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Unit 4. Contract

Exercise 1. A) Read and translate the text.

In foreign trade transactions a contract is drawn up to give legal expres­sion to the intentions of the partners and to guarantee that the obliga­tions contained in the contract will be fulfilled.

According to the purpose and contents, contracts can cover goods, services, licences, patents, technology and know-how. Here is an example of an export contract:

Contract No...

London 15th January, ...

Rossexport, Moscow, hereinafter referred to1 as the Seller and British Asbestos Ltd, London, hereinafter referred to as the Buyer, hereby agree as follows2:

1. The Seller has sold and the Buyer has bought asbestos of Russian origin on FOB terms from one of the Baltic ports at the Seller’s option. The grades, price and quantity are as stated below:

Grade Quantity in metric tons Price per metric ton in US dollars Time of delivery
… in 2-3 lots within second and third quarters of 19 .. starting in the first half of May…

The price for the goods is understood to be per metric ton, packing in­cluded, FOB one of the Russian Baltic ports. The quantity is understood to be up to 5% more or less3, at the Seller’s option.

2. Within five days after the receipt of the Seller’s notification by cable that the goods are ready for shipment, the Buyer shall open4 by cable with the Russian Bank for Foreign Economic Affairs, Moscow, an irrevocable, confirmed and divisible Letter of Credit in favour of the Seller for the full value of the goods plus 5% to cover the option. The Letter of Credit is to be valid for 90 days, with the right of extension if required by the Seller. The payment for the goods is to be made in US dollars for 100% (hundred per cent) of the invoice value of Asbestos on presentation to the Russian Bank for Foreign Trade, Moscow, of the following documents:

Invoice in 3 copies

Seller’s Certificate of Weight

Set of Bills of Lading

In the event of the change of the exchange rate of the US dollar on or before the date of payment under the present Contract both parties have the right to renegotiate the price5 of the goods.


1. hereinafter referred to – именуемый в дальнейшем

2. hereby agree as follows – договорились о следующем

3. The quantity is understood to be up to 5% more or less … – Количество
(асбеста) понимается на 5% больше или меньше (чем оговорено в кон­тракте) …

4. the Buyers shall open – глагол shall в документах означает долженство­вание

5. to renegotiate the price = to negotiate the price again

B) Answer the questions. Check your comprehension.

1. What do contracts guarantee?

2. Into what 2 groups can contracts be divided?

3. What important items do contracts cover?

4. What are the main items of the above contract?

5. In what way is payment to be made under the contract?

6. What kind of Letter of Credit is to be opened by the Buyer?

7. When is the Letter of Credit to be opened by the Buyer?

8. For what value is payment to be made?

9. How long is the Letter of Credit to be valid?

10. In what case do the contracting parties have the right to renegotiate the price?

C) Agree or disagree with the statements. Prove your point of view.

1. Grades and quantity are not stated in the contract.

2. The price stated in the contract is final.

D) Say what information the text gives about:

1) The purpose of drawing up contracts in foreign trade; 2) the main types of contracts in business; 3) the subject of this particular contract; 4) the terms of delivery stated in the contract; 5) the price and the terms of pay­ment, stipulated in the contract; 6) the factor which may affect the price of the contract.

E) Think and answer.

1. Why did the Sellers have on option to ship 5% more or less of the stated quantity of asbestos?

2. In what case were the Buyers supposed to extend the Letter of Credit?

3. Why did the contract state the right of both parties to renegotiate the

Exercise 2. a) Read the dialog and answer the questions on the content.

Mr. Petrov, engineer of Rossexport, is having talks in Moscow with Mr. Brown of British Asbestos Ltd. The British company is a regular importer of asbestos from Russia and has often dealt with the Russian trading or­ganization. Mr. Brown has been instructed by his firm to sign another contract for asbestos.

