The main Contract’s conditions

a) Terms of Payment

Payment in foreign trade may be made in cash and on credit.

These are different methods of cash payment:

1) By cheque: as a cheque is payable in the country of origin, cheques are mostly used for payment in home trade.

2) By telegraphic or telex transfers or post (mail) remittance which is made from the Buyers’ bank account to the Sellers’ in accordance with the Buyers’ letter of instruction. The transfer is carried out at current rates of exchange.

3) By letter of credit (irrevocable, confirmed or revolving). An irrevocable L/C is one which can neither be modified nor cancelled without the consent of the party in whose favour it has been opened. A confirmed L/C is an irrevocable L/C, payment under which is guaranteed by a first class bank in case the Buyers or the bank effecting payment defaults, or is unable to make payments. A revolving L/C is one under which its value is constantly made up to a given limit after payment for each shipment, which saves the charges on multiple letters of credit. The L/C is the most frequently used method of cash payment because it is advantageous and secure both to the Exporter and to the Importer though it is more expensive than payment by transfer.

4) For collection. This method of payment is disadvantageous to the Exporter because it does not give any guarantee that he will receive payment in time or at all. That is why the Exporter usually requires that the Importer presents a guarantee of a first class bank that payment will be effected in due time. Also, there is a long period of time between the delivery of the goods and actual payment.

But this method is advantageous to the Importer because there is no need to withdraw from circulation big sums of money before actually receiving the goods.

The costs involved in effecting payment for collection are twice or three times lower than those by letter of credit.

Most modern business is done on a credit basis which may be:

a) by drafts (by Bill of Exchange). This method of payment is very practical and simplifies the financing of export and import foreign trade. A draft (B/E) is an order in writing from a Creditor to a Debtor to pay on demand or on a named date a certain sum of money to a company named on the B/E, or to their order. The draft becomes legally binding when signed and dated by the Buyers on its face (front) and is to be met when due, i.e. 30, 60 or 90 days after presentation. The draft may be negotiable, i.e. it may be used by the Sellers to pay their own debts, in this case the Sellers are to ensorse it by signing it on its back.

If the exporter wants immediate payment, he can discount the draft in return for a cash advance with a bank for a commission, i.e. sell it to a bank for its face value less interest, and by supplying a document giving the bank the legal right to claim the goods if necessary. Besides, he may leave it with a bank as security for a loan.

There are two main types of drafts:

- Sight Drafts which are payable on presentation (at sight) or on acceptance;

- Term Drafts which are drawn at various periods (terms) and are payable at a future date and not immediately they are accepted.

b) in advance: this method is used when the Buyer is unknown to the Seller or in the case of a single isolated transaction.

c) on an open account. Open account terms are usually granted by the Sellers to the regular Buyers who the Sellers have complete confidence. Actual payment is made monthly, quarterly or annually as agreed upon.

The two methods of payment (in cash and on credit) are very often combined in a contract. The form of payment to be used, i.e. in dollars, pounds or other currency, is a matter for arrangement between the counterparts.

b) Terms of Delivery

The contract of sale stipulates (apart from the object of the agreement) the price and the terms of delivery (price and transport clauses), which constitute the framework of the subsequent agreements on financing, insurance and transport.

There may be different terms of delivery. Details of mutual obligations of counterparts referring to terms of delivery are given in the Incoterms (international regulations of interpretation of trade terms) which determines the meaning and effects of certain transport clauses used in international trade.

Most frequently used terms of delivery in international trade are CIF (c.i.f.) and FOB (f.o.b.).

A c.i.f. price includes apart from the value of the goods the sums paid for insurance and freight (and all other transportation expenses up to the place of destination).

A f.o.b. price includes only the value of the goods, transportation and other expenses until the goods are on board vessel.

So, the f.o.b. price is lower than the c.i.f. one.

On FOB and CIF terms the Sellers bear the risk of accidental loss of or damage to the goods until the goods pass the ship’s rail.

c) Force Majeure Circumstances

Force Majeure Circumstances must be included in the contract to avoid difficulties and disputes in the future. The following clauses should be included in the contract of sale: Clause 1 “Manufacturing difficulties such as shortage of raw materials, electric power, labour shall not release the Sellers from responsibility for non-delivery or for delay in delivery of the goods under this contract”. Clause 2: “If the above circumstances last over 6 months, each party shall have the right to cancel the contract”. Clause 2 is usually applied to machinery and equipment. The limit 3 months may sometimes be applied to commodities, various raw materials and the like. Clause 3 “Should the delay in delivery exceed 2 months, the Buyers shall have the right to cancel the contract or its part”.

d) Claims and Arbitration

It may happen in business that certain terms and conditions of the contract are infringed by the Sellers or by the Buyers and then the dissatisfied party makes a claim on the other party. The Buyers most frequently make claims because of late delivery, delivery of wrong or damaged goods, or goods of inferior quality etc. The Sellers in their turn can make a claim when the Buyers fail to open a L/C in time or place a vessel under loading, unreasonable amounts claimed from them by the Buyers etc.

