How to check a commodity SPA before you sign
By the Vanguard Verify desk · Published 2026-10-25 · Updated 2026-10-25
Short answer: before signing a commodity SPA, confirm that the seller named in the contract is a real, registered company that controls the goods, and that the contract clearly fixes the product specification, quantity, Incoterms 2020 rule, bank-to-bank payment instrument, independent inspection and a recognised dispute forum. If any of those is vague, the SPA protects nobody.
The SPA (sales and purchase agreement) is the document that actually binds the trade. Offers, ICPOs, FCOs and LOIs come before it and are mostly non-binding; see how to verify an FCO. For cross-border sales between parties in contracting states, the UN Convention on Contracts for the International Sale of Goods (CISG) may apply unless the contract excludes it, so the governing-law clause matters.
Steps to check an SPA
- Verify both parties. Full legal names, registration numbers and addresses must match the official company registries. Check signatory authority (director or written power of attorney).
- Confirm who holds title. The seller on the SPA should be the company that owns or controls the goods, not an intermediary signing "on behalf of" an unnamed supplier.
- Check the product clause. A full specification (for example ICUMSA rating for sugar, EN 590 for diesel), origin, quantity, tolerance and packaging.
- Check the delivery term. Name a single Incoterms 2020 rule with a named place or port (for example "CIF Jebel Ali, Incoterms 2020"). See FOB vs CIF.
- Check payment. Prefer a documentary LC under UCP 600 that pays against listed shipping and inspection documents. Avoid clauses that require cash before shipment to an unverified account.
- Check inspection. Name an independent inspection company, the place of inspection and who pays. The buyer should be free to appoint or witness inspection.
- Check the dispute clause. Governing law plus arbitration at a recognised body (for example ICC, LCIA, or trade bodies such as GAFTA for grains and FOSFA for oils and fats).
- Have a lawyer review it. Especially penalty, force majeure and performance-bond clauses.
Red flags
- The SPA demands the buyer send proof of funds and pay a "non-refundable" fee before the seller shows proof of product. The buyer gives POF; the seller gives POP.
- The seller block is left blank, or reads "seller's mandate" with no company details.
- "Rolling 12 months" volumes with no first-shipment date, vessel or loading port.
- Penalties apply only to the buyer.
- No arbitration seat, or a seat with no link to either party.
- Banking details differ from the seller's registered country with no explanation.
What each document does
| Document | Issued by | Binding? |
|---|---|---|
| LOI / ICPO | Buyer | Usually not |
| SCO / FCO | Seller | Usually not, unless accepted as a contract |
| SPA | Both | Yes, once signed by authorised signatories |
This page is general information, not legal advice.
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FAQ
Is an SPA legally binding?
Yes, once signed by authorised signatories of both parties it is normally the binding contract for the trade, unlike most LOIs, ICPOs and FCOs.
Does the CISG apply to my SPA?
It can apply to international sales between parties in contracting states unless the contract excludes it. Check the governing-law clause with a lawyer.
Which Incoterms should an SPA use?
Any single Incoterms 2020 rule with a named place, such as FOB or CIF with a named port, stated with the version year.
Vanguard Verify is run by Vanguard Trade Capital Goods Wholesalers DWC-LLC, Dubai South, Licence 14282. This answer is general information, not legal or financial advice.