Brown: Good afternoon! Nice to see you again, Mr. Petrov! You are look­ing well, I must say. How are things with you?
Petrov: Not bad, thank you. And how are you?
Brown: Fine, just fine. I always feel well in beautiful weather like this. We’re having such a lot of rain in England now. I am happy to be away. Well, I suppose we had better get down to business.
Petrov: Yes, certainly. You’ve come to sign another contract, haven’t you?
Brown: That’s right. For next year, actually.
Petrov: Are you happy with our usual terms-of delivery and payment?
Brown: Yes, quite. As a matter of fact, I’ve come here to talk about the price. I'd like to say that the volume of business in the building industry in our country has dropped considerably. This affected the prices of a number of building materials. In this situation it’s quite natural we expect you to revise your prices for asbestos.
Petrov: I’m afraid this is not sufficient reason for us to lower the price.
Brown: But may I draw your attention to the fact that we wish to increase the purchases by a few thousand tons if you could offer us reduction in the price.
Petrov: I’m sorry to say, Mr. Brown, but we would not be able to make extra supplies available to you. We’re planning to develop more industrial and housing projects. Besides, we’re already tied up1 to contracts with other partners. Taking these factors into account we could offer you the same amount as last year.
Brown: Mr. Petrov, we’ve been in business with you for a long time. Also we’ve doubled our purchases over the past two years. Therefore we would be grateful to you if in view of all this you could reduce the price.
Petrov: All right. I think we could reduce it by 2%. But only on condition that the price is subject to further negotiations for the second half of the year.
Brown: That’s fine. I suppose that’s the best we can do today.


to tie up – связывать

b) Check your comprehension:

1. What was the purpose of Mr. Brown’s visit to Moscow?

2. Why did Mr. Brown draw Petrov’s attention to the considerable drop in the building industry?

3. In what way could that factor affect the price of asbestos?

4. Why did the British firm ask for bigger quantities?

5. Why couldn’t Rossexport offer a bigger amount of asbestos for sale?

6. On what condition did Petrov agree to reduce the price?

с) Say what you have learned about:

1) The business relations between Rossexport and British Asbestos Ltd.; 2) the main point discussed by the representatives of both parties; 3) the reasons why the Buyer asked for a reduction in the price; 4) the economic plans of our country for the future; 5) the factors which allowed Petrov to reduce the price.

Exercise 3.Get acquainted with the articles of the contract.

After talks in Brighton Victor Petrenko has signed the contract between Continental Equipment and TST Systems for the supply of process equipment. Here are some clauses of this contract.

Brighton, England, April 10, 1997

Continental Equipment Plc, Brighton, England, hereinafter referred to as “the Seller”, one the one part, and TST Systems Ltd., Kiev, Ukraine, hereinafter referred to as “the Buyer”, on the other part, have concluded the present contract for the following:

1. Subject of the Contract

1.1. The Seller has sold and the Buyer has bought the machinery, equipment, materials, and services (“Equipment”) as listed in Appendix 1 being an integral part of this Contract.

2. Prices and Total Value of the Contract

2.1. The total Contract Value is as following:

Equipment and engineering FOB U.K. port +documentation £_________

Supervision, start – up and training £_________

Spare and wear parts £_________

Freight £_________

Total price CIF Odessa £_________

Discount £_________

Total Contract Value £_________

2.2. The prices are understood to be CIF Odessa including cost of packing, marking, loading on board a ship, stowing and fastening the equipment in the hold, and the cost of the materials used for this purpose.

2.3. The prices are firm for the duration of the Contract and shall not be subject to any revision except on account of any mutual agreed changes or modifications to equipment specification and / or quantities in Appendix 1 to this Contract.

3. Time of Delivery

3.1. The equipment specified in Appendix 1 of the present Contract is to be delivered within two (2) months from the date of opening the Letter of Credit specified in Clause 4.1. of this Contract.

3.2. The delivery date is understood to be date of the clean Bill of Lading issued in the name of the Buyer, destination Odessa port of Ukraine.

4. Terms of Payment

4.1. Within thirty (30) days from the date of signing this Contract, the Buyer is to open in favour of the Seller an irrevocable confirmed Letter of Credit with CityBank, London, for hundred per cent (100%) of the total contract value. The Letter of Credit is to be valid for three (3) months.

4.2. Payment from this Letter of Credit at the rate of hundred per cent (100%) of the total contract value is to be affected in GB pounds against the following shipping documents:

4.2.1. Original Bill of Landing issued in the name of the Buyer, destination Odessa Port of Ukraine.

4.2.2. Shipping Specification.

4.2.3. Certificate of Quality.

4.2.4. Certificate of Origin.

4.2.5. Packing List.

4.2.6. Insurance Policy.

5. Technical Documentation

5.1. Within five (5) days from the delivery date the Seller shall send two (2) sets of the technical documents as listed in Appendix 2 to the address of the Buyer.

