7. international sale-purchase contracts

LEARN. PERFORM. GROW.

Copyright © 2006 AchieveGlobal , Inc.

International Negotiation and Contracting

The Faculty of International Business and Economics,

ASE Bucharest

77..International International SaleSale-Purchase-PurchaseContractsContracts



Sale-Purchase ContractsSale-Purchase Contracts

1. Introduction

2. Quotation

3. Essential Clauses

4. Executory Clauses

5. Other Important Issues

6. Appendices

7. Preparation of the Commercial Contract



1. Introduction1. Introduction terms & conditions negotiated between seller & buyer

negotiating terms = securing the deal, minimizing risks and protecting parts in case of possible trade disputes, claims and/or legal actions

terms of trade are stipulated in the trade contract and clearly indicate the seller’s and the buyer’s responsibilities

no standards regulating trade contracts as such (from one-page document to a very complicated 10+ pages booklet including several appendices, additional conditions)

can even be formed based on words alone (depends on the goods sold, relationship between partners and personal preferences)

in different jurisdictions, there may be different requirements that must be met for a contract to be effective according to its terms

should be signed by all parties directly involved in the contract (e.g. middleman, agent or other third party, this party)



1. Introduction1. IntroductionTo be effective and to promote certainty in your business relationship with your

partner, provide for the following details of your deal in any trade contract:

Date of Contract

Seller’s and Buyer’s Names

Product Name

Product Description

Packing

Quantity

Unit Price

Terms of Delivery (INCOTERMS Clauses)

Terms of Payment

Delivery Date

Validity



1. Introduction1. Introduction

The introductive part of a contract comprises:

Titles and subtitles (do not have contractual value, but an explanatory character)

Preamble (an exposure of reasons) – 2 roles:

1. Interpretation instrument – contractual role

2. General declaration of the parties’ intent – political (position) role

Glossary of terms



2. Quotation2. Quotation written on the company letterhead and encloses all the previous terms

would generally become binding on you if it was accepted by the buyer in writing or simply marked “Accepted”, signed and forwarded back to you

be very accurate when issuing a quotation

always include a “Validity” condition (e.g. “This quotation is valid for a period of X days from the date above”)

typos, errors and omissions of words may occur in the preparation of quotation (in practice, most buyers will unconditionally accept a revision in the event of an error and omission in the quotation. Some buyers would take the error as it is, if it is to their advantage and would force you to negotiate a more favourable price and/or conditions)

it is worthwhile adding the acronym E.&O.E. stated for “Errors and Omissions Excepted” to your quotations to disclaim final responsibility for typographical errors and unintentional omissions.



2 categories of terms2 categories of terms (clauses): (clauses):

Essential Terms (Clauses)

Executory Terms (Clauses)



3. Essential Terms3. Essential Terms Parties’ Names (Seller’s and Buyer’s Names)

> Always stipulate the full legal name of your company. For example: “Romanian Export Company Pty. Ltd.” or “Romanian Export Company Pty. Ltd. trading as XYZ Products” in the case where the negotiations were conducted under the trading name.

> Check the name of your buyer’s company, especially when dealing with a foreign company for the first time. Usually you would be able to do it online through the country business register. Otherwise contact Romanian embassy in the buyer’s country or the buyer’s country embassy in Romania.

> The parties are characterized by: - Contracting capacity- Conscious and free expressed agreement- Legal purpose- Parties’ obligations (giving or doing obligation).

Object (Product Name & Description)> The good to be delivered.



3. Essential Terms3. Essential Terms Unit Price

> Price stipulated in the contract must cover all expenses and risks as well as allow for the profit. At the end of the day, you are trading to earn some money.

> Determined or estimated price.

Terms of Delivery (Incoterms)> Terms of Delivery must indicate the point of destination and should refer to the

Incoterms. For example, “CIF Hamburg Incoterms 2000”.

Payment Terms> Specify the terms of payment and payment procedure in detail as well as to stipulate all

documents necessary to be presented for the payment to occur. Commonly, these details are specified in the appendix or supplement to the contract. In this case, under Payment Terms you should include, for example, “Irrevocable Confirmed Letter of Credit at sight in accordance with Supplement No. 1 hereto which is an integral part of the present contract”.



3. Essential Terms3. Essential Terms Delivery Date

> Indicate the delivery time as a reference to a certain date stipulated in the contract. It may be the date of the contract, but more appropriate the date of the receipt of the confirmation of the letter of credit (e.g. “the goods must be delivered no later than X days after the date of the receipt of the confirmation of the letter of credit by the Seller”).

> Check the shipment frequency with the shipping company or with your freight forwarder before negotiating the delivery date and allow for possible delays. Usually major shipping lines would have shipments to most destinations occurring weekly.



4. Executory Terms4. Executory Terms Different terms and conditions not necessary to enclose in a contract,

but strongly recommended in order to avoid uncertainties and minimize your risks.

1) Clauses that treat “the contractual life”

2) Insurance clauses

3) Clauses that treat the law of the contract

4) Clauses that treat the way of solving disputes.



4.1. Executory Terms4.1. Executory Terms

1) Clauses that treat “the contractual life”:

When the contract comes into force

Period of availability

Termination of the contract:

- cancellation (only future effects)

- resolution (retroactive effect).




