QUESTIONS FOR REVISION

CHAPTER 1 DELIVERY
1. What are 5 steps in negotiating delivery?
Step 1: Timing: date of delivery, delay, and results of delay
Step 2: Location: place of delivery and alternatives
Step 3: Transport: mode(s) of transport to be used
Step 4: Risk title and insurance transfer of risk, transfer of ownership
Step 5: Terms of trade: Incoterms be used

2. Why is location important?

- Because it is the place where risk to the goods will be transferred from the seller to the buyer.
- The place of delivery must be unambiguously agreed because many contract events (including
payment and transfer of risk and title) are tied to delivery.

3. Why is transportation important?

- Because Transportation is related to the use of documentation (shipping documents).
- Whatever means of transport is chosen, correct documentation is essential.
- If payment is made by letter of credit then the bank will refuse to pay if the shipping documents
are in any way incorrect."

4. What are modes of transportation?

- Transportation by sea/ road/ rail/ air; Multi model transportation
- Inland transport is made by road, by rail, by barge, by mail, or by a mixture:

5. Where is the risk often passed from the exporter to the importer?
- Risk generally passes from the exporter to the buyer at the point of delivery, which is subject to
the choice of a term in Incoterms by the parties.

6. Where does transfer of ownership take place?

- Transfer of ownership (or title) can take place at any point between the signature of the contract
and final payment for the goods. In international trade, these two points are often widely separate;
the parties must decide what they want.
- In international trade, the transfer of ownership is subject to the agreement between the seller
and buyer:

7. How many kinds of delay in delivery?

- Excused delay: Grade period and Force Majeure
- Unexcused delay: sellers are imposed penalty or liquidated damages by buyers

8. What events does delivery date trigger?

- The delivery date triggers many contract events. At this time, the seller fulfills his primary duties
under the contract, payment normally becomes due, risk, and often title, pass to the buyer, delay—
as well as any compensation to be paid by the seller is reckoned from the agreed date of delivery.
9. How to fix delivery date?
- Specific date: on 12 August, 20--
- Within a certain period: In September, 20--; not later than 1 May, 20-
- Immediate delivery: Prompt/ ASAP/ immediate/ spot delivery
- Subject to certain preconditions which can be met. Delivery is subject to the issuance of L/C by
the buyer.

10. When is a contract binding?

- It is binding when the contract becomes into force, in other word, it is after the date of coming
into force (Also called Effective Date)

11. When is a contract binding and effective?

- After the date of coming into force (Also called Effective Date)

12. How does the date of coming into effect the delivery date?
- Usually, the delivery date is valid only when a contract comes into effect. It is often fixed by the
parties for a number of days after the date of Coming Into Force
- If the parties must wait for the contract to become effective, the delivery date often depends on
the date of coming into force.

13. What is excused delay?

It is the delay in delivery under two conditions: Grace Period and Force Majeure which can
release the seller from his liability. A grace period is sometimes used to facilitate early delivery.

14. What are the 3 outcomes of Force Majeure?

When Force Majeure occurs, the concerned party:
- must notify the other party of such event and submit evidence certified by a related authority in
the country of Force Majeure
- take all possible steps to minimize any loss or damage caused by Force Majeure
- is entitled to terminate a contract or resume his performance after Force Majeure.

15. What are liquidated damages?

- It is a fair estimate of probable harm agreed by the parties before a contract is performed for the
compensation to the injured party in case other party is at fault. (late payment or late delivery)
- It is most commonly used because the motive is to bring a fair compensation to the injured party
and to avoid expensive discussion in case of late delivery.

16. What are penalties?

- A strong buyer sets a high figure for compensation, hoping to force the seller to deliver on time
or perform some other duty.
- The motive behind such a penalty clause is to terrorize the other party.
- The penalty figure calculated is unrelated to any actual harm the injured party suffers.
- This clause is not allowed by Anglo-American law
17. Explain the differences between liquidated damages and penalties
- Liquidated damages: the motive is to bring fair compensation, which is enforceable in all courts.
- Penalty: the motive is to terrorize the other party, which is to force the other party into his
performance. This is not allowed by Anglo-American (Common) Law.

18. Name types of Insurance policy?

- A marine insurance policy hast three variant clauses: Cargo Clauses A, B and C. Clause A
covers anything not excluded; Clauses B and C exclude anything not expressly covered.

19. What are the main functions of ocean BL?

- As a document of title to the goods
- As a receipt from the shipping company and
- As a contract of carriage (transportation) of goods.

20. What are the requirements of BL when payment is made by LC?

- The Bill of Lading must be clean, which means that it is free from any clauses making it claused/
unclean bill of lading.
- The stipulations stated on the Bill of Lading must be in conformity with the provisions specified
in the L/C.

