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The structure of contracts and their essential clauses
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1.3. The structure of contracts and their essential clauses
Contract is a business document presenting an agreement for the delivery of goods, services, etc., approved and signed by both the Buyer (exporter) and the Seller (importer) [5, P.131]. By law contracts are made in writing. When striking a deal, standard contracts are widely used. Standard contracts are not a must. Some articles can be altered and supplemented [10, P.12].
The following items are of the greatest importance in any contract:
- contract No.;
- place and date of signing;
- names of the Sides which signed the contract;
- subject of the contract;
- quality of goods;
- price (per unit and total price);
- destination;
- delivery time;
- requirements for packing and marking;
- payment terms;
- conditions of submission and acceptance of goods;
- transport conditions; warranty conditions and sanctions;
- arbitration conditions;
- force majeure;
- judicial addresses of the Sides;
- signatures of the seller and the buyer.
All appendices form an integral part of contract. Contract is drawn up in accordance with the established form, often on special printed forms filled in with basic information by one-time writing. Sometimes, when a transaction is small in volume, a contract may be concluded by telex [5, P.131].
Now the most significant clauses of contract should be regarded.
The subject-section names the product for sale or purchase. It also indicates the unit of measure employed in foreign trade for specific commodities.
The quality of machines and equipment is to be conformed with the technical specification of the contract. The quality of raw materials and foodstuffs is determined by standards, samples, and description.
The price stated in a contract may be firm, fixed or sliding. Firm prices are not subject to change in the course of the fulfilment of the contract. Fixed price governs in the market on the day of delivery or for a given period. Sliding prices are quoted for machinery and equipment which require a long period of delivery.
There are some kinds of payment. A cheque is a written order to a Bank given and signed by someone who has money deposited there to pay a certain amount mentioned in the cheque to a person named on it. In the place of the cheque system Banks provide an international system of bank transfers. A draft is another order to pay. It is made out by an exporter and presented to the importer. It is also called a bill of exchange. A sight draft is a bill which is paid immediately on presentation. A bill is to be paid at a later date is called a term draft. There are 30-day, 69-, 90- and 120-day drafts. The payment is guaranteed with a letter of credit or a revolving letter of credit.
Transport and delivery terms. The so-called door-to-door (multimodal) transport is wide-spread in shipping now. It involves a transfer of the goods from one kind of transport to another. The main carrier often prefers to assume through responsibility for the cargo he caries. In a through movement of the gods a combined transport document is issued instead of a traditional Bill of Lading.
Packing goods for export is a highly specialised job. If the goods are improperly packed and marked, the carrier will refuse to accept them, or will make qualifications about the unsatisfactory condition of packing in the bill of lading. Packing can be external (crate, bag) or internal (box, packet, flask, etc.), in which the goods are sold. In case of consumer goods packing had a double function. On one hand, it is for protection. On the other hand – it serves to advertise a product and attract a customer.
Marking should be in indelible paint with recognised kind of marks. The cases in which the equipment is packed are to be marked on three sides: on the top of the case and two non-opposite sides. The marking shall be clearly made with indelible paint in the languages of the dealing sides.
Insurance of goods. The export trade is subject to many risks. Ships may sink or collide; consignment may be lost or damaged. All sensible business people now insure goods for the full value. The idea of insurance is to obtain indemnity in case of damage or loss. Insurance is against risk. While goods are in a warehouse, the insurance covers the risk of fire, burglary, etc. as soon as the goods are in transit they are insured against pilferage, damage by water, breakage or leakage. The insured is better protected if his goods are insured against all risks. The goods may be also covered against general and particular loss or damage.
Force majeure is a force against which you cannot act or fight. Every contract has a force majeure clause. It usually includes natural disasters such as an earthquake, flood, fire, etc. It can also include such contingencies as war, embargo, sanctions. Along with this there are some other circumstances beyond the Sellers’ control. The Seller may find himself in a situation when he can’t fulfil his obligation under the contract. When negotiating a contract a list of contingencies must be agreed on and put into the contract.
When a manager makes up a contract he must not think only of his one-side interest. He must think in terms of common interest with his counterpart. Only then will he prove loyal to his partner. In case of a contingency the Seller must notify the Buyers of a force majeure right away. If it is done in due time the Buyer may take immediate action to protect his interest.
A force majeure must be a proven fact. The Seller is to submit to the Buyer a written confirmation issued by the Chamber of Commerce to this effect. The duration of a force majeure is, as a rule, 4 or 6 months. After that the Buyer has a right to cancel the contract. The Seller in this case has no right to claim any compensation for his losses.
Claims and sanctions. A contract defines rights and obligations of the parties involved. Most often the Buyer makes quality and quantity claims on the Seller. The cause for complaint may be poor quality, breakage, damage, short weight, leakage, etc. The Buyer must write a statement of claim and mail it to the Seller together with the supporting documents: Bill of Lading, Airway and Railway Bill, Survey Report, Quality Certificate are documentary evidence. Drawings, photos, samples are enclosed as proofs of claims. The date of a complaint is the date on which it is mailed.
Claims can be lodged during a certain period of time, which is usually fixed in a contract. During the claim period the Seller is to enquire into the case and communicate his reply. He either meets the claim or declines it. If a claim has a legitimate ground behind it the parties try to settle it amicably. The Seller in turn is entitled to make a claim on his counterpart if the Buyer fails to meet his contractual obligations. The Seller may inflict penalties on the Buyer if there is a default in payment. Financially, legitimate claims are in large part settled by debit or credit notes [10, P. 12 – 28].
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