2) Insurance clauses:

A. Insurance clauses in order to adapt the contract to the new circumstances

B. Insurance clauses in order to maintain the contractual equilibrium



4.2.A. Executory Terms4.2.A. Executory Terms

A. Insurance clauses in order to adapt the contract to the new circumstances:

The clause of the competitive offer

The clause of the most advantageous client

The clause of the first denial

Hardship clause (allows the parties to renegotiate the contract)

Force majeure clause (allows one party not to comply with the corresponding obligation anymore).



4.2.A. Executory Terms4.2.A. Executory Terms Force Majeure Clause

> Force Majeure literally means “greater force”. “Force Majeure” clauses excuse you or the buyer from performing the contract obligations if the failure is caused by conditions beyond your or the buyer’s control. “Force Majeure” clauses are usually applicable to performance failures caused by: • natural disasters or other “Acts Of God” (earthquakes, hurricanes, floods

etc.) • wars, riots or other major upheaval • government restrictions • performance failures of parties outside the control of the contracting party

(subcontractors, suppliers and/or carriers etc.) > It is important to remember that “Force Majeure” clauses are intended to

excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party.



4.2.B. Executory Terms4.2.B. Executory Terms

B. Insurance clauses in order to maintain the contractual equilibrium:

Indexing clause & Escalating price clause

Revising / Renegotiating the price

Foreign currency clause.




4) Clauses that treat the way of solving disputes:

Friendly way

Compromisory way (arbitration clause)

Judicial (legal) way

Penal way.



4.4. Executory Terms4.4. Executory Terms Claim Clauses

> Common in International Trade (by including a claim clause in the contract, you may be able to avoid costly litigation in the event of a dispute).

Arbitration Clause

> Trade disputes and claims may be settled in different manners. It is better to settle a claim amicably by negotiations outside arbitration or a court.

> Dealing with a buyer from some Asian, South American or former Soviet Union countries, you may quite often be offered to settle a claim in the country where the dispute has arisen. You should unconditionally decline such offers. In countries with a high level of corruption, your buyer may have connections, powerful friends or relatives, who can affect the arbitration decision.



4.4. Executory Terms4.4. Executory Terms> The ICC International Court of Arbitration recommends that all parties wishing

to have recourse to ICC arbitration include the following standard clause in their contracts: “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules in the International Court of Arbitration in Paris.“

> When dealing with non-English speaking buyers it is appropriate to specify the language of the arbitration in the arbitration clause.

> In addition, includine the following: “The decision made by the Court of Arbitration is final and binding upon all Parties.”

> The law in some countries may lay down certain requirements in respect with arbitration clauses. Always consult a lawyer before finalising the arbitration clause.



5. Other Important Issues5. Other Important Issues Plain English

> Always use clear, simple and straightforward language in your trade contracts. Avoid using poetic and artistic expressions, idioms, slang and too many abbreviations. These will confuse the buyer and can create misunderstandings.

Different Date Formats> The date 2/3/06 is February 3, 2006, in some countries and it is March 2, 2006, in

others. This can create chaos for you and the buyer. Always write the month in words, instead of numbers.

Units of Measurement> You must clearly differentiate units of measurement to avoid problems.



5. Other Important Issues5. Other Important Issues Currency

> Most international transactions are conducted in U.S. currency or EURO. If $US is the currency of your contract, you will lose money in the event of RON appreciation, and, on the contrary, will receive extra money in the case of RON devaluation. 1-2% should be added to the sum of contract to cover the exchange rates risks. To avoid these risks you can also negotiate with the buyer to deal in other currency.

Interpretation or Translation> Sometimes buyers may require signing a bi-lingual contract. In this case, the accuracy

of business translation is crucial. Varied use of terminology in different countries can have an entirely different meaning and cause costly disputes.

Signing of the Contract> If the contract contains more than one page, it is recommended to sign each page

separately and to require your buyer to do the same.



6. Appendices6. Appendices

The appendices could play 3 main roles (functions):

Contractual role

Structural role

Linguistic role.



7. Preparation of the Trade Contract7. Preparation of the Trade Contract Be sure that all terms and conditions to be included in the contract are negotiated

and agreed with your buyer before you start preparing a contract. If you feel that there are any uncertainties and/or misunderstanding, you should contact the buyer and clarify the terms, which are not undoubtedly understood.

Trade contracts should be prepared or at least reviewed by a lawyer specialized in International Trade. It will cost you some money; sometimes it may cost a lot of money depending on the complexity of the contract. However, it still would be a fraction of the amount of the goods you are selling and can save you a fortune in the case of a dispute and legal action.



Drafting Tips for the Contracts:Drafting Tips for the Contracts: Make sure that the parties are properly identified in the first paragraph Include the date in the first paragraph for ease of reference Use common-sense headings to make it easier to find particular provisions (table

of content) Always number the paragraphs for ease of reference Use plain language, avoid legalese Do consider the punctuation marks, since even a misplaced comma can change

the whole meaning “And”/”or” can have a dramatic impact on the meaning Avoid long sentences; break them down into digestible thoughts Use schedules and appendices to:

- separate information

- keep the content clear

- ease the reference to laws or other contracts.



Thank You!



7. international sale-purchase contracts

Documents