CHAPTER 2-PAYMENT

1. What is payment by open account? What are the risks for the exporter if he accepts
payment by open account?
- Open account means the exporter ships the goods to the buyer and just waits till a fixed date as
agreed in their contract for payment from the buyer.
- Normally, the exporter only accepts open account method of payment if he has known the buyer
quite well and they have established a long-term and trustworthy business relationship.
- The biggest risk for the exporter in open account payment is non-payment as he has no
protection at all, just relying on the honour of the buyer in payment.

2. What is Export credit insurance?

- Export credit insurance is a guarantee of payment for the exporter from a third party, (an
insurance company), which issues an export credit insurance policy covering the risk of non-
payment.
- The exporter has to pay the costs for that guarantee. The insurance company will pay the
exporter in case the buyer fails to make payment.

3. What is a bank guarantee?

- A bank guarantee is a guarantee of payment for the exporter from a third party, a bank.
- The bank may issue a bank guarantee, assuring that the bank will pay for the exporter in case the
buyer fails to make payment. The buyer has to pay the costs of that guarantee.

4. Distinguish Export credit insurance and Bank Guarantee?

- Both of Export credit insurance and Bank Guarantee are guarantee of payment from a third
party, providing the exporter with some level of security in terms of payment.
- For Export Credit Insurance, the exporter has to pay for that guarantee while it is the buyer who
pays for a Bank Guarantee.
- The third party offering export credit insurance is the insurance company while the bank offers a
bank guarantee.

5. What are some limitations of Export Credit Insurance?

- There is always a long wait between the time when the buyer fails to pay and the time when the
insurance company compensates the exporter, says six months.
- When compensation is paid, it is unlikely to cover 100% of the original invoice price.

6. What should be noted on a marine Bill of Lading for it to be acceptable as a shipping

document under a Letter of Credit?
- The Bill of Lading must be clean, which means that it is free from any clauses making it claused/
unclean bill of lading.
- The stipulations stated on the Bill of Lading must be in conformity with the provisions specified
in the L/C.

7. What method of payment makes late payment impossible?

- It is the use of confirmed, irrevocable, at sight Letter of Credit, where a seller can get his
payment immediately upon presenting the full set of shipping documents to the confirming bank.

8. Distinguish Irrevocable and Revocable Letter of Credit.

- A revocable L/C is the L/C that can be cancelled at any time by the buyer or by the issuing bank
- An Irrevocable L/C is the L/C that can only be cancelled with the written consent of the
exporter.

9. Distinguish the Confirmed and Unconfirmed L/C.

- Under payment by unconfirmed L/C, payment to a seller is guaranteed by only one bank, it is the
issuing bank.
- Under payment by confirmed L/C, payment to a seller is guaranteed by only two banks, it is the
issuing bank and the confirming bank. If the L/C is confirmed, it is quicker for a seller to get
payment.

10. If a letter of Credit requires “a full set of original air waybills” to be submitted, what will
be the problem for the exporter?
- Normally, an air waybill is issued in 03 originals and 09 copies.
- If a L/C requires “a full set of original air waybills”, this is obviously a mistake or an incorrect
requirement. Only the 2nd original goes to the buyer or consignee. The exporter cannot submit
that full set and may be refused by the issuing bank when asking for payment as the bank must
insist on strict compliance.

11. Why do exporters greatly prefer confirmation of credit from their bank?
- Because the bank in his own country not only handles the paperwork but also makes payment
itself and recovers the funds from the buyer’s bank.

12. Distinguish Partial shipments and Shipment in installments.

- Shipment in installments means that an agreed schedule has been set up, for example, three
equal shipments in March, August and October 2012.
- A partial shipment is simply an incomplete shipment with some part of the goods to follow later.

13. Explain the two principles that make letters of credit safe for both exporter and buyer:
Autonomy and Strict compliance.
- Autonomy means that the L/C is a contract in its own right, entirely separate from the contract
for the sale of goods.
- Strict compliance means that the exporter must present to the bank shipping documents that
comply in all respects with the terms of the credit. Small deviations will result in refusal by the
bank to pay.

14. Why do people ask for a Prepayment Guarantee?

- For some custom - made goods, the manufacturers often ask for an advance payment. Making
this prepayment is risky for the buyer until the items arrive in working order. The advance
payment guarantee promises the buyer that the bank will return advance payments if the exporter
fails to deliver. The guarantee is normally for 100% of the prepayment.
15. In terms of guarantee, what does it mean by “without demur or objection”?
- It means “on first demand”. Whenever the beneficiary demands payment under the guarantee,
the bank will pay.

