are obligated to uphold your end of
it. Do the job as described in the time allotted and within the budget allowed. If you are unable to do this,
the contract may have to be amended—but the other party is in no way required to do this. Never sign
any contract you don’t think you can live up to.

3. Legality of Contract. All parameters in the contract must exist in accordance with the law and cannot
contain illegal requests or requirements, such as giving up legally mandated breaks, violating safety
standards, or refusing to accommodate a disability. A contract for an illegal act cannot be enforced by
the courts.

4. Have a Reason. There are legally valid reasons why a contract might be breached, such as being
prevented, or a lack of capacity. If you’re the target of a breach of contract lawsuit, an experienced
attorney can help ensure that your side is heard in court.

5. Research. It’s a good idea to research anyone you intend to enter into a contract with. Have they been
accused of breach or fraud in the past? Have they been honest about their history, training, schooling,
and skill? An attorney with experience in breach of contract lawsuits can help you proceed with
confidence.

DIFFERENT LEGAL SYSTEMS

 The basic, fundamental law of a state which sets out how that state will be organized and the
powers and authorities of government between different political units and citizens.
 Legal system refers to a procedure or process for interpreting and enforcing the law. It elaborates
the rights and responsibilities in a variety of ways. Three major legal systems of the world consist
of civil law, common law and religious law.

1. The Common Law System

The common Law is a system of law that is derived from judges’ decision rather than statutes or
constitution. Under this system, the law is essentially customary and jurisprudent.

Although originating from England, the Common Law is applied in the Commonwealth countries
in the Caribbean, Africa and Asia/Pacific, Ireland and the United Kingdom in Europe, Canada ( except
Quebec), and United States (except the State of Louisiana) in North America, Israel, Autralia and New
Zealand.

As a general rule, in the Common Law setting there is an expectation that the contract will provide
in detail the relationship between the parties. In the case of any dispute, the judge or arbitrator coming
from a Common Law system would look to the words of the contract alone to determine

 The contractual obligations

 Whether there was a breach
 Who is liable
 The relief to be granted
 Only under the limited circumstances of ambiguity would the judge examine documents
developed prior to the contract signing in order to determine what the contract between the parties was.
These expectations as to how a contract would be read are significant reasons leading to the detailed
approached found in Common Law contracts.

2. The Civil Law System

In the Civil law system (also referred to as Roman law or Continental Law), the law is in the work
of a legislator and is the principal source of rights. With the Civil law system, the entire law is set out in a
series of codes.

The following regions and countries apply the Civil law. Europe except UK and Ireland,
Francophone and Lusophone Africa, China, Japan, Korea, Latin America, the Province of Quebec, the
state of Louisiana in the US, Northern Africa and the Middle East, Turkey, Iran and Afghanistan.

In the civil Law setting, background codes of obligations lead to more of an exception that
the background law will fill in the gaps as to the parties’ obligations. There, in general, also more of a
willingness to examine the documents prior to the contract in order to determine and understand the
parties’ obligations under the contract. The contract is likely to be more succinct.

3. Religious Law System

It refers to the concept of a religious system or document being used as a legal resource, refers
to the concept that the word of God is a law.

4. Mixed Law

It is a jurisdiction traditionally combine common civil law elements in an obvious way.

 CHAPTER 3

CONTRACT PREPARATION
Preparing the contract is the process by which the initial version of the contract is developed. This
initial version may be the standard contract that specifies the typical clauses to be used for a certain type
of purchasing relationship. Both the buyer and seller may have agreed the general outlines of the contract
(heads of agreement). The buyer then prepares the initial draft to be submitted to the seller or vice versa.

Major Issues Relating to Contract Preparation

 What your company wants to obtain?
 What your company wants to avoid?
 What are the option available, if at all goes wrong to protect your company?
 What should be included of excluded?
 What are the actual clauses of the contract to be used?

IMPORTANCE OF A CONTRACT
The contract has become the legal basis which binds at least two parties – seller and the buyer.
The contract is even more important in international trade due to the fact that the parties residing at
different countries are subject to various legal rules affecting the making and performance of the contract.
Therefore, the careful negotiation of such document will define the rights and duties of each party – which
will be basis of a successful business relationship.

What Makes a Good Contract?

 Know what you want to obtain and avoid.
 Know your supplier
 A good contract is one in which all parties win.
 Never allow someone to make promise that you suspect cannot be accomplished
 Avoid ambiguous drafting
 Keep technology in mind
  Keep intellectual and industry property in mind
 Have a clear dispute resolution clause.
 Have a clear termination clause.
 Keep culture in mind.

1. Spot Contract- are one-time purchase based on who offers the best deal at the time of the
purchase. No long term relationship.

