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Inspection of Production Facilities and Production Samples

[If acting for the Buyer and the Purchased Goods are being manufactured specially for the Buyer, you may want to insert the following clause:

8.1. Inspection of Production Facilities and Samples — The Buyer, or an independent inspection organization of the Buyer's choosing, shall have the right to inspect at any time during normal business hours the production facilities where the Purchased Goods are being produced and to inspect the Purchased Goods during production. The Seller shall cooperate with such inspections. In addition, the Seller shall send to the Buyer at the Seller's expense, prior to, and at reasonable intervals during production of the Purchased Goods, production samples of the Purchased Goods for the Buyer to test and approve.

In the event that the Buyer is not satisfied with either the Purchased Goods being produced at the time of such inspection or with the said production samples, the Buyer shall notify the Seller in writing of its dissatisfaction. The Seller shall immediately seek to cure any such dissatisfaction. In the event that corrections are not immediately made to the satisfaction of the Buyer, Buyer may, at its option, require that production and delivery be suspended pending timely corrections, and such action by the Buyer shall not excuse the Seller from any delays or failure to ship the Purchased Goods on time.]

Article 9 Warranties

The warranty section, if included, is an extremely sensitive negotiated provision. Obviously the Seller will want a «bare bones» minima) approach while the Buyer will want an extensive (both in coverage and time) warranty. The following is only an example of one possible outcome of the negotiations of this provision.

9.1 Warranties — The Seller warrants that all of the Purchased Goods delivered hereunder will conform [strictly] to the descriptions and specifications set forth in Schedule 2 of this Agreement [and to production samples furnished by Seller], and will be merchantable, of good material and workmanship and free from defect. This warranty shall survive any inspection, delivery or acceptance of any Purchased Goods, and payment thereof by the Buyer and any inspection or certificate by an independent inspection organization. The Seller's obligation shall apply only to failure to meet the foregoing warranties (except as to title) occurring within _____ (________) months from date of delivery pursuant to Article __________, of which the Seller is given written notice within __ (______) days of such occurrence and provided the Purchased Goods or part the Goods are made available to the Seller as specified by the Seller. If any of the Purchased Goods or part thereof fails to meet the foregoing warranties (except as to title), the Seller shall repair same or, at its option, replace same in either case [INCOTERM] on the same basis as described in Section 3. Any such failure shall not be cause for extention of the duration of the warranty specified in this Article 9. If such failure or defect cannot be corrected by the Seller's reasonable efforts, the Parties shall negotiate an equal adjustment. The Seller's obligations under paragraph _____ above shall not apply to any Purchased Goods, or part thereof, which:

a) is normally consumed in operation; or

b) has a normal life inherently shorter than the warranty period specified in paragraph ___; or

c) is not properly stored, installed, used, maintained or repaired, or is modified other than pursuant to the Seller's instructions or approval; or

d) has been subjected to any other kind of misuse or detrimental exposure, or has been involved in an accident.

With respect to any of the Purchased Goods not manufactured by the Seller (except for integral parts of the Seller's Purchased Goods, to which the warranties set forth above shall apply), the Seller gives no warranty, and only the warranty, if any, given by the manufacturer shall apply. Subject to Article _____, this Article sets forth the exclusive remedies for claims based upon defects in or non-conformity of the Purchased Goods, whether the claim is in contract, warranty, tort (including negligence), or otherwise. Except as set forth in Article _______, the foregoing warranties are in lieu of all other warranties, whether oral, written, express, implied or statutory. NO IMPLIED OR STATUTORY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE SHALL APPLY.

Article 10 Indemnification

10.1 Product Liability — If acting for the Buyer, depending on the nature of the goods and the marketplace, it may be desirous to have certain indemnities such as the following:

Except for claims, losses or damages directly and solely resulting from or arising out of the Buyer's active negligence, the Seller specifically agrees to defend, indemnify and hold the Buyer harmless from and against any and all product liability claims, losses or damages, whether brought as expressed or implied warranty, negligence, or strict liability actions, including the cost of defending any proceedings, resulting in whole or in part from the manufacture, purchase, sale, storage (prior to delivery as specified in paragraph ___ hereof), transportation, or foreseeable use of the purchased Goods.

10.2. Patent Indemnification — The Seller shall defend any suit or proceeding brought against the Buyer and shall pay any adverse judgement entered therein so far as such suit or proceeding is based upon a claim that the use of the Purchased Goods or any part thereof manufactured by the Seller and furnished under this Agreement constitutes infringement of any patent [in the country of _____] providing the Seller is promptly notified in writing and given authority, information and assistance for defense of same; and the Seller shall, at its option, procure for the Buyer the right to continue to use said Purchased Goods, or modify it so that it becomes non-infringing, or to replace the same with non-infringing equipment, or to remove said Purchased Goods and to refund the Purchase Price. The foregoing states the entire liability of the Seller with regard to patent infringement and is subject to the limitation of total liability set forth in Article ________.