16. What are some common guarantees in business? Explain each of them briefly.
- Non-payment or Payment Guarantee: It simply commits the bank to pay if the buyer defaults. It
is usually for 100% of the contract price.
- Tender Guarantee: If the would-be exporter withdraws his tender, the tender guarantee is
forfeit. This guarantee prevents the risk of a project falling behind because a tender is withdrawn.
Normally, a tender guarantee is between 1.5% to 5% of the contract price.
- Non- Performance or Performance Guarantee: If the supplier works badly or not at all, the
guarantor will pay within stated limits the costs of the supplier’s failure to perform. Normally, it is
between 5% to 10% of the contract price.
- Prepayment Guarantee: It promises the buyer that the bank will return advance payments if the
exporter fails to deliver. Normally, the guarantee is for 100% of the prepayment, decreasing as
deliveries are made.

17. What is a Conditional Guarantee?

- A Conditional Guarantee is a guarantee from a bank but with serious, objective conditions that
must be met before payment by the bank.

18. Why do exporters prefer Letter of Credit as a security for payment to asking for a
payment guarantee from the buyer?
- Because payment guarantees are more expensive to set up and they run into trouble so often.
19. What is a Letter of Credit? Why it is also called Documentary Credits?
- A Letter of Credit is a binding agreement by a bank to pay a certain sum of money when the
exporter presents the necessary documents to the bank.
- In a letter of credit transaction, documents are exchanged for money so they are formally called
Documentary Credits.

20. About the expiry date of a Letter of Credit, why does a buyer wants an early date while
exporter wants a later date?
- The buyer wants an early date to save bank charges
- The exporter wants later date so that he can have enough time after delivery to present
documents and to correct discrepancies if any discovered by the issuing bank.

CHAPTER 3 WARRANTY AND INSPECTION

1. Why do companies have quality assurance programs?
- Because no manufacturer can produce perfect products all the time. Moreover, quality is a key
issue and customer satisfaction is essential to successful business. So companies have quality
assurance program to ensure that customers get what they pay for/to ensure customer satisfaction.

2. Why may conflicts arise in negotiating specifications?

- Because it s a difficult process. The manufacturer often tempted to be over-optimistic and to
agree to impossible specifications, which is very risky in business.
- Conflicts can arise even within the exporter’s own team: the marketing manager is eager to sell
brilliant products, but the production department knows that it cannot make them.

3. What is the benefit of a well-designed set of specifications?

- It protects both the buyer and the seller: the buyer is protected against inferior products as it can
reject any products that fail to meet specification; the seller can protect its reputation and void
costs.

4. Which kind of goods needs pre- delivery inspection? Give example.

- All kinds of goods need pre-delivery inspection, especially sophisticated items or capital
equipment.

5. What are the functions of independent inspection?

- It reports on the weight, size and most importantly, the value of the goods. It prevents exporter
and importer agreeing an unrealistically low invoice price in order to avoid customs duties in the
buyer’s country. Such inspection also prevents shipment of patently defective goods.

6. What does customs inspection reveal?

It reveals discrepancies in weight, size and description.

7. What is the real inspection for goods?

That is inspection by the buyer, or “open package inspection”.
8. What counts as a patent defect? Give examples.
Defects that are apparent (can be seen) in the goods delivered , e.g, wrong items, broken or
missing parts, scratches, etc.

9. What counts as a latent defect? Give examples.

Defects that only come to light after buyer’s acceptance, or hidden defects, e.g, structural
weaknesses, failure to operate at high or low temp, high fuel consumption.

10. What are Implied Warranties?

- It is a warranty under the applicable law.

11. What are 3 types of Implied Warranties? Give examples

- Implied warranty of conformity with contract
- Implied warranty of merchantable quality: merchantable goods are the goods fit for the ordinary
purposes for which they are to be used.
- Implied warranty of fitness for intended purposes: merely requires that the seller possess
knowledge and expertise on which the buyer may rely.

12. What is a Product Warranty?

A promise by the exporter to cure defects in his product. There are two parties: the buyer and the
seller

13. What is a Product Guarantee?

A promise of the guarantor to pay the beneficiary, made out at the request of the principal. There
are three parties: guarantor, principal and beneficiary.

14. What are the similarities and differences between a guarantee and a warranty?
Similarities: Both are promise about performance, payment is only made when there is non-
performance of products or of parties involved.
Differences:
Guarantee
1. Content: Contract to perform the promise or discharge the liability
2. Parties: Tripartite
3. Essence: promise about somebody else performance.
4. Purposes:
+ to obtain loan
+ credit purchase/ sales
+ for good conduct or honesty of person
Warranty
1. Content: State of the subject of contract
2. Parties: Bilateral
3. Essence: commitment of Seller to make good defects or product or services in a fixed period
4. Purposes
+ to enhance their value
 + show of quality
+ assurance of product performance

15. What is “Eternal warranty”? How to avoid problems of an Eternal warranty?

- An endlessly renewed liability for defects. The exporter cannot break the chain of warranty and
is involved in endless responsibility for the goods.
- The problems can be avoided with a cut-off clause such as: the total warranty period shall in no
case exceed three years.

