The International Sales Contract: Types and Key Considerations
Oct 16 2023 Stefano RossiDistinguishing Between Supply Agreement, Long-Term Supply Agreement, and O.E.M. Supply Agreement
In the realm of international contracting, understanding the distinctions between various types of supply agreements is essential. Indeed, there is no single international sales contract, but in practice, different ones are found depending on the specific commercial needs of the contracting parties as well as the characteristics of the good/service subject to the contract.
A "Supply Agreement" is a contract whereby a seller agrees to supply products or materials to a buyer, usually for a specific time period and under set conditions (one single supply).
A "Long-Term Supply Agreement", on the other hand, is similar but spans a longer period, often with more complex terms, providing both parties with greater stability and security.
An "O.E.M. Supply Agreement" (Original Equipment Manufacturer) refers to an arrangement wherein a supplier manufactures goods to the buyer's specifications, which are then sold under the buyer's brand name. In this specific case, the goods are intended to be used as components of more complex products that the buyer manufactures by incorporating the components that are the subject of the sale.
This type of agreement is common in industries where customization and adherence to technical specifications are crucial.
Essential contents and important clauses of an international sales contract
An international sales contract should detail critical terms such as:
• Delivery Terms and ICC Incoterms: ICC's Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers concerning the transportation, delivery, and associated risks of international goods. They provide a standardized framework that reduces ambiguities across different jurisdictions.
Incoterms can be directly invoked in the contractual text, thereby effectively incorporating all the rules that each individual Incoterm refers to. It is necessary to be very precise when making these references to avoid misunderstandings and differing interpretations arising from the various Incoterm versions that have succeeded each other over the years.
• Transfer of Ownership and Retention of Title: These terms establish when the ownership of goods transfers from the seller to the buyer and there are essentially two alternatives, to reserve ownership until the completion of payment or to stipulate that ownership passes to the buyer upon delivery of the goods.
• Warranties: Warranties are promises by the seller regarding the quality, durability, or other characteristics of the goods.
• Payment Terms: These terms outline how and when payments will be made and might include details on letters of credit, upfront payments, or installment payments.
• Applicable Law and Dispute Resolution Methods: These clauses establish the law that will govern the contract and how any disputes will be resolved (e.g., through arbitration or in court).
The United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980)
Also known as the Vienna Convention, this is an international treaty standardizing certain aspects of international goods sales contracts.
It applies when parties have places of business in different states, and these states are Contracting States of the Convention, or when the rules of private international law lead to the application of the law of a Contracting State.
To invoke the Convention in an international sales contract, parties must explicitly refer to it in the contract itself or agree on terms that conform to the Convention's principles.
In all these cases, it is important to consult with an expert in international contracts to ensure that the contract is drafted appropriately and conforms both to the business needs of the parties and to the applicable laws.