If you are acting for the Seller and the Purchased Goods have been custom made by the Buyer, the following should be considered:

The Buyer agrees to defend, protect, indemnify and save harmless the Seller from any loss, damage or injury arising out of a claim, suit or action at law or in equity for actual or alleged infringement because of the sale of such Purchased Goods, and to defend any such suits or actions which may be brought against the Seller.

If acting for the Seller, it is often desirable to draft a clause limiting damages.

10.3 Limitation on Damages — In the event that either Party is entitled to recover damages under this Agreement, such damages shall not include incidental damages as defined in [Section 2-710 of the Uniform Commercial Code or the United Nations Convention on Contracts for the International Sale of Goods, Article 74. Notwithstanding any other provision of this Agreement: — such claims or relief shall be limited to direct damages which at the date of the Agreement could be reasonably foreseen as a natural consequence of such circumstances; the total liability of the Sell­er, including its subcontractors or suppliers, on any and all claims shall not exceed the Purchase Price of the Purchased Goods or service which has given rise to the claim; except as to title and patent indemnity, any such liability shall terminate upon the expiration of the warranty period specified in Article __________; and in no event shall the Seller or its subcontractors or suppliers be liable for any special, consequential, incidental, indirect or exemplary damages, including but not limited to, loss of profit or revenues, loss of use of or increased expense of operation of the Purchased Goods or any associated equipment, impairment of other goods, cost of capital or modifica­tions to or substitutions of the Purchased Goods, facilities or services, downtime costs or other increased expense of operation, or claims of the Buyer's customers due to added costs or losses, service interruption or failure of supply.

Article 11 Arbitration

11.1. Disputes — Any and all disputes, controversies, claims and differences arising out of or relating to this Agreement, or any breach thereof, which cannot be settled through correspondence and mutual consultation of the Parties hereto, shall be finally settled by arbitration in accordance with the _______ Rules of the ____ Association, in effect on the date of this Agreement, by one or more arbitrators elected in accordance with such rules. In the event of any conflict between these rules and the provisions of this Article, the provisions of this Article shall govern.

11.2. Selection of Arbitrators — Upon the written demand of either of the Parties concerned, the Parties shall attempt to appoint a single arbitrator. If they are unable to agree within * days from such demand, then each of the Parties shall appoint one arbitrator and the two nominated shall in turn choose a third arbitrator. If arbitrators chosen by the Parties cannot agree on the choice of the third arbitrator within a period of______ days after their nomination, then the third arbitrator shall be appointed by [name or arbitration association].

[Note: There are differing advantages of having one as opposed to three arbitrators, including delay and cost and expertise. Unless the value is significant, usually the most expeditious and least costly is to go with a single arbitrator. The foregoing clause is only a sample and, as in any contract, should be modified to meet the conditions, parties and circumstances.]

11.3 Situs of Arbitration — Arbitration proceedings shall be held in the City of_______, USA, or such other place as the Parties may mutually agree. The decision of the Arbitrator (s) shall be final and binding upon the Parties hereto, not subject to appeal and shall deal with the questions of costs of the arbitration and all matters related thereto. The proceedings, all pleadings, documents, correspondence and the Arbitration Award shall be written in English. Judgement upon_______ the award or decision rendered by the arbitrator (s) may be entered in any court having jurisdic­tion thereof, or application may be made to such court for a judicial recognition of the Award or an order of enforcement thereof, as the case may be.

[1 1.4 New York Convention — The Parties acknowledge that this Agreement and any award rendered pursuant to it shall be governed by the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.]

11.5 Enforceabilitv — The Seller represents that an arbitration award reached pursuant to this Article with respect to any dispute, controversy, claim or difference arising out of or relating to this Agreement is enforceable under the laws of [Seller's County].

11.6 Enforceabilitv — The Buyer represents that an arbitration award reached pursuant to this Article with respect to any dispute, controversy, claim or difference arising out of or relating to this Agreement is enforceable under the laws of [Buyer's County].

Article 12 Force Majeure

12.1 Definition — Force Majeure shall mean any event or condition, not existing as of the date of signature of this Agreement, not reasonably foreseeable as of such date and not reasonably within the control of either Party, which prevents in whole or in material part the performance by the Parties of their obligations hereunder or which renders the performance of such obligations so difficult or costly as to make such performance commercially unreasonable. Without limiting the foregoing, the following shall constitute events or conditions of Force Majeure: acts of State or governmental action, orders, legislation, regulations, restrictions, priorities or rationing, riots, disturbance, war (declared or undeclared), strikes, lockouts, slow­downs, prolonged shortage of energy supplies, interruption of transportation, [inflation beyond the rate of_____], embargo [inability to procure or shortage of supply of materials,, equipment or production facilities], prohibition of import or export of goods covered by this Agreement, epidemics, fire, flood, hurricane, typhoon, earthquake, lightning and explosion. If by any of the above-mentioned causes, an allocation of supplied must be made, the Parties hereby agree that such allocation will be fairly made.