2. Regular Trading Contracts- are repeated spot purchases from one or more suppliers.

Clauses that should be included in a SPOT OR REGULAR TRADING CONTRACTS:

 Identifying the Parties- to determine the parties to the contract.
 Description of the goods or services- to describe the goods or services to be supplied.
 Contract price- determine the amount the buyer is to pay, or the way in which the amount is to
be determined. Price represents the buyer’s main responsibility.
 Delivery- to specify where and when the goods are to be sent by the seller, received and accepted
by the buyer, and determine whether the seller has complied with its duties.
 Inspection By The Buyer- for the buyer to be able to examine whether the goods, the result of
the services meet the requirements of the contract. For the seller to know how it is to execute its
duty to provide the goods for inspection to the buyer.
 Retention Of Title- determine who retains the title of ownership to the goods, and until when.
 Payment Conditions- to explain how the buyer is to pay for the goods purchased under the
contract.
 Documents- to specify which documents that the seller is to provide in order to complete
obligations. The seller need to know which documents you require.
 Liability For Late Delivery, Non-Delivery, And Remedies- determine how problems with
delivery are to be addressed. To ensure compensation for delays and clarify how to deal with
problems.
 Limitation Of Liability For Non-Conforming Goods- as part of the balance of the contract, the
parties may wish to foresee, to the extent permitted by law, the consequences of the goods not
conforming to the specifications. To avoied having to negotiate or litigate the dispute.
 Claims On Product Liability Or Otherwise- to create a contractual obligation of assistance
between the parties, in the case of a customer claim about the goods provided. To ensure a duty
to cooperate.
 Force Majeure- this is the mechanism to address a situation where here an impediment occurs
that is beyond the control of the parties and prevents performance. This is to relieve a party from
the duty to perform.
 Applicable Law- to help the parties know how to interpret their obligations under the contract. To
help the judge or arbitrator know how to determine liability under the contract.
 Resolution Of Disputes- to determine the procedure for resolving disputes. It is always
recommended to specify accepted ways of solving a dispute.
 Language Of The Contract- to specify the language in which the parties are conducting their
business.
  Conditions To The Entering Into Force Of The Contract- to address the difficulty that the
contract may only be able to come into force if certain approvals are received, financing procured,
etc.
 Definitions- to identify certain terms that have a specific meaning for the parties in the context of
the agreement.
 Notices And Communications- to specify how the parties will communicate with each other in
a valid way.
 Exclusion Of Headings- to avoid a misinterpretation of the contract by reference to the headings
of each of the clauses.
 Merger- to specify that the contract is the complete contract between the parties. To avoid
confusion as to the legal validity of previous documents.
 Modification Of The Contract- to spell out the way in which a contract is modified.
 Changes In The Parties- to ensure the buyers rights in the events of substantial changes in the
ownership, management, etc., of the seller which might endanger performance of the contract.
 Assignment- to protect the buyers interest in the event of the seller wishing to assign the contract
to a third party.
 Termination For Cause- specification of circumstances in which the buyer is entitled to terminate
the contract. It is important to know under what conditions this can be done.
 Insurance- the determination of who is to bear the costs of the insurance and the way it is to be
procured is necessary.
 Warranty Claims- to make it clear who bears the cost of repairs and how this is to be done.
 Voidability Of The Contract Or Part Of It- to help the contract survive even if part of it is not
valid under local law.
 Intellectual Or Industrial Property- to make clear the impact of the sale on any intellectual or
industrial property rights of the seller.
 Taxes- to make it clear the manner in which taxes will be covered by the parties. To avoid tax
surprises.
 Performance Bonds, Advance Payment, And/Or Completion Bonds- to protect any advances
made and ensure performance. To avoid financial losses for the buyer.

3. Call-off Contract- are agreements for various purchases over a period of time. It is also
called framework agreement. Blanket contract, and standing order. There is N0 commitment to buy
certain amount or volume, but based on estimate only.

4. Fixed Contracts- are similar to call-off contracts BUT commitment to buy certain volume
or value over a period of time.

Clauses that should be included in a CALL-OFF AND FIXED CONTRACTS aside from clauses
included in the spot contract:
 Description Of The Goods- to describe the goods to be supplied. It is important to indicate if
changes or improvement over time are included in the contract.
 Duration- to provide the duration of the agreement and how it is to be renewed, if at all.
 Volume- to present the amount of the product that are foreseen to be purchased over the term of
the contract. Minimum amounts need to be specified in a fixed contract and in call-off contracts
certain volume targets may trigger price changes.
 Contract Price Adjustment- To provide a mechanism for price adjustment/ determination during
the life of the call off or fixed contract. If the contract is long or if the market is volatile, prices may
need to be revised.