16. What are the 3 types of defects? Give examples.

- Defective workmanship,
- Defective materials,
- Defective design
Students give their own examples.

17. What are the common exclusions of defects? Give example.

- Fair Wear and Tear – the result of normal use: the carpet is being worn from people walking on
it
- Misuse – seriously incorrect handling by the buyer : throwing kitchen knives
- Faults not present on delivery
Students give their own examples.

18. What are the four timing problems in Defect Liability Period?
- The starting point of the period
- The time allowed to the buyer to notify the exporter of a defect (notification period)
- The time the exporter has to correct the defect (rectification period)
- The period during which the buyer can begin a legal action (legal action period)

19. What are the 5 options for curing defects?

- Repair
- Allow the Buyer to repair at the exporter’s cost
- Replace
- Reduce the price
- Return the goods and refund the price

20. Which corrective method is least favourable for the seller? Why?
- Returning the goods and refunding the price seems to be the least favourable for the exporter
because this can be considered a cancellation of the contract.
- Often defective goods are not worth the cost of return shipment to the exporter’s country. That
means the deal is a total loss for the exporter.

CHAPTER 4-LEGAL FRAMEWORK

1. What are the main differences between Anglo-American Law &Continental Law?
Continental law is fully codified; Anglo-American Law relies on cases and precedents.
2. Give the main characteristics of Continental Law? Consistency and uniformity of
enforcement.
- It is codified
- Consistency in every case.
- Predictable outcomes
- Contracts tend to be short and simple
- More nationally accepted
3. Give the main characteristics of Anglo-American Law?
- It is a cased law.
- Justice in the individual case.
- Unpredictable outcomes
- Long & detailed contract required
- More Internationally accepted

4. What does the applicable law govern?

Questions concerning the validity, interpretation and performance of the contract
5. What are the principles of an enforceable contract?
- The parties achieve a “meeting of mind” (mutual agreement) and must follow the rule of offer
and acceptance.
- The parties are capable of entering a contract
- The parties must enter their contract within their power.
- The purpose and subject of a contract must be legal
6. What is the purpose of The Entire Agreement clause?
- To avoid different stipulations in different legal systems about the validity of the documents
before a contract is signed.
- The final written version of the contract replaces all previous agreement between the parties.
7. What is The Whereas Recital? Why is it necessary?
- It is the background information to explain the status and intension of the parties to a contract.
- It is necessary because it provides more explanations to the obligations and duties performed by
the parties.
- When the dispute arises, the judge may use the whereas recital to interpret the contract terms and
conditions
8. What is discharge by performance?
- Both parties perform their duties exactly according to the contract and the last duty is fully
performed.
9. What is termination? Name the two types of termination.
- It is a one-sided; in other word, one side may have the right under the contract to end a contract.
- Two types of termination:
+ Termination for convenience.
+ Termination for default.
10. What is Cancelation?
- When one party breaches a contract, the other has the right to demand cancelation of the
contract.
11. What is Rescission?
- The parties may simply agree to end their contractual relationship whenever they do not find
their common interest in continuing their performance of the contract.
12. What are the ways to solve disputes?
04 ways:
- Amicable negotiation
- Conciliation (or mediation): it is the used of consultation by the parties’ solicitors
- Arbitration: a panel of arbitrators solves the disputes
- Litigation: settlement by the court.

13. What is a panel of arbitrators?

- A panel of three arbitrators, each party appoints one the two parties appoint the third arbitrator.

14. What are the advantages of using a panel of arbitrators?

- Quicker than litigation
- Costs are predictable
- Decision is business- oriented
- It is confidential
15. What may create no- contract situations?
- Agreement does not come under the parties’ meeting of minds
- Parties do not enter their contract with their legal purpose and subjects
- Contracts are singed under duress, fraud and mistakes...
16. How does a contract come about?
- It comes about through the process of offer and acceptance. An offer and acceptance must be
communicated, understandable and seriously intended.

17. When a contract does not specify an applicable law, what can decide the law to apply?
- The matter is decided by a court.

18. When is a contract unenforceable?

- It has illegal purpose and subject
- The parties are of no legal capacity
- The people do not follow the procedure “offer- acceptance”

19. What does the arbitration clause specify?

- The rules of arbitration
- The place and the language of arbitration
- The number of arbitrators

20. Why do parties agree on a definite language contract?

- To have a clarity when a contract is translated.
- To avoid possible confused interpretation in two different languages.