The parties do their best to settle their differences and claims amicably, but if they fail to agree, in accordance with the corresponding clause of the contract, the claim is submitted for arbitration. The Arbitration Court of the country in question at it Chamber of Commerce and Industry is a standing arbitration tribunal which settles disputes resulting from contractual and other civil-law relations in the course of foreign trade and other international economic and scientific technological contracts.

The parties appoint their arbitrators from among the List of Arbitrators. The List consists of more than 40 experts possessing adequate special knowledge in settling disputes. If the two arbitrators can not come to an agreement, they appoint an umpire. The awards of the Arbitration Court are final and binding upon both parties and without appeal. As a rule the indication about the proper law of the contract applied is given in details. For instance, “The Contract shall be governed by English Law” or “The Swedish Civil and Commercial Law shall be applied to this contract”.

Arbitration expenses are usually borne by the loser unless otherwise agreed upon.

 

3.3. Form and content of the contract

The offer made by the seller and followed by the client's acceptance gives rise to the international sales contract. It is preferable that this agreement is written to be precise and complete, to avoid disputes and arrange a medium of truth.

The use of drawing up a contract is not always recognised by exporters. It is true that the formalisation of the agreement is a source of slowness, supplementary costs and can be useless. When the contract is simple and carried out by loyal parties and in good faith. Yet writing offers the following advantages:

· each party knows that which it can require of the other and the reciprocal laws and obligations. The elaboration of a contract therefore takes on a particular importance, as without a formalised agreement, the parties are poorly legally protected,

· experience proves that the simple fact of taking a paper and pencil obliges the writer to state his thoughts precisely. Risks and difficulties are better estimated,

· a well drafted contract often enables difficulties which can occur during the course of being carried out to be settled amicably. Furthermore contentious solutions are avoided.

For small and medium sized companies in view of the cost and "heaviness" which leads to the drafting of an international contract, it will often be reserved for relatively complicated commercial operations.

 

Table 3.1

The contract clauses - The main contractual arrangements

Designation of contractors	Designation of contract signatories (checks on their positions and power). Names of actual people, corporate name of the companies, location of the parties, names of representatives delegated to sign.
Object of the contract	Definition of the contract's objective (goods or services) and the nature of the item sold: consumer goods, capital goods, foodstuffs,... Description of commercial characteristics and/or techniques. Definition of the quality by referring to a sample, standards, a catalogue,... Definition of the quantity in number, weight, capacity,...
Price and method of payment	Determination of the price in national currency or in another currency (consider the risk of exchange). The price is accompanied by the incoterm which determines the distribution of transport costs, customs duty, insurance and the moment of ownership transfer. The price of the goods will be detailed. The seller will think about anticipating a method of regulation which assures him maximum security. In the case of documentary credit, the seller will notify the request to open it.
Methods of transport	Determination of the form of transport in coherence with the nature of the goods, the destination and security. According to the incoterm, the respective obligations of the contracting parties will be exact.
Terms of delivery	Determination of the date, the place of loading and delivery. Defining these time limits according to when the contract comes into force. Respecting this deadline is one of the major obligations for the seller. It is necessary to anticipate and impose lateness penalties in advance.
Language	Determination of the contract's language. This needs to be controlled by the two parties. Also, be aware of the problems a translation can cause.
Coming into effect	Coming into effect generally occurs on the date of the contract's signing, subject to certain prerequisites such as: · paying a deposit, obtention of documents such as an import or export licence · obtention of an agreement of organisations on the subject of credit and insurance · notification of the opening of documentary credit
Safeguard (or hardship) clauses	This clause enables the terms of agreement to be re-negotiated in the case of an important event altering the balance of the contract (useful in contracts where the carrying out is prolonged, supply contracts).
Exemption clauses	They allow the contractors to free themselves of their responsibility in the case of non or partial carrying out of the contract: exemption in the case of absolute necessity (attention as the interpretation of this notion varies from state to state). The case of absolute necessity can be contractually defined (example: strikes, interruption of raw material supplies, embargoes and other political events).
Penal clauses	This clause anticipates compensation in the case of non execution of contractual obligations (example: failing to conform, late delivery or payment,...).
Termination clauses	Possibility to terminate the contract if there is a certified failure of execution.
Obligations of seller	· Deliver the goods in a manner conforming to the object of the contract and in a determined place. · Transport and insure according to the chosen incoterm. · Define the delivery time and its departure point. These times can be fixed variable if a margin of tolerance has been expressly allowed or informative in the case where flexibility is accepted which varies depending on the applicable law. · delimit the guarantee obligation. Leave out the guarantee of handling errors, faults resulting in a bad setting, insufficient maintenance, fair wear and tear. · Firmly indicate the price and period of validity of this price. Variations on this price would be anticipated (for example, indexation on an indicator).
Obligations of purchaser	· Receive the goods, by taking delivery. · Pay the agreed price or guarantee the payment on the predetermined date.
Transfer of ownership	It is possible to separate the moment of risk transfer to that of ownership transfer by the ownership reservation clause. It is notably the case for the ownership reservation clause which postpones the transfer until the full payment of the price.
Contract law and settling disputes	The parties can determine the law which governs their contract as well as the competent tribunal. If these clauses are omitted, the judge will research and determine the applicable law and the competent tribunal by virtue of the rules of international law.
Compromise clause	This clause appears when parties decide to resort to international Commercial arbitration.