SPECIAL LEGAL CONSIDERATION

1. Inspection Right – if a buyer has not previously inspected the material purchased to ensure that
is conforms with the terms of the contract, the law gives him a reasonable period of time to inspect
the materials after it is received. If the buyer raises no objection to the material within a reasonable
period on this matter, it has been largely industry practice which sets the standard for reasonable
time.

2. Rights of Rejection- a buyer has the right to reject materials if it does not conform with the terms
of the contract. If an over shipment is received, the buyer can either reject the complete shipment
or reject the quantity in excess of the contract. When a buyer does not wish to accept wrongly
delivered materials, he is required only to notify the supplier, he is not legally bound to return the
rejected material. If he returns the material or notifies the supplier of his rejection within a
reasonable period of time, however, he is obligated to pay for the material.

3. Warranties- The sales of a material may involve to types of warranties- implied or express
Express Warranties
 An express warranty is any representation or affirmation about the goods made by the
seller's words or conduct.
Implied Warranties
 Implied warranties are warranties that are imposed on sellers by law. A warranty of
merchantability is implied in every sales contract.

4. Tittle of Ownership of Items- The question of which party has title to purchased goods is
normally answered by defining the incoterms (International Commercial Terms) used in a
contract, developed by the International Chamber of Commerce are used for international
transportation of goods. Incoterms must be specifically included within the contract.

Incoterms are grouped into FOUR CATEGORIES:

 GROUP E- the only term where the seller makes the goods available to the buyer on his
premises.
EXW- (ex works) the buyer is responsible for arranging everything, with the supplier only
making the goods available.

 GROUP F- terms where the seller is responsible for delivering the goods to a carrier
named by the buyer.
FCA- (free carrier) seller must load goods onto the buyer’s carrier. The supplier has
obligation as soon as goods are transferred to the agreed location.
 FAS- (free alongside ship) seller must deliver goods to the dock, next to the ship.
FOB- (free on board) seller must load the goods onto the ship. The ship then leaves at
the expense of the buyer.

 GROUP C- terms where the seller is responsible for paying for carriage for the goods. But
is not responsible for cost of loss or damages to goods.
CFR- (cost and freight) same as fob, but seller must pay for shipping to the destination
point.
CIF- (cost, insurance and freight) same as cfr except that seller pays for insurance and
names buyers as beneficiary.
CPT- (carriage paid to) buyers assumes title and risk of loss when goods are delivered
to the carrier, Seller pays shipping to destination.
CIP- (carriage and insurance paid to) same as cpt, except that seller pays for insurance
and names buyer as beneficiary.

 GROUP D- terms where the seller is responsible for all cost and risks associated with
bringing the goods to their final destination.
DAF- (delivered at frontier) term refer to delivery to the border. Buyer acquires title, risk
and responsibility for import custom clearance.
DES- (delivered ex ship) buyer acquires title, risk, and responsibility for unloading goods
from the ship and bears responsibility for clearing import customs at destination.
DEQ- (delivered ex quay) buyer assumes title and risk when the ship arrives at the
destination port and is responsible for import customs clearance at the destination port.
Seller is responsible for delivering the goods to the dock at port of destination.
DDU- (delivered duty unpaid) seller must arrange for ground transport in the buyer’s
country. Buyer bears responsibility for import custom duties.
DDP- (delivered duty paid) seller bears all risk and customs responsibilities until the
goods are delivered to a specific location and clear for import customs. Buyer assumes
risk and title when the goods are delivered to the buyer’s specific location.

TYPES OF RISKS
1. Foreseeable Operational Risks- risk associated to the performance of the contract.
Foreseeable Operational Risk- What to do?
a. Define how to correct this situation.
b. Define how to correct this situation.
c. Define communication links between the parties.
d. Define ultimate steps in case of enduring breach.
2. Foreseeable Structural Risks- risks relating to the contracting parties.
Foreseeable Structural Risk- What to do?
a. Identify situations that you couldn’t accept
b. Require the supplier to inform you
c. Reserve the right for you to terminate the contract if these situations occur.
3. Foreseeable and Unforeseeable General Risks- risk relating to the surrounding environment.
Foreseeable and Unforeseeable General Risk- What to do?
 a. Indicate that the disadvantage party need to give notice a hardship and request a
renegotiation of the contract.
b. Indicate what to do if an agreement is not reached within reasonable time.

METHODS OF SETTLING DISPUTES

A. ADJUDICATIVE METHOD
- Litigation. One party sues the other party in court.
- Arbitration. A private tribunal selected by the parties makes an award both binding and final to
both parties.

B. NON – ADJUDICATIVE METHOD

- Use of an expertise
- Mediation/ conciliation
- Negotiation