[It is in particular expressly agreed that any refusal or failure of any governmental authority to grant any export license legally required for the fulfilment by the Seller of its obligations hereunder shall constitute an event of Force Majeure.] This phrase should not be included if under Article 3 the Government Approval clause does not release the Buyer if it fails to obtain the necessary approval.

12.2Notice — Upon giving written notice to the other Party, a Party affected by an event of Force Majeure shall be released without any liability on its part from the performance of its obligations under this Agreement, except for the obligation to pay any amounts due and owing hereunder, but only to the extent and only for the period that its performance of such obligations is prevented by the event of Force Majeure. Such notice shall include a description of the nature of the event of Force Majeure, and its cause and possible consequences. The Party claiming Force Majeure shall promptly notify the other Party of the termination of such event.

12.3Confirmation — The Party invoking Force Majeure shall provide to the other Party confirmation of the existence of the circumstances constituting Force Majeure. Such evidence may consist of a statement or certificate of an appropriate governmental department or agency where available, or a statement describing in detail the facts claimed to constitute Force Majeure.

12.4Suspension of Performance — During the period that the performance by one of the Parties of its obligations under this Agreement has been suspended by reason of an event of Force Majeure, the other Party may likewise suspend the performance of all or part of its obligations hereunder to the extent that such suspension is commercially reasonable.

12.5Termination — Should the period of Force Majeure continue for more than _________ consecutive months, either Party may terminate this Agreement without liability to the other Party, except for payments due to such date, upon giving written notice to the other Party.

Article 13 Termination

13.1Term — This Agreement shall take effect as of the date first above written.

13.2Termination — If all or part of the work is terminated prior to its completion, such work shall be deemed to have been executed to the extent of the state progress which the Seller has reached as of the date of termination, and the Buyer shall pay termination charges determined in accordance with the Seller's standard accounting practices upon submission of the Seller's invoices thereof. Except as specifically agreed in writing, termination shall not relieve either Party of any obligation arising out of work performed prior to termination. Charges for the terminated portion of contracts are payable by the Buyer to the Seller upon submission of its invoices for the Purchased Goods.

13.3Termination — Notwithstanding the provisions of Section 13.1 above, this Agreement may be terminated in accordance with the following provisions:

(a) Either Party hereto may terminate this Agreement at any time by giving notice in writing to the other Party, which notice shall be effective upon dispatch, should the other Party file a petition of any type as to its bankruptcy, be declared bankrupt, become insolvent, make an assignment for the benefit of creditors, go into liquidation or receivership, or otherwise lose legal control of its business, or should the other Party or a substantial part of its business come under the control of a third party;

(b) Either Party may terminate this Agreement by giving notice in writing to the other Party, should an event of Force Majeure continue for more than ____ (__________) months as provided in Article 12; and

(c) Either Party may terminate this Agreement by giving notice in writing to the other Party in the event the other Party is in material breach of this Agreement and shall have failed to cure such breach within 30 (thirty) days of receipt of written notice thereof from the first Party.

Article 14 General Conditions

14.1. Third Parties — Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the Parties and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.

14.2Severabilitv — If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances.

14.3Modification or Waiver — No failure or delay on the part of any Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power hereunder.
No modification or waiver of any provision of this Agreement nor consent to any departure by any Party there from shall in any event be effective until the same shall be in writing and then such waiver or consent be effective only in the specific instance and for the specific purpose for which given, it being recognized, however, that any provision of this Agreement may be modified or waived by the written agreement of the parties hereto. No notice to or demand on any Party in any case shall entitle such Party to any other or further notice or demand in similar or other circumstances except as specifically provided herein.

14.4 Benefit of the Agreement — This Agreement shall endure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the Parties hereto.

14.5 Assignment — Neither this Agreement nor any rights or obligations hereunder may be assigned by either Party without the written consent of each of the Parties.

14.6 English Language — The Parties confirm that it is their wish that this Agreement, as well as any other documents relating hereto including notices, have been and shall be drawn up in English only.

14.7 Counterparts — This Agreement may be executed by the Parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

14.8 Notices — Notices permitted or required to be given hereunder shall be deemed sufficient if given by registered or certified air mail, postage prepaid, return receipt requested, addressed to the respective addresses of the parties as first above written or at such other addresses as the respective parties may designate by like notice from time to time. Notices so given shall be effective upon (a) receipt by the party to which notice is given, or (b) on the tenth (10th) day following the date such notice was posted, whichever occurs first.

[Note that this may not be that efficient when dealing with parties from some of the lesser developed countries-; in that case you would want to insert a provision requiring notice by some other medium such as telex.]

IN WITNESS WHEREOF the Parties hereto duly executed this Agreement.

By:. By:_

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