5.2. All instructions on the drawings are to be in English, with all the instructions contained in Items 1, 2, 3, and 4 of Appendix 2 translated into Russian.

6. Guarantee of the Quality of the Equipment.

6.1. The guarantee period is twelve (12) months from the date of the start – up of the equipment, that is reflected in an appropriate Act signed by the representatives of the Parties to the present Contract, but not more than eighteen (18) months from the date of delivery of the equipment.

6.2. If the equipment proves to be defective or faulty during the guarantee period, the Seller has at its expense at the choice of both Parties either to remedy the defects or to replace the faulty equipment with new equipment of good quality which is to be delivered without delay to the port of delivery.

7. Packing

7.1. The equipment is to be shipped in export sea packing suitable for the type of equipment delivered. Packing should also be suitable for transhipment in transit and reasonable long storage of the equipment.

7.2. Each container is not to exceed the following dimensions: length = 12,192 mm, width = 2,438 mm, height = 2,438 mm.

7.3. The Seller is responsible to the Buyer for any damage to the equipment resulting from inadequate packing of the equipment.

8. Marking

8.1. All the containers are to be marked on the three (3) sides. Each container should bear the following markings made in indelible paint (in Russian and English):

Contract No.

Seller: Continental Equipment Plc (Address)

Buyer: TST System Ltd. (Address)

Railway Station of Destination: Kiev

Container No.:

Gross weight: ______ kgs

Net weight: _______ kgs

Case dimensions in cm (length * width * height)

8.2. If a case requires special handling, it should bear additional marks: “Fragile”, “Top” or “This side up”, etc.

9. Shipping Instructions and Notifications

9.1. Within twenty-eight (24) hours after shipment the Seller is to inform the Buyer by fax regarding the date of shipment, the Bill of Landing number, number of containers, their weight, the vessel name.

10. Insurance

10.1. The Seller is to take care of and cover expenses for insurance of the equipment under the Contract from the moment of its dispatch up to the moment of its arrival at the port of Odessa.

11. Sanctions

11.1. In the event of delay in delivery of the equipment the Seller is to pay the Buyer a penalty at the rate of 1,0 % of the total contract value for every week of delay. However, the total amount of penalty for delay in delivery is not to exceed 10% of the total contract value.

11.2. While calculating penalty for delay, the amount of days comprising over half of a calendar week is considered to be a full week.

12. Force Majeure

12.1. The Parties are released from their responsibility for partial or complete non-execution of their liabilities under the Contract should this non-execution be caused by the force majeure circumstances including, but not limited to: fire, flood, earthquake, and if these circumstances have had a direct damaging effect on the execution of the present Contract.

12.2. The Party which is unable to fulfil its obligations under this Contract is to inform the other Party within ten (10) days from the beginning of force majeure circumstances.

13. Arbitration

13.1. The Seller and the Buyer will take all possible measures to settle amicably and disputes or differences which may arise out of the present Contract or in connection with it.

13.2. If the Parties do not come to an agreement, all the disputes and differences are to be submitted for Arbitration in Stockholm, Sweden, in accordance with the rules and regulations of the Chamber of Commerce in Stockholm and applying the substantive laws of Sweden.

14. Other Terms

14.1. The Seller upon written consent of the Buyer shall be permitted to substitute equipment of comparable quality and conforming to the technical requirements for any item of equipment that may not be available for one reason or another.

14.2. Any changes, amendments or supplements to the terms and conditions of this Contract shall be valid only if set forth in a written document duly signed by authorized representatives of both Parties to the present Contract.

14.3. After the Contract has been signed all the preliminary agreements, discussions and correspondence between the Parties concerning this Contract are to be considered null and void if conflicting with this Contract.

14.4. The Contract becomes effective and comes into full force from the date of signing.

15. Legal Addresses of the Parties


Continental Equipment Plc

9 North Road

Brighton BN1 5 JF


for and on behalf of the Seller (от имени и по поручению Продавца)

Alfred Rogers

Alfred Rogers

Chairman (Президент)

Exercise 4. Read this text. Which of the points do you agree or disagree with? Give your reasons.

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